Arrest
7203:
Willful Failure to File Return, Supply Information, or Pay Tax:
Arrest
[58-2
USTC ¶9779]
United States of America
, Plaintiff v. George H. Florida, Defendant
U.
S. District Court, East. Dist. Ark., Jonesboro Div., Commissioner's
Complaint Case, No. 1706, 165 FSupp 328, 8/18/58
[1939 Code Sec. 145(b)--similar to 1954 Code Sec. 7201]
Crimes: Evasion of income tax: Motion to quash warrant of arrest:
Probable cause for holding: Willfully filing false and fraudulent
return.--Defendant filed a motion to dismiss a warrant for his
arrest issued by a United States Commissioner on complaint of a special
agent of the Internal Revenue Service. The agent testified that the
defendant willfully and knowingly filed a false and fraudulent return
with intent to evade and defeat his income tax for 1951 in that he
reported approximately one-fifth of his true income; that the balance of
the income was received by way of payments for the defendant's benefit
made by a partnership and corporations in which he had substantial
interests. The District Court held, in response to the defendant's
contentions that there had to be a showing that a tax was due and that
it had to appear from the evidence that there was a consistent pattern
of under-reporting large amounts of income and failure to include all
income in books and records of the defendant, that the crime charged is
complete when taxpayer knowingly and willfully files a false and
fraudulent return, and, on this basis, there was sufficient probable
cause to hold defendant for the Grand Jury. Motion to quash was
overruled.
James
W. Gallman, Assistant United States Attorney, Little Rock, Ark., for
plaintiff. E. J. Ball, Fayetteville, Ark., Catlett & Henderson,
Little Rock, Ark., for defendant.
Opinion
MILLER,
District Judge:
On
May 21, 1958, the defendant filed his motion to dismiss warrant, and in
support of the motion, served and filed his memorandum brief. On June
27, 1958, the government served and filed its memorandum brief in
opposition to the motion. In addition to the briefs of the respective
parties, the Court has heard oral argument and has considered the
record, and the motion is now ready for disposition.
The
material facts necessary for consideration are not in dispute and may be
summarized as follows:
[Complaint
Filed With
U. S.
Commissioner]
On
March 13, 1958, Eugene D. Brown, Special Agent, Internal Revenue
Service, filed before a United States Commissioner for the Eastern
District of Arkansas a complaint for violation of Section 145(b) of the
Internal Revenue Code, 26 U. S. C., §145(b). The complaint charges:
"That
on or about the 18th day of March, 1952, at Little Rock, in the Eastern
District of Arkansas, George H. Florida, also known as G. H. Florida,
did willfully and knowingly attempt to evade and defeat a large part of
the income tax due and owing by him and his wife to the United States of
America for the calendar year 1951 by filing and causing to be filed
with the Collector of Internal Revenue for the District of Arkansas at
Little Rock, Arkansas, a false and fraudulent joint income tax return on
behalf of himself and his wife, wherein it was stated that their joint
net income for said calendar year was the sum of $10,348.99 and that the
amount of tax due and owing thereon was $1,566.18, whereas, as he then
and there well knew, their joint net income for the calendar year 1951
was the sum of $44,455.74, upon which said net income there was owing to
the United States of America an income tax of $15,621.78."
On
the same date the United States Commissioner issued a warrant for the
arrest of the defendant, and upon the defendant's arrest he was taken
before Carson Boothe, United States Commissioner for the Eastern
District of Arkansas, at
Jonesboro
,
Arkansas
, where defendant immediately posted bond.
[Hearing]
The
defendant did not waive preliminary examination but requested a hearing,
and on April 14, 1958, such hearing was held by said United States
Commissioner at
Jonesboro
,
Arkansas
. At the conclusion of the hearing the Commissioner held the defendant
to await the action of the United States Grand Jury for the Eastern
District of Arkansas, and stated:
"It
seems to me according to what has been testified to here today there was
enough systematic effort on the part of Mr. George Florida to accept the
benefits from these organizations which he was associated with as a
partner or a stockholder and justify the Commissioner in holding that
there was probable cause for his detention. Therefore, it is my finding
that probably the crime has been committed as charged in the complaint
against Mr.
