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

 

[87-1 USTC ¶9184] United States of America , Plaintiff-Appellee v. Otis Palmer, Defendant-Appellant

(CA-11), U.S. Court of Appeals, 11th Circuit, 85-8894, 2/13/87, Affirming in part, vacating in part and remanding an unreported District Court decision

[Code Sec. 7203 ]

Criminal penalties: Failure to file return: Evidence: Admissibility: Costs: Constitutionality.--The taxpayer was liable for the costs of prosecution when he was convicted of willful failure to file a federal income tax return under Code Sec. 7203 . The court held that the imposition of costs on a convicted defendant under Code Sec. 7203 was constitutional. However, the district court erred in assessing the taxpayer with the prosecution's costs attributable to the government's unsuccessful attempt to prove that the taxpayer violated Code Sec. 7201 . Finally, the district court did not err in admitting evidence of the taxpayer's involvement in illegal drug sales because the evidence established a motive for his conduct.

Frederick W. Kramer, III, Assistant United States Attorney, Savannah , Ga. 31412 , for plaintiff-appellee. Michael C. Garrett, 412 Greene St. , Augusta , Ga. 30901 , for defendant-appellant.

Before VANCE and EDMONDSON, Circuit Judges, and ALLGOOD ^*, Senior District Judge.

VANCE, Circuit Judge:

I.

Appellant Palmer was indicted in the Southern District of Georgia on three counts of willfully and knowingly attempting to evade the payment of income taxes in violation of 26 U.S.C. §7201 . After a five day trial, Palmer was found not guilty of violating 26 U.S.C. §7201 . The jury, however, returned a verdict of guilty on each count for the lesser included offense of willful failure to file a federal income tax return in violation of 26 U.S.C. §7203 . The district court sentenced Palmer to serve a term of three years in prison and pay a fine of $15,000. The district court further ordered Palmer to pay the total costs of the prosecution. The government submitted a bill for its costs totalling $57,970. Palmer appeals the judgment and the imposition of costs.

II.

Appellant presents three issues for review:

(1) whether the district court committed prejudicial error in admitting evidence of Palmer's involvement in illegal drug sales;

(2) whether the costs of prosecution provision of 26 U.S.C. §7203 unconstitutionally burdens a defendant's exercise of his right to a jury trial; and

(3) whether the district court erred in assessing all the prosecution's costs against Palmer.

III.

A. Evidence of Palmer's Involvement in Drug-Related Activity. Appellant complains that the trial judge improperly admitted evidence about Palmer's involvement in illegal drugs. He argues that this evidence of drug activity was so irrelevant and highly prejudicial that a new trial is required. There is no merit to this contention. The trial judge found substantial prosecutorial need for introducing the evidence of illicit drug sales. Palmer's involvement with drugs served to contradict his defense at trial that he was merely ignorant of his duty to file tax returns and lacked any intent to evade the payment of taxes. From the illegal source of the funds, a jury could reasonably infer an intent to conceal income. The evidence of his drug activity established a motive for Palmer's conduct: his extensive use of currency, failure to maintain records, acquisition of property in the names of family members, and failure to file tax returns can be understood to be affirmative acts of tax evasion.

The district court was careful to minimize any possible prejudice by giving clear limiting and final instructions to the jury. Throughout the trial, the district court maintained the jury's focus on the tax issues properly before it. See, e.g., United States v. Tafoya [85-1 USTC ¶9341 ], 757 F.2d 1522, 1527-28 (5th Cir.), cert. denied, -- U.S. --, 106 S.Ct. 252, 88 L.Ed. 2d 259 (1985). The jury's verdict of acquittal on the tax evasion counts demonstrates not only the success of the limiting instructions but also the jury's ability to consider impartially the tax charges against Palmer. Palmer argues that evidence of his drug involvement should have been excluded as unduly prejudicial under Rule 403 of the Federal Rules of Evidence. ¹ This court has previously cautioned that a district court's "Rule 403 determination . . . is accorded broad discretion, which we review only for clear abuse." United States v. King, 713 F.2d 627, 631 (11th Cir. 1983), cert. denied, 466 U.S. 942, 104 S.Ct. 1924, 80 L.Ed.2d 470 (1984). In light of the obvious prosecutorial need and the careful limiting instructions, the district court in no way abused its broad discretion in admitting evidence of Palmer's drug activity. See United States v. Carrillo [78-2 USTC ¶9528 ], 561 F.2d 1125, 1127 (5th Cir. 1977) (evidence of illegal sources of income "inextricably tied to the basic elements of proof of filing false tax returns"); United States v. Tafoya [85-1 USTC ¶9341 ], 757 F.2d at 1527 & n. 6 (defendant's unindicted criminal behavior necessary to prove tax violations) (and cases cited therein).

B. Constitutionality of the Costs of Prosecution Provision of 26 U.S.C. §7203 . In this case, this circuit addresses the constitutionality of the costs of prosecution provision of 26 U.S.C. §7203 for the first time. The two circuit courts that have confronted this issue have upheld the constitutionality of the imposition of costs on a convicted defendant. United States v. Wyman [84-2 USTC ¶9147], 724 F.2d 684 (8th Cir. 1984); United States v. Chavez [80-2 USTC ¶9688 ], 627 F.2d 953 (9th Cir. 1980), cert. denied, 450 U.S. 924, 101 S.Ct. 1376, 67 L.Ed.2d 353 (1981). We agree.

The challenged statute provides, in pertinent part:

Any person . . . [who willfully fails to file a return, supply information, or pay tax required by law] shall, in addition to other penalties provided by law, be guilty of a misdemeanor and, upon conviction thereof, shall be fined not more than $25,000 ($100,000 in the case of a corporation), or imprisoned not more than 1 year, or both, together with the costs of prosecution. [Emphasis supplied.]

The statute's grammatical structure and use of the word "shall" compel the conclusion that the costs of prosecution penalty is mandatory. See United States v. Wyman [84-2 USTC ¶9147], 724 F.2d 684, 688 (8th Cir. 1984); United States v. Chavez [80-2 USTC ¶9147], 627 F.2d 953, 954-55 (9th Cir. 1980), cert. denied, 450 U.S. 924, 101 S.Ct. 1376, 67 L.Ed. 2d 353 (1981); United States v. Troiani [85-2 USTC ¶9621 ], 595 F.Supp. 186, 187 (N.D.Ill. 1984). ²

Appellant relies principally on United States v. Jackson, 390 U.S. 570, 88 S.Ct. 1209, 20 L.Ed.2d 138 (1968). In Jackson the Supreme Court declared unconstitutional a provision of the Federal Kidnapping Act that authorized the death penalty if a jury so recommended it, but contained no procedure for imposing the death penalty upon a defendant who waived his right to a jury trial or pleaded guilty. The Supreme Court held that the death penalty provision had the "inevitable effect" of "discourag[ing] assertion of the Fifth Amendment right not to plead guilty and to deter exercise of the Sixth Amendment right to demand a jury trial." Id. at 581, 88 S.Ct. at 1216 (footnote omitted). Although the death penalty provision served proper governmental purposes, these objectives "cannot be pursued by means that needlessly chill the exercise of basic constitutional rights. . . . [T]he question is whether the effect is unnecessary and therefore excessive." Id. at 582, 88 S.Ct. at 1216. Palmer argues that the mandatory costs of prosecution provision of §7203 , like the death penalty provison in Jackson , "unnecessarily" and "needlessly" chilled his right to demand a jury trial.

Palmer claims further support from United States v. Glover, 588 F.2d 876 (2d Cir. 1978). While upholding a discretionary costs of prosecution provision in 28 U.S.C. §1918(b), the Glover court intimated that a mandatory provision might be unconstitutional. It opined that "[i]f the statute directed that costs of prosecution be assessed against all convicted defendants, there would be some basis for concern that it served to 'chill the assertion of constitutional rights by penalizing those who choose to exercise them.' " Id. at 878 (quoting Fuller v. Oregon, 417 U.S. 40, 54, 94 S.Ct. 2116, 2125, 40 L.Ed.2d 642 (1974)).

The Supreme Court has consistently refused to adopt the broad reading of Jackson that the appellant urges here, and we thus decline to follow any dicta in Glover to the contrary. As the Court stated in Chaffin v. Stynchcombe, 412 U.S. 17, 30, 93 S.Ct. 1977, 1984, 36 L.Ed.2d 714 (1973), "Jackson did not hold, as subsequent decisions have made clear, that the Constitution forbids every government-imposed choice in the criminal process that has the effect of discouraging the exercise of constitutional rights." Chaffin involved a constitutional challenge by a defendant who received a harsher sentence on retrial than he had at the original trial. The Court found no constitutional infirmity, despite Chaffin's claim that Jackson compelled that the harsher sentence be struck down. The Chaffin court ruled that Chaffin's rights were not impermissibly chilled since the threat of a harsher sentence was speculative and simply another of the difficult choices which were an "inevitable attribute" of our judicial system. Id. at 31, 33-35, 93 S.Ct. at 1986-87.

Similarly, in Fuller v. Oregon, 417 U.S. 40, 94 S.Ct. 2116, 40 L.Ed.2d 642 (1974), the defendant argued that Jackson mandated the invalidation of an Oregon recoupment scheme. Oregon required indigent defendants who subsequently acquired financial resources to repay the state the costs of their legal defense. Fuller contended that the knowledge that he may later be obligated to repay the costs of his legal defense could have impelled him to decline the services of an appointed attorney, and thus his constitutional right to counsel was chilled. The Supreme Court rejected this argument. Since the recoupment statute was tailored to impose an obligation on only those who were able to repay costs, assessing costs on these defendants was not unnecessary to achieve its governmental purposes nor was it likely to substantially chill a defendant's rights.

The Supreme Court in Corbitt v. New Jersey , 439 U.S. 212, 99 S.Ct. 492, 58 L.Ed.2d 466 (1978), again cautioned that "[t]he cases in this Court since Jackson have clearly established that not every burden on the exercise of a constitutional right, and not every pressure or encouragement to waive such a right, is invalid." Id. at 218, 99 S.Ct. at 497 (footnote omitted). The defendant in Corbitt attacked a New Jersey homicide statute which made life imprisonment the mandatory punishment for defendants convicted of first-degree murder, but which allowed a judge to impose either life imprisonment or the second degree murder term of not more than 30 years for a defendant who enters a plea of non vult. The Supreme Court concluded "that Jackson does not require a reversal of Corbitt's conviction. . . . [T]he pressures to forgo trial and to plead to the charge in this case are not what they were in Jackson ." Id. at 217, 99 S.Ct. at 496. The State in within its rights in encouraging a guilty plea by offering substantial benefits in return for the plea.

The States and the Federal Government are free to abolish guilty pleas and plea bargaining; but absent such action, as the Constitution has been construed in our cases, it is not forbidden to extend a proper degree of leniency in return for guilty pleas.

Id. at 223, 99 S.Ct. at 499. See also McGautha v. California, 402 U.S. 183, 91 S.Ct. 1454, 28 L.Ed.2d 711 (1971) (Ohio procedure where jury determined both guilt and punishment in single trial did not violate Jackson), vacated on other grounds, 408 U.S. 941, 92 S.Ct. 2873, 33 L.Ed.2d 765 (1972); Brady v. United States, 397 U.S. 742, 90 S.Ct. 1463, 25 L.Ed.2d 747 (1970) (Jackson did not require invalidation of every guilty plea entered under the Federal Kidnapping Act prior to Jackson decision); Ludwig v. Massachusetts, 427 U.S. 618, 96 S.Ct. 2781, 49 L.Ed.2d 732 (1976) (additional financial cost and potentially harsher sentence in Massachusetts two-tier system of initial non-jury trial and optional de novo jury trial did not violate Jackson).

The Congress may have had any number of constitutionally permissible purposes in approving the costs of prosecution provision of §7203 . The legitimate governmental ends would include recovery of expenditures by the government and imposition of additional punishment. The provision achieves these objectives without needlessly chilling the exercise of constitutional rights. Unlike the Federal Kidnapping Act in Jackson , §7203 does not involve "the death penalty, which is 'unique in its severity and irrevocability.' " Corbitt v. New Jersey , 439 U.S. at 217, 99 S.Ct. at 496 (quoting Gregg v. Georgia, 428 U.S. 153, 96 S.Ct. 2909, 49 L.Ed.2d 859 (1976)). Athough the Jackson rationale is not limited to death penalty cases, the greater "chilling effect" of a death sentence undeniably represents a material factor in evaluating the burden on constitutional rights. See id.; Hitchcock v. Wainwright, 770 F.2d 1514, 1525 (11th Cir.1985) (Johnson, J., dissenting from en banc decision), cert. granted in part, -- U.S. --, 106 S.Ct. 2888, 90 L.Ed.2d 976 (1986). Equally important is that §7203 does not necessarily subject a criminal defendant to substantially increased punishment. The mere possibility of a substantial increase does not have an impermissibly chilling effect on the rights of a defendant. As the Ninth Circuit reasoned in Chavez: We cannot say with any confidence that the costs of prosecution provision of §7203 does in fact penalize a defendant's exercise of his constitutional rights. Section 7203 provides for a punishment of not more that $10,000, or more than one year imprisonment, or both. Any sentence that would be imposed upon conviction, within those bounds, would be within the ordinary discretion of the trial judge. The presence of the mandatory costs of prosecution provision does not, with any degree of certainty, substantially increase the threatened punishment. Any encouragement of the waiver of constitutional rights that this provision may induce is substantially different from the pressures that undeniably existed in Jackson , and cannot be said to be an impermissible burden upon the exercise of constitutional rights. In light of the fact that the provision does serve legitimate government purposes, we cannot say that it needlessly encourages the waiver of constitutional rights.

627 F.2d at 957. See also United States v. Wyman, 724 F.2d 684, 688 (8th Cir.1984).

C. Calculation of the Costs of Prosecuting Palmer. Appellant maintains that even if the costs of prosecution provision of §7203 is constitutional, the $57,970 figure assessed by the district court in this case is excessive. It is inequitable to tax him for these costs, in Palmer's view, because the government could have obtained the same result without the expense of a trial. Palmer claims that he never denied that he willfully failed to file timely returns and that he had offered to plead guilty to a violation of §7203 in exchange for the government's dropping of the other charges against him. Nevertheless, the fact remains that Palmer did not plead guilty. He contested the charges and the government was obligated to incur significant costs in proving that he willfully failed to file a return. The government was under no obligation to enter into any plea bargaining or to accept any deal offered by Palmer. See Weatherford v. Bursey, 429 U.S. 545, 561, 97 S.Ct. 837, 846, 51 L.Ed.2d 30 (1977); United States v. Pleasant, 730 F.2d 657, 664 (11th Cir.), cert. denied, 469 U.S. 869, 105 S.Ct. 216, 83 L.Ed.2d 146 (1984). A myriad of factors enter into plea bargaining decisions, and the decision to reject a proposed deal is entirely within the prosecutor's discretion. A defendant cannot thwart the statutorily mandated imposition of the costs of prosecution by proposing a plea bargain offer. Palmer could have minimized his liability for costs of prosecution by pleading guilty to the crime of which he was convicted. Merely offering to plead guilty during plea negotiations is insufficient to relieve Palmer of the costs of prosecution.

