False
Return
7203: Willful
Failure to File Return, Supply Information, or Pay Tax: Sufficiency of
Indictment or Information: False Return
[53-2
USTC ¶9511]The
United States of America
, Appellee v. Michael F. Norris, Defendant-Appellant
(CA-2),
In the United States Court of Appeals for the Second Circuit, No.
260-October Term, 1952, Docket No. 22683, 205 F2d 828, July 24, 1953
Appeal from a judgment of the District Court for the Western District of
New York.
Penalties: Sufficiency of indictment: False return: Proof of
willfulness.--While admitting that mere failure to make a complete
and accurate report of income would not support the jury's verdict of
conviction for income tax evasion, the court found that there was
evidence from which the jury could have found that a comparison of the
taxpayer's net worth at the beginning and end of 1945 was inconsistent
with the amount of income reported for that year, and that the
taxpayer's books failed to reflect all of the income from his tavern. In
affirming the judgment of the lower court, the Court of Appeals held
that it was not necessary for the government to show
"willfulness" by direct proof, that it was necessary to show
only a willful attempt to evade any substantial part of the tax and that
the actual amount due need not be proved.
George
L. Grobe, United States Attorney for the Western District of New York,
for appellee. George B. Doyle, for defendant-appellant.
Before
SWAN, Chief Judge, CHASE and CLARK, Circuit Judges.
CHASE,
Circuit Judge:
The
appellant was tried by a jury on an indictment charging the violation of
Section 145(b) of Title 26 U. S. C., in that he willfully attempted to
defeat and evade the federal income tax by filing false and fraudulent
returns for the calendar years 1944, 1945 and 1946. He was convicted
only on the count charging the offense by filing the 1945 return and has
appealed from the judgment and sentence, a fine and a suspended
imprisonment sentence having been imposed. Insufficiency of the evidence
and errors during the trial are relied on for reversal.
[Evidence
Supporting Verdict]
The
appellant had for some years been a tavern keeper in
Buffalo
,
New York
, and in 1945 his income was derived solely from that business and from
a rooming house he operated in conjunction with it. His net taxable
income for 1945 as reported on his return for that year was $3,872.48,
and this amount agreed with that shown by such books as were kept.
However, it was the government's position that the books of account were
inaccurate and incomplete, and it sought to prove a violation of Section
145(b) by showing that a comparison of appellant's net worth at the
beginning and end of 1945 was inconsistent with the small amount of
income reported for that year.
There
was evidence from which the jury could have found that at the end of
1945 the appellant's net worth was at least $10,000, and possibly
$20,000, more than it had been at the beginning of that year, and that
the increase could not be accounted for by gifts or other nontaxable
receipts. Also justified would have been findings that the appellant's
books of account were inaccurate and failed to reflect all of the
receipts from his tavern and rooming-house business, and that the
appellant did not disclose to the person he employed to make out his tax
return additional income which he had received.
[Proof
of Willfulness]
Mere
failure to make a complete and accurate report of income for taxation
would have been less than enough to support the verdict. The failure
must have been willful in the sense that it was with intent to attempt
thereby to evade the payment of income taxes which would have been shown
by a correct return to have been lawfully payable. See Spies v.
United States, 317
U. S.
492 [43-1 USTC ¶9243]. But the willfulness of the accused in making the
attempt need not necessarily have been established by direct proof. That
was a question of fact for the jury and proof of the setting in which
the false return was filed could supply an adequate basis for such a
finding.
United States
v. Commerford, 2 Cir., 64 Fed. (2d) 28 [1933 CCH ¶9255]; United
States v. Miro, 2 Cir., 60 Fed. (2d) 58 [1932 CCH ¶9396]; Maxfield
v. United States, 9 Cir., 152 Fed. (2d) 583 [46-1 USTC ¶9115],
cert. denied, 327
U. S.
794. See. also Gaunt v. United States, 1 Cir., 184 Fed. (2d) 284
[50-2 USTC ¶9412], cert. denied, 340
U. S.
917.
Nor
does proof of the violation of Section 145(b) require showing eventual
success, if any, in the evasion of the payment of income taxes. The gist
of the offense is the willful attempt to evade any substantial part of
the tax due and the actual amount due need not be proved, United
States v. Ragen, 314 U. S. 513 [42-1 USTC ¶9186]; United States
v. Schneck, 2 Cir., 126 Fed. (2d) 702, 704; and the evidence as a
whole was sufficient to support a finding that there was such an
attempt.
[Procedural
Errors]
Exhibit
No. 23 is an application dated October 1941, made by the appellant to a
bank for a loan. In the application the appellant stated that his total
assets at that time were $6,200. The body of the application is not in
the appellant's handwriting, but he signed it; and it was for the jury
to decide whether it correctly reflected his net worth of that time. The
appellant's statement as to his net worth was admissible in evidence as
an admission; and the application, as evidence of such admission, was
admissible as a record kept by the bank in the ordinary course of its
business, Title 28, U. S. C. §172.
Error
is charged in the refusal to permit the appellant to call his wife as a
witness in his behalf. She would, of course, have been a competent
witness. Funk v.
United States
, 290
U. S.
371. But nothing more need be said in this regard for the record shows
that the appellant made no attempt to make her his witness and was
denied no right to have her testimony in evidence.
Exception
was taken to certain portions of the charge as given and to the failure
to charge as requested. They present nothing which deserves discussion.
The charge as a whole was a correct submission of the issues in a way
which left the jury free to find the facts as it determined they were
established by the evidence. That it did so with discrimination is
indicated by the acquittal of the appellant on two counts in the
three-count indictment.
Judgment
affirmed.
[41-1
USTC ¶9273]
United States of America
, Plaintiff-Appellee, v. William Molasky, Defendant-Appellant.
United States of America
, Plaintiff-Appellee, v. James M. Ragen, Defendant-Appellant.
United States of America
, Plaintiff-Appellee, v. James M. Ragen, Jr., Defendant-Appellant.
United States of America
, Plaintiff-Appellee, v. Lester A. Kruse, Defendant-Appellant.
United States of America
, Plaintiff-Appellee, v.
Arnold
W. Kruse, Defendant-Appellant.
(CA-7),
United States Circuit Court of Appeals for the Seventh Circuit., Nos.
7462-7466. October Term, 1940--January Session, 1941., 118 F2d 128,
02/26/41
Appeals from the District Court of the
United States
for the Northern District of Illinois, Eastern Division.
Attempt to evade and defeat tax: Sufficiency of
indictment.--Indictment held sufficient to apprise defendants of charges
they were called upon to meet although it required a mathematical
computation to determine what item of deduction is charged to be
improper. Further, there was no request for a bill of particulars.
Grand Jury secrecy.--Petitions for an order releasing the oaths of
Grand Jury secrecy to permit defendants to inspect minutes and records
of Grand Jury, so that they might properly prepare certain pleas in
abatement and bar, are held to have been properly denied where to do so
would open way for exploratory expedition and dilatory tactics.
Immunity plea.--Lower court erred in dismissing immunity plea where
testimony before Anti-Trust Grand Jury, with respect to which immunity
was granted, was directly connected with and formed an essential link,
if not the entire chain of circumstances, relied upon for conviction
herein.
Commissions v. dividends: Unlawful deductions.--It having been
determined that defendants rendered services to the corporation in
question, it is held that "where a statute permits a reasonable
deduction for services, a criminal prosecution can not be maintained by
proof other than that such services were not rendered. It is not
sufficient to allege or prove that a deduction claimed for services is
unlawful because the amount charged is unreasonable." Further, the
lower court erred in its charge to the jury with respect to such
distributions. One dissent.
J.
Albert Woll
,
U.S.
Attorney,
Chicago
,
Ill.
, for plaintiff-appellee. David Baron,
St. Louis
,
Mo.
, John L. McInerney, 1 No.
LaSalle St.
,
Chicago
,
Ill.
, Warren Canaday, 10 So. LaSalle St., Chicago, Ill., and Joseph A.
Struett, Board of Trade Bldg., Chicago, Ill., for defendants-appellants.
Before
MAJOR and KERNER, Circuit Judges, and BRIGGLE, District Judge.
MAJOR,
Circuit Judge:
These
are appeals of William Molasky, James M. Ragen, James M. Ragen, Jr.,
Lester A. Kruse and Arnold W. Kruse, from judgments of conviction
entered
September 12, 1940
. The indictment, upon which they were jointly tried, was returned
August 22, 1939
, by the regular June Term Grand Jury, which had been authorized to
continue for the purpose of completing investigations commenced during
the June Term. The indictment contained five counts, the first four of
which charged these appellants, together with Moses L. Annenberg, Jules
Taylor and Herbert S. Kamin, and the Consensus Publishing Company, an
Illinois Corporation, (hereinafter referred to as "Consensus")
with wilfully attempting to evade and defeat the Federal tax on the
income of Consensus during the years 1933 to 1936, both inclusive, in
violation of Section 145(b), Title 26, U.S.C.A. The fifth count charged
the defendants with conspiring to evade and defeat the Federal tax on
the income of Consensus for the years 1929 to 1936, both inclusive, in
violation of Section 88, Title 18, U.S.C.A.
Prior
to trial, the defendants Annenberg, Taylor and Kamin were dismissed as
defendants. The case was tried to a jury which returned a verdict
finding all of the instant defendants (appellants) guilty on all counts,
except Lester A. Kruse, and finding him guilty on the fourth and fifth
counts, upon which verdict the Trial Court entered the judgments now
under attack. Previous to the trial, certain preliminary motions and
pleas were filed, some applicable to all, and others to only certain of
the defendants.
[Alleged
Errors]
The
appeals may be said, in a general way, to involve the alleged errors of
the Trial Court in its denial of motions to dismiss the indictment; in
its refusal to permit inspection of the Grand Jury minutes and to
discharge the oath of secrecy surrounding the proceedings of the Grand
Jury, in striking certain of the defendants' pleas in abatement based
upon the presence of unauthorized persons before the Grand Jury, in
dismissing special immunity pleas in bar; in the admission of evidence;
in its denial of motions for directed verdict, for a new trial and in
arrest of judgment, and in the court's charge to the jury.
[Sufficiency
of Indictment]
Insofar
as a discussion of the indictment is concerned, it would be sufficient
to set forth the charge in abbreviated form. In view of the theories
advanced by the respective parties, however, as to the merits of the
controversy, it appears material to make a substantial statement
regarding the charge as alleged. The first count is typical of the first
four and charges that the defendants filed a return in 1934 for the
taxable year of 1933, and did unlawfully, wilfully and knowingly attempt
to evade and defeat a large part, to-wit, $9678.02 of a tax due to the
United States on the income of Consensus, and that the attempt was in
the manner following: That Consensus was engaged in the business of
printing and selling "Run Down Sheets" to a class of persons
known as "Bookmakers"; that it maintained offices in St.
