Carryback
Offset
7203: Willful Failure to File Return,
Supply Information, or Pay Tax: Defenses: Carryback Offset
[82-1 USTC ¶9305]
United States of America
, Appellee v.
Rob
ert E. Keltner, Appellant
(CA-4),
U. S. Court of Appeals, 4th Circuit, No. 80-5100, 675 F2d 602, 4/5/82,
Affirming unreported District Court decision
[Code Sec. 7201]
Fraud: Defenses: No deficiency because of carryback: Admission of
summary charts with typographical errors: Admission of expert opinion.--Neither
the District Court's jury instruction nor its admission of evidence was
shown to have been erroneous so as to require a fraud conviction to be
set aside. The jury's consideration of the taxpayer's testimony
regarding a net loss carryback was properly limited to the issue of
intent because proof of a subsequent loss carryback is not material to
negate proof of fraud. The use of a summary chart was not prejudicial,
in the sense that the taxpayer was denied a fair trial, because it was
based upon evidence already before the jury and the typographical errors
were identified and corrected. An expert opinion testimony was also not
prejudicial since it was relevant and material to rebut the taxpayer's
claim that the returns of a subchapter S corporation were accurate.
Stephen G.
Jory, United States Attorney, Wheeling, West Virginia 26003, John F.
Murray, Acting Assistant Attorney General, Michael L. Paup,
Rob
ert E. Lindsay, R. Russell Mather, Department of Justice, Washington, D.
C. 20530, for appellee. Orville L. Hardman, for appellant.
Before WINTER,
Chief Judge, PHILLIPS and MURNAGHAN, Circuit Judges.
MURNAGHAN,
Circuit Judge:
Appellant
Rob
ert Keltner was charged by a federal grand jury on January 25, 1980,
with two counts of willfully attempting to evade his federal income
taxes for the calendar year 1972 and the calendar year 1973, in
violation of 26
U. S.
C. §7201, by filing false and fraudulent returns for those years. At
trial the government used the net worth and personal expenditures
methods of proof to show that appellant, an attorney, had received
taxable income of $20,746.50 in 1972 and $111,547.85 in 1973, upon which
there were taxes due of $6,063.51 and $62,037.50. His 1972 return, due
April 15, 1973, but filed on March 22, 1974, reported a loss for tax
purposes of $922.82 and no tax liability, although he inexplicably paid
taxes of $196.75 for that year. His 1973 return, due
April 15, 1974
, but filed on
July 4, 1975
, reported taxable income of $2,376, and a tax liability of $792.
According to the government's evidence, appellant had understated his
tax liability by $5,866.56 in 1972, and $61,245.50 in 1973.
Appellant
argued that he was entitled to additional deductions, not claimed on his
returns, for net operating losses sustained by United Innkeepers, Inc.,
a Subchapter S corporation which he purchased in September, 1973. The
informational return for the fiscal year ending August 31, 1974, due
November 15, 1974, and filed by United Innkeepers on January 1, 1976
showed a net operating loss of $90,840.12, and the 1975 and 1976
returns, filed on April 17, 1980, and due respectively on November 15,
1975 and November 15, 1976, showed net operating losses of $86,606.70
and $63,744.47. He argued that the losses could be carried back to 1972
and 1973, thereby entirely eliminating any tax liability for those
years.
The district
court denied appellant's pretrial motion for acquittal and ruled that
the evidence of United Innkeepers' losses could be admitted only to show
appellant's lack of specific intent. After a jury trial appellant was
found guilty on both counts, and the district court sentenced him to two
concurrent five year sentences and fined him $10,000.
Appellant
contends that the district court should have permitted him to establish
as a defense that, because of the net operating losses, he had no tax
liability for 1972 or 1973. Additionally, he argues that the testimony
of the government expert and the summary chart on which he relied should
not have been admitted into evidence.
[Net
Operating Loss]
I. Appellant's
argument relies heavily on the following sequence of events: in
September, 1973, Keltner purchased United Innkeepers; on
March 22, 1974
, he filed his 1972 return; and on
July 4, 1975
, he filed his 1973 return. The returns were not fraudulent, he
contends, because at the time they were filed he had, in fact, already
incurred net operating losses which could be carried back, pursuant to
26 U. S. C. §172, to eliminate any tax liability for 1972 and 1973.
It is
uncontested that, in order to convict a defendant of tax evasion, the
government must prove that he actually owed some tax in excess of the
amount stated on his return. E.g., Koontz v. United States [60-1
USTC ¶9405], 277 F. 2d 53 (5th Cir. 1960); Holt v. United States
[59-2 USTC ¶9771], 272 F. 2d 272 (9th Cir. 1959). It by no means
follows that, if a subsequently incurred net operating loss can be
carried back to eliminate a tax liability that existed at the time the
return was required to be filed, the defendant may escape conviction by
reason of the fortuity of a later loss that would reduce or eliminate
misstatements of tax liability fraudulent when made.
The lucky
loser argument was rejected in Willingham v. United States [61-1
USTC ¶9401], 289 F. 2d 283 (5th Cir. 1961), cert. denied, 368
U. S.
828(1961). There the defendant admitted having claimed fictitious
deductions during 1952 and 1953, but claimed, inter alia, that he
should nevertheless be acquitted because a loss carryback from 1955
eliminated the 1953 liability. The court found that, although the
defendant was entitled to deductions, he was not relieved from criminal
liability. The court stated:
A
taxpayer may not, with impunity, willfully make false deductions in an
attempt to evade the 1953 tax, and which has the actual effect of
reducing the tax imposed for that year, after taking into account all
deductions that are then available, whether claimed or not, because
fortuitously in 1955 a loss occurs, which for tax purposes can be
carried back to wipe out the 1953 liability.
We
think the crime is complete when with willful intent, a false and
fraudulent return is filed for a year as to which, with all benefits
arising out of events up to that time taken in his favor, there would
still be a tax due by him but for the fraud. . . . Any adjustment that
may be permissible resulting from subsequent losses does not prevent the
fraud committed in 1953 from being an attempt to "evade or defeat
any tax imposed by this chapter."
289
F. 2d at 288.
Appellant's
distinction of Willingham is not persuasive. He argues that here
the operating losses had accrued prior to the filing of the returns, and
that he was entitled to show all deductions available at the time of
actual filing, rather than at the time filing was required. Even if that
were the case, it would save defendant only as to the second count. The
1972 return was filed on
March 22, 1974
, and the corporation's fiscal year did not end until
August 31, 1974
. A net operating loss sustained by a Subchapter S corporation does not
become available to a shareholder until the corporation's taxable year
which produces the loss has ended. 26 C. F. R. §1.1374-1(b)(2) (1981).
Whether there would, indeed, be any loss at all of the year could not be
ascertained until the year had fully run. It was therefore impossible to
know whether there would be a net operating loss until a date well after
the 1972 return was filed.
Appellant
seeks unavailing solace in 26
U. S.
C. §1374(c) which deals with allocation between a prior and a
subsequent owner of a Subchapter S corporate loss. The loss for any year
is prorated, based on the number of days during the year each owned the
stock. However, that determination too can only be made after the full
year is completed and the amount of the loss, if any, ascertained. While
a seller may know immediately, if the sale takes place one month into
the year, that the fraction of any loss which may eventually be
attributable to him will be 31/365ths, nevertheless, he must wait until
after the passage of the 365th day to know the amount to be multiplied
against the fraction, and indeed to know whether there will be any loss
whatever to which the fraction may be applied. Cf. 26 C. F. R. §1.1374-1(b)(2)(1981),
supra ("The deduction allowed by shareholders by section
1374(b) is a deduction for the taxable year of the shareholder in which
or with which the taxable year of the corporation ends. . . .").