Appellant also complains that the district court erred in assessing him with all the prosecution's costs, rather than only those costs incurred in proving the §7203 violation. The government in its arguments to this court conceded that the $57,970 figure improperly includes costs attributable to its unseccessful attempt to prove that Palmer violated §7201 . There is no dispute that "a defendant convicted on fewer than all the counts of an indictment cannot be properly taxed with the costs of the counts on which he was acquitted or otherwise discharged." United States v. Troiani, 595 F.Supp. 186, 187 (N.D.Ill. 1984). See also United States v. DeBrouse, 652 F.2d 383 (4th Cir.1981); United States v. Miller, 223 F. 183 (S.D.Ga.1915); Commonwealth v. Smith, 329 Pa.Super. 440, 361 A.2d 881 (Pa.Super.Ct.1976). The goverment assures this court that only four witnesses offered testimony which was not material to the offense for which the defendant was convicted. The government states that the cost of presenting these four witnesses was $3,525 and agrees that the imposition of costs ordered by the district court should be reduced by that amount. Palmer, on the other hand, strongly protests the government's allocation of costs. He argues that much of the evidence offered by the government went toward proving the elements of the offense of tax evasion and that the costs of putting on this evidence far exceeded $3,525. It would be inappropriate for this court to resolve this factual dispute. In addition, the evidence presented must be more than merely relevant, the cost incurred in presenting such evidence must be reasonable and necessary to the proof of the §7203 offense. The district court is the proper factfinder to determine which of the costs incurred by the prosecution were reasonable and necessary to prove Palmer's violation of §7203 . We return this case to the district judge for this determination.

IV.

We find no error in the district court's conduct of the trial and affirm the judgment of guilty. We also uphold the constitutionality of the costs of prosecution provision of §7203 . The taxation of costs serves legitimate governmental purposes and does not impermissibly chill the rights of defendants. The distrit court erred, however, in assessing Palmer with costs that were properly allocable to the §7201 charge of which he was acquitted. Consequently, we vacate the district court's costs award and remand this case to the district court to determine what portion of the prosecution's costs were reasonable and necessary to prove Palmer's violation of §7203 and to enter an order imposing costs in accordance with its findings.

AFFIRMED in part; VACATED in part and REMANDED.

^* Honorable Clarence W. Allgood, Senior U.S. District Judge for the Northern District of Alabama, sitting by designation.

¹ Fed. R. Evid. 403 provides:

Although relevant, evidence may be excluded if its probative value is substantially outweighed by the danger of unfair prejudice, confusion of the issues, or misleading the jury, or by considerations of undue delay, waste of time, or needless presentation of cumulative evidence.

² "The use of the word 'shall' in the statute, although not entirely controlling, is of significant importance, and, indicates an intention that the statute should be construed as mandatory." United States v. Chavez, 627 F.2d at 955 (quoting United States v. Rands, 224 F.Supp. 305, 306-7 (D.Or. 1963), reversed on other grounds, 367 F.2d 186 (9th Cir. 1966), reversed, 389 U.S. 121, 88 S.Ct. 265, 19 L.Ed.2d 329 (1967)). The language in predecessor statutes also supports the mandatory imposition of costs. See 627 F.2d at 954.

[84-1 USTC ¶9201]United States of America, Appellee v. John M. Grabinski, Appellant

(CA-8), U. S. Court of Appeals, 8th Circuit, No. 83-1475, 727 F2d 681, 2/2/84, Affirming and reversing a decision of the District Court, 83-2 USTC ¶9460

[Code Sec. 7203]

Suits by United States: Criminal conviction upheld: Court costs award reversed.--A tax protestor's conviction for failure to make federal income tax returns was upheld. However, an award for court costs relating to the travel and subsistence expenses of a witness and a government attorney was reversed. The witness was not material to the government's case and the government did not present statutory or other legal authority supporting an award for the attorney's expenses.

James M. Rosenbaum, United States Attorney, Glenn L. Archer, Jr., Assistant United States Attorney General, Michael L. Paup, Rob ert E. Lindsay, James P. Springer, Department of Justice, Washington, D. C. 20530, for appellee. Donald W. MacPherson, MacPherson & McCarville, 10220 N. 31st Ave., Phoenix, Ariz. 85021, for appellant.

Before HEANEY and MCMILLIAN, Circuit Judges, and HENLEY, Senior Circuit Judge.

HEANEY, Circuit Judge:

John M. Grabinski was convicted on two counts of failure to make federal income tax returns for calendar years 1975 and 1976 in violation of 26 U. S. C. §7203 (1976). He was sentenced to one year imprisonment plus payment of the costs of prosecution on each count, the sentences to run concurrently. Pursuant to this sentence, the court subsequently awarded the United States $6,446.09 in prosecution costs. Grabinski appeals from the judgment of conviction and the denial of his post-trial motion, and challenges specific items included in the award of prosecution costs. We affirm Grabinski's conviction but reverse the award of prosecution costs in part.

Grabinski is no stranger to this Court. In September of 1981, a panel of the Court dismissed for lack of jurisdiction his appeal from the district court's denial of various pretrial motions. United States v. Grabinski, 664 F. 2d 293 (8th Cir. 1981) (decided without published opinion). On rehearing that decision en banc, the full Court followed the panel, holding that Grabinski had not raised a colorable claim of double jeopardy subject to interlocutory appeal nor any other ground for appellate review prior to his trial on the merits. United States v. Grabinski, 674 F. 2d 677 (8th Cir.) (en banc; per curiam) (Heaney, J., concurring; Lay, C. J., with Stephenson and McMillian, JJ., dissenting in part), cert. denied, 103 S. Ct. 67 (1982).

The facts underlying Grabinski's conviction are not in dispute: He filed federal income tax returns as required by law until 1975. In that year, he filed a return for calendar year 1974 without answering a question regarding foreign accounts and without a Form 4683, which was required of taxpayers with an interest in foreign bank accounts. He omitted this information to conceal his ownership of gold in a foreign account.

For calendar year 1975, he filed a Form 1040 containing for the most part objections to giving any information based on the fourth and fifth amendments to the United States Constitution. He objected to questions regarding his gross income, deductions, exemptions, and credits, but entered the figure 6540.72, explained in the margin as "taxable income in lawful U. S. dollars," as his taxable income. From this figure, he estimated his tax from the tax tables, subtracted two figures for a personal exemption and unexplained credits, and finally asserted that he was entitled to a $3,555.74 refund from the government. Attached to this Form 1040 were over one hundred pages of tax protest materials.

For calendar year 1976, Grabinski filed a Form 1040 similar to his form for 1975, except he asserted that his taxable income for the latter year was zero. Because he had his employer discontinue withholding money from his salary for federal taxes prior to January 1, 1976, he claimed no tax liability and no refund owing for 1976. Most of the remaining lines relating to gross income, deductions, exemptions, and credits had the notation "OBJECT" with reference in the margin to his fourth and fifth amendment claims. Over one hundred pages of tax protest materials also accompanied this form.

The criminal proceedings flowing from this apparent cat-and-mouse approach to the federal tax laws were as follows: In late 1980, a federal grand jury in the Eastern District of Missouri indicted Grabinski for failure to make an income tax return for calendar year 1976. Among numerous pretrial motions, Grabinski moved for dismissal for want of jurisdiction or for a change of venue to the District of Minnesota, alleging that he was a lifelong resident of St. Paul, Minnesota. The United States District Court for the Eastern District of Missouri denied the motion to dismiss but agreed that the place of trial should be St. Paul. ¹ See 18 U. S. C. §3237(b) (1982); Fed. R. Crim. P. 21(b). The Missouri court, sitting in St. Paul, later reconsidered Grabinski's earlier motion concerning jurisdiction and dismissed the case without prejudice on March, 23, 1981. ² The court's ruling was apparently predicated upon a finding that Grabinski's residence when he filed his Form 1040 for 1976 was Minnesota, rather than Missouri as alleged in the indictment. The Internal Revenue Code requires personal returns to be filed in the district of one's legal residence or at an IRS service center for that district, 26 U. S. C. §6091(b)(1)(A)(i) & (ii) (1976), and federal law requires that a criminal prosecution must be brought at least initially in a district in which the offense was committed, see 18 U. S. C. §3232 (1982); Fed. R. Crim. P. 18. See also U. S. Const. art. III, §2 & amend. VI (constitutional venue and vicinage provisions).

On March 30, 1981, the government filed an information in the District of Minnesota charging Grabinski with two counts of failure to make tax returns for calendar years 1975 and 1976 respectively. Both counts alleged that the returns should have been made to the IRS office in St. Paul or the service center for the Minnesota district in Ogden, Utah. Grabinski raised numerous pretrial motions before the Minnesota district court, most of which were denied. He brought interlocutory appeals of several of the court's pretrial rulings which we dismissed for lack of appellate jurisdiction. See United States v. Grabinski, supra, 674 F. 2d at 681. Following a five-day trial, the jury found Grabinski guilty on both counts. The Minnesota district court, in a detailed memorandum opinion, denied Grabinski's motion for post-trial relief from the jury verdict.

Grabinski raises several issues on appeal. Five of these contentions deserve specific comment. First, and most importantly, he alleges that the district court erred in denying his motion for a judgment of acquittal because the prosecution of the Minnesota information was vindictive. We disagree. Our earlier en banc decision did not reach the merits of this issue. United States v. Grabinski, supra, 674 F. 2d at 680. Three judges at that time opined that the facts of the present case raised a presumption of prosecutorial vindictiveness and that such a claim was a collateral issue appealable before a final decision on the merits. Id. at 681-683 (Lay, C. J., with Stephenson and McMillian, JJ., dissenting in part). See Blackledge v. Perry, 417 U. S. 21, 25-29 (1974); United States v. DeMarco [77-1 USTC ¶9354], 550 F. 2d 1224, 1226-1227 (9th Cir.), cert. denied, 434 U. S. 827 (1977). That opinion was given, however, without the benefit of the Supreme Court's decision in United States v. Goodwin, 457 U. S. 368 (1982), decided after our en banc opinion in this case.

In Goodwin, the government obtained a felony indictment to supersede previously filed misdemeanor charges after the defendant demanded a trial by jury. Id. at 370. The Supreme Court declined to adopt an inflexible rule presuming vindictiveness whenever a prosecutor increases the stakes of criminal punishment in a pretrial setting. Id. at 381. The Court stated, "[A] defendant before trial is expected to invoke procedural rights that inevitably impose some 'burden' on the prosecutor. * * * It is unrealistic to assume that a prosecutor's probable response to such motions is to seek to penalize and to deter." Id. Given the timing of the superseding indictment and the facts before it, the Court held that no presumption of vindictiveness was warranted. Id.

Without deciding whether in other circumstances pretrial activity by a prosecutor might raise a presumption of vindictiveness, we hold that such a presumption is not warranted here. The government in this case was faced with two separate acts of alleged misconduct, and Grabinski apparently spent substantial amounts of time from 1975 through 1977 in Fort Worth, Texas; St. Louis, Missouri; and St. Paul, Minnesota. Given the information possessed by the government when the Missouri indictment was obtained, including letters from Grabinski, he apparently could not have been prosecuted for his 1975 and 1976 violations in the same jurisdiction absent his consent, because he claimed residence in St. Louis when the form for 1976 was filed and resided in either Texas or Minnesota when the form for 1975 was filed. Thus, the initial decision to bring only one count in Missouri was reasonable.

Subsequent to this decision, Grabinski raised several motions in the Missouri district court, supported by affidavits and exhibits, alleging that he was a lifelong resident of St. Paul and thus could not be prosecuted for failure to make a return for 1976 in Missouri. The government did not accept Grabinski's change in position but continued its prosecution based on his earlier representations and the information in its file. Not until March 23, 1981, when the Missouri court sitting in St. Paul determined prior to Grabinski's trial that he in fact was a lifelong resident of St. Paul, could the government be sure that the prosecution of both alleged violations would be proper in the Minnesota forum. The government did not seek the March 23 decision dismissing its case without prejudice; indeed, it opposed Grabinski's claim as just another ploy to escape prosecution on one or both of his violations. Contrary to Grabinski's assertion on appeal, the government's assessment of the proper scope of prosecution had not "crystallized," as that term is used in Goodwin, until this judicial determination of Grabinski's residence. United States v. Goodwin, supra, 457 U. S. at 381. Therefore, the addition of a count for Grabinski's failure to make a return for 1975 after his jurisdictional victory before the Missouri court regarding his failure to make a return for 1976 did not raise a presumption of prosecutorial vindictiveness.

Absent any presumption of improper prosecutorial activity, Grabinski presented no independent evidence to support his vindictiveness claim. The government's investigation of his tax dealings apparently continued to be focused on both his forms for 1975 and 1976 throughout these proceedings. He does not allege that he was threatened with additional charges during his various pretrial motions before the Missouri court, and he points to no concrete indication by the government that it would not pursue his failure to make a return for 1975. For these reasons, we affirm the district court's denial of Grabinski's motion for a judgment of acquittal based on his allegation of prosecutorial vindictiveness. ³

Second, Grabinski contends that the district court should have submitted to the jury the issue of whether his forms for 1975 and 1976 were tax returns. He argues that the court's failure to do so violated his constitutional right to a jury trial. See U. S. Const. amend. VI. We agree with the district court that the issue of whether a return is valid for section 7203 purposes is a question of law for the court to decide. See United States v. Moore [80-2 USTC ¶9627], 627 F. 2d 830, 834 (7th Cir. 1980), cert. denied, 450 U. S. 916 (1981). This is particularly true in a case in which a return is invalid because of an improper assertion of the fifth amendment privilege against self-incrimination. United States v. Farber [80-2 USTC ¶9580], 630 F. 2d 569, 573-574 (8th Cir. 1980), cert. denied, 449 U. S. 1127 (1981) (conviction set aside on other grounds, see 679 F. 2d 733, 735 n. 3 (8th Cir.), cert. denied, 103 S. Ct. 163 (1982)). This determination can be made from the face of the document which a taxpayer files and in no way removes from the jury fact questions regarding whether a defendant was required to file a return; whether a defendant actually failed to make a return which the court would find valid, for example, where a valid return was arguably submitted but lost by the IRS; and whether a failure to file was willful.