Louis, Missouri and Cincinnati, Ohio; that William Molasky was the
President of the Corporation, and that the Corporation was required to
file an income tax return for the year in question, inasmuch as it had
received a gross income of $119,960.96. It alleges that the Corporation
was entitled to deductions as follows:
and that it derived a net income of $81,171.80, upon which it owed a tax
of $13,340.22. It also alleges that the defendants, knowing the
corporation's income to be as above set forth, wilfully attempted to
evade and defeat a part of the tax, to-wit, $9,678.02, and as a means of
so wilfully attempting to evade and defeat said tax, they filed a sworn
return showing the corporation's gross income to be $119,960.96, and
claiming deductions as follows:
The indictment further alleges that according to the return as filed, a
net income of $26,634.15 was shown, with a total tax due and payable of
$3662.20, which was paid.
[No
Request for Bill of Particulars]
The
second, third and fourth counts are in substantially the same form as
Count One. In fact, they are exactly the same except for such
differences as may be occasioned by dates and amounts. It is said that
these counts do not state a cause of action and do not sufficiently
apprise the defendants of the charge which they are called upon to meet.
We think it is true, as contended, that it requires a mathematical
computation to determine what item of deduction is charged to be
improper. Such calculation readily discloses, however, (Count One) that
the item of deduction, "Commissions, $54,537.65" is the one by
which the defendants are charged with attempting to evade the tax. This
result follows by subtracting the total deduction of $38,789.16,
admitted to be proper, from the total deduction of $93,326.81, the
amount alleged to have been claimed in the return as filed. Thus, it is
apparent that the defendants are charged with claiming an unlawful
deduction, designated as commissions, of $54,537.65. While it is not
apparent why the draftsman of the indictment should leave the most
essential element of the charge to a process of calculation, rather than
make a direct allegation as to the unlawful deduction, yet we are of the
view that the defendants were sufficiently apprised of the offense
charged. After all, the gist of the offense is the attempt to evade and
defeat the tax, and if the defendants were in doubt as to the means
alleged, they could have requested a bill of particulars. This was not
done, and "we can not presume that the request would have been
refused." Capone v. United States, 56 F. (2d) 927, 931 [3
USTC ¶885].
[Conspiracy
to Evade]
We
do not understand that defendants question the validity of the fifth
count of the indictment, but inasmuch as the substance of the charge is
material, as will be subsequently developed, it appears not
inappropriate to refer to it at this point. It charges the defendants
with conspiring to evade and defeat the taxes on the income of Consensus
for the years 1929 to 1936, both inclusive. The gross income,
deductions, net income and tax due for each of the years included in the
conspiracy is set forth. For instance, for the year 1933, (the return
for this year was made in 1934 as shown in Count One of the indictment)
the gross income was alleged as $119,960.68, deductions $38,789.16, net
income $81,171.80, and tax due $13,340.22. There is then set forth for
each year an item of improper deduction claimed in the return by reason
of alleged false employment contracts. For the year 1933, this item is
in the amount of $54,537.65. The difference between the total net income
as reported for the years included in the indictment period, and the
correct total net income for those years, as alleged, is the amount upon
which it is alleged a tax was payable. In other words, this difference
represents the amounts which were claimed as deductions in the tax
returns under the heading of commissions. This discrepancy, so it is
alleged, resulted in a tax evasion in the sum of $77,883.53. The count
further alleges, among other things, that the defendants were not
employed in an executive capacity, nor in any other capacity whatsoever,
by the said corporation during the calendar years 1929 to 1936,
inclusive, nor did they or any one of them, or anyone for them, render
any service to the said corporation, but that the defendants were owners
and holders of beneficial interest for themselves and others in the said
corporation, and that all of the moneys paid to them and each of them,
were, in truth and in fact, distribution of profits and dividends from
earnings of the said corporation. Numerous overt acts are alleged which
do not appear material to relate.
[Release
of Grand Jury Secrecy]
On
October 30, 1939
, there was filed by Kruse and Kruse, and on the same date by Molasky,
what are designated as petitions for an order releasing the oaths of
Grand Jury secrecy. Numerous allegations were made in an attempt to show
that this secrecy should be removed and the defendants permitted to
inspect the minutes and records of the Grand Jury so that they might
properly prepare certain pleas in abatement and bar. (These pleas are
later discussed). The relief sought by these petitions was denied. In
our view, it is not necessary to relate in detail the contents of these
petitions, as we believe the court correctly ruled thereon. No
authorities are cited by the defendants in support of their claimed
right in this respect. On the other hand, there are numerous authorities
where such procedure has been condemned.
United States
v. Garson, 291 Fed. 646, 649; Metzler v.
United States
, 64 F. (2d) 203, 206; Cox v. Vaught, 52 F. (2d) 562. We
agree with the authorities generally that the granting of such request
would dangerously impair our system of Grand Jury procedure. It would
open the way for an exploratory expedition for the purpose of obtaining
the Government's evidence, and pave the way for numerous dilatory
tactics. We think that the court properly denied such petitions.
[Abatement
Pleas]
On
November 15, 1939
, there was filed by Molasky, abatement pleas Nos. 1 and 2; on the same
date, similar pleas by Kruse and Kruse, and also by the defendants Ragen
and Ragen, as well as other defendants, not now before the court. In the
first of these pleas, it is claimed the indictment is void for the
reason that three special assistants to the Attorney General were,
without authority, present before the Grand Jury during the course of
the proceedings. The District Court found there was no merit in this
plea, and we agree. Hale v.
United States
, 25 F. (2d) 430, 435;
United States
v. Amazon Industrial Chemical Corp., 55 F. (2d) 254, 258. The
second plea attacked the authority of three other special assistants on
the ground that, although they were concededly authorized to appear
before the Grand Jury, their authority was limited to investigating
offenses arising under the Revenue Laws. It is alleged, however, that
these assistants also participated in the investigation which resulted
in the return of the fifth count of the indictment, charging conspiracy
to violate the Revenue Laws. We are of the view that the contention of
the defendants in this respect is also without merit. It requires little
argument, and no citation of authorities to convince us that the
proceedings of a Grand Jury are not invalidated because of the presence
of assistants to the Attorney General authorized to conduct an
investigation of certain substantive offenses, merely because, during
such investigation, evidence may be brought to light concerning the same
subject matter of the investigation and which later results in the
return of a conspiracy indictment.
We
have studied the merits of these abatement pleas and discussed them
briefly, even though we have serious doubts that they are a proper
subject for our review. Title 28, U.S.C.A., sec. 879, in connection with
Sec. 861(b), appears to preclude a reversal by this court "for
error in ruling any plea in abatement, other than a plea to the
jurisdiction of the court, or for any error in fact." Without
discussing our province in this respect, we refer to McHie v. McHie,
78 F. (2d) 351, a decision of this court, wherein these provisions are
discussed and interpreted. It appears that the instant plea did not
attack the jurisdiction of the court, and unless so, according to this
holding, there is no right of review.
[Immunity
Plea]
On
January 10, 1940
, there was filed on behalf of Molasky, a special immunity plea in bar.
On the same date, a similar plea was filed by Ragen, Jr. On
April 1, 1940
, an amended plea in bar was filed by Molasky. To these pleas the
Government filed a motion to dismiss, which was allowed. It is to be
remembered that while the indictment in the instant case was returned
August 22, 1939
, the Grand Jury was a continuation from the June Term. This Grand Jury
is referred to as the June Income Tax Grand Jury. There was impaneled in
July a Grand Jury, charged with investigation of violations of the
Sherman Anti-Trust Act, referred to as the Anti-Trust Grand Jury.
We
shall first consider Molasky's amended plea. Stating the allegations in
a form as abbreviated as the circumstances will permit, it alleges, in
substance, that he was served both with a personal subpoena and a
subpoena duces tecum, commanding him to appear and testify in
behalf of the United States before the Anti-Trust Grand Jury, and to
produce certain documents and records of Consensus; that after appearing
before said Grand Jury, and after he had been sworn and testified
concerning his name and address, claimed the constitutional privilege
against testifying to anything that might tend to incriminate him
personally, and refused to answer all questions unless granted immunity
from prosecution. Whereupon, it alleges that an assistant to the
Attorney General of the United States, in charge of such Grand Jury
proceedings, stated in the presence of, and to the Grand Jury, that the
defendant was granted immunity on all matters and questions put to him
by or before said Grand Jury, and that such immunity would apply to any
and all matters, transactions and things as to which he might testify.
The plea further alleges that after the granting of such immunity, he
was required to testify and produce evidence in his possession, and that
he gave oral testimony relating to, and proving, the following
transactions, matters and things, among others. 1
The facts and transactions leading up to the organization and
incorporation of Consensus, transactions with reference to the capital
stock and ownership of the same during the years described in the
indictment, the employment contracts with reference to commissions and
salaries to be paid by Consensus to Molasky and other defendants, the
payments of commissions and salaries by Consensus, and to whom, and the
duties performed by each of said defendants in behalf of Consensus;
expenses and commissions paid by Consensus, dividends paid by Consensus,
and tax returns made by Consensus. It alleges, with reference to each of
these matters and things, that the testimony given had to do with the
years mentioned in the indictment. It further alleges with reference to
these matters and things that Molasky was compelled to give answers and
to produce evidence relating to and tending to connect him with the
allegations of the instant indictment, and thereby disclosed to the
Grand Jury information material and relevant to the transactions,
matters and things alleged against him in the indictment and every count
thereof, and that the matters and things concerning which such testimony
was given, proved, or tended to prove, material allegations of said
indictment, and constituted necessary links in a chain of evidence
necessary to establish guilt.
The
Immunity Statute, contained in the Anti-Trust laws of the United States,
(Title 15, Sec. 32, U.S.C.A.) reads, so far as here material, as
follows:
Immunity
of witnesses. No person shall be prosecuted or be subjected to any
penalty or forfeiture for or on account of any transaction, matter, or
thing concerning which he may testify or produce evidence, documentary
or otherwise, in any proceeding, suit, or prosecution under sections 1
to 27, inclusive, of this chapter: * * *
The
privilege against self-incrimination, found in the Fifth Amendment to
the Constitution of the
United States
, provides:
No
person shall * * * be compelled in any criminal case to be a witness
against himself, * * *
One
of the early cases dealing with the question of immunity is that of Counselman
v. Hitchcock, 142
U.S.
