Failure to Assess
Tax
7203:
Willful Failure to File Return, Supply Information, or Pay Tax:
Defenses: Failure to Assess Tax
[81-2
USTC ¶9710]
United States of America
, Plaintiff-Appellee v. Victor S. Voorhies, Defendant-Appellant
(CA-9),
U. S. Court of Appeals, 9th Circuit, No. 80-1725, 658 F2d 710, 10/8/81,
Affirming unreported District Court decision
[Code Sec. 7201]
Crimes: Income tax evasion: Deficiency assessed outside period
covered by indictment: Sufficiency of the evidence: Intent.--A
taxpayer's conviction for wilful evasion of tax could be based on a
deficiency formally assessed after the period covered by the indictment
and there was sufficient evidence that the taxpayer's conduct had the
effect of misleading or concealing. The taxpayer failed to file returns
for 1970 and 1972 and subsequently travelled to Europe and the South
Pacific carrying cash and gold coins and he admitted reporting carrying
smaller amounts of money into and out of the
United States
in Customs declarations than he later admitted transporting. While there
was no evidence that the taxpayer made use of Swiss bank accounts, he
was unable to account for the assets he claimed he brought back into the
U. S.
until at least five months after he returned from his last trip.
Moreover, the certificates of assessment were sufficient evidence of the
taxpayer's tax liability.
Michael
L. Paup, Deborah A. Wright, Department of Justice, Washington, D. C.
20530, for plaintiff-appellee. Harvey D. Tack, Hochman, Salkin &
DeRoy, 910 Wilshire Blvd., Beverly Hills, Calif. 90212, for
defendant-appellant.
Before
FARRIS and NELSON, Circuit Judges, and CARROLL, * District
Judge.
FARRIS,
Circuit Judge:
Victor
Voorhies appeals his convictions for two counts of willful evasion of
the payment of income taxes for calendar years 1970 and 1972. See 26 U.
S. C. §7201 (1976). He contends that (1) a conviction for evasion of
the payment of taxes cannot be based on a determination and assessment
of tax liability made final only after the period of criminality alleged
in the indictment; (2) even if a conviction can be so based, tax
liability cannot be established solely by the opinion testimony of the
examining revenue agent; and (3) his acts during the period covered by
the indictment were insufficient to constitute a willful attempt to
evade or defeat payment of his 1970 and 1972 income taxes. See 28 U. S.
C. §1291 (1976). We affirm.
I.
FACTS. During an audit of Voorhies' 1971 federal income tax return in
1973, revenue agent Nelson discovered that Voorhies had not filed
personal returns for the 1970 and 1972 calendar years. Using bank
statements, cancelled checks, and wedding rereipts, furnished by
Voorhies' accountants, Nelson prepared substitute returns for 1970 and
1972. Voorhies did not sign these returns.
On
January 18, 1974, Voorhies' corporation, United Chapel Associates,
closed the sale of its wedding chapel business to Smith. The corporation
received, as proceeds of the sale, a $76,486.24 check from escrow 1 and a
$125,000.00 note from Smith. Voorhies exchanged the escrow check at
Valley Bank of
Nevada
for eleven cashier's checks. He sold the Smith note to Wright for gold
coins and a platinum bar valued at $50,000.00.
Voorhies
traveled to
Europe
in late January, 1974. In that same year, he returned to the
United States
, traveled to the South Pacific, and returned to
Europe
. Customs information forms indicated that Voorhies took $11,900.00 out
of the
United States
on January 31, 1974; that he either took $8,400.00 out of or into the
United States
on February 17, 1974; and that he brought $7,600.00 into the
United States
on April 30, 1974. An IRS form signed by Voorhies, which inaccurately
reported his social security number, indicated that he had exchanged
$30,000.00 in
United States
currency for 100,000 Swiss francs in
Zurich
in August 1974. 2 Nine of the
eleven cashier's checks were negotiated through Swiss Bank Corporation
of
Zurich
in 1974.
A
"30-day letter" proposing assessment of $12,345.00 plus
penalties for 1970 and of $20,885.00 plus penalties for 1972 was mailed
to Voorhies on February 12, 1974. A statutory notice of deficiency (or
"90-day letter") relating to these 1970 and 1972 assessments
was mailed to Voorhies on June 7, 1974. 3 Assessments
of audit deficiencies and statutory penalties were made on February 3,
1975, for the 1972 tax year and on February 24, 1975 for the 1970 tax
year.
Voorhies
was indicted on January 16, 1980, on five counts of willfully attempting
to evade payment of taxes during the period from January 18 through
September 4, 1974. The indictment charged that Voorhies had removed
assets from the
United States
, placed them beyond the reach of service of process, and concealed and
attempted to conceal them and their location from the IRS. See 26 U. S.
C. §7201 (1976).
A
bench trial was held in the District of Nevada on July 23-25, 1980.
Voorhies testified that when he left the country, he carried all his
assets, including cash and the gold coins, as "cash on hand."
He further testified that he returned to the
United States
with the gold coins and "sixty, seventy" thousand dollars,
although no customs declaration forms filed by him reported such large
amounts. Voorhies testified that he never deposited assets in a Swiss
bank account and left no money in
Switzerland
. Voorhies also testified at trial that, when he left for
Europe
in January, 1974, he was unaware that he owed additional federal taxes. 4
At
the conclusion of the trial, the court found Voorhies guilty of
willfully attempting to evade the payment of personal taxes for the 1970
and 1972 calendar years. Voorhies was sentenced by the district court on
October 6, 1980.
II.
Amount of Tax Liability Fixed After Indictment Period
26
U. S.
C. §7201 (1976) provides that:
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 $10,000, or imprisoned not more
than 5 years, or both, together with the costs of prosecution.