Third, Grabinski argues that, even if the question of what is a valid return is for the court to decide, the district court erred in finding that his forms for 1975 and 1976 were not returns. He bases this argument upon language in federal circuit court decisions to the effect that "[a] taxpayer's return which does not contain any information relating to the taxpayer's income from which the tax can be computed is not a return within the meaning of the Internal Revenue Code or the regulations adopted by the Commissioner." United States v. Porth [70-1 USTC ¶9329], 426 F. 2d 519, 523 (10th Cir.), cert. denied, 400 U. S. 824 (1970) (citations omitted). See also United States v. Daly [73-2 USTC ¶9574], 481 F. 2d 28, 29-30 (8th Cir.), cert. denied, 414 U. S. 1064 (1973) (per curiam). He contends that the taxable income figures entered on his forms for 1975 and 1976, 6540.72 and zero respectively, enabled the IRS to compute his tax liability and thus those forms constituted tax returns under this test. The district court stated "that a taxpayer who fails to provide all of the information required by the Internal Revenue Code (Title 26) or the regulations promulgated thereunder has not filed a return for purposes of §7203." United States v. Grabinski [83-2 USTC ¶9460], No. 3-81 Cr. 35, slip op. at 15 (D. Minn. March 16, 1983) (memorandum order). Because the court found that Grabinski's assertion of constitutional rights to avoid providing information on his forms for 1975 and 1976 was improper, it held that these forms did "not constitute returns." Id., slip op. at 18.

While we agree with the court's holding, we think that the test stated in its memorandum order is unnecessarily broad. What is important in the determination of the validity of a tax return for section 7203 purposes is whether there is sufficient information given from which the IRS can calculate tax liability based on the circumstances of the taxpayer's income year. See United States v. Smith [80-2 USTC ¶9476], 618 F. 2d 280, 281 (5th Cir.), cert. denied, 449 U. S. 868 (1980) (per curiam); United States v. Edelson [79-2 USTC ¶9564] 604 F. 2d 232, 234 (3d Cir. 1979); United States v. Irwin [77-2 USTC ¶9627], 561 F. 2d 198, 200-201 (10th Cir. 1977), cert. denied, 434 U. S. 1012 (1978). The IRS should not have to accept on faith the taxpayer's assertions regarding taxable income or tax liability without knowledge of circumstances regarding, among other things, gross income received or deductions claimed. On the other hand, omission of isolated information not seriously hampering the IRS's ability to check a taxpayer's asserted tax liability--for example, the omission of a taxpayer's social security number or the nondisclosure of the names of one's dependent children--does not invalidate a return under section 7203. This is not an abandonment of the language used in Porth, Daly, and other decisions, but rather a refinement of the test set forth in those cases based on their particular facts.

Grabinski's provision of only the bottom line figures on his Forms 1040 for 1975 and 1976 failed to give the IRS information sufficient to determine if those figures were arithmetically correct and properly computed. His bald assertions that his taxable income was 6540.72 "lawful U. S. dollars" in 1975 and zero in 1976 gave the IRS no clue as to his gross income in those years or the adjustments he made to arrive at his taxable income figures. The IRS could not determine whether his income was derived from wages, salaries, tips, interest, or other sources. It could not determine if he had claimed moving expense deductions, itemized deductions, or personal exemptions in excess of those allowed by law. It could not even check his arithmetic between his gross and taxable income computations.

Under these circumstances, we find that the district court correctly held that the forms were not tax returns as a matter of law. Cf. United States v. Long [80-2 USTC ¶9480], 618 F. 2d 74, 75-76 (9th Cir. 1980) (per curiam) (succession of zeros on tax form, even if untrue as a matter of fact, held sufficient information to constitute a tax return). We realize that the "sufficient financial circumstances" test which we use here provides little guidance for tax protesters wishing to tread closely the line of compliance with the law. The best guidance we can give, however, is to provide all information requested by the IRS which is not subject to a valid constitutional or otherwise legal privilege.

Fourth, Grabinski asserts that the trial in Minnesota for his failure to make a return for 1976 after a similar charge was dismissed by the Missouri court for lack of jurisdiction amounted to unconstitutional double jeopardy. See U. S. Const. amend. V. We earlier found en banc, however, that the same claim brought during Grabinski's interlocutory appeal was not colorable because jeopardy had not attached under the Missouri indictment at the time that case was dismissed. Grabinski v. United States, supra, 674 F. 2d at 680. Even were this not law of the case as to the merits of his double jeopardy claim, we would reach the same result on a de novo review of the issue. Although the district court may have decided to dismiss the Missouri case without prejudice based upon the resolution of a factual issue--venue of the offense charged--which would have been a jury question if brought to trial, see United States v. Black Cloud, 590 F. 2d 270, 272 (8th Cir. 1979), prior jeopardy does not attach to rulings made in a pretrial setting. Serfass v. United States, 420 U. S. 377, 391-392 (1975). See also United States v. Scott, 437 U. S. 82, 98-99 (1978) (no prior jeopardy where defendant successfully seeks termination of criminal proceedings on a basis unrelated to factual guilt or innocence). Since Grabinski was not in prior jeopardy when the Missouri court dismissed the case without prejudice for lack of jurisdiction, his subsequent Minnesota trial did not place him in double jeopardy.

Fifth, Grabinski contests the district court's award of prosecution costs for the travel and subsistence expenses of IRS Special Agent Ronald Oila and of the government's trial attorney Susan Murname, $1,015.51 and $1,046.50 respectively. The government cites no statute or case law directly allowing the award of these costs. Rather, it alleges that Grabinski should bear Oila's expenses because his counsel called Oila as a witness and that he should bear Murname's expenses because he failed to object to this part of the award below. After reviewing the record, we are convinced that Oila was not a material witness to the government's case and that Grabinski's earlier subpoena of Oila, prior to Oila's moving to Alaska, was not the reason that Oila attended the trial. Furthermore, we consider the award of attorney's expenses for Murname without statutory or other legal authority to be plain error. Therefore, we reverse the award of prosecution costs as to these two items and reduce the total award for prosecution costs from $6,446.09 to $4,384.08.

We have carefully considered each of Grabinski's other claims--including his assertions regarding his fifth amendment right not to have his pretrial testimony before the Missouri court used against him, his right to a speedy trial, the due process clause, and the right to a superseding grand jury indictment in Minnesota. We find no merit to these remaining claims and think it unnecessary to comment specifically on each.

For the foregoing reasons, we affirm Grabinski's conviction on both counts of failure to make tax returns but reverse the district court's award of prosecution costs in the amount $2,062.01, for a remaining award to the government of $4,384.08.

¹ In our previous en banc opinion, we indicated that the Missouri district court denied Grabinski's motion for change of venue. United States v. Grabinski, 674 F. 2d 677, 678 (8th Cir.), cert. denied, 103 S. Ct. 67 (1982) (per curiam). This statement addressed venue in the sense of which district court should try the offense, not the place at which the trial would take place at the defendant's request.

² In our en banc opinion, we stated, "On March 23, 1981, * * * the court, on its own motion, dismissed the case without prejudice for lack of jurisdiction." Id. On closer analysis, it is clear that the Missouri district court decided sua sponte to reconsider the motion earlier filed by Grabinski and gave his counsel every opportunity to withdraw that motion. Tr. at 1-7 (March 23, 1981). Counsel declined that opportunity, however, so the subsequent dismissal without prejudice may properly be considered as having been on defendant's motion. In any event, the distinction between a sua [sic]

³ Even if the timing and the nature of the government's actions in this case raised a presumption of prosecutorial vindictiveness, we would find that the presumption was rebutted by the exhibits and testimony in the record and the arguments made by the government in its responses to Grabinski's prosecutorial vindictiveness motions and claims.

 

 

[85-2 USTC ¶9621]United States of America, Plaintiff v. Alfred Troiani, Rob ert Wilson, Marshall DeFrank, John Hadala, Rob ert Hucek, Sam Marciareillo and Anthony Pinto, Defendants

U. S. District Court, No. Dist. Ill., East. Div., No. 83 CR 650, 8/24/84, 595 F. Supp. 186

[Code Sec. 7203]

Crimes: Failure to file returns: Costs.--The taxpayers, who were tried for felony gambling and conspiracy charges and for misdemeanor tax law violations for failure to file returns, were liable for one half of the government's costs in preparing and trying the case. Although the taxpayers were acquitted on the felony charges, it was necessary that they pay a portion of the costs and, since an exact allocation was impossible, one half of the total costs were assessed.

Memorandum Order

ASPEN, District Judge:

On April 12, 1984, the defendants were acquired of felony charges of conspiracy and operation of an illegal gambling business under 18 U. S. C. §§ 371 and 1955, but were convicted of misdemeanor tax law violations related to gambling under 26 U. S. C. §7203. Presently before the Court is the government's motion for the costs of prosecution pursuant to 26 U. S. C. §7203, in the amount of $13,981.12. For the reasons set forth below, the government's motion is granted in part and denied in part.

It is clear that defendants must be taxed for some amount of costs under Section 7203. The statute states in no uncertain terms that any person convicted of willfully failing to pay taxes or file returns shall incur certain penalties "together with the costs of prosecution." The Court may not ignore this statutory mandate. United States v. Wyman [84-1 USTC ¶9147], 724 F. 2d 684, 688 (8th Cir. 1984); United States v. Chavez [80-2 USTC ¶9688], 627 F. 2d 953, 954 (9th Cir. 1980), cert. denied, 450 U. S. 924, 101 S. Ct. 1376 (1981).

However, disposition of the government's motion is complicated by the fact that the government prosecuted defendants not only for violations of Section 7203, but also on felony charges on which defendants were acquitted. Several courts have held that a defendant convicted on fewer than all the counts of an indictment cannot be properly taxed with the costs of the counts on which he was acquitted or otherwise discharged. E.g., United States v. DeBrouse, 652 F. 2d 383 (4th Cir. 1981); United States v. Miller, 223 F. 183 (S. D. Ga. 1915); State v. Faulkner, 75 Wyo. 104, 292 P. 2d 1045 (1956); Commonwealth v. Smith, 239 Pa. Super. 440, 361 A. 2d 881 (1976). Thus, the Court is faced with the question of which costs should be attributed to the prosecution of the Section 7203 violations and which should be attributed to the felony prosecution.

Defendants argue that almost none of the costs requested by the government were needed for the Section 7203 prosecution, but rather were related solely to the felony charges. The government, on the other hand, claims that essentially the same evidence was required for both the felony and the misdemeanor counts, and that each element contained in the motion for costs was necessary to prove violations of Section 7203. We believe the reality lies somewhere between these two positions. Because it would be impossible to determine precisely how each cost item should be allocated between the felony and misdemeanor charges, we hold that the government is entitled to recover one half the amount of costs it has requested. Accordingly, defendants will be taxed for costs totalling $6,990.56. ¹ It is so ordered.

¹ We note that where defendants are jointly indicted, tried and convicted, each one is jointly and severally liable to pay the entire amount of costs. United States v. Jemison, 14 F. 2d 755 (S. D. Ala. 1926); Kennedy v. People, 122 Ill. 649, 13 N. E. 213 (1887). Any defendant paying more than his pro rata share of costs is entitled to contribution form his co-defendants. E.g., Newman v. State, 160 Ala. 102, 49 So. 786 (1909). The Court assumes the parties in this case will attempt to ensure that each defendant pays his portion of the costs, thus making any action for contribution unnecessary.

 

 

[83-2 USTC ¶9531]Clarence W. Steinbrecher and Jeannette D. Steinbrecher, Petitioners-Appellants v. Commissioner of Internal Revenue, Respondent-Appellee

(CA-5), U. S. Court of Appeals, 5th Circuit, No. 83-4074, Summary Calendar, 712 F2d 195, 8/15/83, Affirming unreported District Court decision

[Code Secs. 6012 and 7203]

Who must file: Individuals: Constitutionality of return filing requirement: Failure to file return: Self-incrimination: Costs.--Taxpayers who asserted that information they revealed might be used against them but gave no indication of the issues on which they feared prosecution were not entitled to Fifth Amendment protection, since their claim of the privilege was based on sheer speculation. Taxpayers met the requirements for individuals who must file a return and the issues they sought to litigate were so lacking in merit as to subject them to the imposition of double costs.

Clarence W. and Jeannette D. Steinbrecher, 66 Wayside Dr., San Antonio, Tex. 78213, pro se. Glen L. Archer, Jr., Assistant Attorney General, Michael L. Paup, Gary R. Allen, Kenneth L. Greene, Department of Justice, Washington, D. C. 20530, Kenneth W. Gideon, John H. Menzel, Henry G. Salamy, Internal Revenue Service, Washington, D. C. 20224, for respondent-appellee.

Before RUBIN, JOHNSON and WILLIAMS, Circuit Judges.

PER CURIAM:

Taxpayers, a husband and wife, appeal the determination of the Tax Court that they owe income taxes, interest, and penalties for the years 1975 through 1979. We affirm the decision of the Tax Court and, finding the appeal patently frivolous, award double costs to the Commissioner.

Clarence Steinbrecher submitted to the Internal Revenue Service Forms 1040 for the taxable years 1975 through 1979 in which he reported no income and no income tax liability and with respect to which he paid no tax. He stated on the forms that he objected to answering all questions regarding his income "on the grounds of the 4th and 5th amendment of the U. S. Constitution." His wife, Jeannette Steinbrecher, filed individual returns for the years 1976 and 1977, reporting income from wages in the respective amounts of $10,716.50 and $2,564.42. She filed no returns for the years 1978 and 1979.

After deficiencies were assessed, the taxpayers filed petitions for redetermination in the Tax Court, which consolidated the various cases for trial. The Commissioner made a host of discovery efforts, which it is unnecessary to recount in detail, seeking to prepare the cases for trial. The taxpayers repeatedly failed to respond. Finally, Clarence Steinbrecher appeared at a hearing and agreed to produce all available books and records. Yet the taxpayers then failed to produce any records or books. Instead, at a continuation of the hearing, they reasserted an alleged fifth amendment privilege.

The Tax Court rejected their fifth amendment claim on the basis that it was remote and speculative and on the further basis that it was frivolous. It held, under its Rule 104(c)(3), ¹ that the taxpayers' "persistent, unwarranted and unjustified conduct constitutes a default" and dismissed the petitions, sustaining the deficiency determinations.

The taxpayers now assert various errors in the computations and deny the accuracy of the computations and of the assessments of tax, interest, and penalties. None of these is properly the subject of our review. For it is well established that, if the taxpayer disobeys an order of the Tax Court, dismissal or entry of judgment by default is appropriate. ² The Tax Court's imposition of such sanctions for failure to comply with its orders must be sustained on appeal unless the dismissal constitutes an abuse of the court's discretion. ³ In dismissing these taxpayers' cases and entering decisions sustaining the deficiencies in question, the Tax Court acted well within its discretion.

