Costs
7206- Fraud and
False Statements: Costs
[90-2
USTC ¶50,461]
United States of America
, Plaintiff-Appellee v. Charles Howard Jungels, Defendant-Appellant
(CA-7),
U.S. Court of Appeals, 7th Circuit, 89-3403,
8/23/90
, 910 F2d 1501, Affirming an unreported District Court decision
[Code Secs.
7201 , 7206 and 7602 ]
Crimes: Evasion of tax: False returns: Costs: Summons: Validity:
Right to counsel.--The imposition of costs of prosecution is
mandatory under Code Secs. 7201 and 7206 . Accordingly, the
lower court properly charged the costs of prosecution for tax evasion
and filing false tax returns to an individual who was declared indigent
for purposes of appointment of counsel. Summonses for the production of
records were properly issued in good faith to a cooperating witness for
an authorized purpose of obtaining more documents and information than
were possessed by the IRS before criminal prosecution of an individual
was recommended. An individual was not deprived of his right to counsel
when the IRS tape recorded incriminating statements made to a
cooperating witness because such right did not attach where the matter
had not proceeded from the investigative to the accusatorial stage.
Accordingly, an attorney's convictions for tax evasion and filing false
returns were sustained.
Ralph
M. Friederich, Assistant United States Attorney,
East St. Louis
,
Ill.
62201
, for plaintiff-appellee. Michael Dwyer,
1114 Market St.
,
St. Louis
,
Mo.
63101
, for defendant-appellant.
Before
FLAUM and MANION, Circuit Judges, and ESCHBACH, Senior Circuit Judge.
PER
CURIAM:
A"EC
JURY CONVICTED CHARLES JUNGELS OF INCOME TAX EVASION, FILING FALSE
INCOME TAX RETURNS, AND OBSTRUCTION OF JUSTICE. JUNGELS CHALLENGES THE
DISTRICT COURT'S DENIAL OF HIS MOTION TO SUPPRESS AND THE IMPOSITION OF
THE COSTS OF PROSECUTION. WE AFFIRM.
I.
Background
Jungels
was an attorney specializing in personal injury, medical malpractice and
workers' compensation cases who practiced in
Granite City
,
Illinois
. He accepted cases on a contingency basis which entitled him to one
third of any personal injury award, forty percent of medical malpractice
awards, and twenty percent of workers' compensation awards. Jungels'
deceptive practice was to declare to the Internal Revenue Service (IRS)
only a small portion of the fees he actually received. For instance in
1981, Jungels' income tax return showed that his taxable income was
$27,000, when in fact his taxable income was $77,000. To avoid
detection, he had his legal clients sign statements attesting to lower
fee amounts. Also Jungels failed to declare as income his receipts from
a lucrative marijuana and cocaine trafficking business. These practices
continued through 1983.
Jungels
hid his unreported income by purchasing bonds and opening up bank
accounts in the names of other people. For instance he purchased a bond
in the amount of $21,000 in the name of a three year old boy named
Charles Pitman. Pitman was the son of Elizabeth Marzluff, Jungels'
former employee and sometime girlfriend. Marzluff discovered the bond
scheme when she mistakenly received by mail a check for the full amount
of the bond in her son's name. She cashed the check and split the money
with another of Jungels' employees. In order to find out what else
Jungels might have bought in her or her son's name, she broke into his
house and stole some financial records, including an assortment of bills
and deposit slips.
Whether
feeling the pangs of conscience or fearing prosecution, Marzluff
reported her findings to the IRS, which opened an investigation into
Jungels' taxes. She also turned over the various bills and financial
documents which she had stolen. Some of the documents were in Marzluff's
name and some were in her son's name. As part of its investigation,
which at this time was both civil and criminal in nature, the IRS issued
summonses for records in both names to various banks, savings and loans,
and brokerage firms.
Jungels,
who did not yet know that Marzluff was cooperating with the IRS, tried
to persuade her to file a motion to quash the summonses the IRS had
issued in her name. To this end he suggested that she meet with his
attorneys. Marzluff advised the IRS about Jungels' suggestion, decided
to attend the meeting and agreed to be wired with a tape recorder. On
October 31, 1983
, Marzluff and Jungels drove to
Bellville
,
Illinois
for the meeting. After the meeting, on the ride back to and when they
arrived at
Granite City
, Jungels made incriminating statements to Marzluff concerning his
scheme to skim money from his law practice. Those statements were
preserved on Marzluff's hidden recorder.
