United States v. Jack Greenberg
54 A.F.T.R.2d (RIA) 5070, 735 F.2d 29, 1984 U.S. App. LEXIS 22293 (1984)
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Rule of Law:
Under 26 U.S.C. § 7206(1), the determination of whether a false statement on a tax return is 'material' is a question of law for the court, not a question of fact for the jury. A statement is material if it has the potential to impede or obstruct the Internal Revenue Service (IRS) in its function of verifying the accuracy of tax returns, regardless of whether there is an actual tax deficiency.
Facts:
- Jack Greenberg was an accountant and a participant in a joint venture called P.R.P. Industries, Inc. ('PRP').
- For PRP’s 1978 corporate tax return, Greenberg instructed others to classify personal expenditures of a co-venturer as PRP business expenses.
- He also had certain payments, which were actually investments or compensation, misclassified as loans on PRP's return.
- For his 1976 and 1977 personal tax returns, Greenberg knowingly overreported his wife's income (who had none) and underreported his own.
- Greenberg testified that the purpose of misallocating his personal income was to help his wife establish a credit history.
- Despite these misstatements, the personal tax returns resulted in a tax variance of only $48, and the corporate return correctly stated the net taxable income.
Procedural Posture:
- The United States prosecuted Jack Greenberg in the U.S. District Court for the Eastern District of New York.
- At trial, the judge instructed the jury that the court had found, as a matter of law, that Greenberg's misstatements on the tax returns were material.
- A jury convicted Greenberg on multiple counts, including filing materially false corporate and personal income tax returns.
- The district court entered a judgment of conviction and sentenced Greenberg to a prison term of a year and a day.
- Greenberg (appellant) appealed the conviction to the United States Court of Appeals for the Second Circuit, challenging the court's handling of the materiality issue.
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Issue:
Is the determination of whether a false statement on a tax return is 'material' under 26 U.S.C. § 7206(1) a question of law for the court to decide, rather than a question of fact for the jury?
Opinions:
Majority - Kearse, Circuit Judge
Yes. The determination of whether a false statement on a tax return is material is a question of law for the court. Materiality in this context refers to the potential impact a statement may have on the ability of the IRS to perform its legally assigned functions. The question is not the statement's actual effect, which would be a question of fact, but whether it had the potential for an obstructive or inhibitive effect on the agency. This inquiry requires analyzing the agency's legal responsibilities and the statement's relevance to them, both of which are traditionally questions of law. This court's precedent regarding other false statement statutes, and the decisions of nearly all other circuits, support the conclusion that materiality under § 7206(1) is a matter for the court. Greenberg's misstatements were material because they had the potential to hinder the IRS's efforts to monitor and verify the tax liabilities of both PRP and the Greenbergs, irrespective of the minimal tax deficiency.
Analysis:
This decision solidifies the rule in the Second Circuit that materiality in a false tax return prosecution is a question of law for the judge. By defining materiality based on the 'potential to impede' the IRS's functions rather than on the actual existence of a tax deficiency, the court broadens the scope of criminal liability under § 7206(1). This standard makes it easier for the government to secure convictions, as prosecutors do not need to prove that the false statement resulted in an underpayment of taxes, only that it could have interfered with the IRS's verification process. The ruling confirms that the integrity of the self-reporting tax system is protected by criminalizing falsehoods that could undermine its administration.