547, wherein the court, in discussing the requirements of such an act,
on page 586, said:
*
* * In view of the Constitutional provision, the statutory enactment, to
be valid, must afford absolute immunity against future prosecution for
the offense to which the question relates. * * *
A
similar immunity statute, contained in the Interstate Commerce Act, was
held valid in Brown v. Walker, 161
U.S.
591, for the reason that the provision afforded a complete and unlimited
immunity, and was, therefore, a valid substitute for the constitutional
privilege.
The
District Court, in dismissing the plea, stated:
A
plea of immunity under the statute in question, which merely states that
a witness testified concerning certain matters is not sufficient. The
plea should state the substance of the testimony given by the witness
and should show by apt averment of fact that, if it were not for the
immunity statute the witness could have invoked the constitutional
privilege of silence.
We
are of the opinion that this view of the court imposes a requirement
upon the pleader of a higher degree than is contemplated by the statute,
notwithstanding the Government's contention to the contrary. The
Government in its brief, states: "The plea simply alleges that the
defendant gave testimony 'concerning' or 'relating to and directly
proving' certain transactions, matters and things. But the pleas nowhere
set out what facts were testified to in connection with these
transactions, matters and things." The plea alleges, however, that
the defendant's oral testimony was concerning, relating to and directly
proving such matters and things. As will be subsequently disclosed in
this opinion, the matters and things concerning which Molasky was
required to testify, as alleged in his plea, were matters and things
which constitute the main issues in this case insofar as its merits are
concerned. Briefly mentioning a few of them, they are--who owned the
stock in Consensus, to whom and for what purpose were the deductions in
controversy paid, and, still more important, the issue as to whether
such deductions were dividends and, therefore, improperly deducted, or
commissions for services rendered. These are some of the matters and
things about which Molasky was required to testify before the Grand
Jury. How can it be said that testimony regarding such matters and
things was not pertinent to and directly connected with, the charge with
which Molasky was subsequently confronted? Surely it should not be held
that one who pleads in bar is required to allege, in question and answer
form, the testimony as given. To do so would come near to annihilating
the immunity statute, as well as the constitutional privilege by which a
person is protected from giving testimony.
But
it is argued by the Government that the matters alleged have nothing to
do with tax evasion and, therefore, are not the subject-matter of
immunity. As pointed out, however, the question as to who owned the
stock in the corporation, and whether the claimed deductions were
commissions or dividends, were essential matters about which the
controversy largely revolved. It is also argued that there is no
allegation in the plea that the evidence heard before the Anti-Trust
Grand Jury was considered by the Income-Tax Grand Jury. We do not think
such an allegation is necessary. The application of the immunity
provision is dependent upon how the information is obtained rather than
the use to be made of it thereafter. Furthermore, the testimony thus
obtained was available to the Government on the trial and, in fact,
appears to have been utilized. It is further argued that there is
nothing in the plea to disclose that the Income-Tax Grand Jury did not
obtain from other sources the information given to the Anti-Trust Grand
Jury by Molasky. Neither do we think this allegation was necessary.
Again, in our opinion, the language of the immunity provision leaves no
room for such construction. As was said in Doyle v. Hofstader,
257 N.Y. 244, 177 N.E. 489, in an opinion by Justice Cardozo, on page
493 (N.E.):
A
witness is not required to show, in order to make his privilege
available, that the testimony which he declines to give is certain to
subject him to prosecution, or that it will prove the whole crime,
unaided by testimony from others. It is enough, to wake the privilege
into life, that there is a reasonable possibility of prosecution, and
that the testimony, though falling short of proving the crime in its
entirety, will prove some part or feature of it, will tend to a
conviction when combined with proof of other circumstances which others
may supply.
The
contention that the plea is not sufficiently specific, in stating
Molasky's grand jury testimony, places the Government in a rather
awkward position. It must be remembered that the detailed testimony of a
witness before a Grand Jury is in the possession of the Government and
not the witness. That situation is well illustrated in the instant case.
Molasky and some of the other defendants attempted by petition to obtain
the minutes of the Grand Jury so that they might determine the propriety
of a plea in bar. We have held that this request was properly denied. It
is our view, however, when the instant plea in bar was presented, that
the Government should have been required to take issue thereon. It had
possession of the Grand Jury minutes, and it alone was in a position to
disclose any misrepresentation in the plea. In no other manner could the
assertions contained in the plea be dispelled.
The
difficulty confronting a witness in framing a plea in bar is discussed
in Hale v. Henkel, 201
U.S.
43, 68. The court said:
The
suggestion that a person who has testified compulsorily before a Grand
Jury may not be able, if subsequently indicted for some matter
concerning which he testified, to procure the evidence necessary to
maintain his plea, is more fanciful than real. * * *
After
discussing how the evidence may be obtained, the court said:
*
* * It is scarcely possible that all of them would have forgotten the
general nature of his incriminating testimony * * *.
It
appears the Court had in mind that the pleader need only allege the
general nature of the testimony given by the witness.
The
Court below, in dismissing this plea, and the Government here in support
of the Court's action, place much stress upon Heike v. United States,
227 U.S. 131. We think this case is clearly distinguishable and has very
little, if any, application to the instant situation. There the witness
was required to produce before the Grand Jury certain records of the
American Sugar Refining Company. The testimony was largely, if not
entirely, concerned with the records and books of the corporation. In
that case, issue was joined upon the immunity plea, a trial had thereon,
and the court directed a verdict for the Government. In sustaining this
action, the court, on page 143, said:
The
evidence did not concern any matter of the present charge. Not only was
the general subject of the former investigation wholly different, but
the specific things testified to had no connection with the facts now in
proof much closer than that they all were dealings of the same sugar
company. * * *
As
pointed out, the matters and things about which Molasky testified were
directly connected with and formed an essential link, if not the entire
chain of circumstances relied upon for conviction.
[Error
in Dismissing Plea]
Nor
do we think that the corporate exception to the immunity provision is
applicable. The plea alleges that he gave oral testimony concerning his
personal knowledge of the matters and things described. Wilson v.
United States, 221 U.S. 361, Hale v. Henkel, 201 U.S. 43, United
States v. Goldman, 28 F. (2d) 424. We are of the opinion, therefore,
that the Court erred in dismissing this plea.
The
special plea in bar filed by the defendant, James M. Ragen, Jr., also
claimed immunity. The disclosures of the plea with reference to the
Grand Jury before whom he testified, and the granting of immunity, are
substantially the same as those made in the plea of Molasky. It alleged
that the defendant gave oral testimony before said Grand Jury
"describing his relations in connection with the Consensus
Publishing Company, Moses L. Annenberg, William Molasky, and James M.
Ragen," and testified fully and stated all facts within his
knowledge concerning the "said Consensus Publishing Company and
this defendant's connection therewith, and salaries and commissions
received by him from, and services performed by him, for said
Company." Other allegations more geeneral in their nature are to
the effect that the testimony which he was required to give was material
and relevant to the matters alleged in the indictment. While the
allegations of this plea as to the matters and things concerning which
he was required to testify are not as complete as those contained in
Molasky's plea, yet we think they are sufficient, and what we have said
concerning Molasky's plea is applicable to Ragen's. It follows that the
court, in our opinion, also erred in dismissing this plea.
[Consideration
of Merits of Case]
This
brings us to a consideration of the case on its merits. Notwithstanding
that we have held that dismissal of the immunity pleas of Molasky and
James M. Ragen, Jr. was erroneous, we shall treat the case on its merits
as it concerns all of the defendants.
It
becomes material to make a further statement concerning the facts. The
record is voluminous and contains several hundred exhibits, which makes
it difficult, if not impossible, to state the relevant facts within any
reasonable limitation.
At
or about the date of the return of the instant indictment, several other
indictments were returned against the defendants and others, most of
which charged offenses closely related to those of the present case. In
all of these indictments, one of the defendants was Moses L. Annenberg,
who appears to have been a leader in the activities concerned in the
charge on which the defendants were convicted. Annenberg entered a plea
of guilty on another charge, and in conformity with a stipulation made
by the Government, the indictment against him in the instant case, and
in other cases, was dismissed. None of the defendants in the trial below
testified or offered any testimony in his own behalf. The testimony,
therefore, was all given by Government witnesses, with the exception of
one who was called by the Court at the instance of the Government.
The
evidence discloses that in 1929, at the suggestion of Annenberg, it was
agreed among him, Kruse, Ragen, Sr., and Molasky that they would take
over and operate the business of manufacturing and distributing a card
known as a "Run Down Sheet" which, prior thereto, had been
distributed by Molasky and a
St. Louis
party by the name of Sweig. On September 18, 1929, Kruse organized an
Illinois
corporation known as the "Consensus Publishing Company." There
were issued 100 shares of stock of the value of $5,000. The stock was
issued as follows:
There
was in existence at that time the Cecelia Investment Company
(hereinafter referred to as "Cecelia"), a holding company for
Annenberg's stock in a large number of corporations. On October 1, 1929,
Taylor
's 30 shares were re-issued to the Cecelia Company. On June 3, 1933,
Molasky's 30 shares were re-issued, 15 shares to Molasky and 15 shares
to B. Hoffman, his niece, and about April 9, 1935,
Clark
's 20 shares were re-issued to one Herbert S. Kamin, an attorney and
nephew of Annenberg. The shares issued to Ryan appear to have been
subsequently issued to Ragen, Sr., although this is disputed. At any
rate it can be said that Clark, Ryan and Taylor were mere dummy
stockholders. So far as we are able to discern nothing of value was paid
for any of the stock. The defendants contend as a matter of fact that
none of the stock at any time was owned by them, that it was issued to
them by mistake, and that it was always intended to have been issued in
its entirety to Cecelia.
The
business of Consensus was operated by Molasky in
St. Louis
where he lived and had his principal office. The business spread and was
operated in Cincinnati, Kansas City, Louisville, Lexington, East St.
Louis, Dayton, Columbus and other cities. He also was engaged in the
distribution of various newspapers and periodicals published by
Annenberg with whom he was associated. During the indictment period
Arnold W. Kruse was the general manager of the Daily Racing Form
Publishing Company, which Company was located in
Chicago
, the stock of which was held by Cecelia on behalf of Annenberg, and
which published the Racing Form. Consensus, however, had its principal
office and place of business in
Chicago
where Kruse and Ragen were located. James M. Ragen was the general
manager of the General News Bureau which collected information, at
different race tracks throughout the country, used by bookmakers in
connection with the run-down sheets in paying bets on horses.
