False Statements to IRS Agents Page3

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¹¹ Title 26 U. S. C. A. §7601(a):

The Secretary or his delegate shall, to the extent he deems it practicable, cause officers or employees of the Treasury Department to proceed, from time to time, through each internal revenue district and inquire after and concerning all persons therein who may be liable to pay any internal revenue tax, and all persons owning or having the care and management of any objects with respect to which any tax is imposed.

Title 26 U. S. C. A. §7602:

For the purpose of ascertaining the correctness of any return, making a return where none has been made, determining the liability of any person for any internal revenue tax or the liability at law or in equity of any transferee or fiduciary of any person in respect of any internal revenue tax, or collecting any such liability, the Secretary or his delegate is authorized--

(1) To examine any books, papers, records, or other data which may be relevant or material to such inquiry;

(2) To summon the person liable for tax or required to perform the act, or any officer or employee of such person, or any person having possession, custody or care of books of account containing entries relating to the business of the person liable for tax or required to perform the act, or any other person the Secretary or his delegate may deem proper, to appear before the Secretary or his delegate at a time and place named in the summons and to produce such books, records, or other data, and to give such testimony, under oath, as may be relevant or material to such inquiry; and

(3) To take such testimony of the person concerned, under oath, as may be relevant or material to such inquiry.

¹² 229 F. 2d at 299.

¹³ Ibid.

¹⁴ 254 F. 2d at 293.

¹⁵ Id. at 294.

¹⁶ 317 U. S. at 497-8.

¹⁷ Cf. McCormick, Evidence §152 (1954).

¹⁸ The December 14, 19 54, lease and option to purchase was in all important particulars the same as the lease and option dated July 20, 19 54, but it had been changed in some details not pertinent to this discussion.

¹⁹ See generally 6 Wigmore, Evidence §§ 1876-81 (3d ed. 1940).

 

[68-2 USTC ¶9501] United States of America , Appellee v. Adam Bagdasian, Appellant

(CA-4), U. S. Court of Appeals, 4th Circuit, No. 11,747, 398 F2d 971, 7/18/68, Aff'g unreported District Court opinion

[1954 Code Secs. 7201 and 7206(1)]

Crimes: Willful evasion of tax: False returns: Appeal without merit: Miscellaneous assertions of error.--The taxpayer's appeal from his conviction for willfully attempting to evade tax and willfully subscribing to a false tax return was without merit. His contention that there was a material variance between the charge and the proof warranted little discussion since the charge listed two items of income not reported, totalling nearly $15,000, and the evidence established that the taxpayer received this amount from two individuals, both of whom testified at trial. Further, his attempt to establish his status as a self-employed individual, entitling him to certain deductions not shown on his return, was specifically refuted by his testimony taken from the transcript of a state trial involving charges of fraud by one of the individuals from whom he had received one of the unreported items of income. Nor was there evidence to support his claim that the money had been paid over by him to a bookmaker. Finally, the evidence supported the lower court's finding of the essential element of willfulness.
[1954 Code Secs. 7201 and 7206(1)]

Crimes: Willful evasion of tax: False returns: Motion to suppress evidence: Statements made to IRS agents.--The taxpayer's conviction for willfully attempting to evade tax and willfully subscribing to a false return was affirmed where a motion to suppress evidence obtained during two interviews conducted by IRS agents was properly denied. The first interview took place in the taxpayer's kitchen and was not the type of custodial interrogation envisioned by the rule of Miranda v. Arizona, Sup. Ct. , 384 U. S. 436, requiring a warning as to the taxpayer's constitutional rights. And the second interview, conducted at a penitentiary where the taxpayer was incarcerated as the result of an earlier conviction, did not come under the rule because no information obtained during that interview was used at trial.

Stephen H. Sachs, United States Attorney, Clarence E. Goetz, Assistant United States Attorney, Baltimore, Md., for appellee. J. William Martin, Leroy W. Preston, Law Bldg., St. Paul Place at Franklin, Baltimore, Md., Sylvan Sack, 2404 St. Paul, Baltimore, Md., for appellant.

Before BOREMAN, WINTER and CRAVEN, Circuit Judges.

BOREMAN, Circuit Judge:

At a non-jury trial Adam Bagdasian was found guilty by the court on both counts of a two-count indictment charging him with violations of 26 U. S. C. §§ 7201 and 7206(1) in willfully attempting to evade a portion of his income tax for the year 1959 and in willfully subscribing to a false tax return for that year. He was sentenced to serve a term of one year on each of the two counts, the sentences to run concurrently. We find the appeal to be without merit.

There is no dispute between the defendant and the Government that this was a "specific items" case. The Government charged Bagdasian with attempting to evade tax on two items of income totalling $14,990.00. The evidence was sufficient to establish that Bagdasian had received this amount through fraudulent schemes perpetrated upon two individuals, one in Pennsylvania and the other in Connecticut , during 1959. Both of the persons defrauded testified at trial, and the Government made no attempt to establish that Bagdasian had any other income. Bagdasian, however, contends that there was a material variance between the charge in the indictment as particularized and the proof as presented. This contention warrants little discussion.

By way of defense to the charges, Bagdasian attempted to show that his status was that of a self-employed taxpayer and that, by establishing his entitlement to certain deductions and business expenses which had not been specifically shown on his 1959 return as filed, he had not understated his income. In refuting this contention the Government introduced testimony taken from the transcript of a Pennsylvania state trial in which Bagdasian had been acquitted of state charges growing out of his dealings with the Pennsylvania individual. Bagdasian's own testimony at that trial that his expenses were paid by his employer was in direct conflict with his claim in the instant case of entitlement to business deductions and to his claim of self-employment status. It is true that his own testimony at the previous trial also revealed that he was paid a salary by his employer. But it is clear that the Government did not attempt to add this to Bagdasian's alleged income and that the court plainly understood the limited purpose of the introduction of the testimony from the state court trial. We conclude that there was no variance between the indictment and proof.

With respect to his attempt to establish deductible business expenses Bagdasian further argues that the court erred in its determination that he was not entitled to any business deductions or to the benefit of the Cohan rule. Cohan v. Commissioner [2 USTC ¶489], 39 F. 2d 540 (2 Cir. 1930). At trial Bagdasian attempted to establish through the testimony of several witnesses that during 1959 he was a race track tout. Bagdasian claimed that, in acting as a tout, he was self-employed and he attempted to show that he had sizable expenses for travel and subsistence incident to his occupation. There is a paucity of evidence to substantiate defendant's assertion that he was, in fact, a tout and we find no error in the court's rejection of this contention. We thus deem it unnecessary to consider the possible application of the Cohan rule to the evidence concerning Bagdasian's claim of allowable expense deductions.

Clearly, there was no error in the court's denial of defendant's motion for judgment of acquittal. Bagdasian argues that the evidence supports the inference that the $10,000.00 he obtained in Pennsylvania must have been paid over by him to a bookmaker. This argument is rejected. Secondly, his reliance on Commissioner v. Wilcox [46-1 USTC ¶9188], 327 U. S. 404 (1946), is totally misplaced as that case is factually distinguishable from the case at bar and is inapposite.

Next, we conclude that there was no error in the court's denial of defendant's motion to suppress evidence obtained during two interviews conducted by agents of the IRS. The first interview took place over coffee in Bagdasian's kitchen and could hardly meet the custodial interrogation requirements of Miranda v. Arizona, 384 U. S. 436 (1966). While the second was conducted at Lewisburg Penitentiary where the defendant was then incarcerated as the result of an earlier conviction and he was admittedly without counsel, it was clearly shown that no information obtained during this interview was used against Bagdasian at trial.

Finally, Bagdasian contends that the essential element of willfulness was not established by the evidence. We cannot agree. Willfulness, of course, may not be inferred from the mere understatement of income. Holland v. United States [54-2 USTC ¶9714], 348, U. S. 121, 139 (1954). But we find in the record substantial evidence of additional facts and circumstances which fully supports the finding of willfulness. The judgment below is

Affirmed.

 

 

[68-2 USTC ¶9599] United States of America , Appellee v. Charles Marcus, Appellant

(CA-2), U. S. Court of Appeals, 2nd Circuit, Docket No. 32230, 401 F2d 563, 9/20/68, Affirming an unreported District Court case

[1954 Code Secs. 7201 and 7206]

Tax evasion: False and fraudulent returns: Miscellaneous assertions of error.--Taxpayer's conviction for tax evasion and for making false and fraudulent returns was upheld. Taxpayer's miscellaneous assertions of errors were without merit.

Robert M. Morgenthau, United States Attorney, Abraham D. Sofaer, David M. Dorsen, Pierre N. Leval, Assistant United States Attorneys, New York, N. Y., for appellee. Morton S. Robson, Michael E. Geltner, Marshall, Bratter, Greene, Allison & Tucker, 430 Park Ave., New York, N. Y., for appellant.

Before LUMBARD, Chief Judge, FRIENDLY and HAYS, Circuit Judges.

LUMBARD, Chief Judge:

Charles Marcus appeals from his conviction on nine counts for tax evasion and for making false statements in tax returns filed by some of his wholly owned corporations. He received a prison sentence of one year and fines totalling $30,000 after a trial before a jury, Judge Irving Ben Cooper presiding. On appeal Marcus challenges the sufficiency of the evidence, numerous rulings on the admissibility of evidence, the refusal of the trial judge to grant a mistrial following certain remarks made by the prosecutor during summation, and the propriety of portions of the judge's charge to the jury. Since we find no error in the trial judge's rulings and conduct of the trial we affirm the conviction.

The first four counts of the indictment charged Marcus under 26 U. S. C. §7201 with attempting to evade his personal income taxes by filing false and fraudulent returns for the years 1959 through 1962. The remaining counts charged Marcus under 26 U. S. C. §7206(1) with making false statements in the tax returns of five corporations which he wholly owned and controlled: the Ben Frank, Inc., for the fiscal years ending January 31, 19 60 and 1961; the Casa Trading Corp. for the years ending January 31, 19 60 and 1963; the Taca Trading Corp. for the years ending January 31, 19 60 and 1961; the Aritor Corp. for the year ending August 31, 19 62; and the Baritor Corp. for the year ending August 31, 19 62.

The evidence at trial showed that Marcus, a certified public accountant, had as his principal source of income the business of cashing checks for a fee through 43 checking accounts which he maintained at 10 banks. Most of these accounts were in the names of five corporations named in the indictment, but some were in the names of friends, some in the names of fictitious individuals and companies, and five accounts were in Marcus's own name. Marcus also used the checking accounts of businesses for whom he did accounting, concealing this activity by using the cash of the businesses for his check cashing and depositing the checks he cashed in the business accounts. The evidence showed that Marcus charged fees ranging from 1/2% to 3% for cashing checks. Although Marcus cashed more than ten million dollars of checks during the years 1959 through 1962 he claimed that he kept no books. Consequently the government established its case through the testimony of numerous witnesses from banks, persons for whom Marcus cashed checks, and persons whose accounts he used, and through the introduction of a large number of bank records.

Marcus told Special Agent Ferrise that he received a fee of 1/2% for his check cashing services. In computing Marcus' income the government applied this fee to his total check deposits, with the exception that a higher fee of up to 3% was applied to transactions in which clients testified they had paid this higher amount. To this total was added Marcus' income from interest on savings bank accounts and from his accounting fees. The government's computations showed that Marcus had underreported his taxable income for the years in question by amounts ranging from $9,000 to $26,000, as follows:

                       Taxable

                      Income         Government's

Year                Reported          Computation         Deficiency

1959 ....         $ 3,555.87           $12,618.81         $ 9,062.94

1960 ....           5,784.50            18,191.93          12,407.42

1961 ....           3,729.55            19,326.05          15,596.50

1962 ....         $21,600.00            48,136.43          26,536.43

 

There is no merit in appellant's argument that the government's evidence was insufficient to establish beyond a reasonable doubt that Marcus underreported his income. A review of the record shows that there was an abundance of evidence to support the conviction. Appellant's argument to the contrary seems based on the mistaken premise that the government must establish the precise amount by which income was underreported. In fact the prosecution meets its burden when it shows that income was underreported by a substantial amount. Swallow v. United States [62-2 USTC ¶9693], 307 F. 2d 81, 83 (10th Cir. 1962), cert. denied 371 U. S. 950 (1963); Olender v. United States [56-2 USTC ¶9936], 237 F. 2d 859, 867 (9th Cir. 1956), cert. denied 353 U. S. 982 (1957).

The testimony of Special Agent Ferrise concerning certain admissions made to him by Marcus was vital to the government's case. Ferrise testified he had been told by Marcus that Marcus received a fee of 1/2% on each of the checks he cashed, that he deducted this fee at the time he cashed the checks, that he paid to himself the fees received by his corporations, and that he suffered no losses from bad checks. It is settled that these admissions are not competent evidence unless they are corroborated by independent evidence tending to establish either that the admissions were reliable or that the crime charged was in fact committed. Smith v. United States [54-2 USTC ¶9715], 348 U. S. 147, 152-56 (1948). The government's evidence, particularly the testimony of numerous clients of Marcus, amply met both of these alternative standards.

Of course the government did not prove independently as appellant stresses, that Marcus charged a fee on each and every one of the thousands of checks he cashed or that he never sustained a loss on a check. But this was not the government's burden. The facts concerning the fees and the absence of losses were alleged to have been admitted by Marcus, and the prosecution needed only to provide the jury with a basis for concluding that the admissions had been made and were accurate. There was ample evidence in the record to support these conclusions.

There is no merit in appellant's contention that his admissions to Agent Ferrise should have been excluded since he was not warned of his right to counsel. Marcus was not in custody and he was fully aware that his activities were the subject of a tax investigation. In these circumstances the holding of Miranda v. Arizona, 384 U. S. 436 (1966), does not apply. United States v. Mackiewicz, No. 32145, 2d Cir., [68-2 USTC ¶9461] July 10, 19 68.

The trial judge properly refused to strike the testimony of witness Arthur Streit. Streit identified numerous checks which he said he had cashed with Marcus for a 2% fee. He claimed that he used Marcus' services in order to obtain cash with which to purchase goods from suppliers who would not accept checks. On these occasions Marcus would supply Streit with invoices in the name of fictitious companies for Streit's bookkeeping purposes. Streit testified that when he had been contracted by the Internal Revenue Service he informed Marcus of this fact, and that Marcus had told him to "get rid of the books."

