7203 - Admissions Page 1

Home | Services | FAQ | Site Map | Contact Us

Articles by Alvin Brown
Tax Preparation
Offer In Compromise
State Offers in Compromise
Levy
IRS Tax Liens
IRS Tax Liens - continued
IRS Tax Liens - continued 2
Levy - continued
IRS Audits
Audit Techniques Guide
Congressional Contacts
Criminal Investigation
D.O.J Criminal Tax Manual
Tax Litigation
Penalty
Installment Agreements
Statute of Limitations
Frivolous Tax Argument
Interest Abatement
IRS Misconduct
IRS Abuses
Tax Fraud
Fraud Statutes
Bankruptcy
Tax Reform Legislation
Tax Shelters
Tax Court
Trust Fund Penalty
Legislation
Innocent Spouse Relief
Important Links


Fraud Statutes 

Additional Information:

 

7203 - Accountant-Client Privilege
7203 - Accrual Basis
7203 - Admissibility 1 p1
7203 - Admissibility 1 p2
7203 - Admissibility 1 p3
7203 - Admissibility 1 p4
7203 - Admissibility 1 p5
7203 - Admissibility 1 p6
7203 - Admissibility 2 p1
7203 - Admissibility 2 p2
7203 - Admissibility 2 p3
7203 - Admissibility 2 p4
7203 - Admissibility 2 p5
7203 - Admissibility 3 p1
7203 - Admissibility 3 p2
7203 - Admissibility 3 p3
7203 - Admissibility 3 p4
7203 - Admissibility 3 p5
7203 - Admissibility 4 p1
7203 - Admissibility 4 p2
7203 - Admissions p1
7203 - Admissions p2
7203 - Advice of Counsel p1
7203 - Advice of Counsel p2
7203 - Amendment
7203 - Appeal Right to
7203 - Appeal Timeliness
7203 - Appeal Waiver
7203 - Appeal without merit
7203 - Arrest
7203 - Fraudulent Return
7203 - Defeat & Evade Income Taxes p1
7203 - Defeat & Evade Income Taxes p2
7203 - Defeat & Evade Income Taxes p3
7203 - Defeat &  Evade Income Taxes p4
7203 - Attorney Disqualified
7203 - Attorney's Testimony p1
7203 - Attorney's Testimony p2
7203 - Attorney's Testimony p3
7203 - Attorney's Testimony p4
7203 - Bail
7203 - Bank Records &  Net Worth Increases 1 p1
7203 - Bank Records &  Net Worth Increases 1 p2
7203 - Bank Records &  Net Worth Increases 1 p3
7203 - Bank Records &  Net Worth Increases 1 p4
7203 - Bank Records &  Net Worth Increases 1 p5
7203 - Bank Records &  Net Worth Increases 1 p6
7203 - Bank Records &  Net Worth Increases 2 p1
7203 - Bank Records &  Net Worth Increases 2 p2
7203 - Bank Records &  Net Worth Increases 2 p3
7203 - Bank Records &  Net Worth Increases 2 p4
7203 - Bank Records &  Net Worth Increases 2 p5
7203 - Bank Records &  Net Worth Increases 3 p1
7203 - Bank Records &  Net Worth Increases 3 p2
7203 - Bank Records &  Net Worth Increases 3 p3
7203 - Bank Records &  Net Worth Increases 3 p4
7203 - Bank Records &  Net Worth Increases 3 p5
7203 - Bank Records &  Net Worth Increases 4 p1
7203 - Bank Records &  Net Worth Increases 4 p2
7203 - Bank Records &  Net Worth Increases 4 p3
7203 - Bank Records &  Net Worth Increases 4 p4
7203 - Bank Records &  Net Worth Increases 4 p5
7203 - Bank Records &  Net Worth Increases 5 p1
7203 - Bank Records & Net Worth Increases 5 p2
7203 - Bank Records & Net Worth Increases 5 p3
7203 - Bank Records & Net Worth Increases 5 p4
7203 - Bank Records & Net Worth Increases 5 p5
7203 - Base Sentence p1
7203 - Base Sentence p2
7203 - Base Sentence p3
7203 - Base Sentence p4
I7203 - Bill of Particluar Conspiracy
7203 - Bill of Particulars
7203 - Books and Records
7203 - Burden of going forward with evidence
7203 - Burden of Proof
7203 - Carryback Offset
7203 - Changing Plea
7203 - Character witness p1
7203 - Character witness p2
7203 - Circumstanial Evidence p1
7203 - Circumstanial Evidence p2
7203 - Circumstanial Evidence p3
7203 - Circumstanial Evidence p4
7203 - Collateral Estoppel
7203 - Collection
7203 - Commitment by U.S. Commissioner
7203 - Communication to Jury
7203 - Compromise
7203 - Consolidation
7203 - Conspiracy p1
7203 - Conspiracy p2
7203 - Conspiracy 1 p1
7203 - Conspiracy 1 p2
7203 - Conspiracy 1 p3
7203 - Conspiracy 1 p4
7203 - Conspiracy 1 p5
7203 - Conspiracy 1 p6
7203 - Conspiracy 1 p7
7203 - Conspiracy 1 p8
7203 - Conspiracy 2 p1
7203 - Conspiracy 2 p2
7203 - Conspiracy 2 p3
7203 - Constitutional Grounds 1 p1
7203 - Constitutional Grounds 1 p2
7203 - Constitutional Grounds 1 p3
7203 - Constitutional Grounds 1 p4
7203 - Constitutional Grounds 1 p5
7203 - Constitutional Grounds 2 p1
7203 - Constitutional Grounds 2 p2
7203 - Constitutional Grounds 2 p3
7203 - Constitutional Grounds 2 p4
7203 - Constitutional Grounds 2 p5
7203 - Constitutional Grounds 3 p1
7203 - Constitutional Grounds 3 p2
7203 - Constitutional Grounds 3 p3
7203 - Constitutional Grounds 3 p4
7203 - Constitutional Grounds 3 p5
7203 - Constitutional Grounds 4 p1
7203 - Constitutional Grounds 4 p2
7203 - Constitutional Grounds 4 p3
7203 - Constitutional Grounds 4 p4
7203 - Constitutional Grounds 5 p1
7203 - Constitutional Grounds 5 p2
7203 - Constitutional Grounds 5 p3
7203 - Constitutional Grounds 5 p4
7203 - Constitutional Grounds 5 p5
7203 - Constitutional Grounds 6
7203 - Contempt Finding Ag. Defendant's Counsel
7203 - Continuance p1
7203 - Continuance p2
7203 - Continuance p3
7203 - Conviction Required
7203 - Copies of Records p1
7203 - Copies of Records p2
7203 - Corporation Officer
7203 - Costs
7203 - Credit for Time Served
7203 - Criminal Contempt
7203 - Cross-Examination PART 1 p1
7203 - Cross-Examination PART 1 p2
7203 - Cross-Examination PART 1 p3
7203 - Cross-Examination PART 1 p4
7203 - Cross-Examination PART 1 p5
7203 - Cross-Examination PART 2
7203 - DefendantHaving Facts Available p1
7203 - DefendantHaving Facts Available p2
7203 - DefendantHaving Facts Available p3
7203 - Degree of Proof p1
7203 - Degree of Proof p2
7203 - Depositions
7203 - Different Statute Cited
7203 - Discovery, Scope Of
7203 - Documentary Evidence in Jury Room
7203 - Double Jeopardy 1 p1
7203 - Double Jeopardy 1 p2
7203 - Double Jeopardy 1 p3
7203 - Double Jeopardy 1 p4
7203 - Double Jeopardy 1 p5
7203 - Double Jeopardy 2 p1
7203 - Double Jeopardy 2 p2
7203 - Double Jeopardy 2 p3
7203 - Double Jeopardy 2 p4
7203 - Enhanced Sentence Sophisticated Means p1
7203 - Enhanced Sentence Sophisticated Means p2
7203 - Enhanced Sentence p1
7203 - Enhanced Sentence p2
7203 - Entrapment
7203 - Erroneous calculation of tax
7203 - Exclusion of Oral Testimony
7203 - Exercise Privilege-Exclusion from Courtroom
7203 - Expert Witness p1
7203 - Expert Witness p2
7203 - Expert Witness p3
7203 - Expert Witness p4
7203 - Extenuating Circumstances
7203 - Fact Finding p1
7203 - Fact Finding p2
7203 - Fact Finding p3
7203 - Fact Finding p4
7203 - Fact Finding p5
7203 - Failure of IRS to File Return
7203 - Failure to Assess Tax
7203 - Failure to Prosecute p1
7203 - Failure to Prosecute p2
7203 - Failure to Prosecute p3
7203 - Failure to Prosecute p4
7203 - Failure to Prosecute p5
7203 - Failure to Report Income 1 p1
7203 - Failure to Report Income 1 p2
7203 - Failure to Report Income 1 p3
7203 - Failure to Report Income 1 p4
7203 - Failure to Report Income 1 p5
7203 - Failure to Report Income 1 p6
7203 - Failure to Report Income 2 p1
7203 - Failure to Report Income 2 p2
7203 - Failure to Supply Information
7203 - False Return
7203 - Fictitious names
7203 - Fraud Case Procedures p1
7203 - Fraud Case Procedures p2
7203 - Fraud Case Procedures p3
7203 - Fraud Case Procedures p4
7203 - General Exception
7203 - Good Faith p1
7203 - Good Faith p2
7203 - Good Faith p3
7203 - Good Faith p4
7203 - Government Agent Prosecuting Claim
7203 - Grand Jury 1 p1
7203 - Grand Jury 1 p2
7203 - Grand Jury 1 p3
7203 - Grand Jury 1 p4
7203 - Grand Jury 1 p5
7203 - Grand Jury 2 p1
7203 - Grand Jury 2 p2
7203 - Hearsay Evidence p1
7203 - Hearsay Evidence p2
7203 - Hearsay Evidence p3
7203 - Hearsay Evidence p4
7203 - Hearsay Evidence p5
7203 - Hostility of the Court p1
7203 - Hostility of the Court p2
7203 - Hostility of the Court p3
7203 - Hypnosis
7203 - Identification
7203 - Ignorance of Law
7203 - Immunity p1
7203 - Immunity p2
7203 - Immunity p3
7203 - Impeachment p1
7203 - Impeachment p2
7203 - Improper Comment PART 1 p1
7203 - Improper Comment PART 1 p2
7203 - Improper Comment PART 1 p3
7203 - Improper Comment PART 1 p4
7203 - Improper Comment PART 1 p5
7203 - Improper Comment PART 2 p1
7203 - Improper Comment PART 2 p2
7203 - Improper Comment PART 2 p3
7203 - Improper Comment PART 2 p4
7203 - Improper Comment PART 2 p5
7203 - Improper Comment PART 3
7203 - Improper Question
7203 - Incrimination 1 p1
7203 - Incrimination 1 p2
7203 - Incrimination 1 p3
7203 - Incrimination 1 p4
7203 - Incrimination 1 p5
7203 - Incrimination 2 p1
7203 - Incrimination 2 p2
7203 - Incrimination 2 p3
7203 - Incrimination 2 p4
7203 - Incrimination 2 p5
7203 - Incriminaton Before Grand Jury p1
7203 - Incriminaton Before Grand Jury p2
7203 - Instructions to Jury 1 p1
7203 - Instructions to Jury 1 p2
7203 - Instructions to Jury 1 p3
7203 - Instructions to Jury 1 p4
7203 - Instructions to Jury 1 p5
7203 - Instructions to Jury 2 p1
7203 - Instructions to Jury 2 p2
7203 - Instructions to Jury 2 p3
7203 - Instructions to Jury 2 p4
7203 - Instructions to Jury 2 p5
7203 - Instructions to Jury 3 p1
7203 - Instructions to Jury 3 p2
7203 - Instructions to Jury 3 p3
7203 - Instructions to Jury 3 p4
7203 - Instructions to Jury 3 p5
7203 - Instructions to Jury 4 p1
7203 - Instructions to Jury 4 p2
7203 - Instructions to Jury 4 p3
7203 - Instructions to Jury 4 p4
7203 - Instructions to Jury 4 p5
7203 - Instructions to Jury 5 p1
7203 - Instructions to Jury 5 p2
7203 - Instructions to Jury 5 p3
7203 - Instructions to Jury 5 p4
7203 - Instructions to Jury 5 p5
7203 - Instructions to Jury 6 p1
7203 - Instructions to Jury 6 p2
7203 - Instructions to Jury 6 p3
7203 - Instructions to Jury 6 p4
7203 - Instructions to Jury 6 p5
7203 - Instructions to Jury 7 p1
7203 - Instructions to Jury 7 p2
7203 - Instructions to Jury 7 p3
7203 - Instructions to Jury 7 p4
7203 - Instructions to Jury 7 p5
7205 Convictions p1
7205 Convictions p2
7205 Convictions p3
7205 Convictions p4
7205 Convictions p5
7205 Double Jeopardy
7205 Exemption Certificates
7205 Hostility of the Court
7205 Indictment
7205 Information
7205 Intent to Deceive Lacking
7205 Right to Counsel
7205 Trial, Timeliness
7205 Variance
7205 Venue
7205 Willfulness
7206 False Returns 1 p1
7206 False Returns 1 p2
7206 False Returns 1 p3
7206 False Returns 1 p4
7206 False Returns 1 p5
7206 False Returns 2 p1
7206 False Returns 2 p2
7206 False Returns 2 p3
7206 False Returns 2 p4
7206 False Returns 2 p5
7206 False Returns 3 p1
7206 False Returns 3 p2
7206 False Returns 3 p3
7206 False Returns 3 p4
7206 Basis for Allegation of Fraud
7206 Concealment of Assets p1
7206 Concealment of Assets p2
7206 Conspiracy 1 p1
7206 Conspiracy 1 p2
7206 Conspiracy 1 p3
7206 Conspiracy 1 p4
7206 Conspiracy 2 p1
7206 Conspiracy 2 p2
7206 Constitutionality p1
7206 Constitutionality p2
7206 Constitutionality p3
7206 Costs
7206 Disclosure of Returns
7206 Estoppel p1
7206 Estoppel p2
7206 Estoppel p3
7206 Evidence 1 p1
7206 Evidence 1 p2
7206 Evidence 1 p3
7206 Evidence 1 p4
7206 Evidence 1 p5
7206 Evidence 2 p1
7206 Evidence 2 p2
7206 Evidence 2 p3
7206 Evidence 2 p4
7206 Evidence 2 p5
7206 Evidence 3 p1
7206 Evidence 3 p2
7206 Evidence 3 p3
7206 Evidence 3 p4
7206 Evidence 3 p5
7206 Evidence 4 p1
7206 Evidence 4 p2
7206 Evidence 4 p3
7206 False Claims Against U.S.
7206 False Documents p1
7206 False Documents p2
7206 False Statements in Return 1 p1
7206 False Statements in Return 1 p2
7206 False Statements in Return 1 p3
7206 False Statements in Return 1 p4
7206 False Statements in Return 1 p5
7206 False Statements in Return 2 p1
7206 False Statements in Return 2 p2
7206 False Statements in Return 2 p3
7206 False Statements in Return 2 p4
7206 False Statements in Return 3 p1
7206 False Statements in Return 3 p2
7206 False Statements in Return 3 p3
7206 False Statements in Return 3 p4
7206 False Statements in Return 3 p5
7206 False Statements in Return 4 p1
7206 False Statements in Return 4 p2
7206 False Statements in Return 4 p3
7206 False Statements in Return 4 p4
7206 False Statements in Return 4 p5
7206 False Statements in Return 5 p1
7206 False Statements in Return 5 p2
7206 False Statements in Return 5 p3
7206 False Statements in Return 5 p4
7206 False Statements to IRS Agents p1
7206 False Statements to IRS Agents p2
7206 False Statements to IRS Agents p3
7206 Forgery
7206 Grand Jury
7206 Guilty Plea p1
7206 Guilty Plea p2
7206 Immunity
7206 Indictment 1 p1
7206 Indictment 1 p2
7206 Indictment 1 p3
7206 Indictment 1 p4
7206 Indictment 1 p5
7206 Indictment 2 p1
7206 Indictment 2 p2
7206 Instructions to Jury 1 p1
7206 Instructions to Jury 1 p2
7206 Instructions to Jury 1 p3
7206 Instructions to Jury 1 p4
7206 Instructions to Jury 1 p5
7206 Instructions to Jury 2 p1
7206 Instructions to Jury 2 p2
7206 Instructions to Jury 2 p3
7206 Instructions to Jury 2 p4
7206 Instructions to Jury 2 p5
7206 Instructions to Jury 3 p1
7206 Instructions to Jury 3 p2
7206 Instructions to Jury 3 p3
7206 Instructions to Jury 3 p4
7206 Instructions to Jury 3 p5
7206 Jury Verdict Disregarded
7206 Jury p1
7206 Jury p2
7206 Jury p3
7206 Lesser Included Offense p1
7206 Lesser Included Offense p2
7206 Motion For Continuance
7206 Motion to Sever
7206 Motion to Transfer
7206 Motion to Vacate Sentence
7206 Net Worth Statement
7206 Offer in Compromise
7206 Perjury
7206 False or Fraudulent Returns p1
7206 False or Fraudulent Returns p2
7206 False or Fraudulent Returns p3
7206 False or Fraudulent Returns p4
7206 False or Fraudulent Returns p5
7206 Prior Convictions
7206 Prior Law
7206 Probation
7206 Prosecutor's Comment p1
7206 Prosecutor's Comment p2
7206 Restitution
7206 Right to Counsel p1
7206 Right to Counsel p2
7206 Sentence p1
7206 Sentence p2
7206 Sentence p3
7206 Sentence p4
7206 Sentencing Guidelines 1 p1
7206 Sentencing Guidelines 1 p2
7206 Sentencing Guidelines 1 p3
7206 Sentencing Guidelines 1 p4
7206 Sentencing Guidelines 1 p5
7206 Sentencing Guidelines 2 p1
7206 Sentencing Guidelines 2 p2
7206 Sentencing Guidelines 2 p3
7206 Statute of Limitations p1
7206 Statute of Limitations p2
7206 Venue
7206 Willfulness Defined p1
7206 Willfulness Defined p2
7206 Willfulness Defined p3
7206 Willfulness Defined p4
7207 Conviction
7207 Defenses
7207 Motion to Dismiss
7207 Sentencing
7207 Willfully Defined
7210 Willful Failure to Obey Summons
7212 Assault
7212 Bribery
7212 Constiutionality
7212 Indictment
7212 Interference p1
7212 Interference p2
7212 Interference p3
7212 Interference p4
7212 Jury Instructions
7212 Rescue of Seized, Levied Property p1
7212 Rescue of Seized, Levied Property p2
7212 Sentence p1
7212 Sentence p2
7212 Statute of Limitations
7212 Suppresion of Evidence
7215 Constitutionality
7215 Conviction
7215 Corporation
7215 Defenses
7215 Evidence
7215 Intent
7215 Speedy Trial
7216 Consent
7216 Preparer Defined
7216 Scope of Statute
7217 IRS Employees