Section
7201 includes both the offenses of willfully attempting to evade or
defeat the assessment of a tax as well as the offense of willfully
attempting to evade or defeat the payment of a tax. Sansone v. United
States [65-1 USTC ¶9307], 380 U. S. 343, 354, 85 S. Ct. 1004, 1011,
13 L. Ed. 2d 882 (1965) (citing Lawn v. United States [58-1 USTC
¶9189], 355 U. S. 339, 361, 78 S. Ct. 311, 323, 2 L. Ed. 2d 321
(1958)); Cohen v. United States [62-1 USTC ¶9202], 297 F. 2d
760, 770 (9th Cir.), cert. denied, 369 U. S. 865, 82 S. Ct. 1029,
8 L. Ed. 2d 84 (1962). The elements of both section 7201 violations are
(1) willfulness, (2) existence of a tax deficiency, and (3) an
affirmative act constituting an evasion or attempted evasion of the tax.
Sansone, 380
U. S.
at 351, 85
S. Ct.
at 1010; United States v. House [75-2 USTC ¶9616], 524 F. 2d
1035, 1038-39 (3d Cir. 1975); United States v. England [65-1 USTC
¶9350], 347 F. 2d 425, 438 (7th Cir. 1965).
Voorhies
contends that the second element, the "existence of a tax
deficiency," can be predicated only on tax liabilities which have
been finally determined and assessed and that his tax liabilites had not
been determined during the period covered by the indictment. He notes
that the statutory language of section 7201 refers only to the payment
of "any tax imposed by this title." The Supreme Court in Sansone,
380
U. S.
at 351, 85
S. Ct.
at 1010, referred merely to "the existence of a tax
deficiency" and did not define the formalities which such a
deficiency must meet. Voorhies' argument is based primarily on 26 U. S.
C. §6213 (1979), which provides in part that no deficiency assessment
nor proceeding for collection of tax shall be made until the statutory
deficiency notice has been mailed to the taxpayer and 90 days have
elapsed. 5 He contends
that, prior to a final
admin
istrative determination of tax liability, the trier of fact can only
speculate as to whether a defendant's conduct constitutes evasion of
payment of a tax not yet due. Accordingly, Voorhies concludes that,
under the statutory scheme here, the government should not be allowed to
prosecute criminally for failure to pay a tax which it cannot yet
collect civilly or
admin
istratively.
We
reject the argument. A tax deficiency exists from the date a return is
due to be filed; that deficiency arises by operation of law under
sections 6151(a) and 6072(a). See United States v. Northwestern
Mutual Insurance Co. [63-1 USTC ¶9417], 315 F. 2d 723, 725, 726
(9th Cir. 1963) (under section 6151(a), a tax is due and owing on the
date a return must be filed, even if ascertainment of the amount
requires reference to a subsequent IRS redetermination; the statutory
deficiency notice "merely reminds [the] taxpayer of [his] duty to
pay a tax debt already due and does not create that liability"). Cf.
United States v. Gardner [80-1 USTC ¶9390], 611 F. 2d 770, 775-76
(9th Cir. 1980) (amount of tax liability alleged by government in
indictment was adjusted downward during course of trial). Here, Voorhies
did not file timely personal returns for the 1970 and 1972 tax years;
his taxes for those years were, however, due and owing on April 15,
1971, and April 15, 1973, respectively.
The
record establishes that, although perhaps unclear as to the amount of
Voorhies' evasion, the IRS was fully aware of the fact of that evasion.
Voorhies traveled out of the country on three occasions in 1974,
carrying with him over $80,000.00 in highly negotiable assets. In spite
of his prior experience with customs reporting duties, he did not
declare either that he took out of or returned to the
United States
with such large amounts of money. His previous encounter with customs
agents in late 1973, had disclosed Voorhies' deposits in Swiss banks and
use of Swiss safety deposit boxes on an earlier occasion. At trial,
Voorhies was unable to account for his use of the cash and gold coins on
his return to
Las Vegas
, except to acknowledge that he did not place them in his Nevada bank
account; not until February 1975 did Voorhies invest a correspondingly
large amount of money in a
Nevada
business venture. The subsequent IRS determination of Voorhies' tax
deficiencies for the two years in question totalled over $33,000.00. On
these facts, the trier of fact could properly find a strong inference
that Voorhies' activities during the indictment period were calculated
to evade the payment of taxes due and owing.
Although
not compelling it, decided cases support our conclusion. The filing of
an
admin
istrative assessment record is not required before a criminal
prosecution may be instituted under 26
U. S.
C. §§ 7201-7207 (1976) for failure to report or pay income tax. United
States v. Kelley [76-2 USTC ¶9489], 539 F. 2d 1199, 1203 (9th
Cir.), cert. denied, 429
U. S.
963, 97 S. Ct. 393, 50 L. Ed. 2d 332 (1976) (dictum) (citing cases)
(prosecution under 26
U. S.
C. §7205 for providing false information on withholding forms). The
Seventh Circuit, while noting that proof of a "valid
assessment" is requisite to finding a section 7201 violation for
evasion of payment of taxes, has held that "there is no real
distinction to be drawn between 'a tax due and owing' and a tax validly
assessed." United States v. England [65-1 USTC ¶9350], 347
F. 2d 425, 430 & n. 10 (7th Cir. 1965). 6 We agree.
Although a prior valid assessment may be used to show a tax deficiency
under section 7201, see id. Cohen v. United States [62-1 USTC ¶9202],
297 F. 2d 760 (9th Cir.), cert. denied, 369
U. S.
865, 82
S. Ct.
1029, 8 L. Ed. 2d 84 (1962), it is not required to show that deficiency.
III.
Opinion Testimony of Revenue Agent
Voorhies
contends that the only evidence of his personal tax liability, beyond
the February 1975 assessment, was agent Nelson's testimony on his method
of determining that liability. He contends that opinion testimony by one
not qualified as an expert, absent the documents on which that testimony
is based, is insufficient to establish tax liability on which a section
7201 conviction can be based.
