Supreme Court Decides that Filing a False Tax Return for Resident Aliens is an “Aggravated Felony” that Prompts Deportation Proceedings.

The Supreme Court of the United States has recently affirmed that pleading guilty to or assisting in the filing a false tax return is considered an “aggravated felony,” which is a deportable offense. This means that a resident alien can be immediately deported if he pleads to or is convicted of certain tax crimes.

The decision has far-reaching and detrimental effects on lawful permanent residents in the United States because the Supreme Court decided that falsely filing a tax return involved an act of deceit or fraud (factors in immigration issues) even though deceit or fraud may not be part of the actual [tax] crime itself.

The Crime(s):

  1. Akio Kawashima – pleaded guilty to willfully filing a false tax return,
  2. Fusako Kawashima – pleaded guilty to aiding and assisting the preparation of a false tax return.

The Kawashima, a married couple native to Japan who became lawful residents of the U.S. in 1984. They ran a successful restaurant chain called Cho Cho San in Thousand Oaks, California and Tarzana, California. The IRS determined that the total actual tax loss to the government was $245,126. At the time of this writing we do not have access to the indictment in the case, however, it is possible that they chose to plead to the false tax return charges in an effort to avoid tax evasion charges as tax evasion has been previously determined to be a deportable offense and carries higher prison sentences. 

Shortly after the couple pled guilty, the Immigration and Naturalization Service (now the Department of Homeland Security) charged the Kawashimas with being deportable from the United States, under Title 8 of the United States Code.

Arguing that Filing False Tax Returns are Not Aggravated Offenses

The Kawashimas’ thus began a serious legal battle over whether filing a false tax return constitutes an aggravated felony leading to this Supreme Court Decision. 

The Supreme Court analysis was based on a statute dealing with immigration and naturalization issues.  An aggravated felony includes the crimes of murder, rape, sexual abuse of minors, illicit trafficking of firearms, money laundering, and running a prostitution ring.  As to tax crimes, Title 8 of the USC, provides that  an aggravated felony is defined as:

  • (i) involves fraud or deceit in which the loss to the victim or victims exceeds $10,000; or
  • (ii) is described in section 7201 of title 26 (relating to tax evasion) in which the revenue loss to the Government exceeds $10,000.  
    See USC, Title 8 1101(a)

First, Mr. Kawashima’s attorney argued that the term “aggravated felony” does not apply to them under the immigration deportation standards because the crime he pled to,  willfully making or subscribing a false tax return, does not specifically involve “fraud and/or deceit” (as needed for deportation matters).   In attempting to clarify the immigration standards, however, the Court held that meaning of “deceit” means the “act or process of deceiving (as by falsification, concealment, or cheating).    Therefore, once Mr. Kawashima pled to knowingly submitting a tax return that was false, the Court reasoned that he had also thereby committed a felony that involved ‘deceit.’

As such, this case may mean that taxpayers who are convicted or plead to willfully making or subscribing a false tax return are also guilty of acting in a deceitful offense. 

Scope of the Consequences

Tax Crimes: 

Justice Ginsburg, who wrote the dissent, pointed out the far reaching consequences of this case. She explained that any conviction by federal, state, or local taxing authority that involves an amount over $10,000 would render the resident alien taxpayer deportable.  For example, furnishing a false W-2, supplying false or fraudulent information to an employer, or filing an incomplete or false return to a municipality, may be considered misdemeanors in some jurisdictions, yet could be considered an aggravated felony with punishment of deportation.

The decision rendered in Kawashima v Holder, has far-reaching and life-changing effects for all citizens.  There are a number of resident aliens in the Bay Area who need to be aware of this new development. The Supreme Court has equated filing a false tax return as a crime on the same level as murder or rape for the purposes of deportation. The Supreme Court’s decision is in line with other efforts of Congress and the Commissioner of Internal Revenue within the last decade to enforce existing tax laws and to create new tax laws that punish varying degrees of tax crimes. 

Offshore Tax Compliance: 

This decision raises new questions about efforts to get taxpayers to report foreign accounts with the Offshore Voluntary Disclosure Program (OVDI/OVDP). If you decide to participate in the OVDI/OVDP program, see 2012 Offshore Voluntary Disclosure Program, are you now in jeopardy of deportation because of the Kawashima case? Currently, the IRS has publicly declared that they will not report taxpayers participating in the OVDI to the Department of Justice (DOJ) if they made a mistake by not including their foreign assets on past tax returns. However, the IRS has not mentioned that they will refrain from calling Homeland Security.  Added to this, are you also in jeopardy of being deported when the overseas financial institutions begin compliance with the Foreign Account Tax Compliance Act (FATCA) by submitting your financial information directly to the IRS? These questions are just the tip of the iceberg.