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The Government also presented evidence that while Herzog was employed by Aire-Therm Systems, Inc., as a pipefitter-welder foreman, two co-workers, members of his crew, also filed W-4 forms claiming 99 allowances. One of the co-workers testified that Herzog had said that he was angry because the IRS had disallowed a moving expense and that "he said he wouldn't pay taxes or he wasn't going to." Id. vol. 4, at 174.

Herzog took the stand in his own defense and testified that following the audit of his 1973 tax return, he had begun an extensive study of federal income tax law and constitutional law, spending most of his free time doing legal research. He explained that his research led him to believe that the sixteenth amendment authorized the taxation of income only, that "income" has been limited by case law to include only "profits and gains", and that his wages were not profits or gains. Id. , vol. 5, at 131-136. He related the latter proposition of his theory as follows:

. . . I cannot believe when I put eight hours of work in and I give that to that employer, he is using my work and my labor and my toil and my skills and my trade and he is--he is employing me and then, he is marking up my labor and selling it at a profit. He is the one making the profit; not me.

Id. at 135-36. With prompting from his lawyer, he referred to his theory as the "equal exchange theory." Id. at 136. He also testified that he found the Internal Revenue Code "contradictory" and confusing. Id. at 131.

He had filed the W-4(e) forms claiming a total exemption, Herzog asserted, because his studies had resulted in his believing that his wages were not taxable. He testified that he had claimed 99 allowances on the W-4 forms only because W-4(e) forms were not available, and he wanted to insure that nothing would be withheld from his wages.

On cross-examination, the Government elicited from Herzog a statement that he had believed his wages not to be taxable even before he filed his return for the 1975 tax year in February, 1976, but that he had paid taxes anyway because he "didn't have the nerve" not to. Id. at 174. When he was asked about several of the cases on which he claimed to have based his theory, he could remember neither their facts nor their holdings. Id. at 164-65. The Government also questioned him about his 1976 income tax return, which the Government had introduced into evidence. The tax return consisted of a duplicate of the official 1040 form attached to a booklet of protest material attacking the tax laws as invalid for various reasons, including the improper use of tax money to fund abortions, the Treasury's use of federal reserve notes rather than "lawful" money redeemable in gold, the unconstitutionality of the sixteenth amendment, and the conviction of a W. Vaughn Ellsworth for the "filing of a false return" for 1968. Government's Exhibit No. 13. Herzog admitted that he had endorsed the contents of the protest booklet, but said that he did not actually believe all of the arguments in the material to be valid. Id. at 197-181.

The defense called only one witness other than Herzog--Dr. David Goshien, a professor of tax law at Cleveland State University , who had also worked as a consultant to the IRS. The court found Goshien qualified as an expert in the area of tax law, but sustained relevancy objections to each of the defense attorney's questions to Goshien.

II. We first consider Herzog's claim that the trial court did not properly instruct the jury concerning the essential elements of the offense of supplying false and fraudulent tax withholding information. In charging the jury on the nature of the offense, the court said:

Title 26, United States Code, Section 7205, the law cited in the respective counts of the information, provides in pertinent part as follows:

Any individual required to supply information to his employer under Section 3402 who willfully supplies false or fraudulent information [shall be guilty of an offense against the United States .]

In order to establish the respective offenses charged, the government must prove as to each count the following essential elements beyond a reasonable doubt:

First: That the defendant furnished his employer with a signed withholding allowance certificate or exemption certificate, as charged in the information;

Second: That the defendant supplied false or fraudulent information to his employer in such certificate; and

Third: That the defendant supplied such false or fraudulent information knowingly and willfully.

Record, vol. 1, no. 28 at 6. Although Herzog did not object to this jury instruction in the district court, he now urges that the instruction was fundamentally erroneous since it took from the jury the issue whether he was an "individual required to supply information to his employer under section 3402." See note 1 supra. Accordingly, he asks us to reverse his conviction under the "plain error" rule. Fed. R. Crim. P. 52(b).

The section 3402 obligation to file a withholding certificate applies to any "employee." I. R. C. §3402(f)(2)(A). Since the section 3402 obligation is a prerequisite to liability under section 7205, Herzog could not be guilty of the offense charged, unless he was an "employee" at the times he submitted the withholding forms that are the subject of the indictment. Thus, Herzog's employee status was an "essential element" of the offense. See United States v. Johnson, 576 F. 2d 1331, 1332 (8th Cir. 1978) (per curiam); United States v. Pryor [78-1 USTC ¶9391], 574 F. 2d 440, 443 (8th Cir. 1978) (per curiam); United States v. Smith [74-1 USTC ¶9120], 487 F. 2d 329, 330 (9th Cir. 1973) (per curiam), cert. denied, 416 U. S. 989, 94 S. Ct. 2396, 40 L. Ed. 2d 767 (1974). A trial court has the obligation to instruct the jury on all the essential elements of the crime charged, even though the defendant fails to request such an instruction. United States v. Musgrave, 444 F. 2d 755, 764 (5th Cir. 1971), cert. denied, 414 U. S. 1023, 94 S. Ct. 447, 38 L. Ed. 2d 315 (1973). The jury instructions in the present case were erroneous, since they did not identify employee status as an "essential element" of a section 7205 offense, and since they appear to assume that Herzog was an employee.

The failure to instruct the jury on an essential element of the offense charged does not always amount to reversible "plain error", however. As this court said in United States v. Bosch, 505 F. 2d 78, 82-83 (5th Cir. 1974), "When an after-the-fact review of the entire transcript discloses that . . . no prejudice to the defendant's rights could have resulted from narrowing the jury's ambit . . ., a plain error reversal of [the trial court's omission of an essential element of the offense from the jury charge] is not required." The Bosch holding accommodates the requirement of Fed. R. Crim. P. 30 that a party raise any objection to "any portion of the charge or omission therefrom . . . before the jury retires to consider its verdict," and the provision of Fed. R. Crim. P. 52(a)'s that "[a]ny error, defect, irregularity or variance which does not affect substantial rights shall be disregarded." (Emphasis added.) See Olar v. United States , 391 F. 2d 773 (9th Cir. 1968).

It is clear from the transcript that Herzog's status as an employee was "not only undisputed, but indisputable." Id. at 775. Herzog admitted numerous times in the course of testifying that he had been an employee during the relevant time periods. See, e.g., Record, vol. 5 at 115, 116, 128, 131, 136, 153-154, 196-197. Almost all of the prosecution witnesses also indicated that Herzog had been employed and that he had given the tax withholding forms to his employers. See, e.g., Id. , vol. 4 at 61, 66, 70, 85. There is not a smidgeon of evidence suggesting that Herzog was not an employee at the relevant times. As in the Olar case, it was so clear that the Government had met its burden of proof on the essential element that was omitted from the jury charge that "[d]efense counsel evidently either overlooked the omission or regarded it as of no moment . . .." 391 F. 2d at 775.

We have no doubt that the trial court's failure to submit to the jury this undisputed issue, which Herzog himself had plainly conceded, could not possibly have resulted in prejudice to any of Herzog's rights. Therefore, we must conclude that the jury instructions were not infected with the "plain error" that would require reversal of the conviction.

III. We now consider Herzog's contention that the trial court erred in excluding the testimony of Herzog's expert witness. Besides admitting that he was "an individual required to supply information to his employer under section 3402," Herzog also failed to contest the prosecution's evidence that he had submitted the W-4 and W-4(e) forms described in the indictment and that the forms contained false information. He based his defense entirely on the issue of intent, arguing that he had not acted with the willfulness that is an essential element of the crime. Brief for Martin Herzog at 17; Record, vol. 5, at 140-50. The critical issue in the case was thus a factual one for the jury: whether it was true that Herzog had filed the improper forms under an honest, although undoubtedly erroneous, belief that his wages were exempt from taxation.

The defense asserts in its brief that its sole purpose in calling Dr. David Goshien, a law professor, as a witness was to buttress Herzog's contention that he had not acted "willfully" when he filed the improper withholding forms. Brief for Martin Herzog at 17. Defense counsel asked Goshien whether he had an opinion about the complexity of the income tax laws in the United States , whether his students found the tax law complex, and whether there existed any literature concerning the complexity of tax law. The Government objected to each of these questions on relevancy grounds, and the court sustained the objections. Record, vol. 5, at 211-218. The defense then made a proffer of Goshien's testimony in the absence of the jury. Goshien stated his opinion that the tax laws are complex and that even law students, law professors, and attorneys find the subject very difficult. Id. at 221. The court rejected this proffer. After the jury had returned, the defense continued the direct examination, asking Goshien to explain the equal exchange theory, to give his opinion about Herzog's conception of the theory, and to state his interpretation of the sixteenth amendment. The court sustained relevancy objections to each of these questions. Id. at 222-227.

None of the questions concerning Goshien's view of the tax laws could be relevant to the willfulness issue, the court reasoned, since Goshien's opinion that the laws are complex could not shed any light on whether Herzog had been confused by any such complexity at the time he submitted the withholding forms. And since Herzog was not an attorney, a law professor, or one of Goshien's students, those persons' comprehension of the tax laws could not have any bearing on Herzog's intent. Not even Goshien's impression of Herzog's understanding of the tax laws that Goshien had derived from conversations with Herzog could be relevant, the court ruled, because the conversations had taken place not during the time period when Herzog had submitted the withholding forms, but long afterward, in preparation for trial.

The exclusion of the proffered testimony of the expert, Goshien, was eminently correct. The basis of the charge against the appellant was that he falsified the number of exemptions that he had and that he stated that he was exempt from taxes.

This court en banc, in United States v. Garber, 607 F. 2d 92 (5th Cir. 1979), reversed a conviction because an expert was not allowed to testify. The defense in that case argued that the testimony of the expert was "to show that doubt existed as to whether a tax was due because it was incapable of being computed, and to demonstrate the vagueness of the law, which would preclude a willful intent to violate it." The appellant in this case is not being accused of failing to report something that he received as income; he is charged with filing false exemption forms, and no amount of expert testimony could help him in this regard. He was allowed by the court below to give his reasons why he did what he did, which amply presented his defense before the jury that tried him. The rationale of Garber is of no help to the appellant.

IV. We have examined the other contentions of error of the appellant and find them all to be without merit. The conviction below must, therefore, be

AFFIRMED.

¹ I. R. C. §7205 provides:

Any individual required to supply information to his employer under section 3402 who willfully supplies false or fraudulent information, or who willfully fails to supply information thereunder which would require an increase in the tax to be withheld under section 3402, shall, in lieu of any other penalty provided by law (except the penalty provided by section 6682), upon conviction thereof, be fined not more than $500, or imprisoned not more than 1 year, or both.

Concurring and Dissenting Opinion

TJOFLAT, Circuit Judge, concurring in part and dissenting in part:

Martin Herzog was convicted on four counts of supplying false or fraudulent information on income tax withholding exemption certificates in violation of Internal Revenue Code section 7205. In pertinent part, section 7205 provides a penalty for "[a]ny individual required to supply information to his employer under section 3402 who willfully supplies false or fraudulent information . . .." I. R. C. §7205. Two counts of Herzog's indictment concern the willfully fraudulent preparation and submission of W-4 forms to Herzog's employer; Herzog had claimed ninety-nine exemptions on those forms. Record, vol. 1 at 1. These acts allegedly violated Internal Revenue Code section 3402(f)(2)(A), which provides:

On or before the date of the commencement of employment with an employer, the employee shall furnish the employer with a signed withholding exemption certificate relating to the number of withholding exemptions which he claims, which shall in no event exceed the number to which he is entitled.

The other two counts of Herzog's indictment allege a willfully fraudulent preparation of W-4E forms, also submitted to Herzog's employer. Record, vol. 1 at 1. These forms provide for total exemption from withholding of federal income tax upon an employee's declaration that he neither incurred tax liability in the preceeding year nor anticipates incurring tax liability for the current year:

Notwithstanding any other provision of this section, an employer shall not be required to deduct and withhold any tax under this chapter upon a payment of wages to an employee if there is in effect with respect to such payment a withholding exemption certificate . . . furnished to the employer by the employee certifying that the employee--

(1) incurred no liability for income tax imposed under subtitle A for his preceding taxable year, and

(2) anticipates that he will incur no liability for income tax imposed under subtitle A for his current taxable year.

I. R. C. §3402(n).

I fully concur in the majority's reasoning concerning Herzog's conviction for willfully fraudulent preparation of W-4 forms, but I am forced reluctantly to dissent to upholding Herzog's conviction for fraudulent preparation of W-4E forms.

This appeal concerns the admissibility of certain testimony allegedly relevant to the issue of intent. Herzog has maintained that he did not willfully violate the provisions of section 3402 because he honestly believed that his wages did not constitute income for tax purposes, and thus were not subject to federal taxation. Herzog purportedly reached this conclusion through extensive study of the law of federal income taxation, which led him to embrace the "equal exchange theory" of income. This theory, he asserts, precludes the taxation of wages.

Herzog contends that the trial court erred in excluding the testimony of his expert witness. Herzog offered the testimony of Dr. David Goshien, a professor of tax law, to bolster his claim that he lacked willfulness. Herzog wished to question Dr. Goshien about the equal exchange theory and the complexity of the tax laws; through this testimony, he hoped to substantiate the reasonableness of his conclusions about the "equal exchange theory." The trial court sustained relevancy objections to the presentation of this testimony.

United States v. Garber, 607 F. 2d 92 (5th Cir. 1979), (en banc), presented an appeal closely akin to Herzog's. In Garber, a taxpayer appealed from a conviction for willfully evading federal tax liability. The taxpayer, Dorothy Garber, had failed to report income she received from selling her blood plasma. Her defense to the charge was that she had not willfully misstated her income; any misstatement was due solely to a bona fide belief that "because she was selling a part of her body the money received was not taxable." Id. at 96 n.3. To support her claim that she lacked the requisite intent, Garber proffered the expert testimony of a tax accountant who also believed that the sales were not taxable. Although Garber had not consulted this expert in relation to preparing her tax forms, the defense nevertheless argued that this testimony should be presented to the jury because it revealed sufficient doubt concerning the taxability of Garber's receipts to preclude a finding of willful intent. The trial court excluded the testimony, but this circuit reversed, concluding:

In a case such as this where the element of willfulness is critical to the defense, the defendant is entitled to wide latitude in the introduction of evidence tending to show lack of intent. . . . The defendant testified that she subjectively thought that proceeds from the sale of part of her body were not taxable. By disallowing [expert] testimony that a recognized theory of tax law supports Garber's feelings, the court deprived the defendant of evidence showing her state of mind to be reasonable.

Id. at 99 (emphasis added). See also id. at 97.

The testimony of Herzog's expert was surely irrelevant to the charge that he intended to prepare his W-4 forms fraudulently. Dr. Goshien was not going to testify that it was reasonable for Herzog to believe himself entitled to ninety-nine exemptions, or that it was reasonable for Herzog to believe that he legitimately could avoid taxation by falsely declaring tax exemptions. The two counts involving W-4 forms simply charged that Herzog willfully declared an entitlement to ninety-nine exemptions when he knew that he was not so entitled. Nothing the defense offered about Dr. Goshien's testimony could have been construed as relevant to Herzog's willfulness on this question, and thus the majority rightfully holds that Garber is inapplicable.