Florida
."
The
grounds set forth in the motion of defendant are:
"1.
There was no legally competent evidence before the United States
Commissioner at the preliminary hearing to sustain a finding of probable
cause of the violation of Section 145(b) of the Internal Revenue Code
(26 U. S. C. 145(b)).
"2.
The testimony before the United State Commissioner at the preliminary
hearing, if believed in toto, was insufficient in law to sustain a
finding of probable cause of the commission of the offense charged.
"3.
That the holding of the defendant to answer in the District Court, after
a preliminary hearing before the United States Commissioner, upon
testimony which was insufficient in law to sustain a finding of probable
cause of the commission of the offense charged, constitutes a
deprivation of liberty and property without due process of law in
violation of the Fifth Amendment to the Constitution of the United
States."
[Testimony
of Agent]
The
only witness who testified at the preliminary hearing was Mr. Brown, the
complainant, who stated that during the calendar year 1951 checks in the
total amount of $52,628.34 were issued and paid by the partnership of A.
J. and G. H. (George H.)
Florida
for the benefit of George H. Florida, all of which were charged to the
personal account of George H. Florida on the books of such partnership;
that during such year a total of $11,682.02 was paid to various persons
for the benefit of George H. Florida by corporations in which A. J. and
G. H. (George H.) Florida owned more than 50 per cent of the stock, and
that such payments were deducted by the corporations as items of
expense; that he did not find that George H. Florida had destroyed any
records, made any entries on any of the records or done anything
whatsoever with the records; that there were no unreported or hidden
bank accounts maintained by the defendant; that there was no duplicate
set of books and that the defendant did not receive any checks or money
from any sources that were not reflected on the books of the various
companies which issued the checks.
Mr.
Brown further testified that the defendant had an additional income of
$34,106.75 which the income tax return for the calendar year 1951 did
not reflect; that the gross income of the defendant for the calendar
year 1951, in addition to the amount of $10,348.99 reflected in his
income tax return, consisted of withdrawals by defendant from the
partnership in which he held a 50 per cent interest and payments of
$11,682.02 made for his benefit by certain corporations in which he held
a stock interest. Thus, the total gross income, according to the
testimony of the Special Agent, was $74,659.35, but the defendant was
entitled to additional credits in the sum of $30,203.61 not claimed by
him in his return, which reduced the total gross income to $44,455.74.
The
above mentioned sum of $11,682.02 was paid by various
Florida
controlled corporations in numerous items to third persons to whom
defendant was obligated for purchases. Such expenditures were charged to
business expenses by such corporations or charged to depreciation
accounts, but were actually for the benefit of the defendant. The
expenditures consisted of architect's fees, material bills, furniture
purchases, electric light bills, interior decorating expenses and labor
pertaining to the personal residence of the defendant. Also, some bills
for clothing and jewelry were paid by the various corporations for the
benefit of defendant. At the end of the calendar year the corporations
dropped the drawing account and did not carry it forward in any manner.
[Complaint
Filed Before Expiration of Statute]
It
will be noted that the offense charged to have been committed by
defendant occurred on March 18, 1952, and prosecution would have been
barred on March 19, 1958, under the provisions of 26 U. S. C.,
§3748(a)(2). Thus, the complaint was filed and warrant issued six days
prior to the expiration of six years from the date the alleged offense
was committed. 1
[Court's
Authority to Review]
In
United States v. Zerbst, D. C. E. D. S. C., 111 Fed. Supp. 807,
the defendant had moved that the Commissioner's warrant against him be
dismissed on practically the same grounds alleged by defendant in the
instant case. The Court, in considering the motion, stated the questions
as follows:
"(1)
Does the district court have the authority to review the action of the
United States Commissioner in finding that there was probable cause for
holding the defendant for the Grand Jury?