The taxpayers' argument that they were entitled to rely on the fifth amendment in refusing to file adequate returns and to comply with the orders of the Tax Court is frivolous. The fifth amendment privilege against self-incrimination protects an individual from being compelled to disclose information that could reasonably be expected to furnish evidence needed to prosecute the claimant for a crime. Kastigar v. United States, 406 U. S. 441, 445, 92 S. Ct. 1653, 1656, 32 L. Ed. 2d 212, 217 (1972); Hoffman v. United States, 341 U. S. 479, 486, 71 S. Ct. 814, 818, 95 L. Ed. 1118, 1124 (1951). It, therefore, applies only when the possibility of self-incrimination is a real danger, not a remote and speculative possibility. ⁴ The claimant must be faced with substantial hazards of incrimination from the information sought, and: "The witness is not exonerated from answering merely because he declares that in doing so he would incriminate himself--his say-so does not of itself establish the hazard of incrimination. It is for the court to say whether his silence is justified." Hoffman, 341 U. S. at 486, 71 S. Ct. at 818, 95 L. Ed. at 1124.

Under Hoffman, the claim of privilege must be sustained if it is "evident from the implications of the question, in the setting in which it is asked, that a responsive answer to the question or an explanation of why it cannot be answered might be dangerous because injurious disclosure could result." 341 U. S. at 486-87, 71 S. Ct. at 818, 95 L. Ed. at 1123-25. If, however, the incriminating nature of the response is not readily apparent to the court, the claimant must "specify how he would be injured by any specific question [or answer]." United States v. Carroll [78-1 USTC ¶9141], 567 F. 2d 955, 957 (10th Cir. 1977). Accord McCoy, 696 F. 2d at 1236; Edwards, 680 F. 2d at 1270; Baker v. Limber, 647 F. 2d 912, 917 (9th Cir. 1981). In short, unless the danger of self-incrimination is readily apparent, the burden of proving that the danger exists lies on the claimant. Rechtzigel v. Commissioner [83-1 USTC ¶9281], 703 F. 2d 1063, (8th Cir. 1983) (per curiam); Baker, 647 F. 2d at 917.

The Steinbrechers baldly asserted that, if they answered any questions or produced any evidence, the information thereby revealed might be used against them. They gave absolutely no indication about the issues with respect to which they feared prosecution. Such blanket assertions of the fifth amendment do not protect a taxpayer. See United States v. Wade, 585 F. 2d 573, 574 (5th Cir. 1978), cert. denied, 440 U. S. 928, 99 S. Ct. 1264, 59 L. Ed. 2d 484 (1979); United States v. Johnson [78-2 USTC ¶9642], 577 F. 2d 1304, 1311 (5th Cir. 1978). The Steinbrechers' claim of Fifth Amendment privilege is based on sheer speculation of what "might happen" if they had produced any evidence. Indeed, their asserted fear of incrimination is far more attenuated than the fear of prosecution dismissed by the Supreme Court as "remote and speculative" in Zicarelli. Therefore, the Tax Court properly refused to grant the fifth amendment claim.

In any event, the taxpayers may not use the fifth amendment privilege, even when properly invoked, to meet their burden of proof in civil proceedings they have instituted. United States v. Rylander [83-1 USTC ¶9300], -- U. S. --, --, 103 S. Ct. 1548, 1553, 75 L. Ed. 2d 521, 529 (1983); Urban v. United States, 445 F. 2d 641, 643 (5th Cir. 1971) (per curiam), cert. denied, 404 U. S. 1015, 92 S. Ct. 675, 30 L. Ed. 2d 663 (1972). Even if production of evidence may in fact incriminate a taxpayer, a party is not allowed to use the fifth amendment protection as "a sword whereby a claimant asserting the privilege would be freed from adducing proof in support of a burden which would otherwise have been his." Rylander, -- U. S. at --, 103 S. Ct. at 1553, 75 L. Ed. 2d at 529; cf. Lyons v. Johnson, 415 F. 2d 540, 541 (9th Cir. 1969) (civil discovery), cert. denied, 397 U. S. 1027, 90 S. Ct. 1273, 25 L. Ed. 2d 538 (1970).

Nor are the taxpayers entitled to a grant of immunity. In rejecting a similar argument, the Ninth Circuit in McCoy stated: "The Tax Court's denial of the [claimants'] request for a grant of immunity also does not violate the[ir] due process rights. The decision whether to grant immunity rests with the United States, not with the Tax Court." 696 F. 2d at 1237.

Finally, the taxpayers argue that they were not required to file income tax returns. Section 6012(a) entitled "Persons Required to Make Returns of Income" (emphasis added) provides that individuals meeting certain requirements shall file income tax returns. The taxpayers plainly met those requirements and, therefore, were required to file returns. Clarence Steinbrecher's submission of Forms 1040 that did not include any information from which his income tax liability could be computed did not satisfy this requirement. As this court stated in Knighten v. Commissioner [83-1 USTC ¶9292], 702 F. 2d 59, 61 (5th Cir. 1983) (per curiam): "It is well established in this circuit, however, that the submission of a 'return' from which tax liability cannot be computed does not satisfy the statutory obligation to file." (emphasis added). See also United States v. Smith [80-2 USTC ¶9476], 618 F. 2d 280 (5th Cir.), cert. denied, 449 U. S. 868, 101 S. Ct. 203, 66 L. Ed. 2d 87 (1980).

The issues that the Steinbrechers seek to litigate have been decided many times. ⁵ In Lonsdale v. Commissioner [81-2 USTC ¶9772], 661 F. 2d 71 (5th Cir. 1981) (per curiam), we announced that future litigants who continued to advance long-defunct arguments, such as those raised here by the taxpayers, would be subject to sanctions under Rule 38 of the Federal Rules of Appellate Procedure. As the Ninth Circuit stated in Edwards: "Meritless appeals of this nature are becoming increasingly burdensome on the federal court system." 680 F. 2d at 1271.

For these reasons, we Affirm the judgment of the Tax Court and impose double costs on appellants. See Knighten v. Commissioner [83-1 USTC ¶9242], 702 F. 2d 59 (5th Cir. 1983).

¹ Rule 104(c)(3) of the Rules of Practice and Procedure of the United States Tax Court provides that, if a party fails to comply with an order of the court, the court may, in its discretion, dismiss the taxpayers' petitions and render a default judgment against them.

² See Eisele v. Commissioner [78-2 USTC ¶9719], 580 F. 2d 805 (5th Cir. 1978) (per curiam); see also Watson v. Commissioner, 690 F. 2d 429 (5th Cir. 1982) (per curiam). Rule 123(b) dismissal for failure to comply with discovery order); Miller v. Commissioner [81-2 USTC ¶9604], 654 F. 2d 519 (8th Cir. 1981) (per curiam) (same).

³ Watson, 690 F. 2d at 431; Freedson v. Commissioner [78-1 USTC ¶9171], 565 F. 2d 954, 955 (5th Cir. 1978) (Rule 123(b) dismissal); cf. Ramsay v. Bailey, 531 F. 2d 706 (5th Cir. 1976) (per curiam), cert. denied, 429 U. S. 1107, 97 S. Ct. 1139, 51 L. Ed. 2d 559 (1977) (Fed. R. Civ. P. 41(b) dismissal).

⁴ Zicarelli v. New Jersey State Commission of Investigation, 406 U. S. 472, 478, 92 S. Ct. 1670, 1675, 32 L. Ed. 2d 234, 239 (1972); McCoy v. Commissioner, 696 F. 2d 1234, 1236 (9th Cir. 1983); Edwards v. Commissioner [82-2 USTC ¶9472], 680 F. 2d 1268, 1270 (9th Cir. 1982) (per curiam).

⁵ See, e.g., Rechtzigel, 703 F. 2d at 1063-64; McCoy, 696 F. 2d at 1236; Edwards, 680 F. 2d at 1270; Eisele, 580 F. 2d at 805.

 

 

[90-2 USTC ¶50,461] United States of America, Plaintiff-Appellee v. Charles Howard Jungels, Defendant-Appellant

(CA-7), U.S. Court of Appeals, 7th Circuit, 89-3403, 8/23/90, 910 F2d 1501, Affirming an unreported District Court decision

[Code Secs. 7201 , 7206 and 7602 ]

Crimes: Evasion of tax: False returns: Costs: Summons: Validity: Right to counsel.--The imposition of costs of prosecution is mandatory under Code Secs. 7201 and 7206 . Accordingly, the lower court properly charged the costs of prosecution for tax evasion and filing false tax returns to an individual who was declared indigent for purposes of appointment of counsel. Summonses for the production of records were properly issued in good faith to a cooperating witness for an authorized purpose of obtaining more documents and information than were possessed by the IRS before criminal prosecution of an individual was recommended. An individual was not deprived of his right to counsel when the IRS tape recorded incriminating statements made to a cooperating witness because such right did not attach where the matter had not proceeded from the investigative to the accusatorial stage. Accordingly, an attorney's convictions for tax evasion and filing false returns were sustained.

Ralph M. Friederich, Assistant United States Attorney, East St. Louis, Ill. 62201, for plaintiff-appellee. Michael Dwyer, 1114 Market St., St. Louis, Mo. 63101, for defendant-appellant.

Before FLAUM and MANION, Circuit Judges, and ESCHBACH, Senior Circuit Judge.

PER CURIAM:

A"EC JURY CONVICTED CHARLES JUNGELS OF INCOME TAX EVASION, FILING FALSE INCOME TAX RETURNS, AND OBSTRUCTION OF JUSTICE. JUNGELS CHALLENGES THE DISTRICT COURT'S DENIAL OF HIS MOTION TO SUPPRESS AND THE IMPOSITION OF THE COSTS OF PROSECUTION. WE AFFIRM.

I. Background

Jungels was an attorney specializing in personal injury, medical malpractice and workers' compensation cases who practiced in Granite City, Illinois. He accepted cases on a contingency basis which entitled him to one third of any personal injury award, forty percent of medical malpractice awards, and twenty percent of workers' compensation awards. Jungels' deceptive practice was to declare to the Internal Revenue Service (IRS) only a small portion of the fees he actually received. For instance in 1981, Jungels' income tax return showed that his taxable income was $27,000, when in fact his taxable income was $77,000. To avoid detection, he had his legal clients sign statements attesting to lower fee amounts. Also Jungels failed to declare as income his receipts from a lucrative marijuana and cocaine trafficking business. These practices continued through 1983.

Jungels hid his unreported income by purchasing bonds and opening up bank accounts in the names of other people. For instance he purchased a bond in the amount of $21,000 in the name of a three year old boy named Charles Pitman. Pitman was the son of Elizabeth Marzluff, Jungels' former employee and sometime girlfriend. Marzluff discovered the bond scheme when she mistakenly received by mail a check for the full amount of the bond in her son's name. She cashed the check and split the money with another of Jungels' employees. In order to find out what else Jungels might have bought in her or her son's name, she broke into his house and stole some financial records, including an assortment of bills and deposit slips.

Whether feeling the pangs of conscience or fearing prosecution, Marzluff reported her findings to the IRS, which opened an investigation into Jungels' taxes. She also turned over the various bills and financial documents which she had stolen. Some of the documents were in Marzluff's name and some were in her son's name. As part of its investigation, which at this time was both civil and criminal in nature, the IRS issued summonses for records in both names to various banks, savings and loans, and brokerage firms.

Jungels, who did not yet know that Marzluff was cooperating with the IRS, tried to persuade her to file a motion to quash the summonses the IRS had issued in her name. To this end he suggested that she meet with his attorneys. Marzluff advised the IRS about Jungels' suggestion, decided to attend the meeting and agreed to be wired with a tape recorder. On October 31, 1983, Marzluff and Jungels drove to Bellville, Illinois for the meeting. After the meeting, on the ride back to and when they arrived at Granite City, Jungels made incriminating statements to Marzluff concerning his scheme to skim money from his law practice. Those statements were preserved on Marzluff's hidden recorder.

Four years later, the government indicted Jungels on two counts of income tax evasion pursuant to 26 U.S.C. §7201 , three counts of filing false income tax returns pursuant to 26 U.S.C. §7206 and two counts of obstruction of justice pursuant to 18 U.S.C. §1503 . Prior to trial in August 1989, Jungels filed a motion to suppress the documents obtained through the IRS summonses and the statements recorded by Marzluff. At a hearing on the motion, Special Agent James Wehrheim testified on behalf of the IRS that the summonses were issued because the records received from Marzluff were incomplete and she did not know if Jungels had opened additional accounts in her name or her son's name. He stated that the issuance of these summonses was part of standard investigation procedures to obtain complete records.

Relying on United States v. Powell [64-2 USTC ¶9858 ], 379 U.S. 48 (1964), and United States v. Gimbel [86-1 USTC ¶9187 ], 782 F.2d 89 (7th Cir. 1986), the district court denied the motion to suppress, stating that the summonses were issued for a proper purpose because the IRS sought clearly relevant information that was not in its possession. Regarding the tape recorded conversations, the court held that the Sixth Amendment right to counsel had not attached when the recordings were made because adversary judicial proceedings had not yet been initiated. The court found that the attorney-client privilege did not extend to conversations made en route to and returning from the attorney conference. (The tape of the conversation at the attorney's office was not submitted into evidence.) Finally, the court found that there was no Fourth Amendment violation resulting from Marzluff's consensual monitoring.

After a jury convicted Jungels on all seven counts on August 28, 1989, the district court sentenced him to a three year term of imprisonment on the tax evasion count and a concurrent three year term on the other six counts. The court also taxed Jungels with costs of prosecution totalling $937 pursuant to 26 U.S.C. §§7201 and 7206 .

On appeal Jungels argues that the district court erred in imposing costs on him because he was found to be indigent for purposes of appointment of counsel. Next he argues that the IRS improperly issued summonses for information to which it allegedly had access. Finally he contends that the IRS violated his Sixth Amendment right to counsel when it elicited incriminating information from him through a cooperating witness.

II. Analysis

A. Taxation Of Costs Under 26 U.S.C. 7201 and 7206 Against An Indigent Defendant

This circuit recently held that costs are reimbursable under §§7201 and 7203 for expenses of transportation and subsistence for witnesses employed by the United States. United States v. Dunkel [90-1 USTC ¶50,243 ], 900 F.2d 105, 108 (7th Cir. 1990). The court is now asked to decide for the first time whether the costs of prosecution can be taxed pursuant to §7201 and a similar provision in §7206 to a defendant who has been declared indigent for purposes of appointment of counsel. Jungels argues that the district court abused its discretion by imposing costs on such a defendant.

The court's interpretation of this issue must begin with the plain language of the statutes. In re Sanderfoot, 899 F.2d 598, 600 (7th Cir. 1990). §7201 provides:

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

(Emphasis added). Similarly, §7206(1) provides:

Any person who willfully makes and subscribes any return, statement, or other document, which contains or is verified by a written declaration that it is made under the penalties of perjury, and which he does not believe to be true and correct as to every material matter . . . shall be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 ($500,000 in the case of a corporation), imprisoned not more than 3 years, or both, together with the costs of production.