Four
years later, the government indicted Jungels on two counts of income tax
evasion pursuant to 26 U.S.C. §7201 , three counts of
filing false income tax returns pursuant to 26 U.S.C. §7206 and two counts of
obstruction of justice pursuant to 18 U.S.C. §1503 . Prior to trial in
August 1989, Jungels filed a motion to suppress the documents obtained
through the IRS summonses and the statements recorded by Marzluff. At a
hearing on the motion, Special Agent James Wehrheim testified on behalf
of the IRS that the summonses were issued because the records received
from Marzluff were incomplete and she did not know if Jungels had opened
additional accounts in her name or her son's name. He stated that the
issuance of these summonses was part of standard investigation
procedures to obtain complete records.
Relying
on United States v. Powell [64-2
USTC ¶9858 ], 379 U.S. 48 (1964), and United States v.
Gimbel [86-1 USTC ¶9187 ],
782 F.2d 89 (7th Cir. 1986), the district court denied the motion to
suppress, stating that the summonses were issued for a proper purpose
because the IRS sought clearly relevant information that was not in its
possession. Regarding the tape recorded conversations, the court held
that the Sixth Amendment right to counsel had not attached when the
recordings were made because adversary judicial proceedings had not yet
been initiated. The court found that the attorney-client privilege did
not extend to conversations made en route to and returning from the
attorney conference. (The tape of the conversation at the attorney's
office was not submitted into evidence.) Finally, the court found that
there was no Fourth Amendment violation resulting from Marzluff's
consensual monitoring.
After
a jury convicted Jungels on all seven counts on
August 28, 1989
, the district court sentenced him to a three year term of imprisonment
on the tax evasion count and a concurrent three year term on the other
six counts. The court also taxed Jungels with costs of prosecution
totalling $937 pursuant to 26 U.S.C. §§7201 and 7206 .
On
appeal Jungels argues that the district court erred in imposing costs on
him because he was found to be indigent for purposes of appointment of
counsel. Next he argues that the IRS improperly issued summonses for
information to which it allegedly had access. Finally he contends that
the IRS violated his Sixth Amendment right to counsel when it elicited
incriminating information from him through a cooperating witness.
II.
Analysis
A.
Taxation Of Costs Under 26 U.S.C. 7201 and 7206 Against An Indigent
Defendant
This
circuit recently held that costs are reimbursable under §§7201 and 7203 for expenses of
transportation and subsistence for witnesses employed by the
United States
. United States v. Dunkel [90-1
USTC ¶50,243 ], 900 F.2d 105, 108 (7th Cir. 1990). The court
is now asked to decide for the first time whether the costs of
prosecution can be taxed pursuant to §7201
and a similar provision in §7206
to a defendant who has been declared indigent for purposes of
appointment of counsel. Jungels argues that the district court abused
its discretion by imposing costs on such a defendant.
The
court's interpretation of this issue must begin with the plain language
of the statutes. In re Sanderfoot, 899 F.2d 598, 600 (7th Cir.
1990). §7201 provides:
Any
person who willfully attempts in any manner to evade or defeat any tax
imposed by this title or the payment thereof shall, in addition to other
penalties provided by law, be guilty of a felony and, upon conviction
thereof, shall be fined not more than $100,000 ($500,000 in the
case of a corporation), or imprisoned not more than five years, or both,
together with the costs of prosecution.
(Emphasis
added). Similarly, §7206(1) provides:
Any
person who willfully makes and subscribes any return, statement, or
other document, which contains or is verified by a written declaration
that it is made under the penalties of perjury, and which he does not
believe to be true and correct as to every material matter . . . shall
be guilty of a felony and, upon conviction thereof, shall be
fined not more than $100,000 ($500,000 in the case of a corporation),
imprisoned not more than 3 years, or both, together with the costs of
production.
