SCOTUSblog Founder Plays Deft Hand in Own Defense Against Tax Evasion Charges

It thus appears that Goldstein has the upper hand in winning the pre-trial dismissal of the Section 7203 failure-to-pay misdemeanor charges. However, this may be a case for being “careful what you wish for.”

Introduction

Thomas C. Goldstein, renowned Supreme Court advocate and SCOTUSblog founder, is no stranger to high-stakes battles in the courtroom. Yet, his latest challenge unfolds not before the nation’s highest court but in a Maryland federal district court, where he faces a 22-count indictment alleging, among other offenses, tax evasion tied to his equally high-stakes career as a professional poker player. On January 16, 2025, the U.S. Department of Justice (“DOJ”) charged Goldstein with orchestrating a scheme to evade millions in taxes on gambling winnings and law firm income, alleging tactics from hiding money in foreign bank accounts to sham deductions. See Indictment, United States v. Goldstein, No. 8:25-cr-00006-LKG, Dkt. 1 (D. Md. Jan. 16, 2025) (“Indictment”). On May 16, 2025, Goldstein fired back with a salvo of motions, challenging the government’s case at its core.

Goldstein’s motions, particularly his Motion for Bill of Particulars and Motion to Dismiss Allegations for Failure to Allege Affirmative Acts, reveal a deft defense strategy aimed at sidelining the DOJ’s proof of “bad acts” that would otherwise be excluded under Federal Rule of Evidence 403. The DOJ’s flagship charge, tax evasion under 26 U.S.C. § 7201, carries a hefty seven-year sentence but demands proof of a substantial tax deficiency—a tall order in the murky world of gambling income. As a fail-safe, the DOJ deployed 26 U.S.C. § 7206(2), alleging that Goldstein aided the filing of his false tax returns, a felony with a lighter three-year sentence that does not require the government to prove an actual tax due and owing.

Goldstein counters by exploiting the uncertainties in calculating his gambling income, the permissibility of asserting ordinary financial conduct as affirmative acts of tax evasion, and seeking to exclude prejudicial “bad acts” like diverting law firm assets for personal use and hiring paramours in alleged sham roles at his law firm. By framing the case as a bookkeeping dispute, Goldstein aims to reshape the trial narrative to focus on errors in his tax returns traceable to the innocent mistakes of others. This article explores Goldstein’s strategic motions, the DOJ’s charging calculus, and the looming proof challenges that will define this high-profile tax prosecution.

Background

The Indictment – Goldstein’s High-Stakes Life

Thomas Goldstein’s legal career is the stuff of legend—44 Supreme Court arguments, a professorship at Harvard, and the creation of SCOTUSblog, the preeminent online resource for analyses of Supreme Court decisions. Yet, his parallel career as a high-stakes poker player, amassing over $27 million in winnings in 2016 alone, landed him in the DOJ’s crosshairs. On January 16, 2025, a Maryland federal grand jury indicted Goldstein on 22 counts, alleging a sophisticated scheme to evade taxes on gambling winnings and income from his law firm, Goldstein & Russell (“G&R”). See generally, Indictment.

The indictment paints a complex financial portrait. From 2016 to 2021, Goldstein allegedly failed to report millions in gambling winnings, deducted substantial sums as law firm expenses for his own personal use, and claimed improper payroll deductions for “underemployed” paramours. See Indictment ¶¶ 24b, 47, 79 & 55. The Indictment further alleges that Goldstein provided false information to his accounting firm and thus intentionally caused the filing of false Forms 1040 (individual) and 1120S (G&R corporate) tax returns. See Indictment ¶¶ 37–40.

In summary, the charges break down as follows:

• Tax Evasion (26 U.S.C. § 7201, Counts 1–4): Evading taxes for 2016, 2017, 2018, and 2021, in which he had a substantial additional tax due and owing.

• Aiding False Returns (26 U.S.C. § 7206(2), Counts 5–14): Causing false Forms 1040 and 1120S, underreporting income and overstating expenses.

• Willful Failure to Pay Taxes (26 U.S.C. § 7203, Counts 15–19): Failing to pay taxes despite filing returns.

• False Loan Statements (18 U.S.C. § 1014, Counts 20–22): Making false statements on mortgage applications.

Section 7201, a felony with a potential seven-year sentence, punishes willful evasion of taxes through affirmative acts, like concealing income. Section 7206(2), also a felony with a three-year sentence, targets aiding the preparation of a materially false tax return, even without a tax loss. Section 7203, a misdemeanor, penalizes failure to pay taxes owed, and Section 1014, a felony with a potential 30-year incarceration penalty,addresses false statements to financial institutions.