More to the
point, the actual time of filing is irrelevant. In Manning v. Seely
Tube & Box Co. [50-1 USTC ¶9163], 338
U. S.
561 (1950), the IRS assessed a deficiency against defendant corporation
for 1941. When the corporation filed its 1943 return, it had a net
operating loss which, when carried back, wiped out the tax liability for
1941. The Supreme Court held that, notwithstanding the abatement of the
1941 deficiency, the interest assessed on the deficiency was unaffected.
The Court stated:
From
the date the original return was to be filed until the date the
deficiency was actually assessed, the taxpayer had a positive obligation
to the
United States
: a duty to pay its tax.
Id.
at 565 (emphasis added). Similarly, in the
present case, as of the date when the 1972 and 1973 returns were
"to be filed" (i.e.
April 15, 1973
and
April 15, 1974
, respectively) appellant had an obligation to pay the tax due. The fact
that subsequent operating losses would have permitted him to file an
amended return and obtain a refund did not permit him to bypass the
requirement of timely filing of a return indicating his income as of the
date he was required to file. See also Simon v. Commissioner
[57-2 USTC ¶9989], 248 F. 2d 869 (8th Cir. 1957) (1943 tax became due
and payable on date 1943 return was required to be filed; subsequent
operating loss subject to carryback did not relieve taxpayer from
penalty for deficiency assessed based on 1943 return).
Appellant's
interpretation of the net operating loss carryback provisions would
create an enormous opportunity for abuse. Under his view, a taxpayer
could simply falsify a return and refrain from claiming a net operating
loss until the commencement of a tax evasion prosecution. If no
prosecution occurred, the taxpayer would be free to carry the loss
forward, getting a second benefit since by falsifying his return he
would have eliminated the need to apply the loss to a prior year as it
should have been. Moreover, a sufficiently wealthy taxpayer with no
available net operating loss could fraudulently understate his tax
liability, and only in the event of a tax evasion prosecution, purchase
a corporation with accumulated losses, to apply to the wiping out of his
prior tax liability, and therefore his criminal liability.
Appellant was,
of course, entitled to argue that he truly believed, even if his belief
was erroneous, that he owed no taxes, in order to prove his lack of
intent to evade tax liability. The district court permitted him to
testify extensively as to the losses, and instructed the jury to
consider the testimony only on the issue of intent. In view of his
failure to claim the losses on the 1972 and 1973 returns, or any
amendments thereto, it is not surprising that the jury found the
requisite intent to evade taxes. We find no error in the district
court's treatment of the evidence of net operating losses.
[Properly
Admitted Evidence]
II. Appellant
next contends that the admission of the government's summary chart and
of some of the explanatory testimony of the government's witness, David
Bayha, were erroneous. The use of summary charts in tax evasion trials
is within the trial court's discretion. United States v. Meriwether
[73-2 USTC ¶9731], 486 F. 2d 498 (5th Cir. 1973), cert. denied,
417
U. S.
948 (1974). The charts are admissible only if they are "based upon
and fairly represent competent evidence already before the jury." United
States v. Conlin [77-1 USTC ¶9291], 551 F. 2d 534, 538 (2d Cir.
1977), cert. denied, 434
U. S.
831(1977). See also United States v. Moody [64-2 USTC ¶9873],
339 F. 2d 161 (6th Cir. 1964). An appellate court will reverse a
conviction due to erroneous admission of the charts only if the
defendant shows that he was prejudiced. United States v. Meriwether,
supra. Cf.
United States
v. Conlin, supra (erroneous admission of chart did not deprive
defendant of fair trial).
With exception
of certain typographical errors, all of the figures listed in the
summary chart were based upon evidence before the jury. The
typographical errors in the chart were clearly identified and corrected
by Bayha at trial, so appellant was not prejudiced. There was no error
in the admission of the summary chart.
Appellant
argues further that he was prejudiced by Bayha's testimony that the
United Innkeepers corporate tax return was irregular. The argument has
no merit. The district judge sustained an objection of the testimony on
the ground that it was appropriate for rebuttal, but not for the case in
chief. The testimony was clearly relevant and material, since
defendant's claim that he had no tax liability rested on the premise
that United Innkeepers returns were accurate. Bayha, as an expert
witness, was competent to testify on the matter. It was within the
judge's discretion to defer consideration of the matter until defendant
had raised the defense, but there was no error in permitting Bayha to
testify on the matter.
Accordingly,
we affirm.
AFFIRMED.
[71-2 USTC ¶9729]
United States of America
, Appellee v. Nathan Suskin, Appellant
(CA-2),
U. S. Court of Appeals, 2nd Circuit, Docket No. 35443, 450 F2d 596,
11/1/71, Affirming unreported District Court decision
[Code Sec. 7201--Result unchanged by '69 Tax Reform Act]
Crimes: Attempt to evade or defeat taxes: Jury trial:
"Leads" doctrine: Defenses: Evidence.--The Court upheld
the taxpayer's conviction for willful tax evasion for filing a false
return. The "leads doctrine" (conceived in Holland v.
United States, 54-2 USTC ¶9714) was misapplied where the
government's method of proof was by specific items. However, the error
was harmless because the District Court twice warned the jury that it
must not consider the truth or falsity of the extra judicial
declarations, but only whether they showed the government had followed
up its leads. And, with respect to a premium payment (payoffs) lead, any
impact the declarations might have was mitigated when an agent conceded
that he would not expect those he questioned to admit receiving payoffs.
The following issues were also decided by the Court: (1) The Court
rejected the taxpayer's claim that he should be allowed to use
Derby
's (the corporation he worked for) prior losses to present a carry
forward defense. (2) Evidence that the IRS allowed a deduction for
travel and entertainment to
Kassel
(the company on whose behalf payoffs were made) was properly excluded.
(3) The District Court's refusal to charge the Cohan rule could
not have affected the taxpayer's conviction. (4) It was proper to allow
the jury to pass on both counts together. (5) The District Court did not
abuse its discretion by refusing to grant an adjournment for the
Passover season or by excusing jurors of the Jewish faith.
Rob
ert A. Morse, United States Attorney, David G. Trager, Raymond J.
Dearie, Assistant United States Attorneys, New York, N. Y., for
appellee. Louis Bender, Lloyd A. Hale, 225 Broadway,
New York
, N. Y., for appellant.
Before
MOORE
, SMITH and HAYS, Circuit Judges.
SMITH, Circuit
Judge:
Nathan Suskin
was found guilty by a jury in the United States District Court for the
Eastern District of New York, George Rosling, Judge, of willful tax
evasion for filing a false return in 1961, in violation of 26 U. S. C.
§7201, and acquitted of the same charge for failing to file any return
in 1962, a special verdict indicating that the prosecution had failed to
prove beyond a reasonable doubt that a return for 1962 was not filed.
Suskin appeals from the resulting judgment of conviction on court one of
the indictment. Suskin received an eighteen month sentence, fifteen of
which were suspended, a year's probation, and a fine of $2,500. We find
no error and affirm the judgment.
[Facts]
The business
arrangements which gave rise to the suspect returns will be outlined
only sparingly, without regard to Suskin's numerous points of contention
at trial, since no attack is made in this appeal on the sufficiency of
the evidence to support a verdict of guilty on count one. Suskin was a
principal in Derby Fabrics, Inc. ("
Derby
"), a textile converting and jobbing concern of which one Finkle
was president and sole stockholder. Prior to 1961
Derby
accumulated substantial losses and debts personally guaranteed by
Suskin. Sometime in 1960, Suskin entered a business relationship with
Jerry Kassel, Inc. ("
Kassel
"), also a textile converter, which hoped to profit from Suskin's
contacts within the taxtile industry.