The expert testimony, however, was, under Garber, quite relevant to the reasonableness of Herzog's W-4E declarations that he was exempt from tax. Thus Garber requires that it be admitted as probative of Herzog's requisite intent under section 7205. At trial, Herzog testified that before February of 1976 he believed his wages were not taxable under the Internal Revenue Code. Record, vol. V at 174. This indicates that Herzog may have concluded that he had not, under subtitle A of the Code, incurred tax liability on his wages in the preceding tax year and that he also would not incur tax liability in his then current tax year. Arguably, it was these beliefs that Herzog declared on his W-4E forms. Under Garber, Dr. Goshien's testimony concerning the theory supposedly underlying Herzog's declarations was relevant to the reasonableness of Herzog's beliefs and, thus, probative of his lack of intent. Moreover, under Garber it is irrelevant that Herzog had never consulted Dr. Goshien, or even discussed his theories of tax law with him prior to this action. Garber, 607 F. 2d at 96, 98-99. The expert testimony is still relevant because it is supposedly probative of the reasonableness of Herzog's beliefs. Id. at 99. Consequently, I would remand this case for retrial at Herzog's conviction for fraudulently preparing W-4E forms.

I must emphasize that I reach the result of this dissent quite reluctantly, especially in light of Mr. Herzog's apparent guilt. The reasoning of Garber, in my view, is sophistic, see United States v. Garber, 607 F. 2d 92 at 109-116 (5th Cir. 1979) (en banc) (Tjoflat, J., dissenting); I urge following it here simply because I believe the weight of precedent too compelling to disregard.

 

 

[82-1 USTC ¶9312] United States of America , Plaintiff-Appellee v. Donald Clifton Reed, Defendant-Appellant

(CA-5), U. S. Court of Appeals, 5th Circuit, No. 81-1399, 670 F2d 622, 3/19/82 , Affirming an unreported decision of the District Court

[Code Sec. 7203 and 7205]

Crimes: Failure to file returns: Fraudulent W-4: Evidence: Jury instructions.--The taxpayer's conviction for filing false W-4 forms and failing to file tax returns was affirmed. No error was committed by allowing the admission into evidence of a copy of a civil suit filed by the taxpayer and others against the IRS, in which the constitutionality of the income tax laws was challenged. Evidence of a person's philosophy, motivation and activities as a tax protestor is relevant and material to the issue of intent. Furthermore, the trial court did not err in insructing the jury that the Fifth Amendment does not give a person the right to withhold non-incriminating information on a tax return and that the revelation of income from legitimate activities does not amount to self-incrimination. Finally, since there was ample evidence to support the jury's guilty verdicts, the trial court's denial of the taxpayer's motion for judgment n. o. v. was proper.

James Rolfe, United States Attorney, Lubbock, Texas 79401, Clinton E. Averitte, Assistant Attorney General, Dallas, Texas, for plaintiff-appellee. Ben Blank, 2711 Paramount , Amarillo , Texas 79109 , for defendant-appellant.

Before BROWN, POLITZ and WILLIAMS, Circuit Judges.

POLITZ, Circuit Judges:

Donald C. Reed was indicted on two misdemeanor counts of failing to file an individual income tax return for the years 1977 and 1978, in violation of 26 U. S. C. §7203, and on one count of filing a false and fraudulent Employee's Withholding Allowance Certificate, Form W-4, in violation of 26 U. S. C. §7205. Evidence adduced at trial reflected that Reed's income, adjusted to his community interest, was $13,882 in 1977, and $15,368 in 1978, resulting in income tax liabilities of $2,307 and $2,966, respectively, in those two years. The jury returned a verdict of guilty on all three counts. Reed appeals, contending that prejudicial evidence was admitted, the jury was erroneously charged as to his fifth amendment rights, and the trial judge erred in denying his motion for judgment of acquittal non obstante verdicto. We find no error and affirm.

Reed made tax return filings on which he purposely and intentionally failed to disclose financial information and other pertinent data necessary for the computation of his tax liability. Reed maintains that because of a pending criminal investigation by the Internal Revenue Service, the fifth amendment entitled him to withhold this information. Reed also filed a W-4 form certifying he had incurred no tax liability in 1977 and expected none in 1978, therefore no deductions were to be made from his earnings.

1. Inadmissible evidence. The government offered into evidence a copy of a civil suit filed by Reed and others against the IRS, in which they challenge the constitutionality of the income tax laws. No objection was made at time of trial. On appeal Reed contends that this evidence should have been excluded under Fed. R. Evid. 403 because its probative value was outweighed by its prejudicial effect. To prevail in this argument, under these circumstances, Reed must show that the trial judge committed plain error. Fed. R. Crim. P. 52(b); United States v. Pool, 660 F. 2d 547 (5th Cir. 1981).

We recently considered and rejected the essence of this contention in United States v. Tibbetts [81-1 USTC ¶9475], 646 F. 2d 193 (5th Cir. 1981). Evidence of a person's philosophy, motivation and activities as a tax protestor is relevant and material to the issue of intent. See also United States v. Brown [79-1 USTC ¶9285], 591 F. 2d 307 (5th Cir.), cert. denied, 442 U. S. 913, 99 S. Ct. 2831, 61 L. Ed. 2d 280 (1979); United States v. Stephen [78-1 USTC ¶9362], 569 F. 2d 860 (5th Cir. 1978). No error was committed by allowing the filing of the civil tax pleadings. Such evidence relates directly to the issue of intent.

2. Fifth amendment charge. Reed insists that the fifth amendment protects his refusal to file a tax return containing sufficient information upon which a proper computation of his tax liability could be made. "It is well-settled in this circuit that [a] protest return does not even amount to a 'return' as defined in §7203, United States v. Smith [80-2 USTC ¶9476], 618 F. 2d 280, 281 (5th Cir. 1980), and that the protest return cannot be protected under the Fifth Amendment." United States v. Booher [81-1 USTC ¶9304], 641 F. 2d 218, 219 (5th Cir. 1981) (citing United States v. Brown [79-1 USTC ¶9285], 591 F. 2d 307 (5th Cir.), cert. denied, 442 U. S. 913, 99 S. Ct. 2831, 61 L. Ed. 2d 280 (1979); United States v. Johnson [78-2 USTC ¶9642], 577 F. 2d 1304 (5th Cir. 1978).

Reed's 1977 return can be characterized as a protest return; he filed a Form 1040 reflecting only the amount withheld from his earnings. Reed claimed a refund for this amount. No other dollar figure appeared on the return. No proper filing was made in 1977. His 1978 return was likewise void of meaningful data. Reed defends his failure to file on the grounds that he was the subject of an IRS criminal investigation, the scope of which was not certain and to provide the information required on the tax return would incriminate him. Reed maintains he was entitled to invoke the protections of the fifth amendment and that the trial court erroneously charged the jury when it stated:

Now, if the Defendant had a good faith belief in his right to assert his privilege not to incriminate himself, then the Defendant would be not guilty of the crime charged; however, a taxpayer may not avoid filing a required income tax return by claiming his privilege against self-incrimination unless the taxpayer in good faith believes that if he furnished the required information on a tax return, that the relation of such information would subject him to incrimination and possible prosecution for violation of criminal law.

The Fifth Amendment privilege does not give a person the right to withhold the required information on the return concerning items the disclosure of which would not incriminate him. Revelation of income from legitimate activities in which no criminal activity was involved would not constitute self-incrimination.

We approved this instruction in United States v. Tibbetts, 646 F. 2d at 195 (5th Cir. 1981) (citing United States v. Johnson [78-2 USTC ¶9642], 577 F. 2d 1304 (5th Cir. 1978)). See also United States v. Booher [81-1 USTC ¶9304], 641 F. 2d 218 (5th Cir. 1981). As we explicated in Johnson:

The Fifth Amendment privilege protects the erroneous taxpayer by providing a defense to the prosecution if the jury finds that the claim, though erroneous, was made in good faith. This assumes that a good faith claim of the privilege is not made at one's peril and that erroneous taxpayers will be afforded the opportunity to reconsider their responses, after proper explanation of the limits of the privilege. Three principles may be distilled from the authorities: (1) the privilege must be claimed specifically in response to particular questions, not merely in a blanket refusal to furnish any information; (2) the claim is to be reviewed by a judicial officer who determines whether the information sought would tend to incriminate; (3) the witness or defendant himself is not the final arbiter of whether or not the information sought would tend to incriminate.

577 F. 2d at 1311.

Reed's defense that he acted in good faith fails to pass muster. He intentionally refused to file financial information which, according to the evidence, was derived from legitimate sources. To have truthfully disclosed this information might have civilly exposed Reed, but the criminal exposure envisioned by the fifth amendment would not have been implicated.

3. Denial of judgment n. o. v. In reviewing the trial court's denial of defendant's motion for judgment n. o. v., the test we apply is whether the jury might reasonably conclude that the evidence, viewed in a light most favorable to the government, is inconsistent with every reasonable hypothesis of the defendant's innocence or, stated differently, whether a reasonably minded jury must necessarily entertain a reasonable doubt of the accused's guilt. United States v. Diaz, 655 F. 2d 580, 583-84 (5th Cir. 1981).

Ample evidence supports the jury's verdicts. Reed and his wife, together, had income in excess of $27,700 in 1977 and $30,700 in 1978. Reed's community interest required the filing of tax returns in those two years. Reed refused to provide the financial data needed to compute his tax liability. Evidence presented described Reed's expressed moral and religious convictions against the payment of income taxes. The jury was entitled to reasonably conclude that Reed had not acted in good faith when he willfully failed to file proper tax returns and when he executed the false W-4 form.

The judgment of the district court is, in all respects, AFFIRMED.

 

[81-1 USTC ¶9405] United States of America , Plaintiff-Appellee v. Philip Annunziato, Defendant-Appellant United States of America , Plaintiff-Appellee v. Richard Kreling, Defendant-Appellant

(CA-9), U. S. Court of Appeals, 9th Circuit, Nos. 80-1442, 80-1443, 643 F2d 676, 4/27/81 , Affirming an unreported District Court decision

[Code Sec. 7205]

Fraudulent withholding exemption certificate: Filing of: Conviction.--The taxpayers' convictions for filing fraudulent withholding certificates (W-4's) were upheld. Code Sec. 7205 is not unconstitutionally vague. The common meanings of the words "liability" in the W-4 instructions and "employee" in Code Sec. 3402 are not so ambiguous that a person of ordinary intelligence would not be put on at least inquiry notice as to whether Code Sec. 7205 applied. Furthermore, the disclosure contained in the W-4 instructions did not violate the Privacy Act in that nothing in the Privacy Act requires a notice of the specific criminal penalty which might be imposed.

Robert S. Linnell, Assistant United States Attorney, Yakima Washington , for plaintiff-appellee. Timothy W. Mahoney, Stephenson & Mahoney, Kennewick , Washington for defendant-appellant.

Before WRIGHT and HUG, Circuit Judges, and EAST, ^* Senior District Judge.

PER CURIAM:

Annunziato and Kreling were found guilty of filing fraudulent withholding certificates (W-4's) in violation of 26 U. S. C. §7205. They were separately indicted and serially tried. Each argues that his indictment should have been dismissed because 26 U. S. C. §7205 is unconstitutionally vague or, in the alternative, that the indictment should have been dismissed or the government's evidence suppressed because Privacy Act disclosure requirements were violated in obtaining the false W-4's. Both contentions are without merit and the judgments are affirmed.

I. Factual Background

Appellants are construction workers who were assigned from time to time by their union halls to work for varied employers. Each routinely completed a W-4 form before starting a new job. In the late 1970's, each appellant began to claim on these forms that no income taxes should be withheld. ¹ Some employers submitted these W-4's to the IRS. ²

The IRS sent each appellant a letter requesting that he substantiate or change his claim. When no response was made, the exemptions claimed were checked against those on prior returns.

Because of discrepancies, letters went to employers who had submitted the forms requesting that they withhold at a zero exemption level. Copies of these letters were sent to the appellants, together with another request that they comply with legal requirements.

After investigation and consideration of the discrepancies between earlier returns and the later forms, appellants were indicted under 26 U. S. C. §7205.

II. Constitutionality of §7205

Title 26 U. S. C. §7205 provides:

An individual required to supply information to his employer under Section 3402 who wilfully supplies false or fraudulent information, . . . shall, . . . upon the conviction thereof, be fined not more than $500, or imprisoned for not more than one year, or both.

Appellants argue that the section is unconstitutionally vague and that they did not know they were persons "required to supply information" because: (1) the W-4 instructions did not define the term "liability" ³; and (2) Section 3402 does not exhaustively define the term "employee".

A criminal statute must "give a person of ordinary intelligence fair notice that his contemplated conduct is forbidden by the statute." United States v. Harriss, 347 U. S. 612, 617, 74 S. Ct. 808, 812, 98 L. Ed. 989 (1954). We agree with the district judge that the common meanings of "liability" and "employee" are not so ambiguous that "a person of ordinary intelligence" would not be put on at least inquiry notice by the instructions and Section 3402 as to whether he fell within Section 7205.

Numerous witnesses testified that they understood a "liability" to be an amount owed, and both appellants conceded that they knew they owed taxes. Because each actually completed numerous W-4's, it may be inferred that they were not confused as to whether they were "employees."

We agree with the Eighth Circuit that 26 U. S. C. §7205 and the accompanying explanatory statutes and regulations meet the Harriss standard. See United States v. Buttorf [78-1 USTC ¶9265], 572 F. 2d 619, 624-25 (8th Cir.), cert. denied, 437 U. S. 906, 98 S. Ct. 3095, 57 L. Ed. 2d 1136 (1978).

III. Privacy Act Notice

The Privacy Act, 5 U. S. C. §552a(e)(3), requires the agency to:

(3) inform each individual whom it asks to supply information, on the form which it uses to collect the information or on a separate form that can be retained by the individual--

(A) the authority (whether granted by statute, or by executive order of the President) which authorizes the solicitation of the information and whether disclosure of such information is mandatory or involuntary;

(B) the principal purpose or purposes for which the information is intended to be used;

(C) the routine uses which may be made of the information, as published pursuant to paragraph (4)(D) of this subsection; and

(D) the effects on him, if any, of not providing all or any part of the requested information.

W-4 instructions contain this disclosure: ⁴

The Internal Revenue Code requires every employee to furnish his or her employer with a signed withholding allowance certificate showing the number of withholding allowances that the employee claims (section 3402(f)(2)(A) and the Regulations thereto). Individuals are required to provide their Social Security Number for proper identification and processing (section 6109 and the Regulations thereto).

The principal purpose for soliciting withholding allowance certificate information is to administer the Internal Revenue laws of the United States .

If an employee does not furnish a signed withholding allowance certificate, the employee is considered as claiming no withholding allowances (Section 3402(e)) and shall be treated as a single person (Section 3402(1)).

The routine uses of the withholding allowance certificate information include disclosure to the Department of Justice for actual or potential criminal prosecution of civil litigation.

The gist of appellants' claim that this disclosure is inadequate is that it does not specify the statute under which they may be charged or the penalty faced. We agree with the Tenth Circuit that

Nothing in the Privacy Act . . . requires a notice of the specific criminal penalty which might be imposed. Such specific notice is not required.

United States v. Rickman, 638 F. 2d 182 (10th Cir. 1980) (1040 form). See United States v. Karsky [80-1 USTC ¶9126], 610 F. 2d 548, 549 n. 2 (8th Cir. 1979), cert. denied, 444 U. S. 1092, 100 S. Ct. 1058, 62 L. Ed. 2d 781 (1980); S. Rep. No. 1183, 93d Cong., 2d Sess.; reprinted in [1974] U. S. Code Cong. & Ad. News 6916, 6964.