"(2)
Was there sufficient evidence before the Commissioner to warrant his
finding that there was probable cause to believe that the defendant
violated the provisions of Section 2913, Title 26, of the Internal
Revenue Code?"
The
Court held that it did have "the authority to review the action of
the United States Commissioner in finding that there was probable cause
in holding the defendant for the Grand Jury. The United States
Commissioner is a ministerial--or, at best, only a
quasi-judicial--officer and his acts, therefore, are subject to review
by the district court." The ruling of the Court was based upon the
opinion of Judge Learned Hand in United States v. Casino, D. C.,
286 Fed. 976, 979, and cases therein cited, and also on the case of In
Re No. 191 Front Street, Borough of Manhattan, City of New York, Kirvin
v. United States, 2 Cir., 5 Fed. (2d) 282, 286, and cases therein
cited.
At
page 810 of 111 Fed. Supp., the Court, in further discussing the
jurisdiction to review the action of the United States Commissioner
said:
"The
United States Commissioner, being only a ministerial or quasi-judicial
officer, is always under the supervision and direction of the district
judge. His findings may be reviewed by the district court at any time. I
would refuse, however, to review the findings of the Commissioner in any
case except one such as this. In this case, the defendant is a county
police officer of
Charleston
County
. As soon as he was arrested under the warrant, he was properly
suspended. It is not known when his case will be tried, and it seems to
me that it would be improper for the district court to refuse to take
jurisdiction under the existing circumstances. I want to make it
perfectly plain, however, to the members of the Bar of the Eastern
District of South Carolina that there are very few cases decided by the
United States Commissioner which this court will review. The
circumstances must be extraordinary and unusual to justify the court's
reviewing the case before it has been submitted to the grand jury. I
think there are sufficiently strong circumstances in this case, however,
to justify my assuming jurisdiction and reviewing the action of the
Commissioner."
[Sufficiency
of Evidence]
The
defendant contends that there was total lack of evidence presented to
the Commissioner upon which a finding of probable cause could be made
and that this case is unusual and extraordinary in that the only witness
who testified admitted that there was a complete absence on the part of
the defendant of the intent required by the statute upon which the
complaint was based. There is no contention on the part of the defendant
that the complaint fails to charge an offense. An examination of the
complaint upon which the warrant of arrest was issued in connection with
26 U. S. C., §145(b) discloses that the defendant was charged with
willfully attempting to evade or defeat the tax by filing and causing to
be filed with the Collector of Internal Pevenue of the District of
Arkansas, a false and fraudulent joint income tax return on behalf of
himself and his wife. The defendant contends that the withdrawals from
the partnership of A. J. and G. H. (George H.) Florida amounting to
$52,628.34 cannot be considered as income under the proof submitted by
the government at the preliminary hearing, and substantially the same
contention is made with reference to the payment by Florida controlled
corporations of the sum of $11,682.02 for the use and benefit of the
defendant, and further that the testimony did not disclose that any tax
was due the United States for the calendar year 1951 by defendant. He
states that "no principle of accounting is more elementary or
firmly settled than the withdrawals of a partner from a partnership of
which he is a member are not necessarily income." He quotes from Gleckman
v. United States, 8 Cir., 80 Fed. (2d) 394 [35-2 USTC ¶9645], at
page 399, as follows:
"Undoubtedly,
the burden was upon the government to prove that an income tax was due
from Mr. Gleckman for the years in question over and above the amount
returned--he could not be guilty of attempting to evade or defeat a tax
unless some tax was due. O'Brien v.
United States
(C. C. A.) 51 Fed. (2d) 193 [1931 CCH ¶9474]. It may be conceded
also that the bare fact, standing alone, that a man has deposited a sum
of money in a bank would not prove that he owed income tax on the
amount; nor would the bare fact that he received and cashed a check for
a large amount, in and of itself, suffice to establish that income tax
was due on account of it."
In
the next paragraph of the opinion, on the same page, the Court said:
"On
the other hand, if it be shown that a man has a business or calling of a
lucrative nature and is constantly, day by day and month by month,
receiving moneys and depositing them to his account and checking against
them for his own uses, there is most potent testimony that he has
income, and, if the amount exceeds exemptions and deductions, that the
income is taxable.