In 1961 Suskin
received some $32,000 from
Kassel
, largely, at Suskin's request, in the form of checks made payable to
Derby
which were cashed by Suskin; he was also reimbursed for between $1,500
and $2,000 in out-of-pocket expenses. Suskin reported a gross income of
$11,650 and claimed deductions in the amount of $1,040, which were
allowed by the government. Suskin explained that the unreported income
received from
Kassel
had all been expended on "premium" payments (payoffs) to other
business concerns, and payments on
Derby
's outstanding loans. The government contended that in fact
substantially all of the excess was pocketed by Suskin.
The facts
underlying count two of the indictment, on which Suskin was acquitted,
are important to this appeal only insofar as they detail a markedly
different method of payment, and wholly different figures, than those
set forth in court one. The government charged that Suskin, who reported
$14,250 and no deductions on his copy of his 1962 return, which
allegedly was never filed, in fact received $37,000 in compensation in
1962, including $15,250 in salary, $9,500 in commissions and $13,500 in
unaccounted for travel and entertainment expenses; the mode of payment
was said to be a salary check of $250 per week together with a travel
and entertainment check of $250 per week with the balance received in
commissions.
["Leads"
Doctrine]
To defendant's
explanations that his unreported income for 1961 had been spent
variously on debt and "premium" payments, the district court
applied the "leads" doctrine of Holland v. United States
[54-2 USTC ¶9714], 348 U. S. 121 (1954), requiring the government to
demonstrate that it had followed up the leads provided by defendant.
Government compliance took the form of testimony by an Internal Revenue
Service agent as to his conversations with third persons in positions to
have received any debt or "premium" payments made. We agree
with defendant, as the government now concedes, that the
"leads" doctrine, conceived by the Holland court where
the government's case rested on the "net worth" theory, is
misapplied here where the government's method of proof was by specific
items; we hold, however, that the error was harmless. First, the
district court twice warned the jury that it must not consider the truth
or falsity of the extrajudicial declarations, but only whether they
showed the government had followed up its leads. Second, with regard to
the "premium" payment lead, any impact the extrajudicial
declarations might have had was mitigated when the trial judge elicited
from the agent the concession that he would not expect those he
questioned to admit receiving payoffs. Finally, with regard to the debt
repayment lead, the agent's testimony was corroborated by subsequent
direct testimony of the extrajudicial declarant.
[Remaining
Contentions]
Defendant's
remaining contentions, five in number, none of which we find
meritorious, will be dealt with seriatim. Inasmuch as defendant admits
having received and cashed some $32,000 in 1961 checks payable to Derby,
the claim that he should be allowed to use Derby's prior losses to
present a loss carry forward defense is absurd; the losses were
corporate but the money never went to the corporation. Hauptman v.
Director of Internal Revenue [62-2 USTC ¶9724], 309 F. 2d 62 (2d
Cir. 1962) involves an entirely different case where the sharecholder of
a one-man corporation elected, as the law permitted, to come under
Subchapter S, thereby benefitting personally from the corporation's net
operating losses even though liquidation was foreseeable.
The district
court was correct in excluding evidence that the Internal Revenue
Service had finally allowed
Kassel
a deduction for travel and entertainment. It is true that the Internal
Revenue agent who conducted the audit on
Kassel
testified at trial that he had disallowed those deductions; but defense
counsel, not the government, brought the disallowance to the jury's
attention. The district court had previously directed defense counsel
not to attempt to elicit the results of the audit of
Kassel
, and afterwards instructed the jury to disregard that information.
The district
court's refusal to charge the rule of Cohan v. Commissioner of
Internal Revenue [2 USTC ¶489], 39 F. 2d 540 (2d Cir. 1930), could
not have affected defendant's conviction on count one of the indictment.
Defendant was allowed all claimed deductions for travel and expenses in
1961; he attributed his unreported income to repayment of debts and to
payoffs, to which the Cohan rule plainly has no relevance.
Moreover, the jury could not have believed defendant made any
substantial expenditures even for the purposes claimed, and still have
found him guilty beyond a reasonable doubt.
It was proper
to allow the jury to pass on both counts together. The jury was able to
distinguish between them and indeed acquitted on the second.
Lastly, the
district court did not abuse its discretion by refusing to grant an
adjournment for the eight day Passover season or by excusing jurors of
the Jewish faith. Defendant's cointention that he was denied a petit
jury composed of a fair cross section of the community in violation of
28 U. S. C. §§ 1861, 1862 and 1863 is belied both by the district
court's efforts to accommodate prospective jurors of the Jewish faith,
specifically by the announcement during voir dire that there
would be no sessions on the principal holidays, and by the actual
qualification of Jewish jurors. There is no indication either of
systematic exclusion of Jewish jurors or that defendant was denied a
fairly representative jury.
Judgment
affirmed.
[2002-1 USTC ¶50,456]
United States of America
, Plaintiff-Appellee v. Michael Wick, Defendant-Appellant
(CA-9),
U.S.
Court of Appeals, 9th Circuit, 00-10446,
2/11/2002
, 2002
U.S.
App. LEXIS 2380. Affirming an unreported District Court decision
[Code Sec.
7203 ]
Evasion of taxes: Willful: Sufficiency of the evidence: Failure to
supply information: Defenses.--Sufficient evidence existed to find
that an individual taxpayer willfully attempted to evade payment of his
individual tax liability. The taxpayer offered no proof that corporate
transactions were repayments of loans and, therefore, not taxable
income. Additionally, the taxpayer had already committed tax evasion by
assuming control over the funds and failing to report such funds on his
return. Finally, the purported joint ventures between the taxpayer and
his corporation were sham transactions used by the taxpayer to divert
funds from the corporation for personal use.
[Code Sec.
7203 ]
Penalties, criminal: Evasion of taxes: Defenses: Carryback offset:
Sentencing guidelines: Downward departure.--A taxpayer convicted of
attempted tax evasion could not use his corporation's future net
operating losses to reduce the total tax loss for purposes of
sentencing. Also, the trial court's decision not to downward depart the
taxpayer's sentence for tax evasion based on diminished capacity was not
subject to review.
[Code Sec.
7206 ]
Evasion of taxes: Willful: Fraud and false statements: Sufficiency of
the evidence: Failure to supply information: Assisting in preparation of
fraudulent returns.--Sufficient evidence existed to find that an
individual taxpayer assisted in the preparation of false returns with
respect to his closely held corporation. The court found that the
taxpayer closely directed all aspects of the corporation's accounting
and bookkeeping. The taxpayer's conduct demonstrated his assistance in
the preparation of a false return, rather than the financial officer's
transfer of information to the return. The trial court's decisions on
carryback offset and downward departure in sentencing were proper.
Karen Quesnel,
Rob
ert E. Lindsay, Alan Hechtkopf, Samuel R. Lyons, Department of Justice,
Washington, D.C. 20530, for plaintiff-appellee. Stephen M. Dichter,
Rodney W. Ott, Bryan Cave LLP, Sally S. Duncan, Phoenix, Ariz., Alan
Ellis, Law Offices of Alan Ellis, Sausalito, Calif., for
defendant-appellant.
Before:
PREGERSON and RAWLINSON, Circuit Judges, and WEINER, District Judge. 1
è Caution:
This court has designated this opinion as NOT FOR PUBLICATION. Consult
the Rules of the Court before citing this case.ç
MEMORANDUM
2
I.
Michael Wick
appeals his jury trial conviction and sentence for tax evasion and
aiding the filing of a false return. We affirm.
The facts are
well known to the parties and will be repeated here only as is necessary
to explain our decision. The indictment charging Wick contained five
counts Counts 1, 2 and 3 charged violations of 26 U.S.C. §7201,
willfully attempting to evade and defeat personal income taxes for tax
years 1991, 1992 and 1993 respectively. Counts 4 and 5 of the indictment
charged violations of 26 U.S.C. §7206(2), aiding and assisting in the
preparation of a false tax return. These counts involved the FY 1991-92
and 1992-93 corporate returns of Wick's closely held corporation, CTI.
