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7203:  Willful Failure to File Return, Supply Information, or Pay Tax: Sufficiency of Indictment or Information: Attempt to Defeat and Evade Income Taxes

 

[2005-1 USTC ¶50,198.] United States of America v. Harold Molaison, David Loeb.

U.S. District Court, East. Dist. La. ; 04-223, February 11, 2005 .

[ Code Sec. 6531]

Criminal procedure: Statute of limitations: Criminal conspiracy: Tax evasion: Timeliness of indictment. --

An indictment on conspiracy and tax evasion charges arising from the reporting of ordinary income as gain from an involuntary conversion was timely. The taxpayers represented landowners whose property had been declared to be protected wetlands in suits to obtain compensation for the deprivation of use of their property resulting from the declaration. The filing of returns reporting the purchase of replacement property with proceeds received from an involuntary conversion were acts in furtherance of the conspiracy, not merely subsidiary acts of concealment, and so restarted the limitations period for the conspiracy charge. Similarly, the same filing constituted affirmative acts of evasion restarting the limitations period for the evasion charge.

[ Code Sec. 7203]

Criminal procedure: Motion to dismiss indictment: Criminal conspiracy: Tax evasion: Sufficiency of indictment: Willfulness. --

An indictment on conspiracy and tax evasion charges arising from the reporting of ordinary income as gain from an involuntary conversion was sufficient under Federal Rule of Criminal Procedure 12(b)(3) since it alleged the necessary elements of the charged offenses. The defendants' alternative claims that they had an ownership interest in the subject property sufficient to support the involuntary conversion treatment, or that the underlying state law regarding their interest in the property was sufficiently unclear as to negate the possibility that their actions were willfully criminal were not appropriate for resolution on a motion to dismiss the indictment.

ORDER AND REASONS

DUVAL, JR., District Court Judge: Before the Court are a Motion to Dismiss Indictment as Time Barred (Doc. 14) and a Motion to Dismiss Indictment --Ownership Interest by Operation of Law (Doc. 18). These motions came for hearing on November 16, 2004 . Having heard the argument of counsel and having reviewed the pleadings, memoranda and the relevant law, the Court finds the motions to be without merit.

Background

Harold E. Molaison ("Molaison") and David C. Loeb ("Loeb") have been indicted for conspiracy to defraud the United States in contravention of 18 U.S.C. §371 and tax evasion in contravention of 26 U.S.C. §7201. The facts of the case as alleged in the indictment are that in or about 1985, the Environmental Protection Agency ("EPA") declared approximately 3000 acres in six contiguous tracts of land in Jefferson Parish, Louisiana to be wetlands. (Indictment, ¶4). The tracts came to be known as the Bayou Aux Carpes Property.

In 1991 the Bayou Aux Carpes landowners filed several lawsuits against the federal government in the Unites States Court of Federal Claims. The suits claimed that the EPA's regulations deprived the landowners of the commercial and economic use of their property and as such had been taken by the federal government without just compensation in violation of the Fifth Amendment to the United States Constitution. The landowners sought to be paid for the taking. The suits were eventually consolidated into one action. (Indictment ¶5).

In or about 1991 and 1992, defendants Molaison and Loeb entered into contracts for legal services with the Bayou Aux Carpes landowners to pursue the landowners' claim against the United States of America and any Departments or Agencies thereof, for the regulation of the Bayou Aux Carpes Property. (Indictment ¶6). Defendants agreed to represent the landowners on a contingency or percentage basis as authorized and permitted by La. Rev. Stat. 37:218. Written contracts were executed, all allegedly containing the following provision:

In consideration of the services rendered or to be rendered, I hereby assign, transfer and deliver to attorneys as fee an undivided 25% in and to any recovery I/we may have in this matter, whether such recovery is obtained by settlement, compromise or judgment over and beyond in any residual wet land value in said property, all according to the provisions of La. R.S. 37:218.

(Motion to Dismiss Indictment --Ownership Interest at 5) (emphasis added). In entering these contracts, Molaison and Loeb also agreed to advance all costs and expenses necessary to prosecute the claims with reimbursement to the attorneys out of any funds received in the litigation. (Indictment ¶6).

Around March 1996, Molaison and Loeb negotiated a settlement between the federal government and the landowners. Under the terms of the settlement, the landowners allegedly agreed to transfer their respective ownership interests in the Bayou Aux Carpes Property to the federal government in exchange for $8,250,000.00. In April 1996, Agreements to Settle Claims were executed between Molaison and Loeb and the landowners. The Government alleges that the landowners agreed to pay Molaison and Loeb $2,000,000.00 in attorneys' fees. (Indictment ¶7).

As stated in the Indictment, when a piece of property is sold, federal income tax must be paid on the gain of the sale --the gain being the difference between the landowners' original purchase price and the sales price. Under 26 U.S.C. §1033, however, a property owner who receives money from the sale of property that is involuntarily converted, may defer paying capital gains tax by purchasing similar property to the extent that the purchase price of the replacement property exceeds the gain. 26 U.S.C. §1033(a)(2)(A). The property owner must purchase the replacement property within two years of the close of the taxable year in which the involuntary conversion took place. 26 U.S.C. §1033(a)(2)(B). If the property is not replaced in a timely manner, tax liability for the year of the sale must be recomputed by amended return and the taxpayer is liable for interest from the due date of payment for the tax year in which the conversion occurred. ¹ Likewise, upon replacement, the proper returns must be filed with the Internal Revenue Service ("IRS"). Thus, the horizon on the completion of "replacement property election" is at most two years from the time of the election. Either the replacement property is purchased, which purchase must be reported, or there is a failure to purchase timely, and the capital gains must be assessed for tax purposes as well as interest thereon.

The Government contends that on September 4, 1996, the defendants allegedly represented to their accountants and tax attorney that (1) it was the original intent of the landowners to give the defendants a property interest in the Bayou Aux Carpes Property when they entered into the contracts for legal services in or about 1991 and 1992 (Indictment ¶15); that (2) the Government had required them to be property owners in order to represent the landowner in the litigation (Indictment ¶16); and that (3) that it was necessary to take an ownership interest in the property in order to enforce their contingency fee agreements in the Court of Federal Claims. (Indictment ¶17). The Government further contends that the defendants in addition prepared, executed and caused to be executed "false and fraudulent Acts of Correction" stating that the landowners intended to give defendants a 25% ownership interest in the Bayou Aux Carpes Property when the landowners signed the contracts for legal services. (Indictment ¶18).

The Government further contends that Loeb filed a fraudulent tax return on October 17, 1997, reporting the receipt of $995,839 as proceeds from an involuntary conversion of land under 26 U.S.C. §1033 rather than reporting that sum as income derived as attorneys' fees. (Indictment ¶19), and that Molaison filed a fraudulent tax return on October 20, 1997, reporting the receipt of $791,503 as proceeds from an involuntary conversion of land under 26 U.S.C. §1033 rather than reporting that sum as income derived as attorneys' fees. (Indictment ¶20)

On August 19, 1998 , the Government contends that Loeb filed another false and faudulent 1997 tax return when he reported that purchase of replacement property with the proceeds received from an involuntary conversion. (Indictment ¶21) Likewise, the Government contends that on August 31, 1998 , Molaison filed a false and fraudulent income tax return when he reported the purchase of replacement property. (Indictment ¶22)

The Government also alleges that on January 14, 2000, David Loeb caused his accountant and tax attorney to make false statements concerning this conspiracy during an IRS audit of Loeb's and his wife's 1996 Individual Income Tax Return. (Indictment ¶23) Furthermore, the Government contends that Molaison did the same on May 25, 2000. (Indictment ¶24)

All of the foregoing are in the Government's allegations of overt acts in furtherance of the conspiracy to defraud the United States by Molaison and Loeb, in 1996,by impeding the IRS in collecting revenue, that is revenue derived from Molaison's and Loeb's income and self employment taxes for 1996. (Indictment ¶9). The Government maintains that the defendants did this by making false statements to their accountants and tax attorney (Indictment ¶10), by causing the Acts of Correction to be signed (Indictment ¶11), by causing to be filed the 1996 U.S. Individual Income Tax Returns with the IRS reporting the Bayou Aux Carpes legal fees as proceed from an involuntary conversion of property, (Indictment ¶12), by filing the 1997 reports of the purchase of the replacement property (Indictment ¶13) and causing false statements to be made during the audits of the defendants' 1996 U.S. Individual Income Tax Returns, Forms 1040. These actions constitute the allegations contained in Count One of the Indictment.

In Count Two, the Government states its tax evasion count against Molaison. It alleges that Molaison, having received $791,503 in legal fees, attempted to evade and defeat income and self employment taxes due for 1996 because he stated he had $9,507 taxable income and owed $1,429 in income tax and no self-employment tax whereas the Government contends that his taxable income was $757,058 rendering due income tax and self employment tax of approximately $296,727, and that he further filed on August 31, 1998, a false and fraudulent 1997 Income Tax Return when he reported that purchase of the replacement property and on May 25, 2000 caused false statements to be made during his audit.

In Count Three, the Government states its tax evasion count against Loeb. It alleges that Loeb, having received $1,056,000 in legal fees, attempted to evade and defeat income and self employment taxes due for 1996 because he stated he had $2,021 taxable income and owed $302 in income tax and $9,124 in self-employment tax whereas the Government contends that his taxable income was $1,022,195 rendering due income tax and self employment tax of $415,963, and that he further filed on August 18, 1998, a false and fraudulent 1997 Income Tax Return when he reported that purchase of the replacement property and on January 14, 2000 caused false statements to be made during his audit. The subject indictment was handed down on July 29, 2004 .

Defendants maintain their innocence and contend that the subject contracts for legal services that were executed in 1991 and 1992 indeed gave to them a sufficient possessory interest in the property that they were entitled to make a §1033 election in their respective tax returns. As support for this contention, they note that in August of 1996 when the actual settlement papers were confected the theory that the defendants had an ownership interest was acknowledged by both the Department of Justice and the Court of Federal Claims in Washington, D.C. because they were listed as landowners in the final settlement agreement drafted by the federal government attorneys. (Motion to Dismiss Indictment as Time Barred at 3). Thus, as sellers in October 6, 1996 , sale of the involuntarily converted property to the government, they had the option to defer gains taxes thereon. In the alternative, they maintain that the issue as to whether they had a sufficient interest in the property from the inception of the contract with the landowners was so unsettled that they could not have had the requisite intent to violate the tax law. In addition, they maintain that the Acts of Correction were not illegal but were done to memorialize what had indeed occurred.

Motion to Dismiss Indictment as Time Barred

Defendants have filed the subject Motion to Dismiss Indictment as Time Barred. Defendants reason that because the indictment was filed in July of 2004, this criminal prosecution would be time barred unless there is alleged an overt act in furtherance of the conspiracy that occurred six years prior to the indictment issuing --that is after July of 1998. Grunewald v. United States [ 57-1 USTC ¶9693], 353 U.S. 391, 396-97 (1957); Fiswick v. United States, 329 U.S. 211 (1946). Defendants maintain that based on Sansone v. United States, 380 U.S. 343 (1965), the alleged crime was completed upon the filing of the 1997 tax return. As such, they contend that the "conspiracy" was ended, and subsidiary acts of concealment do not extend the offense where the main criminal purpose of the conspiracy has been completed. United States v. Davis, 533 F.2d 921, 928 (5 ^th Cir. 1976) citing Grunwald [ 57-1 USTC ¶9693], 353 U.S. at 399, 401-02. Indeed, the scope of the conspiratorial agreement alleged in the indictment determines both the duration of the conspiracy and whether an act relied on as an overt act may properly be regarded as in furtherance of the conspiracy. Id.

Defendants maintain the Government's allegations that in August of 1998 defendants each filed their respective tax returns for 1997 in which the purchase of the replacement property was reported and that the defendants caused their tax attorneys and accountants to make false statements while conducting an audit in 2000, do not constitute "overt acts in furtherance of the conspiracy;" rather theses actions would be efforts to conceal and as such, would not breath life into a prescribed crime. The Government rejects this contention and maintains that the scope of the conspiracy was such that these acts indeed were in furtherance of the conspiracy and that the indictment is not time-barred.

Section 6531 of Title 26 of the United States Code provides that "[n]o persons shall be prosecuted ... for any offenses arising under the internal revenue laws... unless the indictment is found ... within [6] years next after the commission of the offense... for offenses involving defrauding or attempting to defraud the United States or any agency thereof, whether by conspiracy or not, and in any manner." 26 U.S.C. §6531(1). Thus, the issue becomes whether the filing of the tax returns reporting the purchase of the replacement property and/or alleged inducement of having attorneys and accountants conceal information in the audits would constitute an overt act in furtherance of the conspiracy. Grunewald requires that the Government adduce direct evidence that the particular acts of concealment relied on to extend the statute of limitations were fully embraced within the original aims of the conspiracy. United States v. Gabriel, 920 F.Supp. 498 (S.D. N.Y. 1996).

Here, unlike the conspiracy in Davis , the conspiracy alleged is:

to defraud the United States for the purpose of impeding, impairing, obstructing, and defeating the lawful government functions of the Internal Revenue Service of the Treasury Department in the ascertainment, computation, assessment, and collection of the revenue: to wit, defendants HAROLD E. MOLAISON'S and DAVID C. LOEB'S 1996 income and self employment taxes.

(Indictment ¶9). This conspiracy is broader than the conspiracy to make false statements to a government agency which was alleged in Davis . As noted in United States v. Girard, 744 F. 2d 1170 (5 ^th Cir. 1984), a conspiracy continues until the conspirators realize the full anticipated economic benefits of that conspiracy. Id. at 1172. As such, considering the procedures necessary for the §1033 election, the filing in 1998 was a necessary and anticipated act in furtherance of the alleged conspiracy. Had there been no purchase of replacement property and no reporting thereof, then defendants would have not been able to take advantage of the replacement property claim. They would have been liable for another tax, that being capital gains and interest thereon. Without the filing of that 1998 return, the defendants would not have realized the full economic gain they sought. It was integral to the scheme. Thus, pretermitting whether the actions taken in 2000 with respect to the audit might be more in line with "concealment" rather than acts in furtherance of the conspiracy, the filing in 1998 of the 1997 tax returns wherein each reported the purchase of replacement property with the proceeds received from an involuntary conversion the 1997 were acts in furtherance of the conspiracy. This count is not time barred.

With respect to Counts Two and Three, the crime of tax evasion, 26 U.S.C. §7201, has three essential elements: (1) the existence of a tax deficiency; (2) willfulness; and (3) an affirmative act constituting evasion or attempted evasion of the tax. United States v. Bishop [ 2001-2 USTC ¶50,762], 264 F.3d 535, 545 (5 ^th Cir. 2001). While the Fifth Circuit has not directly addressed this issue, a number of circuit courts have held that it is the date of the latest act of evasion, not the due date of the taxes that triggers the statute of limitations. This peg is considered proper in a tax evasion offense because §7201 criminalizes not just the failure to file a return or the filing of a false return, but the willful attempt to evade taxes in any manner. United States v. Anderson [ 2003-1 USTC ¶50,237], 319 F.3D 1218, 1220 (5 ^th Cir. 2003) (emphasis added) citing United States v. Ferris [ 86-2 USTC ¶9844], 807 F.2d 269, 271 (1 ^st Cir. 1986). See United States v. Dandy [ 93-2 USTC ¶50,638], 998 F.2d 1344, 1355 (6 ^th Cir. 1993) (to hold otherwise would only reward a defendant for successfully evading discovery of his tax fraud for a period of six years subsequent to the date the returns were filed). As the filing in 1998 of the 1997 return constituted an affirmative act, likewise, these two counts of the indictment are likewise not time barred. Accordingly,

IT IS ORDERED that the Motion to Dismiss the Indictment as Time-Barred is DENIED.