As
stated, the business of Consensus was conducted by Molasky in
St. Louis
in connection with Arnold W. Kruse, James M. Ragen, and their sons,
Lester A. Kruse and James M. Ragen, Jr. in
Chicago
. The collections comprising the gross income, shown by Consensus in the
income tax returns in question, were received through the
St. Louis
office. Molasky prepared two weekly statements, one showing the amount
of collections which he deposited in the name of Consensus in a St.
Louis bank, the other the expenses incurred in the
St. Louis
office, which statements were forwarded to the
Chicago
office. In the
Chicago
office there were bookkeepers and stenographers who transcribed the
statements furnished by Molasky upon what were called work sheets, and
made entries of such transactions on the books of Consensus, consisting
of a journal, cash book, and general ledger. These books of Consensus
disclosed the gross income as contained in the reports prepared by
Molasky, and also the gross income in the exact amount as reported in
the income tax returns.
The
return filed in 1934 for the taxable year 1933 is typical. The figures
for that year have heretofore been set forth in connection with our
discussion of the indictment. Each week there was sent from the
Chicago
office to Molasky in
St. Louis
a check for expenses incurred. For the year 1933, these amounted to the
sum of $38,789.15, which included large items for salaries, wages, and
expenses. The total of these items, it is conceded by the Government--in
fact it is so charged in the indictment--was properly deductible. None
of these items, however, includes any compensation or salary for any of
the defendants in this suit. We are unable to determine to a certainty,
but we are of the opinion that they do not include any salaries or
expenses for bookkeepers or office help in the
Chicago
office. At any rate there were distributed from the
Chicago
office weekly the net proceeds, the amount reported by Molasky less the
money advanced him for expenses, in the following proportions: 30% to
Cecelia, 30% to Molasky, 20% to A.W. Kruse, and 20% to J.M. Ragen. This
statement must be modified to the extent that in 1931, James M. Ragen
had his stock transferred to his son, James M. Ragen, Jr. to whom
distribution was thereafter made, and in 1932, the distribution on
account of the 20 shares of stock held by Arnold W. Kruse was made to
his wife, Alma Kruse until March 16, 1933, and thereafter to his son,
Lester A. Kruse. Also for the years 1933-36, both inclusive, one-half of
the amounts payable to Molasky were paid to B. Hoffman. All of these
distributions were reported in the income tax returns of the individual
recipients thereof and entered upon the books of Consensus. It was these
distributions made by Consensus and received by the defendants, shown in
the income tax return of Consensus as commissions and deducted as such,
that constitute the basis for the charge of a willful attempt to evade
income tax.
It
is not the province of this Court to weigh the testimony but it is our
duty to review the record with a view of ascertaining if the defendants
had a fair trial upon the charge as alleged in the indictment. This is
especially true in view of our conviction derived from a study of the
record that the Government's case is not strongly supported. In fact we
agree with the District Judge when he said in denying the motions for
directed verdict: "I admit that I think this is a pretty weak
case." The important matter for consideration is whether the case
was tried and submitted to the jury on correct legal principles.
[Contentions
of Parties]
There
are two outstanding propositions around which this controversy largely
revolves--one advanced by the Government that the defendants were the
owners of the stock, and the other by the defendants that they rendered
service to Consensus and were entitled to a lawful deduction in
connection therewith. As to the first proposition it is denied by the
defendants that they were owners of the stock. (Without entering into a
discussion of the evidence in this respect it is sufficient to state
that in our judgment the record justifies the conclusion that they were
such owners.) The fact that the disbursements were made to the
defendants in the same proportion as their stock holdings constitutes
the Government's major argument that such disbursements were dividends.
This does not necessarily follow. Austin v.
United States
, 28 Fed. (2d) 677 [1 USTC ¶329]. In fact any presumption in this
respect would be overcome by proof that services were rendered for which
the disbursements were made or could have been made.
[Question
as to Services Rendered]
On
the other hand, we think the major argument advanced by the defendants
to the effect that services were rendered to the corporation for which
deductions might have been lawfully made is plainly disclosed. While the
Government contends to the contrary, yet counsel for the Government in
his opening statement to the jury said: "The defendants, Arnold W.
Kruse and James M. Ragen had very little if anything to do in the
operation of the company's business * * * William Molasky actually ran
the business and did considerable work * * *" The trial Judge was
of the opinion that "some and perhaps all of the defendants"
rendered services to Consensus and so stated during the argument on the
motion for directed verdict. We think there is considerable testimony in
the record of services rendered by Molasky, who was president of
Consensus, as well as by Kruse, Sr., and some evidence of services
performed by the other defendants. There was no proof and no effort by
the Government to show that the services disclosed constituted the total
of those performed and no effort to show the reasonable value of such
services.
It
does not require a great deal of proof to be convincing that the
executives, managers, and employees of a corporation which earned a
gross income of $119,960.96 for the year 1933 (in some years the income
was much greater) rendered services and were reasonably entitled to
substantial salaries. In 1929, Consensus took over a business--if it can
be thus dignified--that was a losing proposition, and made it a
financial success. So far as is disclosed by this record, these
defendants alone were responsible for that success. According to the
Government's theory, no executive ability was displayed and no service
rendered for which the defendants were entitled to compensation or
salary. Such a theory is incredible.
Furthermore,
defendants contend that there was an agreement in 1929, prior to the
incorporation of Consensus, between them and Annenberg, that Cecelia
should take 30% of the profits as the owner of the business, Molasky
30%, and Ragen, Sr. and Arnold Kruse each 20% as compensation for
services in the operation of the company. There is testimony which
sustains this contention. True, the Government argues that it is
unbelievable, even though it came from Government witnesses. It appears
to us, however, that the validity of such agreement is of little
importance, and certainly not controlling. We should think that the
defendants would impliedly be entitled to compensation for services
rendered irrespective of an express agreement relative thereto.
[Unlawful
Deductions]
Under
the Government's theory, however, it is immaterial and irrelevant as to
whether the defendants performed services for which they might have been
entitled to compensation or salary. The case was tried and is presented
here on that theory. In other words, the Government argues that
conceding the defendants rendered services for which they might have
been entitled to compensation, yet the disbursements were received as
corporation dividends and were, therefore, unlawful deductions. Assuming
there is evidence which sustains the contention that the disbursements
were, on some occasions, recognized as dividends, is that sufficient to
show that the deductions were unlawful? The terms "dividends"
and "commissions" appear to have been used interchangeably by
the bookkeepers for Consensus on the work sheets and on the statements
furnished the defendants each week. There is testimony, much stressed,
that during the years 1932 to 1935, all the stock in Consensus was
issued to Cecelia, the shares held by the various defendants and dummies
destroyed and the so-called employment contracts executed and dated back
to cover prior years since the organization of Consensus. This was done
largely by Kamin (originally a defendant, lawyer, and newphew of
Annenberg, dismissed out of the instant case) who worked under the
supervision of Arnold W. Kruse. That these facts and circumstances
strongly indicate that some sort of chicanery was in progress cannot be
doubted. But its efficacy as proof that the defendants were evading the
income tax of Consensus by charging as commissions that which they knew
to be dividends, is difficult to discern. If the Government's theory is
correct that the disbursements were made solely as dividends,
notwithstanding the fact that services were rendered by the defendants,
then we have the anomolous situation wherein the defendants willfully
attempted to evade the tax by unlawfully claiming as deductions that
which they could have lawfully claimed.
[Audit
of Returns]
Another
fact unfavorable to the Government is that each year during the
indictment period, the return filed by Consensus, as well as the
corporate books, plainly disclosed the gross income, admittedly correct,
as well as the item of deduction now claimed to be unlawful. Not only
that, the return disclosed how this item was divided among the various
defendants. During the years in question, the Auditors of the Revenue
service, on numerous occasions, audited the returns and checked them
with the corporation records. Such disclosure by the taxpayer, if
intended as a plan of tax evasion, is consistent only with gross
ignorance on the part of those who devised the plan. Whatever may be
said of these defendants, we do not think they can be charged with such
ignorance. Also the record discloses that B. Hoffman, to whom Molasky in
1933, assigned 15 shares of stock in Consensus, in her individual tax
return for certain years, showed the money received from Consensus as
dividends. The Revenue officials pointed out to her that she was in
error in this respect and that such receipts must be shown as
commissions. On this basis, an additional tax was assessed against her.
[Dividends
v. Commissions]
The
Government in its brief and in oral argument before this Court asserts
that the deductions in question must be treated either as dividends in
their entirety, and if so as unlawful deductions, or as commissions in
their entirety, and therefore properly deducted. In other words, in
accordance with this argument there can be no middle ground. We agree
with this argument for two reasons: First, it was directly alleged in
the conspiracy count of the indictment and impliedly in the other counts
that none of the defendants "rendered any services to the said
corporation." Thus the question was directly in issue and the
Government had the burden of establishing the affirmative. Second, it is
a serious question whether a prosecution for income tax evasion, founded
upon improper deductions, can succeed where the proof is other than that
the deductions are improper in their entirety.
Section
23(a) of the Internal Revenue Code (26 U.S.C.A. Sec. 23(a)) allows
deductions in computing a net income for "all the ordinary and
necessary expenses paid or incurred during the taxable year in carrying
on any trade or business, including a reasonable allowance for salaries
or other compensation for personal services actually rendered; * *
*" The reported cases, dealing with criminal responsibility for tax
evasion, are, so far as we are aware, predicated upon a failure to file
a return, or if filing a return, failure to report the correct gross
income. We find no case where the evasion charged was based upon an
improper deduction. We have reached the conclusion that where a statute
permits a reasonable deduction for services, a criminal prosecution can
not be maintained by proof other than that such services were not
rendered. It is not sufficient to allege or prove that a deduction
claimed for services is unlawful because the amount charged is
unreasonable. Such a charge would leave to the trier of the facts the
responsibility for fixing the standard by which a defendant's guilt
would be determined. The standard would vary according to the views of
different courts and juries. Such a theory would be violative of the
defendant's constitutional rights, and void. United States v. Cohen
Grocery Co., 255 U.S. 81; International Harvester Co. v.
Kentucky, 234 U.S. 216, 221; Collins v. Kentucky, 234 U.S.
634, 638.
The
principle may be illustrated by reference to the deduction of $2,000
allowed to a person as head of a family. Assume A is charged with
attempting to evade his tax by claiming a deduction of $2,000 as head of
a family, knowing that such is not the case. On a trial it develops that
A is the head of a family. That of course would be fatal to the
Government's case. Assume further that the statute provided a reasonable
deduction for a person at the head of a family, taking into
consideration the size of his family and station in life. That would be
a deduction privilege somewhat similar to "a reasonable allowance
for salaries or other compensation for personal services actually
rendered." Assume, under a provision of this character, A was
charged with tax evasion by claiming a deduction of a certain amount as
the head of a family, knowing that such was not the case. The proof
discloses that he is not the head of a family. He is, therefore,
entitled to no deduction and could properly be convicted. Assume again,
however, that the proof shows him to be the head of a family. We should
think that would end the prosecution. The only question remaining would
be the reasonableness of the deduction. That would be a matter
concerning which honest individuals, as well as courts and juries, might
differ. An unreasonable deduction by such an individual might form a
valid basis for civil suit but not for a criminal prosecution.