Following trial, the district court dismissed Count 4 relating to the
corporate return for FY 1991-92, because there was no evidence that a
person with the requisite authority signed that return.
II.
As to the
conviction for Count 5, Wick argues the government failed to establish
willful intent to defraud the IRS because CTI's return was prepared by
its accountant Schneider, whom, Wick argues, simply assumed that Wick's
personal expenses improperly paid by CTI during the tax year, had been
corrected. He asserts that Schneider failed to ask Wick or CTI's Chief
Financial Officer if the information Schneider was given to prepare the
returns was correct and thus failed to make reasonable inquiries into
information he found incorrect, inconsistent, or incomplete. 3
These
arguments ignore the other evidence adduced by the government which was
sufficient to prove willfulness. It was undisputed that Wick closely
oversaw all aspects of the company's accounting and personally directed
how the improper charges would be expensed by the company. This included
purposely spreading large expenditures among several different
categories to hide their true nature. Viewed from the light most
favorable to the government, Wick's direction to the bookkeepers, both
orally and in notations on accounting records, to charge CTI with his
personal expenses, and how to categorize them for bookkeeping purposes,
was sufficient to demonstrate that the act of charging the items to the
company was willful. See United States v. Tucker [98-1 USTC ¶50,147],
133 F.3d 1208, 1218 (9th Cir. 1998) (to prove willfulness, the
government must show that the defendant intended to violate the law or
knew that his actions would do so.) It was this conduct that government
asserted constituted aiding and assisting or otherwise causing the
preparation or presentation of a false return, not merely the act of
transferring this information to the return. But for the improper
bookkeeping entries, the return would not have been fraudulent; the
return was based directly upon the accounting records kept over the
course of the fiscal year, which the evidence showed Wick willfully
caused to show that his personal expenses were legitimate expenses of
the business. As any conduct, the likely effect of which would be to
mislead or conceal, is sufficient to demonstrate willfulness, Spies
v. United States [43-1 USTC ¶9243], 317 U.S. 492, 499, 63 S.Ct.
364, 368, 87 L.Ed. 418 (1943), the government clearly met its burden.
Wick's arguments regarding the role of Schneider go to the weight the
jury assigned that evidence, not the sufficiency of the government's
evidence of Wick's intent.
Wick's
argument regarding the manner in which the real estate expenses were
categorized suffers from the same problem. Wick argues the government
improperly relied upon the evidence of CTI's bookkeeper,
Preston
, who admitted she never discussed CTI's real estate business with Wick,
to establish the improper classification of the expenses. This argument
also goes to weight not sufficiency. It also ignores other evidence that
the real estate, whose purchase and renovation costs were expensed on
CTI's books, were never owned by CTI. Rather, it was titled in Wick's
name and when sold, Wick retained the profits of the sale. Wick also
retained the profits from sales of personalty that were paid by CTI as
business expenses, such as an ATV and two snowmobiles. This demonstrated
his knowledge that the expenses were indeed personal. Given this and the
other evidence in the record, we find the government clearly
demonstrated the willfulness element of §7206(2).
Similarly,
Wick arguments regarding the sufficiency of the evidence on the evasion
counts relating to his personal returns also ignore other evidence that
demonstrated willfulness. He contends the evidence of willfulness was
insufficient because every alleged inaccuracy in his personal returns
grew out of the alleged accounting "incompetence" at CTI. He
cites as an example testimony that those at CTI responsible for
preparing Form 1099s admitted they "forgot" to prepare them.
He also points to the fact that he never affirmatively directed anyone
at CTI to not prepare the forms. He asserts that all the amounts the
government contends Wick failed to report as income were not income, but
rather repayment of the loans he previously made to CTI, which CTI's
bookkeepers failed to properly record as loan repayments on CTI's books.
Finally, he asserts that the government failed to refute his contention
that the expenses related to the real properties were made as part of
joint ventures between him and CTI. These arguments suffer several
problems.
First, the
evidence demonstrated that Wick himself directed how these personal
expenses were to be entered on CTI's books, in several instances
spreading the payments among several categories in an attempt to hide
their true nature. Second, it is irrelevant whether these expenses could
have been entered on CTI's book so that they would have had no
present tax consequences to Wick.
Where the
taxpayer has sought to conceal income by filing a false return, he has
violated the tax evasion statutes. It does not matter that that amount
could have somehow been made non-taxable if the taxpayer had proceeded
on a different course. To apply the constructive distribution rules to
this situation would nullify all of the taxpayer's prior unlawful acts.
United
States v. Miller [76-2 USTC ¶9809],
545 F.2d 1204, 1214 (9th Cir. 1976). Miller goes on to note
At the time
the funds are initially diverted it might well be argued that they could
constitute either income or a return of capital. However once the
taxpayer has assumed control of the funds and then fails to report such
funds as income or to make any adjustments in the corporate books to
reflect a return of capital, he has already violated the tax evasion
statutes.
Id.
at 1214 n. 12 citing Spies [43-1 USTC
¶9243], 317
U.S.
at 498-99. The language of this note directly refutes Wick's argument
that the improperly paid expenses can be redesignated a return of loan
principal after the fact. Accordingly, his argument that CTI's repayment
of its loan would not constitute income to Wick is inapposite. 4
In addition,
Wick's assertion that there was insufficient evidence of willfulness
because the witnesses testified that they merely "forgot" to
issue Wick 1099 forms, goes to the weight of that evidence and not its
sufficiency. It was for the jury to determine whether they believed this
evidence, or whether someone who reports taxable income of $ 85,000
would forget he had nearly again that same amount--$ 77,000--in income
transfers that his company forgot to document on a 1099 form.
Wick's joint
venture argument ignores other evidence which the jury could have used
to find that no joint ventures ever existed. There was no documentation
to support the existence of a joint venture; Wick never told any
employees at CTI that he created any joint ventures; the sale proceeds
went entirely to Wick. Viewing the evidence in the light most favorable
to the government, the jury was within its bounds to conclude the joint
ventures were a sham used by Wick to divert income out of CTI without
paying tax.
Finally, Wick
argues that his conviction on Count 1, which alleged tax evasion in
1991, must be vacated because the district court determined the CTI tax
return for FY 1991-92 was never properly filed. He asserts that because
no valid return existed, the government cannot impute disallowed
business expenses to him, because CTI can still file a legitimate return
properly characterizing those expenses as repayment of loans. This
argument again ignores the fact that the government placed sufficient
evidence before the jury for it to conclude that Wick evaded taxation at
the point where he directed the bookkeepers to record the payments as
business expenses, rather than against his loan accounts. Income is
received when the taxpayer has an "undeniable accession[] to
wealth, clearly realized, and over which the taxpayer has complete
dominion." Commissioner v. Glenshaw Glass Co. [55-1 USTC ¶9308],
348 U.S. 426, 431, 99 L.Ed. 483, 75 S.Ct. 473 (1955). Any attempt to
argue that CTI could still go back and change its corporate records is
refuted by our holding in Miller that once the taxpayer has
assumed control of the funds and then fails to report such funds as
income or to make any adjustments in the corporate books to reflect a
return of capital, he has already violated the tax evasion statutes.
Id.
[76-2 USTC ¶9809], 545 F.2d at 1214 n. 12.
III.
In Count 4,
the government charged that Wick willfully aided and assisted in the
preparation and presentation of false and fraudulent corporate tax
returns for fiscal year 1991-92. As mentioned above, the district court
vacated the conviction on this count because the evidence at trial
demonstrated that Jennifer Preston, the CTI bookkeeper, signed the
return when she had no authority to do so. Wick argues that he was
prejudiced by the introduction of evidence relating to that count. He
also argues that Count 1, which charged a willful attempt to evade and
defeat income taxes for tax year 1991, should have been dismissed,
because it depended upon the jury convicting him on Count 4.
