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[54-2 USTC ¶9712] United States of America , Petitioner v. Edward B. Calderon

In the Supreme Court of the United States , No. 25. October Term, 1954, 348 US 160, 75 SCt 186, December 6, 19 54

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

[1939 Code Secs. 41 and 145--similar to 1954 Secs. 446 and 7201]

Evasion of income taxes: Proof of fraud: Net worth increase inapplicable: Circumstantial evidence.--Taxpayer, an operator of a legitimate coin-machine business, was convicted of wilful attempts to evade and defeat his own and his wife's income taxes for the period 1946 through 1949. Conviction was based on the Government's computation of net worth increases for these years, but the Ninth Circuit reversed because proof of beginning cash was inadequate. The Supreme Court agreed that the evidence was flimsy in this respect but, in the circumstances, recourse could be had to independent evidence tending to establish the crime directly, without recourse to the net worth method. Such evidence established the fact that taxpayer's receipts from operations of his business were tabulated from many receipt books, some of which were numbered and some of which were not. Such a system placed taxpayer in the position of one who kept no books at all and of receiving unrecorded amounts of income. Thus, even though there may have been an "error" as to cash on hand at the starting point for opening net worth, the remainder of the net worth computation established a deficiency on which a conviction for fraud could be based. Accordingly, the Supreme Court sustained the conviction on the principle that "an inference of tax evasion could be based on the fact that taxpayer's visible assets greatly increased at a time when he was receiving unrecorded amounts of taxable income."

Simon E. Sobeloff, Solicitor General, H. Brian Holland, Assistant Attorney General, Marvin E. Frankel, Ellis N. Slack, David L. Luce, Joseph M. Howard, Fred G. Folsom, Dickenson Thatcher, Special Assistants to the Attorney General, for petitioner. Norman Herring, 111 E. Broadway, Tucson, Ariz., Joseph W. Burns, 30 Rockefeller Plaza, New York, N. Y., Fulton, Walter & Halley, of counsel, 30 Rockefeller Plaza, New York, N. Y., for respondent.

CLARK, Justice:

The issue in this case is similar to the question presented in Smith v. United States ante, p. -- [54-2 USTC ¶9715], decided this day, on the corroboration of respondent's extrajudicial statements concerning his "opening net worth." The admissibility of these statements is not questioned.

Respondent, an operator of a legitimate coin-machine business, was tried and convicted on four counts charging him with willful attempts to evade and defeat his own and his wife's income taxes for the years 1946 through 1949. The Government's case rested primarily on a net worth computation, which showed net worth increases and nondeductible expenditures of $62,993.47 for the prosecution period; during these same four years respondent declared only $16,775.14 income. It was stipulated that the computation was correct except as to the items "cash on hand" and "cash in bank." Respondent's bank balances were proved by introducing the bank records, and, with some minor adjustments, the Government's net worth computation was amply verified in this respect. As to "cash on hand," particularly the amount credited to the taxpayer as of the beginning of the prosecution period, respondent contends that the only evidence tending to substantiate the Government's figures is the uncorroborated admissions of the accused. He argues that lacking independent evidence of the corpus delicti, the conviction cannot stand. The Court of Appeals agreed and reversed the judgment of conviction, observing that, absent a starting item such as cash on hand, "the remainder of the statement proves nothing." 207 Fed. (2d) 377 [53-2 USTC ¶9579]. We granted the Government's petition for certiorari. 347 U. S. 1008.

The Government credited the respondent with $500 cash on hand at the starting point. One of the Government agents testified that the $500 figure was an approximation based on respondent's oral answer to a request that he estimate his year-end balances of cash on hand. According to the agent's notes, respondent replied that he had "approximately $500.00 in cash in his pocket. He believes that because it is his habit to carry about that much money in his pocket at all times." It was admitted that the taxpayer might have had more than this amount on hand at certain times, since he had frequently made deposits in his bank accounts in sums of $1,000 and $2,000. It appears that the agent did not inquire into how much money respondent had in his safe or his business, as opposed to the funds in his pocket, maintaining that he was justified in treating the taxpayer's statement regarding the $500 as covering his total cash on hand. Respondent contended that this figure failed to embrace a substantial sum in currency in his safe at the starting date. Both the Government and the respondent adduced a number of circumstances in support of their respective positions, and in interpreting the meaning of respondent's statement the jury could readily have found the Government's circumstantial proof more persuasive. In our view, it could have concluded from the evidence that respondent's statement as to the $500 referred to his total cash on hand at the starting point.

Respondent also signed a written statement admitting to the same opening cash on hand. This document contained the over-all net worth computation relied on by the Government at the trial. The Government's evidence tended to show that it had been signed by the respondent after the usual warning and after he and the agents had worked over the statement, item by item, for some eight hours. Though admitting that both he and his accountant had read the statement, the respondent sought to prove that he had not understood the net worth computation as a whole or the individual item of "cash on hand"; that before signing the statement he had asked his accountant whether it was correct, intending to rely on the latter's judgment; and that the accountant, in giving defendant the go-ahead, had merely approved the method employed in compiling the statement without passing on the accuracy of the particular figures. Again it was for the jury to consider all these circumstances in determining the weight to be given the signed statement; we cannot say that the document should have been rejected as a matter of law.

But all these factors are relevant in determining whether the independent evidence provided adequate corroboration. As in Smith v. United States, the circumstances surrounding defendant's admissions cast some doubt on their reliability. The statements were made by a taxpayer anxious to cooperate with the Government in the hope of limiting civil liability and avoiding criminal prosecution. The oral statement, with its "in the pocket" terminology, is certainly not clear. And the Government's own witness, the respondent's accountant, testified that he had not verified the particular figures in the written statement when it was referred to him by respondent. Under these circumstances, the trial judge and reviewing courts should exercise great care in determining whether the statements of the accused were corroborated. The reviewing courts, however, can seek corroborative evidence in the proof of both parties where, as in this case, the defendant introduces evidence in his own behalf after his motion for acquittal has been overruled. Cf. Bogk v. Gassert, 149 U. S. 17. ¹

Unlike Smith, there is not sufficient evidence here of the taxpayer's financial history to substantiate directly the opening net worth. Proof that the taxpayer was impoverished by the depression, that he was working for his meals and $8 a week in 1935, is too remote, absent proof of the taxpayer's financial circumstances in the intervening years. The respondent entered the coin-machine business in a modest way in 1935; he discontinued his low-paying job in 1939; and, except for a short period during the war, he devoted his entire efforts to his coin-machine business until 1945, when he began to operate a café as well. The only evidence of defendant's fortunes between 1935 and 1946, the first prosecution year, consists of his tax returns for 1944 and 1945 and some meager evidence with regard to his tax returns for 1941, 1942 and 1943. The latter apparently was obtained from the respondent, and, standing uncorroborated, cannot serve to corroborate respondent's other admissions. The 1944 and 1945 returns show net taxable income of $4,162 and $7,328 respectively, with gross receipts from the coin machines of $9,266 and $10,302. This sketchy background can hardly give rise to an inference that defendant had no more cash at the starting date than the Government gave him credit for.

Accordingly, we must search for independent evidence which will tend to establish the crime directly, without resort to the net worth method. There are several evidentiary strands which merit inspection, the first of which is very similar to one employed in Smith. We held there that an inference of tax evasion could be based on the fact that the taxpayer's visible assets greatly increased at a time when he was receiving unrecorded amounts of taxable income. In Smith v. United States, the taxpayer kept no records. Here the records were shown to be incomplete. Receipts from the coin machines were tabulated from a number of receipt books covering various locations. The receipt books were not numbered; the taxpayer was unsure of how many machines he had in operation; and there was considerable concern about receipt books being lost or misplaced. The loss of one receipt book would make a difference of from $1,000 to $1,500 in income. Eventually, on the advice of his accountant, respondent began to number the books. ² But, even after this safeguard was employed, unnumbered books continued to appear--and then disappear; two were lost, and subsequently recovered, in a period of three or four months. A system of recording receipts which rests on so unfirm a foundation hardly places the respondent in a very different class--for this purpose--than the taxpayer who keeps no books at all. Both are receiving unrecorded amounts of income.

The increase in respondent's visible assets is considerably less than the increase presented in the Smith case. There the increment over a four-year period amounted to more than $196,000; the taxpayer's declared income was less than $17,000; and his average personal living expenses were $3,500 a year. In this case, also over a four-year span, the figures are: increase in visible assets (excluding the cash item), $47,594; declared income, $16,775; living expenses, $3,000 yearly (plus some $1,900 in other nondeductible expenditures). The increase, though less than in Smith, is far from insubstantial. While reporting income only $4,775 in excess of his living expenses, the taxpayer increased his bank balances by over $16,000; added $1,000 to his holdings of United States Savings Bonds; increased his investments in land and buildings by over $9,000; and poured some $22,000 net additional capital into his business. These increments, when considered in the light of respondent's receipt of unrecorded amounts of taxable income, are sufficiently at variance with his reported income to support an inference of tax evasion. The inference is buttressed in this case by the peculiar relation between the reported gains from respondent's coin-machine business and his investments in new equipment. In three of the four prosecution years the respondent spondent reported a net loss on his coinmachine operation, and in the fourth a net gain of only $1,330. During the same period he made gross investments in new equipment totaling $37,555. The jury could readily find defendant's investment policy inconsistent with his claimed losses. Furthermore, although respondent contends that the war years market the peak of his business activity and that his apparent postwar increases came from profits accumulated during that period, it was not until 1947, the middle of the prosecution period, that his business became sufficiently large to require the full time of his accountant. We hold that the financial history of respondent and his business during the prosecution years provides sufficient independent evidence of the crime of tax evasion to corroborate his statements concerning cash on hand.

Even more conclusive corroboration, however, is respondent's testimony at the trial that he had $16,000 or $17,000 cash on hand at the starting point. This conflicted, with the statements being corroborated ($500) and respondent's testimony at a prior trial ($2,000 to $9,000), but for the purpose of independently establishing the crime charged the jury could accept this testimony. Respondent further testified that he had $3,000 or $4,000 in cash at the end of the prosecution period. Taken together with the remainder of the net worth statement, which was stipulated or independently established, this testimony establishes a deficiency in reported income of more than $30,000. ³ There could hardly be more conclusive independent evidence of the crime.

But one problem remains. The $17,000 hoard of cash could have absorbed the computed income deficiency for one or more of the prosecution years, ⁴ and respondent was convicted on all four counts. It might be argued that independent evidence showing a $30,000 deficiency is not enough--that there must be evidence that this sum resulted in a deficiency for each of the years here in issue. There is no merit in this contention. In the first place, this evidence is merely corroborating respondent's cash-on-hand admissions and need not comply with the niceties of the annual accounting concept. While the evidence as a whole must show a deficiency for each of the prosecution years, the corroborative evidence suffices if it shows a substantial deficiency for the over-all prosecution period. Independent evidence that respondent understated his income by $30,000 in the same four-year period for which respondent's extrajudicial admissions tended to show a $46,000 deficiency is adequate corroboration. It provides substantial evidence that the crime or crimes of tax evasion have been committed; the corroboration rule requires no more. Second, there is evidence in this case which tends to negate the possibility that the alleged $17,000 hoard could have absorbed the deficiency for any of the prosecution years. This money supposedly went toward the purchase of equipment in 1946 and early 1947. Almost $16,000 in equipment was purchased in 1946; this accounts for nearly all of the cash hoard and still leaves a deficiency in 1946 of over $5,000 in unreported income. ⁵ The funds which remain are insufficient to absorb the income deficiencies of any subsequent prosecution years. ⁶

As we said, the circumstances surrounding respondent's admissions create considerable doubt as to their reliability. We have therefore examined the independent evidence with great care to insure that the accused will not be convicted on the basis of a false admission alone. Although the evidence was insufficient to corroborate the opening net worth directly, we find the independent proof of tax evasion entirely adequate. Accordingly, the decision of the Court of Appeals setting aside the conviction is Reversed.