Because we find no violation of the Privacy Act, we do not reach the issue what sanctions would be appropriate where there was a violation (e.g., dismissal of the indictment, suppression of evidence, or other).

AFFIRMED.

^* Of the District of Oregon.

¹ There are at least two ways to make such a claim. One might claim a large number of exemptions or sign a statement that he has had no tax liability in the prior year and anticipates none in the current year. Annunziato and Kreling apparently used both approaches.

² Employers retain W-4 forms to comply with their statutory duty to withhold taxes. The IRS requests that they forward unusual forms and some employers appear to follow the policy of doing so when the forms claim excessive exemptions. The practice protects them from potential liability to the government.

³ For reasons not revealed on this appeal, it appears that the W-4 instructions have since been revised. The word "liability" is no longer used.

⁴ Defendants argue that some employers used their own forms and may have posted disclosure notices. The testimony does not reveal what information was posted or printed on the forms. Because the record is incomplete, we decline to consider the issue. Fed. R. App. P. 10(b). See Thomas v. Computax Corp., 631 F. 2d 139, 141 (9th Cir. 1980).

 

 

[82-1 USTC ¶9197] United States of America , Plaintiff-Appellee v. William S. Lawson, Jr., Defendant-Appellant

(CA-10), U. S. Court of Appeals, 10th Circuit, No. 81-1541, 670 F2d 923, 2/12/82 , Affirming and remanding an unreported District Court opinion

[Code Secs. 7203 and 7205]

Crimes: Failure to file returns: Fraudulent withholding certificate: Miscellaneous assertions of error.--The trial court erred when it refused to permit the taxpayer to inspect the jury selection records pursuant to 28 U. S. C. §1867(f). The case was remanded for the limited purpose of permitting such inspection and holding an evidentiary hearing upon any contentions that arise out of that examination. The court did not commit error when it denied pretrial motions to dismiss, to hold the trial in a different location, and to exclude federal employees from the jury, nor was it error to deny the taxpayer's motion for acquittal at the close of the government's case. Evidence relating to the taxpayer's good faith belief that income tax laws are unconstitutional was properly excluded since evil intent is not an element of willfulness, and the jury instructions were proper. Changing the taxpayer's sentence after the trial court realized that it had imposed a fine in excess of the statutory maximum was within the power of the court. Similarly, the court did not err in imposing, as a condition of probation, a restriction on further tax protest activities.

Richard A. Stacy, United States Attorney, Jeffrey C. Fisher, Assistant United States Attorney, Cheyenne, Wyoming 82001, for plaintiff-appellee. Richard L. Stradley, Missoula , Montana , for defendant-appellant.

Before BARRETT, DOYLE and LOGAN, Circuit Judges.

LOGAN, Circuit Judge:

William S. Lawson appeals his convictions by a jury for failing to file 1978 and 1979 federal income tax returns, violations of I. R. C. §7203, and for supplying a false and fraudulent withholding certificate to his employer in 1979, a violation of I. R. C. §7205. Lawson contends that the trial court erred in denying various pretrial motions and motions for acquittal, in making certain evidentiary rulings, in instructing the jury, and in sentencing the defendant. He also maintains that the jury's verdict was against the weight of the evidence and contrary to law.

I. Pretrial Motions

Lawson asserts that the trial court erred in denying his pretrial motions (1) to dismiss because his wages were not income within the meaning of the Internal Revenue Code and the Constitution, (2) to hold his trial in Casper , Wyoming , (3) to exclude federal government employees from the jury panel, and (4) to inspect and copy jury selection records.

The defendant's wages for personal services are income under the Internal Revenue Code. Congress has specifically provided that "gross income means all income from whatever source derived, including (but not limited to) the following items: (1) Compensation for services, including fees, commissions, and similar items. . . ." I. R. C. §61(a)(1). We must broadly interpret the definition to include all gains not specifically exempted. Commissioner v. Kowalski [77-2 USTC ¶9748], 434 U. S. 77, 82-3 (1977). Notwithstanding Lawson's belief that his wages are not gains or profits but merely what he has received in an equal exchange for his services, the Internal Revenue Code clearly includes compensation of this nature within reportable gross income. None of the cases cited by Lawson requires a contrary result. Lawson's constitutional argument is specious. See United States v. Russell, 585 F. 2d 368, 370 (9th Cir. 1978); Kasey v. Commissioner, 457 F. 2d 369, 370 (8th Cir.), cert. denied, 409 U. S. 869 (1972); Porth v. Brodrick, 214 F. 2d 925, 926 (10th Cir. 1954).

[Speedy Trial Act]

The trial judge committed no reversible error in denying Lawson's request to hold his trial in Casper rather than Cheyenne , both of which are in the District of Wyoming. The Sixth Amendment provides that a defendant has the right to a trial "by an impartial jury of the State and district wherein the crime shall have been committed. . . ." U. S. Const. amend. VI. Federal Rule of Criminal Procedure 18 adds that the "court shall fix the place of trial within the district with due regard to the convenience of the defendant and the witnesses and the prompt administration of justice." The trial court may weigh the prejudice alleged by defendant against the concern of providing a speedy trial. United States v. Brown, 535 F. 2d 424, 429-30 (8th Cir. 1976); United States v. Florence , 456 F. 2d 46, 50 (4th Cir. 1972). The transcript reveals that Lawson's only justification for holding the trial in Casper was Casper 's proximity to his own residence; Lawson alleged no specific prejudice. The judge explained that he sat in Casper only one week per month, he had a heavy docket, and his primary consideration was to try Lawson's case within the requirements of the Speedy Trial Act. Under these circumstances we cannot find that the trial court abused its discretion in holding the trial in Cheyenne .

[Government Employee Exclusion]

The trial court did not commit error in failing to exclude from the jury for cause all government employees. Lawson asserts that because their pay is dependent upon taxes, government employees are inherently biased in cases involving failure to file income tax returns. Alternatively, Lawson argues that the trial court failed to inquire adequately into any actual bias of prospective jurors who were government employees. The courts have long rejected contentions that government employees must automatically be stricken from juries considering violations of federal laws. See Dennis v. United States, 339 U. S. 162 (1950); United States v. Wood, 299 U. S. 123 (1936): Marshall v. United States, 293 F. 2d 561, 563 (10th Cir.), cert. denied, 368 U. S. 898 (1961). We also reject Lawson's alternative contention. Lawson never requested that the trial court inquire into bias of potential jurors who were government employees. Lawson did file a pretrial motion requesting that the parties be permitted to so inquire, but when the judge postponed ruling on that issue, Lawson never raised it again; in fact, when asked at the end of the court's voir dire whether the parties had any additional questions, Lawson's only question did not address bias. Not having himself questioned the prospective jurors about bias, and not having requested the trial court to ask such questions, Lawson cannot complain that the judge failed to initiate such questioning on his own.

[Jury Selection Records]

We must agree with Lawson, however, that the trial court improperly denied his motion to inspect and copy jury selection materials pursuant to 28 U. S. C. §1867(f). That subsection expressly permits a party in preparing a motion to dismiss for failure to comply with the statutory provisions for selecting a jury, to inspect, reproduce, and copy records or papers used by the jury commission or clerk in connection with the jury selection process. The Supreme Court characterizes a litigant's right to inspect jury lists as essentially unqualified. Test v. United States , 420 U. S. 28, 30 (1975). In Test the Court stated: "[W]ithout inspection, a party almost invariably would be unable to determine whether he has a potentially meritorious jury challenge." Id. Although the trial judge improperly denied Lawson's motion, reversal of Lawson's convictions is not necessary at this juncture. We will remand this case to the district court to allow appellant's counsel to inspect the relevant documents as permitted by 28 U. S. C. §1867(f). Counsel may then file an appropriate motion pursuant to 28 U. S. C. §1867(a) and (d). See Test v. United States , 420 U. S. 28, 30 (1975); United States v. Marcano-Garcia, 622 F. 2d 12, 18 (1st Cir. 1980). If Lawson establishes that the method of selecting the jury violated the law, the court shall then set aside the convictions.

II. Motions for Acquittal

Lawson claims the trial court erred in denying his motions for acquittal at the end of the government's case and at the close of all evidence. Specifically, Lawson contends that the motions should have been granted because the government failed to establish jurisdiction, and his Fifth Amendment privilege against self-incrimination protected him from having to provide information on the tax returns; Lawson also argues the government failed to prove that he willfully failed to file returns, that he had a tax liability for the year in which he filed a withholding certificate claiming ninety-nine exemptions, and that in filing the withholding certificate he acted with specific intent to deceive his employer.

[Constitutional Arguments]

Lawson's "jurisdictional" claim, more accurately a constitutional claim, is based on an argument that the Sixteenth Amendment only authorizes excise-type taxes on income derived from activities that are government-licensed or otherwise specially protected. Lawson says the government offered no proof that his income came from such activities and therefore failed to establish jurisdiction. The contention is totally without merit. Congressional power to tax rests in Article 1, Section 8, clause 1 of the Constitution and embraces all conceivable powers of taxation including the power to lay and collect income taxes. Brushaber v. Union Pac. R. R. [1 USTC ¶4], 240 U. S. 1, 12-13 (1916). The Sixteenth Amendment removed any need to apportion income taxes among the states that otherwise would have been required by Article 1, section 9, clause 4. Consistent with these provisions, Congress has taxed compensation for services, without any regard for whether that compensation is derived from government-licensed or specially protected activities, I. R. C. §61, and this has been construed to cover earnings from labor. E.g., United States v. Russell [78-1 USTC ¶9814], 585 F. 2d 368, 370 (8th Cir. 1978).

Lawson filed facsimiles of 1978 and 1979 Form 1040 tax returns that were blank except for his signature, printed asterisks, and materials claiming a Fifth Amendment privilege against disclosure. He thereby provided no information from which the IRS could assess his tax liability. These protest 1040 forms are not returns within the meaning of the Internal Revenue Code or the tax regulations. United States v. Porth [70-1 USTC ¶9329], 426 F. 2d 519, 523 (10th Cir.), cert. denied, 400 U. S. 824 (1970). There is no blanket Fifth Amendment protection for a taxpayer filing a protest form. E.g., United States v. Brown, 600 F. 2d 248, 251-52 (10th Cir.), cert. denied, 444 U. S. 917 (1979); United States v. Johnson, 577 F. 2d 1304, 1310-11 (5th Cir. 1978); United States v. Irwin [77-2 USTC ¶9627], 561 F. 2d 198, 201 (10th Cir. 1977), cert. denied, 434 U. S. 1012 (1978). On appeal, Lawson asserts that the Fifth Amendment protects him from completing a 1040 form because any information supplied could have been used to incriminate him under I. R. C. §7205 for filing a false withholding certificate with his employer. This contention has also been rejected in similar tax protestor cases. E.g., United States v. Carlson [80-1 USTC ¶9299], 617 F. 2d 518, 520-23 (9th Cir.), cert. denied, 449 U. S. 1010 (1980).

Lawson asserts that the government failed to prove willfulness in not filing returns and in claiming ninety-nine exemptions on the withholding certificate he gave his employer in January 1979. In the context of the tax statutes, willfulness means a voluntary, intentional violation of a known legal duty. United States v. Pomponio, 429 U. S. 10, 12 (1976). The government need not establish that the defendant acted with an evil motive or in bad faith. United States v. Hinderman [80-1 USTC ¶9571], 625 F. 2d 994, 995 (10th Cir. 1980); United States v. Hinderman [80-2 USTC 566 F. 2d 702 (10th Cir. 1977), cert. denied, 435 U. S. 971 (1978). While the evidence indicates that Lawson may have acted with a personal belief that the tax laws are unconstitutional, it well supports that Lawson voluntarily and intentionally violated known legal duties. The trial judge properly denied the motions for acquittal on this ground.

As to the charge of filing a false withholding certificate, Lawson contends the government failed to establish that Lawson had incurred any tax liability for the year in question and thus failed to prove he had deceived his employer into underwithholding his taxes. Section 7205 merely forbids the willful furnishing of false or fraudulent withholding information to an employer; the criterion is not whether the employer and the government were, or could have been, deceived. United States v. Hudler [79-2 USTC ¶9688], 605 F. 2d 488, 490 (10th Cir. 1979), cert. denied, 445 U. S. 961 (1980). The jury reasonably could infer from the evidence that Lawson was not entitled to ninety-nine exemptions, the number he stated on his withholding certificate to attain zero withholding. Therefore, the trial court properly denied Lawson's motions for acquittal.

III. Sufficiency of the Evidence

Based on the same arguments he made that the court should have granted his motions for acquittal, Lawson seeks to overturn the jury's verdict because it is against the weight of the evidence and contrary to law. We have reviewed the transcript and exhibits and find substantial support for the jury's verdict.

Anyone who is required to file an income tax return is prohibited from willfully failing to file. I. R. C. §7203. The evidence established that an individual who had a gross income exceeding $2,950 in 1978 and $3,300 in 1979 must file returns. Lawson's employer paid him wages of $29,219.36 in 1978 and $33,414.25 in 1979. The IRS center in Ogden , Utah , where Lawson should have sent his returns, received from Lawson for those years only the protest 1040 forms. The protest 1040 forms contained no information from which the IRS could determine Lawson's tax liability. The government adequately supported the willfulness element by showing that Lawson had filed returns with income information in 1974 and 1975; he filed protest 1040 forms for 1978, 1979, and 1980, although the IRS informed him by two registered letters that his substantially identical forms for 1976 and 1977 lacked sufficient information to permit the IRS to assess tax liability.

I. R. C. §7205 prohibits any employee required to supply tax withholding information to his or her employer from willfully supplying false or fraudulent information. The jury found that in January 1979 Lawson willfully gave his employer a certificate claiming ninety-nine exemptions. The government adequately supported the element of willfulness by introducing Lawson's 1976 certificate showing two exemptions, the insurance enrollment card Lawson submitted to his employer in 1976 listing only one dependent child, and Lawson's 1977, 1978, and February 1979 certificates claiming total exemption from withholding. In 1977 Lawson's employer had informed him in writing that he was responsible for filing an accurate withholding certificate. In 1979 the employer informed Lawson that the IRS had determined his January 1979 certificate was inaccurate and had ordered withholding to continue on the basis of two exemptions. In spite of this, Lawson subsequently filed a 1980 certificate claiming total exemption from withholding.

IV. Admission of Evidence; Jury Instructions

Lawson challenges the court's admission of certain of the government's exhibits and refusal to admit one of his exhibits. He also claims many of the jury instructions were wrong.

Admission of evidence falls within the trial court's discretion and will not be disturbed on appeal unless clearly erroneous. Keen v. Detroit Diesel Allison, 569 F. 2d 547, 549 (10th Cir. 1978). We have reviewed the government's exhibits that Lawson challenges as well as the portions of the transcript where the trial judge ruled upon their admission; we find no error.

The trial court did not err in excluding Lawson's exhibit of a tape of a tax protestor meeting on which he relied in deciding to file his protest 1040 forms. Since evil motive or bad faith is not required for a finding that the taxpayer willfully failed to file a return, the trial court may exclude defendant's evidence of good purpose or good faith. See United States v. Dillon [78-1 USTC ¶9175], 566 F. 2d 702, 704 (10th Cir. 1977), cert. denied, 435 U. S. 971 (1978).