May 16 Motions – Goldstein’s Defense Strategy

On May 16, 2025, Goldstein filed six motions in an effort to dismantle the Indictment, revealing a calculated defense to recast the case as a technical dispute over bookkeeping errors rather than a criminal scheme. These motions, filed in the U.S. District Court for the District of Maryland, target the government’s proof at multiple angles, from evidentiary suppression to statutory challenges.

1. Motion to Suppress Statements

Goldstein’s Motion to Suppress Statements seeks to exclude purported admissions that he made to Customs and Border Protection (“CBP”) officers in 2018 about the $968,000 in cash he was carrying when he arrived at Dulles Airport on a flight from Hong Kong. See Dkt. 119; Indictment ¶ 54. According to the motion, Goldstein was detained by CBP after voluntarily declaring on his entry form that “he was carrying cash in excess of $10,000.” Dkt. 119 at 1. The statements at issue include Goldstein’s alleged admissions that “the cash was gambling winnings from Macao” and that he was carrying the cash because “he was not able to transfer the money out of the country.” Dkt. 119 at 2.

Goldstein argues that the statements are inadmissible because they were made while he was detained by CBP officers “in circumstances that were functionally equivalent to arrest” and without prior warning of his constitutional right to remain silent. Dkt. 119 at p. 8; Miranda v. Arizona, 384 U.S. 436, 444 (1966) (requirement to provide “Miranda” warnings before custodial questioning). Goldstein further argues that the CBP officer-witness failed to memorialize the statements at the time and that his years-later recollection of the statements is unreliable. Dkt. 119 at 2. The court may be inclined to view this latter argument as addressing the weight of the evidence for the jury’s consideration rather than its admissibility. If Goldstein wins suppression of the statements, the victory will likely turn on the underlying constitutional issues concerning custodial interrogation.

                  2. Motion to Dismiss Counts 1, 5, 6, and 15

Goldstein’s Motion to Dismiss Counts 1, 5, 6, and 15 seeks to dismiss all 2016-related charges, on grounds that the charges are barred by the six-year statute of limitations. See Dkt. 121 at 2; 26 U.S.C. § 6531(six-year limitations period for charged tax offenses). Technically, the Indictment, filed on January 16, 2025, falls outside the limitations period for the tax offenses related to Goldstein’s 2016 income (returns filed in 2017) and his 2017 income (returns filed in 2018). However, before obtaining the Indictment, the government applied for and obtained four separate court orders tolling the limitations period under 18 U.S.C. § 3292 due to delays in obtaining evidence located outside the United States. See Dkt. 121 at 2-4. Goldstein’s motion seeks to set aside the two earliest tolling orders based on certain “material” errors in the government’s ex parte applications and supporting affidavits. Id. If the court were to grant Goldstein’s motion, the 2016-related offenses would then be barred by the statute of limitations but the limitations period for the 2017-related offenses would remain tolled.

3. Motion to Dismiss Counts 15–19

The Indictment, together with Goldstein’s Motion to Dismiss Counts 15-19, raise novel legal issues regarding the rarely invoked “failure to pay” clause of Section 7203. By comparison, the government routinely asserts the “failure to file” clause of that section against taxpayers who willfully fail to file tax returns, and there is a well-developed body of case law addressing it. In contrast, “failure to pay” prosecutions are infrequent, and the case law is equally sparse. In the face of that unchartered legal territory, the government appears to be pursuing a highly peculiar, if not dubious, theory of that “failure to pay” misdemeanor offense.

Goldstein’s motion seeks to dismiss all of the Indictment’s Section 7203 failure-to-pay charges. Goldstein argues that the charges are invalid because he filed individual income tax returns for each of the challenged tax years (2016 through 2021) and fully paid the tax assessments shown on those returns through an IRS-approved installment payment plan, including interest and penalties. See Dkt. 126 at 3-5; Indictment ¶¶ 39, 50. Goldstein further argues that the government failed to allege that he in any way attempted to prevent collection of the assessed tax amounts. See, e.g., United States v. Freeman, No. 3:19-CR-00220 (VAB), 2022 WL 1156325 (D. Conn. Apr. 18, 2022) (willful measures to evade collection of tax assessment violates Section 7203). Goldstein’s motion, therefore, challenges the validity of an indictment that charges him for failing to pay taxes where there is no dispute that he, in fact, paid the taxes in full.

Goldstein’s puzzlement about the Section 7203 failure-to-pay charges is warranted. Indeed, the misdemeanor conduct expressly encompassed by Section 7203 is directed to willful omissions—failure to file a return or failure to pay a tax. Arguably, neither applies to Goldstein insofar as the Indictment concerns the tax assessments shown on the individual income tax returns that he indisputably filed. Goldstein filed the returns and paid the taxes, albeit not when due but later in accordance with a payment plan while accruing interest and penalties.