DOUGLAS, Justice, dissents.

¹ By introducing evidence, the defendant waives his objections to the denial of his motion to acquit. Lii v. United States , 198 Fed. (2d) 109; Leeby v. United States , 192 Fed. (2d) 331 [51-2 USTC ¶9497]; Gaunt v. United States , 184 Fed. (2d) 284; Mosca v. United States , 174 Fed. (2d) 448; Hall v. United States , 168 Fed. (2d) 161. His proof may lay the foundation for otherwise inadmissible evidence in the Government's initial presentation, Ladrey v. United States, 155 Fed. (2d) 417, or provide corroboration for essential elements of the Government's case, United States v. Goldstein, 168 Fed. (2d) 666; Ercoli v. United States , 131 Fed. (2d) 354.

² It is not clear from the record whether this numbering began during or after the prosecution period. Compare R. 130-131 with R. 177-178.

³ The Government's net worth computation, based on $500 cash on hand at the outset and $1,971.50 on hand at the conclusion of the prosecution period, yields a four-year net worth increase (with expenditures) of $62,993-$46,218 in excess of declared income. Eliminating the cash items from the net worth statement, the deficiency is reduced by $1,471--to $44,747. If the defendant's testimony is accepted, of $17,000 cash on hand at the beginning and $3,000 at the end, the deficiency must be reduced by another $14,000, leaving $30,747.

⁴ The computed deficiency for 1947 was $7,393, and for 1948, $3,284.

⁵ The computed deficiency for 1946 was $21,019.

⁶ See notes 3 and 4. The computed deficiency for 1949 was $14,523.

 

 

[79-2 USTC ¶9676] United States of America , Plaintiff-Appellee v. Jesse M. Moore, Defendant-Appellant

(CA-10), U. S. Court of Appeals, 10th Circuit, No. 78-1957, 10/17/79 , Affirming an unreported District Court decision

[Code Sec. 7203]

Crimes: Willful failure to file return: Defenses: Self-incrimination: Constitutional grounds: Vagueness.--The U. S. Court of Appeals (CA-10) at Denver affirmed a jury's conviction of a taxpayer on three counts of failure to file an income tax return in violation of Code Sec. 7203. The court held that the taxpayer's returns for 1975 and 1976, which contained no information but general objections based on the Fifth Amendment, did not constitute returns as required by Code Sec. 7203. Other defenses raised by the taxpayer, i. e., that Code Secs. 6012 and 7203 were unconstitutionally vague, that the graduated income tax was unconstitutional, that wages from labor cannot be taxed because of the Sixteenth Amendment, were all rejected by the court as being without merit.

Charles E. Graves, United States Attorney, Cheyenne, Wyo. 32001, M. Carr Ferguson, Assistant Attorney General, Gilbert E. Andrews, Rob ert E. Lindsay, George L. Hastings, Jr. Department of Justice, Washington, D. C. 20530, for plaintiff-appellee. Jesse M. Moore, Dubois Star Route , Crowheart , Wyo. 82512 , pro se.

Before DOYLE, MCKAY, and LOGAN, Circuit Judges.

LOGAN, Circuit Judge:

Jesse M. Moore was convicted by a jury of a criminal misdemeanor on three counts of failure to file an income tax return as required by section 7203 of the Internal Revenue Code. 26 U. S. C. §7203. Timely appeal of the conviction was taken to this Court.

The contentions Moore raises on appeal are that he had no opportunity to present any evidence to the jury or acquaint the jury with his defense, sections 6012 and 7203 of the Internal Revenue Code are unconstitutionally vague, the direct graduated income tax is unconstitutional, wages from labor cannot be directly taxed because they are not income within the meaning of the Sixteenth Amendment, and the Fifth Amendment provides a defense to a charge of failure to fill out an income tax return.

The evidence at trial established that Moore had gross income of $18,788 in 1974, $7,799 in 1975, and $20,349 in 1976, which was sufficient in each year to trigger the filing requirements of section 7203. Moore did file a Form 1040 for each year, but did not attach the required W-2 statements. The returns contained no information except for the following statements: "Not over $91" on the 1974 form, and "Object: Fifth Amendment" on the 1975 and 1976 forms.

I. Moore first argues that he was not allowed to present any evidence to the jury or to acquaint the jury with his defense. Although Moore was acting as his own counsel and was not familiar with trial procedure, the record shows he was given full opportunity to present his case. In only one instance was Moore in any way prevented from presenting information to the jury. This was during his opening argument when the court informed him that any legal arguments he had should be made in his closing speech to the jury. Moore was always asked by the court whether he objected to evidence being introduced and whether he would like to cross-examine. He cross-examined government witnesses on two occasions. He expressly informed the court at three different times that he had no witnesses to offer. He was allowed to give his version of the law to the judge and to argue freely to the jury in closing. We conclude, therefore, that this argument is without merit.

II. Moore next argues that sections 6012 and 7203 of the Internal Revenue Code are unconstitutionally vague for failure to specify clearly who has to pay taxes or file returns. This argument is without merit. The language of these sections is quite clear. In the years in question section 6012(a), stated in pertinent part,

Returns with respect to income taxes . . . shall be made by the following:

(1) (A) Every individual having for the taxable year a gross income of [$750] or more, except that a return shall not be required of an individual . . .

(iii) who is entitled to make a joint return under section 6013 and whose gross income, when combined with the gross income of his spouse, is, for the taxable year, less than [$2,800 in 1974, $3,400 in 1975, $3,600 in 1976] . . ..

Section 7203 states in perinent part,

Any person required under this title to pay any . . . tax, or required by this title or by regulations made under authority thereof to make a return . . ., . . . who willfully fails to pay such . . . tax, make such return, . . . shall . . . be guilty of a misdemeanor and, upon conviction thereof, shall be fined not more than $10,000, or imprisoned not more than 1 year, or both, together with the costs of prosecution.

In addition, section 1 of the Internal Revenue Code declares that there is a tax imposed on every individual whose taxable income exceeds the totals set out in tables in that section.

Moore also mentions that Code section 3402 and its regulations provide for voluntary agreement to pay taxes. These provisions concern the withholding arrangements between employer and employee and do not affect the ultimate liability for payment of taxes.

III. Moore challenges the constitutionality of the direct progressive income tax. The Supreme Court has found this tax valid under the Sixteenth Amendment. Brushaber v. Union Pac. R. [1 USTC ¶4], 240 U. S. 1 (1916); Tyee Realty Co. v. Anderson [1 USTC ¶5], 240 U. S. 115 (1916). Defendant also argues that the income tax laws are unconstitutional as applied to him because wages received for labor are not "income" and so they cannot be directly taxed. The Supreme Court has defined "income" as used in the Sixteenth Amendment as "the gain derived from capital, from labor, or from both combined . . .." Fisner v. Macomber [1 USTC ¶32], 252 U. S. 189, 207 (1920). The Supreme Court cases are controlling on these issues.

IV. Last, Moore raises a Fifth Amendment defense, claiming that his right against self-incrimination allows him to refuse to provide any information on a tax return. The Supreme Court has held the Fifth Amendment is not a defense for failing to make any tax return, United States v. Sullivan [1 USTC ¶236], 274 U. S. 259 (1927), although a Fifth Amendment objection can be raised in response to a particular question on the return if the question calls for a privileged answer. See Garner v. United States, [76-1 USTC ¶9301], 424 U. S. 648 (1976). This Court held in United States v. Irwin [77-2 USTC ¶9627], 561 F. 2d 198, 201 (10th Cir. 1977), cert. denied, 434 U. S. 1012 (1978) that a tax return containing no information but a general objection based on the Fifth Amendment did not constitute a return as required by the Internal Revenue Code, and did not contain a claim sufficiently specific to invoke Fifth Amendment protection. That case is controlling here. Thus, we hold that Moore 's blanket objection is not a valid claim of the Fifth Amendment.

Affirmed.

 

 

[78-1 USTC ¶9262] United States of America , Plaintiff-Appellee v. William F. Raborn III and Samuel H. Cole, Defendants-Appellants

(CA-9), U. S. Court of Appeals, 9th Circuit, Nos. 77-1847, 77-1860, 575 F2d 688, 1/31/78 , Affirming unreported District Court decision

[Code Secs. 7201 and 7206--result unchanged under the '76 Tax Reform Act]

Criminal penalties: Postal employees: False returns: Fifth Amendment privilege: Bribery: Tax evasion: Concurrent sentence.--The Fifth Amendment privilege against self-incrimination did not bar the conviction of postal employees on charges of income tax evasion where they failed to assert that admissions on their returns were self-incriminating. Also, the Court was not required to consider issues relating to the bribery conviction where the sentences imposed on taxpayers convicted of bribery and tax evasion were to run concurrently.

Floyd E. Dawson, Assistant United States Attorney, San Francisco, Calif. 94102, for plaintiff-appellee. Jerry K. Cimmet, 507 Polk St. , San Francisco , Calif. , for defendants-appellants.

Before WALLACE and SNEED, Circuit Judges, and PALMIERI, ^* District Judge.

SNEED, Circuit Judge:

Appellants Raborn and Cole were employees of the United States Postal Service. This appeal stems from charges that appellants corruptly received gifts from two individuals representing corporations doing business with the Postal Service. The charges resulted in a fourteen-count indictment naming Raborn and Cole as co-defendants.

The counts involving Cole were severed and Raborn was tried first. He was convicted of five counts of bribery, 18 U. S. C. §201(c), one count of accepting a gratuity, 18 U. S. C. §201(g), two counts of submitting false claims against the United States, 18 U. S. C. §287, one count of tax evasion, 26 U. S. C. §7201, and one count of filing a false return, 26 U. S. C. §7206(1). He received a five-year sentence for the bribery, false claims, and tax evasion convictions, a two-year sentence for accepting a gratuity, and a three-year sentence for filing a false return. All sentences are to be served concurrently.

Following Raborn's conviction, Cole pleaded guilty to two counts of accepting a gratuity, and the trial court, sitting without a jury, found him guilty of two counts of tax evasion, 26 U. S. C. §7201. Cole received a sentence of eighteen months on each count, said terms to run concurrently.

On appeal appellants argue that their Fifth Amendment privilege against self-incrimination should bar their convictions on the tax counts. In essence they assert that because their income was derived from illegal sources, an admission on a tax return would be incriminating and therefore, in filing their returns, the rights against self-incrimination adhere. However, appellants failed to raise the privilege at the time of filing their returns and therefore this argument must fail under United States v. Sullivan [1 USTC ¶236], 274 U. S. 259, 47 S. Ct. 607, 71 L. Ed. 1037 (1927).

Appellants seek to avoid the requirement of raising the defense at the time of filing by arguing that the exceptions raised in Grosso v. United States [68-1 USTC ¶15,801], 390 U. S. 62, 88 S. Ct. 709, 19 L. Ed. 2d 906 (1968) and Marchetti v. United States [68-1 USTC ¶15,800], 390 U. S. 39, 88 S. Ct. 697, 19 L. Ed. 2d 889 (1968) apply in the present situation. These cases involved the special occupational taxes and detailed tax returns required of gamblers. The court allowed the taxpayers to raise the privilege after filing because Congress, in requiring such detailed returns from gamblers alone, placed the taxpayers within "an area permeated with criminal statutes." Albertson v. SACB, 382 U. S. 70, 79, 86 S. Ct. 194, 15 L. Ed. 2d 165, as quoted in Grosso v. United States , supra at 64, 88 S. Ct. at 712.

