Proffer Sessions in Federal Tax Evasion Cases.

No. A proffer session is distinct from both a guilty plea and a plea agreement. With a guilty plea, the defendant waives their right to a trial in exchange for a sentence offer. With a plea agreement, the defendant typically waives their right to a trial in exchange for a charge reduction. Participating in a federal tax proffer session does not waive a defendant’s right to a trial; it is an attempt to determine if there is room for a negotiated plea (or plea-bargain) for which the defendant can use the information gleaned from the proffer.

Can I Decline Participating in a Federal Tax Proffer?

Yes, participating in a proffer session is entirely voluntary. If a defendant is not comfortable disclosing information about their tax liabilities to federal prosecutors, they can simply decline to take part. This will not necessarily impede any plea or cooperation negotiation efforts, as there may be other paths to resolution. It can make negotiation more difficult, but by no means impossible.

Does Participating in a Proffer Session Guarantee Immunity or Other Benefits?

No. Proffer participation alone offers no assurance of immunity, a reduced charge, a diminished sentence, or any other benefits. The extent of a defendant’s liability in a federal tax case, as well as the ultimate outcome of the prosecution, will depend on the evidence prosecutors have in hand. Prosecutors’ decisions are based on the merits of the case, and the merits of a case can (and frequently do) change for the better or worse after a proffer.

What Controls a Defendant’s Obligations to Disclose During a Federal Tax Proffer?

The proffer letter.

How does tax evasion proof shape proffer strategy?

What are the Elements of the Offense in Federal Tax Evasion Cases?

Under Section 7201, federal tax evasion prosecutors must prove three essential elements beyond a reasonable doubt:

• Tax deficiency;
• Willfulness; and,
• An affirmative act of evasion.

What Counts as an “Affirmative Act of Evasion” for Tax Evasion?

An “affirmative act of evasion” includes any behavior that exceeds “negligent omission,” “mistake,” or “ignorance of the law.” For example, while an erroneous tax return is sufficient to support a civil audit or civil penalty, it is insufficient to support criminal prosecution for a Section 7201 charge. Evidence of an affirmative act of evasion that could be adduced by prosecutors will typically lead to a tax evasion conviction, whereas evidence of “negligent omission,” “mistake,” or “ignorance of the law” will typically support the defense that a client’s conduct did not meet the requirements for federal tax evasion.

What Does “Willfulness” mean Under Section 7201?

Under Section 7201, “willfulness” is defined as “the voluntary, intentional violation of a known legal duty.” This is a critical distinction between criminal evasion and civil tax non-compliance. If a client made a mistake, not understanding their tax liabilities, or relied upon erroneous or inaccurate tax advice, this typically will constitute a defense against a criminal conviction for tax evasion, and, in fact, the prosecution will not have evidence of a voluntary, intentional violation of the federal tax law.

Why is it Important to Understand What constitutes Tax Evasion When Participating in a Proffer Session?

Tax evasion is a specific crime with an exacting definition. Many circumstances which do not meet the requirements for a federal tax conviction will still trigger audits and investigations by the IRS. Thus, preparing for a proffer session should involve careful consideration of the elements of tax evasion under Section 7201 and a determination as to what type of disclosures might, or might not, strengthen the evidence that prosecutors already have in hand. For example, if clients have not yet been charged with a criminal offense, their proffer disclosures should generally serve to support the argument that they have not committed any federal tax-related crimes; and if clients have already been charged, their proffer disclosures should generally serve to demonstrate that an early acceptance of criminal responsibility is appropriate.

What are the Risks of a “Careless” Proffer Strategy?

The primary risks in a federal tax proffer session are:

• The defendant unknowingly provides incriminating information;
• The defendant makes statements in conflict with what prosecutors already know or are able to prove;
• The defendant makes statements that conflict with their earlier statements to the IRS or other authorities; and,
• The defendant provides information from their records that will expose them to additional or heightened liability.

Each of these risks will have the potential to hurt the defendant’s case.

What protections does a federal proffer agreement actually provide?