So
it is in the instant case. The defendants are charged, necessarily we
think, with causing an improper deduction in its entirety in the returns
of Consensus. The proof shows without doubt what they rendered service
to Consensus and were entitled to compensation therefor in the form of
salary or otherwise. When that situation developed in the trial we are
of the opinion that it should have proceeded no further. Of course it
may be argued that it was still a jury question as to whether the
deductions were dividends in their entirety or commissions for services
rendered. Assuming without agreeing, that such is the case, we come to
the alleged error of the Court in its charge to the jury which in part
is as follows:
*
* * it is for you to decide whether these were, or whether a substantial
portion thereof, was a distribution of profits rather than the
compensation of employees.
I
use the words "These sums or a substantial portion thereof."
It is not necessary for the government under this indictment to prove
that all of the sums so distributed to these defendants were profits. *
* * It is sufficient if you find beyond a reasonable doubt that the
defendants intentionally diverted profits of this concern, in the
amounts charged in the indictment or substantial parts thereof, diverted
them from the form of profits and received them in the form of
commissions. * * *
[Instruction
to Jury]
The
jury was thus advised in effect that in order to convict it was only
necessary that a substantial portion of the profits of Consensus were
distributed to the defendants as dividends. This statement was neither
consistent with the indictment nor the theory upon which the case was
tried. Furthermore, it clothed the jury with the right to determine what
portions of the sums received by defendants were a distribution of
profits and what portions were to be deemed reasonable compensation for
services. If any portion of such sums was properly received as
compensation for services then it is subject to the fatal objection that
the jury was permitted to fix the standard. It is true that this
particular portion of the charge appears less harmful when read in
connection with the charge as a whole than when standing alone. Yet we
do not agree that its harmful effect was eliminated by other portions of
the charge. Who can say but that the jury might well have reasoned that
the distributions made to the defendants were partly for services
rendered and partly for profits in the form of dividends, but that the
latter constituted a substantial portion and was, therefore, the guide
by which they arrived at a verdict of guilty.
[Conclusion]
We
have not overlooked the Government's argument that every means alleged
in a conspiracy charge need not be proved. Here, however, there was only
one means alleged and that was that the defendants caused Consensus to
take a deduction as commissions when no services were rendered and with
knowledge that the deductions were dividends or a division of profits.
In
view of what we have said it follows that the judgments must be and are
hereby Reversed and the Cause Remanded.
[Dissenting
Opinion]
KERNER,
C.J.:
I
am unable to concur in that part of the opinion holding that the
District Court erred in instructing the jury.
The
gist of the offense was the willful attempt to evade and defeat income
taxes. Whether there was such a willful attempt in this case was the
province of the jury to determine from the evidence. In passing upon the
sufficiency of the proof, it is not our province to weigh or determine
the credibility of the witnesses. We must take that view of the evidence
most favorable to the appellee and sustain the verdict of the jury if
there is substantial evidence to support it.
The
record clearly discloses that Howard Clark was bookkeeper for the
Consensus Company and that in keeping the books he took his instructions
from Kruse, Sr. who told him to charge 30% of the net profits to Cecelia
as dividends and the remaining 70% would be distributed to Molasky,
Kruse, Sr. and Ragen, Sr. as commissions.
The
record also discloses that at the close of each week all of the profits
remaining after the payment of the operating expenses were distributed
weekly in proportion to the number of shares owned by the stockholders.
The profits were called dividends on all of the work papers of the
bookkeepers. While it is true that what they were styled by the
defendants did not necessarily determine their character, nevertheless
it was for the jury to say from all the evidence whether there was here
a willful attempt to evade and defeat the just payment of income taxes.
This the jury did. I believe there was ample proof of acts and that the
reasonable inferences flowing therefrom warranted the verdict that there
was a willful attempt to evade the payment of income taxes.
The
amount of the tax which it was charged was attempted to be evaded was
not of the gist of the offense, Gleckman v. United States, 80 F.
(2) 394 [35-2 USTC ¶9645], nor was it necessary that the Government
prove an evasion of all the tax charge, Tinkoff v. United States,
86 F. (2) 868 [37-1 USTC ¶9057].
It
is elementary that any specific given instruction must be considered in
relation to the entire charge. The instructions were exceedingly fair
and thorough, and when the entire charge is considered, it is clear the
jury was distinctly called upon to decide whether the defendants entered
into a scheme to willfully evade the payment of income taxes.
The
judgment as to the appellants, James M. Ragen, Sr., Arnold W. Kruse and
Lester A. Kruse, should be affirmed.
1
To conserve space, we do not set forth such matters and things in their
entirety, but only in abbreviated form.
[76-2
USTC ¶9522]
United States of America
, Plaintiff v. Peter F. Picciurro, Defendant
U.
S. District Court, East. Dist. Wis., Criminal Case No. 75-CR-91, 408
FSupp 1055, 3/9/76
[Code Sec. 7203]
Dismissal motions: Criminal indictment: Selective prosecution:
Government delay in indicting: Arbitrary investigation by the Internal
Revenue Service: Pretrial discovery motions: Compliance with local
procedural rules.--The defendant was indicted for wilfully and
knowingly filing false and fraudulent income tax returns for the
calendar years 1968 and 1969 in an attempt to evade income taxes. Held:
(1) A motion to dismiss the indictment because of selective and
discriminatory treatment by the prosecutor and a request for a formal
evidentiary hearing on the motion were denied. The prosecutor did not
exceed his discretionary power. (2) A motion to dismiss because of
intentional, tactical government delay in indicting, with resulting
prejudice to the defendant, was denied. Substantial prejudice and
intentional delay were not proven. (3) A motion to dismiss because the
Internal Revenue Service investigated the case in an arbitrary and
capricious manner and denied the defendant the right to defend himself
before the time of indictment was denied. The defendant was not entitled
to pre-indictment disclosures by the IRS in connection with an ongoing
investigation. (4) Pretrial discovery motions were denied without
prejudice for failure to comply with local procedural rules in
conformance with Rule 50(b), Federal Rules of Civil Procedure.
Charles
N. Clevert, Assistant United States Attorney,
Milwaukee
,
Wis.
, for plaintiff. James M. Shellow, Stephen M. Glynn,
222 E. Mason St.
,
Milwaukee
,
Wis.
, for defendant.
[Decision
and Order]
REYNOLDS,
District Judge:
In
this criminal case the defendant, Peter F. Picciurro, is charged in a
two-count indictment with willfully and knowingly filing false and
fraudulent income tax returns for the calendar years 1968 and 1969 in an
attempt to evade income taxes owed by him to the United States. The
defendant has filed numerous pretrial motions which will be taken up in
turn below.
The
Dismissal Motions
Three
separate motions to dismiss the indictment in this case have been made
by the defense. The first motion alleges that this defendant has been
singled out for selective and discriminatory treatment by the
prosecutor. No brief has been filed in support, but defendant's attorney
has filed his own adaffivit which reveals the basis for the motion: the
Government commenced prosecution because it believed defendant was
involved in organized crime. The Government takes the position that, in
general, there are no separate criteria within the Internal Revenue
Service for so-called organized crime criminal tax cases, and that the
only difference between these cases and others is that the investigation
is automatically reviewed by the Department of Justice irrespective of
the regional counsel's views on the prosecutive merits of the particular
case.
The
law vests the federal prosecutor with large discretionary power in
deciding whether or not the Government shall proceed against a
particular citizen. United States v. Newman, 382 F. 2d 479 (D. C.
Cir. 1967) (Burger, J.); United States v. Cox, 342 F. 2d 167 (5th
Cir.), cert. denied, 381
U. S.
935 (1965). In the exercise of this discretion, the law recognizes that
"the conscious exercise of some selectivity in enforcement is not
in itself a federal constitutional violation," 1
which would compel to dismissal of an indictment. A court's role in
reviewing this discretion is tempered by the fact that the United States
Attorney is a representative of the executive branch, and is only
answerable to a court for intentional discrimination based on an
impermissible standard of selection. Snowden v. Hughes, 321
U. S.
1 (1944); Oyler v. Boles, supra note 1. Cf.
United States
v. Jones, 438 F. 2d 461, 468 (7th Cir. 1971), citing Goldberg v.
Hoffman, 225 F. 2d 463, 465 (7th Cir. 1955).
Having
examined the motion papers of defendant and the entire file in this
case, I am satisfied that nothing contained therein suggests that this
defendant has been impermissibly selected for prosecution under the law.
Therefore, defendant's first motion for dismissal and his request for a
formal evidentiary hearing on the motion are denied.
Defendant's
second motion to dismiss this indictment asserts that the Government
intentionally delayed in indicting the defendant to gain a tactical
advantage, and that the delay has caused the defendant actual and
substantial prejudice. Defendant has requested an evidentiary hearing in
support of his motion.
It
is undisputed that although nearly six years passed between the events
which are the subject of this prosecution and the return of the
indictment, the indictment was returned within the applicable statute of
limitations. 2
Yet this does not end the inquiry, for even though the statute of
limitations is "the primary guarantee against bringing overly stale
criminal charges," United States v. Ewell, 383 U. S. 116,
122 (1966), it is the law that "the statute of limitations does not
fully define the [defendant's] rights with respect to the events
occurring prior to indictment."
United States
v.
Marion
, 404
U. S.
307, 324 (1971). As the Supreme Court made clear in
Marion
:
"*
* * [T]he Due Process Clause of the Fifth Amendment would require
dismissal of the indictment if it were shown at trial that the
pre-indictment delay in [the] case caused substantial prejudice to
[defendant's] rights to a fair trial and that the delay was an
intentional device to gain tactical advantage over the accused. * *
*" 404
U. S.
at 324.
In
the affidavit filed in support of this motion, the defendant alleges in
a conclusory fashion, both substantial prejudice and intentional delay.
Specifically, the defendant relates that between the events in question
and the return of the indictment, two potential defense witnesses have
died, and that there is reason to believe that the Government had the
information upon which this prosecution is based available to it on or
about June 1970. Defendant concludes that the delay was arbitrarily and
intentionally done with a view toward prejudicing the defendant.