(Emphasis added). Pursuant to these statutes, the district court has discretion to impose either a fine or imprisonment or both on a defendant. The court must however award costs. The grammatical structure of the statute and the use of the word "shall" can only mean that the provision regarding costs is mandatory. Three other circuits have given the same construction to similar language in §7203 . United States v. Palmer [87-1 USTC ¶9184 ], 809 F.2d 1504, 1506 (11th Cir. 1987); United States v. Wyman [84-1 USTC ¶9147 ], 724 F.2d 684, 688 (8th Cir. 1984); United States v. Chavez [80-2 USTC ¶9688 ], 627 F.2d 953, 955 (9th Cir. 1980) ("The use of the word 'shall' in the statute, although not entirely controlling, is of significant importance, and, indicates an intention that the statute should be construed as mandatory."), cert. denied, 450 U.S. 924 (1981).

Congress has enacted other statutes which provide for the imposition of costs at the discretion of the district court. 28 U.S.C. §1918(b) provides: "[w]henever any conviction for any offense not capital is obtained in a district court, the court may order that the defendant pay the costs of prosecution." (Emphasis added). The contrast in the language in §1918, and §§7201 and 7206 indicates that Congress knew how to draft both mandatory and discretionary provisions without confusing the two. Chavez, 627 F.2d at 955. Because the plain language of the statute is clear, the court need not engage in a lengthy examination of legislative history. Schalk v. Reilly, 900 F.2d 1091, 1095-96 (7th Cir. 1990). Also Jungels' argument regarding potential constitutional problems in taxing costs to indigent defendants is meritless. Palmer, 809 F.2d at 1508 (the mere possibility of a substantial increase in penalty does not have an impermissibly chilling effect on the exercise of a defendant's constitutional rights); Wyman, 724 F.2d at 688; Chavez, 627 F.2d at 957.

We hold that the imposition of costs under §§7201 and 7206 is mandatory. We express no opinion on the propriety of taxing costs on an indigent defendant under a discretionary statute such as §1918(b).

B. Good Faith Issuance Of Summonses

Next Jungels argues that the IRS did not issue the summonses in Marzluff's name and her son's name in good faith because the information sought in the summonses was already in the possession of the IRS. In United States v. LaSalle Nat'l Bank [78-2 USTC ¶9501 ], 437 U.S. 298 (1978), the Supreme Court established two requirements for the enforcement of an IRS summons. First, the summons must be issued before the IRS recommends to the Department of Justice that a criminal prosecution, which reasonably would relate to the subject matter of the summons, be undertaken. Id. at 313; see 26 U.S.C. §7602(c)(1) . Second, prior to a recommendation for prosecution to the Department of Justice, the IRS must use its summons authority in good faith pursuit of the congressionally authorized purposes of §7602 . ¹ LaSalle Nat'l Bank, 437 U.S. at 314; Donaldson v. United States [71-1 USTC ¶9173 ], 400 U.S. 517, 536 (1971); Powell, 379 U.S. at 57-58. In Powell, the Supreme Court announced several elements of a good faith exercise:

[The IRS] must show [1] that the investigation will be conducted pursuant to a legitimate purpose, [2] that the inquiry may be relevant to the purpose, [3] that the information sought is not already within the Commissioner's possession, and [4] that the admin istrative steps required by the Code have been followed.

Id. at 57-58. The mere fact that the Government might be able to obtain some or all of the documents through a different procedure does not by itself compel the conclusion that the Government's attempt to enforce the summons is being made in bad faith. Gimbel, 782 F.2d at 93 (IRS summons is not issued in bad faith where the government had access to the requested documents through a tax court case); United States v. Arthur Andersen & Co. [80-2 USTC ¶9515 ], 623 F.2d 725, 728 & n.5 (1st Cir. 1980) (the IRS is not barred from invoking its summons authority under §7602 merely because the Department of Justice has recourse to available bankruptcy discovery procedures).

Jungels has not demonstrated sufficient justification to preclude enforcement of the IRS summons. No recommendation to the Justice Department for criminal prosecution was made until four years after the IRS issued the summonses. Regarding the Powell criteria, although the record shows that the IRS had received from Marzluff some documents which she had obtained from Jungels' home, it does not show that she had documented all of the accounts that Jungels may have opened in her name or her son's name. In fact, the information and documents that she purloined may have only revealed the tip of the iceberg. Because production of the financial institutions' records could be expected to reveal part or all of this information, which would be material to the computation of Jungels' tax liability, the Powell criteria do not preclude enforcement. Therefore the IRS is not barred from invoking its summons authority under §7602 merely because the IRS has access to some documents through a cooperating witness.

C. Sixth Amendment Right To Counsel

Finally, Jungels argues that the IRS interfered with his Sixth Amendment right to counsel when it wired Marzluff during the conference with his attorneys. Jungels draws an analogy between Marzluff's actions and cases in which statements were surreptitiously elicited by undercover agents such as jail informants. This argument is meritless.

It is firmly established that the right to counsel attaches only at or after the "initiation of adversary judicial proceedings." United States v. Gouveia, 467 U.S. 180, 185-86 (1984); Kirby v. Illinois, 406 U.S. 682, 688 (1972). Thus the Sixth Amendment right to counsel provides every defendant with the right to have representation during a "critical stage" of the adversarial proceedings. Holloway v. Arkansas, 435 U.S. 475, 490 (1978); United States v. Wade, 388 U.S. 218, 227 (1967). Jungels does not argue that judicial proceedings had been initiated by way of formal charge, preliminary hearing, indictment, information, or arraignment. Because the matter had not yet proceeded from the investigative to the accusatorial stage, Moran v. Burbine, 475 U.S. 412, 432 (1986); United States v. White, 879 F.2d 1509, 1513 (7th Cir. 1989), cert. denied, -- U.S. --, 110 S.Ct. 1471 (1990), Jungels has made no showing whatsoever that the investigation had reached a "critical stage" requiring the right to counsel under the Sixth Amendment.

III. Conclusion

For these reasons, both the conviction and the decision of the district court to impose costs are

AFFIRMED.

¹ The Tax Code at 26 U.S.C. §7602 permits the use of a summons "[f]or the purpose of ascertaining the correctness of any return, . . . determining the liability of any person for any internal revenue tax . . ., or collecting any such liability, the Secretary is authorized to examine any books, papers, records, or other data which may be relevant or material to such inquiry."

 

 

[84-1 USTC ¶9147]United States of America, Appellee v. Michael J. Wyman, Appellant

(CA-8), U. S. Court of Appeals, 8th Circuit, No. 83-1551, 724 F2d 684, 1/10/84, Affirming an unreported District Court decision

[Code Secs. 7203 and 7205]

Crimes: Failure to file returns: False withholding certificates: Trial court error.--The taxpayer's convictions for willful failure to file income tax returns and for willfully supplying false and fraudulent withholding exemption certificates were affirmed. The trial court did not abuse its discretion in denying the taxpayer's request to subpoena witnesses under FRCrimP 17(b) because the taxpayer did not meet his burden of proving the necessity of such witnesses to an adequate defense.

[Code Sec. 7203]

Crimes: Failure to file returns: Imposition of costs: Constitutionality.--The trial court did not err in imposing the costs of prosecution against an indigent taxpayer-defendant. Under Code Sec. 7203, the imposition of such costs is mandatory, and did not effect the exercise of the taxpayer's constitutional rights.

Ronald D. Lahners, United States Attorney, Bernard J. Glaser, Jr., Assistant United States Attorney, Omaha, Nebraska 68101, for appellee. Edward D. Hotz, Hotz, Kizer & Jahn, 317 West Dodge Road, Omaha, Nebraska 68114, for appellant.

Before LAY, Chief Judge, FAGG, Circuit Judge, and NICHOL, ^* Senior District Judge.

NICHOL, Senior District Judge:

Appellant Wyman appeals from the judgment and sentence of the district court ¹ following his conviction by a jury on two counts of willful failure to file income tax returns in violation of 26 U. S. C. section 7203 and two counts of willfully supplying false and fraudulent withholding exemption certificates (W-4's) in violation of 26 U. S. C. section 7205. The court sentenced Wyman to one year imprisonment with the sentence suspended on condition that he be incarcerated in a local jail for thirty days, followed by a three year probationary period. The court further ordered Wyman to pay the costs of prosecution. ²

Prior to trial, the court granted Wyman's motion to proceed in forma pauperios. At motion to proceed in forma pauperis. At request, the court appointed counsel prior to sentencing.

Wyman appeals on the grounds that (1) the trial court erred in denying his request to subpoena witnesses under Fed. R. Crim. P. 17(b) and (2) that the trial court erred in taxing costs of prosecution under 26 U. S. C. section 7203 against a defendant who was proceeding in forma pauperis. We find Wyman's arguments on this appeal to be without merit and, therefore, we affirm the trial court.

I. The Denial of the Rule 17(b) Motion.

Fed. R. Crim. P. 17 provides in part:

(b) Defendants Unable to Pay. The court shall order at any time that a subpoena be issued for service on a named witness upon an ex parte application of a defendant upon a satisfactory showing that the defendant is financially unable to pay the fees of the witness and that the presence of the witness is necessary to an adequate defense.

This court has dealt with the implementation of Rule 17(b) on many occasions. The trial court has wide discretion in deciding whether to grant or deny a Rule 17(b) motion. ³ Reistroffer v. U. S., 258 F. 2d 379 (8th Cir. 1958), cert. denied, 358 U. S. 927, 79 S. Ct. 313, 3 L. Ed. 2d 301 (1959), rehearing denied, 361 U. S. 856, 80 S. ct. 42, 4 L. Ed. 2d 96 (1959). Compulsory process under Fed. R. Crim. P. 17(b) is not an absolute right but, like many other trial decisions, is a matter committed to the sound discretion of the trial court. U. S. v. DeCoteau, 648 F. 2d 1191 (8th Cir. 1981); U. S. v. Gilliss, 645 F. 2d 1269 (8th Cir. 1981); Slawek v. U. S. 413 F. 2d 957 (8th Cir. 1969). The burden of proving the necessity of Rule 17(b) witnesses is clearly on the defendant seeking to subpoena them. Terlikowski v. U. S., 379 F. 2d 501 (8th Cir.), cert. denied, 389 U. S. 1008 (1967).

The standard on review is whether the trial court abused its discretion in the granting or denial of the motion. U. S. v. Barnard, 625 F. 2d 854 (9th Cir. 1980). The reviewing court should not reverse unless the exceptional circumstances of the case indicate that the defendant's right to a complete, adequate and fair trial is jeopardized. Terlikowski v. U. S., supra; Reistroffer v. U. S., supra.

In the instant case ⁴ Wyman sought to subpoena nine witnesses: (1) four "expert" lecturers, seminar leaders and writers on the subject of tax avoidance; (2) two fellow employees who failed to file tax returns; and (3) three government officials, the U. S. Attorney, the U. S. Magistrate, and the Director of the Internal Revenue Service for the District of Nebraska. The court held an ex parte hearing following Wyman's 17(b) application. The record reveals that the trial court questioned Wyman closely about the use of each witness in presenting his defense.

Wyman asserted that he had a good faith misunderstanding of the tax law and that he therefore lacked the willful intent required by 26 U. S. C. sections 7203 and 7205. The group one witnesses were people who had lectured, conducted seminars or written materials on how to avoid paying income taxes. Wyman had attended their lectures, read their books, and even consulted by telephone with one or two of them. Wyman claimed that these witnesses were necessary to establish his state of mind and misunderstanding of the law. The record shows that Wyman admitted at the Rule 17(b) hearing that none of these four witnesses had direct knowledge of his state of mind at the time he committed the offenses. He argued, however, that he had been so influenced by these individuals and so overwhelmed by their opinions that he himself lacked the willfulness required by the statute. ⁵ He argued that the two fellow employees (group two) were necessary to show selective prosecution. ⁶ The third group for whom Wyman requested subpoenas were U. S. government officials. Wyman stated at the ex parte hearing that through these individuals he would prove that the government was a perpetrator of fraud after the fact. He claimed that these officials knew that he had been "duped" and "conned" by the four tax "experts", yet they continued to prosecute him.

The trial court held that Wyman had not met the burden of proving the necessity of each witness to an adequate defense. With respect to the group one ("expert") witnesses, the court stated: ⁷

(T)he testimony of particular witnesses that they wrote or said certain statements does not tend to prove or to disprove the defendant's own state of mind. See Fed. R. Evid. 401. It cannot be presumed that people believe and rely upon everything they read or hear. Thus, the statements of authors and commentators standing alone would not be probative of the defendant's personally-held beliefs.

. . .

If the defendant does elect to testify as to what he heard and read and to his own beliefs as a result thereof, the books themselves and the testimony of their authors or those who conducted seminars would be, at best, cumulative and could be confusing to the jury.

Wyman did not establish that any of these witnesses had personal knowledge of his motive or intent. The trial court's reasoning is correct. There is no requirement that a defendant be allowed to subpoena witnesses at public expense where witnesses would only provide cumulative testimony. U. S. v. Gilliss, 645 F. 2d 1269 (8th Cir. 1981); U. S. v. Gallagher, 620 F. 2d 797 (10th Cir. 1980), cert. denied, 449 U. S. 878, 101 S. Ct. 224 (1981); Feguer v. U. S., 302 F. 2d 214 (8th Cir.), cert. denied, 371 U. S. 872 (1962).

In considering the second group of witnesses (fellow employees), the court had previously ruled that Wyman had failed to make a prima facie case of selective prosecution. To succeed on a claim of selective prosecution, a defendant has the burden of establishing that others similarly situated have not been prosecuted and that the allegedly discriminatory prosecution of the defendant was based on an impermissible motive. U. S. v. Wilson, 639 F. 2d 500 (9th Cir. 1981). Without an additional showing, the testimony of these two witnesses would not be relevant."

Finally, the court stated that in its opinion none of the group three (government officials) witnesses could provide any material evidence. Materiality of the evidence is a proper consideration under Rule 17(b). U. S. v. Schultz, 431 F. 2d 907 (8th Cir. 1970). "Rule 17(b) was not promulgated to afford an indigent defendant a right to subpoena witnesses at government expense whose testimony clearly would be lacking in materiality to the trial at hand." Terlikowski v. U. S., 379 F. 2d 501, 508 (8th Cir.), cert. denied, 389 U. S. 1008 (1967). It appears from the record that Wyman's theory of the relationship of these individuals to the group one witnesses is speculative at best. These witnesses were not necessary for Wyman to establish a good faith mistake and state of mind defense. Admittedly, Wyman faced the dilemma of whether or not to take the stand in his own behalf. He chose not to testify. Therefore, the government's evidence was uncontested at trial. The ruling of the trial court on the Rule 17(b) application, however, did not deprive Wyman of the opportunity to present a meaningful defense. We find no abuse of discretion here.