Motion to Dismiss Indictment --Ownership Interest by Operation of Law

Defendants move the Court pursuant to Fed. R. Crim. Pro. 12(b)(3) to dismiss the indictment based on their contention that it does not state an offense, that a defense can be determined without the trial of the general issue, and that defendants cannot be lawfully convicted of the charges in the indictment. The thrust of this motion is that the defendants as attorneys under a written contingency fee contract obtained a "possessory interest" in the Bayou Aux Carpes tract by operation of Louisiana law and the United States Court of Appeals for the Fifth Circuit sufficient for §1033 exchange treatment. In the alternative, defendants argue that they had a good-faith belief that the law so provided. Finally, they contend, that at a minimum, the law was so conflicting, unsettled or uncertain that there could be no criminal intent to violate the law. Thus, the gravamen of this motion is that defendants ask the Court to find as a matter of law that because of the condition of the law, there cannot be the requisite willfulness to constitute the commission of the crimes charged.

Rule 12(b)(3) of the Federal Rules of Criminal Procedure provides a list of motions that must be raised before trial. Subsection (B) provides "a motion alleging a defect in the indictment or information --but at any time while the case is pending, the court may hear a claim that the indictment or information fails to invoke the court's jurisdiction or to state an offense." While defendants do not specifically provide the Court with the procedural basis for the instant motion, the Court construes it as one based on a failure to state an offense.

As stated in United States v. Kay, 359 F.3d 738 (5 ^th Cir. 2004):

As a motion to dismiss an indictment for failure to state an offense is a challenge to the sufficiency of the indictment, we are required to "take the allegations of the indictment as true and to determine whether an offense has been stated."

 

"[I]t is well settled that an indictment must set forth the offense with sufficient clarity and certainty to apprise the accused of the crime with which he is charged. The test for sufficiency is "not whether the indictment could have been framed in a more satisfactory manner, but whether it conforms to minimum constitutional standards"; namely, that it "[(1)] contain [ ] the elements of the offense charged and fairly inform [ ] a defendant of the charge against which he must defend, and [(2)], enable[ ] him to plead an acquittal or conviction in bar of future prosecutions for the same offense."

Id. at 742.

Certainly, taking all the allegations as true, the Government has alleged the necessary elements for conspiracy to defraud the United States in contravention of 18 U.S.C. §371 and tax evasion in contravention of 26 U.S.C. §7201. "A §371 conspiracy requires an agreement between two or more persons to commit a crime and an overt act by at least one in furtherance of the agreement." United States v. Bordelon, 871 F.2d 491, 493 (5 ^th Cir. 1989). The crime must be one against the United States . Here, as noted above, the Government has alleged that the defendants conspired "to defraud the United States by impeding, impairing, obstructing, and defeating the lawful government functions of the Internal Revenue Service of the Treasury Department in the ascertainment, computation, assessment, and collection of the revenue: to wit, defendants Harold E. Molaison's and David C. Loeb's 1996 income and self employment taxes." (Indictment ¶9). Furthermore, as previously stated, there is alleged at least one overt act done within the six-year statute of limitations. Thus, the indictment is sufficient with regard to Count One.

Likewise, as set forth above, the elements of the crime of tax evasion are (1) the existence of a tax deficiency; (2) willfulness; and (3) an affirmative act constituting evasion or attempted evasion of the tax. United States v. Bishop [ 2001-2 USTC ¶50,762], 264 F.3d 535, 545 (5 ^th Cir. 2001). Considering the difference alleged in the indictment between the income declared by the defendants for 1996 and the income alleged by the government and the tax liability based thereon, clearly the Government has alleged a tax deficiency on the part of both defendants. Likewise, the allegations concerning the filing in 1998 of the income tax form reporting the purchase of the replacement property in 1997 as well as the allegations of fraud in 2000, if taken as true, would constitute evasion or attempted evasion of the tax. As to the second element --willfulness --if the allegations are taken as true, which is required in the context of a motion to dismiss for failure to state an offense, it is clear that the indictment alleges this element as well with respect to both defendants.

The gravamen of defendants' motion, however, asks the Court to eschew the requirement to take the allegations as true --defendants contend that objectively the Court should find that they had a possessory interest sufficient to trigger their right to claim a §1103 election. The Court is unwilling to do so. The language of the contract states clearly that the defendants were "to receive an undivided 25% in and to any recovery I/we may have in this matter, whether such recovery is obtained by settlement, compromise or judgment over and beyond in any residual wet land value in said property, all according to the provisions of La. R.S. 37:218." This provision does not state that defendants were granted 25% of the property; they were to receive 25% of any recovery whether by settlement, compromise or judgment beyond the residual wetland value, which had been assessed as $500 an acre. While defendants' argument that the taking by the Government had resulted in the landowners' deprivation of the usus and fructus of the land, leaving the only value in the abusus is a valid description of the legal effect of the declaration of the property as wetlands by the Government, it does not provide the basis for the argument that there was a transfer in that facet of ownership by virtue of the language of the contract.

Furthermore, pursuant to La. Rev. Stat. 37:218, the Louisiana statute concerning contingency fee contracts, defendants were precluded from obtaining the land itself. As stated by Judge Wisdom in Deshotels v. United States [ 71-2 USTC ¶9718], 450 F.2d 961 (5 ^th Cir. 1971) cert. denied 406 U.S. 920 (1972), a contingent fee coupled with an interest is "language indicative of special agency relationship and not transfer of present possessory interest." Id. at 966. In Deshotel, the Court described the effect of La. Rev. Stat. 37:218:

The effect of the statute was two-fold: first to legitimize the contingency fee contract, allowing the attorney to sue for his fee after successfully litigating his client's claim; second, to allow the parties to agree that the client cannot unilaterally end the litigation. In adjudicating contracts under this statute the Louisiana courts have held that contractual language to the effect that the attorney has a vested right in a portion of the expect recovery does not in fact presently vest anything. See Tennant v. Russell, 1949, 214 La. 1046, 39 So.2d 726. As the Court said in Succession of Vlaho, La.App. 1962, 140 So.2d 226,

 

...the attorney has no vested interest in the client's suit or claim and obtains no vested interest therein even where the contract in express terms grants such an interest to him.

Id. at 965-66. Furthermore, the "unequivocal conveyance" that was found in McClung v. Atlas Oil Co., 1921, 148 La. 674, 87 So. 515 is not present in the language of this contract of employment.

Nonetheless, the Court does not by this ruling intend to eviscerate the defendants' defense with respect to "willfulness" in any respect. It has broached this subject only as a result of the defendants' argument seeking the dismissal based on this legal premise. Obviously, the defendants are entitled to argue to a jury as fact finder whether they had the requisite intent to commit the crimes alleged based on this contract. Accordingly

IT IS ORDERED that the Motion to Dismiss Indictment --Ownership Interest by Operation of Law (Doc. 18) is DENIED.

¹ Suffness v. United States [ 92-1 USTC ¶50,149], 788 F.Supp. 304 (N.D. Tex. 1992), aff'd [ 92-2 USTC ¶50,513], 974 F.2d 608 (5 ^th Cir. 1992).

 

[2000-1 USTC ¶50,438] United States of America, Plaintiff-Appellee v. Franklin Y. Wright, Jr., Annette Ryan Wright, also known as Annette S. Wright, also known as Annette Kaufman Wright, Rob ert E. Barger, Defendants-Appellants

(CA-5), U.S. Court of Appeals, 5th Circuit, 98-50554, 4/27/2000

211 F3d 233

2000 U.S. App. LEXIS 8192. Affirming an unreported District Court decision.

[Code Secs. 6211 and 7203 ]

Penalties, criminal: Attempt to evade or defeat tax: Tax liability, definition of.--A married couple and their tax attorney were properly convicted of tax evasion despite their claim that the husband's underlying tax deficiency had been eliminated. His voluntary payments and the proceeds from the sale of his seized property did not eliminate his original tax liability and the IRS was not required to apply the seized amounts in the same manner as he requested for his voluntary payments. The IRS applied the seizure proceeds to his total tax, interest and penalties for the earliest year owed; thus, there continued to be a deficiency even thought the husband's total payments exceeded the amount of tax that he originally owed. Moreover, the evidence against the parties was sufficient to support their convictions.

[Code Sec. 7203 ]

Penalties, criminal: Tax evasion: Conspiracy to defraud government.--A married couple and their tax attorney were properly convicted of tax evasion and conspiracy to defraud the government; the attorney was also properly convicted of making false statements to the IRS. By indirectly purchasing a new home in the name of a co-conspirator, the couple tried to hide assets from the IRS in order to avoid paying the husband's tax liability. Although the attorney was not intimately involved in the scheme, he submitted an offer in compromise on behalf of the husband that omitted any mention of the new home and claimed that the old home was sold because the taxpayer could not afford it.

[Code Sec. 7203 ]

Penalties, criminal: Conspiracy: Attempt to evade or defeat tax: False statements: Motion for new trial, denied: Testimony: Co-conspirator.--A married couple and their tax attorney who were convicted of tax evasion, conspiracy to defraud the government, and making false statements to the IRS were denied a new trial based on a co-conspirator's post-trial claim that she was pressured into pleading guilty. The co-conspirator did not deny the truthfulness of her testimony against the couple or attorney. Thus, her assertion of innocence was irrelevant to the their convictions.

[Code Sec. 7203 ]

Penalties, criminal: False statements: Sentencing guidelines, application of: Enhancement: Sophisticated means: Tax attorney: Downward departure: Sentencing discrepancies: Remand.--Although a tax attorney's sentence for making false statements to the IRS was properly enhanced for special skills, his case was remanded because the trial court erroneously concluded that discrepancies between his sentence and the sentences of other persons involved a same tax evasion scheme were an inadequate basis for downward departure under the U.S. Sentencing Guidelines.

[Code Sec. 7203 ]

Penalties, criminal: Indictment: Conspiracy: Attempt to evade or defeat tax.--The IRS was not required to charge a couple and their tax attorney with the more specific offense of concealing income or assets instead of indicting them for defrauding the government. Their conduct was not a single incident or mere technical violation of the tax code and the allegations against them were sufficiently set forth in the indictment to apprise them of the crimes charged. Distinguishing B. Minarik (CA-6), 90-1 USTC ¶50,085 .

Before: GARZA, HIGGINBOTHAM and BENAVIDES, Circuit Judges.

OPINION

HIGGINBOTHAM, Circuit Judge:

This appeal presents various challenges to the tax evasion-related convictions of Franklin Wright, his wife Annette Wright, and Franklin 's attorney and tax preparer, Rob ert Barger. Barger also appeals his sentence. We reject the defendants' legal challenges to the convictions and find that the evidence was sufficient to support each of the verdicts. Because it appears that the district court believed it could not downward depart under the Sentencing Guidelines based on a discrepancy in sentences among the co-defendants, we remand for the re-sentencing of Barger.

I

The charges against all of the defendants stem from tax deficiencies owed by Franklin Wright for 1986, 1987 and 1988. Collection proceedings began in 1988, and the Internal Revenue Service ("IRS") and Franklin began a long period of negotiation.

In August 1992, Barger submitted an Offer in Compromise to the IRS and set up a $5,000-a-month payment plan for Franklin , which Franklin followed until December 1994. Although the offer was substantial, the IRS eventually rejected it because Franklin failed to provide required additional information. Through seizures and voluntary payments, however, Franklin eventually paid about $490,000 toward his tax liability of $419,000, not including penalties and interest.

Franklin and Annette married in 1989, after Franklin accumulated his deficiency. The government charged Annette with assisting Franklin in hiding assets from the IRS. In August 1992, while the Offer in Compromise was pending, Annette decided to sell the home she had owned before her marriage to Franklin and buy a new house. Annette claims that she was unable to secure financing for the home because of Franklin 's tax problems. She asked a friend, Caroline Haggard, to buy the home in Haggard's name and stated that she would assume the mortgage once the tax issues had been resolved. Haggard agreed to this arrangement.

Franklin and Annette brought her almost $150,000 for the house in a bag containing $100 bills. Franklin told Haggard that the cash was money from his law practice. Haggard testified at trial that the Wrights assured her that the taxes had been paid on the money but warned that she should avoid depositing the funds in the bank to avoid problems with the IRS.

Haggard decided to deposit the money anyway, resulting in a report to the IRS. She called Barger for advice, and Barger asked her why she had deposited the money when she had been told not to. Barger also participated in the home purchase in other ways: he assisted Haggard in gathering financial records in order to qualify for the mortgage; drew up papers transferring the mortgage to Annette; and loaned Franklin $64,000 for the remainder of the down payment. In April 1993, Barger submitted an amendment to the Offer in Compromise stating that the Wrights had sold their house because they could no longer make mortgage payments and were now renting. The form did not list the new home as potential community property.

The government indicted the Wrights, Barger and Haggard for conspiracy to defraud, Franklin for tax evasion, and Barger for making false statements. Haggard, also facing prosecution on unrelated Medicaid fraud charges, plead guilty to all charges and testified on behalf of the government. A jury found all three of the others guilty. ¹ The district court sentenced Franklin to concurrent 12-month terms. Annette received five years' probation so that she could care for the couple's small children. Barger received concurrent 18-month terms; his sentence included a two-point enhancement for use of a special skill. Haggard attempted to withdraw her plea after the trial, claiming that she was innocent of the tax charges; her appeal proceeded separately and was rejected by a panel of this court. At issue today are the appeals of the other three defendants.

II

All three defendants raise several legal challenges to the convictions. First, they claim that the convictions are improper because Franklin had no underlying tax deficiency. Franklin contends that he owed only interest and penalties and could not be prosecuted for evasion if no tax was owed.

The Supreme Court has held that the elements of Internal Revenue Code ("I.R.C.") §7201, the provision criminalizing the evasion of taxes, include the existence of a "tax deficiency." ² While §7201 does not describe "tax deficiency," it is defined elsewhere in the IRC as the amount by which the tax exceeds the tax reported on the return plus the amounts previously assessed as a tax deficiency. ³ The IRC specifically excludes interest from being treated as tax for purposes of deficiency procedures. ⁴ The Sentencing Guidelines also exclude interest and penalties in assessing the penalty for tax evasion. ⁵

Although the deficiency procedures are separate from the criminal liability provisions, we are persuaded that the definition of "tax liability" excluding penalties and interest extends to §7201. We decline to assume a broader meaning for a "tax deficiency" under §7201 than under the deficiency proceedings provision, especially when §7201 attaches criminal liability to the debt owed. The Guidelines merely confirm our conclusion.

Franklin fails to demonstrate, however, that he owed no tax during the alleged period of evasion. Although his total payments eventually exceeded his tax owed, the IRS collected a significant portion of the paid amounts through seizure. The IRS applied the seized amounts according to its normal procedure, which is first to extinguish the taxpayer's total tax, interest and penalties for the earliest year owed. ⁶ Franklin cites no authority for the proposition that his requests as to how the IRS should apply his voluntary payments must also have been honored as to the seized amounts. ⁷ Without having all of the seized amounts first applied to his tax liability, Franklin continued to have a tax deficiency. ⁸

The defendants also argue that the indictments under 18 U.S.C. §371 impermissibly varied from the proof presented at trial. Section 371 has two prongs: it prohibits a conspiracy to commit an offense against the United States , or one to defraud the United States . The first prong refers to specific offenses criminalized elsewhere in the federal code; the second stands independently. The government charged the defendants with conspiracy to defraud. Franklin argues that the defrauding indictment was impermissible because the alleged conduct could have been charged as a specific offense: concealing income or assets from the IRS.