What Protections does a Proffer Letter Offer?

While specific terms will vary from case to case and U.S. Attorney’s Office to U.S. Attorney’s Office, typical proffer letters restrict how the information obtained from a proffer session can be used. Specifically, they typically:

• Disallow the information as substantive evidence at trial unless the defendant consents to its use in the government’s case-in-chief;
• Disallow the information to be used as direct evidence of a crime unless the defendant expressly waives the protections in the proffer agreement; and,
• Require that the government obtain from the defendant any corroborating information that is necessary for a successful prosecution.

What Limitations on Proffer Session Protections are Typical?

Also, typical proffer letters contain substantial exceptions to these restrictions. As typically outlined, a proffer letter will state that:

• The government will have the right to introduce the information (and even potentially offer the proffer letter itself) in the context of impeachment if the defendant’s testimony at trial conflicts with the defendant’s disclosures made during a proffer session;
• If the defendant provides defense evidence or arguments that conflict with the disclosures made during the proffer session, the government can introduce the defendant’s disclosures as a means of offering a rebuttal; and,
• While the government will not be able to use the proffer disclosures themselves as substantive evidence at trial, “derivative-use” protections only go so far. For example, the government typically reserves the right to use any “leads” obtained from the proffer disclosures to pursue other independent evidence to support a criminal conviction.

Do Proffer Sessions Offer Immunity or Any Protections Similar to Federal Immunity?

While proffer letters provide limited protection, they do not immunize a defendant for the underlying criminal conduct in question. This is a contractual arrangement that differs significantly from statutory immunity under Section 6002 and Section 6003 of the federal sentencing guidelines. However, while contractual proffer protection is different from statutory immunity, an informed proffer session can be just as valuable in negotiating a favorable outcome.

What Other Protections Exist?

In a very limited set of cases, a defendant can expect to receive substantive use protections under the legal doctrine established by the U.S. Supreme Court in the seminal case of Kastigar v. United States, 406 U.S. 441 (1972). This case established what is commonly known as “immunity” for defendants who are compelled to testify after an order by a federal court. However, Kastigar immunity does not apply to consensual or negotiated proffers, so defendants must be careful when trying to engage these protections.

Which proffer agreement terms should my lawyer negotiate?

Can a Defendant waive Qualifying Plea-Statement Protections?

Yes, and in fact, federal defendants may knowingly and voluntarily waive their qualifying plea-statement protections by signing an agreement or order. As an example, in United States v. Mezzanatto, 513 U.S. 196 (1995), the U.S. Supreme Court approved an impeachment waiver that gave prosecutors the right to introduce evidence of the defendant’s prior statements during trial if those statements are inconsistent with the defendant’s trial testimony. While Mezzanatto did not directly decide whether a defendant can waive protections to allow the government’s case-in-chief or its right of rebuttal in more cases, the decision in Mezzanatto shows that the Supreme Court recognizes a defendant’s ability to waive these protections.

Will Proposed Edits to a Proffer Agreement’s Terms Alter the Agreement?

Proposed edits to a proffer agreement’s terms do not alter the agreement unless and until the government accepts the edits. Therefore, defendants must be careful when negotiating proffer sessions, as the edits will not automatically bind the government unless the government accepts them.

What is the Scope of an “Use Clause” and Derivative Use Clause?

Each provision of a proffer letter typically stands on its own. Thus, negotiating an “use clause” (e.g., a direct use clause) will not necessarily alter any other relevant provisions of the proffer letter, such as its derivative-use, impeachment, or rebuttal clauses.

What is an Integration Clause?

An integration clause is a common contract provision that means that only the terms of the contract will be binding, and that there are no additional outside oral or written agreements. Thus, if a proffer letter contains an integration clause, it means that the government will not be bound by any oral protections it may have provided prior to the signing of the letter unless those protections are incorporated into the written letter.

Does the Defense Lawyer Negotiate the Proffer Session Directly with the Government?

Typically, yes, the defense lawyer will negotiate the proffer session and the proffer letter directly with prosecutors.

