Lawyer’s IRS obstruction sentence won’t hold on appeal, attorney says

SACRAMENTO -- A lawyer for a personal injury attorney sentenced for obstructing an Internal Revenue Service audit argued on Monday her client has raised "substantial" issues and should be free pending appeal.

Stephen J. Dougan was convicted in January of obstructing an investigation into allegations he hid $1.4 million in income from the IRS in 2006 and 2007 by withholding documents and making false statements. The jury hung on two counts of aiding in the preparation of a false tax return in United States v. Dougan, 16CR00145 (E.D. Cal., filed July 28, 2016).

Last month, Senior U.S. Eastern District Judge William B. Shubb sentenced Dougan to three years in federal prison. Dougan is scheduled to begin his sentence Nov. 13. The State Bar suspended his license in May.

Arguing for Dougan, Jenny Johnson Ware claimed government prosecutors violated Dougan's Fifth and Sixth Amendment rights by convicting him on vague charges that did not match the original grand jury indictment in the case.

Ware represents Dougan as a partner with the Chicago tax law firm Johnson Moore LLC in Chicago. In a Sept. 30 reply seeking her client's release, she wrote that her client was not a flight risk and would likely win on appeal.

In court, she elaborated on her brief's arguments citing United States v. Shipsey, 363 F.3d 962, 971 (9th Cir. 2004), in which the 9th U.S. Circuit Court of Appeals reversed a trial court after finding the defendant was convicted on a different theory than the one articulated in the indictment.

In this case, she told Shubb, prosecutors failed to show Dougan committed two specific acts on which he was convicted.

"If the indictment is going to give that level of detail, they have to do it on all of the charges," Ware said.

She added it "remains Mr. Dougan's position" that he did not file a false tax return or make false statements.

In their Sept. 23 brief, federal prosecutors said they did not deem Dougan a flight risk due to "his consistent pattern of appearing when ordered to do so by the Court." But they claimed he has failed to show a "substantial question of law or fact" around his conviction.

Most of the hearing consisted of a back-and-forth between Shubb and Michael M. Beckwith, assistant U.S. Attorney for the Eastern District of California. Beckwith argued Dougan was using his "millions" of dollars to force prosecutors to "spend months on an appeal."

"He was charged on one theory and proven guilty beyond a reasonable doubt on the same theory," Beckwith said. "We are relying on the four corners of the indictment. We are simply saying he engaged in fraudulent acts, here are some examples."

"We don't know what you presented to the grand jury," Shubb told Beckwith at one point.

Shubb then raised the issue of whether the defense sought a transcript of prosecutors' meeting with the grand jury, but Beckwith said this would be "inappropriate."

"This isn't coming back," Beckwith said. "We're done here. This is not a meaningful issue."

Shubb declined to make an immediate decision.