United States
v. Miro (C. C. A.) 60 Fed. (2d) 58 [1932 CCH ¶9396]; Oliver
v. United States (C. C. A.) 54 Fed. (2d) 48 [1931 CCH ¶9649],
certiorari denied, 285
U. S.
543, 52 S. Ct. 393, 76 L. Ed. 935; Guzik v. United States (C. C.
A.) 54 Fed. (2d) 618 [1931 CCH ¶9681], certiorari denied, 285
U. S.
545, 52 S. Ct. 395, 76 L. Ed. 937; Capone v. United States (C. C.
A. 7) 51 Fed. (2d) 609, 619, 76 A. L. R. 1534 [2 USTC ¶786]; Orzechowski
v. United States (C. C. A. 3) 37 Fed. (2d) 713 [1930 CCH ¶9100].
See, also, Chadick v. United States (C. C. A. 5) 77 Fed. (2d) 961
[35-2 USTC ¶9416]; Paschen v. United States (C. C. A.) 70 Fed.
(2d) 491 [1934 CCH ¶9234]. We think there was in this case substantial
circumstantial evidence that Mr. Gleckman did have a business outside of
that described in his return and that at least some of his deposits were
derived from it."
In
his return for the calendar year 1951 the defendant did not take into
consideration the amount of money that he received from the partnership
nor the amount of money that was paid for his use and benefit to other
persons by the Florida corporations. The circumstances surrounding these
payments were, in my opinion, sufficient to justify the Commissioner in
believing that a tax was due on these sums.
[Mere
Failure to Return Income]
The
defendant's chief contention is that the mere failure to return income
and pay tax on it is insufficient to constitute a violation of 26 U. S.
C., §145(b), and relies principally upon the cases of Spies v.
United States, 317 U. S. 492, 87 L. Ed. 418, 63 S. C. 364 [43-1 USTC
¶9243]; Holland v. United States, 348 U. S. 121, 99 L. Ed. 150,
75 S. C. 127 [54-2 USTC ¶9714]; and Blackwell v. United States,
8 Cir., 244 Fed. (2d) 423 [57-1 USTC ¶9644]. He quotes from page 139 of
348 U. S. (Holland case) as follows:
"A
final element necessary for conviction is willfulness. The Petitioner
contend that willfulness 'involves a specific intent which must be
proven by independent evidence and which cannot be inferred from the
mere understatement of income.' This is a fair statement of the
rule."
However,
the Court in the next sentence said:
"Here,
however, there was evidence of a consistent pattern of underreporting
large amounts of income, and of the failure on Petitioners' part to
include all of their income in their books and records. Since, on proper
submission the jury could have found that these acts supported an
inference of willfulness, their verdict must stand. Spies v. United
States, supra."
In
Blackwell v. United States, supra, at page 429 of 244 Fed. (2d),
the Court said:
"Defendant
next urges that there is no proof of willfulness. 'Willfulness
"involves a specific intent which must be proven by independent
evidence and which cannot be inferred from the mere understatement of
income.'" Holland v. United States, supra, 348 U. S. at page
139, 75 S. Ct. at page 137, 99 L. Ed. 150. The test of willfulness is
quite fully discussed in Spies v. United States, 317 U. S. 492,
499, 63 S. Ct. 364, 87 L. Ed. 418 [43-1 USTC ¶9243]. Willfulness
involves a state of mind. Direct proof of willfulness is seldom
available. A consistent pattern of underreporting large amounts of
income or over-claiming deductions and not recording such items on the
taxpayer's records is evidence from which willfulness may be inferred. Holland
v. United States, supra; Zacher v. United States, 8 Cir., 227 Fed.
(2d) 219, 224 [55-2 USTC ¶9745]; Canton v. United States, 8
Cir., 226 Fed. (2d) 313, 321 [55-2 USTC ¶9705]."