Franklin relies on United States v. Minarik, which held that the government must proceed under the more specific clause of §371 if it applies. ⁹ Minarik, however, has since been limited: it now applies only when the taxpayer's duties are technical, the violation was too isolated to comprise a "conspiracy to defraud," and the defendant receives no specific notice of the crimes charged. ¹⁰ Here, the conduct was not a mere technical violation of the tax code, the allegations went beyond a single incident of violation, and the indictment, which exhaustively set forth the government's allegations, gave specific notice of the crimes charged.

Finally, the three defendants seek a motion for new trial based on Haggard's post-trial attempts to withdraw her plea. ¹¹ Haggard told several individuals that she believed she was not guilty of conspiracy to defraud the IRS but had been pressured into pleading to avoid a more severe penalty regarding the Medicaid fraud. Because Haggard has never denied the truthfulness of her testimony regarding the three other defendants, however, her assertion of her own innocence is immaterial to the other three convictions. The denial of a new trial was not an abuse of discretion.

III

Franklin and Annette each challenge the sufficiency of the evidence to support the jury verdicts. To establish a conspiracy under 18 U.S.C. §371, the government must prove (1) an agreement (2) to commit a crime and (3) an overt act committed by one of the conspirators in furtherance of the agreement. ¹² A conviction under IRC §7201 requires a showing of willfulness, a tax deficiency, and an affirmative act constituting evasion. ¹³

There was sufficient evidence to support Franklin's and Annette's convictions. Key evidence included Haggard's testimony regarding the delivery of the cash. While Annette's purchase of the home could have been bona fide, even if she accepted money from Franklin for the house, the manner of payment, including the bag of cash and Franklin's comments, gave rise to an inference of illegal activity. In addition, Annette's claims that she wanted the house to be hers alone are contradicted by Franklin 's funding of the down payment. The jury could reasonably have inferred from this account that Franklin and Annette conspired to hide assets from the IRS, and that Franklin thus attempted to evade the payment of his tax deficiency.

IV

Barger challenges the sufficiency of the evidence against him, as well as his sentence. He argues that there is insufficient evidence of his involvement in the conspiracy because his assistance with the purchase of the home was innocent. Barger further argues that there was insufficient evidence regarding his false statement conviction. To establish a violation of 18 U.S.C. §1001(a)(3), the government must show a statement that is false and material and made knowingly and willfully. ¹⁴

We find support for both counts of Barger's conviction. On the amended Offer in Compromise form, he omitted any reference to Franklin 's possible ownership interest in the home and stated that the Wrights were renting their residence because they could not make house payments. Barger's involvement with the home purchase was sufficient to infer that he knew that some of the down payment might be Franklin 's funds, thus requiring him to list the home as potential community property, and that he knew that the Wrights were able to make payments on a house. His involvement also provides sufficient evidence to support the conspiracy conviction. His reproach to Haggard after she had deposited the money indicated his intimate knowledge with the details of the transaction.

Barger raises two challenges to his sentence. He argues that the district court clearly erred in applying a two-level enhancement for the use of a special skill and that it erred in failing to recognize that it could shorten Barger's sentence based on sentencing disparities.

The district court found that Barger's special skills as a Certified Public Accountant and tax attorney were essential to the evasion scheme. While Barger's contribution to the scheme was not particularly sophisticated, part of it did involve his preparation of the Offer in Compromise and other legal documents. Because this use of special skills did further the conspiracy, it was not clearly erroneous for the district court to apply the enhancement.

Barger argues for a downward departure based on the sentencing disparity between Franklin, the taxpayer, and Barger, who played a much more peripheral role and did not profit from the crime. ¹⁵ In Koon v. United States, the Supreme Court held that departure factors should normally not be ruled out on a categorical basis and that courts may depart if the case is outside the Guidelines' heartland. ¹⁶ After the Seventh Circuit categorically denied departures based on discrepancies among co-defendants' sentences, the Supreme Court remanded the case for reconsideration in light of Koon. ¹⁷

This court may review a district court's refusal to grant a downward departure only if the district court mistakenly concluded that the Guidelines did not permit the departure. ¹⁸ From our review of the sentencing transcript, it is evident that the district court was troubled by the discrepancy in sentences between Franklin and Barger. The district court concluded, "I still don't like how [Barger] can be assessed more time. And I'm already giving him time for the attorney role, but I find no - I don't have a basis here to depart, though." Although this candid comment was doubtless not intended to be a full explication of the court's rationale, the court appears to have believed that the discrepancy could not be a basis for a downward departure. We remand to the district court for re-sentencing.

We find no legal grounds warranting reversal of any of the convictions: Franklin had a tax deficiency for purposes of IRC §7201; the indictment was proper; and Haggard's recantation is not material to any of the defendants' convictions. There was sufficient evidence to convict the Wrights and Barger of conspiracy to defraud, Franklin of evasion, and Barger of making false statements. The district court did not clearly err in applying the special skill enhancement to Barger's sentence. As it appears that the district court believed that the Sentencing Guidelines did not permit a downward departure based on discrepancies in sentences among co-defendants, we REMAND for the re-sentencing of Barger.

¹ Barger was acquitted on one of the counts of making false statements.

² See Sansone v. United States [65-1 USTC ¶9307], 380 U.S. 343, 351, 13 L.Ed.2d 882, 85 S.Ct. 1004 (1965).

³ See IRC §6211.

⁴ See §6601(e).

⁵ See U.S. SENTENCING GUIDELINES MANUAL §2T1.1 & App. Notes; United States v. Clements, 73 F.3d 1330, 1339 (5th Cir. 1996).

⁶ See Rev. Ruling 73-305, 1973-2 C.B. 43, amended by Rev. Ruling 79-284, 1979-2 C.B. 83.

⁷ We are unpersuaded that Franklin had such a right under the Due Process Clause of the Constitution.

⁸ Even if successful, this argument would affect only the IRC §7201 conviction and not the convictions based on conspiracy under 18 U.S.C. §381. The latter provision prohibits the defrauding of the United States , not just the evasion of taxes.

⁹ [90-1 USTC ¶50,085], 875 F.2d 1186, 1193-94 (6th Cir. 1989).

¹⁰ See United States v. Khalife, 106 F.3d 1300, 1304-06 (6th Cir. 1997). Other courts also follow this rule. See United States v. Goulding, 26 F.3d 656, 663 (7th Cir. 1994); United States v. Notch [91-2 USTC ¶50,470], 939 F.2d 895, 901 (10th Cir. 1991).

¹¹ The defendants concede that their Singleton argument regarding Haggard's testimony is foreclosed by United States v. Webster, 162 F.3d 308 (5th Cir. 1998).

¹² See United States v. Gray, 96 F.3d 769, 772-73 (5th Cir. 1996).

¹³ See Sansone [65-1 USTC ¶9307], 380 U.S. at 351.

¹⁴ See United States v. Puente, 982 F.2d 156, 158 (5th Cir. 1993).

¹⁵ Franklin will serve his time in a halfway house. With an 18-month sentence, Barger is ineligible for the halfway program.

¹⁶ See 116 S.Ct. 2035, 2051 (1996).

¹⁷ See United States v. Meza, 127 F.3d 545, 547-48 (7th Cir. 1997).

¹⁸ See United States v. Palmer, 122 F.3d 215, 222 (5th Cir. 1997).

 

 

[2000-1 USTC ¶50,499] United States , Petitioner v. Webster L. Hubbell

Supreme Court of the United States, 99-166, 6/5/2000, Affirming the Court of Appeals

D.C. Circuit

99-1 USTC ¶50,219 , 167 F3d 552.

On Writ of Certiorari to the United States Court of Appeals for the District of Columbia Circuit.

[Code Secs. 1 and 7203 ]

Fifth Amendment: Self-incrimination: Document subpoena: Testimonial value of document production: Prior awareness: Compelled testimony.--Tax evasion charges against an individual were dismissed because documents that he produced pursuant to a grant of immunity were improperly used to convict him, and the independent counsel could not demonstrate with reasonable particularity a prior awareness that the subpoenaed documents existed and were in the individual's possession. The testimonial value of the individual's response to the document subpoena pertaining to the existence, possession or control, authenticity and identity of the requested documents was protected by the Fifth Amendment privilege against self-incrimination. Further, the individual's action in responding to general requests for "any and all documents" pertaining to eleven general categories was the functional equivalent of answering detailed interrogatories or a series of deposition questions.

Syllabus

As part of a plea agreement, respondent promised to provide the Independent Counsel investigating matters relating to the Whitewater Development Corporation with information relevant to his investigation. Subsequently, the Independent Counsel served respondent with a subpoena calling for the production of 11 categories of documents before a grand jury in Little Rock , Arkansas . Respondent appeared before that jury, invoked his Fifth Amendment privilege against self-incrimination, and refused to state whether he had the documents. The prosecutor then produced an order obtained pursuant to 18 U.S.C. §6003(a) directing respondent to respond to the subpoena and granting him immunity to the extent allowed by law. Respondent produced 13,120 pages of documents and testified that those were all of the responsive documents in his control. The Independent Counsel used the documents' contents in an investigation that led to this indictment of respondent on tax and fraud charges. The District Court dismissed the indictment on the ground that the Independent Counsel's use of the subpoenaed documents violated 18 U.S.C. §6002--which provides for use and derivative-use immunity--because all of the evidence he would offer against respondent at trial derived either directly or indirectly from the testimonial aspects of respondent's immunized act of producing the documents. In vacating and remanding, the Court of Appeals directed the District Court to determine the extent and detail of the Government's knowledge of respondent's financial affairs on the day the subpoena issued. If the Government could not demonstrate with reasonable particularity a prior awareness that the documents sought existed and were in respondent's possession, the indictment was tainted. Acknowledging that he could not satisfy the reasonable particularity standard, the Independent Counsel entered into a conditional plea agreement providing for dismissal of the indictment unless this Court's disposition of the case makes it reasonably likely that respondent's immunity would not pose a significant bar to his prosecution. Because the agreement also provides for the entry of a guilty plea and a sentence should this Court reverse, the case is not moot.

Held: The indictment against respondent must be dismissed. Pp. 6-18.

(a) The Fifth Amendment protects a person from being "compelled in any criminal case to be a witness against himself." The word "witness" limits the relevant category of compelled incriminating communications to those that are "testimonial." In addition, a person such as respondent may be required to produce specific documents containing incriminating assertions of fact or belief because the creation of those documents was not "compelled" within the meaning of the privilege. See Fisher v. United [76-1 USTC ¶9353], 425 U.S. 391. However, the act of producing subpoenaed documents may have a compelled testimonial aspect. That act, as well as a custodian's compelled testimony about whether he has produced everything demanded, may certainly communicate information about the documents' existence, custody, and authenticity. It is also well settled that compelled testimony communicating information that may lead to incriminating evidence is privileged even if the information itself is not inculpatory. Pp. 6-10.

(b) Section 6002 is constitutional because the scope of the "use and derivative-use" immunity it provides is coextensive with the scope of the constitutional privilege against self-incrimination. Kastigar v. United States , 406 U.S. 441. When a person is prosecuted for matters related to immunized testimony, the prosecution has an affirmative duty to prove that the evidence it proposes to use is derived from a legitimate source wholly independent of that testimony. Id. , at 460. This ensures that the grant of immunity leaves the witness and the Government in substantially the same position as if the witness had claimed his privilege in the grant's absence. The compelled testimony relevant here is not to be found in the contents of the documents produced, but is the testimony inherent in the act of producing those documents. Pp. 10-13.

(c) The fact that the Government does not intend to use the act of production in respondent's criminal trial leaves open the separate question whether it has already made "derivative use" of the testimonial aspect of that act in obtaining the indictment and preparing for trial. It clearly has. It is apparent from the subpoena's text that the prosecutor needed respondent's assistance both to identify potential sources of information and to produce those sources. It is undeniable that providing a catalog of existing documents fitting within any of the 11 broadly worded subpoena categories could provide a prosecutor with a lead to incriminating evidence or a link in the chain of evidence needed to prosecute. Indeed, that is what happened here: The documents sought by one grand jury to see if respondent had violated a plea agreement led to the return of an indictment by another grand jury for offenses apparently unrelated to that agreement. The testimonial aspect of respondent's act of production was the first step in a chain of evidence leading to this prosecution. Thus, the Court cannot accept the Government's submission that respondent's immunity did not preclude its derivative use of the produced documents because its possession of the documents was the fruit only of the simple physical act of production. In addition, the Government misreads Fisher v. United States [76-1 USTC ¶9353], 425 U.S., at 411, and ignores United States v. Doe, 465 U.S. 605, in arguing that the communicative aspect of respondent's act of production is insufficiently testimonial to support a privilege claim because the existence and possession of ordinary business records is a "foregone conclusion." Unlike the circumstances in Fisher, the Government has shown no prior knowledge of either the existence or the whereabouts of the documents ultimately produced here. In Doe, the Court found that the act of producing several broad categories of general business records would involve testimonial self-incrimination. Pp. 13-18.

[99-1 USTC ¶50,219], 167 F.3d 552, affirmed.

[Opinion]

STEVENS

, Judge, delivered the opinion of the Court, in which O'CONNOR, SCALIA, KENNEDY, SOUTER, THOMAS, GINSBURG, AND BREYER, JJ., joined. THOMAS, Judge, filed a concurring opinion, in which SCALIA, J., joined. REHNQUIST, Circuit Judge, filed a dissenting statement.

STEVENS, Judge: delivered the opinion of the Court.

The two questions presented concern the scope of a witness' protection against compelled self-incrimination: (1) whether the Fifth Amendment privilege ¹ protects a witness from being compelled to disclose the existence of incriminating documents that the Government is unable to describe with reasonable particularity; and (2) if the witness produces such documents pursuant to a grant of immunity, whether 18 U.S.C. §6002 prevents the Government from using them to prepare criminal charges against him. ²

I

This proceeding arises out of the second prosecution of respondent, Webster Hubbell, commenced by the Independent Counsel appointed in August 1994 to investigate possible violations of federal law relating to the Whitewater Development Corporation. The first prosecution was terminated pursuant to a plea bargain. In December 1994, respondent pleaded guilty to charges of mail fraud and tax evasion arising out of his billing practices as a member of an Arkansas law firm from 1989 to 1992, and was sentenced to 21 months in prison. In the plea agreement, respondent promised to provide the Independent Counsel with "full, complete, accurate, and truthful information" about matters relating to the Whitewater investigation.

The second prosecution resulted from the Independent Counsel's attempt to determine whether respondent had violated that promise. In October 1996, while respondent was incarcerated, the Independent Counsel served him with a subpoena duces tecum calling for the production of 11 categories of documents before a grand jury sitting in Little Rock , Arkansas . See Appendix, infra. On November 19, he appeared before the grand jury and invoked his Fifth Amendment privilege against self-incrimination. In response to questioning by the prosecutor, respondent initially refused "to state whether there are documents within my possession, custody, or control responsive to the Subpoena." App. 62. Thereafter, the prosecutor produced an order, which had previously been obtained from the District Court pursuant to 18 U.S.C. §6003(a), ³ directing him to respond to the subpoena and granting him immunity "to the extent allowed by law." ⁴ Respondent then produced 13,120 pages of documents and records and responded to a series of questions that established that those were all of the documents in his custody or control that were responsive to the commands in the subpoena, with the exception of a few documents he claimed were shielded by the attorney-client and attorney work-product privileges.

The contents of the documents produced by respondent provided the Independent Counsel with the information that led to this second prosecution. On April 30, 1998, a grand jury in the District of Columbia returned a 10-count indictment charging respondent with various tax-related crimes and mail and wire fraud. ⁵ The District Court dismissed the indictment relying, in part, on the ground that the Independent Counsel use of the subpoenaed documents violated §6002 because all of the evidence he would offer against respondent at trial derived either directly or indirectly from the testimonial aspects of respondent's immunized act of producing those documents. ⁶ 11 F.Supp.2d 25, 33-37 (D-DC 1998). Noting that the Independent Counsel had admitted that he was not investigating tax-related issues when he issued the subpoena, and that he had "learned about the unreported income and other crimes from studying the records' contents,' " the District Court characterized the subpoena as "the quintessential fishing expedition." Id. , at 37.