A
valid assessment is one method of establishing tax liability in the
reported evasion of payment cases, see e.g., United States v. England
[65-1 USTC ¶9350], 347 F. 2d 425, 430 & n. 10 (7th Cir. 1965),
although the fact of a tax due and owing may be also established by
documentary evidence of tax liability, accompanied by a summary by an
expert, see, e.g., United States v. Gardner [80-1 USTC ¶9390],
611 F. 2d 770, 775 (9th Cir. 1980). The certificates of assessment
against Voorhies for personal tax years 1970 and 1972 were introduced
into evidence at trial. In the absence of an
admin
istrative- or judicial-level contention by the taxpayer that these
assessments were invalid, the certificates of assessment were prima
facie correct and therefore adequate evidence of the amount of Voorhies'
tax liability.
IV.
Insufficiency of the Evidence
Voorhies
contends that the government's proof was insufficient to support a
conviction for evasion of payment of taxes, because that proof
established only "random transactions" in
Switzerland
during the indictment period.
Willfulness
may be established in prosecutions under section 7201 by "any
conduct, the likely effect of which would be to mislead or
conceal." Spies v. United States [43-1 USTC ¶9243], 317
U. S.
492, 499, 63 S. Ct. 364, 368, 87 L. Ed. 418 (1943).
No
appellate tribunal has as yet been called upon to ascertain the peculiar
meaning to be ascribed to willfulness in a felony prosecution for
evasion of the payment. It would seem to require that the taxpayer
cognizant of his financial obligaitons to the taxing authority has acted
to conceal the means which he possesses or controls to discharge the
obligation with the specific intent to defeat or evade the payment of
monies due the government.
United
States v. Jannuzzio [60-2 USTC ¶9512], 184 F. Supp. 460, 469 (D.
Del. 1960).
Independent evidence of willfulness may be established by "the
so-called 'badges of fraud'" and acts both prior and subsequent to
the indictment period may be probative of the defendant's state of mind.
Id.
at 470. A mere failure to file a return and to pay the tax, however, is
insufficient for a conviction under section 7201 for willful evasion of
payment. United States v. Mesheski [61-1 USTC ¶9233], 286 F. 2d
345, 346-47 (7th Cir. 1961). The question of willfulness is uniquely
suited for determination by the trier of fact. United States v. House
[75-2 USTC ¶9616], 524 F. 2d 1035, 1045 (3d Cir. 1975). In considering
the sufficiency of evidence challenge here, we view the evidence in the
light most favorable to the government. United States v. Andros
[73-2 USTC ¶9622], 484 F. 2d 531, 534 (9th Cir. 1973).
Independent
of Voorhies' failure to file 1970 and 1972 personal returns and to pay
the corresponding taxes due and owing, the evidence is sufficient to
support his conviction for the willful attempt to evade the payment of
those taxes. Voorhies liquidated nis business assets in January 1974,
exchanging the proceeds of the sale for smaller denomination cashier's
checks, coins, and platinum, which were extremely portable; from
February to August 1974, he traveled twice to Europe and once to the
South Pacific, transporting assets valued at over $80,000.00 with him
and negotiating the bulk of cashier's checks in Switzerland; these
travels followed an IRS audit in 1973 during which Voorhies was put on
notice of tentative tax deficiencies of over $33,000.00; although he
reported exchanging $30,000.00 in United States currency for 100,000
Swiss francs during his 1974 travels, he used a false social security
number on the reporting form; and customs forms filed by Voorhies in
1974 reported much smaller amounts of money being carried out of and
into the United States than he admitted carrying, despite his
constructive knowledge from 1973 of a duty to report instruments in
excess of $5,000.00. Further, although no evidence was introduced
tending to show that Voorhies made use of his Swiss bank accounts or
safety deposit boxes during his 1974 travels, he was unable to account
for the large assets which he claimed he had brought back into the
country until at least five months after his return. Taken together,
Voorhies' conduct in 1974 had the "likely effect" of
misleading or concealing.
Affirmed.
*
Honorable Earl H. Carroll, United States District Judge for the District
of Arizona, sitting by designation.
1
A tax lien of $37,254.76 against the corporation for the taxable year
ending March 31, 1971, was also paid from the escrow account.
2
On November 3, 1973, Voorhies had been detained by a customs agent at
John
F.
Kennedy
International
Airport
. He was found to be bringing $13,367.00 in
United States
currency into the
United States
without declaration. The agent found documents from Swiss banks,
apparently involving silver deposits, which he photocopied and returned
to Voorhies, and two keys to Swiss safety deposit boxes. This detention
preceded the period covered by the indictment but is probative of
whether Voorhies had Swiss bank accounts and of his knowledge of customs
reporting duties.
3
The statutory notice of deficiency is a prerequisite to assessment of
unagreed income tax. If the taxpayer fails to petition the Tax Court.
within 90 days, or within 150 days if he is out of the country, the
Internal Revenue Service may assess the tax. See 26 U. S. C. §6213
(1976).
4
Voorhies testified that he had received no IRS notices about his 1970
and 1972 personal taxes when he left the country in January 1974. Actual
receipt of the notices, however, is not statutorily required. See Cohen
v. United States [62-1 USTC ¶9202], 297 F. 2d 760, 771-73 (9th
Cir.), cert. denied, 369
U. S.
865, 82
S. Ct.
1029, 8 L. Ed. 2d 84 (1962) (that notices were mailed to last permanent
address of taxpayer was sufficient).
5
26
U. S.
C. §6213 (1976) provides for a 150-day period, rather than a 90-day
period, if the statutory notice of deficiency is "addressed to a
person outside the
United States
." Government trial counsel conceded that the 150-day period
applied to Voorhies.
6
In Cohen v. United States [62-1 USTC ¶9202], 297 F. 2d 760,
771-72 (9th Cir.), cert. denied, 369 U. S. 865, 82 S. Ct. 1029, 8 L. Ed.
2d 84 (1962), a Ninth Circuit panel noted that valid assessments (via
30- and 90-day statutory deficiency letters) had been made several years
before the period covered by the indictment under section 7201. The
panel did not, however, state that such an assessment was the only means
by which "a tax due and owing" could be demonstrated.