On cross-examination counsel for Marcus attempted to establish that Streit's purpose in cashing checks was to evade income taxes rather than to obtain cash for purchases. After responding to some questions relating to his claimed cash purchases Streit invoked his right against self-incrimination and refused to answer several additional questions. It is urged by appellant that Streit's refusals to answer unduly restricted Marcus' right of cross-examination, and that consequently Judge Cooper erred in denying a defense motion to strike all of Streit's testimony. However, all of the seven questions dealt with years which are not involved in this prosecution and went only to Streit's credibility. Since the questions involved only "collateral matters or cumulative testimony, concerning credibility," United States v. Cardillo, 316 F. 2d 606, 613 (2d Cir), cert. denied 375 U. S. 822 (1963), the defense motion was properly denied.

Defense counsel also sought to establish that the reason Streit called Marcus after being contacted by the Internal Revenue Service was fear concerning his own, and not Marcus' tax status. Streit refused to answer a question concerning whether he had called Marcus because of his own fear he would be sent to prison for failing to pay tax on the checks Marcus had cashed for him. But this refusal to answer resulted in no prejudice to defendant's right of cross-examination for Streit had answered two very similar questions previously.

Appellant also claims that the trial judge committed reversible error in refusing to declare a mistrial because of remarks made by the prosecution during summation, remarks which are said to have been improper reflections on Marcus' failure to testify at the trial and on his refusal to answer questions during the government's investigation. We do not agree that the prosecutor's remarks could have been taken by the jury as a comment on defendant's failure to take the stand at trial, and we hold that under the circumstances the comment on defendant's refusal to answer questions before the trial was proper.

Special Agent Ferrise's testimony concerned admissions made by Marcus during an interview at which no stenographer was present. In an effort to attack Ferrise's credibility defense counsel in his summation laid heavy stress on the fact that at an interview with Ferrise five days after the alleged admissions were made, this time when a stenographer was present, Marcus had refused to discuss his check-cashing business. In addition it was pointed out that on two other occasions, when friends of his were present, Marcus had refused to talk with Ferrise. Thus the defense argument was that since Marcus had refused to answer questions with a stenographer present, and on the other two occasions, the jury should conclude, contrary to Ferrise's testimony, that Marcus also had not answered questions at the earlier interview when a stenographer was not present.

The prosecution responded to the defense argument in these words:

"Mr. Marcus is not a stupid man. Nobody who could have run this operation is a stupid man. Mr. Marcus, I submit to you, avoided every opportunity to testify under oath. He may have felt erroneously that Mr. Ferrise could not take the stand to describe what happened, but he was unwilling, I submit to you, to submit himself to any question and answer statement under oath once it became clear to him that he was under investigation."

Immediately following this statement the prosecutor went on to explain the two other instances in which Marcus had refused to talk to Ferrise as stemming from his anxiety that his friends not realize the size of his check-cashing activity.

Thus, when viewed in context the prosecutor's comments are seen to have been directed at Marcus' conduct during the investigation--a rebuttal to the argument raised by the defense--rather than at his failure to testify at trial. And while the language of the prosecutor could have been more precise, this is not an instance where the jury, contrary to the prosecutor's intent, would "naturally and necessarily" construe his statement as a comment on defendant's failure to testify. Morrison v. United States, 6 F. 2d 809, 811 (8th Cir. 1925); cf. United States ex rel. D'Ambrosio v. Fay, 349 F. 2d 957, 958-61 (2d Cir.), cert. denied 382 U. S. 921 (1965). It should be noted that defense counsel did not attempt to secure an instruction from the trial judge which would have clarified any ambiguity present in the government's summation on this point. Indeed, counsel requested the judge to make no comment whatever on the defendant's failure to testify and his right to remain silent.

But appellant also advances as a ground for mistrial the fact that the prosecutor's remarks were directed at Marcus' refusal to answer questions before a stenographer during the investigation. While there is authority to support the contention that comment upon a defendant's refusal to answer questions before trial is ground for a mistrial, see United States v. Sprengel, 103 F. 2d 876 (3rd Cir. 1939); People v. Abel, 298 N. Y. 333, 83 N. E. 2d 542 (1949), this cannot be the case when the subject was introduced to the jury by the defendant's own counsel. Once defense counsel had pointed to his client's refusal to answer questions in an attempt to undermine the credibility of a key government witness it was entirely proper for the prosecutor to respond by offering an alternative explanation for Marcus' prior silence. See United States v. Nasta, No. 32277, 2d Cir., July 17, 19 68.

Finally, it is argued that Judge Cooper erred in his instructions in several respects. First, appellant points to the statement in the charge that "In the final analysis" the jury should acquit if from the evidence "it is more likely that the defendant is innocent than guilty. . . ." In United States v. Hughes, 389 F. 2d 535 (2d Cir. 1968), we held that identical language used by Judge Cooper was error since it suggested to the jury that it apply a preponderance of the evidence standard. But Marcus' counsel made no objection to this language at trial, and Judge Cooper correctly instructed the jury concerning the government's burden of proof on numerous other occasions during his charge. (Record at 1592-95, 1599, 1600-01, 1605, 1623.) The one incorrect reference does not constitute plain error which we should recognize despite counsel's failure to object to it at trial. United States v. Baratta, No. 31744, 2d Cir., June 21, 19 68.

Appellant also claims error in the following instruction concerning the element of wilfulness:

"The most burdensome, I would judge, issue which you must wrestle is the one relating to wilfulness. I think this is the crux of the case; that is, whether the defendant knew that a substantial amount of tax was due, and that the failure of the defendant to report the additional income was wilful."

Appellant argues that this charge effectively withdrew from the jury the issue of whether any income was unreported. We disagree. The jury had been fully instructed regarding the elements of the crime which it must find in order to return a guilty verdict. Judge Cooper's remarks could not have been taken to mean that his careful instructions on these elements were to be disregarded.

The other claims of error in the charge do not warrant discussion.

Judgment affirmed.

 

 

[92-1 USTC ¶50,288] United States of America , Plaintiff-Appellee v. Janice A. Brimberry, Defendant-Appellant

(CA-7), U.S. Court of Appeals, 7th Circuit, 90-3754, 4/17/92 , Affirming an unreported District Court decision

[Code Secs. 7201 and 7206 ]

Evasion or avoidance of tax: Appeal, waiver: Fraud: Statements submitted: False statements to revenue agents.--A taxpayer who participated in a massive embezzlement scheme was properly convicted and sentenced for making and subscribing a false information statement, by failing to reveal assets, and for attempted evasion of payment of income taxes. Her contention that it was reversible error for the district court not to hold a sua sponte hearing to determine if her waiver of the right to testify was knowing and intelligent had already been rejected. Her proposed instruction to the jury in her defense that she did not report her assets to the IRS in good faith reliance on the advice of her accountant was a correct statement of the law, but she was not entitled to the instruction because there was no evidence to support the defense. Her claim that the evidence suggesting that she openly wore her jewelry should preclude a finding of willfulness also was rejected because the record was replete with evidence of her willfulness. In particular, her actions clearly indicated that she was attempting to hide her ownership of a house and her jewelry. Finally, the district court correctly found that the deficiency assessed as a result of her participation in the swindle was the "tax loss" for purposes of determining her base offense level under the sentencing guidelines.

Norman R. Smith, Assistant United States Attorney, Fairview Heights , Ill. 62208 , for plaintiff-appellee. Spiros P. Cocoves, 455 Spitzer Bldg., Toledo , Ohio 43604 , for defendant-appellant.

Before CUDAHY and MANION, Circuit Judges, and REYNOLDS, Senior District Judge. ^*

MANION, Circuit Judge:

Defendant-appellant Janice A. Brimberry was convicted of making and subscribing a false Internal Revenue Service Collection Information Statement in violation of 26 U.S.C. §7206(1) and attempted evasion of payment of income taxes in violation of 26 U.S.C. §7201 . The district court sentenced Brimberry under the Sentencing Guidelines to 33 months imprisonment and two years supervised release for each violation, to run concurrently. Brimberry appeals both her conviction and sentence. For the reasons set forth below, we affirm.

I. Background

This appeal is yet another chapter in the story of Stix & Company, Inc., the object of a massive embezzlement scheme that has generated a glut of litigation in Illinois and Missouri . See, e.g., United States v. Massa, 854 F.2d 315 (8th Cir.), cert. denied, 488 U.S. 973 (1988); United States v. Massa, 804 F.2d 1020 (8th Cir. 1986); United States v. Brimberry, 803 F.2d 908 (7th Cir. 1986), cert. denied, 481 U.S. 1039 (1987); United States v. Brimberry, 779 F.2d 1339 (8th Cir. 1985); United States v. Bednar, 776 F.2d 236 (8th Cir. 1985); United States v. Brimberry, 744 F.2d 580 (7th Cir. 1984); United States v. Massa, 740 F.2d 629 (8th Cir. 1984), cert. denied, 471 U.S. 1115 (1985); United States v. Bednar, 728 F.2d 1043 (8th Cir.), cert. denied, 469 U.S. 827 (1984). Stix & Company was a St. Louis , Missouri , broker-dealer firm engaged in the business of selling securities. In the late 70's, Thomas Brimberry, a senior vice-president and majority shareholder of Stix and, at the time, Janice Brimberry's husband, siphoned millions of dollars from the firm by manipulating margin accounts. Thomas, with the help of other Stix employees, would make false computer entries showing the receipt of nonexistent, fully-paid securities into the accounts. Once he created an appearance of equity in the accounts, Thomas would siphon money by authorizing checks to be drawn from these accounts. Although the government granted Thomas immunity from prosecution for his role in this scheme, he did go to jail for bankruptcy fraud, perjury and obstruction of justice. See United States v. Brimberry, 803 F.2d 908 (7th Cir. 1986), cert. denied, 481 U.S. 1039 (1987); United States v. Brimberry, 779 F.2d 1339 (8th Cir. 1985); United States v. Brimberry, 744 F.2d 580 (7th Cir. 1984).

Janice Brimberry was not merely an innocent bystander in the Stix swindle. At the trials of the co-conspirators, Janice admitted purchasing blank stock certificates and having the names of real securities (matching the false computer entries) printed on them. The false securities were placed in the vault at Stix as a means to avoid detection by Stix's auditors. Janice also falsified records, knowingly signed false income tax returns and destroyed evidence. Janice was indicted for her role in the Stix swindle but was granted immunity in exchange for her testimony.

The Stix swindle also generated some civil litigation. The trustee in bankruptcy for Stix brought a civil suit against Janice to recover the diverted funds. On June 26, 1984 , the United States District Court for the Eastern District of Missouri entered a judgment against Janice in favor of Stix for $23,764,288.67. The Missouri district court also ordered Janice to turn over all assets in her custody which were purchased with funds diverted from Stix.

The Brimberrys got into trouble with the IRS because they failed to declare the millions of dollars they diverted from Stix on their joint income tax return. For the taxable years 1975 through 1981, deficiencies in income taxes of over $7 million were assessed against the Brimberrys. With penalties and interest, the Brimberry's total tax liability was over $19 million.

In October 1987, the IRS began an enforcement action against Janice Brimberry to collect the tax deficiency. On November 12, 1987 , Janice and her accountant, Nathan Stein, met with an IRS officer, and Janice provided information regarding her assets and liabilities for IRS Form 433A, Collection Information Statement for Individuals, and for IRS Form 433B, Collection Information Statement for Businesses. The forms asked for information on all assets from which the tax deficiency could be paid. Janice represented that she was living with her mother, she depended on her mother for necessary living expenses, she owned no real property, and had no property that could be used to collect the tax. Janice signed the forms under penalties of perjury.

In February 1988, the IRS learned through a confidential informant that Janice Brimberry was trying to sell a four carat, heart-shaped diamond for $20,000 to $25,000. The IRS opened a criminal investigation of Janice and set up a sting operation. The confidential informant agreed to introduce Janice to an IRS undercover agent who would pose as a potential buyer of the jewelry. After a series of monitored telephone calls and meetings between Janice and the confidential informant, the informant agreed to arrange for a buyer of the jewelry to meet with Janice on March 4, 1988 . On March 4, 1988 , at the Collinsville , Illinois Hilton, in front of a rolling video camera, Janice sold the heart-shaped diamond and another, two carat diamond to the undercover IRS agent for $36,000. The IRS agent gave Janice $35,000 cash and arranged to deliver the remaining $1,000 at a later time.

IRS agents detained Janice as she was leaving the hotel room and seized the two diamonds and the $35,000. They also seized a diamond cocktail ring and a woman's 18 carat gold Rolex Presidential watch which Janice was wearing. The agents asked Janice whether she had any additional jewelry. She initially said no; but, after being informed that the IRS would seek a search warrant, Janice admitted that she had additional jewelry hidden behind a television in the basement of her home. Additional jewelry was seized during a later consensual search of Janice's home. The total value of the jewelry seized from Janice was over $69,000. Janice admitted that she had the jewelry in November, 1987 when she signed the Collection Information Statements.

Further investigation also revealed that she had purchased a house in July of 1987 for $42,000. The loan for the house was in the name of Sandra Harper, Janice's friend; but Janice provided the $7,000 for the down payment and $1,400 in closing costs from her son's trust account. Janice then "leased" the house from Sandra Harper for $441 a month, the amount of the mortgage payment. Janice paid the mortgage company directly, paid all the property taxes and insurance premiums, and received $250 a month rental income from an apartment on the property. Sandra Harper testified that no money for the house came out of her pocket and that Janice would receive all profits if the house was sold.

On December 22, 1988 , a two-count indictment was filed against Janice Brimberry. Count 1 charged Janice with willfully and knowingly making and subscribing a false IRS collection information statement, in violation of 26 U.S.C. §7206(1) , by failing to reveal assets. Count 2 charged Janice with attempted evasion of payment of $19 million in income taxes, penalties and interest previously assessed against her for the years 1975 through 1981 in violation of 26 U.S.C. §7201 . On September 12, 1990 , after a six-day trial, a jury found Janice guilty on both counts. The district court, pursuant to the Sentencing Guidelines, sentenced Janice to 33 months imprisonment and two years supervised release on each count, to run concurrently. Janice appeals both her conviction and sentence.