We have carefully examined the instructions to the jury that Lawson challenges. In light of the analysis of the law set forth above in this opinion, we find no error in any of those instructions.

V. Resentencing and Probation Conditions

Lawson states that the court erred in resentencing him and in setting special conditions of probation. The trial court originally sentenced Lawson to four months' imprisonment for failing to file a 1978 return, assessed Lawson the costs of prosecution but suspended imposition of sentence for failing to file a 1979 return, and imposed a fine of $2,000 for the false withholding certificate. In addition, the judge placed Lawson on three years probation. Sometime after sentencing the trial court apparently realized that a fine for filing a false withholding certificate could not exceed $500. ¹ Before Lawson had paid the fine or begun to serve his sentence the trial court modified the sentence by eliminating the fine on the false certificate count but imposing a $2,000 fine for failing to file a 1979 return.

Lawson asserts that because the original sentence for failure to file a 1979 return was proper, the judge could not modify it upward. The assertion is without merit. At least so long as a defendant has not yet begun to serve the sentence, the sentencing judge may recall the defendant and increase the sentence. United States v. DiFrancesco, 449 U. S. 117, 134 (1980).

The court also imposed a special condition of probation: "Defendant shall disassociate himself with any organization that has [as] its purpose defeating the Internal Revenue Service laws, including an organization known as the Wyoming Patriots and shall not encourage other individuals to disobey the laws of the United States ." According to Lawson, the sentencing judge's special condition of probation infringes upon his First Amendment freedom of association. See In re Mannino, 14 Cal. App. 3d 953, 92 Cal. Rptr. 880 (Ct. App. 1971).

A sentencing judge has broad discretion to impose conditions of probation that are reasonably related to protecting the public and rehabilitating the defendant. Porth v. Templar, 453 F. 2d 330, 333 (10th Cir. 1971). In Porth we approved a condition prohibiting probationer from inducing others through speeches or other means to violate the law and indicated that the sentencing court may "restrict the probationer's association with groups that would palpably encourage him to repeat his criminal conduct." Id. at 334. In a tax protest case similar to the one before us, the Fifth Circuit disapproved a condition that the tax violator "divorce [himself] from any organization advocating the willful disobedience of any local, state or federal law" but modified the order and approved a condition prohibiting the defendant from associating with any organization advocating disobedience of the Internal Revenue Service laws. See United States v. Smith [80-2 USTC ¶9476], 618 F. 2d 280, 282 (5th Cir.), cert. denied, 449 U. S. 868 (1980).

In Porth we held a condition imposed upon a tax violator that "prohibits the expression of opinion as to invalidity or unconstitutionality" of the tax laws was too broad. 453 F. 2d at 334. We think prohibiting Lawson from associating with organizations may stand only if the organization advocates violation of the tax laws. Many of these tax protestor groups not only urge change in the tax laws but disobedience through encouraging failure to file tax returns, filing of essentially blank returns, and claiming unlawful exemptions from withholding. See United States v. Amon [81-2 USTC ¶9495], 80-1856, 80-1859, -- F. 2d -- (10th Cir. June 15, 1981 ) (Logan, J., concurring). We construe the court's reference to an organization having as its purpose "defeating" the Internal Revenue laws to mean only organizations advocating disobedience, and so construed, the condition is valid.

With respect to the prohibition against associating with the "Wyoming Patriots," the record indicates that organization held meetings and presented speakers encouraging the filing of the protest 1040 forms. The presentence report also indicates that Lawson received from that organization much of the advice he relied upon in filing the protest 1040 forms and his false withholding certificate. Therefore, while probation conditions that restrict constitutional rights merit "special scrutiny," see United States v. Consuelo-Gonzalez, 521 F. 2d 259, 265 (9th Cir. 1975) (en banc), we cannot find the sentencing judge acted improperly in prohibiting association with the "Wyoming Patriots."

We remand this case to the district court to permit Lawson to inspect the jury selection records to which he is entitled pursuant to 28 U. S. C. §1867(f), and to hold an evidentiary hearing upon any contentions that arise out of that examination. In all other respects we affirm the judgment of the trial court.

¹ I. R. C. §7205 was later amended to permit a fine of up to $1,000 commencing with tax years beginning after December 31, 1981 .

 

 

[83-1 USTC ¶9363] United States of America , Appellee v. Warren H. Eilertson, Appellant

(CA-4), U. S. Court of Appeals, 4th Circuit, No. 82-5189, 707 F2d 108, 5/17/83 , Reversing an unreported decision of the District Court

[Code Secs. 7203 and 7205]

Crimes and criminal procedure: Reversible error: Prejudicial instruction coupled with prejudicial jury argument: Willfulness standard v. careless disregard standard.--A jury instruction that equated "careless disregard" of the law with "willfulness", and a prosecutor's use of that term 19 times in his rebuttal argument to the jury, required the reversal of a tax protestor's conviction for willfully failing to file tax returns and for willfully supplying a false W-4 form. The instruction and the jury argument clearly violated the precepts of C. J. Bishop, Sup.Ct., 73-1 USTC ¶9459, 412 U. S. 346.

J. Frederick Motz, United States Attorney, Max H. Lauten, Assistant United States Attorney, Baltimore, Maryland 21201, for appellee. Howard L. Nelson, for appellant.

Before PHILLIPS, ERVIN and CHAPMAN, Circuit Judges.

PER CURIAM:

While this appeal presents three issues for review, the preeiminent issue is whether, in a willful failure to file an income tax return case, it was error for the judge to instruct the jury that if it found the defendant had not acted with "careless disregard" then it could find him not guilty for lack of willfulness. Because we find that this instruction violated the precepts of United States v. Bishop [73-1 USTC ¶9459], 412 U. S. 346 (1973), we reverse the defendant's coviction.

I

The defendant, Warren H. Eilertson, was convicted of three counts of willful failure to file an income tax return in violation of I. R. C. §7203 and one count of filing a false or fraudulent withholding exemption certificate in violation of I. R. C. §7205. The taxable years for which these convictions arose were 1977, 1978 and 1979, years during which Eilertson was employed by the Department of Navy as a research engineer.

From at least 1971 through 1976, the defendant filed proper tax returns. (He also filed correct returns for his spouse during the years 1977-79.) In August 1977, however, his 1974 return was audited by the Internal Revenue Service. Although the audit revealed no improprieties, the experience left the defendant embittered toward the tax system and led to the actions which culminated in this criminal trial.

In 1978, Eilertson obtained two extensions of time to file his 1977 return. When the return was filed, it contained no financial information from which his tax liability could be determined. The defendant refused to provide the information because he stated he feared "self-incrimination" and because he was "confused" about the meaning of the terms "dollar" and "Federal Reserve Note." Eilertson filed similar returns for the taxable years 1978 and 1979.

The defendant's payroll records from the Department of Navy show that he earned $27,915.20 in 1977, $29,482.40 in 1978 and $32,464.00 in 1979.

On August 2, 1978 and on April 11, 1979 , the defendant filed withholding exemption certificates claiming to be totally exempt from income tax withholding because he had no tax liability in the previous year and anticipated none in the current year.

At trial the government introduced into evidence expenditures made by the defendant for the purchase of two automobiles, a boat and airplane glider and for mortgage payments on his house. Accompanying the evidence of these expenditures were the loan applications for the two automobiles and the boat. On these applications Eilertson listed his take home pay, the market value of his home and the amount of his mortgage payments.

The defendant has appealed from his convictions and raises three issues: (1) whether the District Courts of the United States have jurisdiction over crimes enumerated in the Internal Revenue Code (IRC); (2) whether it was error to allow the loan applications to be admitted into evidence; and (3) whether the jury instruction using the term "careless disregard" was erroneous.

II

The first two issues raised by the appellant are of no great moment. First, he has asserted that because federal courts are of limited jurisdiction, the courts do not have jurisdiction over crimes enumerated in the IRC because Congress failed to provide a statute within the IRC conferring such jurisdiction. Congress did provide, however, that "[t]he district courts of the United States shall have original jurisdiction . . . of all offenses against the laws of the United States ;" therefore, the district courts have jurisdiction. 18 U. S. C. §3231 (1976); United States v. Spurgeon [82-1 USTC ¶9241], 671 F. 2d 1198 (8th Cir. 1982).

Second, Eilertson stated his monthly income on the loan applications. Thus, the evidence of the purchases, accompanied by the loan applications, was admissible to show he acted inconsistently with his claim on his tax form that he did not know the amount of his income. Accord, United States v. Gamble [79-2 USTC ¶9603], 607 F. 2d 820, 823 (9th Cir. 1979).

III

Of greater concern, however, is the issue concerning the instruction using reckless disregard on the issue of willfulness.

When charging the jury on the issue of willfulness, the court said:

To state it another way if you find that the defendant believed in good faith that he was acting within the law when he claimed the Fifth Amendment on his tax returns, and that his conduct was not marked by careless disregard as to whether he had a right to so act, you might find the defendant not guilty for lack of willfulness.

This charge was submitted by the United States attorney who has admitted he was, at the time of trial, unfamiliar with the case of United States v. Bishop [73-1 USTC ¶9459], 412 U. S. 346 (1973), and further, that his case was tried on a theory of careless and reckless disregard. The government urges, however, that because of the context of the charge and because the charge as a whole was a correct statement of the law, the admittedly erroneous instruction does not require reversal. We cannot agree.

In United States v. Bishop, the Supreme Court held that because the term "willfully", as used in the IRC, has the same meaning in both the felony and misdemeanor statutes, it would have been incorrect for the district court to instruct the jury that, under the misdemeanor statute, willfully meant "with careless disregard." This holding was reaffirmed in United States v. Pomponio [76-2 USTC ¶9695], 429 U. S. 10 (1976) wherein the court stated: "In Bishop we held that the term 'willfully' . . . requires more than a showing of careless disregard of the truth." Id. at 12. See , United States v. Bengimina [74-2 USTC ¶9513], 499 F. 2d 117 (8th Cir. 1974).

The United States attorney had admitted that he tried the case on the theory of careless and reckless disregard. Further, it is undisputed that he used this term nineteen times in his rebuttal argument to the jury. While the instruction itself may not have required reversal, there can be no mistake that the United States attorney's trial of the case on this theory and his many references to careless disregard in his reply argument brought the matter home forcefully to the jury so that it cannot be overlooked.

Because the instruction and jury argument clearly violate the precepts of United States v. Bishop, we reverse this case and remand to the district court for proceedings consistent with this opinion.

 

 

[85-1 USTC ¶9317]United States of America v. Graham, Robert B. Robert B. Graham Sr., Appellant United States of America v. Greenspun, Milton, Appellant United States of America v. Kirby, William P. William P. Kirby, Appellant United States of America v. Balchaitis, Joseph, Appellant

(CA-3), U. S. Court of Appeals, 3rd Circuit, Nos. 83-1797, 83-1932, 83-1933, 83-1934, 83-1798, 83-1810, 83-1805, 83-1836, 83-1838, 83-1935, 758 F2d 879, 3/20/85 , Affirming unreported District Court decision

[Code Secs. 7203, 7205 and 7206]

Crimes: Failure to file return: Conspiracy: Jury instructions: Fraudulent withholding exemption certificate: Conviction: False and fraudulent statements: Aiding or abetting false or fraudulent returns.--Although the district court's supplemental instruction to the jury was erroneous because it included language that directed a minority number of jurors to reconsider their position in light of the position taken by the majority, the appellate court declined to apply the plain error doctrine and reverse the convictions. The court further held that no reversible error was committed when the trial court failed to specifically address the jury's concern at having to work during an impending religious holiday. The judge's failure to respond to the jury's concern was not an affirmative act of coercion, therefore, absent evidence that fear of having to work through the start of the holiday influenced the verdict, no error was committed. Finally, with regard to the one defendant who raised the issue, the court concluded that the evidence presented was sufficient to sustain his conviction of conspiracy for aiding and abetting the filing of a false tax return.

Ronald Brent Boutwell, 4990 Paradise Road, Las Vegas, Nev. 89119, for Robert B. Graham, Sr., David E. Shapiro, 3100 Lewis Tower Bldg., 15th & Locust Street, Phila., Pa. 19102, for Milton Greenspun, Stephen P. Patrizio, Dranoff & Patrizio, 1814 Spruce Street, Phila., Pa. 19103, for William P. Kirby. Bonnie B. Leadbetter, 1530 Chestnut St. , Phila. , Pa. 19102 , for Joseph Balchaitis. Edward S. G. Dennis, Jr., United States Attorney, Walter S. Batty, Jr., Edward F. Borden, Jr., Assistant United States Attorneys, Philadelphia , Pa. 19106 , for U. S.

Before GARTH and HIGGINBOTHAM, Circuit Judges and MCCUNE, ^* District Judge.

Opinion of the Court

GARTH, Circuit Judge:

Robert B. Graham was convicted of conspiracy to defraud the United States , 18 U. S. C. §371, and aiding the filing of false tax returns. 26 U. S. C. §7206(2). William Kirby was convicted of conspiracy to defraud. Joseph Balchaitis was convicted of conspiracy to defraud, filing a false W-4 exemption certificate, and failure to file income tax returns. Milton Greenspun was convicted of conspiracy to defraud the United States . Each appealed.

All the appellants were involved in a group called the Committee for Constitutional Taxation. This group conducted a series of public seminars directed at educating citizens about tax protest, the constitutional aspects of income tax reporting, and the methods by which they could avoid paying taxes and thwart IRS investigations. At these seminars, attendees were instructed about how to file "fifth amendment tax returns" which disclosed little or no information about the taxpayer's income, but which contained entries stating "OBJECT--FIFTH AMENDMENT." They were also advised to set up foreign bank accounts and they were instructed to claim loss of memory if called by a grand jury.

The defendants challenge their convictions on a great number of grounds, all of which we find to be without merit. ¹ Only a few of the alleged errors warrant discussion. Perhaps the most troubling challenge concerns a supplemental charge given to the jury after it had indicated that it was deadlocked. However, finding no reversible error preserved for review, we affirm all the judgments of conviction.

I.

The defendants' trial started on Wednesday, August 31, 1983 . On Monday, September 12, which testimony was still being heard and two days before deliberations began, one juror sent the judge the following note:

Your Honor,

I would like to request of the court on behalf of the Jewish juror's [sic] and possible others, that we be dismissed on Friday at 4:00 P. M. This is the eve of Yom Kippur which starts the beginning of a 24 hour fast. We must be home to prepare and eat dinner before 6:00 P. M. in order to begin the holiday tradition of synagogue and our fast.

Thank you very much for your consideration.

Susan Ball

Seat #12

Ct. Ex. #3. The district court judge never directly responded to the jury with respect to this request. No member of the jury ever raised the issue again.

After hearing nine days of testimony, the jury retired at 3:44 pm on Wednesday, September 14, 1983 to deliberate on the thirty-six counts of the indictment. The jury was sent home at 5:27 that evening, then resumed its deliberations at 9:30 am the following morning, Thursday, September 15. The jury deliberated all day Thursday and was sent home at 10:05 pm . The jury resumed its deliberations at 9:00 am on Friday, September 16. The evening of Friday, September 16, 1983 was the commencement of the Jewish High Holy Day of Yom Kippur.