[84-2
USTC ¶9913]
United States of America
, Plaintiff-Appellee v. Edwin E. Dack, Defendant-Appellant
(CA-7),
U. S. Court of Appeals, 7th Circuit, No. 84-1225, 747 F2d 1172, 11/5/84,
Affirming an unreported decision of the District Court
[Code Secs. 7201 and 7203]
Criminal penalties: Failure to assess tax: Good faith.--Where an
indictment charged the taxpayer with evading the government's
ascertainment of tax liability which arose by operation of law when the
taxpayer failed to file a timely return, the district court correctly
instructed the jury that the government's failure to file a tax
assessment was not a valid defense to tax evasion. Further, the district
court did not instruct the jury to ignore the good faith defense. When
read as a whole, the court permitted the jury to acquit the taxpayer if
it found a bona fide misunderstanding of the tax laws.
R.
Lawrence Steele, Jr., United States Attorney, Gregory A. Vega, Assistant
United States Attorney, Hammond, Ind., for plaintiff-appellee. Guy G.
Curtis, 610 Broadway,
Imperial
,
Nebraska
69033
, for defendant-appellant.
Before
WOOD and ESCHBACH, Circuit Judges, and SWYGERT, Senior Circuit Judge.
PER
CURIAM:
Edwin
E. Dack appeals from his conviction of tax evasion, challenging, inter
alia, the district court's instruction that "it is not a
defense to the charges in the indictment that the Internal Revenue
Service failed to make or file a tax assessment." He contends that
this instruction (1) misstated the law inasmuch as a valid tax
assessment is an essential element of the tax evasion charge and (2)
undercut his affirmative defense that he possessed a good faith belief
in the necessity of a tax assessment. We think these contentions have no
merit, and we affirm.
Dack
was indicted for attempting to "evade and defeat . . . income tax
due and owing" for the years 1977 through 1981. At trial, the
United States
introduced evidence showing that in order to effectuate his statement of
intent on his 1976 return to stop paying taxes, Dack resigned his
salaried position with Instrument Systems, Inc. and was rehired as an
independent contractor to perform the same duties. Because of this
arrangement, Dack's employer was no longer responsible for withholding
his taxes. Dack then incorporated as Ed E. Dack, Inc. and ceased filing
withholding statements and tax returns. Dack renounced his corporate
entity in 1980.
The
Internal Revenue Service ("IRS") did not make a formal
assessment of tax owing, pursuant to 26
U. S.
C. §§ 6201-07, 6501 (1982). Evidence was presented at trial, however,
tending to establish that during this period Dack's annual gross income
varied between $24,000 and $38,000 and his annual unpaid tax liability
varied between $700 and $6,000. Dack testified that he believed he was
not required to file an income tax return and charged that the IRS was
improperly applying the tax laws. He was convicted and sentenced to five
years imprisonment.
Dack
argues that the government cannot obtain a conviction for tax evasion
without a formal assessment that the undeclared tax was due in the first
place. Dack cites United States v. England [65-1 USTC ¶9350],
347 F. 2d 425 (7th Cir. 1965), where this court reversed a tax evasion
conviction because the trial court had instructed the jury to find a
valid tax assessment, which the court defined as a necessary element of
the offense charged.
Id.
at 430. We hold that
England
did not define a valid tax assessment as a necessary element of tax
evasion in every case. Rather,
England
stands only for the proposition that where, under a peculiar set of
facts, a valid tax assessment is a necessary element, the court cannot
instruct the jury to find that element as a matter of law. Under the
instant set of facts, a tax assessment was not a necessary element, and
therefore the district court properly instructed the jury that the lack
of a tax assessment was not a valid defense.
Section
7201 of the Internal Revenue Code defines two distinct crimes: (1) the
willful attempt "to evade or defeat any tax" and (2) the
willful attempt to evade or defeat the "payment" of any tax. 1 Sansone
v.
United States
[65-1 USTC ¶9307], 380
U. S.
343, 354 (1965); United States v. Voorhies [81-2 USTC ¶9710],
658 F. 2d 710, 713 (9th Cir. 1981); United States v. Jannuzzio
[60-2 USTC ¶9512], 184 F. Supp. 460, 465-66 (D. Del. 1960). The first
crime includes attempts to evade the Government's effort to ascertain a
citizen's tax liability. Jannuzzio, 184 F. Supp. at 465. The
indictment charged Dack with this crime, rather than with the evasion of
the "payment of tax."
It
is true that the existence of a tax deficiency is an element of both
crimes defined in 26
U. S.
C. §7201. Voorhies, 658 F. 2d at 713; accord Sansone, 380
U. S.
at 351. Nevertheless, we agree with the Ninth Circuit's reasoning in Voorhies
that this element can be satisfied without a formal tax assessment when
the charge is that of willfully attempting to evade a tax. When, as
here, the taxpayer fails to file a return, 2 and the
Government can show a tax liability pursuant to the provisions of the
tax code, then a tax deficiency within the meaning of section 7201 is
deemed to arise by operation of law on the date the return is due. See Voorhies,
658 F. 2d at 714 (interpreting 26
U. S.
C. §§ 6151(a), 6072(a)).
In
England
, 347 F. 2d at 427, the defendants were charged with the second
crime proscribed by section 7201: evasion of the payment of tax. The tax
liability in that case arose as a result of formal, civil tax assessment
proceedings. The indictment alleged that in the years following the
assessments, the defendants attempted to evade the payment of the
liability by concealing the nature and extent of their property
interests. Defendants contended that the invalidity of the tax
assessments absolved them from any duty to pay the amounts assessed;
their evasion of payment of those taxes, therefore, could not be
punished. The Government conceded that its case hinged on demonstrating
a legal assessment. Therefore, this court properly concluded that, under
the facts presented, a valid tax assessment was a necessary element of
the crime charged.
Id.
; but see id. at 437 (Swygert, J., dissenting) (validity of tax
assessment in this case was a question of law for the court to decide).
In
sum, tax assessment proceedings are civil in nature and are not normally
a prerequisite to criminal liability. But when the crime charged is one
of evading the payment of taxes that have been assessed in civil
proceedings, the Government must prove the existence of a valid tax
assessment. Here, the indictment charged Dack with evading the
Government's ascertainment of tax liability. The tax liability arose by
operation of law when Dack failed to file a timely return. Accordingly,
a valid tax assessment was not an element of the offense charged. The
district court properly refused to instruct the jury to the contrary.