Under Fed. R.
Evid. 402, the evidence which supported Count 4 was also relevant to
Count 1 to show that Wick used CTI's funds for his personal benefit
during 1991. The payment by CTI of Wick's personal expenses during the
1991-92 fiscal year, constituted income which should have been reported
on Wick's calendar year 1991 personal return. The evidence of how CTI's
bookkeepers recorded these expenses was clearly relevant to Count 1 to
show Wick had dominion and control over the money without paying taxes
on it.
It is thus
irrelevant to the viability of the conviction on Count 1 whether the
conviction on Count 4 was proper. Wick makes no cogent argument that
there is a requirement of a quid pro quo to support the two
convictions, i.e. that one conviction necessarily supported the
other. The two counts charged different crimes related to different tax
obligations. The legal defect the district used to overturn the
conviction on Count 4--the failure of an authorized person to sign the
return--had no bearing on the ultimate question of whether Wick realized
income during that year which he willfully evaded on his personal
return.
IV.
Wick next
takes issue with the amount of the tax loss to the government calculated
by the probation officer and accepted by the district court at
sentencing. The total tax loss was determined to be $ 348,693.56. Wick
argues this amount disregarded CTI's net operating loss of $ 419,376 for
FY 1993-94, which when carried back to FY 1992-93, would have allegedly
reduced the total tax loss to $ 229,390. The application of a carry back
is a question of law which we review de novo. We find the
district court was correct in not taking the carry back into
consideration in determining the total tax loss.
Wick concedes
that in tax evasion cases, a net operating loss is generally not a
factor at trial or sentencing. He argues that his is a special case
because CTI's net operating loss was known at the time the 1992-93
corporate tax return was filed. Wick cites no authority to support this
argument. Although the Ninth Circuit has never addressed the issue of
whether a net operating loss may be carried back to reduce the total tax
loss in a tax evasion case, cases from other circuits have uniformly
rejected allowance of such a carry back. See A.C. Willingham v.
United States [61-1 USTC ¶9401], 289 F.2d 283 (5th Cir. 1961)
(crime of tax evasion is complete when, with willful intent, a false and
fraudulent return is filed for a year as to which there would still be a
tax but for the fraud; any adjustment that may be permissible resulting
from subsequent losses does not prevent the fraud already committed from
being an attempt to evade or defeat tax); United States v. Keltner
[82-1 USTC ¶9305], 675 F.2d 602 (4th Cir. 1982) (subsequently incurred
net operating loss cannot be carried back to eliminate a tax liability
that existed at the time the return was required to be filed; otherwise
the defendant may escape conviction by reason of the fortuity of a later
loss that would reduce or eliminate misstatements of tax liability
fraudulent when made). We agree that permitting the use of a carry back
to reduce the total tax loss to the government would permit the taxpayer
to further manipulate the fortuity of the later loss to eliminate the
prior evaded tax by simply delaying the filing of the fraudulent return.
In addition, if there was some other reason for the delay, the taxpayer
could deliberately falsify the return with impunity knowing that if he
was caught he could always claim the carry back. If not caught, the
taxpayer would then be free to apply the loss forward to diminish a
future year's tax liability. We thus conclude that Wick may not attempt
to use CTI's subsequent losses to lower the total tax loss to the
government.
V.
Finally, Wick
argues the district court erred in failing to depart downward based on
diminished capacity. A district court's discretionary refusal to depart
from the Guidelines is not reviewable on appeal. United States v.
Davoudi, 172 F.3d 1130, 1133 (9th Cir. 1999) However, if the trial
court indicated that it did not have discretion under the Guidelines to
depart, that determination is reviewed de novo.
Id.
There is nothing in the record of the sentencing that would
indicate the district court thought it had no discretion to award the
downward departure for diminished capacity. Indeed, the district court's
statements indicated the contrary, that the court knew it had discretion
and exercised that discretion because it did not believe Wick's
evidence. As such, its decision to deny the downward departure is not
subject to review.
AFFIRMED.
1
Honorable Charles R. Weiner, Senior
United States
District Judge for the Eastern District of Pennsylvania, sitting by
designation.
2
This disposition is not appropriate for publication and may not be cited
to or by the courts of this circuit except as may be provided by 9th
Cir. R. 36-3.
3
Wick also points to the fact that the FY 1992-93 return was signed by
the CFO and not Wick, in arguing the government failed to demonstrate
willfulness on Count 5. Unlike the 1991-92 return, there is no
suggestion that the CFO was not authorized to sign the 1992-93 return on
behalf of the company.
4
Wick also argues that the district court failed to properly instruct the
jury on how to determine whether a transaction constituted a loan for
purposes of the income tax code. Specifically, he argues the district
court failed to instruct on the seven factors listed in Welch v.
Commissioner [2000-1 USTC ¶50,258], 204 F.3d 1228, 1230 (9th Cir.
2000). There is no indication that counsel ever raised or preserved this
issue prior to the court's instructing the jury. Our standard of review
is thus for plain error. Jones v.
United States
, 527
U.S.
373, 388, 119 S.Ct. 2090, 144 L.Ed.2d 370 (1999);
United States
v.
Anderson
, 201 F.3d 1145, 1148 (9th Cir. 2000).
In Webb, we
said that the following factors are, while non-exclusive and no single
factor is dispositive, indicia of a bona fide loan: (1) whether the
promise to repay is evidenced by a note or other instrument; (2) whether
interest was charged; (3) whether a fixed schedule for repayments was
established; (4) whether collateral was given to secure payment; (5)
whether repayments were made; (6) whether the borrower had a reasonable
prospect of repaying the loan and whether the lender had sufficient
funds to advance the loan; and (7) whether the parties conducted
themselves as if the transaction were a loan.
Id.
at 1230. The district court, again with no objection or preservation of
the issue, charged the jury that "a loan which the parties to the
loan agree is to be repaid does not constitute gross income as that term
is defined by the Internal Revenue Code. However, merely calling a
transaction a loan is not sufficient to make it such. When money is
acquired and there is no good faith intent on the part of the borrower
to repay the funds advanced, such funds are income under the income tax
laws and taxable as such." The district court's failure to include
the Webb factors was not plain error since there is no argument that it
failed to adequately advise the jury how the law treats the taxability
of loan proceeds or highly prejudiced Wick's substantive rights. Under a
plain error review this is all that was necessary. United States v.
Garcia-Guitar, 160 F.3d 511, 516 (9th Cir. 1998) (plain error is a
highly prejudicial error affecting substantial rights).
[61-1 USTC ¶9401]A. C. Willingham,
Appellant v.
United States of America
, Appellee
(CA-5),
U. S. Court of Appeals, 5th Circuit, No. 18381, 289 F2d 283, 4/20/61,
Aff'g an unreported District Court decision
[1939 Code Sec. 145(b)--similar to 1954 Code Sec. 7201]
Conviction for tax evasion: Seeking to show, during the trial, that
previously unclaimed carryovers and carrybacks would have eliminated
income for fraud years: Bankruptcy reorganization.--The taxpayer had
been convicted of attempting to evade income taxes owed for 1952 and
1953 by a corporation of which he was then the sole stockholder.
Substantial losses had been suffered by the corporation in 1949 and
1950, before a bankruptcy reorganization which put the taxpayer in
control. The trial court properly refused to permit the taxpayer to
introduce evidence that these losses would have wiped out any corporate
income for 1952 and 1953. The reorganization resulted in the
corporation's being a different taxpayer in 1952 and 1953 than the one
that had suffered the losses in 1949 and 1950, even though the corporate
shell remained the same. Nor could a loss suffered in 1955 be carried
back to wipe out 1953 income, since the crime was completed when the
return was filed for 1953. A "fortuitous" loss in 1955 does
not change the intent with which the fraudulent return was filed two
years earlier. Conviction affirmed.