Although it would be an unusual use of Section 7203, the Indictment’s failure-to-pay charges might be rationalized if the Indictment made clear that the charges were directed to Goldstein’s failure to pay the unreported additional tax due and owing each year that the government intends to prove at trial—a misdemeanor mirror image of the Section 7201 felony tax evasion charges. But that is not what the Indictment says. For example, the Indictment notes that in reporting his 2016 individual income and taxes, Goldstein obtained an extension of the April 18, 2017 filing deadline until October 16, 2017 to file his return. SeeIndictment ¶ 37. Goldstein filed his return on the last day of that extension, which showed a tax due in the amount of $1,679,000. Id. The Indictment correctly notes that Goldstein’s payment of that amount, notwithstanding the filing extension, was due on April 18, 2017. Id. But “[r]ather than pay any of his 2016 taxes between April and October 2017, GOLDSTEIN spent over $2 million on luxury items, gambling debts, and other personal items.” Id. The Indictment further alleges that although Goldstein entered a payment plan with the IRS, he “failed to completely pay his 2016 tax liability until 2021.” Id. at ¶ 39 (emphasis added).

In that way, the Indictment attempts to equate the “failure to pay” element required by Section 7203 with “delayed payment” where the taxpayer was otherwise good for the money—a novel “no good excuse for not paying sooner” theory of the offense. Beyond ignoring the statutory text, one problem with this theory is the Indictment itself. While acknowledging that Goldstein spent “$2 million” on “luxury items” and “other personal items,” the Indictment concedes that some unspecified amount of the “$2 million” went to paying gambling debts. In a very real sense, therefore, Goldstein may not have been “good for the money.” And although tax liabilities enjoy statutory and regulatory priority over other taxpayer debts in formal civil collections proceedings, criminally charging a taxpayer for entering a payment plan to accommodate payment of both tax and other personal debts is either a misguided criminal tax enforcement policy at best, or an outright unlawful use of Section 7203 at worst.

It thus appears that Goldstein has the upper hand in winning the pre-trial dismissal of the Section 7203 failure-to-pay misdemeanor charges. However, this may be a case for being “careful what you wish for.” If the Section 7203 charges are dismissed, then Goldstein will proceed to trial on all felony charges, and the possibility of a comprise verdict on the misdemeanor charges will be forever lost. Indeed, this is the strategic reason for why the government almost never charges misdemeanor Section 7203 failure to pay in parallel with felony Section 7201 tax evasion. When expending resources on a relatively few criminal tax prosecutions each year, the government pursues a rigorous policy of seeking conviction on “the most serious readily provable offense.” DOJ Criminal Tax Manual at § 1.01[3].

                  4. Motion to Dismiss Allegations for Failure to Allege Affirmative Acts

Goldstein’s Motion to Dismiss Allegations for Failure to Allege Affirmative Acts seeks to strike certain alleged affirmative acts from the Section 7201 tax evasion charges (Counts 1–4), arguing that they do not constitute willful acts to evade taxes as required by the statute. See Dkt. 120. Generally, an affirmative act of tax evasion is “anything done to mislead the government or conceal funds to avoid payment of a [tax].” United States v. McGill, 964 F.2d 222, 230 (3d Cir. 1992). The underlying conduct of an affirmative act itself need not be illegal—it is enough if the conduct is calculated to evade the tax at issue in the prosecution. See Spies v. United States, 317 U.S. 492, 499 (1943) (“any conduct, the likely effect of which would be to mislead or to conceal”). The cornerstone affirmative acts of tax evasion alleged in the Indictment for each tax year is the allegation that Goldstein “caus[ed] the preparation, signing, and filing with the IRS of . . . false and fraudulent” income tax returns. See, e.g., Indictment at Count I. Goldstein’s motion does not address those core allegations but instead seeks to preclude evidence concerning the alleged diversion of his law firm’s funds for his own personal benefit.

Those alleged diverted funds came from two sources—(1) the G&R firm’s bank accounts and (2) the redirection of G&R client fee receipts to destinations other than the firm’s bank accounts. The diverted funds were substantial. In 2016, for example, the diverted funds totaled $1,171,600 dollars. See Indictment at ¶ 32. Generally, the destinations of the diverted funds were either to Goldstein himself or to third parties, most often for the payment of gambling losses or gambling related debts. See, e.g., Indictment at Count I.

Goldstein asserts three reasons for why the diverted funds are improperly alleged as affirmative acts of tax evasion. First, as a fundamental principle, Goldstein asserts that, despite the firm’s namesake, “Goldstein & Russell,” Goldstein himself is the sole owner of the firm. The Indictment concedes as much. See Indictment at ¶ 3 (“Although certain senior attorneys at G&R other than GOLDSTEIN were nominally referred to as ‘partners,’ those attorneys were employees of G&R, and GOLDSTEIN was the 100% owner of the firm”). As the sole owner of firm assets and income, therefore, there was no inherent difference between his using either firm assets or personal assets to pay personal expenses. At this high level, Goldstein essentially argues that all personal expenses were justifiably paid using his own assets. See Dkt. 120 at 3.