Should the Defendant be the One Writing the Written Proffer to the U.S. Attorney’s Office?

Writing out the proffer session’s talking points can be an important part of preparation. While this may reduce spontaneous errors in a proffer session, it will not necessarily alter the terms that apply. Once the proffer session occurs, the terms that apply will be determined by the negotiated proffer letter regardless of what the defendant (or the defendant’s lawyer) writes for the U.S. Attorney’s Office.

This is the point at which most people call a lawyer. Spodek Law Group takes federal criminal defense cases nationwide from its New York and Los Angeles offices.

What should I tell my lawyer before a proffer?

What Should Clients Disclose to Their Lawyers Prior to Participating in a Proffer Session?

Clients should disclose all potentially damaging facts, and information, to their defense counsel before considering participation in a proffer session. This includes anything that could facilitate the government’s investigation or prosecution. Clients can assume that information that they disclose to their attorneys will be kept confidential and privileged, and that their attorneys will use it to advise them and to prepare them for the proffer (if they proceed), as needed.

Is the Attorney-Client Privilege Protective of Information Disclosed During a Proffer Session?

No, information disclosed during a proffer session is not protected by the attorney-client privilege. This is because the federal government (represented by prosecutors in the government meeting) is not the client’s attorney. While the information disclosed by a defendant during a proffer session may be subject to use restrictions under the proffer agreement (if any), it does not have the protection of confidentiality or privilege.

What happens If a Participant in a Proffer Session Dishonestly or Incompletely Answers Questions?

Providing a knowingly false statement during a proffer session can violate 18 U.S.C. § 1001 (which also requires that the statement be material). Furthermore, dishonesty and material omissions will typically end cooperation negotiations, may result in an increased sentence (if no cooperation agreement is ultimately negotiated), and will undoubtedly damage the defendant’s credibility with federal prosecutors.

What Kind of Information Does Not Enjoy the Protection of Attorney-Client Privilege?

Although communication between clients and their lawyers that is intended to be confidential is protected by the attorney-client privilege, the underlying facts and preexisting records involved are not. For example, if a client discloses to his or her lawyer that a tax form was filed with an inaccurate statement, this itself will generally be confidential, but the tax form itself will not be confidential. A proffer agreement will generally need to address disclosures of preexisting records or other documents that lack protection under the attorney-client privilege.

What Constitutes a Truthful and Full Disclosure in a Federal Tax Proffer?

When participating in a federal tax proffer, a truthful and full disclosure is one in which the defendant (and/or the defendant’s lawyer) provides all information that the defendant has available to assist in the government’s investigation. This involves distinguishing information known personally from inference, assumption, and speculation, and ensuring that the participant does not guess or assume. A participant can fully and truthfully disclose all facts he or she knows personally without guessing about the facts that he or she does not know personally.

Do I Need to Fully Disclose all Known Relevant Information in a Proffer?

Not necessarily. While an agreement requiring full and truthful cooperation may demand more than narrowly responsive answers, many proffer agreements require participants only to disclose information that falls within a specific scope. If the federal tax proffer is limited in scope, then the defendant (and/or the defendant’s lawyer) may be able to meaningfully assist the government’s investigation while remaining within the agreed-upon scope.

Does Every Type of Proffer Require “Informing” on Someone Else?

No. A proffer could either be a self-incriminating (but helpful) one, or it could be an informed proffer. A self-incriminating proffer is a session where the defendant discloses information that helps the government to present an efficacious case without accusing anyone else. On the other hand, substantial-assistance cooperation typically requires the defendant to present useful and truthful information concerning at least one other person’s involvement in the case. The difference between these two is a matter of the specific circumstances at hand; as a result, a proffer session is “about informing” when a participant in a proffer identifies another person or persons involved in misconduct and informs the government of the details of other’s involvement.

Can I Rely on the “Lawyers’ 80/20 Rule” When Participating in a Federal Tax Proffer?

No. While lawyers’ 80/20 rule is a popular legal saying, federal law recognizes no proffer doctrine by this name. While the saying may carry truth on some occasions, it is not an enforceable legal doctrine and thus cannot be relied upon.