On the morning of Friday, September 16, at 11:00 am , the jury sent the following note to the district court judge:

Your Honor,

After approximately 17 hours of deliberation we have reached a verdict against only one of the defendants on two counts.

After careful and intensive debate, there is no doubt in any of our minds that we can not reach a unaminous [sic] verdict on any of the other charges.

Therefore further deliberations would be fruitless.

David Racher

Ct. Ex. #8. The judge read this message to counsel and indicated that he would give the jury a supplemental charge.

At this point, counsel for Kirby, concerned that the jury might consider four o'clock that afternoon as a deadline for its verdict, requested that the jury be informed in the court's supplemental charge that they need not reach a verdict by four o'clock to be excused for the Jewish holiday. The judge assented to this request, stating, "All right I'll say something to that [effect]." However, in instructing the jury the judge failed to address the specific subject of a four o'clock departure time. The judge did tell the jury that "There are no time deadlines within which you must reach your verdict." Appendix at 239a. Thus, the instruction given to the jury did not directly respond to the juror's request which had been made four days earlier, but it did unequivocally state that no time limitations restricted the jury's deliberations.

The charge did include language which was aimed at obtaining a jury verdict by breaking the jury's deadlock:

If much the greater number of you are for a conviction, each descenting [sic] juror ought to consider whether a doubt in his or her mind is a reasonable one, since it makes no effective impression upon the minds of so many equally honest, equally conscientious fellow jurors who bear the same responsibility, serve under the same oath, and have heard the same evidence with, we may assume, the same attention, and an equal desire to arrive at the truth.

On the other hand, if a majority or even a lesser number of you are for acquittal, other jurors ought to seriously ask themselves again, and most thoughtfully, whether they do not have reason to doubt the correctness of a judgment which is not incurred [sic] in by so many of their fellow jurors, and whether they should not distrust the weight and sufficiency of evidence which fails to convince the minds of several of their fellow jurors beyond a reasonable doubt.

Immediately after the supplemental charge had been read to the jury and the jury had retired, counsel for Kirby again asked that the jury be informed that there was no four o'clock deadline. The district court judge replied, "Well, I don't know how I could make it any clearer." Appendix at 240a.

Counsel for Graham at this stage requested a further charge with respect to first amendment protection for some of Graham's activities. Counsel for Greenspun objected to a portion of the supplemental charge which discussed the length and expense of the trial. At no time before the announcement of the verdicts by the jury did any defendant object to the portion of the charge that directed a minority number of the jorors to reconsider their positions in light of the positions taken by the majority number of the jurors.

At 3:20 pm that Friday (September 16, 1983), the jury announced that it had reached verdicts on a total of eight of the thirty-six counts. The district court judge accepted this verdict. No timely request to poll the jury was made. ² The judge dismissed without prejudice the counts on which the jury was unable to reach a verdict and then discharged the jury.

II.

Under Federal Rule of Criminal Procedure 30,

No party may assign as error any portion of the charge or omission therefrom unless he objects thereto before the jury retires to consider its verdict, stating distinctly the matter to which he objects and the grounds of his objection.

This Court in a recent in banc opinion reconfirmed that it will not consider on appeal, objections that were not timely raised before the trial court. United States v. Gibbs, 739 F. 2d 838 (3d Cir. 1984) (in banc), cert. denied, 53 U. S. L. W. 3483 (January 7, 1985). The bar against review of objections that have not been timely made is especially important where, as here, a timely objection would have allowed the trial judge to correct his error and obviate the need for a new trial.

In Gibbs, we declined to review a defendant's sixth amendment confrontation clause claim that was not timely asserted before the district court. In Gibbs, the defendant challenged the admission of testimony of an alleged co-conspirator who had not been proved to be unavailable. No constitutional objection to this testimony was made until after both parties rested. We noted in Gibbs that had the defendant made a timely sixth amendment objection, the sixth amendment defect could have been cured by calling the declarant or by proof of the unavailability of the declarant of the challenged testimony. 739 F. 2d at 849.

Similarly, had any defendant here timely objected to the charge which required the jurors in the minority to reconsider their position, the district court judge could have given a corrective instruction. Indeed, had any defendant called the court's attention to this Court's opinion in United States v. Fioravanti, 412 F. 2d 407 (3d Cir.), cert. denied sub nom. Pannacione v. United States, 396 U. S. 837 (1969), there can be no question but that the district court judge would have revamped his supplementary charge and given the proper Fioravanti instruction. Since no such objection was made, however, the issue has not been preserved for review.

We recognize that an "Allen" charge (see Allen v. United States, 164 U. S. 492 (1896)), such as the one given in this case, has been discredited in this Circuit. According to United States v. Fioravanti, supra:

Hereafter, in this circuit, trial judges are not to give instructions either in the main body of the charge or in the form of a supplement that direct a juror to distruct his own judgment if he finds a large majority of the jurors taking a view different from his. Such an instruction will be deemed error, normally reversible error. Conceivably, in very extraordinary circumstances the error may be found so inconsequential as to avoid the necessity of reversal on appeal. But hereafter this court will not let a verdict stand which may have been influenced in any way by an Allen Charge.

412 F. 2d at 420.

In principle, if not in terms, the charge given in this case cannot be distinguished from the Allen charge which we have rejected. It thus offends our Fioravanti decision and should not have been given. However, as we have previously noted, no objection was ever made prior to the jury's verdict.

We recognize that in Government of Virgin Islands v. Hernandez, 476 F. 2d 791 (3d Cir. 1973) an Allen charge was held to be "plain error." In that case, however the court did not analyze or discuss the plain error standard nor did it find that manifest injustice would result without review. See United States v. Young, -- U. S. --, 53 U. S. L. W. 4159 (February 19, 1985). The Supreme Court's latest pronouncement on plain error review reaffirms that the determination of whether "plain error" has occurred and has resulted in a miscarriage of justice, is to be made by the reviewing court on a case-by-case basis, upon review of the entire record. United States v. Young, -- U. S. --, 53 U. S. L. W. at 4163. Our independent review of the entire record reveals that no manifest injustice resulted from the court's instruction. See Namet v. United States [63-1 USTC ¶15,502], 373 U. S. 179, 190-91 (1962); Trent v. Atlantic City Electric Co., 334 F. 2d 847, 859 (3d Cir. 1964). Thus, review under the plain error doctrine is unavailable and no new trial will be ordered on this ground.

III

Nor did reversible error result from the judge's failure to respond to the September 12, 1983 juror's request to be excused by four o'clock the evening of the Jewish holiday of Yom Kippur. We find it significant that at no time after the initial request made on the Monday of September 12, did any juror ever again bring this matter to the attention of the district court judge. Although the jury had been instructed that it could communicate with the court by written message and in fact it had done so to inform the court of its deadlock, no subsequent message or request was ever received by the court from the jury.

It is true that counsel for Kirby reminded the court twice of the jury's four o'clock concern--a concern with which the district court judge apparently believed he had dealt. ³ Despite the fact that all defendants would obviously have been affected if the jury's verdict had been coerced, only one of the four defendants relies in his brief on the judge's failure to resolve the four o'clock issue, as grounds for a new trial independent of the Allen charge. ⁴ That response, as contained in Kirby's brief followed a discussion of the Allen-Fioravanti charge and the entire argument addressing the "four o'clock issue" consists of this paragraph:

Finally, the appellant asserts that the jury was not made sufficiently aware that they would not be required to meet through the evening, thereby interfering with the start of the Yom Kippur holiday. It is apparent from the haste in which they reached their verdict that they believed that a time limitation had been placed upon them to conclude deliberation prior to the end of the afternoon. Contrary to the request of defense counsel, N. T. 13.11-12, the Court declined to clarify this ambiguity thereby leaving misapprehension under which the jury operated.

Thus, even in the defendants' briefs, the argument of jury coercion, to the extent that it relied on the district court's failure to respond directly to a request made four days earlier by the jury, assumes little significance. Nevertheless, because the issue has been raised in connection with the district court's supplementary charge, a brief examination of the standard relevant to jury deliberation is appropriate.

The four o'clock issue we are discussing here is not, as the dissent claims, whether Yom Kippur is a holiday of great religious significance. It obviously is. The relevant standard and issue is whether the trial judge abused his discretion by the manner in which he responded to a juror's request made some four days earlier. This standard and issue are neither addressed, recognized nor applied in the dissent, which is largely devoted to the religious aspects of both the Jewish and Christian holy days. In our review of the record, the district court did not abuse his discretion.

"The length of time a jury may be kept together for the purpose of deliberation is a matter within the discretion of the trial judge, and his action in requiring further deliberation after the jury has reported a disagreement does not, without more, constitute coercion." United States v. Grosso [66-2 USTC ¶15,709], 358 F. 2d 154, 159 (3d Cir. 1966), rev'd on other grounds, 390 U. S. 62 (1968); accord, Government of Virgin Islands v. Gereau, 502 F. 2d 914, 935 (3d Cir. 1974). Thus, the district court's actions in dealing with counsel's suggestion and in sending the jury back for further deliberations in this case do not constitute an improper exercise of discretion, nor can they be held to constitute coercion. The impending holiday of and by itself is an insufficient additional factor to render the district court's order for further deliberations coercive.

Grosso is instructive on this point. In Grosso, one of the jurors became sufficiently ill to require the assistance of a physician, who diagnosed a nervous disorder. Nevertheless, the trial judge refused to order a mistrial, and deliberations continued as soon as the ill juror was well enough. Despite a note from the jury that indicated it was deadlocked, the district court judge ordered the jury to continue deliberations. According to the Grosso court, the illness of a juror might be considered as an unduly coercive circumstances, but only if evidence indicated that the jury's verdict was in fact influenced by that circumstance. The Grosso court found no such evidence.

Similarly, here, there is no evidence that the jurors were coerced to agree upon a verdict by the impending onset of the Yom Kippur holiday. Indeed, it is significant that of the thirty-six counts on which the jury was deliberating, twenty-eight of the counts remained unresolved.

While some courts have found the length of time the jury was made to deliberate, to be coercive, see United States v. Chaney, 559 F. 2d 1094 (7th Cir. 1977); United States v. Flannery, 451 F. 2d 880 (1st Cir. 1971), these cases have involved affirmative coercive conduct of the district court, such as reminding the jury that the weekend was approaching (Flannery), or creating the impression that the jury would be locked up all night (Chaney). No such affirmative coercive conduct occurred in this case and, absent evidence that the jury was influenced by a prescribed deadline or the approaching holiday, the court's mere failure to respond to a juror's request cannot be deemed coercive.

IV

In addition to the general claims asserted by all four defendants, Graham challenges the sufficiency of the evidence to sustain his conviction on Counts 22 and 23 of the indictment. These counts charged Graham with aiding and abetting the filing of a false tax return. In our review of the sufficiency of the evidence after a jury verdict in favor of the government, "[i]t is not for us to weigh the evidence or to determine the credibility of witnesses. The verdict of the jury must be sustained if there is substantial evidence, taking the view most favorable to the government, to support it." Glasser v. United States , 315 U. S. 60, 80 (1942).

Taking the view most favorable to the government, we find sufficient evidence to support Graham's conviction for aiding and abetting the filing of a false return. To establish aiding and abetting the filing of a false tax return "there must exist some affirmative participation which at least encourages the perpetrator." United States v. Buttorff, 572 F. 2d 619, 623 (8th Cir. 1978) (quoting United States v. Thomas, 469 F. 2d 145, 147 (8th Cir. 1972), cert. denied, 410 U. S. 957 (1973)).

David Kosco testified that he gave Graham $5,000 to open up a Swiss bank account in Kosco's name through Graham's investment firm. According to Kosco, "[A]t the time I was investing the money, [Graham] said, you know, being it was a foreign government, and the U. S. had no jurisdiction over it, you know, not to pay the taxes." Appendix at 110a. Kosco further testified that he did not report the interest earned in this account on his tax returns for the years 1978 or 1979. On cross examination, Kosco testified that these returns were prepared by an accountant, and that Kosco did not inform the accountant that he had received this interest.

Viewing this testimony in the light most favorable to the government, there is clearly sufficient evidence to allow a rational trier of fact to conclude that Graham, by setting up the account and telling Kosco not to report the interest, engaged in "some affirmative participation which at least encourage[d] the perpetrator [Kosco]." The intervention of time from the dealings between Kosco and Graham to the actual filing of the return does not negate this aid; nor does the fact that an accountant, not a party to the Swiss bank transaction, completed the return. ⁵

V

None of the defendants' other contentions (see Appendix A to this opinion) merit discussion. Upon review of the record we are satisfied that sufficient evidence of conduct not protected by the first amendment was submitted to the jury to sustain the conspiracy convictions. See United States v. Buttorff, supra. We are also satisfied that there was sufficient evidence to convict the four defendants and that the district judge did not err in excluding tape recordings of the defendant's meetings. The defendants' challenges to the constitutionality and applicability of the income tax and to the jurisdiction of the district court do not deserve discussion.

For the foregoing reasons, the judgments of the district court will be affirmed.

^* Honorable Barron P. McCune, United States District Judge for the Western District of Pennsylvania, sitting by designation.

¹ The various grounds upon which the defendants have challenged their convictions are set forth in Appendix A attached to this opinion.

² Counsel did request a poll of the jury after the verdict was recorded. Such a request is untimely. See Fed. R. Crim. P. 31(d).

³ As recited in an earlier part of this opinion, when Kirby's counsel reminded the court that a juror was concerned about the Jewish holiday and desired a four o'clock departure on Friday, September 16, the Court told the jury "There are no time deadlines within which you must reach your verdict." When asked again by Kirby's counsel to address that subject and to inform the jury that there was no four o'clock deadline, the court replied, "Well, I don't know how I could make it any clearer." Appendix at 239a-240a.

⁴ Although each defendant incorporated arguments made by his co-defendants in briefs filed with this court, the only brief specifically to rely on the four o'clock issue independently of the Allen charge was Kirby's. Kirby did not even list this argument in his statement of issues presented.

⁵ Graham also challenges the materiality of the omission on Kosco's return, as the interest unreported for both years combined amounted to but $250. Graham failed to preserve this issue for appeal, as his motion for acquittal relied only on the claimed insufficiency of the nexus between Graham's conduct and the false tax return. See United States v. Gibbs, 739 F. 2d 838 (3d Cir.) (issue not preserved unless raised at earliest possible time), cert. denied. 53 U. S. L. W. 3489 (January 7, 1985); United States v. Bonacorsa, 529 F. 2d 1218 (2d Cir.), cert. denied, 426 U. S. 935 (1976) (objection to whole count of indictment doesn't preserve objection to particular specifications). In any event, it is established that a misstatement on a return is material if, as here, it results in an incorrect computation of the tax. United States v. Warden, 545 F. 2d 32 (7th Cir. 1976).

Appendix A

Graham challenges his conviction on the grounds (1) that the district court erred in denying his motion for acquittal for insufficiency of evidence to support his conviction under 26 U. S. C. §7602(2), (2) that the government failed to present sufficient evidence to sustain a conspiracy conviction under 18 U. S. C. §371, (3) that the district court erred in its supplemental charge to the jury, (4) that the district court judge erred in instructing the jury that Graham had improperly invoked his fifth amendment privilege against self-incrimination on his tax return, (5) that the court erred by failing to compel admission by the government of the authenticity of a certain letter sent by the IRS to Victor G. Petersen, and (6) that the district court erred in admitting co-conspirators' out-of-court statements prior to prima facie proof of the existence of a single theory conspiracy. The jury reached no verdict on the count covered by the instruction on the privilege against self-incrimination.