 

Admissions Page1

Back ] Next ]

   

7203: Willful Failure to File Return, Supply Information, or Pay Tax: Evidence: Admissions

 

[Dec. 40,211(M)] Clem Moore and Janice Moore, et al. 1 v. Commissioner

Docket Nos. 8538-79, 8539-79, 8540-79, 8541-79, 8542-79, 8543-79, 8544-79, 21865-80, 46 TCM 473, T.C.Memo. 1983-352, Filed June 15, 1983

[Appealable, barring stipulation to the contrary, to CA-8.--CCH]

[Code Secs. 704 and 761 ]

Partnerships: Partner's distributive share: Liquidations: Employment distinguished.--A partnership existed where a bank account was established and supplies were purchased in the partnership name, the partner denying its existence at times introduced himself to others as a partner, and that same partner in documents prepared in another lawsuit described certain property as partnership property. Therefore, the transfer of that property to another partner was a distribution in liquidation of a partnership interest and not the payment of wages for services rendered.

[Code Sec. 7203 ]

Tax Court: Failure to pay tax: Evidence: Admissions.--A complaint filed by taxpayers in a lawsuit to determine the legal interests of the parties was admissible as evidence against taxpayers, since it was verified by them as being true and correct. Also admitted was a brief filed by taxpayers' attorney in that prior action, since it was a statement made within the scope of the attorney's agency. Pleadings filed by taxpayers' opponents in the prior action were inadmissible for the obvious reason that they did not represent a statement by taxpayers.--CCH.

D. Derrell Davis, for the petitioners in docket Nos. 8358-79 through 8544-79. H. David Blair, for the petitioners in docket No. 21865-80. Rebecca W. Wolfe, for the respondent.

Rebecca W. Wolfe, for the respondent.

Memorandum Findings of Fact and Opinion

GOFFE, Judge:

The Commissioner determined deficiencies in the petitioners' Federal income tax for the taxable years as set forth below:

Petitioners                          Year         Deficiency
Clem Moore and                        FYE
Janice Moore ............         3/31/75         $11,645.00
Alan F. Moore and
Linda B. Moore ..........            1974           1,060.00
Donna J. Moore ..........            1974             137.16
Andrew N. Moore and
Reba Nell Moore .........            1974             965.00
Andrew N. Moore, III ....            1974             137.16
Christie E. Moore .......            1974             137.16
Tera J. Moore ...........            1974             137.16
George L. Davis and
Hester L. Davis .........            1974          42,491.59

 

After concessions, the issues for decision are: (1) Whether petitioners George L. Davis and Clem Moore were partners in a partnership. Based upon our resolution of this issue, we must then decide (2) how the various petitioners should treat, for tax purposes, the transfer of certain property to George Davis, to wit: as a distribution in liquidation of a partnership interest or as the payment of wages for services rendered, and if as wages, whether certain petitioners should recognize capital gain on the transfer.

Findings of Fact

Some of the facts have been stipulated. The stipulation of facts and stipulated exhibits are incorporated herein by this reference.

All petitioners resided in the State of Arkansas at the time they filed their petitions in this matter.

Petitioners Clem and Janice Moore filed a joint Federal income tax return for the taxable year ended March 31, 1975. A statutory notice of deficiency for the taxable year ended March 31, 1975, was timely mailed to petitioners Clem and Janice Moore on March 19, 1979.

Petitioners Alan F. and Linda B. Moore filed a joint Federal income tax return for the taxable year 1974. A statutory notice of deficiency for the taxable year 1974 was timely mailed to petitioners Alan F. and Linda B. Moore on March 19, 1979.

Petitioners Andrew N. and Reba Nell Moore filed a joint Federal income tax return for the taxable year 1974. A statutory notice of deficiency for the taxable year 1974 was timely mailed to petitioners Andrew N. and Reba Nell Moore on March 19, 1979.

Petitioners Donna J. Moore, Andrew N. Moore, III, Christie E. Moore, and Tera J. Moore did not file Federal income tax returns for the taxable year 1974. On March 19, 1979, these petitioners were timely mailed statutory notices of deficiency for the taxable year 1974.

Petitioners George L. and Hester L. Davis filed a joint Federal income tax return for the taxable year 1974. A statutory notice of deficiency for the taxable year 1974 was timely mailed to petitioners George L. and Hester L. Davis on September 29, 1980.

On March 8, 1961, George L. Davis entered into a contract with Nelse W. Barnett to purchase certain real property, consisting of approximately 806 acres in Independence County , Arkansas . As part of the purchase price for the 806 acres, George Davis conveyed his equity interest in his home and 30 acres to Nelse Barnett. Under the terms of the contract dated March 8, 1961, George Davis was to pay Nelse Barnett an additional $10,000 in yearly installments of $500, plus interest at 6 percent per annum. The first interest payment was due on January 1, 1962, and the first payment on the principal was due on January 1, 1964.

George Davis and Mr. Barnett had a disagreement as to certain additional obligations of Mr. Barnett under their agreement, so on December 15, 1961, Barnett sold the property to Clem Moore, subject to George Davis' rights under the March 8, 1961, contract. George Davis then, by oral agreement, formed a partnership with Clem Moore's son, Andy, to raise cattle on the Barnett land, in which both he and Clem Moore had an interest. Under their agreement George Davis and Andy Moore were equal partners. Clem Moore agreed to lend the partnership, at 6-percent interest, the money it needed to operate. Andy contributed a herd of cattle to the partnership. Davis was to receive a one-half interest in all the partnership property once the Moores were repaid their investment. They operated on this basis for several years.

In 1965 Clem Moore, who had bought some land adjoining the land that George Davis and Andy Moore had been ranching, contributed this land to the partnership and Andy, Clem and George all became equal partners with a one-third share each of the partnership. This was done by oral agreement among the three men. At this time Andy was going off to college.

Clem Moore kept the books of the partnership. These books consisted of a single-entry book of account in which he recorded al items of expense and income and all capital contributions and expenditures. None of the partners received any profits from the cattle operation. All profits were applied to repay the working capital loan due to Clem Moore and to pay Clem Moore for his interest in the land used by the partnership.

Beginning after Andy went to school, the partnership agreed to pay George Davis $100 a month to do Andy's share of the work. The partnership, throughout its history, was indebted to Clem Moore for the capital which he lent it. The partnership was unable to pay down the principal on this loan, so the partners agreed that in any month in which George Davis would forgo his $100 a month payment then $300, or $100 from each partner, would be applied to offset the principal amount of the partnership debt to Clem Moore.

From 1961 through 1973 the cattle partnership operated under the name of Davis and Moore.

In 1970, Clem Moore formed a family patnership with his children and grandchildren, the other petitioners in this case. Gifts of real property totaling approximately 2200 acres, including the real property involved in the cattle operation, were made by Clem and Janice Moore to the family partnership. At the time this property was transferred from Clem Moore to the family partnership, Clem Moore acknowledged to his accountant that George Davis had a "working interest" in the property. On occasion Clem Moore introduced himself as George Davis' partner.

In 1971, Clem Moore indicated to George Davis that he wanted to sell all of the assets of the cattle operation. These assets were not sold because George Davis objected.

After the formation of the family partnership, Clem Moore turned the books of account for the cattle operation over to George and Hester Davis. Hester Davis opened a bank account for the partnership in the name of Davis and Moore Farms.

On April 17, 1973, George L. Davis filed a suit against Clem and Janice Moore in the Chancery Court of Independence County, Arkansas. On June 6, 1974, this suit was settled pursuant to an agreement between George Davis and Clem and Janice Moore. As a result of the above agreement, Clem and Janice Moore transferred approximately 540 acres valued at $82,940 to George and Hester Davis by deed dated June 6, 1974, and equipment valued at $5,349.

On its partnership Federal income tax return for the reporting year 1974, the Moore family partnership reported an ordinary loss in the amount of $74,934 which included a deduction for labor hired in the amount of $88,289 for the distribution of property to George Davis. It also separately reported $53,145 as long-term capital gain resulting from the distribution of property to George Davis. Clem and Janice Moore reported on their Federal income tax return for the fiscal year ended March 31, 1975, an ordinary loss from partnership income in the amount of $23,980 and a net long-term capital gain from partnerships in the amount of $17,005, representing their distributive share of the family partnership's items of income and expense. Alan F. and Linda B. Moore reported on their Federal income tax return for the taxable year 1974 an ordinary loss from partnership income in the amount of $5,995 and a net long-term capital gain from partnerships in the amount of $4,252, representing their distributive share of the family partnership's items of income and expense. Andrew N. and Reba Nell Moore reported on their Federal income tax return for the taxable year 1974 an ordinary loss from partnership income in the amount of $5,995 and a net long-term capital gain from partnerships in the amount of $4,252, representing their distributive share of the family partnership's items of income and expense. Donna J. Moore, Andrew N. Moore, III, Christie E. Moore and Tera J. Moore did not file Federal income tax returns for the taxable year 1974.

George and Hester Davis did not report any income from the distribution of land and equipment on their Federal income tax return for the taxable year 1974.

The Commissioner, in his statutory notices of deficiency for the Moore petitioners, determined that the amount claimed by the partnership as wages paid to George Davis was a settlement of a partnership interest and therefore not deductible. He also determined that the land transferred to George Davis was in settlement of a partnership interest and not a sale of land. Accordingly, he made adjustments to the reported incomes of Clem and Janice Moore, Alan F. and Linda B. Moore, and Andrew N. and Reba Nell Moore to reflect increases to their reported ordinary income to the extent of their share of the claimed wage deduction and decreases in their reported capital gain to the extent that their capital gain was attributable to the land distributed to George Davis. In his statutory notices of deficiency for the Moore petitioners who did not file Federal income tax returns for the taxable year 1974, the Commissioner determined that these petitioners had taxable income to the extent of their distributive share of partnership income as that partnership income was determined by the Commissioner.

In the statutory notice of deficiency for George and Hester Davis, the Commissioner determined that their taxable income should be increased by a distribution of $94,113.32 from the Davis & Moore partnership representing compensation for services rendered.

Ultimate Finding of Fact

George Davis, Andy Moore and Clem Moore were members of a partnership for Federal tax purposes. The real property and equipment transferred to George Davis was a distribution in liquidation of his partnership interest.

Opinion

In 1961 George Davis entered into a contract to purchase some land on which he hoped to raise cattle. After transferring certain property to the seller he and the seller had a disagreement which ultimately resulted in the seller selling the property to Clem Moore, subject to Davis ' rights under the contract. Davis then went into partnership with Clem Moore's son, Andy, to raise cattle on the land. They started with Davis ' interest in the land that was also owned by Clem Moore, with some cattle that Andy contributed to the partnership and with Clem Moore's agreement to lend the partnership the money it needed to operate. Davis was to receive a one-half interest in all partnership property once the Moores were repaid their investment. The profits of the partnership were paid to Clem Moore as interest on his operating capital loan and to pay him for his interest in the land.

In 1965 Clem Moore contributed some adjoining land that he had purchased and became a third, equal partner in the partnership of Davis and Moore.

The parties eventually had a falling out and Davis sued Clem and Janice Moore for his share of the partnership property. Clem and Janice transferred certain land and equipment to George and Hester Davis in settlement of this lawsuit. This property had been transferred by Clem and Janice Moore to a family partnership.

Before addressing the issues on their merits, we will consider certain evidentiary questions that were not decided at trial but were briefed by the parties for our subsequent resolution.

The Moore petitioners object to the admission of certain exhibits as evidence. These exhibits are (1) Ex. 16-P, complaint filed by George Davis in the Chancery Court of Independence County, Arkansas, in the matter of George L. Davis versus Clem Moore and Janice Moore (the Complaint by Davis); (2) Ex. 19-S, entitled Agreement, which represents the settlement agreement entered into by the parties as a result of the legal action brought by George Davis (the Settlement Agreement); (3) Ex. 20-T, Complaint in Equity filed by Clem and Janice Moore in the Chancery Court of Independence County, Arkansas, in the matter of Clem Moore and Janice Moore, his wife, versus George L. Davis and Hester L. Davis, his wife, (the Complaint by Moore); and (4) Ex. 31-AE, a brief entitled Reply to Amended Memorandum Brief of Defendants, filed by the attorneys for Clem and Janice Moore in the matter commenced by Clem and Janice Moore as described in (3), above, (the Moore Brief).

Petitioners Moore object to Ex. 19-S, the Settlement Agreement as inadmissible under Rule 408, Federal Rules of Evidence. Rule 408 provides as follows:

Rule 408. Compromise and Offers to Compromise

Evidence of (1) furnishing or offering or promising to furnish, or (2) accepting or offering or promising to accept, a valuable consideration in compromising or attempting to compromise a claim which was disputed as to either validity or amount, is not admissible to prove liability for or invalidity of the claim or its amount. Evidence of conduct or statements made in compromise negotiations is likewise not admissible. This rule does not require the exclusion of any evidence otherwise discoverable merely because it is represented in the course of compromise negotiations. This rule also does not require exclusion when the evidence is offered for another purpose, such as proving bias or prejudice of a witness, negativing a contention of undue delay, or proving an effort to obstruct a criminal investigation or prosecution.

The evidence the Moore petitioners seek to exclude is the Settlement Agreement pursuant to which the property in question was transferred from Clem and Janice Moore and the Moore family partnership to George Davis. It was this transfer which resulted in the taxable transaction at issue. Respondent argues that the Settlement Agreement was not offered to prove the liability of Clem and Janice Moore but to enable the Court to be fully informed of the transfer. We will admit Ex. 19-S for the limited purpose of showing the terms of their settlement.

The Moore petitioners object to the remaining documents in dispute as "hearsay * * * [that] cannot be admitted as admissions on behalf of" Clem and Janice Moore. They argue that the Federal Rules of Civil Procedure provide for very liberal construction of pleadings and in this context statements in these documents referring to a partnership between Clem Moore and George Davis do not reflect affirmative allegations of a partnership nor admissions of a partnership but merely the draftsman's careless use of language.