Joe G. Fender
and Gordon J. Kroll,
Houston
,
Tex.
, for appellant. Randolph F. Wheless, Jr., Assistant United States
Attorney,
Houston
,
Tex.
, for appellee.
Before TUTTLE,
Chief Judge, BROWN, Circuit Judge, and CLAYTON, District Judge.
TUTTLE, Chief
Judge:
This appeal
from a conviction in a prosecution for an attempt to evade income tax
presents the question whether the trial court erred in preventing the
accused from showing that no taxes were due for the two prosecution
years. The appellant does not here contest the sufficiency of the
evidence to sustain a jury's verdict of guilty, based on testimony that
he had wilfully set up fictitious expense deductions on the books of the
company of which he was president, unless he is to be permitted to
reconstruct the income for the years 1952 and 1953. There was undisputed
evidence that the false and fictitious entries resulted in defeating the
government in collecting part of the tax shown on the return to be due
during these years.
What the
appellant does assert is that he was entitled to prove that the true tax
liability of the corporation for the years 1952 and 1953 should be
arrived at by reconstructing the returns for these years after giving
effect to substantial loss carryovers from the years 1949 and 1950.
The
government's principal reliance in objecting to proof tendered by
appellant below of the amount of loss carry-overs is that these loss
carry-overs are not available to appellant's corporation because the
government says the corporation is "not the same taxpayer" as
that which suffered the losses because the corporation went through a
Chapter X Bankruptcy Act reorganization subsequent to the losses sought
to be carried forward.
[Reorganization
Took Place in 1950]
For several
years prior to
November 20, 1950
, Gulf Southwestern Transportation Company, Inc., was engaged in the
business of a truck carrier operating under a certificate of public
convenience and necessity issued by the Interstate Commerce Commission.
We take it as true for the purpose of this appeal that during the years
1949 and 1950 it suffered substantial losses, as it had in prior years.
This resulted in the filing of a petition for reorganization in the
bankruptcy court by the corporation. This was followed by the filing of
a plan of reorganization which was finally accepted and made operative
by an order of the District Court,
November 20, 1950
. Under this plan of reorganization, the corporate shell remained and
its I. C. C. certificates continued to be effective although its capital
structure was somewhat modified in that the plan called for the
surrender of the stock by minority stockholders and the retention by one
Culbertson of his stock; this stock was to be purchased by A. C.
Willingham, the appellant here. Willingham was to pay a sum which
Culbertson agreed would be used to pay certain preferred claims against
the corporation and to pay a percentage of other claims, including the
United States Government's claim for taxes and to pay 10% on the claims
of ordinary unsecured creditors. This, of course, amounted to a donation
to capital. All other debts of the corporation were wiped out under the
plan of reorganization. There was a further partial modification on the
capital structure of the corporation in the provision in Willingham's
contract to purchase the stock which required him to "cause"
the corporation "to assign to Culbertson . . . 5% of the gross
revenues of such corporation", such amount to represent a minimum
payment which Willingham agreed to make in payment of the purchase price
for the stock. It is to be noted that this payment was to be made
whether or not there were any profits in the operation, and thus were to
be made even though they impaired the capital of the corporation.
Willingham was
elected President and took complete charge of the corporation's
operation. The corporation's income tax return for the period of
November 20 through
December 31, 1950
showed a loss of $736.93. The corporation income tax return for the
entire calendar year 1950 showed a loss of $28,490.87, of which
$27,753.94 represented losses incurred prior to the reorganization.
Proof offered by the appellant was to the affect that the 1949 operation
showed a net loss of $46,079.36. It was the taxpayer's contention that
this figure could, under existing provisions of the 1939 Internal
Revenue Code be carried forward to 1952, and when this was done it would
wipe out completely any income for that year. Then, by carrying forward
the net loss of $28,490.87 of 1950 to the year 1953, this would also
eliminate any deficiency in taxes for that year.
[Gov't
Objected To Evidence of Losses]
When the
appellant sought to tender evidence touching on the net loss for the
years 1949 and 1950, prior to the reorganization, government counsel
objected on the ground that these net losses could not be applied to
determine the tax liability of the corporation resulting from its
operations subsequent to the reorganization. The trial court sustained
this objection, but by agreement with counsel provided a means by which
a proffer of proof could be made in order that the correctness of the
court's ruling could be adequately presented on appeal. 1
It is
undoubtedly true, as the trial court held in this case, that conviction
under Section 145(b) of the Internal Revenue Code of 1939, 26 U. S. C.
A. (Internal Revenue Code of 1939 as amended) 145(d) cannot be supported
in the absence of a showing that the government was due a tax in excess
of that reported. Koontz v. U. S., 5th Cir. [60-1 USTC ¶9405]
277 F. 2d 53. As stated in Mertens Law of Federal Income Taxation,
Section 55, 37:
"A
prosecution for wilful failure to file a return may be maintained where
there is no tax due. But no prosecution for wilful attempt to evade or
defeat a tax is possible unless there is some tax due."
The
government does not contest the correctness of this proposition. It says
that on the record here before the court there is no evidence or proffer
of proof which would permit a jury to find that the tax due by the
corporation is anything other than as reported in its income tax returns
for 1952 and 1953 as modified by the proven falsities touching on the
fictitious deductions.
The parties
present a difficult question when they ask whether a corporation whose
debts have all been wiped out by a Bankruptcy Act reorganization is
nevertheless "the same taxpayer" which the terms of the
carry-over provision of the Internal Revenue Code say can carry forward
the losses which created the forgiven debts in order to wipe out income
for tax purposes in future years.
The appellant
strongly relies on New Colonial Ice Co., Inc. v. Helvering [4
USTC ¶1292], 292 U. S. 435 where in a reorganization proceeding, a new
corporation took over the business and the court held that this new
corporation was not the same taxpayer and was not entitled to the loss
carryover under a somewhat similar earlier statute. Appellant stresses
particularly the language of the Court, "Its words are plain and
free from ambiguity. Taken according to their natural import, they mean
that the taxpayer who sustained the loss is the one to whom the
deduction shall be allowed." The appellant points out that in the
present case this is unquestionably the same corporate person that
sustained the loss prior to reorganization and the case thus fits neatly
within the language of the act as applied by the Supreme Court. Of
course, there the taxpayer sought to carry the loss over from one
corporation to a new corporate entity which was alleged to be in
substance the same taxpayer. In denying the right to do so, the court
used the language quoted above. Here, the contention is made that, even
though greatly changed in substance following the tax loss years the
identity of the corporate entity after the reorganization with that
before satisfies the requirement.
[Only
the Corporate Shell Remained]
The government
contends that conceptually this is not the same taxpayer, because,
although the corporate shell remains the same, the structure is entirely
different and the new sole owner of the entire stock of the company has
so identified himself with the corporate taxpayer, both by the
obligation he undertook touching on the withdrawal of funds from the
company, regardless of income, and because of his complete domination
and management, as to make it in substance, though not in form, a
separate taxpayer. Principal support for the government's theory is
found in Libson Shops, Inc. v. Koehler [57-1 USTC ¶9691], 353
U. S.
382, in which the "continuity of a business enterprise" is
made the test. In Libson the court found in unnecessary to decide
whether the corporate identity principle controlled, because the court
found that there was a lack of continuity of a single business
enterprise. There the post-merger corporation which has been the parent
of sixteen separate operating companies sought to carry forward losses
suffered by three of the operating companies to offset profits earned
subsequent to the merger. To be sure, the taxpayer corporation was not
the same corporation that had suffered the losses, and in that respect
is different from the Transportation Company here.