Dack's
second objection to the tax assessment instruction is that it
effectively negated his good faith defense. He cites United States v.
Burton [84-2 USTC ¶9689], 737 F. 2d 439 (5th Cir. 1984), for the
proposition that a bona fide misunderstanding of the tax laws, even if
objectively unreasonable, negates the essential element of willfulness.
We agree that Dack was entitled to an acquittal if he could demonstrate
a bona fide belief in the necessity of a tax assessment, even if that
belief was objectively unreasonable. Unlike
Burton
, however, the district court here did not instruct the jury to
ignore the good faith defense. The district court's instructions, when
read as a whole, permitted the jury to acquit Dack if it found a bona
fide misunderstanding of the tax laws.
As
we have noted, the district court correctly instructed the jury that the
Government's failure to file a tax assessment was not a valid defense to
tax evasion. A separate instruction stated that Dack's "conduct is
not willful if the income was omitted from him returns because of
accident, mistake, inadvertence, or due to a good faith misunderstanding
as to the requirements of the law." 3 And still
another instruction stated that "[a]n inadvertent failure to file
or a bona fide misunderstanding of the duty to file are justifiable or
good faith excuses which negate the element of willfulness." A jury
charge must be read as a whole. Stewart v.
Israel
, 738 F. 2d 889, 892 (7th Cir. 1984). Here, the instructions
informed the jury that (1) a finding that there was no tax assessment
would not in and of itself absolve Dack, but (2) Dack's good faith
belief that he owed no taxes and did not have to file (whatever the
cause of that good faith belief, whether from the lack of a tax
assessment or otherwise) would absolve Dack. Thus, the instructions were
not erroneous. 4
We
have reviewed the other issues raised by Dack and conclude that they are
without merit. 5 The judgment
is affirmed.
1
The statute penalizes "[a]ny person who willfully attempts in any
manner to evade or defeat any tax imposed by this title or the payment
thereof." 26 U. S. C. §7201 (1982).
2
The record shows that Dack filed a document that purported to be a
federal income tax return for tax year 1977, but the IRS would not
accept it as a tax return because it did not contain enough information
to permit the determination of a tax liability. The record does not show
that Dack filed any documents purporting to be tax returns for tax years
1978 through 1981.
3
Willfulness is a necessary element of tax evasion. See supra note
1.
4
When a particular instruction on its face may be misconstrued by the
jury, the better practice is to rewrite the instruction rather than to
rely simply on the jury's ability to resolve potential ambiguities by
reading the instructions as a whole. Accordingly, when an instruction
requires the jury to ignore a certain defense, as the tax assessment
instruction did in the case at bar, we urge trial judges to include
within that specific instruction a caveat as to the possibility of a
good faith defense. Here, the caveat would have expressly advised the
jury that while the lack of an assessment did not in and of itself
absolve Dack, a bona fide belief in the necessity of a tax assessment
would have absolved him. Although the instant instructions adequately
stated the law, we believe a caveat would have improved their clarity.
We note, however, that Dack's requested instruction no. 49 proposed no
such caveat. We also note that even if it had, Dack was entitled only to
a charge that fairly and adequately instructed the jury on the theory of
the defense; he was not entitled to an instruction in the particular
form and with the particular emphasis he desired.
United States
v. Rothman, 567 F. 2d 744, 752 (7th Cir. 1977).
5
These issues can be dismissed summarily. The district court did not err
in denying Dack's motion to dismiss for failure to publish adequate
notice, pursuant to the Privacy Act, of the specific criminal penalty
that might be imposed for failure to file a tax return. United States
v. Annunziato [81-1 USTC ¶9405], 643 F. 2d 676, 678 (9th Cir.), cert.
denied, 452
U. S.
966 (1981). Congress does have the constitutional authority to impose
criminal penalties for income tax evasion. United States v. Drefke
[83-1 USTC ¶9354], 707 F. 2d 978, 981 (8th Cir. 1983), cert. denied,
104 S. Ct. 359 (1984). The district court did not err in refusing to
instruct the jury that it could judge the law as well as the facts. United
States v. Buttorff [78-1 USTC ¶9265], 572 F. 2d 619, 627 (8th
Cir.), cert. denied, 437
U. S.
906 (1978).
Nor
did the district court err in quashing a subpoena issued to compel the
prosecuting attorney to testify as an expert witness. Dack sought to
compel the prosecuting attorney to take the stand so that he could
verify that the Supreme Court had held in United States v. Bishop
[73-1 USTC ¶9459], 412 U. S. 346 (1973), that good faith reliance on
provious decisions of the Court was a valid defense. Even assuming this
was a valid material issue in this case, the point could just have
easily been made with a volume of United States Reports. Where evidence
is easily available from other sources and absent "extraordinary
circumstances" or "compelling reasons," an attorney who
participates in the case should not be called as a witness.
United States
v.
Johnston
, 690 F. 2d 638, 644 (7th Cir. 1982).
Finally,
the district court did not err in denying Dack's motion to dismiss for
selective prosecution. It was established that Dack was a member of the
National Commodity and Barter Association which is apparently an
organization advocating tax protest. To establish that he was
selectively prosecuted for tax evasion the defendant must show that the
Government had a policy of not prosecuting other persons who similarly
attempted to evade taxes. United States v. Stout [79-2 USTC ¶9461],
601 F. 2d 325, 328 (7th Cir.), cert. denied, 444
U. S.
979 (1979). No such showing was made here.
The
issues discussed in this footnote might be sufficiently frivolous to
justify an assessment of costs and attorney's fees pursuant to Rule 38
of the Federal Rules of Appellate Procedure. See Edgar v. Inland
Steel Co. [84-2 USTC ¶9819], No. 83-2314, slip op. at 4 (7th Cir.