(Emphasis
added). Pursuant to these statutes, the district court has discretion to
impose either a fine or imprisonment or both on a defendant. The court
must however award costs. The grammatical structure of the statute and
the use of the word "shall" can only mean that the provision
regarding costs is mandatory. Three other circuits have given the same
construction to similar language in §7203 . United States
v. Palmer [87-1
USTC ¶9184 ], 809 F.2d 1504, 1506 (11th Cir. 1987); United
States v. Wyman [84-1
USTC ¶9147 ], 724 F.2d 684, 688 (8th Cir. 1984); United
States v. Chavez [80-2
USTC ¶9688 ], 627 F.2d 953, 955 (9th Cir. 1980) ("The
use of the word 'shall' in the statute, although not entirely
controlling, is of significant importance, and, indicates an intention
that the statute should be construed as mandatory."), cert.
denied, 450 U.S. 924 (1981).
Congress
has enacted other statutes which provide for the imposition of costs at
the discretion of the district court. 28 U.S.C. §1918(b) provides:
"[w]henever any conviction for any offense not capital is obtained
in a district court, the court may order that the defendant pay
the costs of prosecution." (Emphasis added). The contrast in the
language in §1918, and §§7201 and 7206 indicates that
Congress knew how to draft both mandatory and discretionary provisions
without confusing the two. Chavez, 627 F.2d at 955. Because the
plain language of the statute is clear, the court need not engage in a
lengthy examination of legislative history. Schalk v. Reilly, 900
F.2d 1091, 1095-96 (7th Cir. 1990). Also Jungels' argument regarding
potential constitutional problems in taxing costs to indigent defendants
is meritless. Palmer, 809 F.2d at 1508 (the mere possibility of a
substantial increase in penalty does not have an impermissibly chilling
effect on the exercise of a defendant's constitutional rights); Wyman,
724 F.2d at 688; Chavez, 627 F.2d at 957.
We
hold that the imposition of costs under §§7201
and 7206 is mandatory. We
express no opinion on the propriety of taxing costs on an indigent
defendant under a discretionary statute such as §1918(b).
B.
Good Faith Issuance Of Summonses
Next
Jungels argues that the IRS did not issue the summonses in Marzluff's
name and her son's name in good faith because the information sought in
the summonses was already in the possession of the IRS. In United
States v. LaSalle Nat'l Bank [78-2
USTC ¶9501 ], 437 U.S. 298 (1978), the Supreme Court
established two requirements for the enforcement of an IRS summons.
First, the summons must be issued before the IRS recommends to the
Department of Justice that a criminal prosecution, which reasonably
would relate to the subject matter of the summons, be undertaken.
Id.
at 313; see 26 U.S.C. §7602(c)(1)
. Second, prior to a recommendation for prosecution to the
Department of Justice, the IRS must use its summons authority in good
faith pursuit of the congressionally authorized purposes of §7602 . 1 LaSalle
Nat'l Bank, 437
U.S.
at 314; Donaldson v. United States [71-1
USTC ¶9173 ], 400 U.S. 517, 536 (1971); Powell, 379
U.S.
at 57-58. In Powell, the Supreme Court announced several elements
of a good faith exercise:
[The
IRS] must show [1] that the investigation will be conducted pursuant to
a legitimate purpose, [2] that the inquiry may be relevant to the
purpose, [3] that the information sought is not already within the
Commissioner's possession, and [4] that the administrative steps
required by the Code have been followed.
Id.
at 57-58. The mere fact that the Government might be able to obtain some
or all of the documents through a different procedure does not by itself
compel the conclusion that the Government's attempt to enforce the
summons is being made in bad faith. Gimbel, 782 F.2d at 93 (IRS
summons is not issued in bad faith where the government had access to
the requested documents through a tax court case); United States v.
Arthur Andersen & Co. [80-2 USTC ¶9515 ],
623 F.2d 725, 728 & n.5 (1st Cir. 1980) (the IRS is not barred from
invoking its summons authority under §7602 merely because the
Department of Justice has recourse to available bankruptcy discovery
procedures).
