Washington Law Review


In United States v. Dahlstrom, the Ninth Circuit Court of Appeals reversed the criminal tax fraud convictions of five tax advisers. The defendants had been convicted for developing and promoting a program in which a United States taxpayer shifted taxable income to a controlled trust in a tax-haven country. The Ninth Circuit held that, as a matter of law, the promoters of the foreign trust arrangement could not be convicted of counseling fraud because the particular scheme had not yet been declared fraudulent. Through its decision the court has restricted the government's campaign against abusive tax shelters, and placed a constitutional limit on the powers available to the government for use against the promoters of creative tax shelters. Part I of this Note outlines the mechanics of the foreign trust arrangement. The legal background of the case is presented in Part II, followed in Part III by the reasoning of both the majority and the dissent. Part IV analyzes the decision, concludes that the court misapplied the fair-notice protection of the fifth amendment to reverse the convictions, and discusses the potential effects of the decision on the government's tax compliance enforcement program as recently strengthened by Congress.

First Page