The Court of Appeals vacated the judgment and remanded for further proceedings. 167 F.3d 552 (CA-DC 1999). The majority concluded that the District Court had incorrectly relied on the fact that the Independent Counsel did not have prior knowledge of the contents of the subpoenaed documents. The question the District Court should have addressed was the extent of the Government's independent knowledge of the documents' existence and authenticity, and of respondent's possession or control of them. It explained:

"On remand, the district court should hold a hearing in which it seeks to establish the extent and detail of the [G]overnment's knowledge of Hubbell's financial affairs (or of the paperwork documenting it) on the day the subpoena issued. It is only then that the court will be in a position to assess the testimonial value of Hubbell's response to the subpoena. Should the Independent Counsel prove capable of demonstrating with reasonable particularity a prior awareness that the exhaustive litany of documents sought in the subpoena existed and were in Hubbell's possession, then the wide distance evidently traveled from the subpoena to the substantive allegations contained in the indictment would be based upon legitimate intermediate steps. To the extent that the information conveyed through Hubbell's compelled act of production provides the necessary linkage, however, the indictment deriving therefrom is tainted." Id. , at 581.

In the opinion of the dissenting judge, the majority failed to give full effect to the distinction between the contents of the documents and the limited testimonial significance of the act of producing them. In his view, as long as the prosecutor could make use of information contained in the documents or derived therefrom without any reference to the fact that respondent had produced them in response to a subpoena, there would be no improper use of the testimonial aspect of the immunized act of production. In other words, the constitutional privilege and the statute conferring use immunity would only shield the witness from the use of any information resulting from his subpoena response "beyond what the prosecutor would receive if the documents appeared in the grand jury room or in his office unsolicited and unmarked, like manna from heaven." ⁷ Id., at 602.

On remand, the Independent Counsel acknowledged that he could not satisfy the "reasonable particularity" standard prescribed by the Court of Appeals and entered into a conditional plea agreement with respondent. In essence, the agreement provides for the dismissal of the charges unless this Court's disposition of the case makes it reasonably likely that respondent's "act of production immunity" would not pose a significant bar to his prosecution. App. 106-107. The case is not moot, however, because the agreement also provides for the entry of a guilty plea and a sentence that will not include incarceration if we should reverse and issue an opinion that is sufficiently favorable to the Government to satisfy that condition. Ibid. Despite that agreement, we granted the Independent Counsel's petition for a writ of certiorari in order to determine the precise scope of a grant of immunity with respect to the production of documents in response to a subpoena. 528 U.S.-- (1999). We now affirm.

II

It is useful to preface our analysis of the constitutional issue with a restatement of certain propositions that are not in dispute. The term "privilege against self-incrimination" is not an entirely accurate description of a person's constitutional protection against being "compelled in any criminal case to be a witness against himself."

The word "witness" in the constitutional text limits the relevant category of compelled incriminating communications to those that are "testimonial" in character. ⁸ As Justice Holmes observed, there is a significant difference between the use of compulsion to extort communications from a defendant and compelling a person to engage in conduct that may be incriminating. ⁹ Thus, even though the act may provide incriminating evidence, a criminal suspect may be compelled to put on a shirt, ¹⁰ to provide a blood sample ¹¹ or handwriting exemplar, ¹² or to make a recording of his voice. ¹³ The act of exhibiting such physical characteristics is not the same as a sworn communication by a witness that relates either express or implied assertions of fact or belief. Pennsylvania v. Muniz, 496 U.S. 582, 594-598 (1990). Similarly, the fact that incriminating evidence may be the byproduct of obedience to a regulatory requirement, such as filing an income tax return, ¹⁴ maintaining required records, ¹⁵ or reporting an accident, ¹⁶ does not clothe such required conduct with the testimonial privilege. ¹⁷

More relevant to this case is the settled proposition that a person may be required to produce specific documents even though they contain incriminating assertions of fact or belief because the creation of those documents was not "compelled" within the meaning of the privilege. Our decision in Fisher v. United States [76-1 USTC ¶9353], 425 U.S. 391 (1976), dealt with summonses issued by the Internal Revenue Service (IRS) seeking working papers used in the preparation of tax returns. Because the papers had been voluntarily prepared prior to the issuance of the summonses, they could not be "said to contain compelled testimonial evidence, either of the taxpayers or of anyone else." Accordingly, the taxpayer could not "avoid compliance with the subpoena merely by asserting that the item of evidence which he is required to produce contains incriminating writing, whether his own or that of someone else." Id. , at 409-410; see also United States v. Doe, 465 U.S. 605 (1984). ¹⁸ It is clear, therefore, that respondent Hubbell could not avoid compliance with the subpoena served on him merely because the demanded documents contained incriminating evidence, whether written by others or voluntarily prepared by himself.

On the other hand, we have also made it clear that the act of producing documents in response to a subpoena may have a compelled testimonial aspect. We have held that "the act of production" itself may implicitly communicate "statements of fact." By "producing documents in compliance with a subpoena, the witness would admit that the papers existed, were in his possession or control, and were authentic." ¹⁹ Moreover, as was true in this case, when the custodian of documents responds to a subpoena, he may be compelled to take the witness stand and answer questions designed to determine whether he has produced everything demanded by the subpoena. ²⁰ The answers to those questions, as well as the act of production itself, may certainly communicate information about the existence, custody, and authenticity of the documents. Whether the constitutional privilege protects the answers to such questions, or protects the act of production itself, is a question that is distinct from the question whether the unprotected contents of the documents themselves are incriminating.

Finally, the phrase "in any criminal case" in the text of the Fifth Amendment might have been read to limit its coverage to compelled testimony that is used against the defendant in the trial itself. It has, however, long been settled that its protection encompasses compelled statements that lead to the discovery of incriminating evidence even though the statements themselves are not incriminating and are not introduced into evidence. Thus, a half-century ago we held that a trial judge had erroneously rejected a defendant's claim of privilege on the ground that his answer to the pending question would not itself constitute evidence of the charged offense. As we explained:

"The privilege afforded not only extends to answers that would in themselves support a conviction under a federal criminal statute but likewise embraces those which would furnish a link in the chain of evidence needed to prosecute the claimant for a federal crime." Hoffman v. United States , 341 U.S. 479, 486 (1951).

Compelled testimony that communicates information that may "lead to incriminating evidence" is privileged even if the information itself is not inculpatory. Doe v. United States , 487 U.S. 201, 208, n. 6 (1988). It is the Fifth Amendment's protection against the prosecutor's use of incriminating information derived directly or indirectly from the compelled testimony of the respondent that is of primary relevance in this case.

III

Acting pursuant to 18 U.S.C. §6002, the District Court entered an order compelling respondent to produce "any and all documents" described in the grand jury subpoena and granting him "immunity to the extent allowed by law." App. 60-61. In Kastigar v. United States, 406 U.S. 441 (1972), we upheld the constitutionality of §6002 because the scope of the "use and derivative-use" immunity that it provides is coextensive with the scope of the constitutional privilege against self-incrimination.

The protection against the derivative use of compelled testimony distinguishes §6002 from the 1868 statute that had been held invalid in Counselman v. Hitchcock, 142 U.S. 547 (1892), because it merely provided "use" immunity, as well as from the more recent federal statutes that broadly provide "transactional" immunity. In Kastigar the petitioners argued that, under our reasoning in Counselman, nothing less than full transactional immunity from prosecution for any offense to which compelled testimony relates could suffice to supplant the privilege. In rejecting that argument, we stressed the importance of §6002's "explicit proscription" of the use in any criminal case of "testimony or other information compelled under the order (or any information directly or indirectly derived from such testimony or other information).' " 406 U.S. , at 453. We particularly emphasized the critical importance of protection against a future prosecution "based on knowledge and sources of information obtained from the compelled testimony.' " Id., at 454 (quoting Ullmann v. United States, 350 U.S. 422, 437 (1956)). ²¹

We also rejected the petitioners' argument that derivative-use immunity under §6002 would not obviate the risk that the prosecutor or other law enforcement officials may use compelled testimony to obtain leads, names of witnesses, or other information not otherwise available to support a prosecution. That argument was predicated on the incorrect assumption that the derivative-use prohibition would prove impossible to enforce. But given that the statute contains a "comprehensive safeguard" in the form of a "sweeping proscription of any use, direct or indirect, of the compelled testimony and any information derived therefrom," we concluded that a person who is prosecuted for matters related to testimony he gave under a grant of immunity does not have the burden of proving that his testimony was improperly used. Instead, we held that the statute imposes an affirmative duty on the prosecution, not merely to show that its evidence is not tainted by the prior testimony, but "to prove that the evidence it proposes to use is derived from a legitimate source wholly independent of the compelled testimony." Id. , at 460. ²² Requiring the prosecution to shoulder this burden ensures that the grant of immunity has "le[ft] the witness and the Federal Government in substantially the same position as if the witness had claimed his privilege in the absence of a grant of immunity." Id. , at 458-459 (internal quotation marks and footnote omitted).

The "compelled testimony" that is relevant in this case is not to be found in the contents of the documents produced in response to the subpoena. It is, rather, the testimony inherent in the act of producing those documents. The disagreement between the parties focuses entirely on the significance of that testimonial aspect.

IV

The Government correctly emphasizes that the testimonial aspect of a response to a subpoena duces tecum does nothing more than establish the existence, authenticity, and custody of items that are produced. We assume that the Government is also entirely correct in its submission that it would not have to advert to respondent's act of production in order to prove the existence, authenticity, or custody of any documents that it might offer in evidence at a criminal trial; indeed, the Government disclaims any need to introduce any of the documents produced by respondent into evidence in order to prove the charges against him. It follows, according to the Government, that it has no intention of making improper "use" of respondent's compelled testimony.

The question, however, is not whether the response to the subpoena may be introduced into evidence at his criminal trial. That would surely be a prohibited "use" of the immunized act of production. See In re Sealed Case, 791 F.2d 179, 182 (CA-DC 1986) (Scalia, J.). But the fact that the Government intends no such use of the act of production leaves open the separate question whether it has already made "derivative use" of the testimonial aspect of that act in obtaining the indictment against respondent and in preparing its case for trial. It clearly has.

It is apparent from the text of the subpoena itself that the prosecutor needed respondent's assistance both to identify potential sources of information and to produce those sources. See Appendix, infra. Given the breadth of the description of the 11 categories of documents called for by the subpoena, the collection and production of the materials demanded was tantamount to answering a series of interrogatories asking a witness to disclose the existence and location of particular documents fitting certain broad descriptions. The assembly of literally hundreds of pages of material in response to a request for "any and all documents reflecting, referring, or relating to any direct or indirect sources of money or other things of value received by or provided to" an individual or members of his family during a 3-year period, Appendix, infra, at 19, is the functional equivalent of the preparation of an answer to either a detailed written interrogatory or a series of oral questions at a discovery deposition. Entirely apart from the contents of the 13,120 pages of materials that respondent produced in this case, it is undeniable that providing a catalog of existing documents fitting within any of the 11 broadly worded subpoena categories could provide a prosecutor with a "lead to incriminating evidence," or "a link in the chain of evidence needed to prosecute."

Indeed, the record makes it clear that is what happened in this case. The documents were produced before a grand jury sitting in the Eastern District of Arkansas in aid of the Independent Counsel's attempt to determine whether respondent had violated a commitment in his first plea agreement. The use of those sources of information eventually led to the return of an indictment by a grand jury sitting in the District of Columbia for offenses that apparently are unrelated to that plea agreement. What the District Court characterized as a "fishing expedition" did produce a fish, but not the one that the Independent Counsel expected to hook. It is abundantly clear that the testimonial aspect of respondent's act of producing subpoenaed documents was the first step in a chain of evidence that led to this prosecution. The documents did not magically appear in the prosecutor's office like "manna from heaven." They arrived there only after respondent asserted his constitutional privilege, received a grant of immunity, and--under the compulsion of the District Court's order--took the mental and physical steps necessary to provide the prosecutor with an accurate inventory of the many sources of potentially incriminating evidence sought by the subpoena. It was only through respondent's truthful reply to the subpoena ²³ that the Government received the incriminating documents of which it made "substantial use . . . in the investigation that led to the indictment." Brief for United States 3.

For these reasons, we cannot accept the Government's submission that respondent's immunity did not preclude its derivative use of the produced documents because its "possession of the documents [was] the fruit only of a simple physical act--the act of producing the documents." Id. , at 29. It was unquestionably necessary for respondent to make extensive use of "the contents of his own mind" in identifying the hundreds of documents responsive to the requests in the subpoena. See Curcio v. United States , 354 U.S. 118, 128 (1957); Doe v. United States , 487 U.S. , at 210. The assembly of those documents was like telling an inquisitor the combination to a wall safe, not like being forced to surrender the key to a strongbox. Id. , at 210, n. 9. The Government's anemic view of respondent's act of production as a mere physical act that is principally non-testimonial in character and can be entirely divorced from its "implicit" testimonial aspect so as to constitute a "legitimate, wholly independent source" (as required by Kastigar ) for the documents produced simply fails to account for these realities.

In sum, we have no doubt that the constitutional privilege against self-incrimination protects the target of a grand jury investigation from being compelled to answer questions designed to elicit information about the existence of sources of potentially incriminating evidence. That constitutional privilege has the same application to the testimonial aspect of a response to a subpoena seeking discovery of those sources. Before the District Court, the Government arguably conceded that respondent's act of production in this case had a testimonial aspect that entitled him to respond to the subpoena by asserting his privilege against self-incrimination. See 167 F.3d, at 580 (noting District Court's finding that "Hubbell's compelled act of production required him to make communications as to the existence, possession, and authenticity of the subpoenaed documents"). On appeal and again before this Court, however, the Government has argued that the communicative aspect of respondent's act of producing ordinary business records is insufficiently "testimonial" to support a claim of privilege because the existence and possession of such records by any businessman is a "foregone conclusion" under our decision in Fisher v. United States [76-1 USTC ¶9353], 425 U.S., at 411. This argument both misreads Fisher and ignores our subsequent decision in United States v. Doe, 465 U.S. 605 (1984).

As noted in Part II, supra, Fisher involved summonses seeking production of working papers prepared by the taxpayers' accountants that the IRS knew were in the possession of the taxpayers' attorneys. 425 U.S. , at 394. In rejecting the taxpayers' claim that these documents were protected by the Fifth Amendment privilege, we stated:

"It is doubtful that implicitly admitting the existence and possession of the papers rises to the level of testimony within the protection of the Fifth Amendment. The papers belong to the accountant, were prepared by him, and are the kind usually prepared by an accountant working on the tax returns of his client. Surely the Government is in no way relying on the 'truthtelling' of the taxpayer to prove the existence of or his access to the documents. . . . The existence and location of the papers are a foregone conclusion and the taxpayer adds little or nothing to the sum total of the Government's information by conceding that he in fact has the papers." Id. , at 411 (emphases added).

Whatever the scope of this "foregone conclusion" rationale, the facts of this case plainly fall outside of it. While in Fisher the Government already knew that the documents were in the attorneys' possession and could independently confirm their existence and authenticity through the accountants who created them, here the Government has not shown that it had any prior knowledge of either the existence or the whereabouts of the 13,120 pages of documents ultimately produced by respondent. The Government cannot cure this deficiency through the overbroad argument that a businessman such as respondent will always possess general business and tax records that fall within the broad categories described in this subpoena. The Doe subpoenas also sought several broad categories of general business records, yet we upheld the District Court's finding that the act of producing those records would involve testimonial self-incrimination. 465 U.S. , at 612-614, and n. 13.