Jungels
has not demonstrated sufficient justification to preclude enforcement of
the IRS summons. No recommendation to the Justice Department for
criminal prosecution was made until four years after the IRS issued the
summonses. Regarding the Powell criteria, although the record
shows that the IRS had received from Marzluff some documents which she
had obtained from Jungels' home, it does not show that she had
documented all of the accounts that Jungels may have opened in her name
or her son's name. In fact, the information and documents that she
purloined may have only revealed the tip of the iceberg. Because
production of the financial institutions' records could be expected to
reveal part or all of this information, which would be material to the
computation of Jungels' tax liability, the Powell criteria do not
preclude enforcement. Therefore the IRS is not barred from invoking its
summons authority under §7602 merely because the
IRS has access to some documents through a cooperating witness.
C.
Sixth Amendment Right To Counsel
Finally,
Jungels argues that the IRS interfered with his Sixth Amendment right to
counsel when it wired Marzluff during the conference with his attorneys.
Jungels draws an analogy between Marzluff's actions and cases in which
statements were surreptitiously elicited by undercover agents such as
jail informants. This argument is meritless.
It
is firmly established that the right to counsel attaches only at or
after the "initiation of adversary judicial proceedings."
United States
v. Gouveia, 467
U.S.
180, 185-86 (1984); Kirby v.
Illinois
, 406
U.S.
682, 688 (1972). Thus the Sixth Amendment right to counsel provides
every defendant with the right to have representation during a
"critical stage" of the adversarial proceedings. Holloway
v.
Arkansas
, 435
U.S.
475, 490 (1978);
United States
v. Wade, 388
U.S.
218, 227 (1967). Jungels does not argue that judicial proceedings had
been initiated by way of formal charge, preliminary hearing, indictment,
information, or arraignment. Because the matter had not yet proceeded
from the investigative to the accusatorial stage, Moran v. Burbine,
475 U.S. 412, 432 (1986); United States v. White, 879 F.2d 1509,
1513 (7th Cir. 1989), cert. denied, -- U.S. --, 110 S.Ct. 1471
(1990), Jungels has made no showing whatsoever that the investigation
had reached a "critical stage" requiring the right to counsel
under the Sixth Amendment.
III.
Conclusion
For
these reasons, both the conviction and the decision of the district
court to impose costs are
AFFIRMED.
1
The Tax Code at 26 U.S.C. §7602
permits the use of a summons "[f]or the purpose of
ascertaining the correctness of any return, . . . determining the
liability of any person for any internal revenue tax . . ., or
collecting any such liability, the Secretary is authorized to examine
any books, papers, records, or other data which may be relevant or
material to such inquiry."
[99-1
USTC ¶50,341]
United States of America
, Plaintiff-Appellee v. Alan D. Cooper, Defendant-Appellant
(CA-7),
U.S.
Court of Appeals, 7th Circuit, 98-1144,
3/10/99
, 170 F3d 691, 170 F3d 691. Affirming an unreported District Court
decision
[Code
Sec. 7206 and Fed. R. App. P. 38 ]
Frivolous appeals: Tax fraud: Tax-protest arguments: Sanctions.--A
taxpayer's conviction and sentence for tax fraud, including an order to
pay the costs of his prosecution, were upheld. In addition, since his
contentions on appeal were frivolous, tax-protestor arguments, he was
directed to show cause as to why he should not be sanctioned for filing
a frivolous appeal. The fact that he was involved in a criminal case did
not rule out the imposition of sanctions under Fed. R. App. P. 38.
Before:
POSNER, Chief Judge, and EASTERBROOK and KANNE, Circuit Judges.
POSNER,
Chief Judge:
Alan
Cooper was convicted of tax fraud, sentenced to 46 months in prison, and
pursuant to the tax-fraud statute, 26 U.S.C. sec. 7206, ordered as part
of the sentence to pay the costs of prosecution, $19,123.77. He appeals,
making typical, and wholly frivolous, tax-protester arguments, such as
that only residents of
Washington
,
D.C.
, and other federal enclaves are subject to the federal tax laws because
they alone are citizens of the
United States
and that wages are not income because they are compensation for working
rather than a pure economic rent. These arguments, frivolous when first
made, have been rejected in countless cases. They are no longer merely
frivolous; they are frivolous squared.