II. Analysis

A. Waiver of Right to Testify

Janice Brimberry did not testify at trial, and she never asserted her right to testify in the district court. On appeal, Janice argues that the district court had an affirmative duty to determine whether her decision to remain silent was knowing and intelligent. Janice does not allege that she did not know she could testify, that she wanted to testify, or that her attorney prevented her from testifying. The record shows that this was not the case. ¹ Rather, she simply contends that it was reversible error for the district court not to hold a sua sponte hearing to determine if her waiver was knowing and intelligent.

Janice's argument has already been rejected by this court. See United States v. Thompson, 944 F.2d 1331, 1345 (7th Cir. 1991), cert. denied, 112 S.Ct. 1177 (1992); United States v. Campione, 942 F.2d 429, 438-39 (7th Cir. 1991); Ortega v. O'Leary, 843 F.2d 258, 261 (7th Cir.), cert. denied, 488 U.S. 841 (1988). Like Janice, the defendant in Thompson did not testify or attempt to testify at trial; but, on appeal, he claimed that the district court should have affirmatively inquired about his decision not to take the stand. Thompson, 944 F.2d at 1345. The court rejected this argument holding that "courts have no affirmative duty to determine whether a defendant's silence is the result of a knowing and voluntary decision not to testify." Id. The other circuit courts reaching this question agree. See United States v. McMeans, 927 F.2d 162, 163 (4th Cir. 1991); United States v. Martinez, 883 F.2d 750, 760 (9th Cir. 1989), vacated on other grounds, 928 F.2d 1470 (9th Cir.), cert. denied, 111 S.Ct. 2886 (1991); United States v. Systems Architects, Inc., 757 F.2d 373, 375-76 (1st Cir.), cert. denied, 474 U.S. 847 (1985); United States v. Janoe, 720 F.2d 1156, 1161 (10th Cir. 1983), cert. denied, 456 U.S. 1036 (1984).

B. Jury Instruction

Janice next challenges the district court's refusal to instruct the jury on her defense that she did not report her assets to the IRS in good faith reliance on the advice of her accountant. ² A defendant in a criminal case is entitled to an instruction on her theory of defense if: the defendant proposes a correct statement of law; the theory of defense has some foundation in the evidence; the defendant's theory is not otherwise part of the charge; and the failure to include an instruction on the defendant's theory would deny the defendant a fair trial. United States v. Douglas , 818 F.2d 1317, 1320-21 (7th Cir. 1987). The government concedes that Janice's proposed instruction on the "good faith reliance on accountant's advice" defense is a correct statement of law. See United States v. Whyte [83-1 USTC ¶9185 ], 699 F.2d 375, 379-80 (7th Cir. 1983); see also United States v. Benson [91-2 USTC ¶50,437 ], 941 F.2d 598, 613-15 (7th Cir. 1991) (good faith reliance on counsel's advise defense); United States v. Kelley [89-1 USTC ¶9132 ], 864 F.2d 569, 572-73 (7th Cir.), cert. denied, 493 U.S. 811 (1989) (same). The district court determined, however, and we agree, that Janice was not entitled to the instruction because there is no evidence to support the defense.

According to Janice's own instruction, the "good faith reliance" defense is only available if Janice completely disclosed all material facts to her accountant, the accountant gave her advice, and she acted in good faith reliance on that advice. See also Whyte [83-1 USTC ¶9185 ], 699 F.2d at 380 ("The essential elements of the reliance defense are: (1) full disclosure of all pertinent facts; and (2) good faith reliance on the accountant's advice."). The evidence at trial showed only that Janice's accountant, Nathan Stein, had some knowledge of Janice's jewelry and that Janice had worn her jewelry while at Stein's office. Since Stein is an accountant, a jury could reasonably infer that he knew that jewelry is an asset. Yet, Stein told an employee that Janice had no assets and remained silent when the IRS agent asked Janice if she had anything else of value that could be used to pay the tax deficiency.

This is the only evidence about Janice's relationship with Nathan Stein. Janice argues that this is enough to entitle her to the instruction. It is not. This evidence shows only that Stein knew about some of Janice's jewelry. It does not demonstrate (nor raise a permissible inference) that Janice told Stein about all of her jewelry or about the house which she had purchased. Thus, there is no evidence of complete disclosure to Stein. Further, there is no evidence, direct or circumstantial, that Stein advised Janice not to reveal the jewelry and the house; there is no evidence that Janice acted in good faith reliance on such advice. As the district court noted, it would require a leap not warranted by the evidence to conclude that there was even "some" evidence to support the instruction.

In addition, Janice was not entitled to her instruction on good faith reliance because this theory of defense was already part of the charge. Willfulness is an essential element of both subscribing a false collection information statement, see 26 U.S.C. §7206(1) , and attempted income tax evasion, see 26 U.S.C. §7201 . Janice's "good faith reliance" defense is "essentially a claim that [she] did not act willfully." Benson [91-2 USTC ¶50,437 ], 941 F.2d at 613. The district court's instructions required the jury to find that Janice had acted "willfully" and correctly defined willfully as acting "voluntarily and intentionally, with the specific intent" to violate a known legal duty. ³ Thus, the district court's instructions on willfulness "necessarily encompassed" Janice's theory of good faith reliance on accountant's advice. Kelley [89-1 USTC ¶9132 ], 864 F.2d at 573; see also Benson [91-2 USTC ¶50,437 ], 941 F.2d at 614.

C. Sufficiency of the Evidence

Janice's third argument on appeal is a very weak one-page challenge to the sufficiency of the evidence. Janice claims that the evidence presented at trial suggesting she openly wore her jewelry precludes a finding of willfulness. If Janice was trying to hide her jewelry, why did she wear it? The jury answered that question, and we will uphold the jury's verdict if, viewing the evidence in the light most favorable to the government, any rational trier of fact could have found willfulness beyond a reasonable doubt. United States v. Kelley [89-1 USTC ¶9132 ], 864 F.2d 569, 575 (7th Cir.), cert. denied, 493 U.S. 811 (1989).

The record in this case is replete with evidence of Janice's willfulness. On the collection information statements, which she signed under penalties of perjury, Janice stated that she owned no real property; in fact, she had recently purchased a new home. She also failed to reveal over $69,000 worth of jewelry. It is true that the IRS agent that interviewed Janice did not specifically ask her about jewelry; he did, however, ask whether Janice had any other assets that could be used to pay the tax. Although Janice knew she owned a substantial amount of jewelry, she answered, no.

Further, Janice's actions clearly indicate that she was attempting to hide her ownership of the house and the jewelry. She directed Sandra Harper to get the loan for the house, but Janice paid the down payment and closing costs. Then, Janice "leased" the house from Harper; the monthly "rent" was the same as the mortgage payment, and Janice made that payment directly to the mortgage company. This transaction was obviously a sham designed to hide the fact that Janice was purchasing a house. Janice kept her jewelry hidden behind a television in the basement of her home; she attempted to sell two pieces of the jewelry, for $35,000 cash, to a person she had never met before. The video tape of this transaction reveals that it was a very surreptitious operation. She even acknowledged the huge obligations she was trying to avoid when she told the undercover purchaser, "Oh, no joke, I owe 'em 23 million." The mere fact that Janice sometimes wore her jewelry in public cannot overcome this pile of evidence and certainly says nothing about Janice's failure to disclose her ownership of a house. A rational trier of fact could conclude that Janice willfully lied on the collection information statement and willfully attempted to evade paying income taxes.

D. The Sentence

Janice's final argument on appeal is that the district court incorrectly calculated her offense level under the Sentencing Guidelines. Section 2T1.3 of the Sentencing Guidelines governs the offense level for lying on the information statement, and section 2T1.1 governs the offense level for attempted tax evasion. Under both sections, the offense level is determined by the amount of "tax loss". The district court found that the "tax loss" was $7 million, the amount of the previously assessed income tax deficiency for the years 1975 through 1981. Janice argues that the "tax loss" should be the value of the hidden assets (according to Janice, $77,000)--the amount of money the IRS could actually recover from her. This issue is a question of law which we review de novo. 18 U.S.C. §3742(e); United States v. Teta, 918 F.2d 1329, 1332 (7th Cir. 1990) ("the interpretation of a term of the Sentencing Guidelines, like statutory interpretation, is a question of law subject to de novo review on appeal").

Janice's position has some allure. Janice probably will never be able to pay the $7 million deficiency ($19 million, with penalties and interest) assessed against her. Assuming Janice is not hiding additional jewelry or property, the only assets that Janice kept from the IRS was the $69,000 worth of jewelry and $8,000 equity in her house. Further, in cases, like this one, involving hidden assets, defining "tax loss" as the amount of tax deficiency could lead to some strange results. For example, if Janice hid only $1000 or $100 worth of jewelry, is she still to be sentenced on the basis of $7 million? Or, if she again falsely fills out a collection information statement hiding another $77,000 worth of assets, will she again be sentenced on the basis of the same $7 million?

Despite these apparent inequities, Janice cannot avoid the plain reading of the relevant Guideline sections. Both sections 2T1.3 and 2T1.1 explicitly define "tax loss" as the amount of tax owed to the government. Section 2T1.3 defines "tax loss" as "28 percent of the amount by which the greater of gross income and taxable income was understated, plus 100 percent of the total amount of any false credits claimed against tax." Section 2T1.1 defines "tax loss" as the greater of "the 'tax loss' defined in 2T1.3" and "the total amount of tax that the taxpayer evaded or attempted to evade." These definitions are unambiguous, and we have found no cases holding that "tax loss" means the amount of money that the IRS could actually recover rather than the amount of tax owed.

Janice was convicted for attempted evasion of taxes for the years 1975 through 1981 and for hiding assets in order to avoid paying those taxes. In calculating the "tax loss," the Guidelines advise the sentencing court that "all conduct violating the tax laws should be considered as part of the same course of conduct or common scheme or plan unless the evidence demonstrates that the conduct is clearly unrelated." U.S.S.G. §2T1.1, application note 3; U.S.S.G. §2T1.3, application note 3. Janice does not dispute, nor could she, that the attempted evasion of taxes for 1975 through 1981 are part of the same course of conduct and therefore the relevant conduct in this case. See U.S.S.G. §1B1.3(a). The taxes for 1975 through 1981 (excluding penalties and interest) that Janice owed and attempted to evade by lying on the collection information statement and hiding assets were the $7 million deficiency assessed as a result of the Stix swindle. The district court correctly found that this $7 million was the "tax loss" for purposes of determining Janice's base offense level under section 2T1.1 and 2T1.3 of the Sentencing Guidelines.

III. Conclusion

For the forgoing reasons, Janice Brimberry's conviction and sentence are AFFIRMED.

^* Hon. John W. Reynolds, Senior District Judge for the Western District of Wisconsin, is sitting by designation.

¹ On the last day of trial, during proceedings out of the presence of the jury, Janice's attorney advised the district court that Janice, after being told twice of the negative consequences of not testifying, had decided not to take the stand. Janice's attorney seemed rather perplexed by this decision which basically gutted her defense strategy:

MS. SCHOOLEY: Your Honor, I thought I should advise the Court of this. I told the Court that I would be able to tie up the testimony concerning the knowledge of the IRS in 1981 and '82 concerning jewelry. I had planned on doing that through Janice Brimberry to say that she had advised her accountant of that. She advised me Sunday that she had decided not to testify and we discussed it and I explained to her that I would not be able to, you know, that I felt the Court would probably order that stricken from the record and I would not be able to argue that and that it would have a bearing on the outcome of her case and on her own defense strategy. We discussed it again Monday, September 10th, and I went over everything again and she still is sticking by not wanting to take the stand. I just wanted to advise the Court of that.

Janice did not contradict her attorney's representations to the district court and made no request to testify.

² The district court refused to give Defendant's Proposed Jury Instruction No. 5 which reads as follows:

The defendant claims that she is not guilty of willful wrongdoing because she acted on the basis of advice from her accountant.

If the defendant before taking any action sought the advice of her accountant whom she considered competent, in good faith and for the purpose of securing advice on the lawfulness of her possible future conduct, and made a full and accurate report to her accountant of all material facts of which she had the means of knowledge, and acted strictly in accordance with the advice of her accountant given following his full report, then the defendant would not be willfully doing wrong in doing something the law forbids, as that term is used in these instructions.

Whether the defendant acted in good faith for the purpose of seeking guidance as to questions about which she was in doubt, and whether she acted strictly in accordance with the advice received, are questions for you to determine.

³ More specifically, the jury instruction on subscribing a false information collection statement defined "willfully" as acting "voluntarily and intentionally, with the specific intent to make a statement that the defendant knew was false, when it was the legal duty of the defendant to answer truthfully and the defendant knew it was her legal duty to answer truthfully." The jury instruction on attempted income tax evasion defined "willfully" as acting "voluntarily and intentionally, with the specific intent to keep from paying a tax imposed by the income tax laws which it was the legal duty of the defendant to pay to the government, and which the defendant knew it was her legal duty to pay."

 

 

 

[67-2 USTC ¶9494]Walter T. Coy, Appellant v. United States of America , Appellee

(CA-9), U. S. Court of Appeals, 9th Circuit, No. 20,339, 377 F2d 925, 5/29/67, Reversing in part and affirming in part District Court decision, 65-2 USTC ¶9458

[1954 Code Sec. 6502]

Statute of limitations: Offer in compromise: Refusal.--The statute of limitations, which was tolled when the taxpayer submitted an offer in compromise, began to run again one year after the taxpayer was sentenced for submitting a false offer in compromise. The government contended that the statute did not start running until three and one-half years after the sentencing, when it refused the offer in compromise. Since the government filed its suit for collection almost four years after the sentencing and the offer in compromise was received by the government more than 4 years after assessment was made, the six-year statute had run.
[1954 Code Sec. 7206]

Tax evasion: False statements: Estoppel.--The government was entitled to keep an amount offered by the taxpayer in a compromise offer which was subsequently proved to be false. The taxpayer received this money through clandestine payment from the buyer of a theatre on which the government had a lien. The lien was lifted for purposes of the sale and since the taxpayer misrepresented the amount he received from the sale he was estopped from demanding the money which belonged to the government as a result of the sale.