Although the Moore petitioners do not refer to the Federal Rules of Evidence in stating their argument, they presumably rely on the general Rule 802, Federal Rules of Evidence, that hearsay is not admissible except to the extent provided in the Federal Rules of Evidence. Respondent, however, maintains that the disputed documents are not hearsay because they represent admissions by a party-opponent under Rule 801(d)(2), Federal Rules of Evidence. The pertinent part of that rule provides:

(d) Statements which are not hearsay.--A statement is not hearsay if--

* * *

(2) Admissions by party-opponent.--The statement is offered against a party and is (A) his own statement, in either his individual or a representative capacity, or (B) a statement of which he has manifested his adoption or belief in its truth, or (C) a statement by a person authorized by him to make a statement concerning the subject, or (D) a statement by his agent or servant concerning a matter within the scope of his agency or employment, made during the existence of the relationship, or (E) a statement by a co-conspirator of a party during the course and in furtherance of the conspiracy.

Ex. 16-P, the Complaint by Davis, is not admissible as an admission by Clem and Janice Moore for the obvious reason that it does not represent a statement by the Moores. Neither the Davis petitioners nor respondent provide an alternative reason for admission. Accordingly, it will not be admitted as evidence.

Exs. 20-T and 31-AE are Clem and Janice Moore's complaint in the legal action that they instituted and a brief prepared on their behalf in the same matter. Ex. 20-T, the Complaint by Moore, was verified by Clem Moore, stating "on oath that the matters and things set forth in the foregoing complaint are true and correct to the best of his knowledge and belief." The Complaint by Moore is clearly admissible under the adoptive admission exception from the definition of hearsay of Rule 801(d)(2)(B). United States v. Morgan, 581 F.2d 933 (D. C. Cir. 1978); United States v. Johnson, 529 F.2d 581 (8th Cir. 1976). Ex. 31-AE, the Moore Brief, is admissible as not hearsay under Rule 801(d)(2)(D) because a brief submitted by an attorney on behalf of a party in a lawsuit commenced by that party is clearly a statement made within the scope of the attorney's agency. The arguments on which the Moore petitioners rely more appropriately bear on the weight to which this controverted evidence should be given, and we will be considerate of these arguments in that context.

We will now turn to the substantive issues. Whether a partnership exists for Federal tax purposes is a question of Federal rather than state law. Estate of Kahn v. Commissioner [74-2 USTC ¶9524 ], 499 F.2d 1186, 1189 (2d Cir. 1974). The essential question is whether the parties intended to, and did in fact, join together for the present conduct of an undertaking or enterprise. See Commissioner v. Culbertson [49-1 USTC ¶9323 ], 337 U. S. 733 (1949). This determination is factual by its very nature. In making the determination we will consider numerous factors, none of which is conclusive. Luna v. Commissioner [Dec. 26,967 ], 42 T. C. 1067 (1964).

We have found as a fact that George Davis, Andy Moore and Clem Moore were partners in a partnership. While Clem Moore denies this, he was not forthright with the Court as to his son's involvement in the events. We did not find him to be a credible witness, based upon our general impression of his demeanor and his testimony at trial. In contrast, we found George and Hester Davis to be forthright and credible. We need not base our decision solely on the testimony, however, as there is substantial objective evidence that the parties held themselves out to be and in fact operated as a partnership. Supplies were purchased in the name of Davis and Moore. Clem Moore did not object to this and more often than not personally paid the bills. Cattle were sold under the name Davis and Moore. A bank account was established under the name Davis and Moore Farms. Clem Moore on occasion introduced himself to third parties as a partner. After the parties resolved the Davis suit by a Settlement Agreement, Clem and Janice Moore sued the Davises on the basis of that Settlement Agreement, maintaining in the documents that were prepared by their attorney, one of which Clem Moore verified as true, that the property in question was partnership property.

The Moore petitioners argue that the nature of the agreement between the Moores and Davis could not constitute a partnership because Davis contributed no property to the relationship and was only promised a future interest of the cattle operation assets when Clem Moore was repaid with interest. This argument ignores the interest of the Davises in the land used by the cattle operation. We have found, on the basis of the contract which he entered into with Mr. Barnett and pursuant to which he transferred his equity interest in his home and 30 acres to Mr. Barnett, that he had an interest in this land. Clem Moore purchased this property subject to George Davis' rights under that contract.

Having decided that a partnership existed, we agree with petitioners Davis and the respondent that what the Davises received pursuant to the Settlement Agreement was a distribution in liquidation of a partnership interest and not the payment of wages for services rendered.

Decisions will be entered for the respondent in docket Nos. 8538-79 through 8544-79.

Decision will be entered for petitioners in docket No. 21865-80.

1 Cases of the following petitioners are consolidated herewith: Alan F. Moore and Linda B. Moore, docket No. 8539-79; Donna J. Moore, docket No. 8540-79; Andrew N. Moore and Reba Nell Moore, docket No. 8541-79; Andrew N. Moore, III, docket No. 8542-79; Christie E. Moore, docket No. 8543-79; Tera J. Moore, docket No. 8544-79; and George L. Davis and Hester L. Davis, docket No. 21865-80.

 

 

[92-2 USTC ¶50,317] In re Joseph Donald Ermenc, Debtor. Joseph Donald Ermenc, Plaintiff v. U.S.A., Internal Revenue Service, Defendant

U.S. Bankruptcy Court, No. Dist. Ind., Hammond Div., Gary/Lafayette, 89-60477, 4/27/92

[Code Secs. 6871 and 7201 ]

Criminal tax evasion: Guilty plea: Collateral estoppel: Bankruptcy proceedings.--

The tax obligations of a bankrupt who pleaded guilty to criminal tax evasion under Code Sec. 7201 were not dischargeable in bankruptcy. The fact that the criminal conviction resulted from a guilty plea, rather than from a trial on the merits, did not preclude the bankruptcy court from giving collateral estoppel effect to the conviction. A copy of the debtor's indictment had not been filed with the bankruptcy court and it was not clear for what tax year the debtor had been convicted. However, the debtor's Statement of Material Fact and the United States' reply brief established that the debtor had been convicted for one tax year. With regard to the remaining years in question, the debtor's Statement of Material Fact was in essence an admission that he had engaged in a course of conduct that included filing W-4 forms--on which he falsely claimed to be exempt from federal withholding or claimed allowances in excess of those he was legally entitled to--and intentionally failing to file his federal income tax returns.

Memorandum Opinion and Order

LINDQUIST, Bankruptcy Judge:

This Adversary Proceeding comes before the Court on a Motion for Summary Judgment pursuant to Fed. R. Civ. P. 56 filed by the United States of America (hereinafter: "USA") by its agent the Internal Revenue Service (hereinafter: "IRS") on January 7, 1992.

The Plaintiff and Chapter 7 Debtor, Joseph Donald Ermenc (hereinafter: "Debtor") filed his complaint versus the USA on October 26, 1990 in two counts.

Count I of the complaint prays that the Court, pursuant to 11 U.S.C. §505(a) , determine the federal income tax, interest and penalties due by the Debtor to the USA for the following tax years: 1978, 1979, 1980, 1983, 1984, 1985, 1987 and 1988. (The Debtor commenced his Chapter 7 case by filing a petition on March 30, 1988).

Count II of the Debtor's complaint prays that his income tax debts to the USA for the tax years 1978, 1979, 1980, 1981, and 1982 should be held to be dischargeable pursuant to §523(a)(1). Although, the Debtor does not set out the precise provision of the Bankruptcy Code that is applicable, he asserts that although the tax returns for the foregoing years were not timely filed, the returns were filed over two years prior to the filing of the Debtor's petition and thus apparently the Debtor is asserting that these taxes are dischargeable pursuant to §523(a)(1)(B)(ii) .

The USA's answer filed on August 16, 1991, to the Debtor's complaint alleges that the Debtor committed fraud by willfully and knowingly filing false and fraudulent W-4 forms with an intent to evade or defeat taxes and/or willfully and knowingly failed to file his income tax returns for the tax years 1978 through 1982 with the intent to evade or defeat federal income taxes. See, 11 U.S.C. §523(a)(1)(C).

The USA filed its proposed Findings on January 7, 1992 in support of its Motion for Summary Judgment. These proposed findings state as follows:

1. Plaintiff brought this action seeking a determination of his 1978-1980, 1983-1985, and 1987-1988, federal income tax liabilities pursuant to 11 U.S.C. §505 , and a determination of the dischargeability of his 1978-1982 federal income tax liabilities pursuant to 11 U.S.C. §523.

2. Plaintiff has orally withdrawn his request for tax determination under 11 U.S.C. §505 , thus, the issue to be determined by the Court is dischargeability of his 1978-1983 (sic, 1982) federal income tax liabilities.

3. During 1978-1982, plaintiff engaged in a course of conduct which included filing Forms W-4, Employee's Withholding Allowance Certificates, falsely claiming to be exempt from federal withholding or claiming allowances in excess of those he was legally entitled to, and intentionally failing to file his federal income tax returns.

4. The outcome of this course of conduct was to substantially reduce the federal income tax withheld from plaintiff's wages during 1978-1982 and to hinder the ability of the Internal Revenue Service to assess and collect plaintiff's federal tax liabilities during those years.

5. In Case No. HCR 86-32, plaintiff was convicted of three counts of willfully attempting in any manner to evade or defeat tax, pursuant to 26 U.S.C. §7201 , for the years 1978-1980.

The Debtor on February 4, 1992 filed his Statement of Material Fact which stated as follows:

1. That Plaintiff has no disagreement with Defendants finding of fact 1 thur (sic) 4.

2. That on July 10, 1986, in Case No. 86-32, plaintiff was convicted of one count of Failure to File Income Tax, pursuant to 26 U.S.C. section 7201 , for the year 1978, and Count Two and Three of the Indictment for the years 1979 and 1980 was dismissed. (A copy of The Judgment and Probation Order is attached hereto).

Because the Debtor has no disagreement with the USA as to the USA's proposed finding of Number 2, supra, Count I of the Debtor's complaint to determine the amount of the Debtor's tax liability to the USA pursuant to §505(a) is no longer an issue before the Court.

Thus, the only issues before the Court are those raised by the Debtor in Count II in which he prays that the Court determine the Debtor's tax liabilities for the years 1978 through 1982 be adjudged dischargeable pursuant to §523(a)(1). 1

The USA in its brief filed on January 7, 1992, correctly points out that a criminal conviction under 26 U.S.C. §7201 2 operates as a collateral estoppel on the issue of civil fraud under 26 U.S.C. §6653(b), 3 citing, Plunkett v. Commissioner [72-2 USTC ¶9541 ], 465 F.2d 299 (7th Cir. 1971).

It should also be noted that the precedents addressing the imposition of civil fraud additions under 26 U.S.C. §6653(b) provide persuasive guidance for construing 11 U.S.C. §523(a)(1)(C). In re Carlen, Case No. 90-60855 (Carlen v. Dept. of Treasury, Adv. Pro. No. 90-6187) (Bankr. N.D. Ind., November 4, 1991) (J. Lindquist, unpub. opin.); In re Gilder, 122 B.R. 593, 595 (Bankr. M.D. Fla. 1990); In re Graham [90-1 USTC ¶50,072 ], 108 B.R. 498, 502, N. 6, (Bankr. E.D. Pa. 1989); In re Kirk, 98 B.R. 52, 54-55 (Bankr. M.D. Fla. 1989), citing, In re Harris, 49 B.R. 223, 226 (Bankr. W.D. Va. 1985); Modified on either grounds, 59 B.R. 545; In re Carapella [89-2 USTC ¶9525 ], 105 B.R. 86, 87 (Bankr. M.D. Fla. 1989); In re Hopkins, 1991 Bankr. Lexis 548, Bankr. L. Rep. (CCH), P. 73,988 (Bankr. N.D. Ohio 1991); In re Ball, 1990 Bankr. Lexis 2045 (Bankr. E.D. Ark. 1990). In addition, 26 U.S.C. §7201(a) should be construed in the same way as 11 U.S.C. §523(a)(1). See, In re Gathwright, 102 B.R. 211, 213 (Bankr. D. Ore. 1989) (phrase "willfully attempted in any manner to evade or defeat such tax" in §523(a)(1)(C) should be interpreted in the same manner at §7201(a) of the IRC, i.e. it is a felony to willfully attempt in any manner to evade or defeat a tax imposed by title 26 or the payment thereof); In re Peterson [92-1 USTC ¶50,216 ], 132 B.R. 68-71 (Bankr. D. Wyo. 1991) (Construing "willfully", "attempted", and "in any manner" consistently with §§6653 and 7201 of the IRC).

The fact that the Debtor plead guilty to tax evasion under 26 U.S.C. §7201 which resulted in a federal criminal conviction, rather than the criminal conviction arising out of a trial on the merits, does not preclude this Court from giving collateral estoppel effect to that criminal conviction in a subsequent §523(a)(1)(C) nondischargeability proceeding in this Court, such as the one sub judice. The Seventh Circuit in Appley v. West, 835 F.2d 1021 (7th Cir. 1987) stated as follows:

Collateral estoppel, or issue preclusion, may be applied in civil trials to issues previously determined in a criminal conviction. Otherson v. Department of Justice, 711 F.2d 267, 271 (D.C. Cir. 1983). Similarly, a guilty plea may be used to establish issue preclusion in a subsequent civil suit. "In this Circuit, a criminal conviction based upon a guilty plea conclusively establishes for purposes of a subsequent civil proceeding that the defendant engaged in the criminal act for which he was convicted." Nathan v. Tenna Corp., 560 F.2d 761, 763 (7th Cir. 1977) (applying the law of the Seventh Circuit to decide the effect, in a diversity case under Illinois law, of a guilty plea in a federal district court).

When Mr. West pleaded guilty to the two counts of mail fraud, he effectively pleaded guilty to all of the material facts alleged in the indictment on those two counts. See, LaMagna v. United States, 646 F.2d 775, 778 (2d Cir.) (citing McCarthy v. United States [69-1 USTC ¶9312 ], 394 U.S. 459 (1969), cert. denied, 454 U.S. 898 (1981); Tom v. Twomey, 430 F. Supp. 160, 162 (N.D. Ill. 1977). See generally, 1 C. Wright, Federal Practice and Procedure ¶175 at 623-24 (1982). Accordingly, the material facts of the indictment in Counts I and XII may be established in the present action through the use of collateral estoppel. Ms. Appley, however, has the burden of establishing which issues were actually determined in her favor by the guilty plea. See, Davis & Cox v. Summa Corp., 751 F.2d 1507, 1518 (9th Cir. 1985).

See also, Instituto Nacional De Comercializacion Agricola (Indeca) v. Continental Illinois National Bank, 858 F.2d 1263 (7th Cir. 1988).

The Seventh Circuit in Nathan v. Tenna Corp., 560 F.2d 761 (7th Cir. 1977), cited with approval in Appley, supra, clearly stated as follows:

In this Circuit, a criminal conviction based upon a guilty plea conclusively establishes for purposes of a subsequent civil proceeding that the defendant engaged in the criminal act for which he was convicted. Plunkett v. Commissioner of Internal Revenue [72-2 USTC ¶9541 ], 465 F.2d 299, 305-07 (7th Cir. 1972). Accordingly, Nathan's guilty plea to federal mail fraud charges for splitting commissions with Bryza conclusively establishes that his conduct was criminal, and Nathan may not present evidence to the contrary in this civil proceeding. Hence, no material issue exists as to whether Nathan engaged in illegal conduct.

In Plunkett v. Commissioner of Internal Revenue [72-2 USTC ¶9541 ], 465 F.2d 299 (7th Cir. 1971), which was cited favorably in the Nathan case, the Seventh Circuit stated:

[P]lunkett argues that the Tax Court erred in determining that his conviction in 1967 for income tax evasion for the years 1960 through 1963 collaterally estopped him in the subsequent civil proceedings from denying that the returns for those years were fraudulent. The Commissioner introduced no affirmative evidence of fraud in the Tax Court but relied on the returns and Plunkett's plea of guilty and his criminal conviction to sustain the imposition of the 50 percent "fraud penalty," 26 U.S.C. §6653(b).