Given our conclusion that respondent's act of production had a testimonial aspect, at least with respect to the existence and location of the documents sought by the Government's subpoena, respondent could not be compelled to produce those documents without first receiving a grant of immunity under §6003. As we construed §6002 in Kastigar, such immunity is co-extensive with the constitutional privilege. Kastigar requires that respondent's motion to dismiss the indictment on immunity grounds be granted unless the Government proves that the evidence it used in obtaining the indictment and proposed to use at trial was derived from legitimate sources "wholly independent" of the testimonial aspect of respondent's immunized conduct in assembling and producing the documents described in the subpoena. The Government, however, does not claim that it could make such a showing. Rather, it contends that its prosecution of respondent must be considered proper unless someone--presumably respondent--shows that "there is some substantial relation between the compelled testimonial communications implicit in the act of production (as opposed to the act of production standing alone) and some aspect of the information used in the investigation or the evidence presented at trial." Brief for United States 9. We could not accept this submission without repudiating the basis for our conclusion in Kastigar that the statutory guarantee of use and derivative-use immunity is as broad as the constitutional privilege itself. This we are not prepared to do.

Accordingly, the indictment against respondent must be dismissed. The judgment of the Court of Appeals is affirmed.

It is so ordered.

APPENDIX TO OPINION OF THE COURT

On October 31, 1996, upon application by the Independent Counsel, a subpoena was issued commanding respondent to appear and testify before the grand jury of the United States District Court for the Eastern District of Arkansas on November 19, 1996, and to bring with him various documents described in a "Subpoena Rider" as follows:

"A. Any and all documents reflecting, referring, or relating to any direct or indirect sources of money or other things of value receive by or provided to Webster Hubbell, his wife, or children from January 1, 1993 to the present, including but not limited to the identity of employers or clients of legal or any other type of work.

"B. Any and all documents reflecting, referring, or relating to any direct or indirect sources of money of other things of value received by or provided to Webster Hubbell, his wife, or children from January 1, 1993 to the present, including but not limited to billing memoranda, draft statements, bills, final statements, and/or bills for work performed or time billed from January 1, 1993 to the present.

"C. Copies of all bank records of Webster Hubbell, his wife, or children for all accounts from January 1, 1993 to the present, including but not limited to all statements, registers and ledgers, cancelled checks, deposit items, and wire transfers.

"D. Any and all documents reflecting, referring, or relating to time worked or billed by Webster Hubbell from January 1, 1993 to the present, including but not limited to original time sheets, books, notes, papers, and/or computer records.

"E. Any and all documents reflecting, referring, or relating to expenses incurred by and/or disbursements of money by Webster Hubbell during the course of any work performed or to be performed by Mr. Hubbell from January 1, 1993 to the present.

"F. Any and all documents reflecting, referring, or relating to Webster Hubbell's schedule of activities, including but not limited to any and all calendars, day-timers, time books, appointment books, diaries, records of reverse telephone toll calls, credit card calls, telephone message slips, logs, other telephone records, minutes, databases, electronic mail messages, travel records, itineraries, tickets for transportation of any kind, payments, bills, expense backup documentation, schedules, and/or any other document or database that would disclose Webster Hubbell's activities from January 1, 1993 to the present.

"G. Any and all documents reflecting, referring, or relating to any retainer agreements or contracts for employment of Webster Hubbell, his wife, or his children from January 1, 1993 to the present.

"H. Any and all tax returns and tax return information, including but not limited to all W-2s, form 1099s, schedules, draft returns, work papers, and backup documents filed, created or held by or on behalf of Webster Hubbell, his wife, his children, and/or any business in which he, his wife, or his children holds or has held an interest, for the tax years 1993 to the present.

"I. Any and all documents reflecting, referring, or relating to work performed or to be performed or on behalf of the City of Los Angeles, California, the Los Angeles Department of Airports or any other Los Angeles municipal Governmental entity, Mary Leslie, and/or Alan S. Arkatov, including but not limited to correspondence, retainer agreements, contracts, time sheets, appointment calendars, activity calendars, diaries, billing statements, billing memoranda, telephone records, telephone message slips, telephone credit card statements, itineraries, tickets for transportation, payment records, expense receipts, ledgers, check registers, notes, memoranda, electronic mail, bank deposit items, cashier's checks, traveler's checks, wire transfer records and/or other records of financial transactions.

"J. Any and all documents reflecting, referring, or relating to work performed or to be performed by Webster Hubbell, his wife, or his children on the recommendation, counsel or other influence of Mary Leslie and/or Alan S. Arkatov, including but not limited to correspondence, retainer agreements, contracts, time sheets, appointment calendars, activity calendars, diaries, billing statements, billing memoranda, telephone records, telephone message slips, telephone credit card statements, itineraries, tickets for transportation, payment records, expense receipts, ledgers, check registers, notes, memoranda, electronic mail, bank deposit items, cashier's checks, traveler's checks, wire transfer records and/or other records of financial transactions.

"K. Any and all documents related to work performed or to be performed for or on behalf of Lippo Ltd. (formerly Public Finance (H.K.) Ltd.), the Lippo Group, the Lippo Bank, Mochtar Riady, James Riady, Stephen Riady, John Luen Wai Lee, John Huang, Mark W. Grobmyer, C. Joseph Giroir, Jr., or any affiliate, subsidiary, or corporation owned or controlled by or related to the aforementioned entities or individuals, including but not limited to correspondence, retainer agreements, contracts, time sheets, appointment calendars, activity calendars, diaries, billing statements, billing memoranda, telephone records, telephone message slips, telephone credit card statements, itineraries, tickets for transportation, payment records, expense receipts, ledgers, check registers, notes, memoranda, electronic mail, bank deposit items, cashier's checks, traveler's checks, wire transfer records and/or other records of financial transactions." App. 47-49.

¹ "No person . . . shall be compelled in any criminal case to be a witness against himself." U.S. Const., Amdt. 5.

² Section 6002 provides: "Whenever a witness refuses, on the basis of his privilege against self-incrimination, to testify or provide other information in a proceeding before or ancillary to--

"(1) a court or grand jury of the United States ,

"(2) an agency of the United States , or

"(3) either House of Congress, a joint committee of the two Houses, or a committee or a subcommittee of either House,

"and the person presiding over the proceeding communicates to the witness an order issued under this title, the witness may not refuse to comply with the order on the basis of his privilege against self-incrimination; but no testimony or other information compelled under the order (or any information directly or indirectly derived from such testimony or other information) may be used against the witness in any criminal case, except a prosecution for perjury, giving a false statement, or otherwise failing to comply with the order."

³ Section 6003(a) authorizes a district court to issue an order requiring an "individual to give testimony or provide other information which he refuses to give or provide on the basis of his privilege against self-incrimination." The effect of such an order is covered by §6002, quoted in n. 2, supra.

⁴ In re Grand Jury Proceedings, No. GJ-96-3 (ED Ark., Nov. 14, 1996), App. 60-61.

⁵ Several of the counts in the indictment also named three other defendants. Those charges are not relevant because (a) they have been dismissed with prejudice, and (b) the Fifth Amendment privilege asserted by respondent would not, in any event, affect the charges against those other defendants.

⁶ As an independent basis for dismissal, the District Court also concluded that the Independent Counsel had exceeded his jurisdiction under the Ethics in Government Act of 1978, as amended by the Independent Counsel Reauthorization Act of 1994, 28 U.S.C. §§591-599. That holding was reversed by the Court of Appeals and is not at issue here.

⁷ Over the dissent of four judges, the Court of Appeals denied a suggestion for rehearing en banc. App. to Pet. for Cert. 142a-143a.

⁸ "It is consistent with the history of and the policies underlying the Self-Incrimination Clause to hold that the privilege may be asserted only to resist compelled explicit or implicit disclosures of incriminating information. Historically, the privilege was intended to prevent the use of legal compulsion to extract from the accused a sworn communication of facts which would incriminate him. Such was the process of the ecclesiastical courts and the Star Chamber--the inquisitorial method of putting the accused upon his oath and compelling him to answer questions designed to uncover uncharged offenses, without evidence from another source. See Andresen v. Maryland , 427 U.S. 463, 470-471 (1976); 8 Wigmore §2250; E. Griswold, The Fifth Amendment Today 2-3 (1955)." Doe v. United States , 487 U.S. 201, 212 (1988).

⁹ "A question arose as to whether a blouse belonged to the prisoner. A witness testified that the prisoner put it on and it fitted him. It is objected that he did this under the same duress that made his statements inadmissible, and that it should be excluded for the same reasons. But the prohibition of compelling a man in a criminal court to be witness against himself is a prohibition of the use of physical or moral compulsion to extort communications from him, not an exclusion of his body as evidence when it may be material. The objection in principle would forbid a jury to look at a prisoner and compare his features with a photograph in proof." Holt v. United States , 218 U.S. 245, 252-253 (1910).

¹⁰ Ibid.

¹¹ Schmerber v. California , 384 U.S. 757 (1966).

¹² Gilbert v. California , 388 U.S. 263 (1967).

¹³ United States v. Wade, 388 U.S. 218 (1967).

¹⁴ United States v. Sullivan, 274 U.S. 259 (197).

¹⁵ Shapiro v. United States , 335 U.S. 1 (1948).

¹⁶ California v. Byers, 402 U.S. 424 (1971).

¹⁷ "The Court has on several occasions recognized that the Fifth Amendment privilege may not be invoked to resist compliance with a regulatory regime constructed to effect the State's public purposes unrelated to the enforcement of its criminal laws." Baltimore City Dept. of Social Servs. v. Bouknight, 493 U.S. 549, 556 (1990).

¹⁸ "Respondent does not contend that he prepared the documents involuntarily or that the subpoena would force him to restate, repeat, or affirm the truth of their contents. The fact that the records are in respondent's possession is irrelevant to the determination of whether the creation of the records was compelled. We therefore hold that the contents of those records are not privileged." United States v. Doe, 465 U.S. , at 611-612 (footnote omitted).

¹⁹ "The issue presented in those cases was whether the act of producing subpoenaed documents, not itself the making of a statement, might nonetheless have some protected testimonial aspects. The Court concluded that the act of production could constitute protected testimonial communication because it might entail implicit statements of fact: by producing documents in compliance with a subpoena, the witness would admit that the papers existed, were in his possession or control, and were authentic. United States v. Doe, 465 U.S. , at 613, and n. 11; Fisher [76-1 USTC ¶9353], 425 U.S. , at 409-410; id., at 428, 432 (concurring opinions). See Braswell v. United States, [487 U.S. ,] at 104; [id.,] at 122 (dissenting opinion). Thus, the Court made clear that the Fifth Amendment privilege against self-incrimination applies to acts that imply assertions of fact.

". . . An examination of the Court's application of these principles in other cases indicates the Court's recognition that, in order to be testimonial, an accused's communication must itself, explicitly or implicitly, relate a factual assertion or disclose information. Only then is a person compelled to be a 'witness' against himself." Doe v. United States, 487 U.S. , at 209-210 (footnote omitted).

²⁰ See App. 62-70. Thus, for example, after respondent had been duly sworn by the grand jury foreman, the prosecutor called his attention to paragraph A of the Subpoena Rider (reproduced in the Appendix, infra, at 19) and asked whether he had produced "all those documents." App. 65.

²¹ "Our holding is consistent with the conceptual basis of Counselman. The Counselman statute, as construed by the Court, was plainly deficient in its failure to prohibit the use against the immunized witness of evidence derived from his compelled testimony. The Court repeatedly emphasized this deficiency, noting that the statute:

'could not, and would not, prevent the use of his testimony to search out other testimony to be used in evidence against him or his property, in a criminal proceeding. . .' 142 U.S. , at 564;

. . . . .

"and that it:

'affords no protection against that use of compelled testimony which consists in gaining therefrom a knowledge of the details of a crime, and of sources of information which may supply other means of convicting the witness or party.' 142 U.S. , at 586."

Kastigar v. United States , 406 U.S. , at 453-454.

²² "A person accorded this immunity under 18 U.S. C. §6002, and subsequently prosecuted, is not dependent for the preservation of his rights upon the integrity and good faith of the prosecuting authorities. As stated in Murphy [v. Waterfront Comm'n of N.Y. Harbor , 378 U.S. 52 (1964)]:

'Once a defendant demonstrates that he has testified, under a state grant of immunity, to matters related to the federal prosecution, the federal authorities have the burden of showing that their evidence is not tainted by establishing that they had an independent, legitimate source for the disputed evidence.' [ Id. ,] at 79 n. 18.

"This burden of proof, which we reaffirm as appropriate, is not limited to a negation of taint; rather, it imposes on the prosecution the affirmative duty to prove that the evidence it proposes to use is derived from a legitimate source wholly independent of the compelled testimony." Id. , at 460.

²³ See Stuntz, Self-incrimination and Excuse, 88 Colum. L. Rev. 1227, 1228-1229, 1256-1259, 1277-1279 (1988) (discussing the conceptual link between truth-telling and the privilege in the document production context); Alito, Documents and the Privilege Against Self-Incrimination, 48 U. Pitt. L. Rev. 27, 47 (1986); 8 J. Wigmore, Evidence §2264, p. 379 (J. McNaughton rev. 1961) (describing a subpoena duces tecum as "process relying on [the witness] moral responsibility for truthtelling").

[Dissenting Statement]

REHNQUIST, Chief Justice dissents and would reverse the judgment of the Court of Appeals in part, for the reasons given by Judge Williams in his dissenting opinion in that court, 167 F.3d 552, 597 (CA-DC 1999).

[Concurring Opinion]

THOMAS Judge, with whom SCALIA, Judge joins

Our decision today involves the application of the act-of-production doctrine, which provides that persons compelled to turn over incriminating papers or other physical evidence pursuant to a subpoena duces tecum or a summons may invoke the Fifth Amendment privilege against self-incrimination as a bar to production only where the act of producing the evidence would contain "testimonial" features. See ante, at 6-10. I join the opinion of the Court because it properly applies this doctrine, but I write separately to note that this doctrine may be inconsistent with the original meaning of the Fifth Amendment's Self-Incrimination Clause. A substantial body of evidence suggests that the Fifth Amendment privilege protects against the compelled production not just of incriminating testimony, but of any incriminating evidence. In a future case, I would be willing to reconsider the scope and meaning of the Self-Incrimination Clause.