Yet, unlike Grosso or Marchetti, the present case involves a federal income tax return, the same return involved in Sullivan. Appellants urge us to extend the gambling tax cases by arguing that because of their status as government employees, a claim of privilege upon filing a federal return would present a real and substantial hazard of incrimination. We decline their invitation.

Marchetti and Grosso spoke only to situations in the gambling tax sphere, where pervasive criminal statutes make submitting a claim of privilege, in lieu of returns, incriminating in and of itself. The Supreme Court has recently rejected a request to apply this rationale to cases involving federal income tax returns. In Garner v. United States [76-1 USTC ¶9301], 424 U. S. 648, 96 S. Ct. 1178, 47 L. Ed. 2d 370 (1976) the court indicated that because federal income tax returns are not directed at those inherently suspect of criminal activities, the privilege must be raised at the time of filing when these returns are involved. Id. at 660, 96 S. Ct. 1178. Therefore, under our analysis of Marchetti, Grosso, and Garner, appellants' assertion of the privilege against self-incrimination must fail because it was not raised at the time of filing.

In addition to the issue considered above, appellant Raborn raises several challenges to his bribery convictions. Because the sentences imposed on the bribery and tax counts are to run concurrently and because we have upheld the tax convictions, however, the concurrent sentence doctrine applies and we need not consider issues relating to the bribery convictions. Barnes v. United States, 412 U. S. 837, 841, 93 S. Ct. 2357, 37 L. Ed. 2d 380 (1973); United States v. Monroe, 552 F. 2d 860, 865 (9th Cir.), cert. denied, 431 U. S. 972, 97 S. Ct. 2936, 53 L. Ed. 2d 1069 (1977); see Benton v. Maryland, 395 U. S. 784, 787-791, 89 S. Ct. 2056, 23 L. Ed. 2d 707 (1969).

AFFIRMED.

^* Hon. Edmund L. Palmieri, United States District Judge for the Southern District of New York, sitting by designation.

 

 

[75-2 USTC ¶9834]Edward A. Cupp, Appellant v. William Saxbe, Attorney General of the United States, George P. Schultz, Secretary of the Treasury of the United States, C. D. Switzer, District Director of Internal Revenue, U. S. Treasury Department, Appellees.

(CA-3), U. S. Court of Appeals, 3rd Circuit, Civil No. 74-2147, 10/6/75 , Affirming unreported District Court decision

[Code Sec. 7402]

District Courts: Jurisdiction: Declaratory judgments.--Suit requesting declaratory relief and seeking the determination that the tax exception to the Declaratory Judgment Act was unconstitutional was barred by sovereign immunity. Further, this exception had previously been found to be constitutional.

[Code Sec. 7203]

Criminal penalties: Failure to file returns: Self-incrimination.--The Fifth Amendment privilege against self-incrimination did not give the taxpayer license to fail to complete his income tax return.

Edward A. Cupp, P. O. Box 137 , Hopwood , Pa. , for appellant. Gilbert E. Andrews, Acting Chief, Scott P. Crampton, Assistant Attorney General, Department of Justice, Washington, D. C. 20530, for appellees.

Before Associate Justice CLARK (ret.) ^*, Circuit Judge VAN GRAAFEILAND, ^* District Judge CLARKE ^*.

Judgment Order

Appellant seeks declaratory and injunctive relief declaring unconstitutional the tax exception to the Declaratory Judgment Act and enjoining the enforcement of Section 7201 through 7206 of the Internal Revenue Code of 1954 and the Regulations issued thereunder. Pursuant to 28 U. S. C. §2282, appellant seeks to convene a three-judge court. Appellant also seeks an order stating that the questions posed on Form 1040, Internal Revenue Service if answered, may tend to incriminate him and that he should not be compelled to answer them. Appellant's contentions are without merit.

The District Court"s denial of a motion to convene a three-judge court was proper. Idlewild Liquor Corporation v. Epstein, 370 U. S. 713, 715 (1962), Crossen v. Breckenridge, 446 F. 2d 833 (6th Cir. 1971). Majuri v. United States, 431 F. 2d 469 (3rd Cir. 1970), cert. denied 400 U. S. 943 (1970).

Appellant's suit is in essence against the United States . There has been no waiver of sovereign immunity and, therefore, this action is barred. Larson v. Domestic & Foreign Commerce Corporation, 337 U. S. 682 (1949).

Appellant's request for declaratory relief is specifically prohibited by the federal tax exception to the Declaratory Judgment Act, the constitutionality of which has been upheld. Mitchell v. Riddell [68-2 USTC ¶9633], 402 F. 2d 842 (9th Cir. 1968), cert. denied 394 U. S. 456 (1969).

Appellant's argument that his Fifth Amendment privilege against self incrimination gives him license to not complete his federal tax return is in error. United States v. Sullivan [1 USTC ¶236], 274 U. S. 259 (1927), United States v. Daly [73-2 USTC ¶9574], 481 F. 2d 28 (8th Cir. 1973), cert. denied 414 U. S. 1064 (1974); United States v. Porth [70-1 USTC ¶9329], 426 F. 2d 519 (10th Cir. 1970) cert. denied, 400 U. S. 824 (1970). Garner v. United States [72-2 USTC ¶9540], 501 F. 2d 228 (1972).

Alternatively, appellant seeks an order requiring the Internal Revenue Service to conduct an admin istrative hearing regarding issues raised by his 1973 federal tax return. This issue has been disposed of in a related appeal. Cupp v. Secretary of the Treasury [75-2 USTC ¶9835], No. 74-1837.

ORDERED and ADJUDGED that the Order of the District Court be, and hereby is, AFFIRMED.

Costs taxed against appellant.

^* Sitting by designation, 28 U. S. C. §291, 292 and 294 (1970).

 

 

[Dec. 33,459] EDWARD A. CUPP, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT

Docket No. 4828-73, 65 TC --, No. 6, 65 TC 68, Filed October 14, 1975

[Appealable, barring stipulation to the contrary, to CA-3.--CCH]

[Code Secs. 61 , 6651 and 6653 ]

[Additions to tax: Returns: Failure to file returns: Negligence: Constitutionality: Representation before the Tax Court: Right to jury trial: Impartial judge.]--Held: 1. A page 1 of a Form 1040, U.S. Individual Income Tax Return, which contained no figures as to income and deductions and had deleted above petitioner's signature the words "under penalties of perjury" did not constitute a Federal income tax return for the year 1969, and similar documents did not constitute Federal income tax returns for the years 1970 and 1971; no reasonable cause for failure to file having been shown, the additions to tax for failure to file returns for each of these years are sustained as are the additions to tax for negligence or intentional disregard of rules and regulations.2. Petitioner failed to show error in the deficiencies by respondent or that the method used by respondent was unreasonable or was in violation of petitioner's rights under the first, fourth, or fifth amendments of the Constitution of the United States.3. The Federal income tax is not unconstitutional because of taxing amounts received by petitioner in forms other than gold or silver coins.4. Petitioner's rights under the sixth amendment of the Constitution of the United States were not violated by refusal of the Court to permit him to be represented in the trial of this case by an individual not admitted to practice before the United States Tax Court or any court.5. Petitioner is not entitled to a jury trial before the United States Tax Court and his rights were not prejudiced when at his request the Judge before whom the trial was held refused to recuse herself.

Edward A. Cupp, P.O. Box 137 , Hopwood , Pennsylvania , pro se. Joseph M. Abele, for the respondent.

SCOTT, Judge:

Respondent determined deficiencies in petitioner's Federal income taxes and additions to taxes for the years and in the amounts as follows:

                                                  DEFICIENCIES

Year           Income tax       Sec. 6651(a)     Sec. 6653(a)   Total

1969 .......   $8,928.10         $2,232.03        $596.41   $11,756.54

1970 .......    14,347.28         3,586.82         717.36    18,651.46

1971 .......    15,474.84         3,868.71         773.74   1 20,117.20

1 Amount shown in notice of deficiency. Correct addition--$20,117.29.

The issues for decision are:

(1) Whether petitioner filed Federal income tax returns for the calendar years 1969, 1970, and 1971 and, if not, whether his failure to file such returns was due to reasonable cause because of his claim of protection against self-incrimination under the fifth amendment of the Constitution of the United States ;

(2) Whether any part of petitioner's underpayment of tax, if any, is due to negligence or intentional disregard of rules and regulations;

(3) Whether respondent's determination of petitioner's taxable income and income tax deficiencies is in violation of petitioner's rights under the first, fourth, or fifth amendments of the Constitution of the United States and, if not, has petitioner shown error in the deficiencies in tax as determined by respondent;

(4) whether the Federal income tax is unconstitutional because of taxing amounts received by a petitioner in forms other than gold and silver coins;

(5) whether petitioner's rights under the sixth amendment of the Constitution of the United States were violated when a person who was not admitted to practice before the United States Tax Court and not an attorney admitted to practice in any State or the District of Columbia was not permitted to represent him in a trial before this Court; and

(6) Whether petitioner was entitled to a jury trial and whether his rights were prejudiced when at his request the Judge before whom the trial was held refused to recuse herself:

FINDINGS OF FACT

Petitioner resided in Hopwood , Pa. , at the time of the filing of his petition in this case. During the calendar years 1969 through 1971 petitioner was a practicing chiropractor with his office located in Friendsville , Md. Petitioner had been practicing as a chiropractor since the year 1965.

For the calendar year 1968 petitioner filed a joint income tax return with Lois J. Cupp on Form 1040, U.S. Individual Income Tax Return, reporting on Schedule C attached thereto gross receipts from his business as a chiropractor in the amount of $31,822.72 and a net profit from this activity of $23,575.48. Petitioner itemized his personal deductions on this income tax return and claimed as exemptions, in addition to himself and his wife, three children. After subtracting from his adjusted gross income the amount of his itemized deductions and $3,000 of exemptions, petitioner showed an amount of $18,986.48 on which he computed his income tax due for the year.

For the calendar year 1969 petitioner filed an application for extension of time for filing his Federal income tax return, which was dated May 14, 1970. Under date of May 17, 1970 , the requested extension was denied on the ground that it had been determined that the extension was not warranted and petitioner was allowed 10 days from the date of the notice disallowing the application for extension within which to file his return. Petitioner submitted page 1 of Form 1040, U.S. Individual Income Tax Return, which he signed under date of May 28, 1970 , and which was stamped "received" by the District Director of Internal Revenue, Pittsburgh, Pa., on June 1, 1970 , which contained no information except his name, address, social security number; that his occupation was a chiropractor; and reference to an attached letter. There was deleted from the line above petitioner's signature the words "under penalties of perjury." The letter attached to this return stated that petitioner was filing his "income tax report in this fashion" because (1) arbitrary interpretation of his tax information by Internal Revenue Service representatives constitutes possible self-incrimination; (2) the tedious work necessary to furnish the information constitutes involuntary servitude; (3) funds raised by income taxes are being used to subsidize Communist revolution and treason throughout the world against his religion; (4) he did not have a minimum of $600 in lawful money backed by silver and gold during the past year and under the Constitution only money backed by silver and gold is legal tender; and (5) the income tax is in violation of the 14th amendment of the Constitution of the United States since the tax is unequal between the wealthy and low and the middle-income recipients.