Sept. 21, 1984). Nevertheless, we do not deem this case sufficiently
extraordinary to make such an award sua sponte. See Ruderer v. Fines,
614 F. 2d 1128, 1132 (7th Cir. 1980).
[84-1
USTC ¶9130]
United States of America
, Appellee v. William E. Richards, Appellant
(CA-8),
U. S. Court of Appeals, 8th Circuit, No. 83-1954, 723 F2d 646, 12/30/83,
Affirming an unreported decision of the District Court
[Code Sec. 7203]
Criminal penalties: Failure to assess tax.--Failure to assess tax
did not preclude indictment of the taxpayer for willfully failing to
file income tax returns for three tax years.
[Code Sec. 7203]
Criminal penalties: Willful failure to file returns.--Considering
the taxpayer's gross income for three taxable years, he was clearly
commanded to file tax returns for those years. Therefore, his claim that
his failure could not be deemed "willful," because the filing
of a tax return is voluntary, was rejected as totally without arguable
merit.
[Code Sec. 7203]
Criminal penalties: Miscellaneous defenses.--The district court
properly rejected the taxpayer's argument that the government's delay in
charging him with failure to file tax returns prejudiced the defense
because witnesses' memories had dimmed. Also, the taxpayer should have
raised before trial by motion any objections based on defects in the
indictment, instead of claiming for the first time on appeal that he
should have been indicted earlier to prevent him from committing so many
offenses. In addition, the taxpayer's claim that the trial court erred
in its instructions defining the offerse and the number of possible
violations was totally lacking in merit. Finally, the district court
properly admitted evidence consisting of a letter from the IRS to the
taxpayer concerning his failure to claim exemptions on his Form W-4 and
the reply letter of the taxpayer challenging the government's right to
tax his wages as income. The contested letters showing the taxpayer's
willfulness in failing to file were executed less than two years after
the date for filing his return, and subsequent tax paying conduct was
relevant to the issue of willfulness in a prior year.
[Code Sec. 7203]
Criminal penalties: Appeal without merit.--The taxpayer's appeal
from a conviction for failure to file income tax returns on the grounds
that wages and salaries are not "income" within the meaning of
the sixteenth amendment, thus relieving him of any duty to file, was
without merit. The courts have interpreted the term "income"
to mean gain derived from capital, from labor, or from both combined.
William
E. Richards, 1966 E. 72nd St., Kansas City, Mo. 64132, pro se.
Rob
ert G. Ulrich, United States Attorney, Thomas M. Larson, Assistant
United States Attorney, Kansas City, Mo. 64106, for appellant.
Before
HENLEY, Senior Circuit Judge, GIBSON and FAGG, Circuit Judges.
PER
CURIAM:
Following
trial by jury William E. Richards was convicted on three counts of
willfully failing to file income tax returns for calendar years 1979,
1980 and 1981 in violation of 26 U. S. C. §7203. The court 1 sentenced
Richards to consecutive one-year terms of imprisonment on the first two
counts. On court three execution of a one-year sentence was suspended
and defendant was placed on probation for a period of four years. On
each count a fine of $2,000.00 was assessed.
As
will appear, on appeal Richards makes a number of arguments, all of
which we reject.
During
calendar years 1979, 1980 and 1981 appellant was employed by Missouri
Pacific Railroad and received a gross income of $20,328.78, $20,995.38
and $20,690.57, respectively. The IRS notified appellant on November 6,
1979 that a meeting was scheduled on November 9, 1979 with a Revenue
Officer to prepare a correct W-4 form (employee wage withholding form).
Appellant responded by letter on November 7, 1979 that his W-4 was
correctly filed with his employer. On September 12, 1980 the IRS
notified appellant that it had not received his income tax return for
the 1978 calendar year. On September 22, 1980 appellant replied to the
Service by letter explaining that he was not required to file even
though he had filed in previous years. No further governmental action
was taken until March 28, 1983 when a three-count indictment was
returned charging appellant with willful failure to file income tax
returns for the years 1979, 1980 and 1981.
Appellant
contends that his conviction under 26
U. S.
C. §7203 is invalid because the IRS did not provide an assessment or
notice of taxes due as required by 26 U. S. C. §§ 6201(a), 6203, 6303.
This claim is without merit. "The filing of an
admin
istrative assessment record is not required before a criminal
prosecution may be instituted under 26
U. S.
C. §§ 7201-07 (1976) for failure to report or pay income tax." United
States v. Voorhies [82-1 USTC ¶9710], 658 F. 2d 710, 714 (9th Cir.
1981).
Appellant
claims that his failure to file cannot be deemed "willful"
within the meaning of the charging statute, 26
U. S.
C. §7203, because the filing of a tax return is voluntary. This claim
was rejected in United States v. Drefke [83-1 USTC ¶9354], 707
F. 2d 978, 981 (8th Cir. 1983), wherein the court described appellant's
argument as "an imaginative argument, but totally without arguable
merit."
Id.
at 981. Considering appellant's gross income for 1979, 1980 and 1981, he
was clearly commanded to file tax returns for those years. See 26 U. S.
C. §6012.
Appellant
challenges his conviction on the grounds that wages and salaries are not
"income" within the meaning of the sixteenth amendment, thus
relieving him of any duty to file. Although the sixteenth amendment,
giving Congress the power to tax income, does not define
"income," the courts have interpreted the term in its every
day usage to mean gain derived from capital, from labor, or from both
combined. See United States v. Safety Car Heating & Lighting Co.
[36-1 USTC ¶9042], 297
U. S.
88, 99 (1936); Helvering v. Edison Bros. Stores, Inc. [43-1 USTC
¶9273], 133 F. 2d 575, 579 (8th Cir.), cert. denied, 319
U. S.
752 (1943). Clearly wages and salaries fall within this definition and
are therefore constitutionally taxable.
Appellant
claims that the trial court's instructions defining the offense and the
number of possible violations were erroneous. We do not reach these
allegations because appellant failed to object to these instructions at
trial as required by Fed. R. Crim. P. 30. In any event, appellant's
contentions are totally lacking in merit.