This
Court is aware that there is a real possibility of prejudice inherent in
any extended delay which is not by itself sufficient to require
dismissal of criminal charges. United States v. Marion, supra, at
324-325; United States v. Pritchard, 458 F. 2d 1036, 1038 (7th
Cir. 1972), cert. denied, 407
U. S.
911 (1972). It is, however, the sense of this Court that the defendant
has done no more than merely point out delay and make conclusory
allegations. Compare United States v. Pritchard, supra. Without a
more definite statement of what the defense anticipates it would be able
to prove at an evidentiary hearing, the Court would be illadvised to
grant defendant's request for court time to conduct what amounts to a
hopeful probe for information. Therefore, this motion must be denied.
In
a third motion to dismiss the defendant argues that the Internal Revenue
Service investigated this case in an arbitrary and capricious manner,
and denied the defendant the right to defend himself before the Internal
Revenue Service prior to the time of indictment as others are allowed to
do. Defendant has cited no legal authority in support of his position,
nor is this Court aware of anything which entitles a defendant to
pre-indictment disclosures by the Internal Revenue Service in connection
with an ongoing investigation. In view of this, and for the reasons set
forth above in denying the first motion to dismiss, the motion must be
denied.
Pretrial
Discovery Motions
The
defendant has filed eight additional pretrial motions which can be
conveniently grouped under the heading of discovery. The Government has
opposed all these motions in wholesale fashion, arguing that they must
be denied because of defendant's failure to comply with Rule 3 of this
Court's "Plan To Implement Rule 50(b), Federal Rules of Criminal
Procedure." Rule 3 provides, in relevant part:
"(c)
Additional discovery or inspection. If additional discovery or
inspection is sought, defendant's attorney shall confer with the United
States Attorney within ten (10) days of the arraignment (or such later
time as may be set by the Court for the filing of pretrial motions) with
a view to satisfying these requests in a cooperative atmosphere without
recourse to the Court. The request may be oral or written and the United
States Attorney shall respond in like manner.
"(d)
In the event defendant thereafter moves for additional discovery or
inspection, his motion shall be filed within the time set by the Court
for the filing of pretrial motions. It shall contain:
"(1)
the statement that the prescribed conference was held;
"(2)
the date of said conference;
"(3)
the name of the United States Attorney with whom conference was held;
and
"(4)
the statement that agreement could not be reached concerning the
discovery or inspection that is the subject of defendant's motion."
Inspection
of defendant's motion papers reveals that none of the information listed
in Rule 3(d) above is contained therein. The defendant's position is
that compliance with the "thrust" of Rule 3 has, nevertheless,
been had by defendant's counsel reviewing the Government's file and then
seeking by means of formal discovery motions items not included in that
file. Defendant maintains that after receiving the motion papers the
Government could have produced the requested material, thereby making
the motions moot, but that since no such production was forthcoming
here, the Government opposes the motions of substantive grounds and the
matter must be disposed of by the Court. On the other hand, the
Government, by relying on Rule 3, has not advised the Court of the
substantive grounds it feels support its opposition to these motions.
Rule
3 was designed to avoid precisely these kinds of developments in the
pretrial preparation of criminal cases in this court. The purpose of the
rule is to insure that discovery questions are presented to the court
for resolution only after the parties have fully explored the problem
privately. Thus, it was envisioned that should the stage of formal
discovery motions be reached, each side would be able to represent its
position with respect to the item in dispute briefly and
precisely. On such a record the court can decide the motion without
delaying unduly counsel's pretrial preparation.
In
the instant case, the defense apparently filed discovery motions after
examining the Government's investigative file and not finding certain
items believed to be in the Government's possession. The intermediate
step of resolving additional requests for discovery in a cooperative
atmosphere without recourse to the court was apparently passed over. As
a result, the court now has before it these numerous motions accompanied
in varying degrees by supporting materials, to which the Government has
not responded in any meaningful way.
On
such a record these motions cannot be granted. Accordingly, they must be
denied without prejudice to the defendant's right to renew them should
an impass still exist after full compliance with Rule 3.
It
is therefore ordered that for the reasons given above, defendant's
motions be and hereby are denied, provided however, that defendant's
motions which are referred to above as "discovery motions" are
denied without prejudice to the defendant's right to refile these
motions upon a showing that full compliance has been had with Rule 3 of
the Court's "Plan To Implement Rule 50(b), Federal Rules of
Criminal Procedure," and
IT
IS FURTHER ORDERED that a final pretrial conference in this case be held
on Thursday, March 11, 1976, at 1:30 P. M.
1
Oyler v. Boles, 368
U. S.
448, 456 (1962).
2
The two-count indictment charges the defendant with intentionally filing
a false income tax return on or about May 15, 1969, and on or about May
15, 1970, all in violation of Section 7201 of the Internal Revenue Code,
26 U. S. C. §7201. The indictment was returned May 6, 1975, just within
the applicable six-year statute of limitations set forth in 26 U. S. C.
§6531.
[54-2
USTC ¶9564]
United States of America
, Plaintiff v. Sidney Wyman, Charles J. Rich, Edward B. Fischer, Ralph
M. Leon, Defendants
United States of America
, Plaintiff v. Sidney Wyman, Charles J. Rich, Defendants
In
the United States District Court for the Western District of Missouri,
Western Division, Nos. 18715, 18718, 125 FSupp 276, July 13, 1954
Criminal penalties: Sufficiency of the indictment: Filing fraudulent
return and assisting in preparation of fraudulent return.--Taxpayers
were indicted on a charge of not filing an information return, filing a
fraudulent return, and assisting in filing a fraudulent return.
Taxpayers moved to dismiss the indictment on the grounds of lack of
jurisdiction, venue, vagueness of standards, that the violations did not
constitute an offense, and other minor reasons. The District Court found
that the jurisdiction was adequate, the wording of the indictment was
not vague, and the offenses complained of constituted a crime. The Court
found, however, that venue was lacking as to the count which charged the
filing of a fraudulent return. Therefore the motion to dismiss was
substantially overruled.
Edward
P. Schedufler, United States Attorney,
Kansas City
,
Mo.
, for plaintiff. Morris A. Shenker,
Suite
802
,
408 Olive St.
,
St. Louis
,
Mo.
, for defendants.
Memorandum
and Order on Defendants' Motion to Dismiss
RIDGE,
District Judge:
Defendants
Sidney Wyman, Charles J. Rich, Edward B. Fischer and Ralph M. Leon,
doing business under the partnership name of C. J. Rich and Company,
Post Office Box 1346, St. Louis, Missouri, are charged by indictment in
Case No. 18715, with having, during the calendal year 1950, made
"net payments" of $600.00 or more, each, to twelve
individuals, named in said indictment, and with willfully and knowingly
failing to make "a return on United States Treasury Department
Internal Revenue Service Form 1096, to the Commissioner of Internal
Revenue, Processing Division, C. C. Station, Kansas City 2,
Missouri," setting forth such payments on Form 1099, attached
thereto, as required by Section 147(a) of the Internal Revenue Code (26
U. S. C. A. 147(a)) and Treasury Regulation No. 111, Section 29.147-1,
as amended; all in violation of Section 145(a) of the Internal Revenue
Code. (26
U. S.
C. A. 145.)
In
Case No. 18718, an indictment in two counts was returned against the
defendants Wyman and Rich. In the first count thereof, it is charged
that on or about January 2, 1951, said defendants "did willfully
and knowingly make and subscribe and file and cause to be filed with the
Commissioner of Internal Revenue, in care of Processing Division, C. C.
Station, Kansas City 2, Missouri, a false annual information return, U.
S. Treasury Department Form 1096 for Wyman and Rich, 5548 Delmar, St.
Louis 12, Missouri, for the calendar year 1950," which they did not
believe to be true and correct "as to every material matter,"
in that said return declared that only five United States Treasury
Department Forms 1099, attached thereto, showing that Wyman and Rich had
made payments totaling $600.00 or more each, to five persons during the
calendar year 1950, were all such payments so made, when, in truth and
in fact as they then and there knew, Wyman and Rich had made payments of
$600.00 or more to fifteen other persons; all in violation of Section
3809(a) of the Internal Revenue Code (26 U. S. C. A. 3809(a)).
Count
2 of said indictment charges that defendants Wyman and Rich "did
willfully and knowingly aid and assist, and counsel, procure and advise
the preparation and presentation to the Commissioner of Internal
Revenue" the same false Form 1096 Return for the year 1950 charged
as having been falsely made as in Count 1 of said indictment. The
falsity and imperfections alleged with respect to that charge are the
same fifteen payments made by the partnership as charged in Count 1, as
to which they failed to report. The defendants are charged with aiding
and assisting, counseling and procuring the preparation and filing of
that return in Count 2 of the indictment, in violation of Section
3793(b)(1) of the Internal Revenue Code. 26
U. S.
C. A. 3793(b)(1).
Presently
before the Court is defendants' motion to dismiss both the above
indictments, on numerous grounds. Those presented by the suggestions
filed in support of said motion are: (1) that the statute and
regulations upon which the indictments are based are so vague and
indefinite as to make the standard of guilt conjectural, hence an
indictment thereon cannot be sustained; (2) because the Court has no
jurisdiction over the persons of the defendants in Cause No. 18715; (3)
because Count 2 of the indictment in Cause No. 18718 does not allege
facts constituting an offense against the laws of the United States; (4)
because the indictments are discriminatory in nature and deprive
defendants of the equal protection of the laws; (5) because an alleged
violation of Section 147 of the Internal Revenue Code does not
constitute a criminal offense; and (6) that under any circumstances
defendants Wyman and Rich may not be charged in both indictments with
the violation of Section 147(a), supra, of the Internal Revenue
Code, for the same calendar year, because only one prosecution per year
for alleged violations of said section may be maintained.
[Indictment
Not Vague]
In
support of assignment (1) supra, "It is the contention of
these defendants that the plaintiff seeks to give too broad a meaning to
(the term 'fixed or determinable income' as in 147(a) supra) and
that income from gambling payments may not be reasonably inferred as
coming within the language of the statute or regulations for the purpose
of a criminal prosecution." The gist of such contention appears to
be that defendants say they cannot determine from the statutory language
or regulations considering the manner of operation of a gambling
enterprise, whether they are required to file the pertinent Treasury
Informational Forms 1099 and 1096 in the case of gambling payments.
If
a difficulty exists in that respect, it is not because plaintiff seeks
to give too broad a meaning to the statutes and regulations in question,
but because defendants overlook and misconceive the premise and statutes
under which the instant indictments are brought. Defendants' contention
that the returns required to be made under Section 147(a) supra
are only with respect to payments made as to "fixed or determinable
income," cannot be sustained. The plain and explicit wording of the
regulations and statute clearly reveals that they are concerned with
payments of $600.00 or more by "all persons, in whatever
capacity * * * making payment to another person, of * * *
emoluments, or other fixed or determinable gains, profits and
income."