Joseph D. Holmes, Jr., of Karr, Tuttle, Campbell, Koch & Granberg, Seattle , Wash. , for appellant. Richard M. Roberts, Acting Ass't Attorney General, and Meyer Rothwacks and George F. Lynch, attorneys for Tax Division of Dept. of Justice, Washington, D. C., and William N. Goodwin, U. S. Attorney, and Gerald W. Hess, attorney, Seattle, Wash., for appellee.

Before CHAMBERS, POPE and HAMLEY, Circuit Judges.

CHAMBERS, Circuit Judge:

The government secured a judgment on May 17, 19 65, against Coy for $282,413.64. This was for federal admissions taxes plus interest for the years 1949, 1950 and 1951 and federal income taxes for the years 1942, 1944, 1945, 1947 and 1948. Internal Revenue's determinations of deficiencies in the two types of taxes were made and notices thereof given in the period January 8, 19 53, to March 1, 19 53.

The suit for collection was filed September 17, 19 64. The central question here involves whether the six-year statute of limitations ¹ was applicable to the government's action. Contrary to the district court [65-2 USTC ¶9458], we hold on the particular facts here that it was.

After the assessment, Coy submitted on March 29, 19 57, an offer of compromise of all of his taxes for $6,689.50. This sum was represented by a certified check drawn in favor of the Director of Internal Revenue. ² The offer was made on a standard form which contained the stock provision that the statute of limitations was waived "for the period during which the offer is pending and for one year thereafter."

Coy, in writing, withdrew the offer on December 19, 1961. ³ Written notice that the government refused the offer was given on January 22, 1964. But there were intervening events to which we attach significance. The Internal Revenue Service, in due course, after April 5, 1957, notified Coy that it was considering prosecuting him for false representations made in his written offer as to the status of his affairs. The grand jury indicted him on April 14, 1960, and during September, 1960, he was tried and convicted on three counts, all on the falsities of his offer of compromise. ⁴ He was sentenced to three years in prison. ⁵ And a fine was imposed.

Normally, the law is that the civil and criminal sides of tax collection can operate independently and criminal prosecution has little to do with civil liability, and vice versa. A good example of this is United States v. Smith, (N. D. Ohio), 146 F. Supp. 104.

The purpose of tolling the statute is to give the proper agents time to consider and investigate the offer. Thus, the government may want to accept a taxpayer's offer for what it can collect, but still prosecute for the original falsity or fraudulence. So ordinarily it is reasonable that the government should have the statute tolled while it is considering the offer.

But here in the very offer of compromise the tax collectors found fraud and they arranged for Coy's prosecution. We have trouble with the concept that the government should have further time to consider an offer that reeked with discovered fraud. To have accepted the offer would have made those who accepted it as bad as Coy. ⁶ They would be subject to the same condemnation as the army contract officer who waived the fraud in United States v. National Wholesalers, 9 Cir., 236 F. 2d 944, cert. denied 353 U. S. 930.

The sentence was imposed on September 30, 19 60, and we hold that the statute of limitations started running again not later than September 30, 19 61. If this be true, the suit for collection filed on September 17, 19 64, was barred by the statute. Four years, one month and eleven days had run on April 5, 19 57, when the collector received the compromise offer containing its waiver. Thus, at most the government had only one year, ten months and twenty days of limitation time after September 30, 19 61.

It is possible, if it were necessary to decide, that the date of the indictment might be taken as the date of rejection of the offer. But that can be decided in some other case.

There is no evidence that our decision in Coy's case will deprive the government of anything substantial moneywise. In a case where it might, now forwarned, it will be able to act in time.

Further, from the departmental correspondence it would appear that a fair construction of it is that after the matter had been turned over to the Department of Justice for prosecution all the Internal Revenue Service was doing was trying to figure out a way that it could keep the deposit of $6,689.50. A memorandum of September 17, 19 63, from the regional counsel to the district director says: "Before making such application, however, it is believed that the offers should be formally rejected and the taxpayers advised when credited." This is fair evidence that at a prior time I. R. S. had abandoned consideration of the offer.

We next reach the question of whether the government may keep the $6,689.50 which Coy offered in compromise. As noted, ⁷ Coy got the compromise money by virtue of a clandestine payment from the buyer of his White Center Theatre, the purpose of the payment being to hide the money from the government, which had tax liens on the theatre property but had cooperated in the sale. Thus this is not the normal case where a taxpayer proffers sum of money along with an offer of compromise and, upon rejection of the compromise offer by the government, requests that the money be refunded. 26 U. S. C. §7809(b)(1); Int. Rev. Reg. 301, 7122-1(d)(4). Ordinarily, such deposits must be scrupulously insulated from the tax gatherer confiscating them. If they can be grabbed regularly, pretty soon they won't be proffered. ⁸ Here we are faced with a situation where a taxpayer really stole some money from the government by the device of misrepresenting the sale price of property on which the government had tax liens and then turning around and offering the government the same money in the form of a compromise tax settlement offer. We agree with the district court that Coy's original misrepresentation by which he "conned" the government into lifting its tax liens on the White Center Theatre estops him from demanding return of the money.

The decision of the district court that Coy shall suffer a judgment of $282,413.64, plus interest until paid, is reversed. The decision of the district court that the United States may keep the $6,689.50 submitted as part of the offer in compromise is affirmed.

¹ Section 276(C) of the Internal Revenue Code of 1939. (All taxes involved accrued prior to the adoption of the Internal Revenue Code of 1954.)

² The check was cashed by the director on April 5, 19 57.

³ While we have attached no importance here to Coy's letter of December 19, 19 61, written from the penitentiary, withdrawing his offer of compromise, it is odd that within one year from that date the government took no steps to reduce its assessment to judgment. It must have relied on its own view of the statute of limitations.

⁴ The fraud was this: Shortly before the offer in compromise, Coy sold his White Center Theatre to one C. W. Olberg. (Whether Olberg was a friend is not clear.) The Internal Revenue Service cooperated with Coy in releasing its liens against the theatre property on his representation that the sale price was $62,500. Out of this amount, the government received a net amount of about $45,000.

In making the compromise offer, Coy represented that the tendered money was from a loan obtained to enable him to settle his taxes. But the revenue agent's search turned up the fact that the $6,689.50 tendered was in truth the balance of $7,500 paid by the purchaser "under the table." In other words, the true selling price for the theatre was $70,000. No private person but Coy actually had any claim to the money tendered.

⁵ It also appears in the record that Coy had previously been to the federal penitentiary because of his troubles with some of his tax returns.

⁶ There might be circumstances, even though the offer of compromise was the subject of criminal redress, where the prosecution could not be considered a rejection of the offer. For example, if the money tendered were really that of a third party, prosecution for some false facet of the statement might not be inconsistent with considering and later accepting the offer in compromise. But here Coy was being told: "The money is not that of another and we have a right to it anyway, independent of any offer of compromise."

⁷ See footnote 4.

⁸ We have absolutely no quarrel with cases indicating that a taxpayer may demand the return of his money when a compromise offer is rejected, no matter what the reason for rejection. Boughton v. United States, 12 Ct. Cl. 330; Metcalf v. Commissioner [CCH Dec. 5229], 16 B. T. A. 881; Moskowitz v. United States [61-1 USTC ¶9204], 152 Ct. Cls. 412.

 

 

[64-1 USTC ¶9187]Harmond E. Genstil, Defendant, Appellant v. United States of America , Appellee

(CA-1), U. S. Court of Appeals, 1st Circuit, No. 6141, 326 F2d 243, 1/13/64, Affirming unreported District Court dcsision

[1954 Code Sec. 7206]

Crimes: False statements.--A conviction on all three counts of an indictment charging the taxpayer with making and filing false statements, which was supported by substantial evidence, was affirmed. The trial court's instructions to the jury, to disregard withdrawn exhibits and testimony, were adequate to protect the taxpayer.

Joseph E. Levine, 73 Fremont , Boston , Mass. , for appellant. William C. Madden, Assistant United States Attorney, Boston, Mass. (W. Arthur Garrity, Jr., United States Attorney, Boston, Mass., on brief), for appellee.

Before WOODBURY, Chief Judge, and HARTIGAN and ALDRICH, Circuit Judges.

Opinion of the Court

HARTIGAN, Circuit Judge:

This is an appeal from a judgment of the United States District Court for the District of Massachusetts, entered April 15, 19 63, following a jury verdict, convincting the defendant-appellant Harmond E. Genstil on all three counts of an indictment which charged him with making and filing false statements in violation of 26 U. S. C. §§ 7206(1) and 7206(5)(B). ¹ He was sentenced for a period of two years and fined $3,000.

[Facts]

The first count charged that the defendant on or about March 19, 19 57, falsely stated that he did not do business with banks or other financial institutions and that he did not have receipts or disbursements during the preceding twelve months.

Count two charged that on or about April 1, 19 60, the defendant falsely stated that he did not own directly or indirectly any assets; that he had liabilities of only judgments totaling $2,250, and that the only assets he had disposed of for less than full value from January 1, 19 42 to April 1, 19 60 was real estate at 36 Greylock Road, Newtonville, Massachusetts.

The third count charged that on or about May 10, 19 60, the defendant falsely stated that he had no assets.

The first question is whether there was substantial evidence to support the verdict. On December 31, 19 54 the defendant accepted as correct and agreed to pay an over-assessment for taxes owed by him for the years 1942 through 1945. On August 1, 19 56, his account at the Internal Revenue Service showed a liability for these taxes plus penalty and interest in the total amount of $72,642.79. His account also bore the entry "No Record of accounts for 1946 through 1959."

Investigation was commenced by the Internal Revenue Service into the circumstances of the nonpayment of the assessment and the nonfilings of tax returns, and in March 1957 defendant received a summons to appear at the Boston office of the Service. He appeared on March 19, 19 57 and was given a four page form to complete entitled "Statement Of Financial Condition And Other Information" by revenue officer John J. Ford. Genstil filled out the form in the office, answering "None" to the followings questions:

"11. Bank or other financial institution with which you do business."

"23b. Give an analysis of receipts for past 12 months. . . ."

On May 3, 19 60 defendant voluntarily returned to the Boston office of the Internal Revenue Service and told the chief of the office collection force, Myles P. McCabe, that he was on the verge of bankruptcy and wished to file an offer in compromise under 26 U. S. C. §7122. The defendant was given on Offer In Compromise Form (No. 656) and a Statement of Financial Condition And Other Information Form (No. 433), both of which he took home to complete. Through the completed documents defendant offered to the Commissioner of Internal Revenue $3,580.00 to compromise his $72,642.79 unpaid liabilities for the 1942-45 taxable period. In the compromise form the defendant stated "I have no assets and there is no possibility of becoming established in any way what-so-ever until all Internal Revenue investigations have ceased." Answering the financial statement, defendant wrote "None" to all questions having to do with assets; he admitted to liabilities of only one $2,250 judgment; he stated that the only transfer made by him "except for full value" from January 1, 19 42 to April 1, 19 60 was real estate at 36 Greylock Road, Newtonville, Massachusetts, which he had transferred to his first wife for $1.00 consideration. Defendant dated the offer in compromise May 10, 19 60 and the financial statement April 1, 19 60. Both forms were received by mail in the Boston office of the Service on May 20, 19 60.

At the trial evidence submitted to the jury disclosed that between 1947 and January 12, 19 53 defendant made a cash gift of $75,000 to $80,000 to Audry L. Taylor, his secretary and farm manager, and later, apparently, his second wife. On July 17, 19 55 defendant paid $5,000 in full payment for a farm located at New Durham, New Hampshire, and owned by Harley and Bertha Giles. Title, however, was taken in the name of the defendant's and his second wife's two infant children, Candace Rebecca Genstil and Pamela Robin Genstil. This farm was later accounted for as an asset in the inventory of the estate of the children filed February 4, 19 58 with the Probate Court , Stratford County , New Hampshire .

Further evidence disclosed that between September 23, 19 57 and March 10, 19 58 defendant purchased property in Allentown , New Hampshire , from Harry and Mabelle Oakley paying $1,500 down with the remainder of the $15,000 purchase price due at the closing. The defendant, here, caused title to be taken in the name of Edmond J. and Helen C. Stapleton, who then mortgaged the property to the Manchester Federal Savings & Loan Association to secure a $14,000 note used to complete the purchase, and subsequently on June 14, 19 58, transferred the property to the two infant Genstil children subject to the mortgage. This property was added to the inventory of the children's estate by amendment allowed May 26, 19 59. On August 27, 19 59, in an application for a loan from the Manchester Federal Saving & Loan Association, defendant certified that he held the title to this property.

Further transactions entered into by the defendant during the period covered by the questionnaires and brought to the attention of the jury included the endorsing of a note in the sum of $3,500 to Industrial Finance Co. on May 28, 19 59, which note was paid April 6, 19 60; the purchasing of an automobile from Commercial Credit Corporation in Manchester on July 23, 19 58 for $1,900 and its subsequent trade-in to Autorama, Inc., for $1,345 on April 27, 19 60 in part payment for a 1959 Cadillac purchased the same day.

[Sufficiency of the Evidence]

On the issue of the sufficiency of the evidence the appellate court must view the evidence in the light most favorable to the government's case. United States v. Manton, 107 F. 2d 834, 839 (2d Cir. 1938), cert. denied, 309 U. S. 664 (1940). On the basis of the evidence presented to it, the jury could find that the defendant willfully and knowingly answered questions and made statements relating to his financial condition that were false, and that the defendant knew such answers and statements were false when he made them. See Knowles v. United States [55-1 USTC ¶9481], 224 F. 2d 168, 171 (10th Cir. 1955). It was not necessary for the government to have actually relied on the false statements; it is sufficient that they were made with the intention of inducing such reliance. United States v. Rayor [62-2 USTC ¶9607], 204 F. Supp. 486 (S. D. Cal. 1962); see also Brandow v. United States [59-2 USTC ¶9699], 268 F. 2d 559 (10th Cir. 1959).