Second, Goldstein argues that the government cannot show that his diversion of firm funds and assets would or could “mislead the government or conceal funds to avoid payment of [tax].” McGill, 964 F.2d at 230; Dkt. 120 at 5-6. Even when the diverted fee receipts, for example, failed to be recorded as G&R income in the first instance, the fee-paying clients were each required to disclose their annual fee payments to G&R through Form 1099 IRS reporting. See Dkt. 120 at 5-6. The Indictment, in fact, concedes that third parties reported such payments by filing Form 1099s with the IRS. See, e.g., Indictment at ¶ 24. And while suggesting that the government will rely on that Form 1099 reporting as specific items of evidence to prove Goldstein’s income, there is no allegation in the Indictment that Goldstein interfered in the third parties’ Form 1099 reporting of payments to him. In short, the diverted funds were neither concealed payments nor concealed income.

Finally, Goldstein addresses the most challenging aspect of the alleged affirmative acts directed to the diverted funds—the fact that a subset of the diverted funds was mischaracterized on the G&R books as business rather than personal expenses with the effect of reducing Goldstein’s taxable income. See Dkt. 120 at 2-4. Such mischaracterized expenses are the government’s go-to affirmative acts of tax evasion. See United States v. Helmsley, 726 F. Supp. 929, 931 (S.D.N.Y. 1989) (“Defendant Helmsley was convicted on 33 counts of income tax related offenses arising out of a scheme whereby $1.2 million dollars of personal expenses of defendant and her husband, principally in connection with their residence in Greenwich, Connecticut, were fraudulently billed as business expenses”). Goldstein concedes that some of the diverted funds were wrongly booked as business expenses but argues there is an innocent explanation. See Dkt. 2-4. According to the motion, the firm’s office manager booked the payments as business rather than personal expenses without any direction from or involvement by Goldstein himself. Id.

Mistakes do happen, and innocent mistakes are a valid defense to the willfulness element of each of the alleged tax crimes. See Cheek v. United States, 498 U.S. 192, 201 (1991) (willfulness requires “[proof] that the law imposed a duty . . . , that the defendant knew of this duty, and that he voluntarily and intentionally violated that duty”). On this point, it appears that Goldstein may have a plausible defense against, but not a justification for precluding, the government’s proof of this affirmative act evidence at trial.

Nevertheless, the failure to exclude the mischaracterized payments evidence may, in the end, be mostly neutral to Goldstein’s defense. Goldstein’s efforts to exclude much of the government’s affirmative acts evidence beyond the filing of false income tax returns appear to be aimed at reducing the case to a trial about bookkeeping errors. To the extent that Goldstein can explain away the false entries on his tax returns as the product of mistakes and misjudgments by third parties, the mischaracterized payments evidence would appear to fit neatly within that theory of defense.

5. Motion to Dismiss Employee Allegations

As an extension of his affirmative act challenges, Goldstein’s Motion to Dismiss Employee Allegations seeks to strike additional alleged affirmative acts of tax evasion arising from his employment of four paramours at his law firm in 2018. The Indictment alleges that the four employees did “little or no work” despite the firm fully expensing their salaries and health insurance premiums, which summed to a total of $39,000. See, e.g.,Indictment at ¶ 13. In essence, the Indictment asserts that the alleged sham employment should be disregarded, and the benefits received by the employees treated as personal payments made by Goldstein from taxable income.

From the government’s perspective, the alleged sham employment adds little to its proof of the “substantial tax due and owing” element required to prove tax evasion under Section 7201. By Goldstein’s calculation, applying the top applicable tax rate of 37% barely totals $14,000 of additional tax. Cynically, one might assume that the government pled these affirmative acts to ensure admissibility of the paramour employment evidence to “dirty up” the defendant in the eyes of the jury—raising the eyebrows of Fed. R. Evid. 403 and 404(a) to question whether the prejudicial effect of this character related evidence outweighs its probative value. Charitably, the government’s burden of proving “willfulness” in the criminal tax context is heavy. And the government may sincerely believe that this additional evidence of a common plan, intent, motive, and absence of mistake to obtain tax benefits for uncommon law firm hires not only satisfies Rule 404(b)’s exception to Rules 403 and 404(a) but also goes a long way in proving Goldstein’s willful violation of the tax laws.

Likely appreciating that Rules 403 and 404(a) ordinarily address only uncharged conduct, Goldstein’s motion wages a more frontal assault on the affirmative act allegations. As one might expect from a Supreme Court advocate, Goldstein asserts that the government’s application of Section 7201 to these facts is unconstitutionally vague and arbitrary. See Dkt. 122 at 4-5 (citing Johnson v. United States, 576 U.S. 591, 595 (2015) (“standardless [application of criminal statutes] invites arbitrary enforcement”)). Artfully, Goldstein uses the Indictment’s own averments to demonstrate the asserted vagueness and arbitrariness of applying Section 7201 to the alleged sham employment.