Most courts faced with the question have held that a prior conviction for tax evasion after a trial on the merits operates as a collateral estoppel on the issue of civil fraud in a fraud penalty proceeding. The criminal conviction necessarily carries with it the ultimate factual determination that the underpayments of tax were "due to fraud" within the meaning of section 6653(b). E.G., Moore v. United States [66-1 USTC ¶9399 ], 360 F.2d 353 (4th Cir. 1965), cert. denied, 385 U.S. 1001, 87 S. Ct. 704, 17 L. Ed. 2d 541 (1967); Armstrong v. United States [66-1 USTC ¶9119 ], 354 F.2d 274, 173 Ct. Cl. 994 (1965); Tomlinson v. Lefkowitz [64-2 USTC ¶9623 ], 334 F.2d 262 (5th Cir. 1964), cert. denied, 379 U.S. 962, 85 S. Ct. 650, 13 L. Ed.2d 556 (1965); Amos v. Commissioner of Internal Revenue [CCH Dec. 27,012 ], 43 T.C. 50 (1964), aff'd, [66-1 USTC ¶9130 ], 360 F.2d 358 (4th Cir. 1965). Two recent decisions of the Tax Court reiterate this principle, C.B.C. Super Markets, Inc. v. Commissioner of Internal Revenue [CCH Dec. 30,061], 54 T.C. 882 (1970), and Rodney v. Commissioner of Internal Revenue [CCH Dec. 29,844 ], 53 T.C. 287 (1969).

We note that there is strong authority holding that a guilty plea is an admission of all the elements of a formal criminal charge. McCarthy v. United States [69-1 USTC ¶9312 ], 394 U.S. 459, 466, 89 S.Ct. 1166, 22 L.Ed.2d 418 (1969); Kercheval v. United States, 274 U.S. 220, 223, 47 S.Ct. 582, 71 L.Ed. 1009 (1927).

In Arctic Ice Cream Co. v. Commissioner of Internal Revenue [CCH Dec. 27,013 ], 43 T.C. 68 (1964), a corporate taxpayer was held to be collaterally estopped from denying fraud in a civil proceeding by its previous conviction for tax evasion based upon a guilty plea. In upholding the imposition of a civil fraud penalty, the court declared:

"It is not material that Arctic's conviction was based upon a guilty plea, because for purposes of applying the doctrine of collateral estoppel, as well as for other purposes, there is no difference between a judgment of conviction based upon such a plea and a judgment of conviction rendered after a trial of the merits. . . . Artic's plea of guilty to this indictment was therefore a conclusive judicial admission that its return for 1946 was false and fraudulent and that the deficiency in tax which was the necessary result of its being filed was due to fraud with intent to evade tax." [CCH Dec. 27,013 ] 43 T.C. at 75.

See also Otsuki v. Commissioner of Internal Revenue [CCH Dec. 29,807 ], 53 T.C. 96 (1969) (dicta).

On February 4, 1992, the Debtor filed a certified copy of the Debtor's Judgment of Conviction in the Federal District Court for the Northern District of Indiana, Case No. HCR--00032-01, in which the Debtor plead guilty to one count of 26 U.S.C. §7201 --"Failure to pay Income Tax". Counts II and III were dismissed by the USA. Because a copy of the Indictment was not included, it is not clear for what tax year the Debtor was convicted. The Debtor's statement of Material Fact asserts, without any supporting competent evidence, that he was convicted for the tax year 1978 pursuant to Count I, and that the dismissal of Counts II and III related to the tax years 1979 and 1980. However, the USA in its reply brief admits that the Debtor was only convicted for the 1978 tax year.

Thus, based upon the applicable law, when the Court enters its final order in this Adversary Proceeding, it will grant the USA's Motion for Summary Judgment as to 1978, and find that his tax obligations for that year are nondischargeable in his bankruptcy, pursuant to §523(a)(1)(C) based on his plea of guilty to Count I of the indictment.

The USA argues in both its initial brief, and its reply brief, that the record shows that the Debtor filed W-4 forms in which he falsely claimed to be exempt from withholding, or claimed allowances in excess of those he was legally entitled to, and intentionally failed to file his federal income tax returns as to all four years in question, and thus all tax debts arising out of all four tax years are nondischargeable pursuant to §523(a)(1)(C), citing, among other authorities, Granado v. United States [86-1 USTC ¶9453 ], 792 F.2d 91 (7th Cir. 1986), and In re Harrison, 91-1 USTC ¶50,078 (Bankr. N.D. Ind. 1991), which held that the filing of false W-4 withholding forms, in combination with an individual's willful failure to file an income tax return provides clear and convincing evidence of fraud under 26 U.S.C. §6653(b).

The Court does not quarrel with the above general propositions of law as posited by the USA. However, there is not competent evidence in the record, as required by Fed.R.Civ.P.56(c) and (e), either by way of affidavits, discovery responses, or certified records to support the USA's Motion as to those tax years other than 1978.

Supporting Memorandum, not sworn or in affidavit form making factual assertions, even if accompanied by exhibits does not meet the requirements of Rule 56(e), and cannot be relied upon by the Court as establishing a basis for summary judgment. Macklin v. Butler, 553 F.2d 525 (7th Cir. 1977); Smith v. Mack Trucks, Inc., 505 F.2d 1248 (9th Cir. 194); Goldman v. Summerfield, 214 F.2d 858 (D.C. Cir. 1954).

However "admissions in the brief of the party opposing the motion may be used in determining that there is a genuine issue as to any material fact, since they are functionally equivalent to 'admissions on file' ". United States of America v. Oneheckler-Koch Rifle, 629 F.2d 1250, 60 A.L.R. Fed. 293 (7th Cir. 1980), quoting, 10 C. Wright & A. Miller, Federal Practice and Procedure, §2723 at 490 (1973).

The Debtor in his Statement of Material Fact filed on February 4, 1992, stated he had no disagreement with the USA's Findings of Fact one through four filed on January 7, 1992. Thus, the Debtor, in essence, admitted that during 1978 through 1982 he engaged in a course of conduct which included filing forms W-4, Employees' Withholding Allowance Certificates, falsely claiming to be exempt from federal withholding or claiming allowances in excess of those he was legally entitled to, and intentionally failing to file his federal income tax returns. (See, USA's Findings of Fact, Number 3). The Plaintiff also did not disagree with Findings of Fact Number 4 submitted by the USA, that the outcome of this course of conduct was to substantially reduce the federal income tax withheld from the Plaintiff's wages for 1978 through 1982, and to hinder the ability of the Internal Revenue Service to assess and collect the Plaintiff's federal tax liabilities during those years.

In order to establish that the tax debts are nondischargeable under 11 U.S.C. §523(a)(1)(C), the USA must prove that the Debtors' actions were deliberate, not accidental, and done with fraudulent intent. In re Meyers, 1990 Bankr. Lexis 2254 (Bankr. W.D. Wash. 1990); In re Gathwright [89-1 USTC ¶9346 ], 102 B.R. 211, 213 (Bankr. D. Or. 1989). Since direct proof of an individual's intention is difficult to establish, proof of the taxpayer's intent may depend upon circumstantial evidence and reasonable inferences properly drawn from the evidence in the record. In re Graham [90-1 USTC ¶50,072 ], 108 B.R. at 501-02 (Bankr. E.D. Pa. 1989), citing, Korecky v. Commissioner [86-1 USTC ¶9232 ], 781 F.2d 1566 (11th Cir. 1986); Toussaint v. Commissioner [84-2 USTC ¶9839 ], 743 F.2d 309 (5th Cir. 1984); Stone v. Commissioner [CCH Dec. 30,767 ], 56 T.C. 213 (1971); In re Carapella [89-2 USTC ¶9525 ], 105 B.R. 86, 89 (Bankr. M.D. Fla. 1989), and In re Kirk, 98 B.R. 51, 55 (Bankr. M.D. Fla. 1989). However, as stated in Zell v. Commissioner of Internal Revenue Service [85-2 USTC ¶9698 ], 763 F.2d 1139 (10th Cir. 1985) fraud means "actual, intentional wrongdoing, and the intent required is the specific purpose to evade a tax believed to be owing." Fraud will never be presumed or implied. Id.

The Court would also note that based on the assertions of the USA that the taxes for the years 1979, 1980, 1981 and 1982 are also not dischargeable pursuant to §523(a)(1)(C), this Adversary Proceeding may compel a determination by the Court of whether the debtors intentionally submitted fraudulent tax returns, or W-4 withholding forms, whereby he willfully attempted to evade or defeat a tax, which sounds in fraud. As a general rule, fraud and tort actions are generally not disposed of by summary judgment, because they typically involve a myriad of factual issues. Aldeman-Tremblay v. Jewell Companies. Inc., 859 F.2d 517 (7th Cir. 1988), citing, Gracyalmy v. Westinghouse Electric Corp., 723 F.2d 1311, 1316 (7th Cir. 1983), and Iva C. Wright, A. Miller and M. Kane, Federal Practice and Procedure, §2727 (1983).

To the extent that the resolution of the dischargeability of the tax debts involves the resolution of issues involving fraud or willfulness, it obviously raises highly disputed and factually material issues based on the credibility of witnesses, genuine and material issues as to state of mind, reasonableness of reliance, and other subjective matters peculiarly within the knowledge of the opposing parties which the Court may have to weigh in a context where conflicting versions of the facts are often presented. Cases in which motive or intent play a leading role are peculiarly inappropriate for disposition by summary judgment. Askew v. Bloemaker, 548 F.2d 673 (7th Cir. 1976). See e.g., Matter of Seiler, 29 B.R. 33 (Bankr. N.D. Ind. 1983); In re Proof of Pudding, Inc., 10 B.R. 459 (Bankr. S.D.N.Y. 1981), citing, Freidman v. Meyers, 482 F.2d 435, 439 (2d Cir. 1973). Summary judgment is not appropriate where a trial, with its opportunity for cross-examination and testing credibility of the witnesses might disclose a picture substantially different from that given by affidavits. United States v. Perry, 431 F.2d 1020, 1022, 19 A.L.R. Fed. 537 (7th Cir. 1970).

However, in the case at bar, the admissions filed by the Debtor's counsel in his Statement of Material Fact removes the necessity for a trial on the merits as to tax years 1979 through 1982. By his admissions, all of the material elements necessary to find that his tax obligations for the tax years 1979 through 1982 are nondischargeable pursuant to 11 U.S.C. §523(a)(1)(C) are present, even though he did not plead guilty to criminal charges based on either 26 U.S.C. §7201 , or 26 U.S.C. §6653(b) for those years.

As this Court stated in Harrison v. U.S. (In re Harrison) 91-1 USTC, ¶50,078 (Bankr. N.D. Ind. 1991):

The element of deception which constitutes clear and convincing evidence of fraudulent intent is often an individual's filing of W-4 forms claiming to be exempt from income tax or claiming excessive allowances (which has the effect of reducing or eliminating employer withholding of income tax). Addressing facts nearly identical to those herein, courts, including the U.S. Court of Appeals for the Seventh Circuit, have overwhelmingly held that the filing of false W-4 forms, in combination with an individual's willful failure to file an income tax return, provides clear and convincing evidence of fraud under Section 6653(b). See Granado v. United States, supra [86-1 USTC ¶9453 ], 792 F.2d 91, 92 (7th Cir. 1986); Zell v. Commissioner, [85-2 USTC ¶9698 ] 763 U.S. 1139, 1143 (10th Cir. 1985); . . .

* * *

The Seventh Circuit has held that, in the context of the criminal charge of tax evasion (a felony), the failure to file income tax returns in combination with filing false Forms W-4 during a given year, will support a criminal conviction of tax evasion (26 U.S.C. §7201 ) for that year. United States v. Copeland, 786 F.2d 768, 770 (7th Cir. 1985); see also, United States v. Parkinson [87-1 USTC ¶9370 ], 602 F.Supp. 121, 122 (N.D. Ill. 1984).

In Granado v. Commissioner [86-1 USTC ¶9453 ], 792 F.2d 91 (7th Cir. 1986), the taxpayer had (1) filed false W-4 forms and (2) failed to file income tax returns for 1980 and 1981: Additionally, the taxpayer in Granado notified the IRS that he was filing the false W-4 forms. However, the Seventh Circuit affirmed the decision of the tax court imposing the fraud addition, despite the "open defiance" defense of the taxpayer, . . .

Accordingly, even though the Debtor did not plead guilty to tax evasion pursuant to 26 U.S.C. §7201 for the tax years 1979 though 1982, by his Statement of Material Fact he has admitted all the necessary elements of §523(a)(1)(C) required for this Court to find that there are no genuine issues of material fact, and that as a matter of law his tax obligations for those years are nondischargeable.

It is therefore,

ORDERED, ADJUDGED, AND DECREED, that the USA's Motion for Summary Judgment as to the tax years 1978, 1979, 1980, 1981, and 1982, is granted, and that the taxes due and owing by the Debtor for those years are nondischargeable pursuant to 11 U.S.C. §523(a)(1)(C).

The Clerk shall enter this Judgment on a separate document pursuant to Fed.R.Bk.P. 9021.

1 Section 523(a)(1) of title 11 of the United States Code states as follows:

(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt--

(1) for a tax or a customs duty--

(A) of the kind and for the periods specified in section 507(a)(2) or 507(a)(7) of this title, whether or not a claim for such tax was filed or allowed;

(B) with respect to which a return, if required--

(i) was not filed; or

(ii) was filed after the date on which such return was last due, under applicable law or under any extension, and after two years before the date of the filing of the petition or

(C) with respect to which the debtor made a fraudulent return or willfully attempted in any manner to evade or defeat such tax; (emphasis supplied).

2 Section 7201 of title 26 of the United States Code states as follows:

Any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 ($500,000 in the case of a corporation) or imprisoned not more than 5 years, or both, together with the costs of prosecution. (emphasis supplied).

3 Section 6653(b) of title 26 of the United States Code states as follows:

(b) Fraud.

(1) In general. If any part of any underpayment (as defined in subsection (c)) of tax required to be shown on a return is due to fraud, there shall be added to the tax an amount equal to the sum of--

(A) 75 percent of the portion of the underpayment which is attributable to fraud, and

(B) an amount equal to 50 percent of the interest payable under section 6601 with respect to such portion for the period beginning on the last day prescribed by law for payment of such underpayment (determined without regard to any extension) and ending on the date of the assessment of the tax or, if earlier, the date of the payment of the tax.

(2) Determination of portion attributable to fraud. If the Secretary establishes that any portion of an underpayment is attributable to fraud, the entire underpayment shall be treated as attributable to fraud, except with respect to any portion of the underpayment which the taxpayer establishes is not attributable to fraud.

(3) Special rule for joint returns. In the case of a joint return, this subsection shall not apply with respect to a spouse unless some part of the underpayment is due to the fraud of such spouse.

 

 

[72-2 USTC ¶9646]United States of America v. Norman Pawlak, Defendant

U. S. District Court, So. Dist. N. Y., 71 CR. 363, 352 FSupp 794, 8/23/72

[Code Sec. 7201]

Crimes: Tax evasion: Willfulness: Evidence.--The taxpayer was found guilty of four counts of tax evasion where the evidence showed that his attempt to evade tax was willful. Testimony of credible Revenue Agents as to admissions of the taxpayer and statements by his accountant was supported by independent evidence presented by the Government. In addition, the Court found circumstantial evidence and evidence of willfulness subsequent to the filing of the returns in question.

Memorandum

TENNEY, District Judge:

From February 4, 1972 until February 18, 1972 the defendant Norman Pawlak (a/k/a Norman Paris) was tried before this Court without a jury on four counts of violating 26 U. S. C. §7201 which provides that "[a]ny person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall be guilty of a felony. . . ." Specifically, indictment 71 Cr. 363 charges that the defendant willfully attempted to evade his income taxes for the years 1964-67. Employing the bank deposits method of proof, the Government, as will be demonstrated infra, has proven the defendant's guilt beyond a reasonable doubt.

[Elements of Crime]

The essential elements of the crime are three: (1) an additional substantial tax must have been due and owing; (2) the defendant must have attempted to evade or defeat the tax; and (3) the attempt must have been willful. Sansone v. United States [65-1 USTC ¶9307], 380 U. S. 343, 351 (1965); Holland v. United States [54-2 USTC ¶9714], 348 U. S. 121, 139 (1954); Spies v. United States [43-1 USTC ¶9243], 317 U. S. 492 (1943); United States v. Coppola [69-2 USTC ¶9735], 425 F. 2d 660, 661 (2d Cir. 1969); United States v. Levy [71-1 USTC ¶9274], 326 F. Supp. 1285 (D. Conn.), aff'd [71-2 USTC ¶9684], 449 F. 2d 769 (2d Cir. 1971).