For the calendar year 1970 petitioner submitted to the Internal Revenue Service a document which consisted of part of page 1 of a Form 1040, U.S. Individual Income Tax Return, which contained his name, address, social security number, and occupation, and recitations of reasons for furnishing no further information, substantially the same in substance as those given in the letter attached to the document he submitted for the year 1969. Attached to this document as "Exhibit A" were copies of the "First Coinage Act of April 7, 17 92," excerpts from the United States Constitution and excerpts from the Constitution of the State of Minnesota, various excerpts from Federal statutes, Supreme Court opinions and legal dissertations, as well as what appears to be an excerpt from a court proceeding of February 11, 1970 , and certain documents prepared by Jerome Daly. Other miscellaneous items included in the attached "Exhibit A" were documents represented to be copies of a communication "On the Constitutionality of the Bank of the United States , 1791--Jefferson to Washington ," and "Veto of the Bank Renewal Bill--Andrew Jackson, 1832," and documents stated to be opinions of a justice of the peace of the State of Minnesota . On page 4 of the document the following appeared:

The money of account of the United States as expressed in Dollars or Units, disnes or tenths, cents or hundreths, and mills or thousandths, as coined by Congress with Congress fixing the Standard of weights and measures thereof for the year in question are as follows:

Gold eagles, units or dollars .................................       No. 0           $ --

Silver dollars ................................................       No. 0           $ --

Silver half dollars ...........................................       No. 10?         $ 5.00?

Silver quarters ...............................................       No. 10?         $ 2.50?

Silver half dimes .............................................       No. 0           $ --

Nickels .......................................................       No. 0           $ --

Pennies or cents ..............................................       No. 0           $ --

Silver dimes ..................................................       No. 0           $ --

Total Income As Expressed In Monies of Account of the 

U.S.

 ....                                       $7.50?

[Reproduced literally.]

On page 10 of the document, without any statement with respect to penalties of prejury or declaration of correctness or completeness, petitioner's signature appeared as did the date April 15, 1971. Beneath petitioner's signature appeared the following:

TO THE DISTRICT DIRECTOR OF INTERNAL REVENUE

Sir:

Please answer the questions raised in the foregoing return fully in writing by return mail. If you or any of your agents have any further questions please write.

Thanking you in advance for your kind cooperation I remain,

Very truly yours,

(S) Edward A. Cupp

Dated, April 15, 1971

The document submitted by petitioner bears the stamp "Received April 16, 1971, MASC" ( Mid-Atlantic Service Center , Internal Revenue Service).

For the year 1971 petitioner submitted to the Internal Revenue Service the first page of a 1971 Form 1040, U.S. Individual Income Tax return, signed under date of April 17, 1972, with the words "under penalties of perjury" scratched out above the signature. This page of the Form 1040 showed petitioner's name, social security number, his occupation as a chiropractor, and stated under "Wages, salaries, tips, etc.," $60, and under "Adjusted gross income," $60. On page 5 of an attachment to page 1 of the Form 1040, the following appeared in explanation of this item:

The money of Account of the United States as expressed in Dollars or Units, dimes or tenths, cents or hundredths, and mills or thousandths, as coined by Act of Congress with the standard of the weights and measures of the precious metals, gold and silver therein fixed by act of Congress received by the undersigned for the year in question are as follows:

Gold eagles, units or dollars .................................       No. --           $ --

Silver dollars ................................................       No. --           $ --

Silver half dollars ...........................................       No. 20          $ 10.00

Silver quarters ...............................................       No. 160         $ 40.00

Silver half dimes .............................................       No. --           $ --

Nickles .......................................................       No. --           $ --

Pennies or cents ..............................................       No. --           $ --

Silver dimes ..................................................       No. 100         $ 10.00

Total Income as Expressed in Monies of Account of the 

U.S.

 ....                                       $60.00

[Reproduced literally.]

Under the words "Wages, salaries, tips, etc." on page 1 of the Form 1040 appeared the following: "(Note) See 11 pages and 'Daly Eagle' of May 1, 1971 attached." Attached to page 1 of the Form 1040 were 71 pages of written material and copies of documents which were substantially the same as the copies of documents submitted with page 1 of the Form 1040 for the year 1970. On page 11 petitioner's signature appeared without any statement with respect to "under penalties of perjury," and below this signature substantially the same statement similarly addressed was made as that addressed to the District Director of Internal Revenue which appeared on the document submitted by petitioner for 1970.

On April 21, 1971, a revenue officer of the Office of the District Director of Internal Revenue, Pittsburgh , Pa. , contacted petitioner by telephone requesting petitioner to file an income tax return, for the calendar year 1969. Thereafter, this revenue officer referred petitioner's case to the Internal Revenue Service Audit Division with the statement that he was unable to get petitioner to file an income tax return for the taxable year 1969. On April 13, 1972, an Internal Revenue Service special agent delivered a letter dated April 12, 1972, from the Acting District Director, Internal Revenue Service, to petitioner. This letter advised petitioner that the documents he had sent the Internal Revenue Service for the taxable years 1969 and 1970 did not constitute income tax returns and, if he had filed a similar document for the taxable year 1971, that also would not constitute an income tax return. Attached to this letter was a Form 1040 with Schedules A, B, C, D, E, and R, along with the instructions for use in preparing a 1971 Federal income tax return. When the special agent delivered the letter from the Acting District Director of Internal Revenue to petitioner he returned to petitioner the documents which petitioner had filed consisting of pages 1 of Form 1040 with the attachments for the years 1969 and 1970. In July 1972 the document which petitioner had filed consisting of page 1 of a Form 1040 for 1971, with attachments, was sent to petitioner by certified mail with a transmittal letter containing similar statements with respect to the document not constituting a return to those contained in the letter of April 12, 1972 , delivered by the special agent to petitioner. Petitioner returned the documents consisting of pages 1 of Form 1040, with attachments, for the years 1969, 1970, and 1971 to the Internal Revenue Service with a transmittal letter dated February 14, 1973, which read as follows:

Dear Sirs:

In reply to your letter of January 22, 1973. Please be advised that the income tax return you claim you are unable to find for 1969 was returned to me at my home by one of your agents, Special Agent Thomas M. Plasko of your Intelligence Division. He also returned my 1970 return at that time. I later received by certified mail (certified #126653) my 1971 return from you as being not to your liking.

I am herein enclosing all three returns to you. I trust this will be satisfactory to you. If it is not, I trust you will follow due process of law to adjudicate this matter.

Sincerely,

(S) Edward A. Cupp

EDWARD A. CUPP

When a special agent of the Internal Revenue Service contracted petitioner on May 12, 1972, with a request to see his books and records petitioner refused to supply any documents, claiming protection under the fifth amendment of the Constitution of the United States . The special agent then contacted various banks and ascertained that petitioner maintained accounts in certain of these banks during the years 1969, 1970, and 1971 and obtained copies of the banks' records with respect to petitioner's accounts. He also obtained records with respect to loans which had been made to petitioner during these years and records of repayments of these loans. This special agent also contacted businesses from which purchases of supplies and equipment were made by petitioner during the years 1969, 1970, and 1971 and obtained copies of their records with respect to petitioner's purchases. During the years 1969, 1970, and 1971 petitioner made payments on loans with small checks of third parties. He made payments for supplies and equipment he purchased with checks and with money orders. During the years 1969, 1970, and 1971 petitioner furnished the total support of three children, two of whom were college students.

Respondent's special agent closed his investigation of petitioner's income taxes for the years 1969, 1970, and 1971 in July 1972. The Intelligence Division of the District Director's office did not recommend that a criminal proceeding be instituted against petitioner with respect to these taxable years. The information obtained by the special agent was turned over to an internal revenue agent at the time the special agent's investigation was closed.

Under date of November 10, 1972, the District Director of Internal Revenue, Pittsburgh , Pa. , sent a "30-day" letter to petitioner stating that there was enclosed a copy of "our examination report" explaining adjustments of petitioner's tax liability. In this letter petitioner was informed that if he did not agree with findings in the report he could request a conference with a member of the conference staff. The letter further petitioner was informed that if he did not reply thereto within 30 days the Internal Revenue Service would proceed to process the case on the basis of the information in the report. The report attached to the 30-day letter set forth a computation of petitioner's income for the years 1969, 1970, and 1971 based on total bank deposits less deposits of loan proceeds, plus estimated cash receipts less computed business expense deductions, to arrive at an amount of adjusted gross income from which was subtracted the standard deduction for a married person filing separately and one personsl exemption.

Petitioner requested and was granted a district conference. This conference was held in February 1973, but petitioner did not make any of his books or records available at this district conference. Under date of April 5, 1973, respondent sent petitioner a setatutory notice of deficiency determining deficiencies and additions to tax as we have set forth heretofore. In the explanation attached to this notice of deficiency respondent shows the computation of petitioner's taxable income for the years 1969, 1970, and 1971 as follows:

                                           1969               1970                1971

Bank deposits:

First National Bank

of Confluence ...............          $35,641.92         $29,853.90           $4,726.54

First National Bank

of 

Oakland
, 
Md.

 .............               13.00                  0                   0

Total deposits ..............           35,654.92          29,853.90            4,726.54

Less: loan proceeds

deposited ...................         (12,200.00)         (2,000.00)                 (0)

Net deposits ................           23,454.92          27,853.90            4,726.54

Cash ........................           13,451.52          16,280.96           48,058.75

Gross receipts ..............           36,906.44          44,134.86           52,785.29

Less: Computed dubiness

deductions ..................          (7,307.48)         (8,738.70)         (10,451.49)

Net profit and adjusted

gross income ................           29,598.96          35,396.16           42,333.80

 

The cash included in this computation for 1969 and 1970 was based on the annual living costs of a four-person family in the Pittsburgh area for the years 1969 and 1970, respectively, as set forth in statistics published by the Bureau of Labor Statistics of the Department of Labor. For 1971 the cash figure was based on a computed increase in gross receipts in 1971 over 1970 comparable to the computed increase of 1970 over 1969. Petitioner's business expenses were computed for each of the years 1969, 1970, and 1971 as the same percentage of gross receipts for the year as petitioner's 1968 business expenses, as reported adjusted for nonrecurring items, were to reported 1968 gross receipts.

Respondent in his notice of deficiency explained his adjustments as being his determination of petitioner's income under section 61(a) , I.R.C. 1954, ¹ with allowance of business expense deductions, a standard deduction, and one personal exemption, and explained the additions to tax as being made under section 6651(a) for failure to file timely returns or to show reasonable cause for such failure and as being made under section 6653(a) because of the determination that part of the underpayment for each of the taxable years 1969, 1970, and 1971 was due to negligence or intentional disregard of rules and regulations.

OPINION

Petitioner takes the position that the documents he filed containing the first page of a Form 1040 constitute proper returns for each of the calendar years 1969, 1970, and 1971. While petitioner's position is not completely clear, apparently he is contending (1) that these documents are proper returns since they constitute his petition for redress of grievances in accordance with the rights guaranteed to him under the first amendment of the Constitution of the United States and that not to accept these documents as returns is in violation of his rights under that amendment to the Constitution, and (2) that to require him "to place monetary figures on Federal returns" violates his rights against self-incrimination under the fifth amendment of the Constitution of the United States. Although in his brief petitioner does not stress the point, he is apparently still contending as he did at the trial that the only legal tender under the United States Constitution is gold and silver coins and therefore, the documents he filed for the years 1969, 1970, and 1971 were adequate returns since he reported thereon the amounts he received in silver coins and the fact that he received no gold coins. Petitioner in support of this contention is apparently relying on the provisions of article I, section 10, of the United States Constitution which provides that "No State shall * * * make any Thing but gold and silver Coin a Tender in Payment of Debts."

Petitioner also argues (1) that his rights under the fourth amendment were violated by respondent's investigation of his tax liability for the years 1969, 1970, and 1971; (2) that his rights under the fifth amendment were also violated by this investigation in that the investigation did not comply with "due process of law"; (3) that his rights under the sixth amendment were violated in that he was denied counsel of his choosing either before the Internal Revenue Service conferee or before this Court; and (4) that respondent's determination is invalid because of the failure of respondent's representatives to answer his claim for redress of grievances. However, we view petitioner's contentions in these respects to go to his claim of invalidity of respondent's determination and not to his contention that his returns are valid.