I

The Fifth Amendment provides that "[n]o person . . . shall be compelled in any criminal case to be a witness against himself." The key word at issue in this case is "witness." The Court's opinion, relying on prior cases, essentially defines "witness" as a person who provides testimony, and thus restricts the Fifth Amendment's ban to only those communications "that are 'testimonial' in character." Ante, at 6. None of this Court's cases, however, has undertaken an analysis of the meaning of the term at the time of the founding. A review of that period reveals substantial support for the view that the term "witness" meant a person who gives or furnishes evidence, a broader meaning than that which our case law currently ascribes to the term. If this is so, a person who responds to a subpoena duces tecum would be just as much a "witness" as a person who responds to a subpoena ad testificandum. ¹

Dictionaries published around the time of the founding included definitions of the term "witness" as a person who gives or furnishes evidence. Legal dictionaries of that period defined "witness" as someone who "gives evidence in a cause." 2 G. Jacob, A New Law-Dictionary (8th ed. 1762); 2 T. Cunningham, New and Complete Law-Dictionary (2d ed. 1771); T. Potts, A Compendious Law Dictionary 612 (1803); 6 G. Jacob, The Law-Dictionary 450 (T. Tomlins 1st American ed. 1811). And a general dictionary published earlier in the century similarly defined "witness" as "a giver of evidence." J. Kersey, A New English Dictionary (1702). The term "witness" apparently continued to have this meaning at least until the first edition of Noah Webster's dictionary, which defined it as "[t]hat which furnishes evidence or proof." An American Dictionary of the English Language (1828). See also J. Story, Commentaries on the Constitution of the United States §931 (1833) (using phrases "to give evidence" and "to furnish evidence" in explanation of the Self-Incrimination Clause). See generally Nagareda, Compulsion "to be a witness" and the Resurrection of Boyd, 74 N.Y.U.L. Rev. 1575, 1608-1609 (1999). ²

Such a meaning of "witness" is consistent with, and may help explain, the history and framing of the Fifth Amendment. The 18th century common-law privilege against self-incrimination protected against the compelled production of incriminating physical evidence such as papers and documents. See Morgan, The Privilege against Self-Incrimination, 34 Minn. L. Rev. 1, 34 (1949); Nagareda, supra, at 1618-1623. Several 18th century cases explicitly recognized such a self-incrimination privilege. See Roe v. Harvey, 4 Burr. 2484, 2489, 98 Eng. Rep. 302, 305 (K.B. 1769); King v. Purnell, 1 Black. 37, 42, 96 Eng. Rep. 20, 23 (K.B. 1748); King v. Cornelius, 2 Str. 1210, 1211, 93 Eng. Rep. 1133, 1134 (K.B. 1744); Queen v. Mead, 2 LD. Raym. 927, 92 Eng. Rep. 119 (K.B. 1703); King v. Worsenham, 1 LD. Raym. 705, 91 Eng. Rep. 1370 (K.B. 1701). And this Court has noted that, for generations before the framing, "one cardinal rule of the court of chancery [wa]s never to decree a discovery which might tend to convict the party of a crime." Boyd v. United States , 116 U.S. 616, 631 (1886). See also Counselman v. Hitchcock, 142 U.S. 547, 563-564 (1892) ("It is an ancient principle of the law of evidence, that a witness shall not be compelled, in any proceeding, to make disclosures or to give testimony which will tend to criminate him or subject him to fines, penalties or forfeitures").

Against this common-law backdrop, the privilege against self-incrimination was enshrined in the Virginia Declaration of Rights in 1776. See Moglen, The Privilege in British North America : The Colonial Period to the Fifth Amendment, in The Privilege against Self-Incrimination: Its Origins and Development 133-134 (R. Helmholz, et al., eds. 1997). That document provided that no one may "be compelled to give evidence against himself." Virginia Declaration of Rights §8 (1776), in 1 The Bill of Rights: A Documentary History 235 (B. Schwartz ed. 1971). Following Virginia 's lead, seven of the other original States included specific provisions in their Constitutions granting a right against compulsion "to give evidence" or "to furnish evidence." See Pennsylvania Declaration of Rights, Art. IX (1776) ("give"), id., at 265; Delaware Declaration of Rights §15 (1776) ("give"), id., at 278; Maryland Declaration of Rights Art. XX (1776) ("give"), id., at 282; North Carolina Declaration of Rights, Art. VII (1776) ("give"), id., at 287; Vermont Declaration of Rights, Ch. I, Art. X (1777) ("give"), id., at 323; Massachusetts Declaration of Rights, Pt. 1, Art. XII (1780) ("furnish"), id., at 342; New Hampshire Bill of Rights Art. XV (1783) ("furnish"), id., at 377. And during ratification of the Federal Constitution, the four States that proposed bills of rights put forward draft proposals employing similar wording for a federal constitutional provision guaranteeing the right against compelled self-incrimination. Each of the proposals broadly sought to protect a citizen from "be[ing] compelled to give evidence against himself." Virginia Proposal (June 27, 1788), 2 id., at 841; New York Proposed Amendments (July 26, 1788), id., at 913; North Carolina Proposed Declaration of Rights (Aug. 1, 1788), id., at 967; Rhode Island Proposal (May 29, 1790) (same suggestion made following the drafting of the Fifth Amendment), in N. Cogan, The Complete Bill of Rights 327 (1997). See also, e.g., The Address and Reasons of Dissent of the Minority of the Convention of the State of Pennsylvania to Their Constituents (Dec. 13, 1787) (same suggestion), in 2 Schwartz, supra, at 665; 2 Debates on the Federal Constitution 111 (J. Elliot 2d ed., 1854) (Mr. Holmes, Mass., Jan. 30, 1788) (objecting that nothing prohibits compelling a person "to furnish evidence against himself"). Similarly worded proposals to protect against compelling a person "to furnish evidence" against himself came from prominent voices outside the conventions. See The Federal Farmer No. 6 (1787), in Cogan, supra, at 333; Letter of Brutus, No. 2 (1788), in 1 Schwartz, supra, at 508.

In response to such calls, James Madison penned the Fifth Amendment. In so doing, Madison substituted the phrase "to be a witness" for the proposed language "to give evidence" and "to furnish evidence." But it seems likely that Madison 's phrasing was synonymous with that of the proposals. The definitions of the word "witness" and the background history of the privilege against self-incrimination, both discussed above, support this view. And this may explain why Madison's unique phrasing--phrasing that none of the proposals had suggested--apparently attracted no attention, much less opposition, in Congress, the state legislatures that ratified the Bill of Rights, or anywhere else. See 2 W. LaFave, J. Israel, & N King, Criminal Procedure 290-291 (2d ed. 1999). In fact, the only Member of the First Congress to address self-incrimination during the debates on the Bill of Rights treated the phrases as synonymous, restating Madison 's formulation as a ban on forcing one "to give evidence against himself." 1 Annals of Cong. 753-754 (J. Gales ed. 1834) (statement of Rep. Laurance). ³

In addition, a broad definition of the term "witness"--one who gives evidence--is consistent with the same term (albeit in plural form) in the Sixth Amendment's Compulsory Process Clause. ⁴ That Clause provides that "[i]n all criminal prosecutions, the accused shall enjoy the right . . . to have compulsory process for obtaining witnesses in his favor." Soon after the adoption of the Bill of Rights, Chief Justice Marshall had occasion to interpret the Compulsory Process Clause while presiding over the treason trial of Aaron Burr. United States v. Burr, 25 F. Cas. 30 (No. 14,692d) (CCD Va. 1807). Burr moved for the issuance of a subpoena duces tecum to obtain from President Jefferson a letter that was said to incriminate Burr. The Government objected, arguing that compulsory process under the Sixth Amendment permits a defendant to secure a subpoena ad testificandum, but not a subpoena duces tecum. Id. , at 34. The Chief Justice dismissed the argument, holding that the right to compulsory process includes the right to secure papers--in addition to testimony--material to the defense. Id. , at 34-35. This Court has subsequently expressed agreement with this view of the Sixth Amendment. See United States v. Nixon, 418 U.S. 683, 711 (1974). Although none of our opinions has focused upon the precise language or history of the Compulsory Process Clause, a narrow definition of the term "witness" as a person who testifies seems incompatible with Burr's holding. And if the term "witnesses" in the Compulsory Process Clause has an encompassing meaning, this provides reason to believe that the term "witness" in the Self-Incrimination Clause has the same broad meaning. Yet this Court's recent Fifth Amendment act-of-production cases implicitly rest upon an assumption that this term has different meanings in adjoining provisions of the Bill of Rights. ⁵

II

This Court has not always taken the approach to the Fifth Amendment that we follow today. The first case interpreting the Self-Incrimination Clause--Boyd v. United States--was decided, though not explicitly, in accordance with the understanding that "witness" means one who gives evidence. In Boyd, this Court unanimously held that the Fifth Amendment protects a defendant against compelled production of books and papers. 116 U.S. 616, 634-635 (1886); id., at 638-639 (Miller, J., concurring in judgment). And the Court linked its interpretation of the Fifth Amendment to the common-law understanding of the self-incrimination privilege. Id. , at 631-632.

But this Court's decision in Fisher v. United States, 425 U.S. 391 (1976), rejected this understanding, permitting the Government to force a person to furnish incriminating physical evidence and protecting only the "testimonial" aspects of that transfer. Id. , at 408. In so doing, Fisher not only failed to examine the historical backdrop to the Fifth Amendment, it also required--as illustrated by extended discussion in the opinions below in this case--a difficult parsing of the act of responding to a subpoena duces tecum.

None of the parties in this case has asked us to depart from Fisher, but in light of the historical evidence that the Self-Incrimination Clause may have a broader reach than Fisher holds, I remain open to a reconsideration of that decision and its progeny in a proper case. ⁶

¹ Even if the term "witness" in the Fifth Amendment referred to someone who provides testimony, as this Court's recent cases suggest without historical analysis, it may well be that at the time of the founding a person who turned over documents would be described as providing testimony. See Amey v. Long, 9 East. 472, 484, 103 Eng. Rep. 653, 658 (K.B. 1808) (referring to documents requested by subpoenas duces tecum as "written . . . testimony").

² Further, it appears that the phrases "gives evidence" and "furnishes evidence" were not simply descriptions of the act of providing testimony. For example, in King v. Purnell, 1 Black. 37, 96 Eng. Rep. 20 (K.B. 1748), the phrase "furnish evidence" is repeatedly used to refer to the compelled production of books, records, and archives in response to a government request. Id. , at 40, 41, 42, 96 Eng. Rep., at 21, 22, 23. See also, e.g., King v. Cornelius, 2 Str. 1210, 1211, 93 Eng. Rep. 1133, 1134 (K.B. 1744) (compelling discovery of books "is in effect obliging a defendant . . . to furnish evidence against himself"); 1 T. Cunningham, New and Complete Law-Dictionary (2d ed. 1771) (evidence "signifies generally all proof, be it testimony of men, records or writings"); 1 G. Jacob, The Law-Dictionary (T. Tomlins ed. 1797) (defining "evidence" as "[p]roof by testimony of witnesses, on oath; or by writings or records").

³ Representative Laurance was no stranger to the Self-Incrimination Clause; he was responsible for the limiting phrase "in any criminal case," which was added to the Clause without any recorded opposition. See L. Levy, Origins of the Fifth Amendment, The Right Against Self-Incrimination 424-427 (1968). In support of this suggestion, Laurance noted that, absent such a restriction, the Fifth Amendment was "a general declaration, in some degree contrary to laws passed." 1 Annals of Cong. 753 (J. Gales ed. 1834). Two prominent commentators have suggested that "laws passed" likely refers to §15 of the Judiciary Act of 1789 (then in the process of passage). See Levy, supra, at 425-426; Moglen, The Privilege in British North America : The Colonial Period to the Fifth Amendment, in The Privilege against Self-Incrimination: Its Origins and Development 258, n. 109 (R. Helmholz, et al., eds. 1997). Section 15 provided that federal courts "shall have power in the trial of actions at law . . . to require the parties to produce books or writings in their possession or power, which contain evidence pertinent to the issue, in cases and under circumstances where they might be compelled to produce the same by the ordinary rules of proceeding in chancery." Judiciary Act of 1789, 1 Stat. 82. Section 15's grant of power to compel discovery in civil cases would have been inconsistent with an unrestricted Self-Incrimination Clause, but only if the term "witness" in that Clause included persons who provide such physical evidence as "books" and "writings." Laurance's assertion thus suggests that the Framers believed the Self-Incrimination Clause offered protection against such compelled production.

⁴ A broad view of the term "witness" in the compulsory process context dates back at least to the beginning of the 18th century. See Act of May 31, 1718, ch. 236, §4, 1 Laws of Pennsylvania 112 (J. Bioren ed. 1810) (speaking of witnesses "be[ing] admitted to [be] depose[d], or give any manner of evidence" (emphasis added)).

⁵ Accepting the definition of "witness" as one who gives or furnishes evidence would also be compatible with my previous call for a reconsideration of the phrase "witnesses against him" in the Confrontation Clause of the Sixth Amendment. See White v. Illinois, 502 U.S. 346, 365 (1992) (opinion concurring in part and concurring in judgment).

⁶ To hold that the Government may not compel a person to produce incriminating evidence (absent an appropriate grant of immunity) does not necessarily answer the question whether (and, if so, when) the Government may secure that same evidence through a search or seizure. The lawfulness of such actions, however, would be measured by the Fourth Amendment rather than the Fifth.

 

 

[96-2 USTC ¶50,341] United States of America v. Neil H. Rhodes, d/b/a Straight Line Diamond Blades and Diamond Blades & Quarry Supply, Defendant

U.S. District Court, Mid. Dist. Pa., 3:CR-95-0279, 3/28/96, 921 FSupp 261, 921 FSupp 261

[Code Sec. 7203 ]

Judgment of acquittal: Tax evasion: Income.--A motion for judgment of acquittal made by a diamond sawblade seller who had been convicted of tax evasion was denied. The motion was untimely filed, and exercise of the court's inherent authority to enter a judgment of acquittal was unwarranted because the taxpayer's argument that income under the Sixteenth Amendment is limited to profit proceeding from property was meritless.

[Code Secs. 1 and 7203 ]

Tax evasion: Motion to dismiss the indictment: Jurisdiction: Person: Sufficiency of indictment.--The crime of tax evasion with which a diamond sawblade salesman was charged was a proper subject for the exercise of federal district court jurisdiction. The taxpayer's argument that he was not a "person" subject to taxation was rejected because an individual is a person under the Internal Revenue Code. Further, his indictment was sufficient. It fairly informed him of the charges which he was required to defend, and it set forth the elements of the offense, the conduct constituting the offense, the tax deficiency for each tax year, and the type of tax.

[Code Secs. 61 and 1401 ]

Taxable income: Excise tax: Self-employment tax.--Income received by a diamond sawblade salesman who had been convicted of tax evasion was taxable, and his classification of the tax as an excise was immaterial to the duty to pay income and self-employment taxes.

Lorna N. Graham, Assistant United States Attorney, Scranton, Pa. 18501, for U.S. Neil H. Rhodes, pro se. Joseph T. McGraw, 9 N. Main St., Carbondale, Pa. 184077, for defendant.

MEMORANDUM

BACKGROUND:

MCCLURE, District Judge:

On November 9, 1995, a grand jury sitting in the Middle District of Pennsylvania returned an indictment charging defendant Neil H. Rhodes with offenses related to his failure to pay income and self-employment taxes and concealment of his income. On January 16, 1996, the jury returned a verdict of guilty with respect to each of the four counts of the indictment. Sentencing is scheduled for Monday, April 8, 1996. Rhodes is proceeding pro se.

Before the court are motions by Rhodes: for judgment of acquittal or, alternatively, for a new trial; to dismiss for failure to state an offense against the United States or for lack of subject matter jurisdiction; and for permission to file the motion for judgment of acquittal or new trial. Although Rhodes has not filed a brief in support of any of these motions, they will be addressed at this time because the legal authority on which Rhodes relies is set forth in the motions themselves. Also, the government already has filed a response to the motions.

DISCUSSION:

I. MOTION FOR EXTENSION OF TIME

A motion for judgment of acquittal pursuant to Fed.R.Crim.P. 29, when made after the entry of a verdict, "may be made or renewed within 7 days after the jury is discharged or within such further time as the court may fix during the 7-day period." Rule 29(c). A motion for a new trial based on any ground other than newly discovered evidence "shall be made within 7 days after the verdict or finding of guilty or within such further time as the court may fix during the 7-day period." Fed.R.Crim.P. 33. The time period established by Rule 33 is jurisdictional in nature, and the district court has no authority to extend the time when no motion is filed within the 7-day period. United States v. Coleman, 811 F.2d 804, 807 (3d Cir.1987) (citing, inter alia, United States v. Smith, 331 U.S. 469, 474-475, 67 S.Ct. 1330, 1332-33, 91 L.Ed. 1610 (1947)), cert. denied, 490 U.S. 1070, 109 S.Ct. 2074, 104 L.Ed.2d 638 (1989).