The
mere fact that the defendant employed none of the methods enumerated by
the Supreme Court in Spies v. United States, supra, does not
establish a lack of willfulness on his part. The case of Cave v.
United States, 8 Cir., 159 Fed. (2d) 464 [47-1 USTC ¶9171], was a
case where the defendant had been indicted on four counts charging
attempts to defeat and evade federal income taxes for certain years in
violation of 26 U. S. C. A., §145(b), and in that case the Court, at
page 466, said:
"It
is apparent that the Spies case does not support appellant's
theory. The indictment in this case after the withdrawal of paragraph
(2) of each count from the consideration of the jury did not attempt to
charge a felony under §145(b) by failure to file a return or pay a tax
or by the omission or commission of any other dereliction defined as a
misdemeanor in §145(a). It charged an attempt to defeat and evade the
tax by the positive act of willfully filing a false and fraudulent
return--not a mere failure to file any return. The indictment charged
that for the year 1943 appellant filed a return showing an income of
$8,455 and a tax due of $1,933.58, whereas he received an income in that
year of $55,256.60 on which a tax in the amount of $30,843.69 should
have been paid; and for the year 1944 he disclosed an income of only
$788.04 and a tax of $8.64, whereas his income was $69,959.62 on which a
tax in the sum of $43,392.22 should have been paid.
"The
distinction between the offenses defined in §145(a) and §145(b) is too
clear to permit confusion. Section 145(a) denounces as a misdemeanor (1)
willful failure to pay a tax; (2) willful failure to make a return; (3)
willful failure to keep records; or (4) willful failure to supply
information. Section 145(b), on the other hand, denounces as a felony a
willful attempt 'in any manner' to evade or defeat any tax. As said by
the Supreme Court in the Spies case, supra, 'Congress did
not define or limit the methods by which a willful attempt to defeat and
evade might be accomplished and perhaps did not define lest its effort
to do so result in some unexpected limitation.'" See, also, Gaunt
v. United States, 1 Cir., 184 Fed. (2d) 284 [50-2 USTC ¶9412].
In
Myres v. United States, 8 Cir., 174 Fed. (2d) 329 [49-1 USTC
¶9275], the Court, beginning on page 334, said:
"The
first contention of the defendant is that he was entitled to a directed
verdict of acquittal; that the decision of the Supreme Court in Spies
v. United States, 317 U. S. 492, 63 S. Ct. 364, 87 L. Ed. 418 [43-1
USTC ¶9243], precluded his being convicted under §145(b) of the
Internal Revenue Code. We cannot agree. A similar contention was
rejected by this Court in Cave v. United States, 8 Cir., 159 Fed.
(2d) 464 [47-1 USTC ¶9171], certiorari denied 331 U. S. 847, 67 S. Ct.
1732, 91 L. Ed. 1856. Compare, Rick v. United States, D. C. Cir.,
161 Fed. (2d) 897. In Cave v. United States, supra, this Court
said, page 467 of 159 Fed. (2d): '* * * The crime denounced by §145(b)
of willfully attempting to defeat or evade the tax is complete when the
taxpayer willfully and knowingly files a false and fraudulent return
with intent to defeat or evade any part of the tax due the United
States. Guzik v. United States, 7 Cir., 54 Fed. (2d) 618, 619
[1931 CCH ¶9681], certiorari denied 285 U. S. 545, 52 S. Ct. 395, 76 L.
Ed. 937; Bowles v. United States, 4 Cir., 73 Fed. (2d) 772, 774
[1934 CCH ¶9546].'
"In
the instant case the defendant's return for each of the years in suit
was false. The following inferences, we think, reasonably can be drawn
from the evidence, viewed in the aspect most favorable to the
government: (1) that the defendant knew that his return for each year
was false, and (2) that he filed it with intent to defeat or evade a
part of the tax due the United States. One may be presumed to intent the
necessary and natural consequences of his acts. Reynolds v. United
States, 98 U. S. 145, 167, 25 L. Ed. 244; Toof v. Martin, 13
Wall. 40, 48, 80 U. S. 40, 48, 20 L. Ed. 481; Wager v. Hall, 16
Wall. 584, 599, 83 U. S. 584, 599, 21 L. Ed. 504; General Motors
Acceptance Corporation v. United States, 6 Cir., 40 Fed. (2d) 599,
600; Cleo Syrup Corporation v. Coca-Cola Co., 8 Cir., 139 Fed.