Petitioner in his brief does not separately discuss the validity of respondent's determination of additions to tax under section 6651(a) for failure to timely file his returns and section 6653(a) for negligence and disregard of rules and regulations. We gather that petitioner contests these additions to tax only if we sustain his contention that he has in fact filed adequate Federal income tax returns for the years 1969, 1970, and 1971. The record is clear that, unless the documents he filed for 1969, 1970, and 1971 which we have described in our findings of fact are considered to be income tax returns for those years, he has filed no returns for those years as required by statute. It is equally clear from the facts in this record that, if petitioner is required to file income tax returns in substantial compliance with respondent's regulations, he has willfully refused to do so.

In our view petitioner has filed no income tax returns for the calendar years 1969, 1970, and 1971. In the first place the documents which petitioner filed were not signed under penalties of perjury and, as we pointed out in Peter Vaira [Dec. 29,750 ], 52 T.C. 986, 1005 (1969), revd. on other grounds [71-1 USTC ¶9495 ] 444 F. 2d 770 (3d Cir. 1971), in order for a Form 1040 to constitute a valid income tax return it must be signed by the taxpayer under penalties of perjury. In the Vaira case we called attention to the fact that the Supreme Court in Lucas v. Pilliod Lumber Co. [2 USTC ¶521 ], 281 U.S. 245 (1930), and this Court in Theodore R. Plunkett [Dec. 11, 045], 41 B.T.A. 700, 710-711 (1940), affd. [41-1 USTC ¶9373 ] 118 F. 2d 644 (1st Cir. 1941), had held that a return form unsupported by oath could not constitute a valid return. We then concluded that the change in the law removing the oath requirement and substituting instead a verification subject to penalties of perjury was merely a change to avoid inconvenience to taxpayers and did not intend to change the result reached by the Supreme Court in Lucas v. Pilliod Lumber Co., supra. We therefore conclude that since petitioner did not sign the documents which he claims to be returns for the years 1969, 1970, and 1971 under penalties of perjury they do not constitute valid returns.

However, it is equally clear that in order for a document to constitute a tax return of a taxpayer, it must contain sufficient data from which respondent can compute and assess his liability with respect to a particular tax. Commissioner v. Lane-Wells Co. [44-1 USTC ¶9195 ], 321 U.S. 219 (1944); Marko Durovic [Dec. 30,204 ], 54 T.C. 1364, 1387-1388 (1970), affd. on this issue and revd. and remanded in part on other issues [73-2 USTC ¶9728 ] 487 F. 2d 36 (7th Cir. 1973). Petitioner in this case disclosed no data on the documents he filed from which respondent could compute and assess his liability with respect to his income taxes for the calendar years 1969, 1970, and 1971. As we pointed out in John H. Houston [Dec. 25,571 ], 38 T.C. 486, 491-492 (1962), showing only a name, address, social security number, and date on a document falls for short of the information necessary to be shown on a return to enable respondent to compute and assess a tax. See also Louis Richard Hosking [Dec. 32,728 ], 62 T.C. 635, 639 (1974), citing the cases above discussed.

In Louis Richard Hosking, supra at 639, we stated that the law is well settled that the requirement that taxpayers file tax returns in accordance with the provisions of the Internal Revenue Code and respondent's regulations does not violate a taxpayer's privilege against self-incrimination under the fifth amendment. United States v. Sullivan [1 USTC ¶236 ], 274 U.S. 259 (1927). A similar conclusion has been reached in cases involving criminal prosecution of taxpayers for willful failure to file Federal income tax returns. In United States v. Daly [73-2 USTC ¶9574 ], 481 F. 2d 28 (8th Cir. 1973), the court upheld the defendant's conviction under section 7203 for willful failure to file Federal income tax returns. In that case the documents which had been submitted by the defendant to the Internal Revenue Service for the years for which he was convicted of a willful failure to file returns were substantially the same as the documents petitioner in the instant case submitted for the years 1969, 1970, and 1971. In the Daly case, supra, the court concluded that the documents filed by the defendant were not income tax returns and relying on statements in United States v. Porth [70-1 USTC ¶9329 ], 426 F. 2d 519 (10th Cir. 1970), held defendant's contention that the requirement that he put figures on his tax return violated his rights under the fifth amendment without merit. The court pointed out that defendant's position of blanket refusal to answer any questions on the return relating to his income or expenses was unjustified even if a particular question might be incriminating. The court quoted from United States v. Sullivan, supra, to the effect that if the return called for answers that the defendant was privileged from making he might raise an objection in the return to giving those answers but could not on that account in effect refuse to make any return at all. The Court also quoted a statement from the decision in Heligman v. United States [69-1 USTC ¶9258 ], 407 F. 2d 448, 450, 452 (8th Cir. 1969), cert. denied 395 U.S. 977 (1969), to the effect that a taxpayer is not the final arbiter of the fifth amendment privilege but that such privilege could be asserted only with respect to a particular question and that it is up to the court then to determine whether the privilege is applicable, and--

The public need for requiring voluntary disclosures of income transcends any personal right to thwart national objectives by allowing an undisclosed self-determination of possible incrimination, thus excusing compliance with the income tax laws. We, therefore, hold that the Fifth Amendment privilege against incrimination does not extend to defendant's failure to file * * *

See also Kasey v. United States [72-1 USTC ¶9307 ], 457 F. 2d 369, 370 (9th Cir. 1972), affg. [Dec. 30,297 ] 54 T.C. 1642 (1970); E. Jan Rob erts [Dec. 32,789 ], 62 T.C. 834, 838 (1974). ²

Also in United States v. Daly, supra, the court disposed of a contention similar to that made by petitioner in this case that the only "Legal Tender Dollars" are those made of gold and silver, with the statement that "This contention is clearly frivolous." See also Koll v. Wayzata State Bank, 397 F. 2d 124 (8th Cir. 1968). We likewise consider this contention frivolous. As respondent points out in his brief, the provision of article I, section 10, of the United States Constitution does not relate to the Federal Government but merely provides that "No State shall * * * make any Thing but gold and silver Coin a Tender in Payment of Debts." The fact that the provision of the Constitution which petitioner quotes applies only to States and not to the Federal Government is in itself sufficient to dispose of petitioner's "Legal Tender Dollars" contention. In Cupp v. The Secretary of Treasury, et al., ³ an unreported case (W.D.Pa. 1973, 34 AFTR 2d 74-5302, 74-2 USTC par. 9610), the court dismissed the plaintiff's action which attempted to establish the unconstitutionality of the graduated income tax and that he received no dollar income because the dollars he received were not gold or silver and this decision was affirmed by the Court of Appeals for the Third Circuit, 493 F. 2d 1400 (1974). See also Hartman v. Switzer [74-1 USTC ¶9478 ], 376 F. Supp. 486, 490 (W.D.Pa. 1974), and cases there cited for the proposition that "The claim that legal tender is only gold and silver and the money system of the United States is unconstitutional is clearly spurious." We therefore conclude that petitioner filed no returns for the calendar years 1969, 1970, and 1971 and has shown no reasonable cause for failure to file. The record clearly shows willfulness by petitioner in refusing to comply with rules and regulations in filing proper returns. We sustain the additions to tax determined by respondent under sections 6651(a) and 6653(a). Martin A. Glowinski [Dec. 21,551 ], 25 T.C. 934 (1956), affd. per curiam [57-1 USTC ¶9469 ] 243 F. 2d 635 (D.C. Cir. 1957); Parker v. Commissioner [66-2 USTC ¶9647 ], 365 F. 2d 792 (8th Cir. 1966), affg. in part, revg. in part, and remanding a Memorandum Opinion of this Court [Dec. 27,315(M) ]; George I. Fullerton [Dec. 20,350 ], 22 T.C. 372, 379-380 (1954).

Petitioner also contends that respondent's determination of tax is invalid because in obtaining petitioner's bank statements and other information with respect to his financial situation from third parties respondent violated the provisions of the fourth amendment of the Constitution against illegal searches and seizures and the provisions of the fifth amendment in that petitioner was not afforded due process in being present when respondent made the investigation and in being granted a judicial hearing before respondent made his determination. Petitioner apparently also contends in this respect that his rights under the first amendment were violated in that his returns were not treated by respondent as petitions for redress of grievances.

We find no merit to any of these contentions of petitioner. The record clearly shows that respondent obtained the information from various banks and other sources as to petitioner's receipts and expenditures after petitioner refused to furnish respondent with his books and records or any information with respect to his income and expenses. Respondent made no search or seizure of petitioner's records or of the records of the banks in which petitioner maintained accounts or persons from whom he made purchases. The record shows that the banks and other persons from whom respondent obtained information voluntarily complied with respondent's request for information which was contained in their records of transactions with petitioner, not petitioner's records in their possession. Since respondent made no search or seizure of petitioner's records, no rights of petitioner under the fourth amendment have been violated. See Donaldson v. United States [71-1 USTC ¶9173 ], 400 U.S. 517, 522 (1971), and cases there cited; United States v. Continental Bank & Trust Co. [74-2 USTC ¶9686 ], 503 F. 2d 45 (10th Cir. 1974). The law is well settled that respondent is entitled to use other reasonable methods of determining a taxpayer's income where the taxpayer either has inadequate records or does not make his books and records available for audit. Holland v. United States [54-2 USTC ¶9714 ], 348 U.S. 121 (1954); Joseph F. Guddio [Dec. 30,254 ], 54 T.C. 1530 (1970); Harry Gordon [Dec. 33,025 ], 63 T.C. 51, 78 (1974). At the trial of this case petitioner was informed by the Court that, if he produced no evidence to show error in respondent's determination, the tax as set forth in the notice of deficiency would be approved unless, as he contended, the deficiency notice was held invalid or respondent's method of computation shown to be arbitrary. Petitioner produced no evidence and in fact refused to answer questions when the Court attempted to solicit information from him respecting his income and expenses. Where a taxpayer refuses to produce "evidence solely within his possession which, if true, would be favorable to him" the presumption arises that "if produced it would be unfavorable." W. A. Shaw [Dec. 22,078 ], 27 T.C. 561, 573 (1956), affd. [58-1 USTC ¶9322 ] 252 F. 2d 681 (6th Cir. 1958). Petitioner was afforded every opportunity both in the investigation and in a district conference to show a proper computation of his taxable income or any error in respondent's proposed computation. Petitioner refused to make any such showing. Clearly there was no violation of the "due process" clause of the fifth amendment by respondent. The providing of a conference before the Appellate Division of the Internal Revenue Service is not essential to the validity of a notice of deficiency. Anthony B. Cataldo [Dec. 32,032 ], 60 T.C. 522 (1973), affd. per curiam [74-2 USTC ¶9533 ] 499 F. 2d 550 (2d Cir. 1974). Petitioner also contends that his returns were intended as petitions seeking redress of grievances and that he was entitled to have respondent's computation of his tax liability rejected because he has received no reply to his petition for redress of grievances. In Abraham J. Muste [Dec. 24,708 ], 35 T.C. 913 (1961), we rejected a contention of a taxpayer that he was entitled to have respondent's computation rejected because he in good faith, based on religious beliefs, did not agree with it, pointing out that requiring the taxpayer to be subjected to the taxing statute was not a restriction on his free exercise of religion in violation of the first amendment. In United States v. Malinowski [73-1 USTC ¶9199 ], 472 F. 2d 850, 857 (3d Cir. 1973), the court stated with respect to a claim by a taxpayer that a Form W-4 filed by him claiming 13 dependency exemptions when he knew that he was legally entitled to only 2 such exemptions was a petition for redress of grievances under the first amendment of the Constitution as follows:

Moreover, we are not at all certain that appellant's argument here is more than a restatement in constitutional terms of his previously asserted "good faith" defense, which we have rejected. If accepted here, there would be no bounds to the operation of this defense. To urge that violating a federal law which has a direct or indirect bearing on the object of the protest is conduct protected by the First Amendment is to endorse a concept having no precedent in any form of organized society where standards of societal conduct are promulgated by some authority.