Kirby contends (1) that evidence of conduct unprotected by the first amendment presented was insufficient to sustain his conviction, (2) that the court erred in refusing to admit on defendants' behalf government tape recordings of the group's meetings, and (3) that the court's supplemental charge to the jury was error. Kirby further adopts all the arguments advanced by his co-defendants.

Balchaitis contends (1) that the government failed to present sufficient evidence to sustain the conviction for filing a false withholding certificate, (2) that the district court erred in refusing to admit on defendants' behalf government tape recordings of the group's meetings, (3) that evidence was insufficient to sustain the conviction for conspiracy to defraud since the activities were protected by the first amendment, (4) that the court's supplemental charge to the jury was error, (5) that the district court lacked subject matter jurisdiction to hear the case, (6) that Balchaitis was denied his right to counsel of choice, (7) that Balchaitis was, as a matter of law, not required to file a W-4 form, (8) that Balchaitis was not required to file a tax return in 1980, and (9) that the government failed to show that Balchaitis had acted wilfully. Balchaitis further adopts all relevant arguments of his co-defendants. As part of the argument in his pro se brief that the district court lacked subject matter jurisdiction, Balchaitis contends that the income tax may not constitutionally be applied to wages paid to individuals.

Greenspun contends (1) that insufficient evidence of conduct unprotected by the first amendment was presented to sustain his conspiracy conviction, (2) that insufficient evidence of any kind was presented to sustain his conspiracy conviction, (3) that the district court erred in refusing to admit on defendants' behalf government tape recordings of the group's meetings, and (4) that the supplemental charge to the jury was error. Greenspun further adopts the arguments of his co-defendants.

Dissenting Opinion

HIGGINBOTHAM, JR., Circuit Judge, dissenting:

I dissent from the majority's conclusion that the "court's mere failure to respond to a juror's request [that the jury be timely excused to observe Yom Kippur] cannot be deemed coercive." Typescript Opinion at 14. Yom Kippur--the Day of Atonement--is the holiest day on the Jewish calendar. It is not a day of joyous celebration, but rather a day of fasting and prayer. ¹ Recognizing that for Jews Yom Kippur is at least as sacred as Chrismas is to Christians, I believe that the failure of the trial judge to advise jurors that they would be released by 4:00 p. m. on the evening that Yom Kippur was to begin, when viewed in the context of the jury's deliberations, was so coercive that it denied the defendants a fair trial. I would hold similarly if, in response to a request to be excused for Christmas, a judge failed to advise jurors that they would not have to deliberate on Christmas day. Yom Kippur should receive no less respect in the federal courts than does Christmas, and it is inconceivable to me that any judge would permit a jury to doubt whether they would have to deliberate on Christmas Day.

In the most unequivocal request possible, five days before Yom Kippur, the jury asked the trial judge through the message of one juror:

Your Honor,

I would like to request of the court on behalf of the Jewish juror's [sic] and possible others, that we be dismissed on Friday at 4:00 P.M. This is the eve of Yom Kippur which starts the beginning of a 24 hour fast. We must be home to prepare and eat dinner before 6:00 P. M. in order to begin the holiday tradition of synagogue and our fast.

Thank you very much for your consideration.

Despite this timely message, the jury was never informed that they would be dismissed on Friday at 4:00 p. m. By Friday morning at 11:00 a. m. they had been deliberating for more than two full days and for more than seventeen hours, and they sent the following note to the district judge:

Your Honor,

After approximately 17 hours of deliberation we have reached a verdict against only one of the defendants on two counts.

After careful and intensive debate, there is no doubt in any of our minds that we can not reach a unaminous [sic] verdict on any of the other charges.

Therefore further deliberations would be fruitless.

The judge read this message to counsel and indicated that he would give the jury a supplemental charge. At this point, counsel for defendant Kirby, concerned that the jury might consider four o'clock that afternoon as a deadline for its verdict, pointedly reminded the judge of the juror's prior note regarding Yom Kippur:

MR. PATRIZIO: Your honor, I would have a request that this jury be told that 4 o'clock was one of the juror's request to be adjourned by today. They might be operating under the assumption that they have to make a decision by 4 o'clock today, and I would request that they be told that that is not a deadline, that they'll come back on another day to resume their deliberations.

With his customary sensitivity, the trial judge recognized the reasonableness of counsel's request that the jury be instructed that they did not "have to make a decision by 4 o'clock today . . . that that is not a deadline," and that they could "come bank on another day to resume their deliberations." The trial judge promised: "All right I'll say something to that." Instead of advising the jury that they could depart on Friday at 4:00 p. m., and come back on another day to resume deliberations, the trial judge gave a supplemental instruction which is known among trial judges as the "dynamite"--or Allen--charge, United States v. Flannery, 451 F. 2d 880, 883 (1st Cir. 1971), and which is violative of this court's express admonition in United States v. Fioravanti, 412 F. 2d 407 (3rd Cir.), cert. denied, 396 U. S. 837 (1969). ²

To compound the matter, when giving the forbidden Allen charge ³ as a supplemental instruction, the trial judge told the jury:

You may conduct your deliberations as you choose, but I suggest that you now carefully reexamine and reconsider all the evidence in the case, bearing upon the questions before you.

You may be as leisurely in your deliberations as the occasion may require, and you may take all the time which you feel is necessary. There are no time deadlines within which you must reach a verdict.

You may now retire and continue your deliberations in such manner as shall be determined by your good and consciencious [sic] judgment as reasonable men and women.

(Emphasis added.)

Unfortunately, after dealing with the other aspects of his supplemental charge, the trial judge, through inadvertence, did not assure the jury that they would be dismissed for Yom Kippur. However, the fairness of the request was so firmly implanted in his mind that the trial judge had thought that he had actually given it. The foregoing is the only explanation of the colloquy between the trial judge and counsel after the supplemental instruction:

MR. PATRIZIO: Judge, I'm still not sure whether or not this jury understands that they are going to be permitted to leave at 4 o'clock . I don't think they've ever been told that.

THE COURT: Well, I don't know how I could make it any clearer.

The court's supplemental instruction that "[t]here are no time deadlines within which you must reach a verdict" could not be construed as addressing the jury's concern. Surely the jury understood from that remark that there were no time deadlines imposed upon them by the court. In that sense, they were aware that they were probably free to deliberate until 10:30 p. m., as they had done the night before, and on the following day. Yet for the Jewish members of the jury and for those jurors who, though they were not Jewish, recognized and desired to accommodate the religious practices of others, such an instruction failed to address their expressed concern.

While the majority finds it significant that after the initial request made on Monday, September 12, no subsequent request was ever received, I find this unimportant. Once expressed, the district court should have addressed the concern. The jury could not reasonably infer from the lack of the court's response that the Monday request would be granted. What I do find significant is that the jury returned with their verdict at 3:20 p. m., just forty minutes before the time the court had been advised some jurors would have to leave in order to observe Yom Kippur, and that the jury was actually discharged at 3:45 p. m.

This case is without precedent as to its factual context, but the teachings of several cases are quite relevant. In the clearest language possible, the Supreme Court has recognized that "the principle that jurors may not be coerced into surrendering views conscientiously held is so clear as to require no elaboration." Jenkins v. United States , 380 U. S. 445, 446 (1965). And the Court has noted that in determining whether there has been coercion of the jury, we must look at "all the circumstances." Id. , 380 U. S. at 446. More than fifteen years ago in a seminal opinion written by Judge Aldisert, we noted:

So long as the unanimous verdict is required in criminal cases, there will always be three possible decisions of the jury: (1) not guilty of any charge; (2) guilty of one or more counts of the indictment; and (3) no verdict because of a lack of unanimity. The possibility of a hung jury is as much a part of our jury unanimity schema as are verdicts of guilty or not guilty. And although dictates of sound judicial administration tend to encourage the rendition of verdicts rather than suffer the experience of hung juries, nevertheless, it is a cardinal principle of the law that a trial judge may not coerce a jury to the extent of demanding that they return a verdict.

Fioravanti, 412 F. 2d at 416.

In United States v. Flannery, 451 F. 2d 880 (1st Cir. 1971) the First Circuit noted that it was reversible error where "the court erred in reminding the jury that it was Friday afternoon. . . . The implicit suggestion, although doubtless unintended, was that it was more important to be quick than to be thoughtful." 451 F. 2d at 883. In Brasfield v. United States, 272 U. S. 448, 450 (1926), more than a half century ago, Justice Stone noted that the coercive effect of a judge's remarks "will often depend upon circumstances which cannot properly be known to the trial judge or to the appellate courts and may vary widely in different situations. . . ." He warned against making remarks where "in general [the] tendency is coercive." He stressed that some inquiries "can rarely be resorted to without bringing to bear in some degree, serious, although not measurable, an improper influence upon the jury, from whose deliberations every consideration other than that of the evidence and the law as expounded in a proper charge, should be excluded." Id. , 272 U. S. at 450.

In this case, there was injected a situation or improper influence which had an inherent tendency to be coercive to some members of the jury. The failure to advise the jury that they would be released from jury service in time for Yom Kippur certainly tended to be coercive. Jurors should not have to consider, in addition to the "evidence and the law as expounded in a proper charge," whether they will have to be in court rather than synagogue on their holiest day of the year.

For these reasons, I respectfully dissent.

¹ On the Day of Atonement the Jew stands naked and defenseless before God. All his wrongdoings testify against him, and his sole recourse is to throw himself, with prayers and sincere repentance, on the mercy of God. On this day alone Jews kneel and prostrate themselves in synagogue, and the liturgy recalls the atonement ritual in the ancient temple . . .. Something of the awesome character of this day has survived right up to the present.

N. de Lange, Atlas of the Jewish World 97 (1984).

² The issue as to whether there was a "manifest injustice" by the giving of the discredited Allen charge is a close one and it may rise to plain error. However, I need not reach that issue in view of the fact that I believe that all of the defendants are entitled to a new trial for the reasons noted. See Government of the Virgin Islands v. Hernandez, 476 F. 2d 791 (3d Cir. 1973).

³ For the history of the Allen charge, see Allen v. United States, 164 U. S. 492 (1896) and United States v. Fioravanti, 412 F. 2d at 415-16.

 

 

[84-2 USTC ¶9873] United States of America , Plaintiff-Appellee v. Robert H. Walsh, Defendant-Appellant

(CA-6), U. S. Court of Appeals, 6th Circuit, No. 83-1544, 9/14/84 , Affirming an unreported District Court decision

[Code Secs. 7203 and 7205]

Criminal penalties: Failure to file: Fraudulent withholding exemption certificates: Self-representation.--The taxpayer's convictions for willfully failing to file an income tax return and for filing false exemption certificates were affirmed. The trial court's requirement that the taxpayer use advisory counsel did not violate the taxpayer's right to conduct his own defense.

Leonard R. Gilman, United States Attorney, Wayne F. Pratt, Assistant United States Attorney, Detroit, Mich. 48226, Robert W. Haviland, Marc L. Goldman, Assistant United States Attorneys, Flint, Mich. 48502, for plaintiff-appellee. Robert Walsh, P. O. Box 1000, Duluth, Minn. 55814, pro se, Charles A. Grossman, 601 South Grand Traverse, Flint, Mich. 48502, for defendant-appellant.

Before ENGEL and KENNEDY, Circuit Judges; and CELEBREZZE, Senior Circuit Judge.

PER CURIAM:

Robert H. Walsh was convicted of one count of willfully failing to file an income tax return for 1980 in violation of 26 U. S. C. §7203 and two counts of filing false exemption certificates in violation of 26 U. S. C. §7205. At trial, Walsh based his defense on his belief that the income tax is unconstitutional. He appeals claiming that he was denied the right to self-representation.

About a month before trial, Walsh filed a motion seeking to defend himself pro se, "provided that standby advisory legal counsel is appointed to be available to Defendant for assistance." The District Court granted the motion in an order prepared by defense counsel that provided that all of defendant's motions or pleadings should first be presented to the advisory counsel.

During the trial, the court admonished Walsh several times outside the presence of the jury to consult with the advisory counsel to establish the correct legal procedure. Walsh, however, was able to file many pretrial motions, and to introduce evidence in the trial. The jury convicted Walsh of all the charges. Walsh was sentenced to two consecutive one-year terms of imprisonment, followed by five years of probation in lieu of a one-year suspended sentence. Walsh then filed a notice of appeal to this Court.

Walsh contends that the trial court's "requirement that he must use the advisory counsel and screen all motions through counsel was a limitation on his right to be his own attorney." The Supreme Court has recently in McKaskle v. Wiggins, 104 S. Ct. 944 (1984), discussed when the participation of advisory standby counsel infringes a defendant's right to conduct his own defense, recognized in Faretta v. California, 422 U. S. 806 (1975).

In McKaskle, the Court identified two limitations on advisory counsel participation. "First, the pro se defendant is entitled to preserve actual control over the case he chooses to present to the jury." 104 S. Ct. at 951. "Second, participation by standby counsel without the defendant's consent should not be allowed to destroy the jury's perception that the defendant is representing himself." Id.

In this case, Walsh made no showing that the participation of his advisory counsel undermined the jury's perception of his exercise of his Faretta right. The admonitions of the trial judge that Walsh quotes in his brief all took place outside the presence of the jury. Moreover, all of the admonitions appear to have involved Walsh's need for assistance in procedural matters. McKaskle states that the right to self-representation is not violated when standby counsel "assists the pro se defendant in overcoming routine procedural or evidentiary obstacles to the completion of some specific task, such as introducing evidence or objecting to testimony," nor when counsel "merely helps to ensure the defendant's compliance with basic rules of courtroom protocal and procedure." Id. at 954. The Court concluded that such participation was permissible "even in the unlikely event that it somewhat undermines the pro se defendant's appearance of control over his own defense." Id.

In addition, Walsh does not demonstrate any way in which the participation of his advisory counsel eroded his actual control of the defense. Walsh was required to submit his motions to advisory counsel for review, but not for approval. Walsh concedes that under McKaskle, participation by advisory counsel in procedural matters is permissible, but argues that his Faretta right was violated in this case where he was required to review substantive legal matters with counsel.

Walsh does not point to a single instance of conflict between counsel and defendant. He argues instead that the requirement created a chilling environment that could intimidate a defendant from vigorously pursuing his own notions for defense. In McKaskle, advisory counsel and the defendant clashed explicitly and repeatedly before the jury and outside its presence. The Court found no violation, however, where the defendant was given ample opportunity to explain his positions, and all conflicts regarding strategy were resolved by the trial judge in the defendant's favor. Id. at 953. The possibility of an intimidating atmosphere was far stronger in McKaskle than in the present case, where there seems to be no sign of conflict between counsel and defendant, and where the defendant does not argue that he was prevented from executing any strategy he chose.

Accordingly, the judgment of the District Court is affirmed.