II. Taxation of Costs Under 26 U. S. C. Section 7203 Against an Indigent Defendant.

Appellant asserts the position that the costs of prosecution in this case should not have been taxed against him because he was proceeding in formal pauperis. He argues that the taxation of costs against an indigent criminal defendant may discourage future indigent defendants from asserting their constitutional rights. Wyman states the proposition too broadly. In the instant case, we consider only those criminal defendants prosecuted and convicted pursuant to 26 U. S. C. section 7203. The statute sets out in part:

Any person . . . (who willfully fails to file a return, supply information, or pay tax required by law) shall, in addition to other penalties provided by law, be guilty of a misdemeanor and, upon conviction thereof, shall be fined not more than $10,000, or imprisoned more than one year, or both, together with the costs of prosecution. (emphasis supplied)

Initially, we must consider whether the statutory language of section 7203 is discretionary or mandatory. We adopt the rationale set out in U. S. v. Chavez [80-2 USTC ¶9688], 627 F. 2d 953 (9th Cir. 1980), cert. denied, 450 U. S. 924 (1981).

Under our interpretation of the statute, the trial court has discretion to impose either a fine or imprisonment or both but the trial court does not have discretion to fail to award costs. "The plain meaning of the statute is clear. The grammatical structure of the statute and the use of the word 'shall' compel the conclusion that the provision is mandatory." Id. at 954-955.

Wyman argues further that if the language of the statute is construed as mandatory, there will be a chilling effect on an indigent defendant's exercise of constitutional rights. We do not accept that argument. The Chavez court stated:

The Congress may have had any number of constitutionally permissible purposes in requiring that a defendant convicted of a willful failure to file a return pay the costs of prosecution. The legitimate governmental ends would include the recovery of expenditures to compensate the government and the imposition of additional punishment. . . . It must be emphasized that not every assertion that a statutory scheme has chilled the exercise of a constitutional right results in a finding of unconstitutionality. Id. at 956.

It is important to draw a distinction between those cases in which statutes were invalidated because they placed a penalty on the exercise of constitutional rights and statutes which do not necessarily subject a criminal defendant to greater punishment. See e.g. Fuller v. Oregon, U. S. 40, 94 S. Ct. 2116, 40 L. Ed. 2d 642 (1972) (An indigent's knowledge that he may be required to repay the costs of his legal services in no way affected his right to retain counsel).

In the instant case there exists only a possibility that costs will be assessed against a criminal defendant. "A defendant prosecuted for willful failure to file a tax return is not subject to a substantial risk of greater punishment because of the existence of the costs of posecution provision." Chavez, supra, at 957.

Appellant bases his argument on two cases which indicate only that a problem of constitutional dimensions might arise if costs were taxed against indigent criminal defendants. U. S. v. American Theatre Corporation, 526 F. 2d 48 (8th Cir. 1975), cert. denied, 430 U. S. 938 (1977); U. S. v. Glover, 588 F. 2d 876 (2nd Cir. 1978). These cases are easily distinguished. Both American Theatre and Glover deal with taxation of costs under 28 U. S. C. section 1918(b), a discretionary statute. In both cases, defendants were exercising fundamental first amendment rights. Aside from the right to assistance of counsel, there is no concomitant right being exercised by Wyman in this case. There is no constitutional right to willfully fail to file tax returns.

The taxation of costs under 26 U. S. C. section 7302 serves a legitimate governmental purpose. Further, we believe that a defendant who files in forma pauperis for the purpose of trial should not necessarily be made judgment proof under this statute.

In accordance with this opinion, the decisions of the trial court are affirmed.

^* The Honorable Fred J. Nichol, Senior District Judge, District of South Dakota, sitting by designation.

¹ The Honorable C. Arien Beam, United States District Judge for the District of Nebraska.

² The prosecution submitted a Bill of Costs totaling $3,470.45. Defendant objected. The trial court stated that it had been deprived of jurisdiction by this appeal and did not rule on the objection. The execution of judgment has been stayed pending this appeal.

³ We decline to adopt the narrower standard adopted in some circuits limiting the trial court's discretion in granting or denying Rule 17(b) motions. See U. S. v. Sims, 637 F. 2d 625 (9th Cir. 1980); U. S. v. Hegwood 562 F. 2d 946 (5th Cir. 1977), cert. denied, 434 U. S. 1079 (1978); U. S. v. Barker, 553 F. 2d 1013 (6th Cir. 1977); Greenwell v. U. S., 317 F. 2d 108 (D. C. Cir. 1963).

⁴ Prior to trial, the district court granted defendant's motion pursuant to 28 U. S. C. section 1915(c) to have defense witnesses subpoenaed at government expense. The court entered a clarifying order stating that the initial order pertained only to costs of service. The court further stated that if defendant sought to have costs of travel and witness fees paid by the government, the must make the requisite showings under Rule 17(b).

⁵ It does not appear from the record that Wyman clearly understood the element of willfulness in connection with the Internal Revenue Code. "Willful" is generally held to mean a voluntary, intentional violation of a known legal duty. U. S. v. Barney, 674 F. 2d 729 (8th Cir.), cert. denied, 102 S. Ct. 2972 (1982); U. S. v. Karsky, 610 F. 2d 548 (8th Cir. 1979), cert. denied, 444 U. S. 1092 (1980); U. S. v. Pohlman, 522 F. 2d 974 (8th Cir. 1975) (en banc), cert. denied, 423 U. S. 1049 (1976).

⁶ According to the record, James Birkel and Herman Krepel were prosecuted in civil actions for failing to file tax returns. Wyman did not refer to any others similarly situated who had or had not been prosecuted. He made no attempt to show impermissible motive on the part of the government.

⁷ U. S. v. Wyman, Order, November 17, 1982.

 

[80-2 USTC ¶9688]United States of America, Appellee v. Ralph M. Chavez, Appellant

(CA-9), U. S. Court of Appeals, 9th Circuit, No. 80-1153, 627 F2d 953, 9/11/80, Affirming unreported District Court decisions

[Code Sec. 7203]

Crimes: Failure to file return: Jury trial: Imposition of costs: Mandatory: Constitutionality.--While the imposition of costs of a jury trial upon the taxpayer-defendant is mandatory rather than discretionary, there is no denial of adequate access to the criminal justice system. The assessment of costs does not constitute an infringement upon the fundamental rights to a jury trial, confrontation of witnesses, and representation by counsel. Rather, it is a mere possibility, insufficient restrict the taxpayer's full opportunity to the exercise of his rights necessary to insure fairness.

Kenneth Fields, Elizabeth Grace Jucius, Assistant United States Attorney, Phoenix, Arizona 85025, for appellee. David M. Ochoa, Phoenix, Arizona, for appellant.

Before KILKENNY and SNEED, Circuit Judges, and CALLISTER, District Judge. ^*

Opinion

KILKENNY, Circuit Judge:

Appellant was charged in a one count information with the willful failure to file income tax returns in violation of 26 U. S. C. §7203, a misdemeanor. Subsequently, after a determination that appellant did not have sufficient funds to employ counsel, an attorney was appointed. Appellant, after a court trial on stipulated facts, was convicted and sentenced to one year imprisonment and fined $3,000.00 He is prosecuting this appeal in forma pauperis. We affirm.

Procedural Background

On January 9, 1980, appellant was arraigned and he entered a plea of not guilty. On January 23, 1980, appellant filed a motion to dismiss the information on the grounds that the statute was unconstitutional. Appellant complained that §7203's costs of prosecution provision was mandatory and that it chilled the exercise of his constitutional rights. This motion was denied on February 4, 1980. The district court ruled that if a statute can be reasonably read in two ways it must construe the statute so as to avoid doubt as to its constitutionality and that the costs of prosecution provision was discretionary and constitutional.

On February 12, 1980, the appellant went to trial on stipulated facts. Appellant waived a jury trial without waiving the right to appeal on the issues raised in his motion to dismiss. The court found appellant guilty. Pursuant to customary practice, it did not assess costs.

Issues

The issues presented for review are:

I. Whether the imposition of costs provision of 26 U. S. C. §7203 is mandatory or discretionary.

II. Whether the imposition of costs provision of 26 U. S. C. §7203 unconstitutionally chills a defendant's exercise of his constitutional rights to a jury trial, to confront witnesses and of compulsory process.

I. The challenged statute, in pertinent part, provides:

"Any person . . . [who willfully fails to file a return, supply information, or pay tax required by law] shall, in addition to other penalties provided by law, be guilty of a midemeanor and, upon conviction thereof, shall be fined not more than $10,000, or imprisoned not more than 1 year, or both, together with the costs of prosecution." [Emphasis supplied.]

It is appellant's contention that the costs of prosecution provision is mandatory and that a trial court has no discretion but to impose costs. With this contention we agree.

Appellee argues that: (1) there is no congressional history specifically indicating that the disputed provision is mandatory; (2) any ambiguity in the statute should be construed so as to eliminate any doubt as to its constitutionality; and (3) the practice of the United States District Court for the District of Arizona is to consider the provision discretionary. These factors, it is argued, require this court to hold that the costs of prosecution provision may be applied in the discretion of the district court. We disagree.

The earliest version of §7203 was enacted by Congress in 1913 and provided that any person refusing or neglecting to file a return by law should be liable to a "penalty of not less than $20 nor more than $1,000." The 1913 Act also provided that any person filing a false or fraudulent return with the intent to defraud or evade taxes "shall be guilty of a misdemeanor, and shall be fined not exceeding $2,000 or be imprisoned not exceeding one year, or both, at the discretion of the court, with the costs of prosecution." Act of Oct. 3, 1913, ch. 16, §f, 38 Stat. 171 (1913). Under this Act the costs of prosecution could not be imposed for mere failure or refusal to file a return. And when costs could be imposed, it was not altogether clear whether it was mandatory or discretionary. It was clear, however, that the imprisonment and fine provisions were left to the discretion of the court.

It was not until 1924 that Congress added the additional penalty of costs of prosecution for the failure to file tax returns. Revenue Act of 1924, ch. 324, §1017(a), 43 Stat. 343-44 (1924). The penalty provision of the 1924 Act reads substantially the same as the current law. We have located no legislative history indicating why the costs provision was added at that time.

The plain meaning of the statute is clear. The grammatical structure of the statute and the use of the word "shall" compel the conclusion that the provision is mandatory. "The use of the word 'shall' in the statute, although not entirely controlling, is of significant importance, and, indicates an intention that the statute should be construed as mandatory." United States v. Rands, 224 F. Supp. 305, 306-7 (D. Or. 1963), reversed on other grounds, 367 F. 2d 186 (CA-9 1966), reversed, 389 U. S. 121 (1967). See also 2A Sutherland, Statutory Construction §57.03 at 415 (1973).

Also, Congress has demonstrated that it knows how to write a discretionary costs of prosecution provision. 28 U. S. C. §1918(b) provides: "Whenever any conviction for any offense not capital is obtained in a district court, the court may order that the defendant pay the costs of prosecution." [Emphasis supplied.] The contrast in the language in §1918(b) and §7203 indicated that Congress knew what it was doing in 1924 when it drafted a mandatory provision.

We have a duty to interpret a statute, susceptible of two readings, in such a way as to avoid any doubt as to its constitutionality. However, §7203 is not susceptible of two interpretations.

Appellee argues that since the Arizona district court has always considered the costs provision discretionary this court should construe the statute so as to be consistent with that practice. The practice of the district court cannot, however, amend the statute in the face of a specific congressional requirement. We are compelled to follow the congressional command and we hold that the challenged provision is mandatory.

II. Appellant urges that the costs of prosecution provision of the statute is unconstitutional. He claims that the threat of the mandatory imposition of the costs of prosecution upon conviction chills his exercise of constitutionally protected rights--the right to trial by jury, the right to confront witnesses, and the right to compulsory process for obtaining witnesses. Because the costs of prosecution are a function of the length and complexity of a trial, the number of witnesses, the length of transcripts, the distances traveled and other similar factors the extent to which a defendant exercised the above-mentioned rights will have an effect on the penalty he risks suffering. The threat of possibly increased penalties, the appellant argues, chills the exercise of his constitutional rights.

Appellant relies principally upon United States v. Jackson, 390 U. S. 570 (1968). Jackson involved a provision of the Federal Kidnapping Act that authorized the death penalty "if the verdict of the jury shall so recommend." The statute set forth no procedure for imposing the death penalty upon a defendant who waived the right to a jury trial or upon one who pleads guilty. The Supreme Court rejected the government's argument that the statute gave the trial judge discretion to set aside a recommendation of death and held the death penalty provision unconstitutional because it imposed an impermissible burden upon the exercise of a constitutional right.

The Supreme Court stated that "[t]he inevitable effect of [the provision was] . . . to discourage assertion of the Fifth Amendment right not to plead guilty and to deter exercise of the Sixth Amendment right to demand a jury trial." 390 U. S. at 581. If the provision had no other purpose or effect than to chill the assertion of constitutional rights by penalizing those who choose to exercise them, the Court said, it would be patently unconstitutional. The death penalty provisions, however, had a concededly proper purpose. But whatever the government objectives, they could not be pursued by means that needlessly chilled the exercise of constitutional rights. The Court said that "[t]he question is not whether the chilling effect is 'incidental' rather than intentional; the question is whether that effect is unnecessary and therefore excessive." Id. at 582. "[T]he evil in the federal statute is not that it necessarily coerces guilty pleas and jury waivers but simply that it needlessly encourages them." Id. at 583.

We reject any suggestion that the costs of prosecution provision is patently unconstitutional because it has no other purpose or effect than to chill the assertion of constitutional rights. The Congress may have had any number of constitutionally permissible purposes in requiring that a defendant convicted of a willful failure to file a return pay the costs of prosecution. The legitimate governmental ends would include the recovery of expenditures to compensate the government and the imposition of additional punishment. The question remains, however, whether the provision is constitutionally infirm because it needlessly encourages the waiver of constitutional rights.

It must be emphasized that not every assertion that a statutory scheme has chilled the exercise of a constitutional right results in a finding of unconstitutionality. The Supreme Court, in post-Jackson decisions, has not enthusiastically embraced the "chill" rationale articulated in Jackson. In Fuller v. Oregon, 417 U. S. 40 (1974), the Court upheld an Oregon recoupment scheme which required convicted defendants who were indigent at the time of the criminal proceeding against them, but who subsequently acquired the financial means to do so, to repay the costs of their legal defense. The Court rejected a contention, based on a Jackson rationale, that a defendant's knowledge that he may be under an obligation to repay the expenses incurred in providing him legal representation might impel him to decline the services of an appointed attorney and thus "chill" his constitutional right to counsel. Fuller, the Court said, was fundamentally different from those decisions which invalidated laws that placed a penalty on the exercise of a constitutional right. "Oregon's system for providing counsel quite clearly does not deprive any defendant of the legal assistance necessary to meet their needs." 417 U. S. at 52. An indigent's knowledge that he might some day be required to repay the costs of his legal services in no way affected his eligibility to obtain counsel. Mr. Justice Douglas, in a concurring opinion, noted that because the Oregon recoupment scheme had been narrowly construed "the 'chill' on the exercise of the right to counsel is no greater than that imposed on a nonindigent defendant without great sums of money." Id. at 56 (Douglas, J., concurring).