Presciending from issues replete with emotional overtones, such as the Vietnam War, could appellant seriously assert a First Amendment defense to a prosecution under similar circumstances if the object of his protest centered on the use of limousines by Cabinet officers, or a grant of federal funds to inner-city schools? Could appellant utilize this technique if he were protesting the use of federal funds to support cancer research on the St. Joseph 's College campus?

Thus posited, appellant's First Amendment argument is but a suggestion that a member of society can be absolved of the responsibility for obeying a given law of the community, state, or nation if he can prove a sincere, abiding, and good faith objection to the direct or indirect object of that law. Such a position represents a feeble effort to emasculate basic principles of civil disobedience, and, simply stated, is invalid. Here, the actor wants the best of both worlds; to disobey, yet to be absolved of punishment for disobedience. A similar contention was rejected in Moylan, * * * [United States v. Moylan, 417 F.2d 1002 (4th Cir. 1969)].

We consider petitioner's first amendment argument here to be likewise invalid. To accept petitioner's argument here would result in any person who wished to use part of an income tax form to file a document stating he was seeking redress from grievances avoiding payment of taxes on his income. The cases cited by petitioner dealing with such rights as printing of documents by a newspaper and labor unions or other organizations furnishing information as to certain rights to members are clearly distinguishable on their facts from the instant case.

The determination of petitioner's income tax liability for 1969, 1970, and 1971 is reasonable under the circumstances of this case. See Arthur Figueiredo [Dec. 30,240 ], 54 T.C. 1508 (1970), affd. [73-2 USTC ¶9713 ] in an unpublished order (9th Cir. 1973). We therefore sustain this determination except that petitioner is entitled to three dependency exemptions for his three children in each year, as respondent concedes in his brief. Petitioner has totally failed to prove that respondent otherwise erred in his determination of the deficiencies in tax and additions to tax as set forth in the notice of deficiency.

Even though petitioner makes a separate argument that the Federal income tax is unconstitutional because of taxing amounts received by petitioner in forms other than gold and silver coins we have, in concluding that petitioner was not justified in refusing to report other than gold and silver coins on an income tax form, in effect disposed of this argument. The constitutionality of the income tax was early upheld by the Supreme Court; Brushaber v. Union Pacific R.R. Co. [1 USTC ¶4 ], 240 U.S. 1 (1916). An argument similar to petitioner's in this case was disposed of in United States v. Porth, supra (426 F. 2d at 523.). The court in that case pointed out that while the defense of unconstitutionality of the income tax grows out of the defendant's longtime dislike for the tax and money system of the United States, the claim was insubstantial and without merit. The court quoted language from Porth v. Brodrick [54-2 USTC ¶9552 ], 214 F. 2d 925, 926 (10th Cir. 1954), referring to such allegation as "farfetched and frivolous." This same description is appropriate as to petitioner's argument that the United States Tax Court cannot pass on the constitutionality of a statute imposing an income tax. See David B. Barr [Dec. 29,438 ], 51 T.C. 693 (1969).

Petitioner's final arguments deal with his dislike of the Court's refusing to allow a person not admitted to practice before this Court and not an attorney admitted to practice before any court, State or Federal, to represent him as counsel; the fact that he was not granted a jury trial; and the denial of his request that the Judge before whom the trial was scheduled recuse herself since he had recently filed a suit naming her, together with all of the Judges of the United States Tax Court and their spouses, substantially all of the United States District Court Judges, and substantially all of the Judges of the United States Circuit Courts of Appeals, as well as numerous other persons, as defendants.

Rule 24 of the Rules of Practice and Procedure of this Court provides that counsel may enter an appearance either by subscribing to the petition or other initial pleading or by filing a separate entry of appearance. Subparagraph (4) of paragraph (a) provides as follows:

(4) Counsel Not Admitted to Practice: No entry of appearance by counsel not admitted to practice before this Court will be effective until he shall have been admitted, but he may be recognized as counsel in a pending case to the extent permitted by the Court and then only where it appears that he can and will be promptly admitted. For the procedure for admission to practice before the Court, see Rule 200.

Paragraph (b) of Rule 24 provides for personal representation without counsel. Petitioner in a document entitled "Notice Under Rule 91" specifically stated that "counsel of his choosing" was "a person not licensed by any Court." So that the record would be clear the Court specifically asked whether the person petitioner referred to as "counsel of his choosing" was admitted to practice before the United States Tax Court and the reply was that he was not.

The requirement that only qualified persons are permitted to represent litigants before this Court is for the protection of litigants by insuring that only persons able to properly represent a party appear for him. Petitioner in this case was afforded full opportunity to be heard and to represent himself at the trial. ⁴ Petitioner's reliance on the sixth amendment of the Constitution of the United States is totally misplaced. The sixth amendment of the United States Constitution deals with criminal prosecution and is not applicable to a civil proceeding. Petitioner here was afforded full opportunity to be heard and therefore we conclude that no rights of his were violated at the trial because a person not properly qualified to represent him before this Court was not permitted to act as his attorney during the trial.

Petitioner's contention that he is entitled to a jury trial before the United States Tax Court is likewise without merit. In Olshausen v. Commissioner [60-2 USTC ¶9142], 273 F. 2d 23, 27 (9th Cir. 1959), the court pointed out that where a taxpayer takes advantage of the procedure of filing a petition in the Tax Court without payment of the tax, any deprivation of a jury trial is due to his own act. If a taxpayer desires a jury trial, he must pay the tax and sue for refund thereof. It is well settled that in a suit concerning Federal tax liability, no right to a jury trial exists under the seventh amendment to the Constitution guaranteeing a jury trial in common law actions. See also Hartman v. Switzer [74-1 USTC ¶9478 ], 376 F. Supp. 486, 489-490 (W.D.Pa. 1974), and cases there cited.

In reply to petitioner's contention that the trial Judge erred in not recusing herself, the statement made by Judge Willson in Cupp v. Levi, et al., -- F. Supp. -- (W.D.Pa. 1975, 36 AFTR 2d 75-5690, 75-2 USTC par. 9670), is equally applicable here. ⁵ In that case Judge Wilson, in explaining his denial of the plaintiff's motion that he recuse himself, stated:

Plaintiff asserts that because I am a defendant in Adams , et al. v. Burger, et al., Civil Action No. 75-56, and Brobeck, et al. v. Levi, et al., Civil Action No. 75-589, actions filed in this district in which plaintiff here is a co-plaintiff, my impartiality is subject to question. The motion is frivolous since every federal judge in this District, and virtually all federal judges throughout the United States have been named as defendants in those actions. Plaintiff continually harps upon the alleged denial to him of a forum in which he can petition for a redress of his grievances, yet by the device of naming almost the entire federal judiciary as defendants in other actions, he would deprive himself of a forum by his own theory that this automatically disqualifies any judge so named as a defendant. Furthermore, this court has no interest in the pending action and will view it with the impartiality given to any other action.

All Judges of the United States Tax Court have been named as defendants in actions brought by petitioner in various courts making general allegations of purported violations of his constitutional rights. Were the Judge before whom petitioner's case came up for trial to recuse herself because of the pendency of these actions, there would be no Judge of the Tax Court who could hear petitioner's case. By statute, except where the tax is in jeopardy, respondent is prohibited from collecting any deficiency he has determined against a taxpayer during the pendency of a case in this Court. If petitioner's position in this case with respect to the necessity for a Judge to recuse himself were to be sustained, he could effectively postpone indefinitely the collection from him of any Federal income tax by refusing to voluntarily pay any tax, bringing respondent's determination of deficiency before this Court and shortly before his case was set for trial filing a suit, no matter how frivolous the allegations contained in the complaint, naming all the Judges of the Tax Court as defendants. The statute permitting a taxpayer to contest the validity of a proposed deficiency before the Tax Court without being required to make payment thereof was not intended to provide a device for a taxpayer to indefinitely postpone the collection by the Government of the amount of the deficiency rightfully owed.

Except that petitioner in computing his income tax for each year here in issue is entitled to four exemptions (one for himself and three for his dependent children), we sustain respondent's determination with respect to deficiencies in petitioner's income tax and additions to tax for the years 1969, 1970, and 1971.

Decision will be entered under Rule 155.

¹ All references are to the Internal Revenue Code of 1954, unless otherwise noted.

² The cases of Grosso v. United States [68-1 USTC ¶15,801 ], 390 U.S. 62 (1968), and Marchetti v. United States [68-1 USTC ¶15,800 ], 390 U.S. 39 (1968), relied on by petitioner, involving wagering taxes are distinguishable from the instant case. As the Court there pointed out, the hazards of self-incrimination were "real and appreciable" since "unlike the income tax return in question in United States v. Sullivan [1 USTC ¶236 ], 274 U.S. 259" every portion of the requirements had the direct "consequence of incriminating petitioner."

³ The full name of the plaintiff in this case is "Dr. Edward A. Cupp" making it obvious that the petitioner in this case is the same person as the plaintiff in that case.

⁴ The facts in this case bear no resemblance to those in such cases as Johnson v. Avery, 393 U.S. 483 (1969), and United States v. Tarlowski [69-2 USTC ¶9554 ], 305 F. Supp. 112 (E.D.N.Y. 1969), relied on by petitioner.

⁵ The plaintiff is Edward A. Cupp, obviously the same person as the petitioner in this case.

 

 

[74-2 USTC ¶9490] United States of America , Plaintiff-Appellee v. Jimmy Ray Smith, Defendant-Appellant

(CA-5), U. S. Court of Appeals, 5th Circuit, No. 73-2851, Summary Calendar, ^*, 493 F2d 906, 5/9/74 , Aff's unreported District Court decision

[Code Sec. 7302]

Criminal penalties: Failure to file: Self-incrimination.--Taxpayer's conviction for failure to file a tax return was affirmed. Taxpayer could have raised a claim that the requirement of filing a return violated his rights on the return. However, he could not refuse to make any return at all on that account. Taxpayer's stipulation was sufficient evidence of his willfulness and the lower court was not empowered to modify it under the rule pertaining to correction or modification of the record.

Scott P. Crampton, Assistant Attorney General, Department of Justice, Washington, D. C. 20530, W. E. Smith, Assistant United States Attorney, Ft. Worth, Tex., for plaintiff-appellee. William O. Callaway, Jr., 919 Ft. Worth Nat'l Bank Bldg., Ft. Worth , Tex. , for defendant-appellant.

Before WISDOM, GOLDBERG and GEE, Circuit Judges.

PER CURIAM:

Smith appeals from a conviction for failure to file an income tax return for 1971 in violation of Section 7203 of the Internal Revenue Code. He also appeals from the district court's denial of his motion under Rule 10(e), Fed. R. App. P., to modify the stipulation in the record in which he stated that he willfully and knowingly failed to make the required income tax return. On the merits Smith insists that the requirement of filing a tax return violated his right against self-incrimination, and that the evidence was insufficient to sustain a conviction. We affirm.

Smith was indicted for tax evasion while a state indictment for selling heroin and cocaine was also pending against him. At trial, he stipulated that he had received income, that he was required by law to file an income tax return, and that knowing this, he willfully and knowingly failed to make such a return. Having thus evacuated his statutory defenses, he fell back on the Fifth Amendment: because he would have had to report that his income came from selling heroin and cocaine, the requirement of filing a return violated his Fifth Amendment privilege. The district court convicted him and sentenced him to six months' imprisonment.