In United States v. Giampa, 758 F.2d 928, 936 n. 1 (3d Cir.1985), the Third Circuit held that a judgment of acquittal may be made sua sponte by the district court under its inherent authority after the time period elapses. See also Coleman at 807; United States v. Wright-Barker, 784 F.2d 161, 170 n. 8 (3d Cir.1986). We see no basis for such action here. First, any question as to the validity of our holdings may be raised by Rhodes on appeal to the Third Circuit. More important is the lack of merit in the argument proffered by Rhodes .

Rhodes argues, based on language taken out of context from Eisner v. Macomber [1 USTC ¶32 ], 252 U.S. 189, 207, 40 S.Ct. 189, 193, 64 L.Ed. 521 (1920), to the effect that "income" under the Sixteenth Amendment is limited to profit proceeding from property. Actually, the Supreme Court held that income is "gain derived from capital, from labor, or from both combined, provided it be understood to include profit gained through a sale or conversion of capital assets, ..." Id. at 207, 40 S.Ct. at 193 (internal quotations, citation omitted). The discussion centered on gain from capital because the gain at issue was in the form of stock dividends. Id. at 208, 40 S.Ct. at 193. Rhodes argues that the Supreme Court was clarifying what is "gain"; actually, it was clarifying what is "gain derived from capital." Gain from labor was not at issue, and Eisner is inapposite.

Rhodes ' argument that he is not a "person" subject to the Internal Revenue Code will be discussed, and rejected, below.

In this case, the jury returned a verdict and was discharged on January 16, 1996. Any motions under Rule 29(c) and Rule 33 were due on or before January 25, 1996, excluding the intervening weekend from the 7-day period. Rhodes filed his motions on March 19, 1996, well after the prescribed period had elapsed. The court is without jurisdiction to extend the time for filing a Rule 33 motion, and no argument of merit supporting a motion for judgment of acquittal appears. Exercise of our inherent authority to enter a judgment of acquittal is unwarranted. Rhodes ' motion for permission to file a motion for judgment of acquittal or for a new trial will be denied. Based on that ruling, Rhodes ' motion for a judgment of acquittal or for a new trial will be denied.

II. MOTION TO DISMISS

Rhodes moves to dismiss the indictment under Fed.R.Crim.P. 12(b)(2), which permits the court to hear a motion to dismiss an indictment that fails to show jurisdiction in the court or to charge an offense at any time during the pendency of the proceedings.

In this instance, Rhodes was charged under 26 U.S.C. §7201 , which makes it a felony to willfully evade the payment of any tax imposed under Title 26 of the United States Code. As has previously been pointed out to Rhodes, crimes defined within the Internal Revenue Code, specifically Chapter 75 of Title 26 of the Internal Revenue Code, are offenses against the United States over which a federal district court has jurisdiction under 18 U.S.C. §3231 . Tax evasion is properly a subject for the exercise of federal power under Article I, §8 and the Sixteenth Amendment to the Constitution of the United States . United States v. Isenhower [85-1 USTC ¶9226 ], 754 F.2d 489, 490 (3d Cir.1985). The authority of Congress to confer jurisdiction on federal courts is well-established. W.G. v. Senatore, 18 F.3d 60, 64 (2d Cir.1994) (citing Marbury v. Madison, 5 U.S. (1 Cranch) 137, 173-180, 2 L.Ed. 60 (1803); Bender v. Willamsport Area School District, 475 U.S. 534, 541, 106 S.Ct. 1326, 1331, 89 L.Ed.2d 501 (1986)).

Rhodes makes two arguments in his motion to dismiss the indictment. The first is that the income he received from his business was not taxable income under Title 26. Second, he argues that he is not a "person" subject to taxation.

A. "Person"

The latter argument is easily addressed. An individual is a person under the Internal Revenue Code. United States v. Sloan [91-2 USTC ¶50,388 ], 939 F.2d 499, 500-501 (7th Cir. 1991), cert. denied, 502 U.S. 1060, 112 S.Ct 940, 117 L.Ed.2d 110, reh'g denied, 503 U.S. 953, 112 S.Ct. 1518, 117 L.Ed.2d 654 (1992). See also 26 U.S.C. §1 (imposing an individual income tax). The remainder of Rhodes ' argument in this respect relates to his duty to take action under the Internal Revenue Code, and will be discussed below.

B. Sufficiency of the Indictment

Rhodes ' argument regarding taxable income goes to the sufficiency of the indictment.

[A]n indictment is sufficient if it, first, contains the elements of the offense charged and fairly informs the defendant of the charge against which he must defend, and, second, enables him to plead an acquittal or conviction in bar of future prosecutions for the same offense.

United States v. Bailey, 444 U.S. 394, 414, 100 S.Ct. 624, 636, 62 L.Ed.2d 575 (1980) (citation, quotation marks omitted). See also United States v. Scanzello, 832 F.2d 18, 22 (3d Cir.1987) (applying same standard).

The elements of the offense charged, i.e. tax evasion under §7201 , are:

... willfulness; the existence of a tax deficiency ...; and an affirmative act constituting an evasion or attempted evasion of the tax. ...

Sansone v. United States [65-1 USTC ¶9307 ], 380 U.S. 343, 351, 85 S.Ct. 1004, 1009, 13 L.Ed.2d 882 (1965) (citations omitted). See also Sloan at 501 (reciting same elements).

Each count of the indictment alleges a tax deficiency, in approximately the following amounts: Count I--$18,000.00; Count II--$43,000.00; Count III--$60,000.00; and Count IV--$90,000.00. Each count alleges that Rhodes "did willfully attempt to evade and defeat the said income and self employment tax due and owing by him to the United States of America ..." Indictment at 1, 3, 5, 7. Finally, the indictment alleges that Rhodes committed affirmative acts, including: failing to make an income tax return, failing to pay the taxes; concealing his correct income by such means as extensive use of cash, handling business affairs in such a way as to avoid making records, and maintaining duplicate invoices; purchasing interests in the Turks and Caicos Islands to divert and conceal income; and causing title in a personal residence to be transferred to offshore trusts, and causing false returns to be filed. All of the elements of a violation of §7201 are set forth in the indictment.

The indictment fairly informed Rhodes of the charges which he was required to defend. The elements of the offense and the conduct constituting the offense are set forth. Each count sets forth the tax deficiency for a specific year. And the type of tax (income and self-employment) are stated. The information set forth in the indictment was sufficient under Bailey. We note as well that the indictment was sufficient in this respect under Fed.R.Crim.P. 7(c)(1).

Finally, Rhodes may plead a conviction to bar any future prosecution for the same events. The tax year, type of tax, and means of evading the tax were sufficiently identified to eliminate the possibility of double jeopardy.

Based on the foregoing, the indictment was sufficient under the standard set forth in Bailey.

Rhodes ' argument is that his income is not subject to any tax imposed under Title 26. He quotes Brushaber v. Union Pacific Railroad Co. [1 USTC ¶4 ], 240 U.S. 1, 17, 36 S.Ct 236, 241, 60 L.Ed. 493 (1915), to the effect that "[t]axation on income is an excise." Actually, Brushaber reads:

Nothing could serve to make this clearer than to recall that in the Pollock Case, in so far as the law taxed incomes from other classes of property than real estate and invested personal property, that is, income from "professions, trades, employments, or vocations" ([Pollock v. Farmers' Loan & Trust Co.] 158 U.S. [601] 637 [15 S.Ct. 912, 920, 39 L.Ed. 1108 (1895)]) its validity was recognized; indeed, it was expressly declared that no dispute was made upon that subject, and attention was called to the fact that taxes on such income had been sustained as excise taxes in the past.

Id. This quotation appears in a discussion of the historical context of the passage of the Sixteenth Amendment. The point being made is that, prior to the passage of the Sixteenth Amendment, any tax was viewed as either a "direct" tax, such as a property tax, or a duty, impost, or excise. Under the Constitution as originally drafted, any direct tax was subject to the requirement of apportionment. Id. at 13, 36 S.Ct. at 239 (citing U.S. Const. art. I, §2 , cl. 3; art. 1 §9, cl. 4). A duty, impost, or excise was subject to the rule of uniformity. Id.

In Pollock v. Farmers' Loan & Trust Co., 157 U.S. 429, 15 S.Ct. 673, 39 L.Ed. 759 (1895), the Supreme Court was faced with the question of taxation without apportionment upon carriages used for conveying persons. The tax was held to be within the class of duties, imposts, and excises, not subject to apportionment. Brushaber [1 USTC ¶4 ], 240 U.S. at 14, 36 S.Ct at 240. The result of Pollock and other opinions of the Supreme Court was that the limitation on a "direct tax" in the constitutional sense came to refer to a proscription against a burden by taxation of accumulations of property, both real and personal, except subject to the regulation of apportionment. Brushaber at 16, 36 S.Ct. at 240. Congress at that time could, in fact, impose income taxes, subject to apportionment; in other words, income taxes could be imposed, but not when they amounted to a direct tax as defined above. Id. at 16-17, 36 S.Ct. at 240-241.

The Sixteenth Amendment was passed specifically to eliminate the need to subject any income tax to the requirement of apportionment:

This is the text of the Amendment:

'The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several states, and without regard to any census or enumeration.'

It is clear on the face of this text that it does not purport to confer power to levy income taxes in a generic sense,--an authority already possessed and never questioned,--or to limit and distinguish between one kind of income taxes and another, but that the whole purpose of the Amendment was to relieve all income taxes when imposed from apportionment from a consideration of the source whence the income was derived. Indeed, in the light of the history which we have given and of the decision in the Pollock Case, and the ground upon which the ruling in that case was based, there is no escape from the conclusion that the Amendment was drawn for the purpose of doing away for the future with the principle upon which the Pollock Case was decided; that is, of determining whether a tax on income was direct not by a consideration of the burden placed on the taxed income upon which it directly operated, but by taxing into view the burden which resulted on the property from which the income has derived, since in express terms the Amendment provides that income taxes, from whatever source the income may be derived, shall not be subject to the regulation of apportionment. ...

Id. at 17-18, 36 S.Ct. at 241-242.

Succinctly stated, Brushaber holds that Congress had, even before the Sixteenth Amendment was passed, the authority to tax income. If the income tax was a direct tax in the constitutional sense, it was subject to the requirement of apportionment. The Sixteenth Amendment eliminated the requirement of apportionment as it relates to "taxes on incomes, from whatever source derived." ¹

Under Title 26, taxable income is gross income less enumerated deductions. 26 U.S.C. §63(a) , (b) . Gross income is defined as follows:

Except as otherwise provided in this subtitle, gross income means all income from whatever source derived, including (but not limited to) the following items:

(1) Compensation for services, including fees, commissions, fringe benefits, and similar items;

(2) Gross income derived from business;

(3) Gains derived from dealings in property;

(4) Interest;

(5) Rents;

(6) Royalties;

(7) Dividends;

(8) Alimony and separate maintenance payments;

(9) Annuities;

(10) Income from life insurance and endowment contracts;

(11) Pensions;

(12) Income from discharge of indebtedness;

(13) Distributive share of partnership gross income;

(14) Income in respect of a decedent; and

(15) Income from an interest in an estate or trust.

26 U.S.C. §61(a) . Specific items otherwise are included in or excluded from "gross income." See 26 U.S.C. §61(b) (cross-reference to items included and excluded). A tax on the taxable income of individuals is imposed under 26 U.S.C. §1 . An additional tax is imposed under 26 U.S.C. §1401 on self-employment income, as defined in 26 U.S.C. §1402 .

It is clear from the above that income and self-employment taxes are taxes imposed under Title 26. A willful attempt to evade or defeat these taxes or payment of these taxes is a violation of §7201 . Under the Sixteenth Amendment, an income tax may fall under the category of a direct tax or under the category of a duty, impost, or excise. In either case, the income is subject to taxation without apportionment, consistent both with the Sixteenth Amendment and Title 26. Rhodes ' argument that the taxing of his income is an "excise" is immaterial to a finding that he violated §7201 .

At trial, the evidence showed that Rhodes earned substantial income from the sale of diamond saw blades to the operators of stone quarries. Apparently, these business dealings also involved the process of reconditioning the blades for further use. As such, Rhodes clearly earned gross income under §61(a) , and the evidence showed that there was taxable income, as derived during trial by a tax expert. All of this is consistent with the allegations in the indictment that Rhodes had received a taxable income, and that he owed income and self-employment income taxes to the United States . Contrary to his assertions, Rhodes was a person under a duty to report his income and to pay the tax thereon.

Rhodes ' motion to dismiss the indictment will be denied.

III. CONCLUSION

Rhodes ' motion for judgment of acquittal is untimely, and an exercise of our inherent authority to enter judgment of acquittal is unwarranted. The court is without authority to consider Rhodes ' motion for a new trial because the time limitation imposed under Rule 33 is jurisdictional in nature. Rhodes ' motion for permission to file a motion under Rules 29 and 33 will be denied, and the Rule 29/33 motion itself will be denied.

Rhodes is a "person" subject to the duties imposed under the Internal Revenue Code, and the purported classification of a tax on Rhodes ' income as an excise is immaterial to the duty to pay income and self-employment taxes thereon. Rhodes ' motion to dismiss will be denied.

¹ The distinction between direct taxes and other forms of taxation, such as an excise, continue to have effect. In United States v. Wells Fargo Bank [88-1 USTC ¶13,759 ], 485 U.S. 351, 355, 108 S.Ct. 1179, 1182, 99 L.Ed.2d 368 (1988), the Supreme Court reviewed the distinction for estate tax purposes, concluding that an estate tax is an excise because it taxes the transfer of property rather than the property itself. The latter form of taxation, i.e. on the property itself, is a direct tax. The distinction was important because property subject to a general exemption from "all taxation" is not thereby exempt from excise taxes such as the estate tax. Historically, "when Congress has exempted property from estate taxation it has generally adverted explicitly to that tax, rather than generically to 'all taxation.' " Id. at 356, 108 S.Ct. at 1182. The distinction does not impact the conclusion that Rhodes ' income, excise or otherwise, is subject to taxation under the Constitution and the Internal Revenue Code.

 

 

[2002-1 USTC ¶50,395] United States of America , Plaintiff-Appellee v. Cor-Bon Custom Bullet Co., Defendant-Appellant

(CA-6), U.S. Court of Appeals, 6th Circuit, 00-2420, 4/25/2002, 287 F3d 576, 2002 U.S. App. LEXIS 7533. Affirming an unreported District Court decision

[Code Sec. 7203 ]

Crimes: Failure to pay tax: Manufacturer's taxes: Firearms: Ammunition: Sufficiency of indictment: Tax evasion.--An ammunition manufacturer's felony conviction for tax evasion was upheld despite the fact that the indictment did not allege an affirmative act of tax evasion. The record indicated that the taxpayer knew which specific affirmative acts it was accused of committing, and it pursued a vigorous defense to show that it had not committed them. Consequently, the taxpayer was reasonably informed of the charges against it and was not disadvantaged in any way as a result of the indictment's omission of the affirmative act.

Krishna S. Dighe, Assistant United States Attorney, Detroit , Mich. , for plaintiff-appellee. Stephen J. Dunn, Troy , Mich. , for defendant-appellant.

Before: KENNEDY and BOGGS, Circuit Judges, and COFFMAN, District Judge. ^*

COFFMAN, District Judge:

This appeal raises the question of whether a felony conviction for tax evasion under 26 U.S.C. §7201 must be reversed because the indictment did not allege specific affirmative acts of evasion. Because the defendant has not suffered prejudice as a result of the alleged defect, we AFFIRM the district court's judgment.