The defendant has conceded that the Government established the first element, that a substantial additional tax is owing (Memorandum of Law at 1-2) although defendant does question the total amount. The Government, however, need not prove the precise amount by which defendant understated his income. "[T]he prosecution meets its burden when it shows that income was underreported by a substantial amount." United States v. Marcus [68-2 USTC ¶9599], 401 F. 2d 563, 565 (2d Cir. 1968), cert. denied, 393 U. S. 1023 (1969). The Government has shown that a breakdown of defendant's income and tax liability over the four years in question is as follows:

Summary of Alleged Taxable Income & Tax Liability

Taxable Income

Year                Per Return           Corrected            Increase
1964 .....         $ 42,681.28         $102,268.37         $ 59,587.09
1965 .....           33,037.29           90,331.55           57,294.26
1966 .....           17,921.61           66,568.58           48,646.97
1967 .....           25,297.82           39,261.54           13,963.72
Total ....         $118,938.00         $298,430.04         $179,492.04


Tax Liability

Year               Per Return           Corrected         Deficiency
1964 .....         $14,254.05         $ 49,377.12         $35,123.07
1965 .....           9,095.66           39,378.93          30,283.27
1966 .....           3,798.05           25,832.72          22,034.67
1967 .....           6,127.22           11,807.69           5,680.47
Total ....         $33,274.98         $126,396.46         $93,121.48


Thus, the amounts of tax due and owing for each of the years 1964-67 are: $35,123.07; $30,283.27; $22,034.67; and $5,680.47 for a total of $93,121.48. These are without doubt "substantial" amounts. See United States v. Siragusa [71-2 USTC ¶9730], 450 F. 2d 592 (2d Cir. 1971), cert. denied, 405 U. S. 974 (1972).

The Government has also met its burden with respect to the second element since the filing of a false or fradulent income tax return constitutes an "attempt" within the meaning of the statute, United States v. Coppola, supra at 661, and there is no doubt the returns for 1964-67 were false and fraudulent. See also, Sansone v. United States, supra at 352; United States v. Magnus [66-2 USTC ¶9660], 365 F. 2d 1007 (2d Cir. 1966), cert. denied, 386 U. S. 909 (1967); United States v. Raub [49-2 USTC ¶9422], 177 F. 2d 312, 315 (7th Cir. 1949).

[Willfullness]

The crucial issue at trial was the question whether the defendant acted willfully in filing or causing to be filed the false returns for 1964-67. Did the defendant despite knowing that he had a legal duty to pay the tax due neverthless voluntarily, intentionally and with the specific and fraudulent intent to conceal his true income file these false returns? United States v. Dowell [71-2 USTC ¶9642], 446 F. 2d 145, 147 (10th Cir.), cert. denied, 404 U. S. 984 (1971); Hayes v. United States [69-1 USTC ¶9204], 407 F. 2d 189, 195 (5th Cir.), cert. dismissed, 395 U. S. 972 (1969); United States v. Siragusa, supra at 594. In this regard, it is no defense that the defendant may not have realized the extent by which he understated his income, Katz v. United States [63-2 USTC ¶9600], 321 F. 2d 7, 10 (1st Cir.), cert. denied, 375 U. S. 903 (1963). The fact question for this Court is simply whether defendant knew "that he should have reported more income than he did for the years involved." Sansone v. United States, supra at 353.

The Government can prove defendant acted willfully either through the use of direct evidence such as admissions by the defendant or through the use of circumstantial evidence which gives rise to inferences that the defendant acted willfully. United States v. Spinelli [71-1 USTC ¶9434], 443 F. 2d 2 (9th Cir. 1971). Both types of evidence were employed in this case.

[Agent's Testimony]

The most damaging evidence offered by the Government of willfulness were the admissions of the defendant to Revenue Agent Lem in the presence of the defendant's preparer Thomas Axt at a meeting that occurred on August 2, 1968 in Mr. Axt's office. Specifically, Lem testified that when asked how he could account for the large excess of deposits into just one of his bank accounts, the Chemical Bank checking account, over the amount reported as income on his 1966 return, Mr. Pawlak replied that when he prepared the return he only included those employers and clients who actually sent him forms 1099 and W-2 and that although he knew some employers did not send these forms, he did not include them. (Tr. 109). The defendant indicated that he did not know how much he failed to report and was apparently surprised to find that the amount was so great. The defendant also told Agent Lem that he had been following this practice for years. (Tr. 110).

The defendant's attorney characterized Lem's testimony as extremely harmful (Tr. 191) and so has, of course, attacked the credibility of Lem by pointing out alleged inconsistencies in his testimony and by suggesting that Lem, a man of Chinese ancestry, may have had difficulty understanding English which would account for his alleged misunderstanding of what defendant claims he actually said at the August 2, 1968 meeting. The Court, however, during the course of the trial had the opportunity to note that Mr. Lem had been in this country since 1941 and there was no evidence during his testimony of any language diffculty. (Tr. 191). With regard to the alleged inconsistencies in Lem's testimony, they have been adequately explained by the Government and need not be discussed in detail. (Government's Reply Memorandum at 17-25). Suffice it to say that the Court directly observed Mr. Lem at trial both on direct and cross-examination and found him to be a credible witness. Defendant's contention that Lem was less than candid with the Court is without merit.

[Independent Evidence]

Defendant claims, however, assuming that Lem is believed, there is no independent evidence corroborating the defendant's admissions, as required by Smith v. United States [54-2 USTC ¶9715], 348 U. S. 147, 155 (1954). The independent evidence, however, need only establish either that the admissions were reliable or that the crime charged was in fact committed. United States v. Marcus, supra at 565. The Government's evidence amply meets this requirement especially the evidence of consistently large understatements, the supplemental lists of income not backed by W-2's or 1099's which were prepared by defendant (Gov. Exs. 1756, 1726B), and the fraud referral report of Agent Lem dated October 10, 1968 which also makes reference to these admissions. (Gov. Ex. 8C). Smith v. United States, supra at 157; United States v. Parenti [71-2 USTC ¶9613], 326 F. Supp. 717, 725 (E. D. Pa. 1971). Certain statements of Thomas Axt were also testified to by both Lem and Agent Alleva under the theory that Axt was acting within the scope of his employment and authority when they were made and thus the statements were admissible against defendant. 1 Hayes v. United States, supra at 192; United States v. Parenti, supra at 727, 729. While the reasons behind the corroboration rule would not appear to apply to the statements of Axt since their reliability should not be suspect, see Smith v. United States, supra at 153, 155 n. 3, the evidence of the Government amply bolsters the statements of Axt as well and indicates that the crime was in fact committed.

[Failure to Call Witness]

As well as relying on these admissions of the defendant and the statements of his agent, Axt, the Court has drawn an inference adverse to the defendant by reason of his failure to call Axt as a witness. While defendant has argued that where a witness is equally available to both sides no inference should be drawn against either side, the rule in this circuit is to the contrary, especially where the witness would naturally side with one party. United States v. Dibrizzi, 393 F. 2d 642, 646 (2d Cir. 1968); United States v. D'Angiolillo, 340 F. 2d 453, 457 n. 5 (2d Cir.), cert. denied, 380 U. S. 955 (1965); United States v. Cotter, 60 F. 2d 689, 692 (2d Cir. 1932) (L. Hand, C. J.); United States v. Krechevsky, 291 F. Supp. 290, 293 n. 3 (D. Conn. 1967). Since Mr. Axt had been defendant's preparer for a number of years including those covered by the indictment, and is now defendant's accountant as well as preparer, he would naturally have sided with him. In fact, Mr. Alleva testified on cross-examination that Axt did send a letter dated April 1970 to the IRS, and while neither the letter nor its substance were admitted into evidence, defendant made it clear that Axt was siding with him. (Tr. 459-463). The inference against defendant, then, is quite proper.

[Circumstantial Evidence]

In addition to the direct evidence of defendant's willful conduct, the Government offered substantial circumstantial evidence of willfulness. While evidence of a single understatement of income is not alone evidence of willfulness, a consistent pattern of underreporting large amounts of income is evidence from which willfulness can be inferred. Holland v. United States, supra at 139; United States v. Frank [71-1 USTC ¶9208], 437 F. 2d 452, 453 (9th Cir.), cert. denied, 402 U. S. 974 (1971); United States v. Procario [66-1 USTC ¶9263], 356 F. 2d 614, 618 (2d Cir.), cert. denied, 384 U. S. 1002 (1966). See also, H. Balter, Tax Fraud and Evasion §13.3-4 (3rd Ed. 1963). Inasmuch as Mr. Pawlak failed to report nearly $180,000.00 over a four year period, the evidence on this score is practically overwhelming.

Large nondeductible payments or expenditures are also circumstantial evidence of knowledge and willfulness. United States v. Dowell, supra at 147. At trial the Government offered evidence that the defendant spent or placed in savings accounts the following amounts over and above the income reported on his returns for the years 1964-67, respectively: $60,204.33; $54,361.23; $48,392.26; and $15,942.08. In fact, during 1964, 1965 and 1967 defendant deposited in savings accounts in his name alone checks he had drawn on the Chemical Bank in the sum of $70,000.00. One deposit alone was for $25,000.00. Clearly his spending and depositing these sums of money belie defendant's argument that he was unaware of how much he actually earned and that he thought he had reported all of his income.

Failure to include all of his income in the records he provided his preparer Axt is further evidence of the willful nature of defendant's conduct. United States v. Frank, supra; United States v. Dowell, supra at 147; United States v. Lindstrom [55-1 USTC ¶9490], 222 F. 2d 761, 763 (3d Cir. 1955). The evidence at trial demonstrated that defendant provided Axt only with W-2's, 1099's and a short supplemental list of employers who had not provided him with such statements. Agent Alleva testified that Axt had told him that bank statements which reflected Mr. Pawlak's income were never made available to him. (Tr. 442). Although defendant claims they were not complete he also failed to provide Axt with either his ledger or his diary both of which at least to some degree reflected his engagements and the payments he received. United States v. Procario, supra at 618. Defendant's failure to include on the supplemental list more than $179,000.00 of unreported income for the four years, under the circumstances, can be inferred to be more than negligence. United States v. Dowell, supra at 147.

Additional circumstantial evidence that the defendant was aware of his financial situation and in contrast to his contention that he was a musician who was helpless when dealing with financial matters is the relatively complete record of business expenses and deductions he was able to compile during the four years. The evidence demonstrated that defendant took deductions of $218,300.00 during 1964-67 and that a great deal of that was backed by documents consisting of 1253 checks and 393 paid bills, on many of which defendant had noted the nature of the business expense. Mr. Pawlak also kept records of several business expenses that had been paid in cash. (Defendant's Reply Memorandum at 25). While defendant counters that he did not take all of his deductions (Defendant's Reply Memorandum at 26), those few that he omitted pale into insignificance when compared to the $218,300.00. Moreover, his not claiming his mother as a dependent was done for personal reasons not because he overlooked it or was unable to handle his financial affairs.

[Analogy to Spies]

Defendant, on the other hand, argues that the Government has not shown any conduct on his part of the type from which the Supreme Court held an affirmative willful attempt could be inferred. Spies v. United States, supra. It must first be pointed out, however, that the list given by the Court in Spies was by way of example only and was not intended to be exhaustive. Moreover, the Government has analogized several of defendant's acts to those listed by the Court. In Spies, the Court stated that an

"affirmative willful attempt may be inferred from conduct such as keeping a double set of books, making false entries or alterations, or false invoices or documents, destruction of books or records, concealment of assets or covering up sources of income, handling of one's affairs to avoid making the records usual in transactions of the kind, and any conduct, the likely effect of which would be to mislead or to conceal." 317 U. S. at 499.

By way of analogy the Government argues that: (a) defendant's supplemental list of income can be considered a false document; (b) the records defendant provided Axt were one set of books while these same records, his ledger, his diary and his bank statements constituted a second set of books; (c) the ledger, diaries, invoices and correspondence were never shown to the preparer and were destroyed; 2 (d) defendant has been quite effective in concealing the sources of his income and at trial was able to offer no hint as to where the excess bank deposits may have originated; and (e) defendant who served as his own bookkeeper and secretary handled his affairs, as represented by the arrangement with Coronado Service Co., whereby the transaction as reported by defendant on his income tax return differed from the real effect of such transactions on his profits and losses. 3 These arguments of the Government are not without merit and when taken together certainly support an inference of willfulness.

[Subsequent Willfulness]

The Government has also pointed to certain evidence of willfulness which occurred subsequent to the actual affirmative acts of filing the returns. The failure of the defendant to supply his ledger book to Agent Lem is evidence of such willfulness. United States v. Eley [63-1 USTC ¶9264], 314 F. 2d 127, 132 (7th Cir. 1963). Other such evidence includes the instances of false statements to Government agents, 4 and defendant's admission at one point that he was notified by Axt prior to April 15, 1968 of the pending IRS audit of his 1966 return and his subsequent filing of an extension of time to file the 1967 return, and the augmented supplemental list attached to the 1967 return. 5 The argument is that this conduct creates the inference that defendant was aware that he earned income for which he did not receive a statement, that he decided in April 1968 he should report more of his income in light of the IRS audit of his 1966 return and that he had the records from which he could compile a more complete record of income than he had in former years.

Defendant attempts to explain the 1967 supplemental list by saying that the nature of his business had changed. While the defendant did refer to a couple of events during 1967 that he claims made it easier for him to recall his employers, his story on the whole was not credible. 6 Furthermore, despite his contentions to the contrary and the testimony of defendant's psychiatrist, Doctor Ruddick, defendant appeared to have a good memory that he was careful to exercise only at convenient times. The evidence also indicated defendant got along remarkably well in society for a man who allegedly was a "babe in the woods." During the time period in question defendant was an arranger, composer, performer and producer; he was his own bookkeeper, secretary and business manager; he dealt constantly with a number of people, night clubs and companies; he employed musicians and operated a publishing company; he maintained numerous bank accounts, kept a running balance in his check book, kept a diary and a ledger and mailed invoices, copies of which he maintained until paid; he also provided his accountant with statements from employers and a supplemental list of income and kept nearly complete records of his expenses, purchased his own home, and as testified to by his character witness Chester Feldman was generally quite reliable and dependable. This is not the picture of a helpless, passive, fearful and anxious musician who was so wrapped up in his work he was incapable of existing in the world of reality as defendant would have the Court believe. The evidence is clear that defendant was capable of willifully attempting to evade his income taxes.

[Defenses]

Defendant has raised a number of defenses. The first is that his attempt to evade paying his tax could not have been willful since he never attempted to conceal his income but merely put it into bank accounts where it could be easily discovered. If that were a defense, however, the Government would never be able to succeed in proving its case by the bank deposits method.

Defendant has also offered the testimony of his psychiatrist, Dr. Ruddick, in support of his claim that he could not have acted willfully. The Court, however, has been unable to give much weight to Dr. Ruddick's testimony in light of defendant's decision not to claim insanity as a defense, United States v. Freeman, 357 F. 2d 606, 622-23 (2d Cir. 1966), and the general rule in this circuit that psychiatric testimony is not admissible solely on the issue of willfulness. United States v. D'Anna, 450 F. 2d 1201, 1204-05 (2d Cir. 1971); United States v. Baird [69-2 USTC ¶9595], 414 F. 2d 700, 703-04 (2d Cir. 1969), cert. denied, 396 U. S. 1005 (1970). In fact Dr. Ruddick himself testified that defendant did not lack any substantial capacity to conform his conduct to the requirements of the IRS laws and that he believed that Mr. Pawlak did realize he had to report all of his income. (Tr. 779). While there is some authority for defendant's offer of psychiatric testimony on the issue of willfulness, Rhodes v. United States, 282 F. 2d 59 (4th Cir.), cert. denied, 364 U. S. 912 (1960), see also, United States v. Brawner, Slip Op. 22, 714 (D. C. Cir. June 23, 1972) (en banc), the law is otherwise in this circuit and "[b]eing sane, he had the capacity to act willfully." United States v. Haseltine [70-1 USTC ¶9140], 419 F. 2d 579, 581 (9th Cir. 1969). There is an additional and more fundamental reason, however, for rejecting Dr. Ruddick's testimony. The Doctor testified that the basis for his conclusion that defendant did not act willfully constituted a minimal part of his analysis of Mr. Pawlak and furthermore, Doctor Ruddick was a very biased witness, and much of his testimony just cannot be believed. Even if it could, Mr. Pawlak's apparent anxiety over money to which Doctor Ruddick testified could well explain why defendant did not report all of his income.