Seeking to avoid the effect of his stipulation, Smith subsequently requested, under Fed. R. App. P. 10(e), the district court ". . . to correct, modify, and supplement the record so as to reflect that the meaning of 'willful' as used in [the] stipulations . . . means an act done 'purposefully with an awareness of the action and not just negligently or inadvertently.'" Additionally, Smith requested that court to make findings that ". . . the evidentiary test of willfulness used by the court was the test pronounced in United States v. Douglass [73-1 USTC ¶9334], 476 F. 2d 260, 263 (5th Cir. 1973), defining a willful act as one 'purposefully done with an awareness of the action and not just negligently or inadvertently,' [and not] the test of willfulness pronounced by United States v. Bishop [73-1 USTC ¶9459] 412 U. S. 346, 93 S. Ct. 2008, 36 L. Ed. 2d 941 (1973), the most recent Supreme Court decision on the issue.

That court denied the motions on the basis that Rule 10(e) ¹ does not empower a district court to modify parties' stipulations or make new findings of fact after docketing of the appeal in the court of appeals. We agree. Rule 10(e) exists to allow the district court to conform the record to what happened, not to what did not. ²

As to Smith's claim of Fifth Amendment privilege, nothing has changed since United States v. Sullivan [1 USTC ¶236], 274 U. S. 259, 47 S. Ct. 607, 71 L. Ed. 1037 (1927), where the Supreme Court said:

If the form of return provided called for answers that the defendant was privileged from making he could have raised the objection in the return, but could not on that account refuse to make any return at all.

Cf. California v. Byers, 402 U. S. 424, 91 S. Ct. 1535, 29 L. Ed. 2d 9 (1971).

Finally, we conclude that Smith's own stipulation that he knowingly and willfully failed to make an income tax return was sufficient evidence of his state of mind to support his conviction for willful failure to file an income tax return.

Affirmed.

^* Rule 18, 5th Cir., Isbell Enterprises, Inc. v. Citizens Casualty Company of New York et al., 5th Cir., 1970, 431 F. 2d 409, Part I.

¹ Fed. R. App. P. 10(e):

"Correction or Modification of the Record. If any difference arises as to whether the record truly discloses what occurred in the district court, the difference shall be submitted to and settled by that court and the record made to conform to the truth. If anything material to either party is omitted from the record by error or accident or is misstated therein, the parties by stipulation, or the district court, either before or after the record is transmitted to the court of appeals, or the court of appeals, on proper suggestion or of its own initiative, may direct that the omission or misstatement be corrected, and if necessary that a supplemental record the certified and transmitted. All other questions as to the form and content of the record shall be presented to the court of appeals."

² Although it is unnecessary to our decision, we note that we are not persuaded by Smith's contention that Bishop established a new definition of willfulness--a standard to which Smith claims he did not stipulate. Not only was Bishop decided a month before Smith's stipulation, but the Bishop court cited this Court's decision of the issue, Haner v. United States [63-1 USTC ¶9390], 315 F. 2d 792 (5th Cir. 1963), with favor. 412 U. S. at 348, 93 S. Ct. at 2011, 36 L. Ed. 2d at 944, n. 2. Additionally, we see no meaningful distinction between the Bishop standard and our decision in United States v. Douglass [63-1 USTC ¶9390], 476 F. 2d 260 (5th Cir. 1973).

 

 

[72-1 USTC ¶9443] United States of America , Plaintiff-Appellee v. Lawrence R. Johnson, Defendant-Appellant

(CA-9), U. S. Court of Appeals, 9th Circuit, No. 71-2540, 460 F2d 20, 5/16/72 , Affirming unreported District Court decision

[Code Sec. 7203]

Failure to file return: Evidence admitted in District Court: Privilege against self-incrimination: Insanity instruction: Net worth statement: Voluntary disclosure.--The District Court did not err: (1) In denying the taxpayer's motion to dismiss information on the ground that the requirement to file income tax returns for 1963 through 1966 violated his privilege against self-incrimination; (2) in failing to instruct the jury that evidence concerning the circumstances in which he found himself during the period of alleged criminal conduct was to be determined in considering the issue of insanity; (3) in admitting into evidence a statement showing the taxpayer's net worth; and (4) in not admitting all evidence offered by the taxpayer in respect to the voluntary disclosure made by him to the IRS.

Sidney I. Lezak, United States Attorney, Norman Sepenuk, Assistant United States Attorney, Portland, Ore., for plaintiff-appellee. Stephen B. Hill, Gregory W. Byrne, Souther, Spaulding, Kinsey, Williamson & Schwabe, Twelfth Fl., Standard Plaza, 1100 S. W. Sixth Ave., Portland, Ore., for defendant-appellant.

Before JERTBERG, ELY and HUFSTEDLER, Circuit Judges.

PER CURIAM:

In each count of a four count information, appellant was charged with a misdemeanor crime of wilfully failing to file his United States income tax returns for the four years 1963-1966, in violation of Sec. 7203 of the Internal Revenue Code of 1954. (26 U. S. C. §7203.) ¹

[Facts]

Following a jury trial, appellant was found guilty on all counts. He was sentenced to the custody of the Attorney General for imprisonment for a period of six months and fined the sum of $10,000 on Count One. On each of the remaining counts he was committed to the Attorney General for imprisonment for a period of six months, such sentences to run concurrently with each other and Count One.

The record discloses that during the prosecution period appellant and one Laurence Arnett were equal partners in the partnership of Allied Artists of America, a talent agency located in Portland , Oregon . The principal source of the partnership income was from agent's commissions which were paid to the partnership by various entertainers. The appellant earned, as his one-half share of the partnership gross income, the following amounts: $19,517.31 in 1963, $25,819.27 in 1964, $24,495.89 in 1965, and $26,250.78 in 1966. He failed to file United States income tax returns for each of these years. ²

At trial his defense for failure to file such returns was that such failure was not willful and that he was insane within the rationale of rulings of this circuit on the subject of criminal insanity. ³

Appellant's defense, in substance, was that he was dependent emotionally and psychologically upon his partner, upon whom he relied to do the bookkeeping, and who, during the years in question, suffered from periods of disassociation from reality which incapacitated him, and affected appellant's ability to file returns. Psychiatric testimony was offered in support of his defense. The Government offered psychiatric testimony to show that appellant had no mental disease or defect and he was able to conform his conduct to the requirements of law. The testimony of several lay witnesses was offered by the Government as to appellant's business acumen and his competent, rational behavior during the years in question.

[Alleged District Court Errors]

On this appeal appellant contends that the district court erred:

1. In denying his motion to dismiss the information on the ground that the requirement to file income tax returns for the years 1963 through 1966 violated his Fifth Amendment privilege against self-incrimination;

2. In failing to instruct the jury that evidence concerning the circumstances in which he found himself during the period of the alleged criminal conduct was to be determined in considering the issue of insanity;

3. In admitting into evidence Government Exhibit 79, which purported to show his "net worth" on December 31, 19 66; and

4. In not admitting all evidence offered by appellant in respect to the voluntary disclosure made by him to the Internal Revenue Service.

[Self-Incrimination]

The Federal income tax return for each of the years 1963 through 1966 specifically asked whether the taxpayer had filed a tax return in the preceding year. Appellant claims that a truthful "No" answer to the question would have violated his Fifth Amendment privilege against self-incrimination by furnishing a link in the chain of evidence needed to prosecute him for the crime. The claim is without merit. See United States v. Sullivan [1 USTC ¶236], 274 U. S. 259 (1927); California v. Byers, 402 U. S. 424 (1971); Heligman v. United States [69-1 USTC ¶9258], 407 F. 2d 448 (CA-8, 1969). Appellant's reliance on Grosso v. United States [68-1 USTC ¶15,801], 390 U. S. 62 (1968) and Marchetti v. United States [68-1 USTC ¶15,800], 390 U. S. 39 (1968), and like cases is misplaced.

[Insanity Instruction]

We find no error on the part of the district judge in refusing to give the following instruction offered by the appellant:

"The question of sanity or insanity of Mr. Johnson cannot be determined in a vacuum. Evidence introduced in this case has included facts about the circumstances in which Mr. Johnson was living and working during the years involved, including the illness of Mr. Arnett. You are instructed that this evidence should be considered by you in determining whether Mr. Johnson as a result of mental disease or defect was able to conform his conduct to the requirements of the law."

We have carefully examined all of the instructions given to the jury in this case, and find that the jury was carefully and properly instructed on all issues of law involved, and the duties and responsibility of the jury. None was objected to by appellant.

The court instructed the jury that its verdict was to be based upon all of the evidence which had been admitted. In refusing the proffered instruction, the court simply refused to single out for emphasis a portion, only, of the evidence on a given subject. In doing so he acted well within his discretion.

[Net Worth Statement]

The court properly admitted into evidence the "net worth statement" (Exhibit 79). This exhibit simply summarized a series of exhibits which had been previously introduced into evidence without objection. Its admission was not prejudicial.

[Voluntary Disclosure]

Appellant testified that he made a voluntary disclosure, in the fall of 1967, to the Internal Revenue Service of his failure to file income tax returns for prior years. The court rejected the letter dated December 20, 19 67, written by appellant's attorney to the Internal Revenue Service on the same subject, and rejected similar testimony offered by appellant's accountant.

While we are of the view that all such testimony was irrelevant to the issue of appellant's willfulness in failing to file tax returns for 1966 and prior years, we are satisfied, under the record in this case, appellant suffered no prejudice by the rulings of which he complains.

The judgment appealed from is affirmed.

¹ "§7203. Willful failure to file return, supply information, or pay tax

"Any person required under this title to pay any estimated tax or tax, or required by this title or by regulations made under authority thereof to make a return (other than a return required under authority of section 6015 or section 6016), keep any records, or supply any information, who willfully fails to pay such estimated tax or tax, make such return, keep such records, or supply such information, at the time or times required by law or regulations, shall, in addition to other penalties provided by law, be guilty of a misdemeanor and, upon conviction thereof, shall be fined not more than $10,000, or imprisoned not more than 1 year, or both, together with the costs of prosecution."

² He failed to file returns for the preceding years 1958-1962, although he earned substantially in excess of $600.00 a year during each of such years.

³ For instance, Wade v. United States , 426 F. 2d 64 (CA-9, 1970).

 

 

[72-1 USTC ¶9407] United States of America , Appellee v. Edward E. Milder, Appellant

(CA-8), U. S. Court of Appeals, 8th Circuit, No. 71-1443, 459 F2d 801, 5/9/72 , Aff'g a District Court decision, 71-2 USTC ¶9707

[Code Sec. 7201]

Crimes: Tax evasion: Jury trial: Miscellaneous assignments of error.--Taxpayer's conviction by a jury of having attempted to evade payment of federal income taxes by filing false returns was affirmed. Miscellaneous assignments of error were found to be without merit.

Rob ert J. Becker, Assistant United States Attorney, Omaha , Neb. , for appellee. Martin A. Cannon, 318 S. 19 St., Omaha , Neb. , for appellant.

Before MATTHES, Chief Judge, BREITENSTEIN, ^* Senior Circuit Judge, and Ross, Circuit Judge.

MATTHES, Chief Judge:

A jury found appellant guilty, under a three-count indictment, of having attempted to evade payment of federal income taxes by filing false returns for the years 1963, 1964, and 1965, ¹ in violation of the Internal Revenue Code of 1954, 26 U. S. C. §7201. ² Judgment was entered upon the verdict and this appeal has resulted. Because appellant does not question the sufficiency of the evidence to sustain a guilty verdict, our resume of the pertinent facts will be brief.