More recently, in Corbitt v. New Jersey, 439 U. S. 212 (1978), the Supreme Court declined to adopt a broad reading of Jackson in another case in which it arguably could have applied. In Corbitt, under the New Jersey homicide statutes, life imprisonment was the mandatory punishment for defendants convicted by a jury of first degree murder, while a term of not more than thirty years was the punishment for second degree murder. If a plea of non vult was accepted, however, the judge need not decide whether the murder was first or second degree, but the punishment could be either life imprisonment or the same punishment imposed for second degree murder. The defendant argued "that the possibility of a sentence of less than life upon the plea of non vult, combined with the absence of a similar possibility when found guilty by a jury, [was] an unconstitutional burden on his federal rights under the Fifth, Sixth, and Fourteenth Amendments." Id. at 218. The Court stated that "the cases in this Court since Jackson have clearly established that not every burden on the exercise of a constitutional right, and not every pressure or encouragement to waive such a right, is invalid." Id. The Court upheld the New Jersey statute and stated that Jackson did not require otherwise. "The principal difference is that the pressures to forego trial and to plead guilty to the charge in this case are not what they were in Jackson." Id. at 217.

In the instant case we find that any pressures upon the defendant to waive his constitutional rights that may exist on account of the costs of prosecution provision are not such as to compel this court to find the Congressional scheme unconstitutional. A defendant, prosecuted for willful failure to file a tax return, is not subject to a substantial risk of greater punishment because of the existence of the costs of prosecution provision. The provision does serve legitimate governmental purposes. We cannot say with any confidence that the costs of prosecution provision of §7203 does in fact penalize a defendant's exercise of his constitutional rights. Section 7203 provides for a punishment of not more than $10,000.00, or more than one year imprisonment, or both. Any sentence that would be imposed upon conviction, within those bounds, would be within the ordinary discretion of the trial judge. The presence of the mandatory costs of prosecution provision does not, with any degree of certainty, substantially increase the threatened punishment. Any encouragement of the waiver of constitutional rights that this provision may induce is substantially different from the pressures that undeniably existed in Jackson, and cannot be said to be an impermissible burden upon the exercise of constitutional rights. In light of the fact that the provision does serve legitimate government purposes, we cannot say that it needlessly encourages the waiver of constitutional rights.

In holding that §7203's costs of prosecution provision does not create an impermissible burden on the exercise of constitutional rights, we recognize that the Second Circuit has suggested that a mandatory costs of prosecution provision might be constitutionally suspect. In United States v. Glover, 588 F. 2d 876 (CA2 1978), the Second Circuit considered the operation of 28 U. S. C. §1918(b), which authorizes a district court to impose costs in a noncapital case. Since §1918(b) is discretionary the Second Circuit found no constitutional problems. The court mentioned in dictum that a statute which directed that the costs of prosecution be assessed against all convicted defendants might be unconstitutional. In the instant case we are dealing with a mandatory provision. We decline, however, to follow the Second Circuit's suggestion that such a provision would be unconstitutional. We refuse to extend the rationale of Jackson, particularly in light of subsequent Supreme Court decisions, to the instant case.

Appellant's second major argument against the constitutionality of the statute is that his indigency precludes the mandatory assessment of costs. In United States v. American Theater Corp., 526 F. 2d 48 (CA8 1975), the Eighth Circuit, although it upheld the constitutionality of §1918(b) as applied, noted that there would be constitutional problems with the taxing of costs to an indigent criminal defendant. Appellant here contends that he was denied a full opportunity to exercise his constitutional rights because of his impecunity.

The Supreme Court has shown special concern for protecting the constitutional rights of indigent criminal defendants. In Griffin v. Illinois, 351 U. S. 12 (1956), the Supreme Court found that petitioners' constitutional rights had been violated because they were too poor to obtain a transcript of the trial proceedings necessary to afford them adequate and effective appellate review. Once Illinois decided to grant appellate review it had to do so in a way that did not discriminate against some convicted defendants on account of their poverty. Justice Black asserted "[t]here [could] be no equal justice when the kind of trial a man get[s] depends on the amount of money he has." Id. at 19. In many other cases, the Supreme Court has protected the rights of indigent criminal defendants. E.g., Rob erts v. LaVallee, 389 U. S. 40 (1967); Gideon v. Wainwright, 372 U. S. 335 (1963); Douglas v. California, 372 U. S. 353 (1963). ¹

Although the Supreme Court has been vigilant in protecting the constitutional rights of indigent criminal defendants the Court has recognized that "we live in a society where the distribution of legal assistance, like the distribution of all goods and services, is generally regulated by the dynamics of private enterprise." Fuller v. Oregon, 417 U. S. at 53. This recognition of harsh economic realities surely does not mean that a criminal defendant can be deprived of a minimum degree of fairness in the criminal justice system. "The Court has not guaranteed that all defendants will be able to present their defense or prosecute their appeals with equal resources, for it is incapable of leveling the economic ability of some defendants to pay for superior legal or investigative services that may be of some assistances to them. However the Court has sought to guarantee a basic level of fair treatment as a fundamental constitutional right." Nowak, Rotunda & Young, Handbook on Constitutional Law 678 (1978).

The instant case poses an issue that is different from the issues in Griffin or Gideon. Those cases involved a denial of adequate access to the criminal justice system or deprivations of fundamental constitutional rights necessary to insure fairness. There was no suggestion that the lack of funds affected appellant's eligibility to have a jury trial or compulsory process. There was here only the possibility that appellant might late be assessed the costs of prosecution. This is not enough to require a holding that appellant has thereby been denied a full and fair opportunity to exercise his constitutional rights.

Conclusion

Finding no error, we affirm the judgment of the district court.

AFFIRMED.

^* The Honorable Marion J. Callister, United States District Judge for the District of Idaho, sitting by designation.

¹ We note first that the Supreme Court's recent equal protection decisions dealing with indigents have departed somewhat from the sweeping pronouncements of earlier decisions. For example, in Maher v. Roe, 432 U. S. 464 (1977), the Court stated that "This case involves no discrimination against a suspect class. An indigent woman desiring an abortion does not come within the limited category of disadvantaged classes so recognized by our cases. Nor does the fact that the impact of the regulation falls upon those who cannot pay lead to a different conclusion. In a sense, every denial of welfare to an indigent creates a wealth classification as compared to nonindigents who are able to pay for the desired goods or services. But this Court has never held that financial need alone identifies a suspect class for purposes of equal protection analysis." Id. at 470-71. See also Harris v. McRae, -- U. S. --, 48 U. S. L. W. 4941, 4948 (1980). The Court, in Maher, noted that its decision did not represent a retreat from cases like Griffin and Douglas which had been based on an equal protection rationale. 432 U. S. at 471 n. 6. To reach our result, we do not need to rely on the position stated in Maher or Harris, but express the view that we have difficulty in finding a logical explanation for distinguishing between "suspect classes" for equal protection analysis, whether in the criminal or civil fields of law. We believe, however, that these cases caution against an overbroad reading of Griffin and Douglas.

 

 

[85-1 USTC ¶9387]United States of America v. Rob ert C. Bourbonnais a/k/a Rob ert C. Clermont

U. S. District Court, East. Dist. Va., Richmond Div., Criminal No. 79-00029-01-R, 602 FSupp 664, 2/5/85

[Code Secs. 6332 and 7203]

Crimes: Failure to file returns: Costs: Collection: Surrender of property: Taxpayer's property in possession of third party: Federal district court.--A federal district court was required to surrender to the IRS funds that it had improperly collected from the taxpayer because such funds were subject to levy, had been properly levied upon, and had been demanded by the IRS. As part of the taxpayer's sentence for willfully failing to file an income tax return, he was required to pay as part of the costs of prosecution the cost of the investigation leading to his indictment. However, the order imposing such costs was vacated because a subsequent decision by the Court of Appeals (CA-4) determined that the statutes which empowered a district judgment to assess costs of prosecution did not authorize the inclusion of the cost of investigation leading to indictment. In the meantime, it had gained an interest in such funds held by the court by levying upon the funds and had made a demand for the funds to be surrendered to it.

Opinion and Order

WARRINER, District Judge:

Presently before the Court is defendant's Fed. R. Crim. P. 35(a) motion for correction of sentence. The government has timely responded. The matter is ripe for adjudication.

On June 5, 1979 defendant was convicted of willfully failing to file an income tax return in violation of 26 U. S. C. §7203. As part of his sentence defendant was ordered to pay costs of prosecution in the amount of $11,810.94. 26 U. S. C. §7203. ¹ This amount specifically included the cost of investigation leading to indictment. There was no appeal.

Subsequent to imposition of sentence, the United States Court of Appeals for the Fourth Circuit in United States v. Vaughan, 636 F. 2d 921 (4th Cir. 1980), considered the statutes which employer a district judge to assess "costs of prosecution" against a defendant in an income tax criminal case and determined that the statutes did not authorize the inclusion of the cost of investigation leading to indictment. See 18 U. S. C. §3651; 28 U. S. C. §1920.

The United States does not contest the law as set forth in Vaughan that the cost of prosecution could not properly have been assessed against defendant; however, the prosecutor did question whether the Vaughan decision should be given retroactive application. ² The holding in Vaughan neither expanded nor changed the law in any way, rather, it explained the applicable statutes. See generally, Bouie v. Columbia, 378 U. S. 347 (1964). To apply Vaughan in this case is not to retroactively apply a change in the law; it would be correcting my error in interpreting the statute. Therefore, pursuant to Fed. R. Civ. P. 35(a), the illegal portion of the sentence imposed against defendant on June 5, 1979 requiring him to pay the costs of prosecution in the amount of $11,810.94 is VACATED. The remainder of the sentence imposed against defendant on June 5, 1979 remains in full force and effect.

Under the now vacated provision defendant had paid $12,010.94 into court. That amount represents full payment of the imposition of costs plus an inadvertent overpayment of $200.00. On the basis of Vaughan, defendant has moved that the total amount of money paid into the court, plus interest, be returned to him.

The United States contends that the funds held by the District Court may not be returned to defendant and that this Court must remit the money to the Internal Revenue Service (IRS) in partial satisfaction of an IRS lien that was placed against defendant's funds in the possession of the District Court on July 10, 1984. Defendant contends that he made a demand to the Clerk of the Court and to his probation officer on July 9, 1984 for a refund of the money and that, since this demand predated the IRS levy upon the funds, he is entitled to a return of the money.

Defendant was advised by me on July 9, 1984 in open court that he may be entitled to a refund of the money paid into court and he was urged to take action in his own interest. Defendant waited until January 3, 1985 to file this motion for a refund. Because this January 3 motion is the only demand that has any legally operative effect, the lien imposed by the IRS predates defendant's demand by over five months.

Even if this Court accepted defendant's contention that he made demands of the money prior to levy by the IRS, the Court would be compelled nevertheless to remit the money to the IRS.

26 U. S. C. §6332(a) states:

Except as otherwise provided in subsection (b), any person in possession of (or obligated with respect to) property or rights to property subject to levy upon which a levy has been made shall, upon demand of the Secretary, surrender such property or rights (or discharge such obligation) to the Secretary, except such part of the property or rights as is, at the time of such demand, subject to an attachment or execution under any judicial process.

The exceptions listed in subsection (b) are inapplicable in this case and the property is not and has not been subject to an attachment or execution under any judicial process. Section 6332(a) unequivocally requires that defendant's money in the control of the District Court and levied on by the IRS be handed over to the IRS in partial satisfaction of its lien.

This reading of the levy statute is bolstered by a decision of the Fourth Circuit. In Simpson v. Thomas, 271 F. 2d 450 (4th Cir. 1959) defendants were arrested for violation of Internal Revenue laws. At the time of their lawful arrest money that was in their possession was seized and held by a marshal for safekeeping. The money was subsequently levied on by the Internal Revenue Service and the Marshal delivered the money to the IRS. The Fourth Circuit found that the Marshal's actions were appropriate. The Court held:

When a tax lien attaches to property, the United States becomes in a sence a co-owner with the taxpayer of the property to the extent of the lien. The taxpayer then ceases to have an unconditional right to obtain or retain possession of the property. The substantive rights of the United States and of the taxpayer are in no sense dependent upon the nature of the immediate custody of the property or the identity of the custodian. If it appeared that money in the possession of a marshal had been stolen, no good reason appears why the law should require its return to the thief upon his discharge from custody. Nor do we see any reason why the United States Marshal may not recognize the United States as the owner of an interest in the property in his custody.

So far as we can find, it has been uniformly held that property held by a marshal, or other custodian, for safekeeping lien for taxes claimed to be due from tax lien for taxes claimed to be due from a prisoner from whom the property was obtained. This conclusion has been reached though the seizure of the property was, itself, illegal, so that its suppression for use as evidence was required. Id. at 452 (citations omitted).

The holding in Simpson is applicable by analogy to the case at bar. When the Internal Revenue Service, on July 10, 1984, levied upon the defendant's money held by the District Court, the IRS gained an interest in the property. Although, admittedly, the imposition of the particular costs was subsequently found to be not permitted by statute, defendant has not shown any reason why the money obtained from the illegal sentence should be treated any different from property illegally seized.

Further, defendant suffers no direct loss from this Court's determination that the money must be paid to the IRS. A debt of defendant's, which defendant does not contest is legally due, is being reduced by the full amount of money defendant paid into the court. If the money were refunded directly to defendant it would be immediately subject to levy and seizure by the IRS. Thus, the fund is to be applied in part payment of an obligation of defendant's.

Accordingly, W. Farley Powers, Jr., Clerk of the United States District Court for the Eastern District of Virginia, is ORDERED to issue a check payable to the Internal Revenue Service in the amount of $12,010.94, collected under the illegal portion of the sentence imposed on June 5, 1979. The check is to be mailed to Denis Martin, Revenue Officer, Internal Revenue Service, P. O. Box 10085, Richmond, Virginia, 23240.

And it is so ORDERED.

¹ The statute provides that a fine and a jail term may be imposed, "together with the costs of prosecution."

² No issue was raised by the United States that, there having been no appeal, the question is foreclosed.

 

 

[97-1 USTC ¶50,470] United States of America, Appellee v. Joseph A. May, Appellant

(CA-8), U.S. Court of Appeals, 8th Circuit, 96-3005, 3/21/97, Affirming an unreported District Court decision

[Code Sec. 7203 ]

Crimes: Failure to file: Liability for costs of prosecution: Government experts.--The trial court did not clearly err in its findings of fact or abuse its discretion when it ordered an individual who had pleaded guilty to criminal tax charges to pay the costs of prosecution. Therefore, the taxpayer had to pay the fees of two mental-health professionals who were appointed by the court and who examined him to determine his competency to stand trial. The doctors qualified as court-appointed experts, their fees were generally reasonable, and the taxpayer had the financial ability to pay.