The focus of that analysis is trained first on Goldstein’s conduct and then expanded to illustrate the uncertain notice of illegality that this prosecution provides to other employers and taxpayers. Falling short of alleging that the four employees performed “no work” for the G&R law firm, the Indictment hedges, alleging that they did “little or no work.” According to Goldstein, this begs an uncomfortable question for all employers, “How ‘little’ work must be performed by an employee before a grand jury returns an indictment for the employer’s crime of tax evasion?” See generally, Dkt. 120 at 5-6.

The motion bears down on this issue with a compelling series of even more pointed questions:

Suppose, for example, that the owner of a small business hires an acquaintance to help the acquaintance start their career in a particular industry, despite having only a little work for the acquaintance to do. The business deducts the acquaintance’s full salary as a business expense. Has the business owner now committed a federal crime? If so, how much of the salary was the business permitted to deduct?

Or suppose the same business owner hires a new employee with the expectation that the business will soon have work for the new employee to do. If the new employee is not fully occupied on their first day, has the business owner committed a federal crime? What if the work does not materialize after one week? Or one month?

What if the employer becomes aware that the employee is not a particularly hard or efficient worker, such that the employee spends only about 10 hours a week actually performing their job duties? In which of these scenarios has the employer committed a federal crime by deducting the salary and health insurance premiums of an individual who performed ‘little work’ for the company?

Dkt. 120 at 6.

These questions touch upon the raw nerve of criminal tax enforcement—applying prosecutorial discretion in distinguishing tax related matters deserving criminal prosecution from those more appropriately addressed through civil tax collection procedures. This sensitivity is exacerbated by the inherent complexity of the tax laws and their broad application to the nation’s millions of ordinary taxpayers.

Goldstein acknowledges, with only scant rebuttal, that Section 7201’s willfulness element likely draws the battle lines for the court’s resolution of his motion—“To be sure, the Fourth Circuit has recognized that in some instances the inclusion of a willfulness requirement can mitigate a statute’s vagueness, United States v. Hsu, 364 F.3d 192, 197 (4th Cir. 2004), but that is not the case here.” Dkt. 120 at 8.

In Hsu, the Fourth Circuit rejected an “as-applied vagueness challenge” to the Arms Export Control Act explaining that “because the [Act] permits an arrest only if an individual acts ‘with the requisite criminal intent,’ it cannot be deemed constitutionally vague as-applied.” Hsu, 364 F.3d at 197. And by way of comparison, Section 7201’s “willfulness” element is much more friendly to criminal tax defendants than “the requisite criminal intent” element is to arms dealers.

In Cheek, the Supreme Court not only enunciated the broad contours of the criminal tax willfulness standard but also forecasted the significance of that evidentiary standard in avoiding constitutional challenges to the enforcement of the criminal tax statutes. 498 U.S. 192. The Court explained that criminal tax willfulness represents an exception to “[t]he general rule that ignorance of the law or a mistake of law is no defense to criminal prosecution.” Id. at 199. In place of that general rule, willfulness in the criminal tax context “requires the Government to prove that the law imposed a duty on the defendant, that the defendant knew of this duty, and that he voluntarily and intentionally violated that duty.” Id. at 201.

That knowledge requirement accommodates wide latitude in defending against criminal tax charges such that “[a] good-faith misunderstanding of the law or a good-faith belief that one is not violating the law negates willfulness, whether or not the claimed belief or misunderstanding is objectively reasonable.” Id. at 192 (emphasis added). This “[s]tatutory willfulness,” the Court explained, “protects the average citizen from prosecution for innocent mistakes made due to the complexity of the tax laws.” Id. And, relevant to Goldstein’s motion, the Court expressly noted that its exacting interpretation of willfulness was made in view of its “common ground” to interpret “where possible, . . . congressional enactments so as to avoid raising serious constitutional questions.” Id. at 203.

Thus, even though this heightened standard of criminal tax willfulness might save the government’s alleged sham employment evidence from Goldstein’s constitutional challenge, the government’s assertion of this evidence in a criminal prosecution arguably represents both misguided tax enforcement policy and self-defeating case strategy. Ordinarily, the government’s alleged affirmative acts of tax evasion are carefully confined to “black-and-white” matters of concealment and falsity.