Defendant has pointed to other evidence that he claims rebuts the Government's charge that he acted with knowledge and willfulness. Specifically, he refers to his cooperation with the government agents, his good faith reliance on his employers to provide him with W-2's and 1099's for all income he earned, his good faith reliance on his accountant to whom he gave all his cancelled checks, bank statements, W-2's, 1099's and for whom he signed his income tax returns in blank, and the testimony of his character witnesses. In support of his claim that he did provide Axt with his bank statements and that he signed his returns and the request for an extension of time in which to file his 1967 return in blank, defendant relies on Ex. Y and the fact Axt had the bank statements on June 11, 1968.

[Government's Response]

The Government, however, has adequately responded to these claims. First, since defendant did not supply Axt with all of his records, particularly the bank statements, he cannot claim that he in good faith relied upon his preparer and Axt was not called to testify. 7 See Gov. Ex. 1752. Second, Alleva testified that Axt told him that Mr. Pawlak did go over the returns in his office and did not sign in blank. 8 Third, the Government seriously questions defendant's contention that he cooperated and emphasizes that defendant did not provide Agent Lem with the ledger. See also, Duke, Prosecutions For Attempts To Evade Income Tax: A Discordant View of a Procedural Hybrid, 76 Yale L. J. 1, 35-36 (1966). Fourth, the evidence does not support defendant's claim that he relied on his employers to send him W-2's and 1099's.

The Government points out that Pawlak's statements to Lem, the use of the supplemental list, the consistent pattern of large understatements of income, the augmented supplemental list for 1967, defendant's use of his ledger all belie defendant's assertion that he in good faith relied on employers to provide him with a statement of all income earned. Moreover, defendant, himself, testified that he paid his musicians each year by check and although he deducted their salaries on his return, he never supplied them with a W-2 or 1099. That Axt had the bank statements in June 1968 and January 1969 does not help defendant, since Axt had by that time been requested by Lem to obtain them. Also, Axt denied having them for the preparation of the returns. Finally, Ex. Y is an undated, unauthenticated letter that proves nothing.

[Summary]

In sum, the combination of direct and circumstantial evidence in this case proves the third element of the crime charged well beyond a reasonable doubt--that defendant with bad purpose and the specific intent to evade his income tax, willfully and knowingly filed and caused to be filed his 1964, 1965, 1966 and 1967 income tax returns.

Accordingly, and for the foregoing reasons, judgment will be entered finding defendant guilty beyond a reasonable doubt on counts one through four of indictment 71 Cr. 363.

1 The statements of Mr. Axt to agents Lem and Alleva have been admitted for all four years. At trial, the statements of Axt were limited to 1966 and the Court reserved on the other years. The evidence, consisting in part of Mr. Pawlak's statement to Alleva in the presence of Axt to call Axt if Alleva needed anything (Tr. 272), the power of attorney signed by Mr. Pawlak appointing Mr. Axt as his representative and Mr. Axt's possession of the defendant's records and his preparation of the returns for the four years, establishes that Axt was the agent of Mr. Pawlak for the years 1964-67.

2 Mr. Pawlak contended at trial that his ledger book was stolen in a mugging incident shortly before Labor Day, 1968. While defendant may have been mugged, it is unlikely that he would have been carrying his ledger book that night and there is no mention of the book in the police report covering the mugging. Furthermore, Mr. Pawlak at the August 2, 1968 meeting did not show the ledger, which he allegedly carried with him at all times, to Agent Lem and never mentioned it. Even defendant's corroborating witnesses, Doctor Ruddick and Mr. Dahaney, appear to be referring in their testimony to Mr. Pawlak's appointment diary rather than his ledger. Finally, the loss of the ledger occurred at a particularly suspicious time, coming as it did on the heels of Lem's meeting with Mr. Pawlak.

3 Defendant utilized Coronado Service Company as a conduit for the payment of the expenses incurred in doing a job. If the advertising agency employing defendant for a job, e.g. a jingle, were not a signator to the union contract Coronado would send defendant a bill for all of the expenses incurred in the production including his salary. Mr. Pawlak would then pay that invoice and in return receive from Coronado his salary and a W-2. Subsequently, the advertising agency would reimburse defendant for the amount of the Coronado bill. The effect of this arrangement was that defendant netted his salary as represented by the W-2 from Coronado. On his income tax returns, however, defendant deducted the amount of the Coronado invoice as a business expense and yet failed to include as income the amount of the reimbursement from the advertising agency. Thus, defendant's return showed that he incurred a loss on the job whereas he made a profit. See Tr. 999-1048. It is reasonable to assume that a great deal of defendant's unreported income may have come from similar arrangements as the one diagrammed in Gov. Ex. 11AA. It is also interesting to note at this point that defendant functioned as his own bookkeeper and producer for these arrangements, and that although he claims to be naive when dealing with financial matters, his testimony concerning the rather complicated Coronado arrangement indicates that he understood it and its variations quite well.

4 While the defendant claimed he did not know of the IRS audit until shortly before the August 2, 1968 meeting with Lem there is strong evidence that he did know much earlier as evidence by his signing the April 12, 1968 extension for filing after Axt had received Lem's notice of the pending audit and by defendant's signing of the power of attorney appointing Axt to represent him in connection with the 1966 return. Also, defendant said he expected all of his employers to send him 1099's and yet he testified that he himself did not send them to his musicians; defendant testified that Axt always asked for his bank statements and yet Alleva testified that Axt never received them; defendant testified that he told Alleva about the ledger and the mugging incident and yet Alleva testified to the contrary; defendant also testified that he signed all of his income tax returns in blank and never saw them or went over them before Axt sent them to the Government and yet Axt informed Alleva that the defendant did go over the returns and they were not signed in blank. (Tr. 441).

5 The supplemental list attached to defendant's 1967 return included 17 employers from whom defendant had not received a statement of earnings whereas in 1965 and 1966 he had listed only four such employers and in 1964 included none. Furthermore, the amount of income he had reported on his supplemental list in 1964-1966 was an insignificant percentage of the total reported professional income in those years and yet in 1967 defendant was able to report on the supplemental list 34% of his total gross professional income.

6 See note 4 supra.

7 Tr. 436-446.

8 Id.

 

 

[51-2 USTC ¶9382]In Re: Dan M. White and John H. White

In the United States District Court for the Southern District of Mississippi, Nos. 1601, 1602 (Consolidated), May 28, 1951

Penalties: Evidence: Constitutionality: Voluntary disclosure.--Where taxpayers failed to take advantage of the opportunity to make a voluntary disclosure before an investigation of their returns was started, a motion to suppress evidence which they voluntarily gave was overruled. Their admissions against interest were made without any false promises or inducements and constituted competent evidence. The Government's search of books and records was reasonable and was consented to. No constitutional rights were violated.

Rob ert Ash and Carl F. Bauersfeld, 550 Munsey Building, Washington 4, D. C., and Forrest B. Jackson, 202 Century Building, Jackson, Mississippi, for petitioners.

Findings of Fact and Conclusions of Law

Findings of Fact

MIZE, Judge:

1. Petitioners are half-brothers, one of whom (Dan M. White) resides in New Orleans, Louisiana, and the other (J. H. White) in Jackson, Mississippi. Dan M. White is connected and has been during all times material hereto with the Industrial Finance & Thrift Corporation in New Orleans, which is engaged in the brokerage of loans from local finance companies over the southern states. Two of the local finance companies from which it accepts paper are the White System of Jackson, and Friendly Finance Company, located in Jackson, Mississippi, and were the companies through which J. H. White transacted business. Apart from the rediscount of paper of the two Jackson, Mississippi, companies with Industrial Finance & Thrift Corporation, there was no business connection between the Mississippi and New Orleans enterprises.

2. Criminal complaints have been filed with the United States Commissioner in the Southern District of Mississippi, charging each of petitioners with evasion of their 1944 Federal income taxes. The original returns filed by petitioners with the Collector of Internal Revenue at Jackson, Mississippi, for the years 1942, 1943, 1944, and 1945, were fraudulent. Each of the petitioners filed amended returns for the calendar years 1942 to 1945, inclusive, in the circumstances set out separately as to each petitioner below, the amended returns being filed on dates as follows:

Dan M. White, Amended Returns

1942, filed between March 10 and 15, 1946

1943, filed April 1, 1946

1944, filed April 1, 1946

1945, filed May 29, 1946

John H. White, amended Returns

1942, filed August, 1946

1943, filed early September, 1946

1944, filed September 6, 1946

1945, filed September 19, 1946

["Voluntary Disclosure" Policy]

3. For many years, the United States Treasury Department has maintained a policy of not recommending criminal prosecution of taxpayers who have wilfully made a fraudulent tax return in those cases where the taxpayer, before an investigation of his returns is under way, makes what the Treasury calls a "voluntary disclosure" to some revenue agent or officer of his fraudulent misstatement. In 1946, this policy was known to the respective accountants in New Orleans and Jackson, Mississippi, who prepared the amended returns for the taxpayers, and by the agents of the Bureau of Internal Revenue who made an investigation of the returns of each of the petitioners. Under date of August 21, 1945, the then Secretary of the United States Treasury, Hon. Fred M. Vinson, writing as guest columnist in Mr. Drew Pearson's syndicated column "Washington Merry-Go-Round," announced the purpose of the Treasury Department to increase its efforts in the detection of fraudulent evasion of income taxes, and with respect to the "voluntary disclosure" policy stated as follows:

"The Commissioner of Internal Revenue does not recommend criminal prosecution in the case of any taxpayer who makes a voluntary disclosure of omission or other misstatement in his tax return or of failure to make a tax return. Monetary penalties may be imposed for a delinquency, for negligence and for fraud, but the man who makes a disclosure before an investigation is under way protects himself and his family from the stigma of a felony conviction. And there is nothing complicated about going to a Collector or other revenue officer and simply saying, 'there is something wrong with my return and I want to straighten it out.'"

This policy statement came to the attention of both petitioners. The Treasury policy was further publicized in a release to the press under date of Friday, October 5, 1945, which also came to the attention of petitioner Dan M. White.

Separate Findings as to Petitioner Dan M. White

4. From 1942 and until the latter part of 1945, petitioner Dan M. White was involved in matrimonial disputes with his first wife as a result of which he had disguised income on the books of the corporation with which he was connected, Industrial Finance & Thrift Company, for the purpose of preventing his former wife finding out his true income, and for the purpose of evading the payment of income taxes. At the time in October, 1945, that a final agreement was reached with an agent of his former wife, petitioner Dan M. White commenced assembling information necessary to straighten out his accounts to enable him to file amended returns, but he did not report his intention to file an amended return to the Collector of Internal Revenue at this time, and at no time did he advise the Collector of Internal Revenue that his returns were false and fraudulent, and that he desired to make a voluntary disclosure. By the time the final executed copy of the property settlement and agreement was received in February, 1946, he had information ready for a 1942 amended return and a good part of that required for 1943 and 1944, but did not advise the Collector of Internal Revenue. At that time, he signed his amended 1942 return and issued a check for it dated about March 10 or 12, 1946, and left it with his office with instructions to mail it to the Collector in Jackson, Mississippi, before March 15, 1946. He understood that he had until three years following the filing of each return within which to file a voluntary amendment, which understanding was shared by the Collector of Internal Revenue at Jackson, Mississippi. Thereupon, in the middle of February, 1946, petitioner Dan M. White left for Arizona, on the advice of his physician, where he remained until about March 20, 1946. During the middle of March, 1946, petitioner Dan M. White corresponded with the Collector respecting the Collector's request that a 1943 return, in addition to that for 1942 already filed, be gotten in promptly apparently because of the effect of the Current Tax Payment Act. At that time, the Collector at Jackson was informed in writing that petitioner Dan M. White would amend his return for 1943 as soon as he returned to New Orleans.

5. Upon petitioner Dan M. White's return from Arizona, he employed a certified public accountant to assist him with his amended return. Thereafter, the accountant prepared the amended returns, which were filed as set forth in Finding 2, above, from information supplied by petitioner Dan M. White.

6. After Dan M. White returned from Arizona about the 20th of March, he engaged Mr. Lankston, the accountant, to prepare his amended returns and advise him why and that after he had made the mistake in the 1942 return, the amended return, he decided he needed the assistance of an accountant and wanted to make a full disclosure.

7. At this time he had already been informed that Mr. Cuvillier, an agent of the Department, had been to the office of the Industrial Finance & Thrift Corporation and was making an investigation of their books and that Mr. Cuvillier had suspended the final examination of those books until he returned.

8. An examination of the books of the Industrial Finance & Thrift Corporation would disclose that there was a discrepancy in the amount of return made by the corporation and with the aid of the original returns of Dan M. White it could be determined that Dan M. White had concealed his income.

9. On February 28, 1946, Cuvillier began the examination of the tax returns of the Industrial Finance & Thrift Corporation for the year ending July 31, 1944, during which examination the commission payments to Dan M. White were computed and the Thrift accounts were checked to the extent that an explanation of the discrepancies from Dan M. White became necessary. While he, White, was out of town from February 28, 1946 to about March 20, 1946, the revenue agent withdrew from further investigation until White should return.

10. When Cuvillier entered the office of the Industrial Finance & Thrift Corporation on February 28, he advised the persons in charge that he wanted to see Mr. White or Mr. McKinnon, officers of the company, and at that time Mr. White being out of town he told Mr. McKinnon he wanted to start an examination of the return of the company for the year ending July 31.

[Opportunity Afforded for Voluntary Disclosure]

11. Soon after his examination started of the books of the Industrial Finance & Thrift Corporation he found that the return of compensation as shown by the books of the Corporation was $60,000.00, but upon checking he found as a matter of fact it aggregated $92,000.00. At this time he had not actually examined Dan M. White's return, but Mr. McKinnon was unable to explain it, and he was unable to get any explanation from anyone there and was told that Mr. White was the only one who could explain those things and withdrew on or about March 15. Prior to his withdrawal it got to the point where he was unable to get any explanation from those in charge. The purpose of his withdrawal was to await the return of Mr. White in order to afford him an opportunity to explain if there was concealed income.

12. On March 26 he encountered Mr. Lankston, the accountant, and had a conversation with him in which Lankston stated he had been engaged to prepare an amended return for Mr. Dan M. White and Lankston told him he thought it would be better if he, Cuvillier, would wait until he, Lankston, finished with his audit.

13. At that time Lankston did not tell him that Dan M. White desired to make a voluntary disclosure of unreported income and that on April 8 he went to see Dan M. White and at that time Dan M. White did not advise him that he was making a voluntary disclosure of unreported income, and that at no time did Lankston or Dan M. White report to Agent Cuvillier that he was making a voluntary disclosure of unreported income.

14. Agent Cuvillier did not have in his custody on either of those dates the original income tax return for 1944 of Dan M. White, but the investigation was proceeding as above stated and on April 14, 1946, William E. Logan, revenue agent, wrote the Collector of Internal Revenue at Jackson that his office in New Orleans had under consideration the income tax liability of Dan M. White for 1944 and requested that any amended return filed for Dan M. White be forwarded to him. On March 18, 1946, Dan M. White wrote the Collector of Internal Revenue at Jackson with reference to his 1942 amended return and stated that on his return to New Orleans he would prepare a corrected return for 1942 and 1943, but at no place in the letter did he mention the 1944 return nor did he state that he was intending to file a voluntary disclosure of unreported income for the year 1944 and on March 30, 1946, Lankston wrote the Collector at New Orleans that he was filing an amended return for the year 1945 in order to take advantage of the Louisiana community basis, but did not state that he had made a false return and intended to make a voluntary disclosure of unreported income.

15. Mr. Cuvillier in the meantime was selected as a conferee and the White cases were assigned on May 1 to Internal Revenue Agent E. D. Matheny and Special Agent Harold Holt of the Intelligence Unit for further investigation, and these two completed the investigation and on Nov. 17, 1948 took a sworn statement from Dan M. White and from J. H. White and before taking other sworn testimony they were advised of their right to have an attorney and that any statements they made could be used against them and after so being advised, each one made the voluntary statement as reflected by the record.

16. The petitioner Dan M. White is an experienced business man and very bright. He is a lawyer, having been admitted to practice law in Mississippi but has not engaged in the active practice of law and had only a short experience as a practitioner.

17. The petitioners Dan M. White and J. H. White both cooperated fully throughout the investigation and furnished to the agents all the books, documents, canceled checks and correspondence as requested, and they at no time were warned by the agents prior to the date the sworn statements were taken that the information they were giving to the agents would be or could be used against them.

18. At no time during the entire investigation did the government agents make any inducements or false representations or use any trickery or make any promises of immunity to either one of the petitioners in connection with the investigation.