Milder is an accountant and one of his clients, during the years of his tax offenses, was the Milder Oil Company, which was operated by his uncle and cousins. Appellant's relationship with the company was such that he had authority to and did cause checks to be drawn upon company accounts and signed by authorized officers for amounts determined by appellant to be due various persons and entities. Appellant devised a scheme of overstating the amounts which the oil company was required to pay for excise taxes, causing company checks to be drawn for these inflated amounts, and then applying the excess funds to the tax obligations of appellant's other clients. When the clients subsequently provided appellant with checks to pay their taxes, these checks were cashed and the proceeds placed in a box in appellant's office. The oil company eventually became suspicious, discovered the embezzlement, and demanded and received restitution.

Appellant apparently had kept the funds intact throughout the period during which he possessed them. He testified that the money had not been taken for personal use, but rather because of a hatred for his more prosperous cousins, and thus that he did not consider the embezzled sum to be personal income for purposes of taxation. Appellant testified further that he was aware of various Supreme Court decisions which had ruled embezzlement income non-taxable, but that he was unaware of the Court's most recent decision on the subject, James v. United States [61-1 USTC ¶9449], 366 U. S. 213 (1960), in which the Court ruled that funds derived by embezzlement constituted taxable income. Milder never reported his ill-gotten gains as income, nor did he deduct the repayment as an expense.

Milder raises several contentions on appeal: (1) the charge of failure to report embezzlement receipts for income tax purposes violates a Fifth Amendment guarantee by imposing criminal liability upon an individual for failing to perform an act which would have been self-incriminatory; (2) the statute is vague and thus unconstitutional; (3) failure to report income is not a crime if the income is surrendered, because no fraud upon the government results; (4) the district court erred in refusing to give requested jury instructions which would have explained the effect of appellant's purported lack of familiarity with the James decision upon the question of his criminal intent; and (5) certain evidence offered by the government should not have been admitted by the district court.

The government opposes each of appellant's contentions and urges, additionally, that the Fifth Amendment claim be disposed of on the basis of appellant's alleged failure to assert this defense in a timely manner, as required by Rule 12, F. R. Cr. P., 18 U. S. C. The Fifth Amendment defense here was not asserted until after the jury had rendered its guilty verdict.

We consider first appellant's claims based upon the Fifth Amendment guarantee of freedom from compulsory self-incrimination. The government correctly observes that defenses based upon this guarantee should be raised prior to, or at least during, trial. Rule 12(b), F. R. Cr. P., supra; Grogan v. United States , 394 F. 2d 287 (5th Cir. 1967); United States v. Reeves, 293 F. Supp. 213 (D. D. C. 1968); 1 Wright, Federal Practice and Procedure §193 p. 410. We nonetheless consider the Fifth Amendment Defense on its merits.

We reject appellant's argument that the constitutional guarantee of immunity from compulsory self-incrimination bars prosecutions such as the present one. The Fifth Amendment does not release the recipient of illegal income from his duty to file a federal income tax return, United States v. Sullivan [1 USTC ¶236], 274 U. S. 259 (1927), and it does not authorize him to falsify answers on a return submitted. United States v. Knox, 396 U. S. 77 (1969).

The taxpayer in Sullivan had derived income through illegal trafficking in liquor, and sought to justify his failure to file a tax return by invoking the self-incrimination clause of the Fifth Amendment. This contention was rejected by Justice Holmes in the following passage:

If the form of return provided called for answers that the defendnt was privileged from making, he could have raised the objection in the return, but could not on that account refuse to make any return at all . . . It would be an extreme if not an extravagant application of the Fifth Amendment to say that it authorized a man to refuse to state the amount of his income because it had been made in crime. But if the defendant desired to test that or any other point he should have tested it in the return so that it could be passed upon.

274 U. S. at 263-264.

The taxpayer in Knox did file a return, but falsified statements therein to avoid self-incrimination. The court ruled as follows:

. . . [O]ne who furnishes false information to the government in feigned compliance with a statutory requirement cannot defend against prosecution for his fraud by challenging the validity of the requirement itself.

396 U. S. at 79. See also, Bryson v. United States, 396 U. S. 64, 72 (1969); Mackey v. United States [71-1 USTC ¶9305], 401 U. S. 667, 705 (1971) (concurring opinion).

The inescapable conclusion to be drawn from these cases is that the Fifth Amendment cannot serve as a bar to the prosecution here on review. Our opinion in Heligman v. United States [69-1 USTC ¶9258], 407 F. 2d 448 (8th Cir. 1969), cert. denied, 395 U. S. 977 (1969), supports this conclusion, although Heligman and the present case may be distinguishable on their facts.

The opinion of this court in Nordstrom v. United States [66-1 USTC ¶9437], 360 F. 2d 734 (8th Cir. 1966), cert. denied, 385 U. S. 826 (1966), answers appellant's next claim that the statute under which he was convicted is unconstitutionally vague in its application to the taxability of embezzlement income. After discussing the decision of the Supreme Court in James v. United States [61-1 USTC ¶9449], 366 U. S. 213 (1960), Judge Gibson, speaking for the court, wrote the following:

The opinion of the court in James clearly held that embezzlement money was taxable in the year of the embezzlement. . . . By its action here and the accompanying language the court gave notice to all that any future failures to report embezzled funds . . . would subject the embezzler to criminal liability under the federal tax laws.

360 F. 2d at 736-737.

We reiterate the quoted passage and reject appellant's argument that the statute here involved is too vague to support criminal prosecution.

Appellant next urges that his conviction must be reversed either because restitution of the stolen funds has obviated any income he might have had from the embezzlement, and thus precluded the perpetration of any tax fraud upon the government, or because the embezzled funds were not used by appellant and thus never were taxable as his income. Neither of these claims withstands analysis. Regarding the effect of restitution, it should be sufficient to cite the Supreme Court ruling, in Sansone v. United States [65-1 USTC ¶9307], 380 U. S. 343, 354, (1965), that the crime defined by 26 U. S. C. §7201 "was complete as soon as the false and fraudulent understatement of taxes . . . was filed." Appellant's contention that the embezzled money was not income may be disposed of by reference to the following language from the James opinion:

When a taxpayer acquires earnings, lawfully or unlawfully, without the consensual recognition, express or implied, of an obligation to repay and without restriction as to their disposition, "he has received income which he is required to return even though it may still be claimed that he is not entitled to retain the money and even though he may still be adjudged liable to restore its equivalent."

366 U. S. at 219. ³

We turn next to the claim that the jury should have been instructed with regard to appellant's alleged lack of familiarity with the James decision and the effect of this ignorance upon the element of criminal intent. It has been held that willfulness is a state of mind in which the taxpayer is fully aware of the tax obligation which he seeks to conceal; that willfulness requires an intentional rather than an inadvertent act or omission. See United States v. Peterson [64-2 USTC ¶9801], 338 F. 2d 595, 598 (7th Cir. 1964), cert. denied, 380 U. S. 911 (1965). Here, the element of willfulness was controverted, and thus it was for the jury to resolve under appropriate instructions whether appellant acted willfully in failing to report the embezzled funds. It is clear that Judge Rob inson took pains to instruct the jury on this point. Further, appellant had been permitted to testify in some detail regarding his claimed belief that the money in question was not taxable and the alleged basis for this belief.

Appellant's final allegation of error concerns admission by the district court of various items of evidence. We discern no error in these admissions, and find, further, no prejudicial effect which might warrant reversal even if error had been committed.

The judgment of conviction is affirmed.

^* Senior Circuit Judge, Tenth Judicial Circuit, sitting by special designation.

¹ The first count of the indictment charged that Milder reported his taxable income for 1963 as having been $19,188.10, whereas his actual taxable income was $68,274.79; the second count charged false reporting of a $34,626.10 taxable income for 1964, the true figure having been $61,923.94; the third court charged Milder with having reported a taxable income for 1965 of $38,203.34, the proper figure having been $60,885.63.

² 26 U. S. C. §7201.

Any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall . . . be guilty of a felony and, upon conviction thereof, shall be fined not more than $10,000, or imprisoned not more than 5 years, or both, together with the costs of prosecution.

³ Appellant recognizes that James is devastating to his position, and suggests that the decision should be overruled. This course of action obviously would not be open to us even if we desired to pursue it, and the argument properly should be made to the Supreme Court.

 

 

 

[1 USTC ¶236]The United States of America , Petitioner, v. Manley S. Sullivan

Supreme Court of the United States , No. 851. October Term, 1926, 274 US 259, 47 SCt 607, Decided May 16, 19 27

On writ of certiorari to the United States Circuit Court of Appeals for the Fourth Circuit.Gains from illicit traffic in liquor were taxable under the 1921 Act. Privilege against incrimination in Fifth Amendment is not a defense to an indictment charging failure to file return, and does not authorize a refusal to state the amount of income, though the taxpayer's income was made in crime. Reversing Circuit Court of Appeals decision, 15 F. (2d) 809, which reversed District Court.

MR. JUSTICE HOLMES delivered the opinion of the Court.

The defendant in error was convicted of wilfully refusing to make a return of his net income as required by the Revenue Act of 1921; November 23, 19 21, c. 1921, c. 136, Secs. 223(a), 253; 42 Stat. 227, 250, 268. The judgment was reversed by the Circuit Court of Appeals. 15 F. (2d) 809. A writ of certiorari was granted by this Court.

We may take it that the defendant had sufficient gross income to require a return under the statute unless he was exonerated by the fact that the whole or a large part of it was derived from business in violation of the National Prohibition Act. The Circuit Court of Appeals held that gains from illicit traffic in liquor were subject to the income tax, but that the Fifth Amendment to the Constitution protected the defendant from the requirement of a return.

The Court below was right in holding that the defendant's gains were subject to the tax. By Sec. 213(a) gross income includes "gains, profits, and income derived from * * * the transaction of any business carried on for gain or profit, or gains or profits and income derived from any source whatever." These words are also those of the earlier Act of October 2, 19 13, c. 16, Sec. II, B; 38 Stat. 114, 167, except that the word 'lawful' is omitted before 'business' in the passage just quoted. By Sec. 600; 42 Stat. 285, and by another Act approved on the same day Congress applied other tax laws to this forbidden traffic. Act of November 23, 19 21, c. 134, Sec. 5; 42 Stat. 222, 223. United States v. One Ford Coupe, 272 U. S. 321, 327. United States v. Staffof, 260 U. S. 447, 480. We see no reason to doubt the interpretation of the Act, or any reason why the fact that a business is unlawful should exempt it from paying the taxes that if lawful it would have to pay.

As the defendant's income was taxed, the statute of course required a return. See United States v. Sischo, 262 U. S. 165. In the decision that this was contrary to the Constitution we are of opinion that the protection of the Fifth Amendment was pressed too far. If the form of return provided called for answers that the defendant was privileged from making he could have raised the objection in the return, but could not on that account refuse to make any return at all. We are not called on to decide what, if anything, he might have withheld. Most of the items warranted no complaint. It would be an extreme if not an extravagant application of the Fifth Amendment to say that it authorized a man to refuse to state the amount of his income because it had been made in crime. But if the defendant desired to test that or any other point he should have tested it in the return so that it could be passed upon. He could not draw a conjurer's circle around the whole matter by his own declaration that to write any word upon the government blank would bring him into danger of the law. Mason v. United States , 244 U. S. 362. United States ex rel. Vajtauer v. Commissioner of Immigration, January 3, 19 27. In this case the defendant did not even make a declaration, he simply abstained from making a return. See further the decision of the Privy Council Minister of Finance v. Smith, [1927] A. C. 193.

It is urged that if a return were made the defendant would be entitled to deduct illegal expenses such as bribery. This by no means follows but it will be time enough to consider the question when a taxpayer has the temerity to raise it.

Judgment reversed.