In addition to the evidence submitted to the jury, the court admitted, but subsequently struck from the record and withdrew from the jury's consideration, evidence of additional transfers and mortgages of property owned by the defendant and evidence pertaining to the receipt by the defendant of proceeds of fire insurance for the loss of a dwelling and barn situated on property owned by the defendant in Pittsfield, New Hampshire. Fifteen of the twenty-nine stricken exhibits and the testimony of fourteen witnesses which was also stricken related to the proceeds received by the defendant from the multiple insurers of the fire loss. The defendant's refusal to stipulate the total amount of the loss--saving his rights as to admissibility--necessitated the government's presentation of the fifteen proof of loss statements and drafts as well as the testimony of the fourteen witnesses.

The defendant contends that the trial court did not adequately instruct the jury to avoid consideration of the withdrawn exhibits and testimony. The record discloses otherwise. The court carefully described to the jurors the exhibits and testimony which they were to exclude from their consideration and which, in spite of the large amount of excluded evidence, related to only four transactions of the defendant. The defendant's request that the stricken exhibits and testimony be resubmitted to the jury to further impress upon the jurors what had been withdrawn was refused by the court, stating in the jury's presence:

". . . I think where they have been withdrawn they should not be brought to the jury's mind again. When they retire to consider the case they will consider only those exhibits which go with them to the jury room. That is the only thing in front of them."

Finally, in the court's charge, the jury was admonished to base their verdict "on the evidence in the case and on nothing else."

[Judgment of the Court]

We think these instructions by the trial court were adequate to protect the defendant. The testimony was not such as to leave an indelible prejudice in the minds of the jurors. Shea v. D. & N. Motor Transp. Co., 316 Mass. 553, 55 N. E. 2d 950 (1944). The judicial warning was sufficiently strong to correct any initial prejudice the defendant may have suffered upon the admission of the evidence. Throckmorton v. Holt, 180 U. S. 552 (1900); Looker v. United States , 240 F. 2d 932 (2d Cir. 1917).

We have considered and found without merit other points raised by the defendant.

Judgment will be entered affirming the judgment of the district court.

¹ "§7206. Fraud and false statements.

"Any persons who--

"(1) Declaration under penalties of perjury.--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; or

"(5) Compromises and closing agreements.--In connection with any compromise under section 7122, or offer of such compromise, or in connection with any closing agreement under section 7121, or offer to enter into any such agreement, willfully--

"(B) Withholding, falsifying and destroying records.--Receives, withholds, destroys, mutilates, or falsifies any book, document, or record, or makes any false statement, ralating to the estate or financial condition of the taxpayer or other person liable in respect of the tax;

shall be guilty of a felony and, upon conviction thereof, shall be fined not more than $5,000, or imprisoned not more than 3 years, or both, together with the costs of prosecution."

 

 

[73-2 USTC ¶9580] United States of America , Appellant v. John Protch and Frances Protch, Appellees

(CA-3), U. S. Court of Appeals, 3rd Circuit, No. 73-1065, 481 F2d 647, 6/29/73 , Reversing and remanding an unreported District Court decision

[18 U. S. C. §1001]

Crimes: False statements: Government investigations: Affidavits as statements.--Affidavits can be statements within the meaning of the law that penalizes false statements made in any matter within the jurisdiction of any department or agency of the United States. The lower court improperly ruled that they could not be and erroneously dismissed an indictment charging the defendants with making false statements to an IRS special agent.

Richard L. Thornburgh, United States Attorney, Thomas A. Daley, Kathleen Kelly Curtin, Assistant United States Attorneys, Pittsburgh, Pa., for appellant. Frank D. DiCenzo, 3120 Grant Bldg., Pittsburgh , Pa. , for appellees.

Before GIBBONS, ROSENN and WEIS, Circuit Judges.

Opinion of the Court

PER CURIAM:

In the course of an investigation into the tax affairs of one Samuel Ferraro, a special agent of the Internal Revenue Service interviewed the defendants in this case, John Protch, and his wife, Frances, on October 29, 1970 . Written statements in the form of affidavits were prepared by the agent and were sworn to by the Protches, saying in substance that no number slips were found on their premises in the course of a gambling raid by local authorities on September 6, 19 67.

On May 24, 1972 an indictment was returned against the defendants charging that the statements given to the agent were false and in violation of 18 U. S. C. §1001. The District Court later dismissed the indictments on the premise that the Protches' response to the agent's questions were not "statements" within the meaning of §1001 and, hence, without its proscription.

18 U. S. C. §1001 reads in pertinent part:

"Whoever, in any matter within the jurisdiction of any department or agency of the United States knowingly and willfully falsifies, . . . or makes any false, fictitious or fraudulent statements, . . . or makes . . . any false writing . . . knowing the same to contain any false, fictitious or fraudulent statement or entry, shall be fined not more than $10,000 or imprisoned not more than five years or both."

The legislative history of §1001 and its predecessor statute is discussed in United States v. Gilliland, 312 U. S. 86 (1941) and United States v. Bramblett, 348 U. S. 503 (1951).

This statute is easily subject to abuse and overreaching by government agents and we share the concern expressed in such opinions as United States v. Bedore, 455 F. 2d 1109 (9th Cir. 1972) and Paternostro v. United States [62-2 USTC ¶9808], 311 F. 2d 298 (5th Cir. 1962). Cf. United States v. Ratner [72-2 USTC ¶9526], 464 F. 2d 101 (9th Cir. 1972). ¹ However, we feel bound to reverse because of the opinions in United States v. Knox [70-1 USTC ¶15,925], 396 U. S. 77 (1969) and Bryson v. United States, 396 U. S. 64 (1969).

In Bryson, supra, the Court said:

"A citizen may decline to answer the question, or answer it honestly, but he cannot with impunity knowingly and willfully answer with a falsehood."

We hold no more here than that an affidavit may be a "statement" within the meaning of §1001. We do not pass on whether the information was false and material or upon the voluntariness issue.

The order of the District Court will be reversed and remanded for further proceedings not inconsistent with this opinion.

¹ §1343 of S. 1400, Criminal Code Reform Act of 1973, Ninety-third Congress, 1973, presently being considered in committee, would narrow the literal scope of §1001 and reduce the term of imprisonment which might be applicable. See also, Vol. 1, Working Papers of the National Commission on Reform of Federal Criminal Laws 671 (1970). Cf. §2-6D2 of S. 1, Criminal Justice Codification, Revision and Reform Act of 1973.

 

 

 

[77-2 USTC ¶9629] United States of America , Plaintiff, v. Herbert M. Gripentrog, Defendant

U. S. District Court, West. Dist. Wisc., Order 77-CR-22, 6/20/77

[Code Sec. 7206]

Internal Revenue Service: Fraud and false statement.--The U. S. District Court (W. D. Wisc.) granted the taxpayer's motion to dismiss a count of an indictment against him which alleged that he had wilfully filed a false tax return, on the grounds that the count did not contain allegations of knowledge and falsity, and that the statute cited was not applicable to the situation. The statute was intended to protect the government from false claims for payment, and is inapplicable to the act of providing a tax investigator with a true copy of one's income tax return.

Steven Morgan, Assistant U. S. Attorney, Madison , Wis. , for the plaintiff. Daniel W. Hilderbrand and Thomas P. Solheim, Ross & Stevens, S. C. First Wisconsin Plaza , Madison , Wisconsin 53703 , for the defendant.

DOYLE, District Judge:

Defendant has moved to dismiss Count III of the indictment on the ground that it fails to allege a crime.

Count III reads as follows:

That on or about the 3rd day of September 1974, HERBERT M. GRIPENTROG, a resident of 215 South Eighth Avenue, Wausau, Wisconsin, in a matter within the jurisdiction of the Internal Revenue Service, an agency of the United States, did wilfully and knowingly use a false writing and document containing materially false, fictitious and fraudulent statements, knowing the same to contain such statements, in that the defendant, HERBERT M. GRIPENTROG, gave a copy of a Form 1040, United States Income Tax Return for calendar year 1971 to John P. Wagner, a Special Agent of the Internal Revenue Service, said copy of the Tax Return purporting to be a true and correct copy of the Tax Return filed by the defendant, HERBERT M. GRIPENTROG, with the Internal Revenue Service, said copy of the Tax Return bearing purported adjusted gross income in the amount of Sixteen Thousand Four Hundred Four and 83/100 Dollars ($16,404.83), and purported deductions of Fourteen Thousand Six Hundred Fifty-three and 15/100 Dollars ($14,653.15), whereas in truth and fact as the defendant then and there well knew, he received substantial income in addition to that heretofore stated and he had deductions in an amount substantially less than heretofore stated; all in violation of Title 18, United States Code, §1001.

The alleged insufficiencies are (1) the absence of an allegation that the copy of the Form 1040 supplied by defendant was anything other than a true copy of his 1971 tax return and (2) the absence of an allegation that defendant knew that the document was not a true copy of the Form 1042 which he had filed for the 1971 tax year. It is defendant's position that without the essential elements of falsity and knowledge, there can be no conviction for violation of 18 U. S. C. §1001.

I agree with defendant that Count III of the indictment fails to allege an offense against the United States, not only because it fails to allege that the copy was false and fails to allege that defendant knew it to be false, but also because the circumstances in which it is alleged that the copy was given to the agent are not the circumstances contemplated by the statute.

18 U. S. C. §1001 provides: "Whoever, in any matter within the jurisdiction of any department or agency of the United States knowingly and willfully falsifies, conceals or covers up by any trick, scheme, or device a material fact, or makes any false, fictitious or fraudulent statements or representations or makes or uses any false writing or document knowing the same to contain any false, fictitious or fraudulent statement or entry, shall be fined not more than $10,000 or imprisoned not more than five years, or both."

§1001 is the present form of a statute intended originally to protect the government from false claims for payment. It was amended extensively in 1934 during the New Deal with the purpose of protecting newly-created regulatory agencies and other government agencies and departments from false statements which would tend to pervert their regulatory and reform purposes. United States v. Bramblett, 348 U. S. 503 (1955); United States v. Gilliland, 312 U. S. 86 (1941); United States v. Krause, 507 F. 2d 113 (5th Cir. 1975); Friedman v. United States , 374 F. 2d 363 (8th Cir. 1967).

Whether the statute should be applicable to statements made in the course of a federal criminal investigation is a matter of some dispute. In general, the courts have held the statute inapplicable to negative or exculpatory responses made by a defendant in the course of a conference or interrogation not initiated by the defendant, see, e.g., Paternostro v. United States [62-2 USTC ¶9808], 311 F. 2d 298 (5th Cir. 1962); United States v. Davey, 155 F. Supp. 175 (S. D. N. Y. 1957); United States v. Stark, 131 F. Supp. 190 (D. Md. 1955); and applicable to positive statements "which substantially impair the basic functions entrusted by law to a governmental agency," United States v. Krause, supra, at 117-118. For example, the statute has been held to be applicable to false statements "made for the purpose of concealing additional unreported net income," United States v. Beacon Brass, 344 U. S. 43, 45 (1952); and to a document purporting to be a true statement of the taxpayer's net worth, Cohen v. United States, 201 F. 2d 386 (9th Cir. 1953).

Viewed in light of the history and purpose of §1001, it is clear that the act of providing a tax investigator with a true copy of one's income tax return is one to which the statute is not applicable. Such an act does not constitute an "affirmative representation of facts peculiarly within the knowledge of the suspect not otherwise obtainable by the investigator," United States v. Bush, 503 F. 2d 813, 818 (5th Cir. 1974), nor is it an act which has "the tendency and effect of perverting [the government's] normal proper activities." United States v. Stark, supra, at 205.

The purpose of a governmental tax investigation is to determine whether there are discrepancies between the figures shown on the individual or corporate tax return as filed and the actual earnings and deductible expenses incurred by that taxpayer. The starting point in the investigation is the original tax return or an exact copy of that return. If defendant supplied the investigator with a true copy of his 1971 return, it would seem that defendant had advanced, rather than perverted, the course of the investigation. Had defendant supplied an inaccurate copy, or had he supplied false statements about the sources of his income or the extent of his deductible expenses, see, e.g., United States v. Ratner [72-2 USTC ¶9526], 464 F. 2d 101, (9th Cir. 1972); United States v. Brott [59-1 USTC ¶9276], 264 F. 2d 433 (2d Cir. 1959); see, also, Peterson v. United States, 344 F. 2d 419 (5th Cir. 1965), prosecution under this section would be appropriate. However, there is no reason to believe that the statute was intended to apply to an act such as the one charged against defendant.

From the circumstances in which it is alleged that the copy was given to the agent, it is plain that the giving of it would not have tended to pervert the functions of the Internal Revenue Service. I conclude that Count III of the indictment fails to allege facts sufficient to state an offense against the United States and must be dismissed.

IT IS ORDERED that defendant's motion to dismiss Count III of the indictment against him is GRANTED.

 

 

 

[90-1 USTC ¶50,102] United States of America , Plaintiff-Appellee v. Robert L. Steele, Defendant-Appellant

(CA-6), U.S. Court of Appeals, 6th Circuit, 87-4083, 2/14/90 , 896 F2d 998, 896 F2d 998. Affirming in part, reversing in part and remanding an unreported District Court decision

[Code Sec. 7206 ]

Criminal penalties: Fraud: Self-incrimination.--The taxpayer's conviction for failure to report income was affirmed. The fact that the inclusion of the unreported income would not have affected the taxpayer's total tax liability does not remove this from the ambit of the statute. Whether the omission constituted a "material omission" was a matter of law for decision by the court, not a question of fact to be determined by the jury. However, the taxpayer's conviction for knowingly submitting false information to an IRS agent was reversed because the submission of the correct information would have resulted in his self-incrimination in a scheme to conceal the income of a narcotics dealer.

Robert C. Brichler, Assistant United States Attorney, Cincinnati , Ohio 45202 , for plaintiff-appellee. Arnold Morelli, Bauer, Morelli & Heyd Co., LPA, 1029 Main St., Cincinnati, Ohio 45202-1295, for defendant-appellant.

Before KRUPANSKY and RYAN, Circuit Judges, and BROWN, Senior Circuit Judge.