(2d) 416, 419, 150 A. L. R. 1056, certiorari denied 321 U. S. 781, 64 S.
Ct. 638, 88 L. Ed. 1074. The District Court committed no error in
refusing to direct a verdict of acquittal."
In
Achilli v. United States, 353 U. S. 373, 1 L. Ed. 2d 918, 77 S.
C. 995 [57-1 USTC ¶9692], the Court, in discussing an indictment under
26 U. S. C., §145(b), at page 377 of 353 U. S., said:
"We
cannot hold that the classic method of evading the income tax, the
filing of a false return, did not constitute an attempt 'in any manner
to defeat or evade that tax.'"
In
determining the sufficiency of the evidence to support the finding of
the Commissioner, this Court must take that view of the evidence which
is most favorable to the government and give to the government the
benefit of all inferences which reasonably may be drawn in its favor.
Viewing the evidence in this light, the Court is of the opinion that the
finding of the Commissioner of probable cause is amply supported by the
testimony.
In
Brinegar v. United States, 338 U. S. 160, 93 L. Ed. 1765, 69 S.
C. 1434, the Court, ag page 175 of 338 U. S., said:
"In
dealing with probable cause, however, as the very name implies, we deal
with probabilities. These are not technical; they are the factual and
practical considerations of everyday life on which reasonable and
prudent men, not legal technicians, act. The standard of proof is
accordingly correlative to what must be proved.
`The
substance of all the definitions' of probable cause 'is a reasonable
ground for belief of guilt.' McCarthy v. De Armit, 99 Pa. St. 63,
69, quoted with approval in the Carroll opinion. 267 U. S. at
161. And this 'means less than evidence which would justify
condemnation' or conviction, as Marshal, C. J., said for the Court more
than a century ago in Locke v. United States, 7 Cranch 339, 348.
Since Marshall's time, at any rate, it has come to mean more than bare
suspicion: Probable cause exists where 'the facts and circumstances
within their (the officers') knowledge and of which they had reasonably
trustworthy information (are) sufficient in therselves to warrant a man
of reasonable caution in the belief that' an offense has been or is
being committed. Carroll v. United States, 267 U. S. 132,
162."
The
Court is convinced that the finding of the Commissioner that there was
probable cause to believe that an offense was committed is sufficiently
supported by the testimony and circumstances disclosed in the record and
that the motion of the defendant to quash the warrant should be
overruled, and an order overruling the motion is being entered today.
1
The last sentence in 26 U. S. C., §3748(a)(3), provides:
"Where
a complaint is instituted before a Commissioner of the United States
within the period above limited, the time shall be extended until the
discharge of the Grand Jury at its next session within the
district."
In
the oral argument it was stated that the Grand Jury for the Eastern
District of Arkansas had been discharged only a few days prior to the
filing of the complaint and that the next Grand Jury would be convened
on September 15, 1958.
It
is not necessary for the Court to determine whether the statute of
limitations would bar prosecution of the defendant in the event the
warrant of arrest is dismissed. In Pollock v. United States, 5
Cir., 202 Fed. (2d) 281 [53-1 USTC ¶9229], the Court, at page 2822,
said:
"The
indictment was returned more than six years after the income tax return
for the year 1944 was filed with the Collector. However, within the six
year period a complaint had been instituted before a United States
Commissioner, a warrant issued thereon and the appellant arrested. The
indictment was returned before the discharge of the Grand Jury at its
next session within that district. It appears to us, therefore, that
Court 1 was not barred by the statute of limitations." See, also, United
States v. Clark, D. C. N. D. Ala., 122 Fed. Supp. 150 [54-2 USTC
¶9594].