Before: LOKEN, HANSEN, and MURPHY, Circuit Judges.

è Caution: This court has designated this opinion as NOT FOR PUBLICATION. Consult the Rules of the Court before citing this case.ç

Per Curiam"

EC: After Joseph A. May pleaded guilty to criminal tax charges in violation of 26 U.S.C. §7203, the district court ordered him to pay costs of prosecution, including the fees of two mental-health professionals who had examined May to determine his competency to stand trial. May appealed, arguing that the assessed costs were unreasonable and he was financially unable to pay. We remanded because the government initially paid the doctors, casting doubt on their status and the thoroughness of the court approval required under Federal Rule of Evidence 706. We directed the district court to review the experts' invoices with careful scrutiny and to order May to pay costs of prosecution, including whatever court-appointed expert fees the court approved and taking into account May's financial ability to pay. See United States v. May [95-2 USTC ¶50,548], 67 F.3d 706 (8th Cir. 1995).

On remand, the district court ¹ conducted a lengthy hearing, following which it concluded that the doctors were in fact court-appointed experts, that their fees were reasonable with one rather minor exception, and that May had the financial ability to pay costs of prosecution. On appeal, May argues that neither doctor was entitled to compensation as a court-appointed expert because one never was formally appointed, both functioned as prosecution witnesses, and the government usurped the court's power by prematurely paying them. After careful review of the record, we conclude that the district court properly construed our prior opinion, thoroughly explored the issues that prompted us to remand, and did not clearly err in its findings of fact nor abuse its discretion in awarding costs of prosecution in the amount of $15,663.50. Accordingly, we affirm.

¹ The HONORABLE D. BROOK BARTLETT, Chief Judge of the United States District for the Western District of Missouri.

 

 

[95-2 USTC ¶50,548] United States of America, Appellee v. Joseph A. May, Appellant

(CA-8), U.S. Court of Appeals, 8th Circuit, 94-2831, 10/12/95, Reversing and remanding an unreported District Court decision

[Code Sec. 7203 ]

Fines: Willfully failing to file tax returns: Costs of prosecution: Mental health expert: Fees paid: Court-approval.--A lower court erred by including in the costs of prosecution fees charged by court-appointed mental health experts that were assessed against an individual who pleaded guilty to willfully failing to file income tax returns because the government paid the mental experts' fees without obtaining court approval. There was no indication that the lower court reviewed the experts' invoices with the careful scrutiny required before a court-appointed expert's compensation may be approved. The record showed that the lower court did not critically assess the nature, extent, and value of these services and the assistance rendered to the court by the experts. Although the taxpayer's claim that he was unable to pay the costs of prosecution was viewed with skepticism, his ability to pay should be considered in determining the amount of the fine.

Loretta C. Argrett, Assistant Attorney General, Rob ert E. Lindsay, Allan Hechkopf, Scott A. Schumacher, Department of Justice, Washington, D.C. 20530, for appellee.

Before LOKEN, HANSEN, and MURPHY, Circuit Judges.

LOKEN, Circuit Judge:

Joseph A. May pleaded guilty to willfully failing to file income tax returns in violation of 26 U.S.C. §7203 . That statute provides that a violator "shall be fined not more than $25,000 ... or imprisoned not more than 1 year, or both, together with the costs of prosecution." May appeals the district court's order assessing costs of prosecution in the amount of $16,263.50. The assessment of costs of prosecution is part of May's punishment and therefore appealable. See United States v. Hiland, 909 F.2d 1114, 1141-42 (8th Cir. 1990). The principal issue on appeal is whether the court erred by including fees charged by court-appointed mental health experts. Because the government paid these experts without obtaining prior court approval, we remand for further proceedings.

Following May's indictment, the district court concluded that May might be incompetent to stand trial and ordered him to undergo a psychiatric examination. Although this examination could have been done--and in our view should have been done--at the Federal Medical Center in Springfield, Missouri (FMC), the court ordered that May be examined by Dr. Stanton L. Rosenberg, a local psychiatrist, at least in part because May preferred a local examination so that he could continue his practice of dentistry.

Dr. Rosenberg and his associate, psychologist Richard Sweetland, examined May and opined he was mentally "incapable" of standing trial. May's standby counsel then requested a second psychiatric evaluation at FMC. When FMC staff psychiatrist Christina A. Pietz disagreed with Dr. Rosenberg and Dr. Sweetland, the district court held a further competency hearing at which all three mental health professionals testified. On the last day of that hearing, May admitted he had been feigning incompetency. The court then found May competent to stand trial. His guilty plea followed.

After sentencing, the government filed a bill of costs of $16,263.50, including $8,700 for Dr. Rosenberg and $5,508.50 for Dr. Sweetland. When May objected to those charges, the government filed affidavits by Dr. Rosenberg and Dr. Sweetland detailing their fees and expenses, and advised that it had already paid their invoices. The district court ordered May to pay the entire bill of costs, explaining that "the number of hours expended by Dr. Rosenberg and Dr. Sweetland were reasonable," and "it was not unreasonable for Dr. Rosenberg and Dr. Sweetland to charge at the 'in court' rate for the time spent in court listening to the testimony of Dr. Pietz and waiting for the court to conclude unrelated matters." The court conditioned May's supervised release on his payment of these costs of prosecution.

On appeal, May challenges the assessed costs of prosecution as unreasonable. ¹ He argues that he is financially unable to pay, and that the mental health experts' fees were attributable to the prosecution's blunders.

Costs of prosecution must be included in the punishment imposed for a violation of 26 U.S.C. §7203 . See United States v. Wyman [84-1 USTC ¶9147 ], 724 F.2d 684, 688 (8th Cir. 1984). It is well settled that costs of prosecution are those costs that a federal court may tax in a civil action. See Hiland, 909 F.2d at 1142; United States v. Dunkel [90-1 USTC ¶50,243 ], 900 F.2d 105, 108 (7th Cir. 1990), vacated on other grounds [91-1 USTC ¶50,021 ], 498 U.S. 1043 (1991); United States v. Vaughn [80-2 USTC ¶9785 ], 636 F.2d 921, 922 (4th Cir. 1980). Those costs are specifically enumerated in 28 U.S.C. §1920 and include "[c]ompensation of court appointed experts," §1920(6). Dr. Rosenberg and Dr. Sweetland were court-appointed experts. See 18 U.S.C. §§4241(b), 4247(b). Thus, May must pay their reasonable compensation as part of the costs of prosecution. The record belies his assertions that the government failed to verify its bill of costs, and that assessing costs of prosecution violated his plea agreement. And given May's elaborate competency charade, concocted to evade criminal charges, his assertion that the prosecution was to blame for incurring the costs of mental health experts is absurd.

We nonetheless have substantial misgivings about the expert fees assessed as costs of prosecution. Federal Rule of Evidence 706(b) provides that court-appointed expert witnesses "are entitled to reasonable compensation in whatever sum the court may allow." (Emphasis added.) Yet the government paid the full fees charged by Dr. Rosenberg and Dr. Sweetland without obtaining court approval, treating them as prosecution expert witnesses, whose fees may not be taxed under 28 U.S.C. §1920, see West Virginia Univ. Hosp., Inc. v. Casey, 499 U.S. 83, 87 (1991), rather than as court-appointed experts. And there is no indication in the record that the district court reviewed these experts' invoices with the careful scrutiny required before a court-appointed expert's compensation may be approved.

Cases applying Rule 706(b) have not specified how a court-appointed expert's compensation should be determined. But there are relevant standards elsewhere in federal law. For example, the Bankruptcy Code describes the factors a court must consider in determining the reasonable compensation of bankruptcy trustees, examiners, and other professionals; those factors include "the nature, the extent, and the value of such services, taking into account all relevant factors." 11 U.S.C. §330(a)(3). In determining reasonable compensation for special masters appointed under Fed. R. Civ. P. 53, a court should consider factors such as time necessarily spent, thoroughness of the services, importance of the matter, and the assistance provided to a final disposition of the issues referred. See 5A James W. Moore, Moore's Federal Practice ¶53.04[1], at p. 53-29 (2d Ed. 1995). See also Newton v. Consolidated Gas Co., 259 U.S. 101, 105-06 (1922).

Here, Dr. Rosenberg and Dr. Sweetland failed to detect May's fraudulent claim of incompetency. FMC's Dr. Pietz expressed a contrary view, necessitating another court hearing. Dr. Rosenberg and Dr. Sweetland then billed the government $300 and $250 per hour, respectively, to attend that hearing, the result of which was to expose their incorrect competency assessment. We find no indication that the district court critically assessed the nature, extent, and value of these services, the rates charged in light of the value of the services, and the assistance rendered to the court by the experts. That Rule 706(b) inquiry must now be undertaken.

On remand, if the district court determines that the government prematurely overpaid the court-appointed experts, the court must order Dr. Rosenberg and Dr. Sweetland to refund the unreasonable portion of the fees paid. The court should then order May to pay the remaining costs of prosecution, including whatever court-appointed expert fees the court has approved. However, there is an additional issue in this regard. May asserts that he is financially unable to pay costs of prosecution. Although such a claim should be viewed most skeptically, 26 U.S.C. §7203 treats costs of prosecution as a fine, and a defendant's ability to pay must be considered in determining the amount of a criminal fine. See United States v. Bauer, 19 F.3d 409, 412-13 (8th Cir. 1994).

The district court Order Assessing Costs of Prosecution dated July 8, 1994, is reversed and the case is remanded for further proceedings consistent with this opinion.

¹ May also argues pro se that we should remedy an alleged embezzlement by his attorney's paralegals, but we have no jurisdiction to take up that subject.

[66-1 USTC ¶9445]United States of America, Appellee v. Angelo Procario, Appellant

(CA-2), U. S. Court of Appeals, 2nd Circuit, Docket No. 30031, 361 F2d 683, 6/3/66, Aff'g unreported District Court order

[1954 Code Secs. 7201 and 7402]

Criminal prosecutions: Conviction: Prosecution costs taxed to taxpayer.--Upon taxpayer's criminal conviction of attempting to defeat or evade income taxes the Government is entitled to have taxed to the taxpayer the costs of prosecution, including docket fees, witness fees and the stenographer's fees for daily copy of the trial transcript.

Rob ert M. Morgenthau, United States Attorney, James G. Greilsheimer, Rob ert E. Kushner, John E. Sprizzo, Assistant United States Attorneys, New York, N. Y., for appellee. Louis Bender, Lloyd A. Hale, 170 Broadway, New York, N. Y., for appellant.

Before MOORE, SMITH and KAUFMAN, Circuit Judges.

PER CURIAM:

Dr. Angelo Procario appeals from an order of the United States District Court for the Southern District of New York, Edmund L. Palmieri, Judge, affirming the taxation of $3753.68 in costs of prosecution following his conviction of attempting to defeat or evade income taxes in violation of 26 U. S. C. §7201. Appellant was found guilty on three counts, after a six week trial, largely consisting of the prosecution's case. He was sentenced to a year and day on each count, to be served concurrently, to a fine of $3000 on each count, and to one-third of the costs on each count. Conviction was affirmed by this court, United States v. Procario [66-1 USTC ¶9263], 356 F. 2d 614 (2d Cir. 1966).

The government moved pursuant to Rule 54(d) of the Federal Rules of Civil Procedure for the taxation of $4648.52 in costs. The Deputy Clerk allowed $4269.66, reducing certain witness fees. On appeal Judge Palmieri disallowed a $15 filing fee, $426.38 in reproduction costs, and $74.60 of stenographers' fees. The remainder, consisting of $20 in docket fees, $2770.26 in stenographers' fees, for daily copy of the trial transcript, $520.66 for witness fees, and $442.80 for charts and reproduction of records, was allowed. The stenographers' fee of $2770.26 represented 871/2 cents per page for 3166 pages of transcript, paid by the government as its share (50%) of the total fee for daily copy. Appellant had paid the other 50%, as he also received daily copy. We find no abuse of discretion in the taxation of costs and affirm the order.

26 U. S. C. §7201, the statute under which appellant was convicted, expressly provides that the defendant convicted of an attempt to defeat or evade taxes is liable for the costs of prosecution. 28 U. S. C. §1918(b), furthermore, allows the District Court to tax costs of prosecution "whenever any conviction for any offense not capital is obtained." And 28 U. S. C. §1920 permits "a judge or clerk of any court of the United States" to tax special fees including fees for the court reporter for transcripts, for witnesses, and for exemplification and copies of papers.

Appellant claims that §1920 is inapplicable to criminal matters, and therefore furnishes no authority to tax costs of fees for stenographic services, witnesses, and copying. While there do not appear to be many criminal cases applying §1920, there ought to be no doubt that the section applies here. Cf. Lee v. United States [56-2 USTC ¶10,014], 238 F. 2d 341 (9th Cir. 1956). §1918 expressly deals with criminal matters; so does §1915 (fees in forma pauperis), §1921 (marshal's fees), §1922 (fees before a U. S. Commissioner), and §1923 (docket fees). 28 U. S. C. §753 empowers the stenographer to charge fees in criminal as well as civil matters, for an exception to that power is made for criminal matters in forma pauperis. Thus all the fees listed in §1920, as taxable, are chargeable in both criminal and civil matters. It seems inescapable that §1920 was designed to be read with, inter alia, §1918, or any statute, such as §7201, calling for the imposition of costs in a criminal matter.

Appellant suggests that "costs" in §7201 does not include stenographers' fees. This claim is without merit. §7201 was designed in this respect to conform "to numerous sections in existing law." The fact that §7201 had its origins in 1913, prior to the passage, in 1944, of the Court Reporter Act, 28 U. S. C. §753, does not mean that in enacting §7201 in 1954 Congress meant to exclude from costs an item then regularly a part of costs of prosecution, as in §1920(2), and chargeable as a fee, §753.

Appellant contends that the statute as we read it is invalid as likely to coerce guilty pleas. We doubt that any such result follows, and in any case no such plea was entered here.

The only real question is the exercise of the court's discretion. The court may set aside the taxation of costs only for abuse of discretion. Farmer v. Arabian American Oil Co., 379 U. S. 227 (1964), Syracuse Broadcasting Corp. v. Newhouse, 319 F. 2d 683, 690 (2d Cir. 1963). The appellant has pointed to no specific abuse here, such as portions of the transcript which need not have been supplied daily. The trial judge is peculiarly in a position to assess the necessity of daily copy and other costs such as the charts used in this six-week long and rather technical case. See United States v. Kolesar, 313 F. 2d 835, 840 (5th Cir. 1963). The items and amounts taxed were well within the court's discretion on the showing here. The taxation of costs is affirmed.