The
interesting question is whether Cooper can and should be sanctioned for
this frivolous appeal. If he were a civil appellant, the answer would be
clearly yes. Fed. R. App. P. 38. And nothing in Rule 38 confines its
operation to civil cases. In Wisconsin v. Glick, 782 F.2d 670,
673 (7th Cir. 1986), we sanctioned a defendant who appealed an order
remanding to state court a prosecution that had been initiated there but
that he had frivolously removed to federal court; we left open the
question "whether and when a court should impose sanctions on a
criminal defendant who simply makes unsupportable arguments during the
regular course of trial and appeal."
Id.
at 673. In In re Becraft, 885 F.2d 547, 550 (9th Cir. 1989) (per
curiam), the Ninth Circuit sanctioned a criminal defendant who
reasserted frivolous arguments in a petition for rehearing, but again
the court left open the question of its authority to sanction a
frivolous direct criminal appeal.
Id.
at 550 n. 4.
We
cannot think of a compelling reason for an absolute, categorical
exclusion of criminal cases from the grasp of Rule 38 (though we cannot
find a case in which Rule 38 sanctions have been imposed on a direct
criminal appellant). 16A Charles Alan Wright et al., Federal
Practice and Procedure sec. 3984.1, p. 630 (2d ed. 1996). The rule must
be applied with caution in such cases to avoid discouraging convicted
defendants from exercising their right to appeal. Wisconsin v. Glick,
supra, 782 F.2d at 673; In re Becraft, supra, 885 F.2d at
550. But the Anders line of cases shows that a criminal defendant has no
right to take a frivolous appeal. And frivolous criminal appeals do the
criminal defendant no good. They clog the court system and, worse, they
hurt meritorious criminal appeals by inviting sweeping rulings and by
engendering judicial impatience with the entire class of criminal
defendants.
The
judicious application of Rule 38 to criminal appeals, if need be
confining that application to what we have described as "frivolous
squared" appeals, is particularly appropriate in the case of tax
fraud. Section 7206 of the Internal Revenue Code, as noted at the outset
of this opinion, imposes the cost of a successful prosecution for tax
fraud on the offender. The statute refers only to the cost of
prosecution in the district court. And because that cost is awarded as
part of the sentence, see, e.g., United States v. Becker [92-2
USTC ¶50,314], 965 F.2d 383, 385 (7th Cir. 1992); United States v.
Hiland, 909 F.2d 1114, 1119 (8th Cir. 1990); United States v.
Turnbull, 888 F.2d 636, 637 (9th Cir. 1989), an award to the
government of the cost it incurred in defending against a frivolous
appeal would require resentencing if such an award were deemed
encompassed within section 7206. It is sensible to leave the making of
the award to the appellate court, applying the standard of Rule 38. But
to bar such an award altogether would be inconsistent with the spirit of
section 7206.
The
fact that the statute makes no provision for an award of appellate costs
cannot be taken as a congressional determination that such awards should
not be permissible under any other provision of law, and in particular
Rule 38. The standards are different. Section 7206 makes the award of
the government's cost of prosecution automatic if the defendant is
convicted, no matter how close the case or colorable his defenses. Rule
38 comes into play only if the appeal is adjudged frivolous. Affirmance
of the conviction is not enough.
So
while affirming the judgment, we direct the appellant to show cause
within 10 days from the date of this decision why he should not be
sanctioned under Fed. R. App. P. 38 for filing a frivolous appeal.
Affirmed;
Rule to Show Cause Issued.
[2000-2
USTC ¶50,585]
United States of America
, Appellee v. James D. Tindall, Appellant
(CA-8),
U.S.
Court of Appeals, 8th Circuit, 99-2899,
6/30/2000
, 2000
U.S.
App. LEXIS 15309. Affirming an unreported District Court decision
[Code
Sec. 7206 ]
Crimes: False returns: Enhanced sentence: Sophisticated means: Abuse
of position of trust: Obstruction of justice: Imposition of costs.
Mandatory liability: Ability to pay.--The sentence imposed on a
taxpayer who was convicted of filing a false return was properly
enhanced by the trial court in light of his use of sophisticated means
to conceal his offense, his abuse of a position of trust, and his
actions in obstructing or impeding the administration of justice during
his case. He was also liable for the costs of his prosecution;
imposition of such costs is mandatory under Code Sec. 7206 . However,
the trial court erred when it failed to consider the taxpayer's ability
to pay the costs of prosecution. Thus, the portion of the sentence
assessing costs was overturned pending a determination of his ability to
pay.