KRUPANSKY, Circuit Judge:

Robert L. Steele (Steele), defendant-appellant, has appealed his jury conviction on four criminal counts: conspiracy to defraud the Internal Revenue Service (IRS) in violation of 18 U.S.C.A. §371 ; filing a false partnership income tax return in 1981 in violation of 26 U.S.C.A. §7206(1) ; filing a false individual income tax return in 1981 in violation of 26 U.S.C.A. §7206(1) ; and knowingly submitting false documents to the IRS in violation of 18 U.S.C.A. §1001 .

The record disclosed the following underlying facts. ¹ Steele was a certified public accountant who had founded and was employed by his own accounting firm, R.L. Steele & Company. In May, 1981, Steele formed a partnership with his wife Mary L. Steele, Daniel A. Pelphrey, and his wife Karen Pelphrey, known as Woodland Heights , for the purpose of buying an 81.349 acre tract of real property situated in the Miami Township of Montgomery County, Ohio , which was to be subdivided into nine separate plots and then resold. On May 13, 1981 , Steele, acting on behalf of the partnership, negotiated a contract for the purchase of the 81.349 acres with Rhea M. Shields (Shields), the owner of the property, under the terms of which the partnership would pay Shields $32,500 in cash and execute a mortgage in her favor for $229,000. The sale was consummated on July 21, 1981 .

On July 21,1981, immediately subsequent to acquiring the Woodland Heights property, Steele, acting on behalf of his partnership, entered into two separate land contracts to sell an 8.849 acre parcel and a 9.9 acre parcel of the Woodland Heights property to Thomas R. Duerr (Duerr). The purchase price of each parcel was $40,000 or a total of $80,000.

At the time of purchasing the two lots in 1981, Duerr confided to Steele that his total income was derived from distributing controlled substances and that, as a result, he reported only $12,000 to $15,000 per year on his individual income tax returns. Accordingly, since he had no legitimate and identifiable source of income which would justify an $80,000 land transaction and because he was fearful that the purchase of the two parcels of property would attract the attention of the IRS, Duerr suggested that the purchase price for the two lots of Woodland Heights property be recorded to inaccurately reflect a fictitious figure of $20,000 per parcel, or a total of $40,000.

As indicated, the two parcels of land were conveyed by separate land contracts. One of the conveyances identified Duerr's father, Russell R. Duerr, Jr., as the purchaser, while the second conveyance listed Thomas R. Duerr as purchaser. The recorded land contracts reflected an initial $2,000 down payment, with a balance of $18,000 due and payable, on each of the contracts, with an interest rate of 11% per annum compounded monthly and payable in monthly installments of $247.96 until the balance due on each parcel was satisfied. Upon the execution of the land contracts, Duerr paid Steele an additional amount of $40,000 in cash which represented the difference between the actual purchase price of $80,000 and the fictitious sum of $40,000 which was reflected as the purchase price on the officially recorded conveyances. Steele paid $19,500 of this cash payment to the Pelphreys as their share of the proceeds from the sale and retained $20,500 himself.

On March 22, 1982 , Steele filed a United States Partnership Tax Return, Form 1065, for the taxable year 1981 on behalf of the Woodland Heights partnership. Steele did not report the $40,000 cash payment which Duerr covertly had paid the partnership on July 21,1981 as partnership income. Steele also failed to report the $20,500 cash payment on his 1981 individual income tax return, which represented his share of the $40,000 cash payment from Duerr. In contrast, Pelphrey reported the receipt of $19,500 he had received from Steele as partnership income on his 1981 United States Individual Income Tax Return.

In August, 1985, Duerr and several other individuals were indicted on various drug charges. Simultaneously, the IRS initiated an investigation of Duerr for possible fraudulent evasion of tax liability. On November 10, 1985 , IRS Special Agent Dennis Hall (Hall) contacted Steele, and requested information concerning the sale of the two Woodland Heights parcels of land to Duerr in 1981; Steele, however, was not a target of the agent's inquiry. Hall advised Steele that the government required the information concerning payments made by Duerr for the purchase of the two Woodland Heights parcels in conjunction with its investigation of Duerr for possible income tax evasion. Steele advised the IRS agent that he would comply.

Steele immediately thereafter arranged to meet with Duerr at a local restaurant, and after assuring himself that Duerr was not wired to record their conversation, asked him if he intended to enter a plea agreement and turn state's evidence. After Duerr had insisted that he had no such intent, Steele informed Duerr that an IRS agent had contacted him for information about the two Woodland Heights parcels which Duerr had purchased in 1981. Steele told Duerr that he, Steele, would confirm the fictitiously recorded sale prices, and would thereafter avoid further contact with the agent. On November 20, 1985 , Steele delivered various documents to Hall relating to the property transactions between Woodland Heights and Duerr, which falsely reflected the purchase price of each of the two conveyed parcels of property as $20,000.

In December, 1985, Duerr plead guilty to one count of filing a false individual income tax statement and one count of using the telephone to facilitate a narcotics transaction and thereafter cooperated with the government. At that time, he disclosed the fraudulent land transactions which had taken place between himself and Steele in 1981. On March 24, 1987 , a federal grand jury for the Southern District of Ohio issued a four-count indictment against Steele, alleging in Count I that Steele had conspired to obstruct the IRS in the computation, assessment and collection of income taxes; in Count II that Steele had filed a false partnership income tax return on behalf of the Woodland Heights partnership for the year 1981 by failing to report the full amount of the purchase price of the two lots sold to Duerr, since the return reported only a total sale price of $40,000 rather than actual price of $80,000; in Count III that Steele had filed a false individual federal income tax return for the year 1981 by failing to list the $20,500, which represented his share of the cash payment made to the partnership on July 21, 1981 by Duerr for the unrecorded balance due on the two Woodland Heights plots; and in Count IV that Steele had willfully and knowingly submitted false documents to the IRS agent concerning the true nature and amount of the land transaction between himself and Duerr.

A jury trial resulted in verdicts of guilty on all four counts charged. The district court sentenced Steele to three years imprisonment on Counts I, II, III and IV of the indictment, with the sentences to be served concurrently. Steele timely filed a notice of appeal from the final judgment entered by the district court.

On appeal, the defendant has argued that his conviction for submitting false information to the IRS, in violation of 18 U.S.C. §1001 , should be reversed and dismissed as a matter of law, urging that his actions did not constitute conduct which was prohibited under section 1001 . ² Steele has asserted that his false, fictitious and fraudulent statements concerning the sale of the two parcels of Woodlands Heights properties to Duerr were not actionable under 18 U.S.C. §1001 because they constituted judicially created exceptions within the "exculpatory no" doctrine. In essence, the doctrine provides that, under certain circumstances, the government may not prosecute an individual for false or fraudulent statements which were made in response to questioning initiated by the government where a truthful statement would have incriminated the defendant. United States v. Equihua-Juarez, 851 F.2d 1222, 1224 (9th Cir. 1988) ("The 'exculpatory no' doctrine provides an exception to §1001 . If certain requirements are met, a person may not be prosecuted under §1001 for making a false exculpatory response to government investigators."); accord United States v. Olsowy, 836 F.2d 439, 441 (9th Cir. 1987) ("The exception allows a suspect who is in custody to deny involvement in the crime for which he was arrested without incurring additional criminal penalties."), cert. denied, --U.S.--, 108 S.Ct. 1299, 99 L.Ed.2d 509 (1988); United States v. Tabor, 788 F.2d 714, 715 (11th Cir. 1986) ("[T]he federal courts have held that in some circumstances false statements exculpatory in nature, though made to a department or agency of the United States, are not criminalized by §1001 ."). Although several circuits have recognized the "exculpatory no" doctrine, see, e.g, United States v. Cogdell, 844 F.2d 179, 182-85 (4th Cir. 1987); United States v. Bush, 503 F.2d 813, 815 (1974), reh'g denied, 511 F.2d 1402 (5th Cir. 1975); United States v. King, 613 F.2d 670, 674-75 (7th Cir. 1980); United States v. Medina de Perez, 799 F.2d 540, 541-44, 544-45 (9th Cir. 1986); United States v. Tabor, 788 F.2d 714, 718-19 (11th Cir. 1986), it is an issue of first impression in the Sixth Circuit. ³

The "exculpatory no" doctrine, which appears to be receiving widespread acceptance by federal courts of appeals, is anchored, inter alia, upon the Fifth Amendment's protection against self-incrimination through the use of compelled statements. See, e.g., United States v. Equihua-Juarez, 851 F.2d 1222, 1227 n. 10 (9th Cir. 1988); United States v. Cogdell, 844 F.2d 179, 183 (4th Cir. 1987); United States v. Tabor, 788 F.2d 714, 717 (11th Cir. 1986); United States v. Lambert, 501 F.2d 943, 946 n.4 (5th Cir. 1974) (en banc); compare United States v. Payne, 750 F.2d 844, 861-63 (11th Cir. 1985). Because the Fifth Amendment prohibits any requirement that an individual respond to a directly incriminating inquiry, see generally United States v. Alkhafaji, 754 F.2d 641 (6th Cir. 1985); id. at 648 (Krupansky, J., concurring), the "exculpatory no" doctrine recognizes that, under some circumstances, the government cannot prosecute a defendant under section 1001 for having provided a false or fraudulent answer to potentially incriminating questions.

Juxtaposed with the constitutionally protected right against self-incrimination is the explicit recognition that Congress intentionally drafted section 1001 in an expansive fashion in order that it be accorded the broadest possible interpretation regarding the situations in which it would come into play. United States v. Rodgers, 466 U.S. 475, 479-80, 104 S.Ct. 1942, 1946-47, 80 L.Ed.2d 492 (1984) (quoting United States v. Gilliland, 312 U.S. 86, 93, 61 S.Ct. 518, 522, 85 L.Ed.2d 598 (1941)). "There is no indication in either the committee reports or in the congressional debates that the scope of the statute was to be in any way restricted." Rodgers, 466 U.S. at 481, 104 S.Ct. 1947 (quoting United States v. Bramblett, 348 U.S. 503, 507, 75 S.Ct. 504, 507, 99 L.Ed.2d 594 (1955)); see also Medina de Perez, 799 F.2d at 543 & n.4 and cases cited therein. Thus, the protection to be afforded to the right against self-incrimination must be balanced with the Supreme Court's teachings in Rodgers and its progeny that Congress had specifically intended the provision of section 1001 to be read in as expansive a fashion as is consistent with individual rights. See, e.g., Cogdell, 844 F.2d at 183 ("Accordingly, in applying the 'exculpatory no' doctrine, we balance the need for protecting the basic functions of government agencies with the concern that a criminal suspect not be forced to incriminate himself in order to avoid punishment under section 1001 .").

In striking this balance, the courts have expressed an awareness that the scope of the "exculpatory no" "exception is of necessity limited and does not apply in every case where a question is asked by a government official during the course of an investigation." Olsowy, 836 F.2d at 441; see also Equihua-Juarez, 851 F.2d at 1224; Cogdell, 844 F.2d at 183. In particular, the "exculpatory no" exception has been found inapplicable where, inter alia, the particular "government agencies inquiries constituted a 'routine exercise of administrative responsibility,' " or where "the false statement [would] 'impair the basic functions entrusted by law' to that agency." ⁴ Medina de Perez, 799 F.2d at 544 n.5 (quoting United States v. Bedore, 455 F.2d 1109, 1111 (9th Cir. 1972) and United States v. Rose, 570 F.2d 1358, 1364 (9th Cir. 1978) (emphasis omitted)); accord United States v. Becker, 855 F.2d 644, 646 (9th Cir. 1988); Equihua-Juarez, 851 F.2d at 1224; Cogdell, 844 F.2d at 183; see also Olsowy, 836 F.2d at 441; Bush, 503 F.2d at 815-19. Moreover, the burden rests upon the criminal defendant to prove that the facts presented in his particular situation are appropriate "to invoke th[e] ['exculpatory no'] exception." Olsowy, 836 F.2d at 441 & n.2 (citing Rodgers, 466 U.S. at 477, 104 S.Ct. at 1945 and Medina de Perez, 799 F.2d at 544 n.5); see also Becker, 855 F.2d at 846.

It is generally regarded that "the 'exculpatory no' exception applies when the inquiring government agent acts as a police investigator and not when the agent's questions constitute a routine exercise of administrative responsibility." Equihua-Juarez, 851 F.2d at 1225; see also Cogdell, 844 F.2d at 184; Medina de Perez, 799 F.2d at 545; accord Bush, 503 F.2d at 815 ("Section 1001 has usually been held inapplicable to statements made to government agents acting in a purely 'police' capacity."). "The term 'administrative' has been used in these cases to distinguish situations in which government agents are acting as 'police investigators' rather than as 'administrators.' In routine administrative inquiries, the exculpatory no defense cannot be properly invoked." Becker, 855 F.2d 644, 646 (citing Medina de Perez, 799 F.2d at 545).

[T]that the statement be uttered in response to investigative inquiries rather than inquiries that represent routine exercises of administrative authority . . . touches the core or the reason for the "exculpatory no" exception. False statements that pervert an agency's routine administrative functions are the specific target Congress intended the statute to reach, . . . while the exception was created to protect negative responses to interrogation by a criminal investigator.

Cogdell, 844 F.2d at 184 (citations omitted).

In the case at bar, Steele was charged with and convicted of making false statements to the IRS agent who was investigating possible criminal activity by Duerr. During the course of his criminal investigation of Duerr, Hall had requested Steele to provide him with all information within his possession concerning the sale price and financing of the two parcels of land by the Woodland Heights partnership to Duerr. In response, Steele forwarded copies of documents to the IRS agent which indicated that the two plots had been sold for $20,000 each, for an aggregate price of $40,000. In submitting these documents to the IRS agent, Steele represented that they constituted the totality of available information in his possession concerning the sale of the two lots and the financing of that transaction and did not disclose the additional $40,000 which Duerr had paid to the partnership in cash.

"Clearly the agents in the case were not present as tax collectors, privilege conferrers, or regulators--they were policemen." United States v. Goldfine, 538 F.2d 815, 822 (9th Cir. 1976) ( Ferguson , J., concurring in part, dissenting in part).

