By Rick Yandle, Esq., CPA — federal criminal & civil tax defense
Every tax adviser likes to believe there is a bright line between advising a client and joining a client's scheme. The federal conspiracy statute has never respected that line as much as advisers would like — and the courts keep reminding us why.
The statute hiding in plain sight
Title 18, Section 371 makes it a crime to conspire "to defraud the United States, or any agency thereof in any manner or for any purpose." That "defraud clause" is broader than it sounds. It is not limited to schemes that take money or property from the government. As the courts have long read it, it reaches any conspiracy to impair, obstruct, or defeat a lawful government function by dishonest means — including the IRS's function of assessing and collecting the correct tax.
That reading has a name in the tax bar: the Klein conspiracy, after United States v. Klein, the Second Circuit decision that cemented it decades ago. Klein's enduring lesson is that you do not have to be the taxpayer, and the government does not have to prove a completed tax evasion, to convict someone of conspiring to gum up the works of tax administration.
Why advisers should read this twice
The three elements of a Klein conspiracy are, in substance: (1) an agreement to defraud or impede the IRS in its assessment or collection of tax by dishonest means; (2) the defendant's knowledge of that agreement and voluntary participation in it; and (3) an overt act in furtherance of the conspiracy, committed by any one of the conspirators. Notice what is not on that list — being the taxpayer. The statute reaches anyone who knowingly and voluntarily joins the agreement; a single act by any conspirator to advance it completes the crime for everyone in it.
That is why the accountant is a cautionary figure in this area of law. The bookkeeper who structures the entries. The return preparer who dresses up the numbers. The professional who knows what is happening and helps it happen anyway. Their title — accountant, lawyer, "just the bookkeeper" — is not a defense.
The Second Circuit is not reconsidering
Advisers sometimes hope the doctrine is softening. The recent trend runs the other way. When the issue has come back up, the Second Circuit has reaffirmed the long-standing rule that obstructing the IRS can be a Section 371 conspiracy, an adviser's status notwithstanding. It is a short walk from counselor to co-conspirator, and the distance is measured in what you knew and what you did about it.
Where the line actually is
None of this makes ordinary, good-faith advising a crime. Explaining the law, identifying legitimate positions, even advising a client of the risks of an aggressive position — that is the job, and it is protected. The exposure begins where the adviser stops explaining the rules and starts helping defeat them: fabricating support, coaching false testimony, building structures whose only purpose is to obstruct the Service's ability to see what actually happened.
The courts police that boundary in both directions. In United States v. Coplan, 703 F.3d 46 (2d Cir. 2012) — a sprawling tax-shelter prosecution involving several tax attorneys and an accountant — the Second Circuit sustained a number of convictions but reversed the convictions of two attorneys, holding the evidence did not establish that they knowingly joined the scheme. Good-faith advising stays on the right side of the line; the adviser who crosses over does not get to hide behind the letterhead.
A note for referring counsel
If you represent an accountant, preparer, attorney, or business principal being looked at as a possible participant — not just a witness — in a tax matter, the Section 371 exposure is often the real risk, well before anyone mentions evasion. These cases reward early, careful defense.
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