Appellant
maintains that the trial court erred in denying his motion pursuant to
Fed. R. Crim. P. 48(b) to dismiss the indictment for prosecutorial
delay. At trial appellant argued that the government's delay in charging
appellant prejudiced the defense because witnesses' memories had dimmed.
The district court rejected this argument, finding neither actual
prejudice nor unreasonable delay. See United States v. Lovasco,
431
U. S.
783, 789-90 (1977); United States v. Taylor, 603 F. 2d 732, 735
(8th Cir.), cert. denied, 444
U. S.
982 (1979). On appeal, appellant claims for the first time that he
should have been indicted earlier to prevent him from committing so many
offenses. A defendant must raise before trial by motion any objections
based on defects in the indictment. Fed. R. Crim. P. 12(b)(2). Failure
to raise nonjurisdictional objections prior to trial constitutes waiver
of such objections. Fed. R. Crim. P. 12(f). We observe, however, that
the contention while perhaps imaginative is essentially frivolous.
Finally,
appellant alleges that the district court erroneously admitted evidence
of other acts in violation of Fed. R. Evid. 404(b). This contested
evidence consisted of a letter from the IRS to appellant dated May 6,
1983, concerning appellant's failure to claim any exemptions on his Form
W-4, and appellant's reply letter of May 18, 1983, in which appellant
propounded eight questions challenging the government's right to tax his
wages as income.
It
is settled that evidence of other crimes or acts is admissible under
Fed. R. Evid. 404(b) to show intent, plan, or absence of mistake, so
long as four additional prerequisites are met, i. e., (1) a
material issue has been raised; (2) the proffered evidence is relevant
to that issue; (3) the evidence of other crimes is clear and convincing;
and (4) the evidence relates to wrongdoing similar in kind and
reasonably close in time to the charge at trial.
United
States v. Farber [80-2 USTC ¶9580], 630 F. 2d 569, 571 (8th Cir.
1980), cert. denied, 449
U. S.
1127 (1981).
In
the case at bar, the government offered the contested evidence to show
appellant's willfulness in failing to file. Appellant contends that the
evidence did not meet the fourth prerequisite listed above because the
correspondence was far removed in time from the crimes charged. We
disagree. Both of the contested letters were executed less than two
years after the return date for 1981. See id. at 572 (three and
one-half years reasonably close in time). Moreover, subsequent tax
paying conduct is relevant to the issue of willfulness in a prior year. 2
Id.
Accordingly,
the judgment of the district court is affirmed.
1
The Honorable D. Brook Bartlett, United States District Judge, Western
District of
Missouri
.
2
In his reply brief appellant mentions that his consecutive sentences are
excessive in that he was found guilty of a misdemeanor for which the
maximum punishment cannot exceed one year. He cites no authority in
support of this contention and we know of none applicable to the
circumstances of this case.
[61-1
USTC ¶9105]
Rob
ert E. Funkhouser, Appellant v.
United States of America
, Appellee
(CA-4),
U. S. Court of Appeals, 4th Circuit, No. 8094, 9/7/60, Vacating and
remanding an unreported District Court order
[1939 Code Sec. 145(b) and corresponding 1954 Code Sec. 7201]
Tax evasion: Timeliness of appeal: Factual issue on appeal.--The
factual issue of whether the taxpayer, as a criminal defendant in a tax
evasion trial, had given sufficient notice of appeal by addressing a
letter to the trial judge cannot be decided on appeal when first raised
on brief. The cause was therefore remanded for further proceeding.
Rob
ert E. Funkhouser, Pro Se.
Rob
ert E. Cahill, Assistant United States Attorney, Post Office Bldg.,
Baltimore, Md. (Leon H. A. Pierson, United States Attorney, Post Office
Bldg., Baltimore, Md. on brief) for appellee.
Before
SOBELOFF, Chief Judge, HAYNSWORTH, Circuit Judge, and CHARLES F. PAUL,
District Judge.
PER
CURIAM:
The
instant appeal in a post-conviction proceeding, the second prought here
by
Rob
ert E. Funkhouser, is the latest step of a number taken by him to
"correct an illegal sentence." The sentance, imposed on June
6, 1952, following his conviction of income tax evasion in the years
1943 to 1947 inclusive, was imprisonment for one year and a fine of
$25,000. 1 Funkhouser's
chief claim, both in the District Court and here, is that he was
illegally deprived of his right of appeal. He insists that he gave
notice of appeal within the ten day period provided by law.
An
unusual feature of the defendant's present effort is that he presented,
for the first time, as an appendix to his brief in this Court, an
unauthenticated photostatic copy of a previously undisclosed letter
which he claims to have sent Judge W. Calvin Chesnut, who presided at
his trial and passed sentence upon him. The letter bears date of June 6,
1952, the very day of the sentence, and, according to the defendant, was
a timely notice of appeal which the Judge should have filed in the
Clerk's office among the papers of the case, but which the defendant
claims the Judge mailed back to the defendant's wife.
Since
submitting its additional brief the Government now calls our attention
to the discovery of a letter in Judge Chesnut's file which is dated June
6, 1952, but its text is entirely different from that of the photostat
bearing the same date, which the defendant submitted. The Government
contends that while this newly discovered letter does not sustain the
theory which it has heretofore advanced, the letter does in fact
completely refute the defendant's contention and shows the photostat
submitted by the defendant to be spurious.
The
issue which has now developed between the parties is not one we should
attempt to decide upon documents not in the record and explanations
unsupported by sworn testimony. "It is not appropriate to make the
initial tender of factual issues in the Court of Appeals." Holly
v. Smyth, F. 2d (4th Cir., 1960). In the circumstances we vacate the
order and remand the case to the District Court for the reception of
evidence from both parties upon the above issue and others raised by the
defendant. The District Judge should then make specific findings of fact
and conclusions of law upon all such issues.
Order
vacated and case remanded for further proceedings.
1
It is not free from doubt under United States v. Morgan, 346 U.
S. 502 (1952), whether, the prison term having been served, the sentence
is now open to attack; but it would seem at least that the fine, if
illegal, might be restored. At all events the U. S. Attorney makes no
point of this.