19. The agents of the Government were duly authorized to make the investigation of the income tax returns and would have been able to have discovered the concealed income from an examination of the books of the Corporation and income tax returns as filed with the Government and the cooperation that was given by the petitioners was in response to questions touching their returns and which questions the agents had the right to ask them provided no false promises of immunity were given or threats or coercion made. The statements were all voluntarily given. The agents had a number of conferences, probably one hundred or more, with Dan M. White and a great number of questions were asked and explanations were given. The agents were permitted to take some of the records from Dan M. White's office in order that they might be copied or photostated and there are now in the files of the Department some of the copies or photostats but no originals. Neither of the petitioners was ever advised by any one of the agents or the Treasury Department that criminal prosecution was being contemplated nor did they tell either of the petitioners that criminal prosecution was not contemplated.

Separate Findings as to Petitioner J. H. White

20. John H. White commenced to assemble information necessary to amend his 1942-1945 returns in April, 1946, and employed a certified accountant, Mr. J. W. Cocke, to prepare these for him and engaged him about June or July. Mr. Cocke advised him of the voluntary disclosure policy and that it was advisable if he had no reason to believe he was under investigation by the Bureau to inform the Collector's office immediately of his intention to make good. He filed his amended return for the year 1944 on September 6, 1946, but he did not advise the Collector of Internal Revenue that he had concealed income and desired to make a voluntary disclosure until the filing of his amended return.

21. The examination of J. H. White was started in July, 1946. The investigation of J. H. White was assigned to the agents in May, 1946, and after the investigation started, in July, 1946, they contacted Mr. J. H. White in Jackson and told him his returns for 1942-1945 had been assigned to them for investigation, and asked if he intended to file any amended returns and he replied that his original returns were correct and he did not intend to file an amended return. This conference took place before the amended return was filed and after the investigation had started.

Conclusions of Law

1. I conclude as a matter of law that the petition to suppress the evidence should be overruled.

2. Admissions which are voluntarily made without any false promises or inducements are competent evidence against one charged with crime. The policy of the Government holds out to those who had failed to pay their income taxes [an opportunity to make a voluntary disclosure and] specifically stated that the voluntary disclosure must be made before an investigation is started. In this case it is clear that the investigation of J. H. White had started and it is reasonably clear that an investigation of Dan M. White had started. The agent, Cuvillier, discovered the discrepancies in February while investigating the Industrial Finance & Thrift Corporation and almost immediately Dan M. White returned, but at no time did Dan M. White tell the agent that his return for 1944 was false and that he intended to take advantage of the voluntary disclosure policy. If on that date he had written the Treasury Department or gone to an agent of the Department and said, "I have filed a false return and am now preparing to file an amended return and pay up the shortage", then the policy would be applicable but he chose not to do this and at no time did he advise the agents that his returns were false and he desired to correct them.

3. There is a difference between admission and confession and where an intelligent man without false promises being made to him voluntarily makes admissions against his interest, he cannot be heard to say that his constitutional rights have been violated. See the case of Brister v. State, 51 So. (2d) 759, Advance Sheet dated May 10, 1951.

4. There was no unlawful search or seizure, but the search that was made was consented to and a reasonable one and violated no constitutional rights of the petitioners.

5. The facts of this case are different from the facts in the case of In re Liebster, 1 Fed. Supp. 814 [50-2 USTC ¶9357], and are more nearly like the facts of Henry Lustig Company, 67 Fed. Supp. 306 [46-2 USTC ¶9318], 163 Fed. (2d) 85 [47-2 USTC ¶9325].

6. The relief sought by petitioners will be denied and their petition dismissed.

 

 

[54-2 USTC ¶9442]Manson L. Reichert, Petitioner v. Commissioner of Internal Revenue, Respondent

(CA-7), In the United States Court of Appeals for the Seventh Circuit, No. 11000. October Term, 1953, April Session, 1954, 214 F2d 19, June 9, 1954

Petition for review of decisions of Tax Court of the United States.

Evidence: Admissibility of testimony before a grand jury.--Taxpayer claimed the introduction of testimony from a grand jury investigation in a Tax Court trial was illegal disclosure as it violated the laws pertaining to secrecy in grand jury proceedings. The Circuit Court held that the purpose of secrecy in grand jury proceedings is to protect the jurors, not the one who is indicted, and therefore the taxpayer's motion to suppress all evidence from such proceedings was properly overruled.

Evidence: Unlawful searches and seizures.--Taxpayer contended that introduction in a Tax Court trial of testimony before a grand jury was an unconstitutional search and seizure. The Circuit Court decided that as there was no contention of any search or seizure of information or property belonging to the taxpayer, taxpayer had no constitutional rights involved in the proceeding.

Wilber T. Dassel for petitioner. H. Brian Holland and Ellis N. Slack for respondent.

Before MAJOR, Chief Judge, DUFFY ANDSCHNACKENBERG, Circuit Judges.

SCHNACKENBERG, Circuit Judge:

This case is brought to this court by the petition of taxpayer, Manson L. Reichert, asking for a review of decisions of the United States Tax Court entered June 18, 1953 [CCH Dec. 19,504], and involves income taxes and fraud penalties assessed against him for the years 1943 through 1946. Jurisdiction was conferred on this court by section 1141(a) of the Internal Revenue Code, as amended June 25, 1948, and May 24, 1949 [26 U. S. C. A. 114(a)]. By its orders the Tax Court determined deficiencies in income tax payments and fraud penalties amounting to $11,204.15.

Taxpayer became the chairman of the Republican County Central Committee of Vanderburgh County, Indiana, in May, 1942, and in November, 1942, he was elected mayor of the city of Evansville. He held these positions in the taxable years 1943 through 1947. 1944 and 1946 were campaign years. One of taxpayer's duties as county chairman was to solicit campaign funds. In accordance with the method of operation of the Republican Party contracts were entered into between the Republican United Finance Committee of Indiana and the Republican County Central Committee of Vanderburgh County whereby funds collected by the county committee were to be remitted to the United Finance Committee, with a report of the names of the contributors. Receipts were issued to each contributor by the treasurer of the United Finance Committee. Of the total, 65% was to be returned to the county committee and 35% was to be allocated to the state committee. The Tax Court decided that a part of the contributions collected by taxpayer he did not remit to the state committee and he was therefore subject to an income tax thereon.

Taxpayer procured the appointment by the secretary of state of Benjamin H. Bartlett as manager of the motor vehicle license bureau branch office in Evansville. Bartlett agreed with taxpayer to put the latter's daughter, Maybelle, on his payroll at a salary of $3600 a year. She was placed on the payroll, did very little work, and the Tax Court found that what was paid to her, with the exception of $100 for each of the years 1943, 1944 and 1945, was paid to taxpayer for the assistance he had given in procuring Bartlett's appointment and was income to taxpayer.

The Tax Court also found that fraud had been proved.

When cases Nos. 23495 and 29928 came on for hearing before the Tax Court, they were consolidated for hearing on the motion of taxpayer's attorney, who thereupon immediately presented and filed written motions signed and sworn to by taxpayer under date of October 29, 1951. The motions are identical and are referred to in the record and herein as the motion to suppress evidence.

In substance the motion alleged that the pending cases were based and founded upon and sprang directly from what it described as the illegal and unlawful disclosure and delivery by the prosecuting attorney of Vanderburgh County, Indiana, to the representatives of the Intelligence Unit of the Bureau of Internal Revenue of the United States Government, of a transcript of the testimony of witnesses who had appeared before the Vanderburgh County grand jury. The motion further alleges that the charges contained in both cases were the direct result of hearings held before representatives of the United States government and that "all of the testimony and information then before said government agents and in their sole and exclusive possession and control was the testimony of witnesses that had appeared before the Vanderburgh County, Indiana, grand jury, * * * transcribed * * * and delivered by * * * the prosecuting attorney * * * to the government agents" as aforesaid. The motion further sets forth several questions by special agent Shryer directed to taxpayer and another witness in which Shryer refers to testimony given by witnesses before the grand jury. Typical is the following question:

"Mr. Reichert, in the proceedings of last year under state laws to obtain indictments against you, various individuals testified under oath before the Vanderburgh County Grand Jury, as to payment to you of sums of money. In May '44, Benjamin H. Bartlett stated that just prior to the primary election that year he turned over to you the sum of $10,300. Did you receive that money?"

The motion charged that everything learned by the government representatives concerning the alleged income tax liability of taxpayer was "learned illegally and unlawfully and in violation of the constitutional guarantees of said" taxpayer and, "specifically, in violation of the Fifth Amendment to the Constitution of the United States and of the Due Process of Law provision of the Fourteenth Amendment" thereto, and that the prosecuting attorney turned the grand jury testimony over to the Bureau of Internal Revenue and "thereby disclosed the secrets of the Grand Jury room without an order of any court and without judicial sanction, and that in so doing violence was done to the Fifth Amendment to the Constitution and the Due Process Clause of the Fourteenth Amendment."

The motion contained a prayer reading:

"* * * prays that all evidence and properties of any kind or nature, including all of the testimony herein specifically set out and alleged, and testimony not herein set out and alleged, so learned by the agents of the Intelligence Unit, Bureau of Internal Revenue, Treasury Department of the United States, and any and all Grand Jury testimony of the Vanderburgh County, Indiana, Grand Jury, and all statements made by this affiant or by any other witness appearing before said agents, whether said statements be written or oral, may be quashed and suppressed, and that all property of whatsoever kind and nature, and documents, memoranda, books and all other property, and any statements, whether oral or written, already procured by said agents, be suppressed * * *".

Although no counter-affidavit or motion was presented by the government, taxpayer asked permission to introduce evidence to support the allegations of the motion and expressed a wish to do this before the case was tried on the merits. The court refused to permit this course of procedure to be followed and indicated that it would take the motion under advisement and rule on it when the evidence was before it, suggesting that objection be made as the evidence of the government was offered. The trial proceeded, but taxpayer made no objections to evidence on the grounds set up in the motion to suppress. At the close of the trial the court asked taxpayer's counsel if he then proposed to offer evidence on the matter set forth in the motion. At that time taxpayer's counsel indicated that he was relying on the matter set forth in the motion only. It is contended by taxpayer in this court that the questions raised by the motion to suppress should have been determined in advance of the trial of the principal case. He relies uponWeeks v. United States, 232 U. S. 383, 58 L. ed. 652, and other cases. However that may be, we find it unnecessary to decide that question of practice.

1. Taxpayer relies upon the following provisions of the Indiana statutes (Burns' Indiana Statutes Annotated, chapter 9):

9-816. "Every member of the grand jury must keep secret whatever he or any other grand juror may have said, or in what manner he or any other grand juror may have voted on a matter before the grand jury."

9-817. "A member of the grand jury may, however, be required by any court to disclose the testimony of a witness examined before the grand jury, for the purpose of ascertaining whether it is consistent with that given by the witness before the court; or to disclose the testimony given before them by any person upon a charge against him for perjury in giving his testimony or upon his trial therefor."

9-818. "A grand juror can not be questioned for anything he may say or any vote he may give in the grand jury relative to a matter legally pending before the grand jury, except for perjury of which he may have been guilty in making an accusation or giving testimony to his fellow jurors."

In Schmidt v. United States, 115 Fed. (2d) 394, at 396, the reasons for the oath of secrecy taken by grand jurors are stated by way of a quotation from United States v. Amazon Chemical Corp., 55 Fed. (2d) 254, 261,

`(1) To prevent the escape of those whose indictment may be contemplated; (2) to insure the utmost freedom to the grand jury in its deliberations, and to prevent persons subject to indictment or their friends from importuning the grand jurors; (3) to prevent subornation of perjury or tampering with the witnesses who may testify before the grand jury and later appear at the trial of those indicted by it; (4) to encourage free and untrammeled disclosures by persons who have information with respect to the commission of crimes; (5) to protect the innocent accused who is exonerated from disclosure of the fact that he has been under investigation, and from the expense of standing trial where there was no probability of guilt. It is obvious that the basis of all but the last of these reasons for secrecy is protection of the grand jury itself, as the direct independent representative of the public as a whole, rather than of those brought before the grand jury.'"

To the same effect is Goodman v. United States, 108 Fed. (2d) 516, at 519.

In Commonwealth v. Kirk, 17 A. (2d) 195, 340 Pa. 346, it was said:

"A consideration of the best authorities on the subject leads to the conclusion that the rule is for the protection of the Commonwealth, the grand jurors themselves and the witnesses, and is not concerned with 'protecting' the accused, whose constitutional and statutory rights are not affected by it one way or the other."

To the same effect is State v. Krause, 50 N. W. (2d) 439, at 444, 260 Wis. 313. In that case decisions of the Indiana courts are referred to, as follows:

"In State v. Bates, 1897, 148 Ind. 610, 48 N. E. 2, 3, the court in its decision stated: 'Though obviously proper, and highly important, that the proceedings of a grand jury should be in secret, one who is indicted cannot take any advantage of it if they are not. Shattuck v. State, 11 Ind. 473. The secrecy is not required for his benefit, but otherwise.'"

The court in State v. Krause also cited State v. Rothrock, 200 P. 525, 45 Nev. 214, quoting therefrom, as follows:

`The reasons on which the sanction of secrecy which the common law gives to proceedings before grand juries is founded are said in the books to be three-fold. One is that the utmost freedom of disclosure of alleged crimes and offenses by prosecutors may be secured. A second is that perjury and subornation of perjury may be prevented by withholding the knowledge of facts testified to before the grand jury, which, if known, it would be for the interest of the accused or their confederates to attempt to disprove by procuring false testimony. The third is to conceal the fact that an indictment is found against a party, in order to avoid the danger that he may escape and elude arrest upon it, before the presentment is made. * * * But when these purposes are accomplished, the necessity and expediency of retaining the seal of secrecy are at an end. "Cessante ratione, cessat regula.'""

Inasmuch as the motion to suppress reveals that the grand jury inquiry now under discussion occurred in 1947, which was the year prior to the year in which the income tax liability hearings were held, and there is no allegation that the said grand jury had not been discharged, one might reasonably conclude that the need for secrecy as to proceedings before that grand jury had ceased before the hearing in question.

United States v. Coplon, 185 Fed. (2d) 629, is distinguishable from the case at bar because in the Coplon case evidence against the defendant was obtained by tapping her telephone wires and a statutory provision (47 U. S. C. A. 605) was held to forbid the introduction of evidence obtained through information gained by such unauthorized wire tapping.

We conclude that, as a matter of Indiana statutory law, the provisions for secrecy of the grand jury were not for the benefit of taxpayer and hence he had no statutory right to have his motion to suppress sustained.

2. But the taxpayer contends that his constitutional rights were invaded. He relies on cases involving unconstitutional searches and seizures by means of which sources of information and property were obtained and used against the person whose rights were invaded by such searches and seizures.

Such cases are: Boyd v. United States, 116 U. S. 616, 29 L. ed. 746, which involved a statute which attempted to require an involuntary production of a party's private books and papers to be used against him or his property in a criminal or penal proceeding, or for a forfeiture; Weeks v. United States, 232 U. S. 383, 58 L. ed. 652, pertaining to a seizure of an accused's letters and private documents in his house in his absence by a United States marshal holding no warrant for his arrest and no search warrant; Silverthorne Lumber Company v. United States, 251 U. S. 385, 64 L. ed. 319, which had to do with knowledge gained by the federal government's own wrong in obtaining papers by means of unlawful searches and seizures;Trupiano v. United States, 334 U. S. 699, 92 L. ed. 1663, 1669, relating to an illegal seizure of property by government agents, without a search warrant; and McDonald v. United States, 335 U. S. 451, 455, 93 L. ed. 153, 154, in which there was search and seizure of articles in the possession of the defendant in violation of the Fourth Amendment to the United States Constitution. 1

In the case at bar there is no contention that there was any search or seizure of any information or propertybelonging to taxpayer. That being so, there are no constitutional rights of taxpayer involved in this proceeding. Hence, no constitutional ground existed for his motion to suppress evidence.

In this court petitioner taxpayer in writing submitted his case on the sole proposition that the Tax Court erred with respect to his motions to suppress evidence. Therefore what we have hereinbefore said entirely disposes of this case and the decisions of the Tax Court will be affirmed.

Affirmed.

1Goldstein v. United States, 316 U. S. 114, 86 L. ed. 1312, cited by taxpayer, is not pertinent. It involved 47 U. S. C. A. 605, excluding as evidence information resulting from certain types of interception of messages, it having been previously held in Olmstead v. United States, 277 U. S. 438, that such unlawful interception does not amount to a search or seizure prohibited by the Fourth Amendment.