The
argument which defendants proffer, that from the manner in which
gamblers do business it cannot easily be determined that the statute or
regulations apply to their transactions, is extremely fallacious.
Without going into categories and classifications of any transactions
conducted by defendants in their gambling enterprise, whether on credit,
for cash, by laying off bets, or receiving and paying same through
agents, suffice it to say that defendants certainly know when a customer
or person wins or loses in any given transaction, and whether they have
paid to any such person $600.00 or more as "determinable gains,
profits and income," in any taxable year. In
United States
v. Carroll, 117 Fed. Supp. 209 [54-1 USTC ¶9335], Judge Duncan
thoroughly considered similar contentions as presently made by
defendants. In the Carroll case the clear applicability of the
statute and regulations in question to gambling transactions is pointed
out. We could not begin to expatiate or enlarge on what Judge Duncan
there said as to the applicability of the statute or regulations in
question, or the analysis he made with respect to gambling transactions.
To demonstrate the applicability of the statute and regulations to their
business, defendants need only adhere to what Judge Duncan said in the Carroll
case, (1. c. 214): "The question the payor must determine is
whether or not such amount represents gains, profits or income insofar
as the relations between him and the payee are concerned." That is
the clear mandate as to the duty imposed upon "all persons, in
whatever capacity," as to whether he must file 1096 and 1099 forms
as required by Section 147(a), supra, and Treasury Regulations
made pursuant thereto. A failure to determine that matter and file 1096
and 1099 Treasury Forms as required is made an offense by Section 145(a)
of the Internal Revenue Code. 26
U. S.
C. A. 145(a).
[Jurisdiction]
Defendants'
second contention, that the alleged offense of failure to file the forms
in question may be prosecuted only at the place of the defendant's
residence, or their place of business, or at the place where the alleged
payments were made, is without merit.
Section
147 of the Internal Revenue Code provides, in part, that the
"return" therein prescribed is to be made "to the
Commissioner under such rules, regulations and in such form and manner
and to such extent as may be prescribed by him with approval of the
Secretary. . . ." Section 29.147-1 of Regulation No. 111, requires
that 1096 Forms "should be filed with the Commissioner of Internal
Revenue, Processing Division, C. C. Station,
Kansas City
2,
Missouri
." Section 145 of the Internal Revenue Code makes failure to
file a return as "required by law or regulations made under
authority thereof" an offense in violation of the Internal Revenue
Code.
Since
the statute does not indicate where Congress considered the place of
committing an offense of failure to file a return to be, it is necessary
to decide where the crime is committed to ascertain what duty it was the
failure to perform which constitutes the crime. The only conclusion to
be reached is that failure to comply with a regulation under the
Internal Revenue Code as to where a particular act is to be performed
constitutes a crime at the place where the compliance must be made.
Judge Duncan so concluded in
United States
v. Carroll, supra, and we believe rightly so, in light of United
States v. Commerford (C. A. 2) 64 Fed. (2d) 28 [1933 CCH ¶9255]; United
States v. Anderson, 328 U. S. 699; United States v. Lombardo,
241 U. S. 73; Rumley v. McCarthy, 250 U. S. 283; Jones v.
Pescor (C. A. 8) 169 Fed. (2d) 853. The offense charged in
Indictment 18715 is the failure to do the single act required by the
Internal Revenue Code and rules and regulations issued pursuant thereto,
to-wit, to file a 1096 Form with the Commissioner in
Kansas City
,
Missouri
, in the manner prescribed. The venue of such an offense is within the
jurisdiction of this Court. United States v. Carroll, supra.
[Venue]
Although
defendants Wyman and Rich do not, in their suggestions filed in support
of the motion to dismiss the indictment in Case No. 18718, challenge our
jurisdiction on the ground of improper venue, they do make such an
assignment as a ground for dismissal in their said motion filed in that
action. Because we find merit in such assignment, and are required to
examine into our own jurisdiction though not raised by the parties, we
now consider that matter.
In
Count 1 of said indictment, defendants are charged under Section 3809(a)
with having willfully made and subscribed to a return "which they
did not believe to be true and correct as to every material
matter." In Count 2 thereof, the charge is that the defendants
willfully and knowingly aided, assisted, counseled, procured and advised
the "preparation and presentation of a false" return, under
Section 3793(a)(1). The inference from both such charges is that the
acts complained of were committed in the Eastern Judicial District of
Missouri, and not in this District.
Although
the filing of the returns there referred to was effected in this
District, it is obvious that neither statute under which the charges
aforesaid are laid is concerned with the act of filing of returns. The
nearest approach either such statute has to the filing of a return is by
the use of the term "presentation" in Section 3793(a)(1), supra.
As there used, "presentation" could be held to mean
"appearance, exhibition or representation." It could also
include 'offer, giving or bestowal." Webs. Int. Dict., 2nd Ed. If
it was intended to include or refer to the place of filing a return,
then the query arises, may not a return be so "presented, offered
or bestowed" when placed in the United States Mail by the person
who prepared it for filing. Regardless, the "preparation" of a
false or fraudulent return is essential to any unlawful
"presentation" of such a return. The commission of the former
is essential to the commission of the latter. Proof of one, however,
will not sustain proof of the other. That being so, then the offense
charged in each count of the above indictments and the statutes supra
under which they are laid, are concerned with the "commission"
of an unlawful act, and not the mere "omission" to perform an
act, as considered in connection with the indictment in 18715.
The
preparation of a return is a lawful or unlawful act according to the
intent and manner of its preparation. The work of preparation is ended
before it can be presented. The making of a false affidavit is complete
when the false oath, or subscription, has been completed. The aiding or
assisting in either such matter is an offense when the return has been
prepared, or the oath has been subscribed. In either such case the venue
is the same and at the place where the preparation has been completed
and subscription effected. Cf.
United States
v. Kelley, 105 Fed. (2d) 912, 916 [39-2 USTC ¶9621].
Assuming
that the act of preparation of the return in question and subscription
thereto did not occur in this District, then the only possible
jurisdiction we could have over either of the above charges is as to
Count 2, on the theory of a continuing offense. Under such theory, the
unlawful preparation of a return might be considered as essential to its
unlawful presentation. However, if it is so considered, then there must
be proof of the act of presentation in this District. Absent proof of
such an act, we do not believe venue can be said to be in this District.
Cf.
New York
Cent. & H. R. R. Co. v. United States, 166 Fed. 267, 270.
In
light of the foregoing, we do not have jurisdiction of Count 1 of the
indictment in Case No. 18718, supra, for lack of venue. Cf.
United States
v. Moody, (D. C. Mo.) 102 Fed. Supp. 315. We reserve ruling on
such matter as to Count 2 thereof. If the Government has no proof other
than "presentation" by act of mailing, then we shall rule that
we do not have jurisdiction of that count, either.
[Assisting
in Fraudulent Return a Crime]
Under
Point 3 of their suggestions in support of motion to dismiss, defendants
assert that Count 2 of the indictment in Case No. 18718 does not allege
any facts constituting an offense against the laws of the
United States
. The gist of such contention is that the statute (26 U. S. C. A.
3809(a)) under which the charge there made is laid was not enacted for
the purpose of prosecuting persons required or authorized to make a
return, but, rather, those who advise and assist in the preparation of a
return for the person or persons required to file the same. Defendants
argue that if, as partners, they did, all as alleged in said count, i.e.
fail to report the additional fourteen payments enumerated therein, then
the defendants were the persons required to file the particular
information forms with the Commissioner of Internal Revenue, and they
could not be charged with aiding and assisting, or advising the doing of
the thing that was done, namely the filing of a false informational form
for the year in question by the partnership.
There
is no merit to the contention so made by defendants. The charge
contained in Count 2, supra, is laid under Section 3793(b)(1),
Title 26,
U. S.
C. A. The indictment charges a partnership to exist between the
defendants Wyman and Rich. A partnership is defined in Section
3797(a)(2) of the Internal Revenue Code. Under Section 3793(b)(2) of the
Code, the term "person" as used in Section 3793(b)(1) under
which the charge in Count 2 is laid, "includes an officer or
employee of a corporation, or a member or employee of a partnership, who
as such officer, employee, or member, is under a duty to perform the act
in respect of which the violation occurs." Such inclusion does not
"exclude other things within the meaning" of the term
"person" as used in Section 3793(b)(1). Cf. Section 3797(a)(1
& 2) and (b). Hence, absent evidence as to the duty imposed upon a
particular partner to file informational returns for the partnership,
the presumption is that each such partner was under a duty to perform
that act on behalf of the partnership. A partnership, under the Internal
Revenue Code, is a separate entity from the individuals constituting the
partnership "for purposes of information." Cf. Rossmoore v.
Comm'r of Inter. Rev., 76 Fed. (2d) 520, 521 [35-1 USTC ¶9277]; Levin
v. United States, 5 Fed. (2d) 598; Morris v.
United States
, 12 Fed. (2d) 727 [1926 CCH ¶7126]. If both partners executed a
false return and filed the same with the Commissioner of Revenue, then
we think they would be properly charged under Section 3793(b)(1) as in
the second count of the indictment. If only one partner is charged with
the duty of filing such returns, and there is no evidence that the other
partner willfully aided, assisted, procured, counseled, or advised
preparation or presentation of such return, then such other partner
could not be held liable for the offense denounced in Section
3793(b)(1). A determination of that matter could only abide the formal
evidence adduced at a trial on said charge.
Section
3793(b)(1) was intended to include all persons aiding and abetting,
encouraging, advising the preparation or presentation in connection with
any matter arising under the Internal Revenue laws, of a false or
fraudulent return, etc. In light of the definition in Section
3793(b)(2), it also includes those officers or employees of a
corporation or partnership who performed the act in preparing and
presenting any such matter to the Commissioner of Internal Revenue. The
charge made in the second count is that the partnership of Wyman and
Rich made the nineteen payments which required the filing of a 1099
return, and that the individual defendants aided and assisted and
counseled the partnership to file a return showing only five payments as
having been made by the partnership during the calendar year in
question. Such a charge is an offense against the Internal Revenue Code.
Cf. United States v. Johnson, 319
U. S.
503 [43-1 USTC ¶9470]; Tinkoff v. United States, 86 Fed. (2d)
868 [37-1 USTC ¶9057].
[Equal
Protection Argument]
Under
Point 4 of their suggestions, defendants seek to have the instant
indictments dismissed because "defendants have evidently been
singled out for prosecution thereon where no authorization by the
Commissioner of Internal Revenue, or direction by the Attorney General
have been given for the commencement of these" criminal actions.