Goldstein is correct that the government’s assertion of “little or no work” performed by the alleged sham employees falls into a gray zone of statutory and regulatory interpretation best left to the Tax Court or IRS revenue rulings. In other words, the contours of salary and insurance deductions allowed for underemployed labor are not clearly defined, yet Cheek requires the government to prove the tax duty that Goldstein allegedly violated beyond a reasonable doubt. Thus, in the end, the government may well regret the open-court dispute invited by Cheek over the finer points of employment tax law, which may tend to impeach the prosecutors and their case more than Goldstein himself.

6. Motion for Bill of Particulars

In addition to seeking further clarification about the sham employment and misdemeanor failure to pay allegations, Goldstein’s Motion for Bill of Particulars seeks detailed specification of the government’s proof of his “net” gambling income for tax years 2016, 2019, and 2020 underlying the related Section 7201 and Section 7206(2) charges in the Indictment. Dkt. 125; Indictment ¶¶ 36–44, 50.

The Indictment alleges that Goldstein won more than $17.5 million from gambling in 2016 but “falsely report[ed] on his 2016 Form 1040 that his net gambling winnings for 2016 were $2,748,350 whereas, in truth and fact, his net gambling winnings for 2016 were more than $5,000,000.” Indictment at ¶ 36 (emphasis added). Similarly, the Indictment alleges that Goldstein failed to report “approximately” $359,000 in 2019 and $93,180 in 2020 of “gambling income.” Indictment ¶¶ 66 & 69. Goldstein argues that these vague figures deprive him of fair notice of the government’s accounting that he needs to prepare his defense. Dkt. 125 at 4-5. Specifically, the motion demands disclosure from the government of its evidence concerning “transactions comprising Mr. Goldstein’s gambling losses.” Id. at 5.

Depending on the circumstances, Goldstein may be on solid footing in seeking clarification of how the government is using its terminology of “net gambling winnings” and “gambling income” and the specific evidence in support of its case. For example, the motion exhibits a spreadsheet concerning Goldstein’s gambling during 2016, 2019, and 2020 that the government produced in discovery. See Dkt. 125 at Exhibit A. For each year, the spreadsheet presents a chronological list of specific amounts of “credits” (identified as “Win”) in one column and in another column, a chronological list of “debits” (identified as “Staking”). Id.

The Indictment explains that “[t]o finance his participation in certain heads-up matches, GOLDSTEIN frequently enlisted other poker players to stake, or ‘buy a piece of,’ GOLDSTEIN in those matches.” Indictment at ¶ 7. This “meant that the other poker players would receive an agreed-upon percentage of GOLDSTEIN’s winnings if he won the match but pay that same percentage of GOLDSTEIN’s losses if he lost.” Id. This implies that the spreadsheet’s “debits” should be subtracted from its “credits” to determine Goldstein’s “net” gambling winnings in each year.

According to Exhibit A, in 2016, Goldstein had a total of $27,745,806.57 of “credits” or “wins” offset by a total of $10,140,700.00 of “debits” or “stakes” that he apparently paid to his stakeholders from those winnings. Dkt. 125 at Exhibit A. Subtracting the “stakes” from the “wins” produces a total of $17,605,106.57, which accounts for the “more than $17,500,000” of the 2016 gambling winnings alleged in the Indictment but fails to explain the “more than $5,000,000” of 2016 “net gambling winnings” also alleged in the Indictment as unreported gambling income on Goldstein’s 2016 tax return. No additional information, such as Goldstein’s gambling losses, is provided in Exhibit A for each of the tax years.

Thus, according to the government’s spreadsheet, Goldstein’s winnings and stakings “net out” to $17.6 million, not to the “more than $5,000,000” of unreported “net gambling winnings” in 2016 as alleged in the Indictment. Goldstein’s motion, therefore, seeks clarification of how the government arrived at “more than” $5 million of unreported “net gambling winnings” in 2016, specifically seeking any evidence of “gambling losses” used by the government to compute Goldstein’s gambling income for each of the disputed tax years under U.S. tax law. In any given tax year, U.S. tax law permits a taxpayer’s gambling losses to offset the taxpayer’s gambling winnings when computing gambling income, and presumably the government should produce its evidence of Goldstein’s gambling losses to show how it intends to prove his taxable gambling income for each of the disputed tax years. See 26 U.S.C. § 165(d); Treas. Reg. § 1.165-10.

Based on this analysis, Goldstein would appear to have the upper hand in demanding further clarification and discovery of the gambling loss evidence that the government intends to use to prove his taxable income—provided, however, that the government actually intends to prove Goldstein’s taxable income by accounting for his wins and losses at the poker table. In most criminal tax prosecutions, the government relies on a “specific items” method of proof to demonstrate a taxpayer’s taxable income. This involves introducing into evidence specific items of evidence demonstrating gross income, such as sales receipts, Forms 1099, Forms W-2, as well as evidence showing allowable deductions from gross income, such as Forms 1098 for mortgage interest paid, business related expenses, etc.