 

 

[62-1 USTC ¶9249]Charles E. Mirschel, Jr. and Katherine C. Mirschel v. Rob ert C. Zampano, United States Attorney for the District of Connecticut

U. S. District Court, Dist. Conn., Civil #9121, 201 FSupp 373, 1/23/62

[1954 Code Sec. 7203]

Crimes: Information obtained in income tax investigation: Suppression of evidence.--During the course of a civil audit the taxpayer voluntarily turned over to Revenue Agents copies of his income tax returns, books and records, ledger sheets, and cancelled checks. In addition the taxpayer voluntarily consented to an oral question and answer statement which was taken down and transcribed. Taxpayer's petition for an injunction against the use of such evidence or its suppression was denied. It is not necessary that the taxpayer be advised of possible criminal prosecution or of his right to advice of counsel since no search has been established and no compulsion was imposed or threatened.

John F. Scully, 266 Pearl St., Hartford 3, Conn., for plaintiffs.

Memorandum of Decision

I. Petitioners' Claim

BLUMENFELD, District Judge:

The petitioners claim that their retained copies of federal income tax returns for the years 1955, 1956, 1957 and 1958, books and records, ledger sheets, cancelled checks, etc. for those years were obtained by Internal Revenue Agent Rehm and Special Agent Harman of the Intelligence Division of the Internal Revenue Bureau and that a Question and Answer (Q & A) statement of Charles E. Mirschel, Jr. by Special Agent Harman which was taken down by a stenographer and later transcribed were all obtained from the petitioners by unreasonable search and seizure and compulsory self-incrimination in violation of their constitutional rights under the Fourth and Fifth Amendments.

II. Availability of a Remedy

Whether this proceeding instituted by the plaintiffs in their effort to preclude the defendant, the United States Attorney, from presenting that evidence to a Grand Jury in connection with possible future criminal proceedings against them is considered under their alternative request, either as an action for an injunction against the use of such evidence or for its suppression under 41(e) of the Federal Rules of Criminal Procedure, matters little except for the fact that part of the evidence which is the subject matter here is a Q & A statement which a Rule 41(e) motion would not reach. In United States v. Murray (2 Cir. 1962) [62-1 USTC ¶9188], 297 F. 2d 812, docket #26741, decided January 10, 1962, the court held that a Q & A statement was not discoverable by a defendant in a criminal proceeding under Rule 16 1 because such a statement cannot be regarded as a tangible object "belonging" to him. No differences in the characteristics of a Q & A statement as property, defined in 41(g) 2 and "seized" under 41(e), 3 or as property "belonging" under Rule 16 are sufficiently discernible to merit any distinction in the application of Rule 16 at one stage of criminal proceedings and Rule 41(e) at an earlier stage.

Since the scope of the plaintiffs' remedy would be enlarged under their claim for an injunction without subjecting them to any increased burden in the quality or quantity of proof, the court, by agreement of the parties, has considered the affidavits accompanying the petition and the other evidence as having been presented at a final hearing upon their claim for an injunction. That injunctive relief is appropriate upon a proper showing of facts is not open to question. Perlman v. United States, 247 U. S. 7, 38 S. Ct. 416, 42 L. Ed. 950 (1918); Cf. In re Fried (2 Cir. 1947), 161 F. 2d 453, 458-459; Austin v. United States (4 Cir. 1961), No. 8317, decided November 21, 1961; Grant v. United States (2 Cir. 1961) [61-2 USTC ¶9525], 291 F. 2d 227.

III. Facts

The investigation and audit of the plaintiffs' 1958 joint income tax return began when it was taken from a group of returns selected as excess cases for assignment to new agents to develop their experience. It was assigned to Rob ert Rehm, a newly appointed Revenue Agent, who had only recently completed a departmental six month instruction course and was still classified as a traincee. He made an appointment by telephone conversation with the wife to see the plaintiffs concerning their 1958 tax return. When he arrived at the plaintiffs' store on January 22, 1960, he met Mr. Mirschel and told him his tax return had been assigned to him for examination and that he would like to look at the books and records used in preparing their tax return in order to determine the correct tax liability. Rehm had no thought at all that his investigation would involve any criminal liability. He showed his commission to Mirschel. The taxpayer suggested that they work at his home and he took the agent there and made all the books and records available to him. After examining these records, the agent tole Mirschel that there were several discrepancies which Mirschel said he could not explain since he had not prepared the return.

Thereafter, another appointment for February 10, 1960 was arranged by telephone for Special Agent Harman of the Intelligence Division, who entered the case because of something Rehm had informed him about. Both agents went to the plaintiffs' home where Harman was introduced to Mirschel as a Special Agent, Intelligence Division of Internal Revenue Service. Harman displayed his pocket commission identifying him to Mirschel and stated to him that he had entered the case because of differences found by Rehm and that he was in the case to determine whether the error was due to fraud. In explaining his position to Mirschel, Harman used a departmental questionnaire form, each question being filled out as he went along. Harman asked Mirschel for permission to ask questions and made known to him that Mirschel was not required to answer and that anything he said might be used against him. Mirschel said he wanted to cooperate and he did cooperate. Harman told Mirschel he wanted to see the plaintiffs' copies of their tax returns for the years 1956 through 1959; that there might be fraud; and that he wanted to go through those and the books and records for those years. He stated to Mirschel that this would have to be voluntary on his part. Mirschel had his books and records for 1958 available on that day. He said Harman could come back and see the other records. Two days later he had those records dealing with the other years packed up and ready for Harman when he called for them. They were turned over to Harman voluntarily and Harman typed up a receipt for them on the plaintiffs' typewriter and signed it for the plaintiff. Later Mirschel furnished other records to Harman upon request, sending some of those to him by mail.

Subsequently, from time to time, Harman got in touch with Mirschel at his store or by telephone to ask for additional information which Mirschel gave to him. On June 7, 1960 Harman spoke to Mirschel on the telephone and told him he would like to have him come to the Internal Revenue Office for the purpose of taking his statement. Mirschel said he would come in the next day. On June 8, 1960 Mirschel's appearance was voluntary. Mirschel stated that he understood he did not have to make any statement which might incriminate him. He answered Harman's questions voluntarily in the presence of a stenographer who made notes of the questions and answers. At no time was Mirschel warned that criminal proceedings might be taken against him, nor did the agents inform him that he was entitled to be represented by counsel. After the close of the Q's & A's, Harman told Mirschel that he was going to write a report recommending criminal prosecution and told him of the further admin istrative processes this would go through and of the opportunities open to Mirschel at these later stages.

Shortly thereafter, Mirschel retained a lawyer who wrote to the Director requesting that the books and records be returned and for a copy of all statements and of the Q & A interrogation made under oath by Mirschel to the Internal Revenue Service. When this letter reached Harman, he called Mirschel's attorney and told him the records would be returned in a few days. He refused to send a copy of the Q's & A's to the attorney stating that department policy did not permit this since the attorney had not been present at the time it was taken, but informed him that Mirschel could see it and make any corrections in it or refuse to sign it on any ground.

The attorney then charged that Mirschel was being deprived of the right to counsel. Harman explained that if the attorney came with the taxpayer and the taxpayer signed he could have a copy and that he could come with him and they could go over it together, but in the heat of the conversation apparently this was not fully understood by the attorney.

IV. Conclusions and Opinion

At the outset, this was a civil audit, pure and simple. It is clear that all of the material which is the subject matter of this proceeding was voluntarily turned over to the Revenue agents. Indeed, the petitioners do not claim otherwise. Nothing received from the taxpayers was obtained by deception or fraud. The taxpayers were asked to cooperate and they did cooperate. They were interviewed and oral statements were made by them. There is no evidence and no claim that this was not willingly done. They were at all times free to obtain the advice of counsel.

The gravamen of the petitioners' claim is that they were not told they were to be charged with a crime or that the investigation was for the purpose of attempting to secure evidence to convict them of crime.

The Special Agent did inform the taxpayers that he intended to check the books and records to determine whether fraud existed. They took the position at that time that the returns had been prepared by someone else and that they were unfamiliar with the long form of return, never having prepared one. Although it has recently been suggested that.

"It would of course be far preferable, so that it may be made certain that the choice of the taxpayer be an informed choice, that written warning be given when the civil audit is suspended as such, and the investigation becomes one to determine whether criminal or civil fraud penalties should be sought by the government. This would not only protect the taxpayer's constitutional rights, but would also obviate much of the delay in tax cases caused by such motions [petitions] as the one before us." Smith, Circuit Judge, Grant et al. v. United States (2 Cir. 1961) [61-2 USTC ¶9525], 291 F. 2d 227, 228,

there is no present requirement that such a warning flag be hoisted. It has recently been made clear that there is no

". . . requirement of warning of possible prosecution on a request by criminal investigators for information prior to appearance before a committing magistrate, so long as no coercion is claimed." Grant et al. v. United States (supra).

There is no basis for vitiating the voluntary cooperation of the plaintiffs.

The collateral claim that the voluntariness of the plaintiffs' Q & A statement is nevertheless tainted by illegality because the plaintiffs were not informed of their right to seek advice of counsel is also inapplicable here. The investigation was not one conducted under §6 of the Administrative Procedure Act (5 U. S. C. A. §1005(a)) which "applies only to persons 'compelled to submit data or evidence'," nor was Mirschel's appearance in response to a summons issued under §7602 of the I. R. C. of 1954. As in United States v. Murray (supra), this case also is distinguishable from Backer v. Commissioner (5 Cir. 1960) [60-1 USTC ¶9285], 275 F. 2d 141 and United States v. Smith (D. C. Conn. 1949), 87 F. Supp. 293. There is no requirement that the plaintiffs should be informed of their right to have the advice of counsel.

No search has been established.

No compulsion was imposed or threatened.

This memorandum of decision will constitute the court's finding of facts and conclusions of law in accordance with Rule 52(a), F. R. C. P.

The plaintiffs' motion is denied.

The plaintiffs are not entitled to an injunction against the defendant.

Judgment may be entered for the defendant to recover his costs.

It is so ordered.

1 Rule 16, Federal Rules of Criminal Procedure--"DISCOVERY AND INSPECTION--Upon motion of a defendant at any time after the filing of the indictment or information, the court may order the attorney for the government to permit the defendant to inspect and copy or photograph designated books, papers, documents or tangible objects, obtained from or belonging to the defendant or obtained from others by seizure or by process, upon a showing that the items sought may be material to the preparation of his defense and that the request is reasonable. The order shall specify the time, place and manner of making the inspection and of taking the copies or photographs and may prescribe such terms and conditions as are just."

2 Rule 41(g), Federal Rules of Criminal Procedure--"SCOPE AND DEFINITION--This rule does not modify any act, inconsistent with it, regulating search, seizure and the issuance and execution of search warrants in circumstances for which special provision is made. The term 'property' is used in this rule to include documents, books, papers and any other tangible objects. As amended Dec. 27, 1948, eff. Oct. 20, 1949; Apr. 9, 1956, eff. July 8, 1956."

3 Rule 41(e), Federal Rules of Criminal Procedure--"MOTION FOR RETURN OF PROPERTY AND TO SUPPRESS EVIDENCE--A person aggrieved by an unlawful search and seizure may move the district court for the district in which the property was seized for the return of the property and to suppress for the use as evidence anything so obtained on the ground that (1) the property was illegally seized without warrant, or (2) the warrant is insufficient on its face, or (3) the property seized is not that described in the warrant, or (4) there was not probable cause for believing the existence of the grounds on which the warrant was issued, or (5) the warrant was illegally executed. The judge shall receive evidence on any issue of fact necessary to the decision of the motion. If the motion is granted the property shall be restored unless otherwise subject to lawful detention and it shall not be admissible in evidence at any hearing or trial. The motion to suppress evidence may also be made in the district where the trial is to be had. The motion shall be made before trial or hearing unless opportunity therefor did not exist or the defendant was not aware of the grounds for the motion, but the court in its discretion may entertain the motion at the trial or hearing."

 

 

[2002-2 USTC ¶50,650] United States of America, Appellee v. Myron C. Piggie, Appellant

(CA-8), U.S. Court of Appeals, 8th Circuit, 01-2518, 9/16/2002, 2002 U.S. Dist. LEXIS 18829. Affirming an unreported District Court decision

[Code Sec. 7203 ]

Compromises: Criminal case: Tax loss determination: Tax loss calculation: Plea agreement.--The district court properly determined the tax loss attributable to an individual who had been convicted of participation in a scheme to deprive universities of the honest services of college basketball players. The taxpayer contended that the amount of tax loss was significantly less than that determined by the district court and that the government had the burden of proving the tax loss. However, because he stipulated in a plea agreement to the amount of loss determined by the district court, he could not subsequently challenge that determination.

William L. Meiners, United States Attorney's Office, Kansas City, Mo. Myron C. Piggie, Forrest City, Ark., pro se. Alleen Castellani VanBebber, Mission, Kan., for appellant.

Before: RILEY, BEAM and MELLOY, Circuit Judges.

OPINION

RILEY, Circuit Judge:

In the mid to late 1990's, Myron Piggie (Piggie) created and pursued a secret scheme to pay talented high school athletes to play basketball for his "amateur" summer team. Because the athletes intended to play college basketball, the scheme produced multiple violations of National Collegiate Athletic Association (NCAA) rules which require college athletes to be amateurs. Piggie pled guilty to one count of conspiracy to commit mail and wire fraud in violation of 18 U.S.C. §371 and one count of failure to file an income tax return in violation of 26 U.S.C. §7203. Piggie appeals the calculation of his sentence and the amount of the restitution award, arguing the district court 1 misapplied the United States Sentencing Guidelines (Guidelines).

The district court based the Guidelines calculation on an evaluation and comparison of the actual and the intended losses Piggie's actions caused the high school attended by two athletes, the universities where the individual athletes were recruited, the NCAA, and the athletes. For the tax loss calculation, the district court relied on the tax loss stipulated in the plea agreement. The district court ordered restitution in the amount of $324,279.87. We affirm.

I. BACKGROUND

Between 1995 and 1999, Myron Piggie devised a scheme to assemble elite high school basketball players and compensate them for their participation on his traveling Amateur Athletic Union (AAU) basketball team, known first as the Children's Mercy Hospital 76ers and later as the KC Rebels. The payments were designed to retain top athletes on his team, gain access to sports agents, obtain profitable sponsorship contracts, and forge ongoing relationships with players to his benefit when the athletes joined the National Basketball Association (NBA).

The pre-sentence report shows Piggie realized at least $677,760 in income through his scheme. In the plea agreement, Piggie concedes that, as a result of his fraud, he received a total of $420,401 between 1995 and 1998. Piggie received at least $184,435 from team owner Tom Grant, $159,866 from team sponsor Nike, and $76,100 from sports agents Jerome Stanley and Kevin Poston. He further planned on receiving a portion of his players' compensation when they became professional athletes.

Piggie received a gross income of approximately $99,100 from these sources during the 1998 calendar year, and he knowingly and willfully failed to file a tax return by April 15, 1999. Piggie also failed to file income tax returns in 1995, 1996, and 1997. In the plea agreement, the parties stipulated to a total tax loss of $67,662.69 for the period of 1995 to 1998.

Piggie took portions of the money he was receiving as the coach of this elite AAU team and made payments to the high school athletes in a clandestine manner, frequently hiding the money in Nike shoe boxes. All of the parties intended to keep the payments a secret from authorities. During the conspiracy, Piggie paid Jaron Rush 2 $17,000, Korleone Young (Young) $14,000, Corey Maggette (Maggette) $2,000, Kareem Rush $2,300, and Andre Williams (Williams) $200.

After accepting Piggie's payments to play AAU basketball, Jaron Rush, Maggette, Kareem Rush, and Williams submitted false and fraudulent StudentAthlete Statements to the universities where they were to play intercollegiate basketball. 3 These four athletes falsely certified that they had not previously received payments to play basketball. The athletes delivered through the U.S. Postal Service signed letters of intent asserting their eligibility. Based upon the false assertions that these athletes were eligible amateurs, the University of California, Los Angeles (UCLA); Duke University (Duke); the University of Missouri-Columbia (Missouri); and Oklahoma State University (OSU) (collectively Universities) awarded scholarships to these athletes, enrolled them in classes, and allowed them to play on NCAA basketball teams.

 

Home ] Services ] FAQ ] Site Map ] Contact Us ]

Presented by Alvin Brown and Associates, tax attorney, formerly with the Office of the Chief Counsel of the IRS. 
Call us for all IRS tax issues, problems and emergencies
Protect yourself from IRS intimidation, errors, and penalties.
www.irstaxattorney.com - ab@irstaxattorney.com - (888) 712-7690 - (703) 425-1400