That the procedures employed here may be routine does not change the basic fact that the IRS turned to an agency of criminal investigators for help in solving a suspected crime, and that the investigation was essentially criminal in nature.

Cogdell, 844 F.2d at 185 n.7. Accordingly, the inquiries which Hall made of Steele in the instant case were in the course of a criminal investigation, rather than during "a routine exercise of administrative responsibility." Equihua-Juarez, 851 F.2d at 1225.

Although Hall had requested the information from Steele within the context of a criminal investigation of Duerr, rather than an investigation of Steele himself, that fact does not remove Steele from the ambit of the "exculpatory no" exception. "The 'exculpatory no' exception . . . is not limited to situations where an individual is being formally interrogated." Equihua-Juarez, 851 F.2d at 1228 n.8. The doctrine has been equally applied to situations where "seemingly neutral questions constitute interrogation when they are reasonably likely to elicit incriminating information relevant to establishing elements necessary for conviction of the charged offense." Equihua-Juarez, 851 F.2d at 1226 (citations omitted).

[S]ection [1001] does not usher a heads we win--tails you lose philosophy into the criminal justice system. ("If you tell our version of the truth, we will call it an admission and use it against you on the substantive offense; If you tell us something which materially varies from our version of the truth, we will charge you with a §1001 felony.").

Goldfine, 538 F.2d at 821 ( Ferguson , J., concurring in part, dissenting in part) (footnote omitted).

Moreover, the "exculpatory no" doctrine has been invoked under circumstances similar to the case at bar, wherein the defendant was interrogated about an underlying criminal investigation of another individual. See, e.g., Tabor, 788 F.2d at 715-16 (IRS questioned defendant during criminal investigation of another person concerning her actions in notarizing mortgages); Bush, 503 F.2d at 814 (IRS agents questioned defendant after learning of possible kickbacks he had paid to another person under criminal investigation; however, IRS agents did not warn defendant that he was under investigation or suspicion at the time); compare King, 613 F.2d at 675 ("This is not a case like United States v. Bush, [503 F.2d 813 (5th Cir. 1974)], in which the government unsuccessfully sought to apply section 1001 to a defendant who gave simple negative exculpatory answers to questions posed pursuant to an investigation of someone else."); United States v. Johnson [76-1 USTC ¶9398 ], 530 F.2d 52, 55 (5th Cir. 1976) ("Section 1001 does not apply to mere answers, including untruthful ones, to investigators' question . . ."), cert. denied, 429 U.S. 833, 97 S.Ct. 96, 50 L.Ed.2d 97 (1976); United States v. McCue [62-1 USTC ¶9359 ], 301 F.2d 452, 455 (2nd Cir.) (The "exculpatory no" doctrine was held inapplicable because "the appellants voluntarily appeared before three representatives of the Treasury under circumstances in which they were well aware of the nature and purpose of the examination[;] [t]hey were accompanied by counsel and they were questioned under oath.") (emphasis added), cert. denied, 370 U.S. 939, 82 S.Ct. 1586, 8 L.Ed.2d 808 (1962).

Additionally, the false statements given by the defendant in response to the government's inquiry did not directly threatened to "impair the basic functions entrusted by law" to the IRS. Olsowy, 836 F.2d at 441; Medina de Perez, 799 F.2d at 544 n.5; Bedore, 455 F.2d at 1111. In Rodgers the Supreme Court explicitly recognized the importance of "protecting the integrity of official inquiries." Rodger, 466 U.S. at 481, 104 S.Ct. at 1947 (quoting Bryson v. United States, 396 U.S. 64, 70-71, 90 S.Ct. 355, 359-60, 24 L.Ed.2d 264 (1969)). "The amendment indicated the congressional intent to protect the authorized functions of governmental departments and agencies from the perversion which might result from the deceptive practices described." Gilliland, 312 U.S. at 93, 61 S.Ct. at 522; United States v. Aarons, 718 F.2d 188, 190 (1983) (same), reh'g denied per curiam, 743 F.2d 1180 (6th Cir. 1984).

In light of its need for accurate information, admittedly any false information provided to IRS agents in the course of an investigative inquiry would, to some extent, tend to frustrate the government's basic function of monitoring and collecting tax liabilities "because underlying any tax inquiry is the question of monetary loss to the government." United States v. Chevoor, 526 F.2d 178, 183 (1st Cir. 1975), cert. denied, 425 U.S. 935, 96 S.Ct. 1665, 48 L.Ed.2d 176 (1976); accord McCue, 301 F.2d at 455 ("There is no reason to believe that the administration of the tax laws and the collection of taxes is not one of the processes of government which the statute was designed to protect, or that making false statements about taxes to the representatives of the Treasury is not the kind of interference and obstruction which the statute was intended to prevent."). However, the possibility that an untruthful answer would "impair the basic functions" of the IRS are concomitantly lessened in the context of a criminal investigation, wherein government agents are attempting to determine whether criminal activity has occurred, because "a competent government investigator will anticipate that the defendant will make exculpatory statements," and, accordingly, "a thorough agent would continue vigorous investigation of all leads until satisfied that he has obtained the truth." Equihua-Juarez, 851 F.2d at 1225 (quoting Medina de Perez, 799 F.2d at 546).

A number of courts have held that the "exculpatory no" exception is applicable under similar circumstances to those presented by the instant case, concluding that a "false statement, given in response to inquiries by government investigative agents in an interview that the defendant did not initiate, [is] not the type of statement that perverts an investigative agency's functions." Medina de Perez, 799 F.2d at 546; accord Cogdell, 844 F.2d at 184 ("A false denial of guilt does not pervert the investigator's basic function in the manner the statute was intended to combat, but is merely one of the ordinary obstacles confronted in a criminal investigation."); Lambert, 501 F.2d at 946 (en banc court noting that "an exculpatory denial by a person under investigation may have less potential for misleading" a government agency); compare Bush, 503 F.2d at 818 n.2 (Distinguishing instances where IRS agent acts as a "policeman" from those instances where he merely fulfills an administrative role of collecting information.). See generally Medina de Perez, 799 F.2d at 545 n.6; Chevoor, 526 F.2d at 183 n.9.

While the Special Agent [of the IRS] may have been disappointed that defendant would not truthfully answer himself into a felony conviction, we fail to see that his investigative function was in any way perverted. The only possible effect of exculpatory denials however false, received from a suspect such as defendant is to stimulate the agent to carry out his function.

Paternostro v. United States [62-2 USTC ¶9808 ], 311 F.2d 298, 303-04 (5th Cir. 1962) (quoting with approval from United States v. Philippe [59-2 USTC ¶9654 ], 173 F. Supp. 582, 584 (S.D.N.Y. 1959)). "[I]t is a fundamental premise of our criminal justice system that the detection of crimes does not depend on assuring that the accused individuals be forced to tell the truth to law enforcement agents." Goldfine, 538 F.2d at 825 ( Ferguson , J., concurring in part, dissenting in part). Accordingly, because the false statements which Steele made to the IRS agent occurred during the course of a criminal investigation of Duerr's tax liability and fraudulent activity, and because a truthful response by Steele to the IRS agent's inquiry would have been patently incriminating statements regarding his, Steele's, criminal activity, the appellant had satisfied his burden of proving that the false statements at issue in the instant appeal were within the ambit of the "exculpatory no" exception to section 1001 .

Steele has alternatively urged that the district court erred in deciding that his failure to have reported some $20,000 on his 1981 federal individual tax form and some $40,000 on the partnership tax form for the same year constituted a materal omission from his tax return. He has argued that the materiality of his failure to report the above sums on the individual and partnership returns was a factual issue to be submitted to the jury. See United States v. Null [69-2 USTC ¶9641 ], 415 F.2d 1178, 1181 (4th Cir. 1969). See generally Carella v. California, 57 U.S.L.W. 4731, 4732 (U.S. June 13, 1989 ) (Scalia, J., concurring) (Failure to submit material issue of fact to jury constitutes reversible error "because it ' "invade[s] [the] fact-finding function" which in a criminal case the law assigns solely to the jury.' ") (quoting Sandstrom v. Montana, 442 U.S. 510, 523, 99 S.Ct. 2450, 2459, 61 L.Ed.2d 39 (1979) (quoting United States v. United States Gypsum Co., 438 U.S. 422, 446, 98 S.Ct. 2864, 2878, 57 L.Ed.2d 854 (1978) (footnote omitted))); United States v. Mentz, 840 F.2d 315, 320 (6th Cir. 1988) (same). Steele accordingly contended that his conviction on Counts II and III of the indictment should be reversed.

The United States Supreme Court, in Kungys v. United States, 485 U.S. 759, 108 S.Ct. 1537, 99 L.Ed.2d 839 (1988), has recently revisited the issue of materiality imposed by federal criminal statutes as it bears upon disclosure of information in response to inquiries from federal agencies, and has attempted to distinguish between materiality as a question of fact for determination of the fact finder or a question of law to be resolved by the court. Kungys v. United States, 485 U.S. 759, 108 S.Ct. 1537, 99 L.Ed.2d 839 (1988) (examining issue of materiality under reporting requirements of the Department of Immigration and Naturalization). After reviewing the criteria employed by various courts of appeals within the context of a variety of criminal reporting statutes, including this circuit's discussion in United States v. Abadi, 706 F.2d 178, 180 (6th Cir.), cert. denied, 464 U.S. 821, 104 S.Ct. 86, 78 L.Ed.2d 95 (1983), ⁵ the Supreme Court concluded that the issue of materiality is generally treated as question of law to be decided by the court.

[W]e must first consider whether materiality . . . is an issue of law, which we may decide for ourselves, or one of fact, which must be decided by the trial court. Here again we see no reason not to follow what has been done with the materiality requirement under other statutes dealing with misrepresentations to public officers. "[T]he materiality of what is falsely sworn, when an element in the crime of perjury, is one for the court." Sinclair v. United States , 279 U.S. 263, 298, 49 S.Ct. 268, 273, 73 L.Ed.2d 692 (1929). As the Sixth Circuit has said in a case involving 18 U.S.C. §1001 ,

[a]lthough the materiality of a statement rests upon a factual evidentiary showing, the ultimate finding of materiality turns on an interpretation of substantive law. Since it is the court's responsibility to interpret the substantive law, we believe [it is proper to treat] the issue of materiality as a legal question.

Kungys, 485 U.S. at 772, 108 S.Ct. at 1547 (quoting Abadi, 706 F.2d at 180); compare United States v. Hartness, 845 F.2d 158, 161 n.4 (8th Cir. 1988) (materiality generally a question of law for the court to determine). Defendant's characterization of this issue as a question of fact for the jury is foreclosed by the Supreme Court's pronouncements in Kungys, as well as existing precedent in this circuit.

Additionally, the defendant has challenged the district court's conclusion that the exclusion of some $20,000 of income on his 1981 federal individual income tax return, and some $40,000 of income on the 1981 partnership tax return for Woodland Heights , was material under the circumstances involved in the instant case. Steele argued that even if he had reported this income to the IRS in his individual and partnership tax returns, his actual tax liability in 1981 would not have been affected and, consequently, the omission of this information could not have been "material" since it had no financial impact upon his tax liability to the IRS for that period. This argument, however, is not well taken.

In Kungys, the Supreme Court indicated that the proper test for determining materiality was not whether the omission of particular information would have actually affected the decision of a governmental agency, but rather it was "whether the misrepresentation or concealment was predictably capable of affecting, i.e., had a natural tendency to affect, the official decision." Kungys, 485 U.S. at 771-72, 108 S.Ct. at 1547 (emphasis added); accord Keefer, 799 F.2d at 1126 ("The test for materiality is whether 'the false statement "had a natural tendency to influence, or was capable of influencing, the decision" of the agency.' ") (quoting Chandler , 752 F.2d at 1151 (quoting Weinstock v. United States, 231 F.2d 699, 701-02 (D.C. Cir. 1956))) (emphasis added). In the case at bar, it is indisputable that the underreporting of taxable income, in the amounts of $20,500 and $40,000, was "predictably capable of affecting," and "had a natural tendency to influence," the IRS's determination of Steele's potential tax liability. The fact that this underreporting did not ultimately alter his actual tax liability is accordingly not relevant, and the assignment of error is without merit.

This court has considered the defendant's remaining assignments of error and has concluded that they are without merit. Accordingly, the judgment of conviction entered against the defendant Steele is hereby AFFIRMED, with the exception of the judgment arising from his conviction on count 4 of the indictment, which is hereby REVERSED and the case is REMANDED with instructions to enter a judgment of acquittal as to that count and for the limited purpose of resentencing the defendant.

¹ On appellate review of a criminal conviction, this court must view the evidence presented during the trial in the light most favorable to the government, including the benefit of all inferences which can reasonably be drawn therefrom. See Jackson v. Virginia, 443 U.S. 307, 319, 99 S.Ct. 2781, 2789, 61 L.Ed.2d 560 (1979); United States v. Adamo, 742 F.2d 927, 932 (6th Cir. 1984), cert. denied sub nom. Freeman v. United States , 469 U.S. 1193, 105 S.Ct. 971, 83 L.Ed.2d 975 (1985).

² Section 1001 reads in pertinent part as follows:

Whoever, in any matter within the jurisdiction of any department or agency of the United States knowingly and willfully . . . makes any false, fictitious or fraudulent statements or representations, . . . shall be fined not more than $10,000 or imprisoned not more than five years, or both.

18 U.S.C.A. §1001 .

³ Defendant has suggested that this court's decision in United States v. Aarons, 718 F.2d 188 (1983), rhg. denied per curiam, 734 F.2d 1180 (6th Cir. 1984), impliedly adopted the "exculpatory no" exception. The decision in Aarons, however, did not consider the "exculpatory no" doctrine; the defendant Aarons was prosecuted for not volunteering information to the government. In the present case, Steele was charged with providing false and fraudulent information to the government and, consequently, Aarons is inapposite.

⁴ The courts which have considered the "exculpatory no" exception have generally set forth a five-part test which must be met to invoke the doctrine:

(1) the false statement must be unrelated to a privilege or a claim against the government; (2) the declarant must be responding to inquiries initiated by a federal agency or department; (3) a truthful answer would involve self-incrimination; (4) the government agency's inquiries must not constitute a routine exercise of administrative, as opposed to investigative, responsibility; and (5) the false statement must not impair the basic functions entrusted by law to the agency.