What is a Reverse Proffer?

A reverse proffer is a proffer session where federal prosecutors disclose to the target’s attorneys some information about what the prosecutors currently know. As a result, reverse proffers have the potential to encourage the target to enter into plea or cooperation negotiations.

What is an Attorney Proffer?

An attorney proffer is a proffer session in which a target’s defense attorney gives a “preview” of information the target has available to assist with the government’s investigation. Following the attorney proffer, the federal prosecutors can determine how useful the target’s cooperation would be. If federal prosecutors are satisfied, then they can then offer a favorable plea or cooperation agreement in exchange for the target’s participation in a defendant proffer.

What is a Defendant Proffer?

A defendant proffer is a proffer session in which the target personally answers prosecutors’ questions about the criminal activities he or she is suspected of. Like attorney proffers, defendant proffers are limited to participants who have informed (or are willing to inform) the government about other people’s involvement, and it is with information that helps the government’s case against the other people involved.

What is a Hypothetical Proffer?

A hypothetical proffer session is a session where the target’s attorneys present assumptions, hypotheticals, and assumptions to the prosecutors. This type of proffer protects against unwanted admissions, as the attorneys may present information without actually making it available for use as an admission. Federal prosecutors will still find value in these proffer sessions, because they can use information gained in these sessions to develop more evidence or to identify leads for more evidence in their investigation.

What Can I Realistically Expect to Achieve through a Tax Proffer?

Generally, tax proffers can serve as effective paths to sentencing relief (especially through a Section 5K1.1 departure), and in other cases a tax proffer can result in federal prosecutors not filing charges or reducing charges even without a formal cooperation agreement. With regard to Section 5K1.1 departures, however, the following considerations will be key:

Section 5K1.1 Departures

Section 5K1.1 is an exception to a U.S. Sentencing Guideline that provides substantial-assistance departures. These are reductions in sentences for defendants who provide truthful, voluntary, and substantial assistance to federal prosecutors in the prosecution of other criminal offenses.

• Prosecutors have exclusive control over Section 5K1.1 departures.
• Prosecuting attorneys do not have to file a Section 5K1.1 departure motion if the information they obtained through a proffer is not deemed satisfactory. This could be because the information was incomplete, unreliable, or did not contain helpful evidence of criminal wrongdoing.
• If a defendant accepts a sentence that is otherwise within the guidelines or a plea bargain that is subject to the guidelines, the sentencing court will determine whether it is appropriate to grant the defendant a Section 5K1.1 departure. However, the sentencing court will generally only consider a Section 5K1.1 departure if a government motion has been filed.

Sentence Reductions Outside of Section 5K1.1 Departures

Other sentence reductions may be possible in tax cases as well. However, federal tax evasion under Section 7201 contains no mandatory minimum imprisonment term, and so a sentence reduction is typically more likely in a federal sentencing proceeding if there is a proffer (and a corresponding cooperation agreement) that involves helping to convict another defendant or defendants.

Plea or Cooperation Agreements

Some defendants do not want to help the government convict someone else. In those cases, a proffer can help a target to negotiate a declination or a reduced charge.

• Although Section 7201 authorizes a maximum five-year prison sentence for tax evasion, the punishment typically decreases with the amount of tax evasion that prosecutors can prove.
• In order to gain sentencing protections under USSG §1B1.8 (which covers “informant’s” self-incriminating disclosures during a proffer), a defendant must negotiate a written cooperation agreement that includes a use clause that limits how the government can use the defendant’s disclosures as a sentence enhancer.
• While Section 7201 has no mandatory minimum prison sentence, Section 3553(e) says that the court can impose a sentence below a mandatory minimum only upon a motion from the federal government.

Contact a Federal Criminal Defense Attorney

Nothing here is legal advice, and the details of your case matter. Todd Spodek and Spodek Law Group take federal criminal and white collar cases nationwide, from offices in New York, Brooklyn, Queens and Los Angeles. You can reach the firm at 212-300-5196.