The substance of such contention is that under Section 3740 of the
Internal Revenue Code it is provided that "no suit for the recovery
of taxes, or for any fine, penalty or forfeiture, shall be commenced
unless the Commissioner authorizes or sanctions the proceedings and the
Attorney General directs that the suit be commenced." The instant
action is not one for the "recovery of taxes, fine, penalty or
forfeiture." It is a criminal action instituted under the Criminal
Code for violation of Section 145 of the Internal Revenue Code, by
indictment returned by a Grand Jury, for which a criminal sanction is
provided. It is in that respect wholly distinct and differentiated from
recovery of taxes, fine, penalty or forfeiture, as contemplated by
Section 3740, supra.
Regardless,
defendants' contention is wholly without merit, when the record reveals
that this criminal action is being presented by the duly appointed
United States District Attorney for this District. As such, he is the
Attorney General's representative in this District, recognized as such
by law, who is not required to show specific authority to act in the
instant matter.
[Failure
to Perform a Crime]
Defendants,
in Point 5 of their suggestions, seek the dismissal of the indictments
on the ground that Section 147 of the Internal Revenue Code, which
provides that all persons making payments of a particular kind in the
amount of $600.00 or more in a taxable year shall render a return
thereof to the Commissioner of Internal Revenue, does not denounce the
failure to supply such information as a criminal offense, nor is there
any penalty or punishment set forth in said section for its violation.
Defendants
clearly misconceive the section of the Internal Revenue Code under which
the indictment in Case No. 18715 is laid. Such indictment is laid under
Section 145(a) of the Code, (26 U. S. C. A. 145(a)). In other words,
Section 147 of the Internal Revenue Code prescribes the duty to be
performed by a taxpayer. Section 145(a) defines a criminal offense for
the failure of the taxpayer to perform the duty so imposed upon him by
law. No fortifying authorities are necessary to sustain the proposition
that in criminal procedure one statute may prescribe a duty and another
statute make it a criminal offense for failure to perform that duty. The
Internal Revenue Code in many of its aspects prescribes various duties
to be performed by taxpayers with reference to reporting and payment of
revenues to the
United States
. Certain sections thereof prescribe civil as well as criminal penalties
and sanctions for failure of the taxpayer to perform such duties. The
sections thereof prescribing a penalty for failure to comply with other
sections of the Code bear the same relation, as is often found in
criminal codes generally, where one section defines the offense and a
separate section prescribes a penalty therefor. Defendants are in error
in assuming that the instant prosecutions are instituted under Section
147, and that the same may not be maintained because no punishment is
set forth in Section 147 for failure to comply with the mandate thereof.
Under
Point 6 of their suggestions, defendants contend that defendants Wyman
and Rich may not be prosecuted on the charge laid in both counts of the
indictment in Case No. 18718 because only one prosecution may be
maintained against them in a calendar year for failure to comply with
the mandate of Section 147.
As
above pointed out, in Case No. 18715 the defendants Wyman and Rich are
charged, along with Fischer and Leon, as being partners in C. J. Rich
and Company, and with having failed to file Form 1096 as to certain
payments made by that partnership during the year 1950.
In
Count 1 of the indictment in Case No. 18718, Wyman and Rich are charged
with having made and subscribed and filed a false annual information
return with respect to a separate and distinct enterprise or partnership
than that charged to exist in Case No. 18715.
Whether
Wyman and Rich may be charged in more than one indictment with having
failed to file annual information return Form 1096 with respect to each
separate partnership arrangement existing between them in a given
calendar year, we need not further sound out. Suffice to say such a
situation patently is not here present. The charge made in Count 1 of
the indictment in Case No. 18718 is that Wyman and Rich did make such a
return, but falsely so, which they did not believe to be true and
correct, and subscribed to such return, in violation of Section 3809(a)
of the Internal Revenue Code. The charge made in the second count
thereof is that they aided and abetted and filing of such return on
behalf of the partnership, a distinct entity under the Internal Revenue
Code, in violation of Section 3793(b)(1), supra. The charge so
made in each count of the indictment in Case No. 18718 is clearly
distinct from that alleged in Case No. 18715. The fact that in both
counts of the indictment in Case No. 18718 the same false annual
information return is involved does not militate against the prosecution
of the defendants on each charge there made. "The work of
preparation is ended before the duty to file begins."
New York
Cent. & H. R. R. Co. v. United States, supra, p. 270. Hence,
the making and filing of a false affidavit and the aiding and abetting
the making of a false return are two separate offenses.
In
light of the foregoing, defendants' motion to dismiss is overruled as to
the indictment in Case No. 18715 in each of the assignments thereof.
Their motion to dismiss is sustained as to Count 1 and overruled as to
Count 2 of the indictment in Case No. 18718.
[53-1
USTC ¶9356]
United States of America
, Appellant v. James J. Carroll
In
the Supreme Court of the United States, No. 442, October Term, 1952, 345
US 457, 73 SCt 757, April 27, 1953
Appeal from the United States District Court for the Western District of
Missouri.
Failure to file information returns on Form 1099: Criminal
liability.--The information return required to be filed on Form 1099
with regard to payments in excess of $600 or more is in the nature of an
unverified schedule which is required to be filed with the verified
return on Form 1096. Form 1096, together with the unverified Forms 1099,
constitutes the information "return" required by Code Section
147(a), and, therefore, an indictment charging failure to file Form 1099
did not charge the defendant with an offense under Code Section 145(a),
which prescribes penalties for willful failure to make a
"return."
Walter
J. Cummings, Jr., Solicitor General, H. Brian Holland, Assistant
Attorney General, Marvin E. Frankel, Ellis N. Slack, Meyer Rothwacks,
and Joseph M. Howard, Special Assistants to the Attorney General, for
petitioner. Morris A. Shenker,
408 Olive Street
,
St. Louis
,
Mo.
, for respondent.
MR.
JUSTICE DOUGLAS delivered the opinion of the Court.
This
is an appeal under the Criminal Appeals Act, 18
U. S.
C. §3731, from an order of the District Court dismissing an indictment.
The indictment contains 101 counts. Each count alleges that appellee
made payment of a sum in excess of $600 a year to a named
individual--some in 1948, some in 1949, and the rest in 1950. The
offense charged as to each such payment is a wilful failure to make a
return on Treasury Form 1099 in violation of §145(a) of the Internal
Revenue Code, as amended, §5(c), Current Tax Payment Act of 1943, 57
Stat. 126, 26
U. S.
C. §145(a).
Section
147 of the Act, as amended by §202(c)(3) of the Revenue Act of 1948, 62
Stat. 110, provides that any person making a payment to another of $600
or more in any calendar year "shall render a true and accurate
return to the Commissioner, under such regulations and in such form and
manner and to such extent as may be prescribed by him with the approval
of the Secretary."
[Information
Return Requirements]
Treasury
Regulations 111, §29.147-1, as amended T. D. 5313, 1944 Cum.
Bull. 308, T. D. 5687, 1949-1 Cum. Bull. 9, provides that all
persons making any such payment in any calendar year (with exceptions
not relevant here) shall make a "return" on Form 1099,
"accompanied by transmittal Form 1096 showing the number of returns
filed." Form 1099 is required to be prepared and filed for each
payee, showing the name and address of the payee, the kind and amount of
income paid, and the name and address of the person making the payment.
Form 1099 on its face is called an "Information Return"; and
its instructions say that it is to be forwarded "with return Form
1096." Form 1099 contains no formal declaration by the payor nor
any signature by him. Those are provided in Form 1096.
Form
1096 is called "Annual Information Return." It must be signed
by the payor with a statement of the number of reports on Form 1099
which are attached. It contains a declaration that "to the best of
my knowledge and belief the accompanying reports on Form 1099"
constitute "a true and complete return of payments" of the
prescribed character made during the specified calendar year.
[Failure
to File Form 1099]
Section
145(a) of the Act provides that any person required by law or
regulations "to make a return . . . for the purposes of the
computation, assessment, or collection of any estimated tax or tax
imposed by this chapter, who willfully fails to . . . make such
return" shall be guilty of a misdemeanor and on conviction be fined
not more than $10,000 or imprisoned for not more than one year, or both.
The
District Court ruled that the "return" specified in §145(a)
was that provided in Form 1096, not the one provided in Form 1099 and
that since the only offenses charged in the 101 counts were failures to
file Form 1099 the indictment should be dismissed. *
The
question is not without difficulty. But we conclude that the District
Court reached the correct result.
The
"return" required by §147(a) is to be made "in such form
and manner" as are prescribed in the Regulations. The Regulations
provide in §29.147-1, as we have noted, that a "return shall be
made in each case on Form 1099, accompanied by transmittal Form 1096
showing the number of returns filed." The "form and
manner" prescribed therefore seem to consist of the verified Form
1096 together with the Forms 1099. All of them together apparently
constitute the "return" referred to in §147(a). The various
Forms 1099 seem to have the same relation to Form 1096 as schedules have
to an ordinary income tax return. Form 1099 supplies the details which
underlie Form 1096. That conclusion is supported by the fact that Form
1096 is the only one which is signed and verified.
We
hesitate to conclude that a failure to file an unverified schedule is
given the same dignity as the failure to file the verified return. We
are dealing with criminal sanctions in the complicated, technical field
of the revenue law. The code and the regulations must be construed in
light of the purpose to locate and check upon recipients of income and
the amounts they receive. See S. Rep. No. 103, 65th Cong., 1st Sess. 20.
But at the same time every citizen is entitled to fair warning of the
traps which the criminal law lays. Where the "return"
prescribed is a verified Form 1096 together with all the unverified
Forms 1099 it does not seem fair warning to charge a person for more
than the failure to make that return. To multiply the crimes by the
number of Forms 1099 required to be filed is to revise the regulatory
scheme. So far as these information returns are concerned, the purpose
of §145(a) seems to us to be fulfilled when the sanction is applied
only to a failure to file Form 1096.
Affirmed
*
We postponed the question of jurisdiction to a hearing on the merits in
view of appellee's contention in his statement opposing jurisdiction
that the dismissal was based not only upon the "construction of the
statute" within the meaning of the Criminal Appeals Act, 18 U. S.
C. §3731, but also, as respects the first 45 counts, on a question of
venue. We do not read the oral opinion of the District Court that way.
We think the District Court rested its decision as respects all 101
counts on the construction of the statute. Whether there are other
objections to the indictment which might also lead to dismissal is
therefore not properly here on this appeal. See
United States
v. Borden Co., 308
U. S.
188, 193.