District Court Properly Denied Tax Protester's Request for Competency Hearing

(Parker Tax Publishing February 2020)

The Second Circuit upheld an insurance agent's conviction for his multi-year failure to pay taxes and for his deception and obstruction of the IRS through conduct inspired by the Sovereign Citizens tax protester movement. The Second Circuit found that political views derived from tax protester movements are not, by themselves, sufficient evidence of mental incompetence and thus concluded that the district court did not abuse its discretion when it denied the taxpayer's request for a competency hearing. U.S. v. DiMartino, 2020 PTC 39 (2d Cir. 2020).

Background

From the early 1980s, Terry DiMartino earned more than $2.4 million in commissions as an independent insurance agent. Beginning in 1996, coincident with DiMartino's divorce, he either consistently failed to file accurate tax returns or filed no returns at all. From 2000 on, DiMartino received numerous delinquency notices from the IRS.

When the IRS filed liens against DiMartinoproperty and sought to garnish his commissions, he took steps to evade and obstruct. For instance, he acquired a home through a trust that obscured his ownership and directed insurance companies to divert his commissions to nominee companies he created and controlled. DiMartino also sent a steady stream of correspondence to the IRS claiming that the federal government lacked legal or constitutional authority to collect taxes. Sometimes, DiMartino threatened legal action against the IRS officer responsible for his case; at other times, he proffered counterfeit bonds to satisfy his tax liabilities. From 2004 to 2013, when DiMartino earned more than $2.4 million in commissions, the IRS was able to recoup only $32,000, less than 1.5 percent of his income. DiMartino also managed to evade at least $100,000 in state taxes during this period. However, he kept up his property taxes, default on which would likely result in seizure of his home.

In 2014, DiMartino was charged with one count of corruptly endeavoring to obstruct the IRS, two counts of filing false tax returns, and five counts of willful failure to file tax returns. DiMartino invoked his right to represent himself at trial. In a hearing to determine whether his waiver of his right to counsel was knowing and voluntary, DiMartino testified that he was in good health, that his mind was clear, and that he was not under the care of a psychiatrist. He described his education and professional experience; his personal study of Supreme Court cases and the U.S. Constitution; and his familiarity with the laws governing the insurance industry. The district court ruled that DiMartino knowingly, voluntarily, and intelligently waived his right to counsel. Standby counsel was appointed to assist him.

At trial, DiMartino argued that he did not intend to violate the law and did not know that the fraudulent documents he signed were illegal. He explained his theories that the IRS and Department of Justice are private corporations. He said he was not subject to the court's jurisdiction and that the laws requiring him to pay taxes were nonexistent or invalid. When the court cautioned DiMartino against making statements of law, DiMartino clarified that he was only offering his own interpretation--ostensibly in support of his defense that, at the time of the alleged offenses, he had a good faith belief that his actions were legal.

The jury convicted DiMartino on all counts. Approximately one month after the filing of the final Presentence Investigation Report (PSR), DiMartino retained counsel. Several months later, defense counsel asked the court to order a psychological evaluation and hold a competency hearing. Accompanying the motion was a psychological report prepared at counsel's request. Dr. Andrew Meisler, who had conducted several interviews with DiMartino, concluded that DiMartino was suffering from a delusional disorder. In addition, counsel submitted his own affidavit summarizing the bases for his concerns about his client's competency, focusing on DiMartino's "bizarre theories." For example, counsel averred that, notwithstanding the conviction, DiMartino "still thinks he should be released at sentencing because the IRS and the United States government are private corporations." Following a hearing to examine the reliability of Dr. Meisler's report, the district court denied DiMartino's request for a competency hearing. The district court concluded that there was no reason to believe that DiMartino did not understand the nature and consequences of the proceedings against him. The district court's ruling highlighted methodological flaws in Dr. Meisler's report and accorded it no weight.

DiMartino appealed to the Second Circuit, arguing that the district court abused its discretion by finding that he was mentally competent to stand trial. DiMartino's counsel pointed to a series of his clients' actions and statements that he characterized as irrational, including DiMartino's refusal to prepare an accurate tax return prior to sentencing, his stated beliefs that his prosecution and the tax laws underlying it were illegitimate, his decision to make duplicative and obviously inaccurate or meritless filings with the IRS and with the court, and statements during trial that indicated continuing adherence to meritless legal theories.

Analysis

The Second Circuit held that the district court did not abuse its discretion in denying DiMartino a competency hearing. According to the court, DiMartino's words and actions reflected his anti-government political views and legal theories rather than an ability to understand the proceedings against him. The court noted that DiMartino attempted to persuade the jury that he lacked the required criminal intent, attempted to solicit the jury's sympathy, and made a bid for jury nullification.

The Second Circuit further found that all of the supposed red flags concerning DiMartino's competence related in one way or another to his insistence on espousing or acting on views that are shared with other adherents to a political ideology. The court noted that an undercover IRS agent observed DiMartino at a 2007 Sovereign Citizen convention in Las Vegas, where he expressed frustration at having to pay taxes and asked seminar participants for advice on how to protect his wealth. It was at least as likely, in the view of the Second Circuit, that DiMartino simply disagreed with the tax laws as opposed to suffering from a delusional disorder that prevented him from understanding them. The Second Circuit concluded that political views derived from tax protester movements are not, by themselves, sufficient evidence of mental incompetence. The Second Circuit also agreed with the district court's decision to give no weight to Dr. Meisler's report, given his failure to review the entire trial transcript or speak to DiMartino's friends, family, or other tax protesters.

For a discussion of criminal and forfeiture penalties for tax evasion, see Parker Tax ¶265,110.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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