In rare cases, however, the government may opt to use indirect methods of proof such as the so-called “net worth method of proof” to demonstrate a taxpayer’s taxable income. See IRS Manual § 9.5.9.5. The net worth method calculates a taxpayer’s taxable income by comparing the taxpayer’s net worth (assets minus liabilities) at the beginning and end of a tax year, then making adjustments by subtracting receipts from nontaxable sources (e.g., loans and inheritances) and adding nondeductible expenditures (e.g., personal expenditures). The underlying theory is that significant increases in net worth that cannot be explained by the income reported on the tax return for the relevant tax year or by proceeds from nontaxable sources suggest additional unreported taxable income. This indirect method of proof long ago received the blessing of the Supreme Court. See Holland v. United States, 348 U.S. 121, 131 (1954) (despite “inherent pitfalls,” net worth method is especially appropriate in circumstances where a taxpayer’s income is not well documented).

The general formula of the net worth method of proof reduces to:

Taxable Income = (Net Worth at End of Year – Net Worth at Beginning of Year) + Nondeductible Expenditures – Receipts from Non-taxable Sources.

To further support the inference that annual increases in net worth represent increases in taxable income, the government must additionally demonstrate a likely source of the unreported taxable income, such as business activity, gambling, drug dealing, etc. See Holland, 348 U.S. at 137. Viewed through this lens, the generalized allegations in the Indictment and the Exhibit A lists of gambling “wins” and “stakes” evidence provided by the government in discovery, while lacking the specificity required to prove Goldstein’s gambling income by specific items of evidence, is sufficient to show a “likely source” of Goldstein’s increases in annual net worth from gambling and hence unreported taxable income.

The government’s reliance on a net worth method of proof, therefore, would rationalize the apparent contradiction in the Indictment, which simultaneously alleges that in 2016, Goldstein had $17.5 million of gambling winnings but only “more than” $5 million of net gambling income compared to the $2,748,350 of gambling income reported on his 2016 return. The lower $5 million amount may represent the portion of Goldstein’s increase in net worth at the close of 2016 that the government can attribute to his gambling rather than his other business activities. And the $17.5 million net of “wins” and “stakes” may simply represent the government’s evidence of a “likely source” of Goldstein’s taxable income from gambling in 2016. As “likely source” evidence in a net worth method of proof, there is no need to do any further rigorous accounting to arrive at the alleged $5 million of gambling income for purposes of proving a substantial tax due and owing in pursuit of a conviction for tax evasion under Section 7201. Goldstein may very well have had millions of dollars of unknown gambling losses in 2016, but the precise quantum of those losses is not particularly relevant or necessary to a net worth analysis.

The government’s decision to rely on the net worth method would also explain the non-specific and “cryptic” allegations in the Indictment concerning Goldstein’s use of cryptocurrency. The Indictment does not allege that Goldstein earned income through buying and selling cryptocurrency, as might be expected if the government intended to prove the specific items of Goldstein’s taxable income. Instead, the Indictment documents the annual dollar value of Goldstein’s cryptocurrency expenditures in the relevant tax years. See Indictment at ¶¶ 70 ($1.5 million in 2020) & 81 ($8 million in 2021)). In the context of a net worth method of proof, those cryptocurrency expenditures would add an additional $1.5 million of taxable income in 2020 and $8 million of taxable income in 2021 in the form of non-deductible expenditures added to Goldstein’s net worth increases for those year.

The success of Goldstein’s motion, therefore, may turn on the method of proof that the government intends to use at trial. If the government intends to employ a more traditional specific items method of proof, then Goldstein likely has good arguments for further clarification of the Indictment and additional discovery. If, however, the government intends to rely on an indirect method of proof, such as the net worth method, then the specificity demanded by Goldstein’s motion may not be particularly relevant to the issues presented at trial.

Analysis – Looking Ahead to Trial

1. Section 7201 – The DOJ’s High-Risk Bet

Section 7201, the government’s cornerstone charge against Goldstein, is a felony punishing willful tax evasion through three elements: a substantial tax due and owing, willfulness (intentional violation of a known legal duty), and an affirmative act to evade or defeat the tax. See United States v. Goodyear, 649 F.2d 226, 227-28 (4th Cir. 1981).

The government reaps two primary benefits from Section 7201. First, the “affirmative act to evade” element allows the government to make a sweeping “bad acts” evidentiary presentation at trial, encompassing not only the filing of false tax returns but also actions such as the use foreign bank accounts to conceal income, directing gambling winnings to pay third-party debts, and funneling law firm funds to paramours. SeeIndictment at ¶¶ 37(g), 38(g) & 32. Goldstein’s motions to pair back the government’s affirmative act of evasion evidence appears aimed at reframing the case as a technical bookkeeping dispute rather than a criminal scheme. By seeking to exclude those alleged inflammatory acts, Goldstein seeks to narrow the jury’s focus to less prejudicial acts arising from bookkeeping errors made by others without his personal involvement.