 

 

 

 

 

[86-1 USTC ¶9313] United States of America , Plaintiff-Appellee v. Gary W. Bass, Defendant-Appellant

(CA-5), U.S. Court of Appeals, 5th Circuit, No. 83-2581, 3/18/86 , 784 F2d 1282, Reversing and remanding unreported District Court decision

[Code Secs. 7205 and 7609 ]

Criminal penalties: Withholding exemption certificates: Fraudulently made: Summons: Third-party summonses, special procedures: Notice to taxpayer.--The district court usurped the role of a jury when it instructed that, as a matter of law, the taxpayer was an employee for the purpose of supplying income tax withholding exemption statements. This instruction improperly directed a verdict as to an essential element of the offense of submitting false or fraudulent W-4 forms. Here, by instructing the jury that the taxpayer was an employee, the district court relieved the prosecution of its duty of proving beyond a reasonable doubt the taxpayer's guilt of every element of the offense charged. The taxpayer's conviction was reversed, because the government is never entitled to a directed verdict in a criminal jury trial. Furthermore, the government did not violate the requirement of providing proper notice to the taxpayer when serving summonses to obtain his employment records from his alleged employers. Even if the summonses were issued to his former employers, those employers were not third-party recordkeepers. In addition, there was no evidence at trial that the IRS issued a summons to the bank and without such issuance there was no entitlement to notice. Even if a summons had been issued, the bank was not a third-party recordkeeper with respect to the taxpayer. In that case, the employer would have been the party entitled to notice, not the taxpayer, because it was the employer's records that would have been the subject of the summons.

Bob Wortham, United States Attorney, Paul E. Naman, Assistant United States Attorney, Beaumont , Tex. , for plaintiff-appellee. Gary W. Bass, P.O. Box 1268, New Caney, Tex. 77357, pro se. Scott McLarty, 191 East Broad St., Athens, Ga. 30601, for defendant-appellant.

Before GOLDBERG, HILL, and JONES, Circuit Judges.

OPINION

JONES, Circuit Judge:

The appellant, Gary W. Bass, was convicted by a jury of nine counts of willfully submitting false or fraudulent income tax withholding exemption statements to his employers in violation of §7205 of the Internal Revenue Code. ¹ On appeal, Bass asserts seven points of error, ² including (1) that the district court should not have instructed the jury that, as a matter of law, he was an "employee," and (2) that the disclosure of his employment records was in violation of the notice provisions of 26 U.S.C. §7609 .

This court finds that the district court usurped the role of the jury as the factfinder when it instructed that, as a matter of law, Bass was an "employee." Because this instruction directed a verdict as to an essential element of the offense charged, we reverse Bass's conviction and remand for a new trial.

I.

On May 27, 1983 , following initial mistrial, a superseding indictment was brought charging Bass with nine counts of willfully submitting false or fraudulent Employee's Withholding Allowance Certificates (Form W-4) in violation of 26 U.S.C. §7205 . Bass elected to represent himself with court-appointed standby counsel. This time, the jury returned a verdict of guilty on all nine counts. Bass was sentenced to one year on each of the first five counts, the sentences to be served consecutively, and conditional probation thereafter.

II.

Instructing the jury on the nature of the offense, the district court stated that:

Gary Bass is charged with the violation of 26 United States Code, Section 7205 , pursuant to 26 United States Code, Section 3402 -F2A. Section 26 U.S.C., Section 3402 -F2A provides as follows: "On or before the date of the commencement of employment with an employer the employee shall furnish the employer with a signed withholding exemption certificate relating to the number of withholding exemptions which the employee claims which shall in no event exceed the number to which he is entitled."

26 United States Code, Section 7205 provides in part as follows: "Any individual required to supply information to his employer under Section 3402 ", [sic] that I just read to you, "who willfully supplies false or fraudulent information or who willfully fails to supply information thereunder which would require an increase in the tax to be withheld under Section 3402 shall be guilty of an offense against the United States."

Now in order to prove a violation of 26 United States Code, 7205, the Government must prove four things. First, the Defendant was required to complete and file the Internal Revenue Service form W-4 with his employer, certifying certain information as to entitlement [to] withholding tax allowances; and two, that the Defendant did complete and file such a W-4 form; and three, that the information supplied by the Defendant to his employer as required under the W-4 forms was false or fraudulent as charged; and four, that the Defendant's conduct in supplying false or fraudulent information to his employer was done willfully.

The court then explained to the jury the defenses raised by the defendant: first, Bass "claimed that he was not an employee for the purpose of supplying withholding information on a W-4 to his employer," and second, Bass contended he "did not act willfully in that he was under a good faith belief that he was acting in accordance with the law." The court then stated:

You are instructed that as a matter of law the Defendant in this case was an employee of Sabine Industries and B & B Insulation Company and ANCO Insulation, Incorporated for the years 1980 [sic], and Owens-Corning Fiberglas Corporation for '81 and '82 and for Jacob Weese Constructors, Incorporated for the year 1982.

Bass's objection to this instruction was overruled. On appeal, Bass asserts that this instruction improperly removed the question whether he was an employee from the jury and that the court erroneously directed a verdict against him. We agree.

In United States v. Herzog [81-1 USTC ¶9110 ], 632 F.2d 469 (5th Cir. 1980), this court held that "employee status" was an essential element of the offense of submitting false or fraudulent W-4 forms:

The section 3402 obligation to file a withholding certificate applies to any "employee." I.R.C. §3402(f)(2)(A) . Since the section 3402 obligation is a prerequisite to liability under section 7205 , [the defendant] could not be guilty of the offense charged, unless he was an "employee" at the times he submitted the withholding forms that are the subject of the indictment. Thus, [the defendant's] employee status was an "essential element" of the offense.

Id. at 472 (citing, inter alia, United States v. Johnson, 576 F.2d 1331, 1332 (8th Cir. 1978) (per curiam); United States v. Smith [74-1 USTC ¶9120 ], 487 F.2d 329, 330 (9th Cir. 1973) (per curiam), cert. denied, 416 U.S. 989, 94 S.Ct. 2396, 40 L.Ed.2d 767 (1974)). See also United States v. Ferguson [82-2 USTC ¶9837], 615 F.Supp. 8, 10 (S.D. Ind. 1985). Here, the district court's instructions properly defined the essential elements of the offense charged. Nevertheless, by further instructing the jury that Bass was an employee, the district court removed that element of the offense from the jury's consideration. This was improper.

The due process clause protects an accused against conviction except upon proof beyond a reasonable doubt of every fact necessary to constitute the crime with which he is charged. United States v. Johnson, 718 F.2d 1317, 1320 (5th Cir. 1983) (en banc) (quoting In re Winship, 397 U.S. 358, 364, 90 S.Ct. 1068, 1073, 25 L.Ed.2d 368, 375 (1970)). "This means that the prosecution must prove beyond a reasonable doubt the defendant's guilt of 'every element of the charged offense.' " Id. at 1320-21 (quoting Moore v. United States, 429 U.S. 20, 22, 97 S.Ct. 29, 30, 50 L.Ed.2d 25, 28 (1976) (per curiam)). " '[A] judge may not direct a verdict of guilty no matter how conclusive the evidence.' " Connecticut v. Johnson, 460 U.S. 73, 83, 103 S.Ct. 969, 975, 74 L.Ed.2d 823, 832 (1983) (plurality opinion) (quoting United Brotherhood of Carpenters & Joiners v. United States, 330 U.S. 395, 408, 67 S.Ct. 775, 782, 91 L.Ed. 973, 985 (1947)). See also United States v. Ragsdale, 438 F.2d 21, 27 (5th Cir.), cert. denied, 403 U.S. 919, 91 S.Ct. 2231, 29 L.Ed.2d 696 (1971). Here, by instructing the jury that Bass was an employee, the district court relieved the prosecution of its duty of proving, beyond a reasonable doubt, Bass's guilt of every element of the offense charged. "[B]ecause the government is never entitled to a directed verdict in a criminal jury trial," United States v. Burton, 737 F.2d 439, 441 (5th Cir. 1984), Bass's conviction must be reversed. ³

The Government asserts that the district court's instruction did not go to the issue whether Bass was required to file or whether he actually filed W-4 forms with his employers. Instead, the Government asserts that this instruction merely told the jury that Bass worked for these various employees during the times in question and that, because the fact of his employment was undisputed, Bass suffered no prejudice by this instruction. We have thoroughly reviewed the jury charge and can find no language which would have so limited the instruction. ⁴

Unlike Herzog, the error here was prejudicial. In Herzog, the district court failed to instruct the jury that employee status was an essential element of a §7205 offense. The defendant neither disputed that he was an employee nor objected to the jury instructions. 632 F.2d at 472. To the contrary, the jury in this case was properly instructed that employee status was an essential element of the offense. The court then directed a partial verdict by telling the jury that Bass was, as a matter of law, an employee. Bass did object to the instruction. Because one of Bass's defenses was that he was not an "employee," we cannot conclude that the instruction was harmless error.

Although our disposition of the jury instruction issue renders consideration of Bass's remaining assertions of error unnecessary, we will address another issue that will likely arise in the context of the new trial in this case.

III.

Bass asserts that the Government violated 26 U.S.C. §7609 by serving summonses on third-party recordkeepers without affording him proper notice. ⁵ Bass states that the Government obtained his employment records from his alleged employers by issuing summonses. The Government merely acknowledges that it collected employment data from Bass's employers, except in one instance where an employer's records were destroyed in a fire and the employer's bank provided the records to the employer. The record does not indicate that any summonses were issued.

Even assuming, arguendo, that summonses were issued to Bass's former employers, those employers are not third-party recordkeepers for purposes of the statute. ⁶ This Circuit has held that the notice provisions of §7609 are inapplicable to any summonses served on employers for production of their records. See United States v. Brewer, 681 F.2d 973, 975 (5th Cir. 1982) ("26 U.S.C. §7609 is inapplicable to an employer as a third-party recordkeeper") (per curiam). See also Rapp v. C.I.R. [85-2 USTC ¶9750 ], 774 F.2d 932, 934 (9th Cir. 1985); Ponsford v. United States [85-2 USTC ¶9689 ], 771 F.2d 1305, 1308 (9th Cir. 1985); United States v. Berg [81-1 USTC ¶9141 ], 636 F.2d 203, 205-206 (8th Cir. 1980) (per curiam); United States v. Income Realty and Mortgage, Inc. [79-2 USTC ¶9662 ], 612 F.2d 1224, 1226 (10th Cir. 1979), cert. denied sub nom. West v. United States, 446 U.S. 952, 100 S.Ct. 2918, 64 L.Ed.2d 809 (1980). Thus, Bass was not entitled to notice of any summonses issued to his former employers.

One of Bass's former employers, H&F Insulation, was required to obtain from its bank copies of checks drawn on its account made payable to Bass because the original records had been lost in a fire. The bookkeeper at that bank testified that she reproduced the records at H&F's request. Bass asserts that the bank falls within the literal definition of a third-party recordkeeper under the statute and, thus, that he was entitled to notice before the bank disbursed any of H&F's records which related to him. This assertion has no merit.

There was no evidence at trial that the IRS issued a summons to the bank. Without issuance of a summons, there is no entitlement to notice. See 26 U.S.C. §7609(a)(1) . See also Brewer, 681 F.2d at 975. There was testimony at trial from which it might be inferred that a summons issued to H&F was forwarded to the bank along with H&F's written request for copies of the records. Such a procedure would not entitle Bass to notice that the bank was going to disburse H&F's payroll records. A company's attempt to comply with an administrative summons by requesting copies of its financial records for its financial institution could no more trigger the notice provisions of §7609 than the company's compliance itself. See S. Rep. No. 938, 94th Cong., 2d Sess. 369, reprinted in 1976 U.S. Code Cong. & Ad. News 3798 ("an administrative summons served on a partnership, with respect to records of the partnership's own transactions, would not be subject to [§7609 's notice provisions]").

Finally, even assuming, arguendo, that a summons was issued to the bank, the bank was not a third-party recordkeeper with respect to Bass for purposes of §7609 . The statute contemplates that notice will be required when records of a taxpayer's business transactions are kept by a third party. See Berg, 636 F.2d at 206. A third-party recordkeeper as defined by the statute is generally engaged in recording data concerning business transactions between the taxpayer and parties other than the summoned recordkeeper. See Rapp, 774 F.2d at 934. See generally United States v. New York Tel. Co. [82-2 USTC ¶9438 ], 682 F.2d 313, 315-17 (2d Cir. 1982). The purpose of an administrative summons is to obtain these third-party records. See S. Rep. No. 938, 94th Cong., 2d Sess. 367-70, reprinted in 1976 U.S. Code Cong. & Ad. News 3796-99; H.R. Rep. No. 658, 94th Cong., 2d Sess. 306-08, reprinted in 1976 U.S. Code Cong. & Ad. News 3202-04. Employment records are not the type of records contemplated by 26 U.S.C. §7609 . See Ponsford, 771 F.2d at 1308; Income Realty, 612 F.2d at 1226. Here, assuming the bank had been served with a summons, H&F would have been the party entitled to notice, not Bass, because it was H&F's records that would have been the subject of the summons. See S. Rep. No. 938, 94th Cong., 2d Sess. 369, reprinted in 1976 U.S. Code Cong. & Ad. News 3798 ("For example, if the [IRS] summons a bank to furnish records with respect to all deposits and withdrawals of the X corporation for the year 1976, the X corporation is to receive notice of the summons, because it is the records concerning the transactions of the X corporation which are being examined") (footnote omitted). ⁷

Accordingly, Bass's conviction is REVERSED and this cause is REMANDED for a new trial.

¹ Section 7205 of the Internal Revenue Code provides, in pertinent part:

Any individual required to supply information to his employer under section 3402 who willfully supplies false or fraudulent information, or who willfully fails to supply information thereunder which would require an increase in the tax to be withheld under section 3402 , shall, in addition to any other penalty provided by law, upon conviction thereof, be fined not more than $1,000, or imprisoned not more than 1 year, or both.

26 U.S.C. §7205(a) . Section 3402(f)(2)(A) requires an employee to submit a withholding exemption statement upon commencing employment:

On or before the date of the commencement of employment with an employer, the employee shall furnish the employer with a signed withholding exemption certificate relating to the number of withholding exeptions which he claims, which shall in no event exceed the number to which he is entitled.

26 U.S.C. §3402(f)(2)(A) .

² Our disposition of the case on the stated basis renders unnecessary a review of all of Bass's contentions. We note, however, that his retrial on a superseding indictment following a mistrial in his first case did not place him in double jeopardy. See Richardson v. United States, 468 U.S. 317, __, 104 S.Ct. 3081, 3085, 82 L.Ed.2d 242, 249-50 (1984); Arizona v. Washington, 434 U.S. 497, 509, 98 S.Ct. 824, 832, 54 L.Ed.2d 717, 730 (1978); Fay v. McCotter, 765 F.2d 475, 477 (5th Cir. 1985).

³ There are two historical exceptions to the general principle that the trial court must submit every essential element of the offense to the jury: questions of pertinency and materiality. See Johnson, 718 F.2d at 1323-24. See e.g., United States v. Ortiz-Loya, 777 F.2d 973, 982-83 (5th Cir. 1985); United States v. Bryant, 770 F.2d 1283, 1289-90 (5th Cir. 1985); United States v. Swaim, 757 F.2d 1530, 1534 (5th Cir.), cert. denied, 106 S.Ct. 81 (1985); United States v. Hausmann, 711 F.2d 615, 616-18 (5th Cir. 1983) (per curiam). Neither of these exceptions is applicable here.

⁴ Furthermore, in its rebuttal closing argument, the Government relied on the court's instruction regarding Bass's status as an employee to argue his guilt: "One of the things the Judge told you in his instructions is by law, he instructed you this Defendant was an employee in all of those instances and that is the law. . . . [I]f he was an employee, he had to file a W-4."