This Court, in
Mill Ridge Coal Co. v. Patterson, 5 Cir., [59-1 USTC ¶9315] 264
F. 2d 713, applied the same test of "continuity of business
enterprise" in the case of a single corporate taxpayer that
disposed of its assets and after change of ownership of the stock
engaged in a new type of business: oil distribution as against coal
mining. We held there "that the taxpayer here, as in the Libson
case, supra, is not the 'taxpayer' within the meaning of 26
U. S.
C. A. §122(b)(2)(C)."
In the case
before us we have, instead of a complete reorientation of business
activity, substantially the same kind of business carried on, but by a
corporation having entirely new stock ownership and with an entirely new
corporate structure. Its debts have been wiped out, by the adoption of
the plan provided for under the Bankruptcy Act, and its only assets are
saved for it by an agreement of the sole stockholder to pay into the
corporation the sums necessary to pay the mortgage holders and state and
county in full, the federal government in part and 10% to unsecured
creditors. Its structure is further modified by the agreement under
which the stock was sold to Willingham. He was to pay to the remaining
single stockholder Culbertson enough to reimburse Culbertson for the
obligations just enumerated, and he pledged 5% of gross revenues
of the corporation to secure the payment of the purchase price. This,
thus, left the corporation's new reconstituted capital subject to being
depleted if operating profits did not yield the 5% of the gross revenues
which Willingham was obligated to pay.
[Court
Agrees with Government]
We think that
in every sense of the word except for the uninterrupted corporate
existence under the state charter, the taxpayer that commenced
operations on November 20, 1950, was as it stated in its own income tax
return 2
a new business enterprise. The complete identification of the single
stockholder with the corporation, by his personal undertaking to pay off
the creditors (to the extent to which they were paid at all) and his
pledge of 5% of gross income of the future operations whether or not
earned made of this corporation after reorganization a completely
different corporate person than when it was incurring the losses here
sought to be carried forward. It, therefore, does not fit into the
scheme which Congress had in mind when it passed the carryover law,
"designed", as the Supreme Court said in Libson, to
"permit a taxpayer to set off its lean years against its lush
years, and to strike something like an average taxable income over a
period longer than a year." 353
U. S.
385. This loss taxpayer "set off its lean years" by having
them wiped out in reorganization proceedings.
We conclude
therefore that on the undisputed facts tendered by Willingham's proffer
of evidence to show that there was no tax due for 1952 and 1953,
evidence of losses incurred in 1949 and 1950 was not admissible.
[Nor
Was Loss Carryback Available]
We next come
to the claim that a loss sustained in 1955 should have been carried back
to 1953, and that if this had been done no tax would be due for that
year. This would not affect the 1952 conviction, but would be a defense
to the 1953 charge. Whatever problems there might be as to loss
carry-overs, there can be no difficulties as to loss carrybacks. 3
They operate retrospectively to reduce or extinguish a tax previously
due. In an analogous situation imposing the 50% civil penalties on the
whole of the initial deficiency with no reduction from the loss
carryback allowed, the Eighth Circuit had this to say:
"The
tax for 1943 became due and payable on the date the taxpayer was
required to file her 1943 return, and the penalties became due and
payable on the same date. The carryback provision does not relieve the
taxpayer of the obligation to pay the tax in full when it falls due, and
can not be interpreted as deferring taxpayer's duty to pay the tax
promptly. Manning v. Seeley Tube & Box Co. [50-1 USTC ¶9163],
338
U. S.
561, 70 S. Ct. 386, 94 L. Ed. 346. In the case just cited the Court held
that where a deficiency and interest have been assessed, a subsequent
carryback loss which abates the deficiency does not abate the interest
assessed. The reasoning of the Manning case supports the fraud
and delinquency penalties here determined. The decision upon this issue
also finds support in other cases. See C. V. L. Corporation v.
Commissioner [CCH Dec. 18,628], 17 T. C. 812; Auerback Shoe Co.
v. Commissioner [CCH Dec. 19,972], 21 T. C. 191, affirmed, 1 Cir.,
[54-2 USTC ¶9673] 216 F. 2d 693; Nick v. Dunlap, 5 Cir., [51-1
USTC ¶9109] 185 F. 2d 674; Petterson v. Commissioner [CCH Dec.
19,359], 19 T. C. 486." Simon v. Commissioner, 8 Cir., 1957,
[57-2 USTC ¶9989] 248 F. 2d 869 at 877.
As
this quotation reflects, this Court has taken a like view. Nick v.
Dunlap, 5 Cir., 1950, [51-1 USTC ¶9109] 185 F. 2d 674.
A taxpayer may
not, with impunity, wilfully make false deductions in an attempt to
evade the 1953 tax, and which has the actual effect of reducing the tax
imposed for that year, after taking into account all deductions that are
then available, whether claimed or not, because fortuitously in 1955 a
loss occurs, which for tax purposes can be carried back to wipe out the
1953 liability.
We think the
crime is complete, when with wilful intent, a false and fraudulent
return is filed for a year as to which, with all benefits arising out of
events up to that time taken in his favor, there would still be a tax
due by him but for the fraud. Such tax is, in our opinion, the "tax
imposed by this chapter." Any adjustment that may be permissible
resulting from subsequent losses does not prevent the fraud committed in
1953 from being an attempt "to evade or defeat a tax imposed by
this chapter." See Spies v. U. S. [43-1 USTC ¶9243], 317
U. S.
492 and Goo v. U. S., 9 Cir., [51-1 USTC ¶9259] 187 F. 2d 62,
cert. den. 341
U. S.
916.
We conclude,
therefore, that the carryovers from 1949 and 1950 were not available to
effect the tax liability of Southwestern after reorganization in 1950.
Thus the proffered testimony touching on them was irrelevant. We also
conclude that the 1953 offense was complete when the tax return for that
year was filed, and it could not be undone by subsequent year's tax
consequences. The trial court therefore properly rejected the proof
touching on these matters.
The judgment
is AFFIRMED.
1
The trial court said in this connection:
"The
defendant has offered the 1950 income tax return, or more accurately,
you have offered your own retained copy of the income tax return for
Gulf Southwestern Transportation Company for 1950. The government
contends that it is irrelevant and not admissible for that reason.
Defense contends that it reflects a loss of some $28,000.00 which might
be carried forward and taken advantage of in 1952 by Gulf Southwestern
Transportation Company, on the theory that if that $28,000.00 loss were
carried forward, it would reflect that in truth no tax was due by the
corporation for 1952, hence your client as president of the corporation,
could not have been guilty of attempting to evade taxes when in fact
there were no taxes due by the corporation for 1952.
*
* *
So,
recognizing your right to raise the point that there were no taxes due
by the corporation in 1952, we come to the next question, as to whether
the loss carryover from 1950 is a proper means of doing so; and it is
there that I think your captionposition--I am speaking to the defense
attorneys at the moment--is not well taken, because I am of the view
that the corporation in 1952, following the corporate reorganization. is
not the same taxpayer in contemplation of the statute, so as to permit
the loss to be carried forward. * * *
* * * The
proceeding was in Bankruptcy Court of the Northern District of Taxes for
several months, and a plan of reorganization was ultimately agreed to by
all of the creditors, approved by the Court, and was put into operation.
What the plan was is reflected by the instrument which you all have
shown me and have offered in evidence. It was substantially that
Culbertson acquired all of the stock of the corporation, and, by order
of the Court, what he didn't acquired was canceled.