Before:
WOLLMAN, Chief Judge, FAGG and BOWMAN, Circuit Judges.
è
Caution: This court has designated this opinion as NOT FOR
PUBLICATION. Consult the Rules of the Court before citing this case.ç
OPINION
PER
CURIAM:
A"EC
JURY CONVICTED JAMES D. TINDALL OF ONE COUNT OF FILING A FALSE TAX
RETURN IN VIOLATION OF 26 U.S.C. §7206 (1994), AND TINDALL NOW APPEALS
HIS SENTENCE. HAVING CAREFULLY REVIEWED THE RECORD AND THE PARTIES'
BRIEFS, WE AFFIRM IN PART, REVERSE IN PART, AND REMAND.
First,
the district court did not commit error by enhancing Tindall's sentence
for failing "to report or to correctly identify the source of
income exceeding $10,000 in any year from criminal activity," U.S.
Sentencing Guidelines Manual (U.S.S.G.) §2T1.1(b)(1) (1998); for using
sophisticated means to conceal his offense, see id. §2T1.1(b)(2);
United States v. Brooks, 174 F.3d 950, 958 (8th Cir. 1999); for
abusing his position of trust, see U.S.S.G. §3B1.3; United
States v. Lilly, 37 F.3d 1222, 1226-27 (7th Cir. 1994); and for
obstructing or impeding the administration of justice during his case, see
U.S.S.G. §3C1.1; United States v. O'Dell, 204 F.3d 829, 836-37
(8th Cir. 2000).
Second,
the district court properly concluded the imposition of the costs of
prosecution on Tindall was mandatory under §7206, which provides that a
person convicted of filing a false tax return "shall be fined not
more than $100,000 . . ., or imprisoned not more than 3 years, or both,
together with the costs of prosecution." See United States v.
May [95-2 USTC ¶50,548], 67 F.3d 706, 707-08 (8th Cir. 1995)
(language of 26 U.S.C. §7203, which is identical to §7206, provides
costs of prosecution are mandatory); United States v. Wyman [84-1
USTC ¶9147], 724 F.2d 684, 688-89 (8th Cir. 1984) ("Under our
interpretation of [§7203], the trial court has discretion to impose
either a fine or imprisonment or both but the trial court does not have
discretion to fail to award costs [of prosecution]"); United
States v. Jungels [90-2 USTC ¶50,461], 910 F.2d 1501, 1504 (7th
Cir. 1990) (per curiam) ("imposition of costs [of
prosecution] under . . . [§]7206 is mandatory").
Finally,
Tindall correctly contends the district court failed to consider his
ability to pay the costs of prosecution as required by our decision in
May. In May, a panel of this court stated:
The
assessment of costs of prosecution is part of [a defendant's] punishment
. . . . Although . . . a claim [of financial inability to pay costs of
prosecution] should be viewed most skeptically, . . . §7203 treats
costs of prosecution as a fine, and a defendant's ability to pay must be
considered in determining the amount of a criminal fine.
May
[95-2 USTC ¶50,548], 67 F.3d at 707, 708; see U.S.S.G. §5E1.2(d)(2)
("In determining the amount of the fine, the court shall consider .
. . any evidence presented as to the defendant's ability to pay the fine
(including the ability to pay over a period of time) in light of his
earning capacity and financial resources"). Although the Government
argues the May decision "is quite simply wrong" (Appellee's
Br.
at 43), we are bound by the earlier panel's decision unless and until
that decision is overruled by the en banc court. Because the district
court made no finding concerning Tindall's ability to pay the costs of
prosecution as required by May, we reverse the portion of Tindall's
sentence assessing costs of prosecution and remand to the district court
for a finding on that issue. If the district court finds Tindall is able
to pay the costs of prosecution, the court may reinstate the judgment.
If the district court finds Tindall is unable to pay the costs of
prosecution, however, the court must reconsider that portion of
Tindall's sentence in light of May.
We
thus affirm in part, reverse in part, and remand for further proceedings
consistent with this opinion. See 8th Cir. R. 47B.