⁵ Subsection (a)(1) of §7609 provides, in pertinent part:

[If] (A) any summons described in subsection (c) is served on any person who is a third-party recordkeeper, and

(B) the summons requires the production of any portion of records made or kept of the business transactions or affairs of any person (other than the person summoned) who is identified in the description of the records contained in the summons, then notice of the summons shall be given to any person so identified . . . . Such notice shall be accompanied by a copy of the summons which has been served and shall contain an explanation of the right under subsection (b)(2) to bring a proceeding to quash the summons.

26 U.S.C. §7609(a)(1)(A) , (B) .

⁶ The Internal Revenue Code defines a third-party recordkeeper for purposes of §7609 as:

(A) any mutual savings bank, cooperative bank, domestic building and loan association, or other savings institution chartered and supervised as a savings and loan or similar association under Federal or State law, any bank . . . or any credit union . . . ;

(B) any consumer reporting agency . . . ;

(C) any person extending credit through the use of credit cards or similar devices;

(D) any [securities] broker . . . ;

(E) any attorney;

(F) any accountant; and

(G) any barter exchange . . . .

26 U.S.C. §7609(a)(3)(A) -(G).

⁷ Further, because Bass had no proprietary interest in the records sought from the bank, he lacked standing to quash the summons. Cf. Donaldson v. United States [71-1 USTC ¶9173 ] 400 U.S. 517, 530-31, 91 S.Ct. 534, 542, 27 L.Ed.2d 580, 589 (1971) (permissive intervention denied where taxpayer had no proprietary interest in the records sought to be produced).

 

[90-1 USTC ¶50,166] United States of America v. Walter A. Connor, Jr., Appellant

(CA-3), U.S. Court of Appeals, 3rd Circuit, 89-3614, 3/21/90 , 898 F2d 942, 898 F2d 942. Affirming an unreported District Court decision

[Code Sec. 7201 and Code Sec. 7205 , prior to amendment by P.L. 98-369 ]

Wages: Claim of nontaxable receipts: Criminal penalties: Willful evasion of tax: Withholding exemption certificates.--A taxpayer's conviction for willful evasion of tax was upheld on appeal. The taxpayer's claim that wages were not taxable income was rejected as frivolous. His argument that filing a fraudulent W-4 could not properly be the basis of his conviction for tax evasion was also rejected. The criminal misdemeanor penalty under Code Sec. 7205 , prior to amendment by P.L. 98-369, was not designed to be in lieu of the felony offense of attempting to evade income tax. The taxpayer's purposeful failure to file an accurate Form W-4 could be viewed by the jury as an affirmative willful act to support a conviction under Code Sec. 7201 . Moreover, the jury received proper instructions with respect to a good-faith misunderstanding of the law as a negation of willfulness.

Paul J. Brysh, Pittsburgh , Pa. 15219 , for appellee. Walter A. Connor, Jr., 2400 E. Carson St. , Pittsburgh , Pa. 15203 , pro se.

Before SLOVITER, BECKER and STAPLETON, Circuit Judges.

OPINION OF THE COURT

SLOVITER, Circuit Judge:

Appellant Walter A. Connor, Jr., who worked as a transport driver for the Braun Baking Company, did not file an income tax return for any of the years 1982 through 1986 and paid no income tax in those years on his wages, on some interest he received, and on payments from the Teamsters Union related to his service as the local vice-president. ¹ Connor was charged in a five-count indictment with income tax evasion in violation of 26 U.S.C. §7201 for each of those five years. The indictment charged that he failed to file an income tax return in each of the five years and that he provided his employer in 1982 through 1985 with a fraudulent W-4, Employee's Withholding Certificate, on which he falsely claimed to be exempt from federal income taxes, and in 1986 with a fraudulent affidavit in lieu of a W-4.

After a jury trial, he was found guilty on all of the counts. He was sentenced on Count 1 to one-year imprisonment on a work release program, and on Counts 2, 3, 4 and 5 to a suspended five-year imprisonment term with the sentence on Counts 3, 4 and 5 to run concurrently with the sentence on Count 2. He was placed on probation for five years to commence upon release from confinement as imposed under Count 1.

Connor raises two issues on this direct appeal. He contends that because of the Sixteenth Amendment wages are not taxable income within the meaning of the federal income tax laws and that filing a W-4 exemption is not an overt act to conceal income in an attempt to evade taxes on his income as a matter of law.

I.

Wages Are Income

Connor argues that a tax on wages is a direct tax subject to the provision of Article 1, Section 2 , Clause 3 of the Constitution which requires that direct taxes be apportioned by population. He makes this claim despite the specific language of the Sixteenth Amendment that:

The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several states, and without regard to any census or enumeration.

Connor purports to find authority for his argument in Eisner v. Macomber [1 USTC ¶32 ], 252 U.S. 189 (1920), a case patently inapposite because it held merely that a stock dividend made to shareholders in their proportionate interests against profits accumulated by the corporation was not income. As the Supreme Court later explained in Commissioner v. Glenshaw Glass Co. [55-1 USTC ¶9308 ], 348 U.S. 426, 430-31 (1955), the Eisner Court held that the distribution of a corporate stock dividend changed only the form of the taxpayer's capital investment, and that because the taxpayer received nothing out of the company's assets for his separate use and benefit, the distribution was not a taxable event. Glenshaw reiterated that Congress intended to use the full measure of its taxing power in creating the income tax. Id. at 429, citing, inter alia, Helvering v. Clifford [40-1 USTC ¶9265 ], 309 U.S. 331, 334 (1940).

Congress exercised its power to tax income by defining income as, inter alla, "compensation for services, including fees, commissions, fringe benefits and similar items." 26 U.S.C. §61(a)(1) (Supp. II 1984). Every court which has ever considered the issue has unequivocally rejected the argument that wages are not income. See, e.g., Coleman v. Commissioner [86-1 USTC ¶9401 ], 791 F.2d 68, 70 (7th Cir. 1986); Connor v. Commissioner [85-2 USTC ¶9598 ], 770 F.2d 17, 20 (2d Cir. 1985) (per curiam); Perkins v. Commissioner [84-2 USTC ¶9898 ], 746 F.2d 1187, 1188 (6th Cir. 1984) (per curiam); Funk v. Commissioner [82-2 USTC ¶9555 ], 687 F.2d 264, 264 (8th Cir. 1982) (per curiam).

Moreover, Connor's argument has already been rejected by this court. In Sauers v. Commissioner [85-2 USTC ¶9608 ], 771 F.2d 64 (3d Cir. 1985), cert. denied, 476 U.S. 1162 (1986), the taxpayer argued, inter alla, that wages are property and therefore are not taxable income. Id. at 66 n.2. This court agreed with the Tax Court that the taxpayer's "legal contentions were patently frivolous," id. at 66, and affirmed the decision of the Tax Court awarding the Commissioner damages for a frivolous claim under 26 U.S.C. §6673 . Id. at 67-70. We take this opportunity to reiterate that wages are income within the meaning of the Sixteenth Amendment. Unless subsequent Supreme Court decisions throw any doubt on this conclusion, we will view arguments to the contrary as frivolous, which may subject the party asserting them to appropriate sanctions.

II.

Effect of Filing Fraudulent W-4

Connor's next argument is that the affirmative act of filing a fraudulent W-4 may not properly be the basis of his conviction for tax evasion. Under the language of the relevant provision, "[a]ny person who willfully attempts in any manner to evade or defeat any tax imposed . . . shall . . . be guilty of a felony. . . ." 26 U.S.C. §7201 (1982). Connor argues that he can not be charged with a felony for the years 1982 to 1984 when the basis of the charge is providing his employer with fraudulent W-4s because the provision of the Code directly applicable to willfully supplying false or fraudulent information to an employer, 26 U.S.C.§7205, provided that the misdemeanor penalty assessed was "in lieu of any other penalty provided by law." 26 U.S.C. §7205 (1982), amended by, 26 U.S.C.§7205(a) (Supp. II 1984). ²

Connor argues that until the Deficit Reduction Act of 1984, Pub. L. No. 98-369, 98 Stat. 494, effective as of July 18, 1984 , amended that language to read that the penalty shall be "in addition to any other penalty provided by law," 26 U.S.C. §7205(a) (Supp. II 1984), use of 26 U.S.C. §7201 for an offense such as his was precluded. Inasmuch as his W-4s for the years 1982, 1983, and 1984 were filed before the amendment, he contends that his penalties for tax evasion for those years must be no more than misdemeanors.

We note that Connor was not indicted for violation of 26 U.S.C. §7205 , so that the "in lieu of" language appears inapplicable to him. Connor, however, appears to be arguing that the preclusive effect of 26 U.S.C.§7205 applies to him because the government relies on the fraudulent W-4s to supply the willfulness needed to support his indictment under 26 U.S.C. §7201 . We agree with the government that the legislative history shows that the "in lieu of" language of 26 U.S.C. §7205 before its amendment was directed to other misdemeanors provided for in section 145(a) of the Code, which involve filing, and was not designed to be in lieu of the felony offense of attempting to evade the income tax, which was imposed pursuant to section 145(b) of the Code. See United States v. Foster [86-1 USTC ¶9327 ], 789 F.2d 457, 460-61 (7th Cir.), cert. denied, 479 U.S. 883 (1986) (reaching this conclusion from examination of legislative history).

This is made explicit in the Senate Report accompanying the Current Tax Payment Act of 1943, Pub. L. No. 68, 57 Stat. 126, 138. See S. Rep. No. 221, 78th Cong., 1st Sess. 30-31 (1943) ("[S]uch penalties are in lieu of those provided in section 145(a) of the code."). The Senate Report explained that reference to section 145(a) was eliminated because of a structural revision of the Code by Congress. Id. at 31.

It would be unreasonable, absent clear Congressional intent to the contrary, to construe the misdemeanor penalty provided in 26 U.S.C. §7205 before the 1984 amendment as a substitute for the felony offense of willful attempt to evade taxes, which the Supreme Court has described as "the capstone of a system of sanctions which singly or in combination were calculated to induce prompt and forthright fulfillment of every duty under the income tax law and to provide a penalty suitable to every degree of delinquency." Spies v. United States [43-1 USTC ¶9243 ], 317 U.S. 492, 497 (1943).

Connor construes the opinion in United States v. Williams [81-1 USTC ¶9268 ], 644 F.2d 696 (8th Cir.), cert. denied, 454 U.S. 841 (1981), to provide support for his position. Williams, however, involved a somewhat different situation. There, two defendants were convicted of both a violation of 26 U.S.C. §7205 , filing false W-4 forms, and a violation of 26 U.S.C. §7212 for obstructing or impeding the due administration of the Internal Revenue Code. The Court of Appeals overturned the latter conviction based on the "in lieu of" language then in section 7205 . Section 7212 of the Code has both a felony and misdemeanor component. Connor's argument assumes that the indictment charged a felony. The government suggests, on the other hand, that the charge was a misdemeanor because the Williams court did not vacate the sentence for violation of section 7212 which had been imposed concurrently with the sentence for violation of section 7205 . Certainly the language of the opinion suggests that the court viewed the offense charged under section 7212 as a misdemeanor comparable with that charged in section 7205 , see particularly 744 F.2d at 700 n.17, rather than as a felony.

In the absence of more compelling authority, we reject Connor's contention that the government could not rely on his filing of a false W-4 form with the employer to support the felony convictions in Counts 1, 2 and 3. ³

Finally, Connor argues that as a matter of law the government cannot establish willfulness, a necessary element of the crime of tax evasion under 26 U.S.C. §7201 , from the filing of a fraudulent W-4. He argues that "[i]mplicit in the authorization [to deduct a portion of the employee's wages for income tax withholding and payment] is the ability of the employee to refuse to allow the employer to withhold." Brief for Appellant at 15. Connor misunderstands the compulsive force of the federal income tax laws. Section 3402(a)(1) of the Code provides that "every employer making payment of wages shall deduct and withhold upon such wages" the amount of tax determined either in accordance with the tables or computational procedures prescribed by the Secretary. 26 U.S.C. §3402(a)(1) (1982). Connor did not have a choice in the matter, and thus his purposeful failure to file an accurate W-4 form could be viewed by the jury as an affirmative willful act to support the violation of 26 U.S.C. §7201 comparable to the affirmative acts of evasion outlined in Spies v. United States, 317 U.S. at 499.

Connor also argues that his refusal to allow any withholding from his salary, while intentional, was based on a good faith misunderstanding of the law, such as his sincere belief that wages are not income, and that such a good faith misunderstanding of the law negates a finding of willfulness. Although many of the circuits hold that a sincere and good faith misunderstanding of the law will negate willfulness, see United States v. Jerde [88-1 USTC ¶9238 ], 841 F.2d 818, 822 (8th Cir. 1988); United States v. Mueller [86-1 USTC ¶9121 ], 778 F.2d 539, 541 (9th Cir. 1985); United States v. Phillips [85-2 USTC ¶9745 ], 775 F.2d 262, 262-63 (10th Cir. 1985); United States v. Aitken [85-1 USTC ¶9209 ], 755 F.2d 188, 191-93 (1st Cir. 1985); United States v. Kraeger [83-2 USTC ¶9453 ], 711 F.2d 6, 6 (2d Cir. 1983) (per curiam); Yarborough v. United States [56-1 USTC ¶9295 ], 230 F.2d 56, 60-61 (4th Cir.), cert. denied, 351 U.S. 969 (1956); contra United States v. Cheek [89-2 USTC ¶9509 ], 882 F.2d 1263, 1267 (7th Cir. 1989) (misunderstanding must be objectively reasonable), cert. granted, __ S.Ct. __, 58 U.S.L.W. 3513 (Feb. 20, 1990), this court has not yet taken a position.

This matter is before the Supreme Court in Cheek. We do not wait for the Court's clarification of this issue because in this case the district court did charge the jury that a good faith misunderstanding of the law, judged by a subjective standard, would negate willfulness. See App. at 339-42. The jury's adverse verdict signifies that Connor's arguments that he did not act willfully are without merit.

III.

For the reasons set forth above we will affirm the judgment of conviction.

¹ The government states that up until 1980 Connor had filed income tax returns and complied with the federal tax laws.

² The relevant language of 26 U.S.C. §7205 provided:

Any individual required to supply information to his employer under section 3402 who willfully supplies false or fraudulent information, or who willfully fails to supply information thereunder which would require an increase in the tax to be withheld under section 3402 , shall, in lieu of any other penalty provided by law (except the penalty provided by section 6682 ), upon conviction thereof, be fined not more than $1,000, or imprisoned not more than 1 year, or both.

26 U.S.C. §7205 (1982) amended by, 26 U.S.C. §7205 (Supp. II 1984).

³ Although we do not rely on the concurrent sentence doctrine, see United States v. American Investors of Pittsburgh, Inc., 879 F.2d 1087, 1100 (3d Cir.), cert. denied, 110 S.Ct. 368 (1989), we do note that whatever argument Connor has with respect to 26 U.S.C. §7205 is inapplicable to Counts 4 and 5 because his W-4 form referred to in Count 4 and the affidavit in lieu of a W-4 form that was the basis of Count 5 were filed after the effective date of the 1984 amendment. The sentences on Counts 4 and 5 were imposed to be concurrent with those on Counts 2.