Second, the “substantial tax due and owing” element provides an opportunity to the government to demonstrate a large tax loss—here potentially in the millions—which would drive sentencing into severe ranges under the Sentencing Guidelines. Yet, Section 7201 poses formidable challenges to the government as well, centered on its burden to prove a substantial tax deficiency. Goldstein’s gambling income, frequently derived from non-casino venues like private homes or overseas matches in Asia, lacks standard IRS reporting, such as Forms 1099 and Forms W-2G, complicating a specific items method of proof. That risk is especially acute in gambling cases, where the defendant may be able to present credible evidence of substantial gambling losses detrimental to the government’s case. To overcome this challenge and effectively moot such gambling loss evidence, the government may choose to employ indirect methods of proof, such as a net worth method, to prove Goldstein’s taxable income.

Goldstein’s flurry of pretrial motions is conspicuously silent on the non-tax charges under 18 U.S.C. § 1014, which allege false statements on mortgage applications. Compared to Section 7201 tax evasion, Section 1014 carries a comparatively heftier maximum prison sentence—up to 30 years and a substantial $1,000,000 fine. Like tax evasion, lengthy prison sentences under that section are driven by financial loss under the sentencing guidelines. Goldstein’s lack of attention to the Section 1014 charges suggests that he is likely current on his mortgage payments and confident that the government cannot otherwise demonstrate substantial loss from his mortgage applications or other applicable sentencing enhancements. If so, the focus at trial will likely remain on the charged tax offenses.

Goldstein, however, faces other concerns beyond sentencing. As a practicing attorney licensed in Maryland, a felony conviction under Sections 7201, 7206(2), or 1014 threatens his law license, a dire consequence, especially for an attorney of his caliber. In Maryland, as in most states, a felony conviction on tax charges which involve “moral turpitude” typically triggers disbarment proceedings. For this reason, Goldstein may regret any success he has in obtaining dismissal of the misdemeanor Section 7203 failure to pay charges—and thereby losing the possibility of a compromise jury verdict at trial.

2. Section 7206 – The DOJ’s Felony Fail-Safe

Section 7206(2) serves as the government’s felony fail-safe, targeting Goldstein’s aiding in the preparation of false Forms 1040 (individual) and 1120S (G&R corporate) tax returns for the 2016 to 2021 tax years. Unlike Section 7201, which demands proof of a substantial tax deficiency, Section 7206(2) requires only that Goldstein willfully provided his accountants and return preparers with false or fraudulent information material to the accuracy of the tax returns. With a three-year maximum sentence, Section 7206(2) potentially offers a softer landing if Goldstein is successful in beating the Section 7201 charges. In view of the potentially large tax losses at issue here, there is a realistic chance that a conviction on Section 7201 would extend beyond concurrently served three-year sentences that would alternatively be imposed for conviction on Section 7206(2) charges alone.

The government’s decision to charge Section 7206(2) instead of Section 7206(1) is noteworthy, as ordinarily, the government reserves Section 7206(2) for charging return preparers and accountants rather than taxpayers like Goldstein. Historically, Section 7206(1)—which penalizes the willful signing of a false tax return—is the standard go-to charge for taxpayers themselves. The indictment’s use of Goldstein’s “causing the preparation, signing, and filing” of the individual and corporate tax returns, in contrast to explicit “signed” language for loan the applications under Section 1014, suggests potential uncertainties in proving Goldstein’s personal and actual signing of the returns. See Indictment ¶¶ 37–40, 89, 91 & 99. This may indicate that Goldstein authorized a proxy to sign the returns, a practice that, while sometimes overlooked by the IRS amid millions of filings, might unnecessarily complicate proof of Section 7206(1)’s signature requirement. By opting for Section 7206(2), the government bypasses this hurdle, focusing on Goldstein’s alleged provision of false information to those who prepared his tax returns.

Conclusion

At trial, therefore, Goldstein’s ability to maintain his sloppy bookkeeping narrative—bolstered by the government’s challenges in proving his uncertain gambling income together with the possible exclusion of the more prejudicial and “unseemly” affirmative acts of evasion evidence—will put the government to the test in proving its case beyond a reasonable doubt. Ordinarily, the stringent burden of proving criminal tax’s willfulness element is an additional high hurdle that the government must cross. Unfortunately for Goldstein, his high-performing status as an attorney will undoubtedly lighten that burden as the government attempts to prove that he voluntarily violated a known legal duty. In the end, Goldstein’s deft defense must navigate these multifaceted challenges to secure a favorable outcome.

Endnote

*During the 1990s, the author served as a Trial Attorney in the U.S. Department of Justice, Tax Division, Western Criminal Enforcement Section.