## Facts

- Defendants affiliated with Princeton Newport Partners, L.P. (PN), a securities trading partnership; James Sutton Regan served as a managing partner and the firm’s tax specialist.
- PN engaged in transactions involving depreciated stock that generated claimed tax losses.
- Regan structured transactions in which PN temporarily transferred stock to other broker-dealers and later repurchased it under oral understandings.
- During the holding period, the other firms had control of the stock and PN lacked an enforceable right to repurchase; repurchase prices could differ substantially from market price.
- Defendants contended the transactions were lawful under Internal Revenue Code § 1058 (nonrecognition for certain securities loans), relying on statutory text, legislative materials, proposed (unadopted) regulations, accountants’ input, and bar-association analysis.
- The government characterized the arrangements as “stock parking” designed to create deductible losses while effectively retaining economic exposure, and charged tax fraud and related false reporting.
- A 64-count indictment also charged securities fraud, mail and wire fraud, false partnership records and reports, conspiracy, and RICO violations.
- At trial, defendants requested a jury instruction that a good-faith belief that § 1058 permitted their tax treatment negated willfulness; the district court refused, stating § 1058 was inapplicable and defendants’ theory lacked substance.
- The jury convicted defendants on tax-fraud-related counts and on securities-fraud-related counts.

## Issues

1. Whether the district court erred in refusing to instruct the jury that a good-faith belief that § 1058 authorized defendants’ tax treatment could negate willfulness in a criminal tax case.
2. Whether, given the technical and unsettled nature of the relevant tax provisions and evidence of reliance on professional advice, willfulness had to be submitted to the jury on the defendants’ good-faith theory.
3. Whether the securities-fraud convictions and a general conspiracy verdict could stand where the appellate court could not determine whether the conspiracy verdict rested on invalidated tax-fraud theories.

## Decision

- The Second Circuit vacated convictions on the tax-fraud-related group of counts and remanded.
- The court held the district court improperly foreclosed the jury from considering defendants’ good-faith theory bearing on willfulness.
- The court affirmed the securities-fraud-related convictions.
- In an amended disposition, the court vacated and remanded the conspiracy convictions of Regan, Rabinowitz, Smotrich, and Berkman because the jury returned a general verdict and the record did not permit certainty that the conspiracy finding rested on securities fraud rather than the reversed tax-fraud theories.

## Legal Principles

- Criminal tax offenses require proof of “willfulness,” meaning a voluntary, intentional violation of a known legal duty.
- A genuinely held good-faith belief that one’s tax position complies with the law, even if incorrect, can negate willfulness.
- When a defendant produces evidence supporting a good-faith belief grounded in statutory interpretation and professional advice, the trial court must permit the jury to evaluate that defense; the court may not remove it by declaring the defense legally meritless.
- Instructional error that prevents the jury from considering a central willfulness defense warrants reversal of tax-fraud convictions when not harmless.
- A general conspiracy verdict may require vacatur when the reviewing court cannot determine whether it rests on a legally infirm theory.

## Conclusion

The Second Circuit set aside the tax-fraud convictions because the jury was not instructed to consider whether defendants’ asserted good-faith belief about the tax law negated willfulness, while leaving the securities-fraud convictions intact and vacating certain conspiracy convictions due to uncertainty about the basis of the general verdict.


United States v. Regan, 937 F.2d 823 (2d Cir. 1991)