[58-2
USTC ¶9887]
Rob
ert E. Funkhouser, Appellant v.
United States of America
, Appellee
(CA-4),
U. S. Court of Appeals, 4th Circuit, No. 7698, 260 F2d 86, 10/13/58,
Aff'g unreported District Ct. decision
[1939 Code Sec. 145(b)--similar to 1954 Code Sec. 7201]
Criminal tax evasion: Motion to correct an illegal sentence.--Upon
his conviction in 1952 for income tax evasion, taxpayer was sentenced to
imprisonment for one year and a fine of $25,000. In 1958, after serving
his sentence, and nearly six years after his trial, he filed a motion
under Rule 35 of the Federal Rules of Criminal Procedure to
"correct an illegal sentence". The District Court properly
overruled the motion, finding without merit the taxpayer's contention
that he was unsatisfactorily represented at the trial because his
attorneys failed to argue that there could be no indictment for income
tax evasion when the Government had not audited the taxpayer's books and
had not passed upon each of 30,000 claimed deductions, and that venue
was in the District of Columbia where taxpayer resided and conducted his
business instead of in Maryland where the indictment and trial took
place. It was not until 1958 that the law was revised to permit a
defendant to be tried on his motion, in the judicial district where he
resided when the offense was created. There is no requirement for
precise computation of the tax before there can be a criminal
prosecution. The sentence is not illegal, since it is not in excess of
the punishment authorized by 1939 Code Sec. 145(b).
Rob
ert E. Funkhouser, pro se, and Leon H. A.
Pierson, United States Attorney, for appellee.
Before
SOBELOFF, Chief Judge, HAYSWORTH, Circuit Judge, and WATKINS, District
Judge.
[Motion
to Correct an Illegal Sentence]
PER
CURIAM:
Upon
his conviction on June 20, 1952, for income tax evasion, the appellant
was sentenced to imprisonment for one year and a fine of $25,000.00. He
served the term and paid the fine. On March 28, 1958, nearly six years
after his trial, he filed a motion under Rule 35 of the Federal Rules of
Criminal Procedure to "correct an illegal sentence." Relief
was not sought under Section 2255 of Title 28, U. S. C. A. Denial of the
motion resulted in this appeal.
[Venue]
The
appellant expresses dissatisfaction with the lawyers who represented him
at the 1952 trial, because they failed to interpose certain defenses
suggested by him. These lawyers, not court appointed but selected and
paid by the defendant, are men of standing and ability. One defense
which they failed to make is expressed by the appellant in forty-five
separate "grounds," but these are essentially an assertion
that the District Court of Maryland, where the indictment and trial took
place, had no jurisdiction. The appellant claimed that venue was in the
United States District Court for the
District of Columbia
, where he resided and conducted his business. Under the law, as it then
was, the appellant was subject to indictment and trial for income tax
evasion in the District Court for
Maryland
, because he resided in the taxing district of Maryland, which includes
the
District of Columbia
, and filed his return in the office of the District Commissioner of
Internal Revenue at
Baltimore
. See Bowles v.
United States
, 73 Fed. 2d 772 (4 cir., 1934) [1934 CCH ¶9546]. 1
[Government's
Failure to Audit Return]
The
appellant's main contention, which was not argued by his counsel, was
that he could not lawfully be prosecuted for income tax evasion because,
he alleges, before indictment his return was not audited to determine
the exact amount of tax due by him. His reasoning is that in these
circumstances no tax was "imposed" within the meaning of Sec.
145(b) of the Internal Revenue Code of 1939, with the evasion of which
he could be charged. Evidently the appellant confuses the imposition of
the tax with its assessment. The statute itself "imposes" the
tax; and while there can be no civil action to enforce collection
before the assessment procedures provided for in Sec. 272(a) of the
Internal Revenue Code of 1939 have been followed, there is no
requirement for the precise computation and assessment of the tax before
there can be a criminal prosecution for fraudulent tax evasion under
Sec. 145(b).
[False
Deductions]
The
appellant also argues that the Commissioner had not, prior to the
prosecution, passed upon each of 30,000 claimed deductions. At the trial
the Government did prove that, by making various false claims for
deductions, a substantial understatement of taxable income in the
defendant's returns had occurred. This is sufficient basis for a
criminal prosecution without first establishing the precise amount of
the defendant's tax indebtedness. In later civil proceedings for the
collection of the tax due by the appellant there was a determination and
assessment as provided for in Sec. 272(a) of the Internal Revenue Code
of 1939.
[Appeal
Time Had Expired]
After
conviction, the appellant dismissed his lawyers and employed new
counsel, but by then the time for appeal had expired. This lawyer then
filed a motion in appellant's behalf to enlarge the time for appeal and,
after hearing, this motion was properly denied under Rule 45(b), Federal
Rules of Criminal Procedure.
[Sentence
Was Not Illegal]
The
present motion is not available to redetermine issues tried in the
District Court in 1952. It cannot be used as a substitute for an appeal,
nor are special circumstances shown here, as were shown in U. S. v.
Morgan, 346 U. S. 502 (1954), where the Court entertained a motion
for a writ of error coram nobis after the defendant had served
his sentence. In any event, Rule 35 is a remedy only to correct an
illegal sentence; and the sentence imposed here is not illegal in the
sense that it is in excess of the punishment authorized by Sec. 145(b)
of the Internal Revenue Code of 1939. As we have shown, there is no
merit in the contention that the Court was without jurisdiction to try
the offense; nor is there any suggestion that the trial was, for any
other reason, illegal, or that the defendant's constitutional rights
were violated as in the Morgan case.
We
think, therefore, that Judge Chesnut, who presided at the original trial
and to whom the defendant directed the motion to correct the sentence,
properly overruled the motion, and his action is
Affirmed.
1
Congress has recently revised this procedure. By 72 Stat. 512, approved
August 6, 1958, a defendant can make a motion to be tried in the
judicial district in which he was residing when the alleged offense of
tax evasion was committed.