I. Background

Cor-Bon Custom Bullet Co. ("Cor-Bon") manufactures firearm ammunition. 26 U.S.C. §4181 imposes an 11% excise tax on all taxable sales of ammunition by such manufacturers. Cor-Bon was indicted on sixteen counts of tax evasion under 26 U.S.C. §7201, for allegedly evading its §4181 tax liability during each calendar quarter from 1991 through 1995 by reporting only part of its ammunition sales. Each count, tracking the applicable statutory language, ¹ read:

On or about [date] in the Eastern District of Michigan, Southern Division, Defendants PETER PI ² and COR-BON CUSTOM BULLET CO., willfully attempted to evade and defeat a tax imposed under this title or the payment thereof on ammunition sales that were due and owing from COR-BON CUSTOM BULLET CO. for the [quarter and calendar year in question] ³ in violation of Title 26, United States Code, sections 4181 and 7201.

Immediately after the jury was impaneled, Cor-Bon filed a motion to dismiss, attacking the indictment as fatally defective because it did not allege an affirmative act of evasion. The district court denied the motion as untimely and meritless. It did not, however, expressly address whether an affirmative act of evasion should have been alleged in the indictment.

Although the indictment did not allege an affirmative act, Cor-Bon learned soon after indictment, and well before trial, that a disgruntled ex-employee, Bambi Fischer, would be testifying that it filed false tax returns, destroyed sales invoices, and maintained a second, false set of records to conceal the true amount of its ammunition sales. During the jury trial, Cor-Bon cross-examined Fischer regarding her allegations and otherwise presented a robust defense. Both sides argued Cor-Bon's alleged affirmative acts to the jury. On April 5, 2000, the jury found Cor-Bon guilty of thirteen counts. On November 16, 2000, Judge Friedman sentenced it to three years' probation and ordered it to pay $200,000 in restitution, a fine of $240,000, and a special assessment of $2,600. This appeal followed.

On appeal, Cor-Bon renews the arguments that it made to the district court: that the indictment was defective because it did not allege an affirmative act of evasion and that this defect precluded the district court from having subject-matter jurisdiction over the case.

II. Discussion

A. Adequacy of the Indictment

Whether an indictment adequately charges an offense is a question of law subject to de novo review. United States v. Collis, 128 F.3d 313, 317 (6th Cir. 1997). An indictment adequately charges an offense if it (1) includes the elements of the offense intended to be charged, (2) notifies the defendant of "what he must be prepared to meet," and (3) allows the defendant to invoke a former conviction or acquittal in the event of a subsequent prosecution. Russell v. United States , 369 U.S. 749, 763-64, 8 L.Ed.2d 240, 82 S.Ct. 1038 (1962); United States v. Martinez , 981 F.2d 867, 872 (6th Cir. 1992); United States v. Vanover, 888 F.2d 1117, 1120 (6th Cir. 1989). Additionally, "in an indictment upon a statute, it is not sufficient to set forth the offence in the words of the statute, unless those words of themselves fully, directly, and expressly, without any uncertainty, set forth all of the elements necessary to constitute the offence intended to be punished." Russell, 369 U.S. at 765 (quoting United States v. Carll, 105 U.S. 611, 612, 26 L.Ed. 1135 (1881)).

In Spies v. United States [43-1 USTC ¶9243], 317 U.S. 492, 500, 87 L.Ed. 418, 63 S.Ct. 364 (1942), the Supreme Court reversed a conviction under the statutory predecessor to §7201, §145(b) of the Revenue Act of 1936, because the trial court refused to instruct the jury that an affirmative act is necessary to constitute a willful attempt to evade taxes. According to the Court, an affirmative act of evasion includes, but is not limited to, "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 . . . [or] any conduct, the likely effect of which would be to mislead or to conceal." Id. at 499. The Court explained that an affirmative act of evasion distinguishes the felony offense of tax evasion under §145(b) from lesser tax offenses such as the willful failure to pay taxes under §145(a). Id. ⁴

Even though Spies did not directly address the adequacy of felony tax indictments, it has been deemed relevant to that issue. Cases now routinely state that, under the holding in Spies, an affirmative act of evasion is an element of an offense under §7201. See, e.g., Sansone v. United States [65-1 USTC ¶9307], 380 U.S. 343, 351, 13 L.Ed.2d 882, 85 S.Ct. 1004 (1965); United States v. Barrow [97-2 USTC ¶50,558], 118 F.3d 482, 489 (6th Cir. 1997); United States v. Daniel [92-1 USTC ¶50,095], 956 F.2d 540, 542 (6th Cir. 1992); Clay v. United States [55-1 USTC ¶49,074], 218 F.2d 483, 486 (5th Cir. 1955). Thus, the weight of authority supports the proposition that three elements must be proved to sustain a conviction under §7201: (1) a tax deficiency, (2) willfulness, and (3) an affirmative act of evasion or attempted evasion. See, e.g., Sansone [65-1 USTC ¶9307], 380 U.S. at 351; Barrow [97-2 USTC ¶50,558], 118 F.3d at 489; Daniel [92-1 USTC ¶50,095], 956 F.2d at 542; but see Lott v. United States [62-2 USTC ¶9731], 309 F.2d 115, 118 (5th Cir. 1962) (asserting that Spies did not add a substantive element to an offense under §7201, but only construed the statutory language "willfully attempts in any manner to defeat any tax"). ⁵

B. Harmless Error

Although an affirmative act constitutes an element of a §7201 case, this court need not decide whether an indictment under §7201 must allege an affirmative act because the deficiency in the indictment here, if any, constituted harmless error. Cor-Bon does not claim that it lost any of the protections intended to be furnished by the requirement that an indictment allege all of the elements of the offense charged. This requirement, which derives from the Fifth Amendment's Due Process, Double Jeopardy, and Grand Jury Clauses and the Sixth Amendment's Notice Clause, seeks primarily to ensure that an accused is reasonably informed of the charge made against him so that he can prepare a defense. See Russell, 369 U.S. at 1048-1049. Cor-Bon, however, does not claim that the failure of the indictment to allege an affirmative act prevented it from preparing a defense or caused it surprise or prejudice. Nor does the record suggest that Cor-Bon was disadvantaged in any way by the indictment's alleged deficiency. Instead, the record indicates that Cor-Bon knew which specific affirmative acts it was accused of committing and pursued a vigorous defense to attempt to show that it had not committed them. For example, in addition to its probing cross-examination of Bambi Fischer, Cor-Bon presented the testimony of two expert witnesses in order to refute the government's case.

The Supreme Court has observed that there has been a "drift of the law away from the rules of technical and formalized pleading," and that, therefore, "convictions are no longer reversed because of minor and technical deficiencies which do not prejudice the accused." Russell, 369 U.S. at 763. According to the Court, this trend culminated in the adoption of Fed. R. Crim. P. 52(a), which provides that "any error, defect, irregularity, or variance which does not affect substantial rights shall be disregarded." "Substantial rights, in turn, are affected only when a defendant shows 'prejudice to his ability to defend himself at trial, to the general fairness of the trial, or to the indictment's sufficiency to bar subsequent prosecutions.' " United States v. Hathaway, 798 F.2d 902, 911 (6th Cir. 1986) (quoting United States v. Miller, 471 U.S. 130, 138 n.5, 85 L.Ed.2d 99, 105 S.Ct. 1811 (1985)). This rule is fully applicable to the present appeal. As Cor-Bon failed to meet its burden of proving prejudice, and has not even alleged prejudice, any defect in the indictment was harmless error. ⁶ See id. at 489; United States v. Williams, 152 F.3d 294, 299 (6th Cir. 1998). To hold otherwise would be to hold the government "to such strictness of averments as might defeat the ends of justice." Lott [62-2 USTC ¶9731], 309 F.2d at 118.

C. Subject-matter Jurisdiction

Cor-Bon argues that the failure of the indictment to allege affirmative acts of evasion deprived the district court of subject-matter jurisdiction. A majority of the circuits, however, has specifically rejected the notion that the failure of an indictment to allege an element of an offense charged prevents a district court from having subject-matter jurisdiction over the indictment. United States v. Sanchez, 269 F.3d 1250, 1273 (11th Cir. 2001); United States v. Prentiss, 256 F.3d 971, 981 (10th Cir. 2001); United States v. Nance, 236 F.3d 820, 825-26 (7th Cir. 2000); United States v. Mojica-Baez, 229 F.3d 292, 310-12 (1st Cir. 2000). Instead, "such failure is subject to harmless error review." Prentiss, 256 F.3d at 981. Given our previous disposition of the question of harmless error, Cor-Bon's argument fails.

III. Conclusion

For the foregoing reasons, the judgment of the district court is AFFIRMED.

^* The Honorable Jennifer B. Coffman, United States District Judge for the Eastern and Western Districts of Kentucky , sitting by designation.

¹ 26 U.S.C. §7201 provides, in pertinent part, that "any person who willfully attempts in any manner to evade or defeat any tax . . . shall . . . be guilty of a felony. . . ."

² Peter Pi, the owner of Cor-Bon, was acquitted on all counts and does not, therefore, join in this appeal.

³ The counts were identical except for the dates involved. Each quarter of every calendar year from 1991 to 1995 supported a separate count.

⁴ Section 145(a) provided that "any person required . . . to pay any tax . . . who willfully fails to pay such tax . . . shall, in addition to other penalties provided by law, be guilty of a misdemeanor. . . ." Section 145(b) provided that "any person required . . . to collect, account for, and pay over any tax . . . who willfully attempts in any manner to evade or defeat any tax . . . shall, in addition to other penalties provided by law, be guilty of a felony. . . ." Spies distinguished these two prohibitions as follows:

The difference between the two offenses, it seems to us, is found in the affirmative action implied from the term "attempt," as used in the felony subsection. . . . In employing the terminology of attempt to embrace the gravest of offenses against the revenues, Congress intended some willful commission in addition to the willful omissions that make up the list of misdemeanors.

Spies [43-1 USTC ¶9243], 317 U.S. at 498-99. Sections 145(a) and (b) have been replaced by 26 U.S.C. §7203 and §7201, respectively. See United States v. Hook [86-1 USTC ¶9179], 781 F.2d 1166, 1171, n.4 (6th Cir. 1986).

⁵ In Clay v. United States [55-1 USTC ¶49,074], 218 F.2d 483 (5th Cir. 1955), the Fifth Circuit reversed a felony tax conviction because the indictment failed to allege an affirmative act of evasion. Without expressly overruling Clay, however, the Fifth Circuit subsequently decided Lott, which upheld an indictment pled "substantially in the language of the statute" after deciding that Spies did not add the substantive element of an affirmative act. This holding is weakened, however, by the fact that the indictment in Lott actually went further than charging the offense in the words of the statute--it alleged affirmative acts. See Lott [62-2 USTC ¶9731], 309 F.2d at 118. When given an opportunity to resolve the conflict between Lott and Clay in United States v. Williams [91-1 USTC ¶50,197], 928 F.2d 145 (5th Cir. 1991), however, the Fifth Circuit did not take it, although its holding indicates that Clay retains jurisprudential vitality. As these cases constitute Fifth Circuit precedent, and there is no Sixth Circuit case addressing the issue of whether affirmative acts must be alleged in the indictment, this issue need not be resolved at present.

⁶ The district court did not rule that any defect in the indictment constituted harmless error. Yet this court may affirm a district court's judgment on any ground supported by the record. City Mgmt. Corp. v. U.S. Chem. Co., Inc., 43 F.3d 244, 251 (6th Cir. 1994).

 

 

[2001-2 USTC ¶50,762] United States of America , Plaintiff-Appellee v. George Meredith Bishop III, Defendant-Appellant

(CA-5), U.S. Court of Appeals, 5th Circuit, 00-20282, 8/29/2001

264 F3d 535

2001 U.S. App. LEXIS 19266. Affirming an unreported District Court decision.

[Code Secs. 7203 and 7206 ]

Crimes: Tax evasion, elements of: Willful or intentional affirmative acts: Willful failure to file a tax return: Sufficiency of indictment.--Two counts in an indictment against a law firm sole proprietor who was convicted of tax evasion were not defective on the ground they omitted the tax deficiency and knowledge elements of tax evasion. Both counts explicitly charged that a deficiency existed, that his acts were willful and that he committed affirmative acts constituting evasion or attempted evasion. A third count was not deficient on the ground it contained no allegation that he acted willfully in filing a false return. Not only did the indictment track the language of the statute but it also explicitly stated that the taxpayer knew the return was false but decided to file it anyway. Additionally, the indictment was not defective on the ground that it failed to acknowledge that certain items would offset his deficiency. Accordingly, the indictment was legally sufficient.

[Code Secs. 7203 and 7206 ]

Crimes: Tax evasion: Evidence presented: Harmless error: Hearsay rules.--Summary evidence presented during the trial of a law firm sole proprietor who was convicted of tax evasion and filing a false return was not inadmissible. The IRS agent who testified as a summary witness spoke only of evidence already in the record and, on direct and cross examination, expressed the limited basis of his testimony, creating no error or abuse of discretion. Allowing the use of summary charts that were based on testimony and documentary evidence presented in the case and allowing those charts to be taken to the jury room was not an abuse of discretion. However, the trial court should not have admitted the IRS agents' notes regarding meetings with the taxpayer because the notes were hearsay. Nevertheless, the error was harmless because the content of the notes had been thoroughly discussed during the direct and cross-examinations, adding little to the weight of the evidence in the case.
[Code Sec. 7203 ]

Crimes: Tax evasion, elements of: Jury instructions.--Jury instructions on the elements of tax evasion that were presented in the trial of a law firm sole proprietor were adequate. The jury could take into account payments made in previous years in determining the amount of tax actually owed. In addition, the trial court repeatedly and thoroughly informed the jury that proof of knowledge on the part of the taxpayer was required. Moreover, the jury instruction that covered both the summary testimony and charts admitted into evidence was sufficient since it advised the jurors that the information underlying the summaries, not the summaries themselves, was evidence.

[Code Sec. 7203 ]

Crimes: Tax evasion: Evidence presented: Hearsay rules.--Statements made by a law firm sole proprietor who was convicted of tax evasion and his former bookkeeper did not fall within exceptions to the hearsay rule as "statements of the declarant's then existing state of mind, emotion, sensation or physical condition." The statements were properly excluded during the trial because they were a recitation of the bookkeeper's memories of earlier events or were self-serving assertions by the taxpayer intending to prove the truth of their content.

[Code Sec. 7203 ]

Crimes: Tax evasion, elements of: Willful or intentional acts: Evidence presented: Directed verdict.--A law firm sole proprietor convicted of tax evasion was not entitled to a directed verdict because the government provided sufficient evidence that there was a tax deficiency and that he willfully engaged in attempts to evade income tax due. The evidence of his actions adequately supported the jury's verdict. Further, he admitted that he signed a return, the falsity of which was virtually undisputed and the amount of unreported income was material.

[Code Sec. 7203 ]

Crimes: Harmless error: Prejudice: Bias: Statutory disqualification of a juror.--A law firm sole proprietor convicted of tax evasion was not entitled to a new trial on the ground that one of the jurors who convicted him had been dishonest about her criminal history of embezzlement and was on community supervision and making restitution payments. He was required to prove that the juror, who should have been disqualified for cause, was biased and that her bias harmed his case. Because the juror had a reasonable explanation for not divulging her criminal conviction, her failure to provide the information did not indicate presumed bias and he failed to provide factual proof of actual bias.

James Lee Turner, Assistant United States Attorney, United States Attorney's Office, Houston, Tex., Alan L. Hechtkopf, Rob ert E. Lindsay, Karen Marie Quesnel, Gregory Victor Davis, Department of Justice, Washington, D.C. 20530, for plaintiff-appellee. George M. Bishop, III, FPC Beaumont, Beaumont, Tex., pro se. Randall W. Wilson, Susman Godfrey, Jeffrey R. Vaughan, Houston, Tex., for defendant-appellant.