"He and
the defendant here, Willingham, entered into an agreement
contemporaneously with and as a part of the plan of reorganization,
whereby Willingham would buy all of the corporate stock from Culbertson,
and in fact did so. All of the debts of the corporation were released
under the Bankruptcy Statutes: the creditors, of course, received a
reduction in the claims which they had against the corporation, one of
which, as we noted in our conference, was the collector of Internal
Revenue; any, having been released of its old debts and set again upon a
new path, the corporation was operated thereafter by Mr. Willingham as
its sole stockholder.
"That
presents us with the question as to whether the corporation, still
operating under the same charter but having been reorganized under
Section 77b, having its debts forgiven and starting over again under
complete change of ownership and management, is the same taxpayer as the
term "the same taxpayer" is used in Section 122 of the 139
Code, which gives the right, in some instances, of a tax loss
carry-over."
2
On each of its income tax returns filed through 1955, the corporation
entered as date of incorporation "
11-20-50
". In the first such return it was also stated,
"Reorganization in bankruptcy."
3
This basic distinction is recognized by tax writers. See Gutkin, Tax Law
Violations and Enforcement; The Handling of Penalty Cases, Proceedings
of New York University, Sixth Annual Institute on Taxation, 1948, 189 at
203-4; and Gilman, Current Problems in Criminal Tax Fraud, 33 Taxes 749,
752 (1955); Balter, Fraud Under Federal Tax Law, pp. 349-51 (2 ed.
1953).
[53-1 USTC ¶9168]
United States of America
, Plaintiff v. Carl Tusan, Defendant
In
the United States District Court for the Southern District of
California, Northern Division, Nos. 3073 ND, 3093, February, 1951, Grand
Jury., September 4, 1952
Penalty for fraud: Effect of carry-back.--The taxpayer filed a
false income tax return for the year 1945. A fine for 1945 was held not
subject to reduction by a net operating loss carry-back from the year
1947. The court held, in effect, that the taxpayer's criminal act was
established on March 15, 1946, at the time he filed the 1945 return, and
that events not known at that time, and not foreseen, occurring in a
later year, did not eliminate the fraud offense.
Walter S.
Binns, United States Attorney, by B. B. Laven, for plaintiff. Harold
Judson, for defendant.
STIPULATION
(No. 3073 ND)
IT IS HEREBY
STIPULATED AND AGREED by and between the
United States of America
, Plaintiff, and Carl Tusan, Defendant in the above-entitled matter:
1. That the
plaintiff and the defendant hereby waive a jury trial in the
above-entitled cause.
2. That if the
witnesses on behalf of the Government were sworn, they would testify to
facts which would establish each and every allegation contained in
Counts One and Two of the Indictment, and it is deemed that they have so
testified; provided, however, that nothing herein contained shall be
construed as denying the defendant the right to make any motion or
defense to the Indictment.
STIPULATION
(No. 3093)
IT IS HEREBY
STIPULATED AND AGREED by and between the
United States of America
, Plaintiff, and Carl Tusan, Defendant in the above-entitled matter:
1. That the
plaintiff and the defendant hereby waive a jury trial in the
above-entitled case.
2. That if the
witnesses on behalf of the Government were sworn and testified, that
they would establish each and every allegation contained in Counts One
and Two of the Indictment, and it is stipulated that they have so
testified; provided, however, that the defendant reserves the right to
introduce evidence for the purpose of establishing that in 1947 a loss
was sustained, which loss defendant claims was sufficient, according to
the provisions of the Internal Revenue Code, to offset the amount of
taxes claimed by the plaintiff to be due and owing from the defendant
and his wife for the year 1945; it is further stipulated, however, that
with respect to said claimed loss for 1947, that the plaintiff, by
entering into this stipulation, does not acknowledge such loss, and
plaintiff reserves all its right to object to the admissibility of any
evidence with respect thereto or to the legal effect thereof.
THE COURT: I
think if there were a question of wilfulness, perhaps your evidence
would be admissible; but it rather seems to me to admit the evidence on
any other point than wilfulness would place the Internal Revenue law in
such a position that people would be justified in waiting until they
were caught or about to be caught, and then rushing in and paying their
tax. Because they could go to any Collector of Internal Revenue office
and pay it; and while their return is due at a certain point, it doesn't
seem to me I would be justified, Mr. Judson, in sustaining your
position.
I cannot find
any authority in the cases, and it looks to me like, in view of the
stipulation that at the time he filed his return there was a wilful
attempt to defeat and evade his income tax, that the crime was then
complete. I think it might have been different under some other
circumstances. But here is a circumstance which he could not contemplate
in 1945, and which no doubt in 1945, human nature being what it is, he
hoped there would be no loss in the future which he would have to carry
back, and again in 1946. Two years go by, and events occur over which he
had no possible cotrol in 1945, but which resulted in a loss for that
year of 1947, by which the law says he can carry it back to discharge,
but I think it is just to discharge, his obligation.
So your
proffer of evidence is denied, and the objection to it is sustained.
MR. JUDSON: I
think that is all.
THE COURT:
Does the government rest?
MR. LAVEN: The
government rests.
MR. JUDSON:
The defendant rests, your Honor.
THE COURT: I
can do nothing else than find the defendant guilty on both counts in
3073 and 3093. Are you ready for sentence in this matter?
THE COURT: In
the matter of imposition of any sentence in this case, I am not giving
weight to the fact he may have contributed to the violation of law,
violation of the price control act. In other words, this is an income
tax case and an income tax only.
Are you ready
for sentence?
MR. JUDSON:
Yes, your Honor.
THE COURT:
Have you any legal reason why sentence should not be pronounced at this
time?
MR. JUDSON:
No, your Honor.
THE COURT: It
is the judgment and sentence of the court, in case 3073, that the
defendant pay a fine of $1,000 on Count One and $1,000 on Count Two.
It is the
judgment and sentence of the court that in case 3093--in this case, it
rather seems to me he is going to have quite a lot of accounting to do.
I don't think
this is a penitentiary case under any circumstances. Here is a man who
has never been in any trouble, has lived in this community and raised a
family, and who, in the tumult and turmoil during the war, perhaps found
his acquisitiveness getting the better part of him, as a great many
other people do. That certainly is not to be condoned or forgiven; but,
at the same time, it is a factor which the court has to take into
consideration in having an understanding of a man's motives.
I think that
with the penalties that he will suffer by virtue of the automatic
operation of the law, and with the humiliation that comes to a man of
his age and circumstances and standing in the community by the
institution of proceedings alone, and now by a finding of guilty, that I
would not be justified in imposing more than a fine of $1,000 on Count
One and $1,000 on Count Two, in 3093, and that is the judgment of the
court.
MR. LAVEN:
What about the court's order for payment? Stand committed until paid?
THE COURT:
Stand committed until paid.
MR. JUDSON:
Will your Honor stay the payment of this until tomorrow?
THE COURT:
Stay of execution until
5:00 o'clock
tomorrow afternoon.
THE DEFENDANT:
Thank you, your Honor.
THE COURT: Is
the defendant on bond?
MR. JUDSON:
Yes, sir.
THE COURT:
Upon payment of the fine, his bond will be exonerated.
What is his
bond?
THE DEFENDANT:
$2500.
THE COURT:
Upon payment of his fine, the bond will be exonerated.
Do you wish
the exhibits withdrawn?
MR. JUDSON:
Yes, your Honor.
THE COURT: Or
do you want them left here?
MR. JUDSON: I
stipulate they may be withdrawn.
MR. LAVEN:
That is satisfactory.
THE COURT: If
you wish to appeal the case, they may be held here.
MR. JUDSON:
No, sir.
THE COURT: Do
you want to test the ruling before the Supreme Court?
MR. JUDSON:
No, your Honor.
THE COURT: The
stipulation that the exhibits may be withdrawn by the party producing
them is approved, and the clerk will return them to the parties
producing them.
The court is
adjourned until
9:30
tomorrow morning.