Becker, 855 F.2d at 646; see also Equihua-Juarez, 851 F.2d at 1224; Cogdell, 844 F.2d at 183; Medina de Perez, 799 F.2d at 544 & n.5. In the case at bar, it is undisputed that Steele had responded to Agent Hall's request for information; that the information was not made in the course of a claim against the government; and that a truthful response by Steele would have been incriminating.

⁵ In Abadi, this court concluded that the question of materiality in criminal statutes generally presents an issue of law to be decided by the court rather than the trier of fact.

The defendant contends that the issue is a factual question to be submitted to the jury like the other essential elements of the offense. . . . While this circuit has not passed on this issue in the context of a false statement prosecution under 18 U.S.C. §1001 , we have ruled that materiality in a question of law in a perjury prosecution under 18 U.S.C. §1621, . . . and in a prosecution for false statements to a grand jury under 18 U.S.C. §1623. . . .

After careful consideration, we hold that the materiality issue in a section 1001 prosecution should be treated as a question of law.

Abadi, 706 F.2d at 180 (citations omitted); see also United States v. Keefer, 799 F.2d 1115, 1126 (6th Cir. 1986) ("[M]ateriality is a question of law for the court to decide. . . . 'The materiality of a statement rests upon a factual evidentiary showing, but the ultimate decision is a legal one.' ") (quoting United States v. Beer, 518 F.2d 168, 172 (5th Cir. 1975)) (other citations omitted); United States v. Chandler, 752 F.2d 1148, 1150-51 (6th Cir. 1985) ("Materiality under §1001 is a question of law. . . . It is not an element of the offense that must be proved beyond a reasonable doubt but a 'judicially-imposed limitation to insure the reasonable application of the statute.' ") (quoting Abadi, 706 F.2d at 180 n.2).

Dissenting Opinion

RYAN, Circuit Judge

The burden of the court's decision today is that the plain and unambiguous language of 18 U.S.C. §1001 shall not be applied as written in the case before us because "a truthful response by Steele to the IRS agent's inquiry would have been patently incriminating . . ." Thus, the panel aligns this court with a number of circuits that have subscribed to what has come to be called the "exculpatory no" doctrine exception to §1001 .

Because I am satisfied that the court and the circuits it follows have erred, I must dissent with respect to the reversal of the defendant's conviction of count IV of the indictment.

I.

The genesis of the idea that §1001 should not be applied as written in certain cases is a trial court opinion emanating from a United States District Court for the District of Maryland in 1955, U.S. v. Stark, 131 F. Supp. 190 (D.Md. 1955), in which the court held that certain false negative answers, given under oath to agents of the Federal Bureau of Investigation, were not "statements" within the meaning of §1001 . There issued, thereafter, a line of cases from several courts to the general effect that §1001 will not be applied to false negative answers to official inquiries when the speaker elects to make the untruthful response because a truthful answer would be "incriminating." The earliest court of appeals cases refusing to apply §1001 as written followed the Stark reasoning that a negative answer of the kind described was simply not a "statement" within the meaning of §1001 . Paternostro v. United States , 311 F.2d 298, 305 (5th Cir. 1962), United States v. Bedore, 455 F.2d 1109, 1111 (9th Cir. 1972).

Understandably, that reasoning attracted little support. Later decisions from courts refusing to apply the statute as written augmented their citation to Stark with the further rationale that when a truthful statement to an official inquiry would be incriminating, a false negative statement should be insulated from the application of §1001 by the judicial invention of an "exception" for such negative falsehoods.

Over the years, judicial refusal to obey the command of §1001 in such circumstances was first given the name an "exculpatory no" statement, then labeled an "exception" to the statute, and, finally, elevated to the stature of a "doctrine." And thus, it is that in a span of a few years a federal trial court's refusal to apply a criminal statute as written, manifestly because it struck the court as unfair to do so, became a judge-made "exception" to an Act of Congress and, for a touch of judicial legitimacy, was labeled a "doctrine."

Now this court has taken the matter a step further by refusing to apply the statute, not to a merely negative reply to an official inquiry, but to the affirmative act of knowingly submitting false written documents to the government, describing a real estate transaction to be what it is not. A slippery slope, this business of writing judge-made exceptions into an Act of Congress.

II.

Section 1001 is written in direct, simple, and unambiguous language. It says:

Whoever, in any matter within the jurisdiction of any department or agency of the United States knowingly and willfully falsifies, conceals or covers up by any trick, scheme, or device a material fact, or makes any false, fictitious or fraudulent statements or representations, or makes or uses any false writing or document knowing the same to contain any false, fictitious or fraudulent statement or entry, shall be fined not more than $10,000 or imprisoned not more than five years, or both.

Assigning to the words used in the statute their primary and generally accepted meaning, it is indisputable that they make criminal defendant Steele's act of knowingly submitting documents to IRS Agent Hall which falsely described details of the real estate transaction with James Duerr.

The syllogism goes like this:

Major: All false, fictitious, or fraudulent representations, knowingly made, to an agency of the government, regarding a matter within its jurisdiction is a crime.

Minor: But Steele knowingly made a false and fictitious representation to a government agency regarding a matter within its jurisdiction.

Conclusion: Therefore, Steele's representation, knowingly made, is a crime.

But my brothers say the statute should not be applied to Steele because to do so would be unfair; unfair because the only way Steele could avoid violating the statute was to incriminate himself. Therefore, the court reasons, it is necessary that the judicially conceived "exculpatory no" exception be read into the statute in order to make it inapplicable to situations such as the one at hand, to which, by the statute's unambiguous terms, it is plainly applicable. Stated differently, if Steele chose to violate the statute in order to avoid incriminating himself, his violation should be excused because his purpose is valid. Thus, is the end made to justify the means. And if Congress, having written a statute which contains no exception for Steele's situation, did not see fit to excuse Steele, this court will excuse him by simply declaring that from this day forward there is, in this circuit, an exception to the statute for people in Steele's circumstances.

Regrettably, the court's opinion is mistaken both as a matter of fact and as a matter of law.

It is mistaken as a matter of fact because it is simply not true that the only alternative available to Steele, if he wished to avoid violating §1001 , was to submit valid documents to the IRS and thus incriminate himself. In fact, he had another very familiar and constitutionally protected alternative. He could have refused to provide the IRS with the documents they requested concerning the real estate transaction, and, if lawfully ordered to do so, he might simply have responded that he declined to provide the documents or to answer any questions, invoking his constitutional right against self-incrimination. Had he done either of those things, he would not have violated the statute and he would not have incriminated himself. It is difficult to understand why the court concludes today that Steele's only alternative to violating the statute was self-incrimination when, plainly, it was not.

And the court is also mistaken as a matter of law.

No matter how many circuits have concluded that §1001 would be fairer if it contained an exception for circumstances of the kind faced by Steele, the fact is that the statute does not contain such an exception. Congress, cognizant of the argument that some people think it was unfair of Congress to make it a crime to provide the government with false information when supplying truthful information would be incriminating, has declined to write an "exculpatory no" exception into §1001 . Whether the statute would be wiser or fairer were such an exception part of it is quite beside the point. Courts simply have no authority to create one. While there is no question that courts have the authority to create exceptions to judge-made law, there is likewise no question that they have no authority to do so with respect to congressional enactments.

As Judge William Wilkins put it in his dissenting opinion in United States v. Cogdell, 844 F.2d 179, 187 (4th Cir. 1988):

While there is an appealing argument that for policy reasons Congress should amend section 1001 by incorporating the exculpatory no doctrine, this is a responsibility of Congress, not the courts.

In a word, the utter absence of lawful authority in a federal court, trial or appellate, to rewrite a congressional enactment by creating an exception which cannot, by any stretch of the imagination, be found in the language of the statute, explicitly or implicitly, is too self-evident to warrant citation of authority.

All judges and lawyers are familiar with judicial decisions in which courts interpret or construe ambiguous or otherwise unclear statutes in ways that exclude their application in certain situations arguably within the letter of the statute, but thought by the court not to be within the intent of the lawmaker. But here there is not so much as lip service to that sort of reasoning. With admirable forthrightness, the court today does not suggest that it is interpreting or construing §1001 or that it is ambiguous in any way. Rather, relying almost entirely upon statements by other circuits in cases involving distinctly different facts, it opts to subscribe to the legally unsupportable argument that a simple, plain, direct, and unambiguous criminal statute can be made to mean what it does not say simply by adoption of a judicially invented "exception."

The only hint of legal reasoning of any sort offered as justification for what the court has done today is the following:

The "exculpatory no" doctrine, which appears to be receiving widespread acceptance by federal courts of appeals, is anchored, inter alia, upon the fifth amendment's protection against self-incrimination through the use of compelled statements.

Slip op. p. 7 (citations omitted).

Despite that statement, it is noteworthy that the court does not hold that the statute is unconstitutional or in any fashion impinges upon the defendant's fifth amendment privilege against self-incrimination, facially or as applied. Rather, the new "doctrine" is merely "anchored" upon the fifth amendment. In addition, the court does not hold or suggest, implicitly or otherwise, that the false documents submitted to Agent Hall by Steele were "compelled" statements. Rather, the "fifth amendment . . . self-incrimination" language in the court's opinion, and in the opinions it cites from sister circuits, is used as a sort of judicial talisman, giving the ring of constitutional legitimacy to what actually is a simple judicial refusal to apply a statute the court deems unfair.

Respectfully, the legal and logical invalidity of the rule the court has adopted today cannot be justified either by the desirability of the end achieved, the court's power, as distinguished from its authority, to do what it has done, or the number of other circuits in which today's reasoning is "receiving widespread acceptance."

For the foregoing reasons, and because I concur in the court's disposition of the remaining issues, I would affirm the judgment entered below.

 

 

 

[92-1 USTC ¶50,014] United States of America , Appellee v. Leander Benedict Citrowske, Appellant

(CA-8), U.S. Court of Appeals, 8th Circuit, 91-1701, 12/12/91 , 951 F2d 899, Affirming an unreported District Court decision

[Code Secs. 6041 and 7206 ]

False statement: Form 1099: Retribution against government officials.--The taxpayer's conviction for filing more than 50 Forms 1099 falsely reporting over $20 million of income to government employees and bankers who had various roles in the foreclosure and liquidation of the taxpayer's property was affirmed. The taxpayer's argument that the 1099 returns were purely protest speech and therefore protected by the First Amendment was rejected; 18 USC §1001, which prohibited using a false writing or making a false statement to a U.S. agency, was not a content-based regulation of speech that protected speech or conduct which otherwise violated the tax law. Further, although the taxpayer argued that he filed the forms because he reasonably believed that he may have been required to file them and that the specific amounts were stated in good faith, the government introduced sufficient testimony and physical evidence to suggest that the taxpayer's motives were vindictive and his actions were intended to harass the victims. Thus, a jury could have found the taxpayer guilty beyond a reasonable doubt. Finally, there was no clear error in the application of the guidelines prescribed for increasing the offense level where the victims of a crime were government officials.

Before LAY, Chief Judge, HENLEY, Senior Circuit Judge, and MCMILLIAN, Circuit Judge.

HENLEY, Senior Circuit Judge:

Citrowske (appellant), a Minnesota farmer, was convicted of filing more than fifty 1099 tax return forms falsely reporting over $20 million of miscellaneous income to the recipients. The named "payees" included a judge, lawyers, bankers, sheriff's department officers, county commissioners and other government employees who had various roles in the foreclosure and liquidation of appellant's property. Appellant was convicted of one count of violating 18 U.S.C. §1001 (1989), and was sentenced to four months incarceration, four months in a halfway house, two years supervised release, and a $50 special assessment. Citrowske argues on appeal that the tax filings were protected protest speech, that the evidence was insufficient, and that the official victim offense level adjustment to his sentence was improper. We affirm appellant's conviction and sentence.

Appellant was a farmer in the midwest who, like so many others in the mid-1980's, lost most of what he owned through bankruptcy and foreclosure. In 1987, appellant allegedly became aware of a strategy to try to reclaim his property through filing false tax returns with the I.R.S. The advocates of the strategy encouraged farmers to send a bill to the takers of their property stating an amount due. When recipients refused to pay, a 1099 was to be sent by the farmer to the recipients treating the property as ill-gotten taxable gain. When the recipients failed to report the 1099 amount, the I.R.S. would likely investigate and hopefully uncover evidence supporting the farmer's contention of a wrongful taking.

Appellant, acting through the Lee Rose Acres Living Trust in 1988 and 1989, sent 1099s to at least thirty-six different people who were allegedly associated with his bankruptcy and the foreclosure proceedings against his property. The returns were transmitted with the I.R.S. cover return, form 1096, which was signed "[u]nder penalties of perjury" as "true, correct, and complete." The appellant sought the recipients' social security numbers for completion of the returns, but when they refused to supply them he simply stated on the returns "Requested DENIED". The returns were mailed to the Kansas City , Missouri regional I.R.S. service center where they were processed by computer.

Later in the year, when some of the 1099 recipients filed their individual income tax returns, the I.R.S. noticed that they had not reported the income from the trust. At least four of the recipients were notified of audit selection because of the unreported income before the I.R.S. became suspicious that the 1099s might be fraudulent. The I.R.S. then initiated costly manual procedures to intercept and remove the suspicious 1099s from the system.

Appellant was subsequently indicted for knowingly and willfully using a false writing or making a false statement to an agency of the United States in a matter under its jurisdiction. See 18 U.S.C. §1001 (1989). Appellant moved for dismissal of the indictment on the ground that his actions were protected protest speech under the first amendment. The district court referred the matter to a magistrate judge ¹ for a recommendation.

In his review and report, the magistrate judge found this case distinguishable from Texas v. Johnson, 491 U.S. 397 (1989) (flag burning is protected speech), and United States v. Hylton [83-2 USTC ¶9506 ], 710 F.2d 1106 (5th Cir. 1983). In Hylton, the court held that the filing of a non-fraudulent and factually accurate criminal trespass complaint with the county attorney, against I.R.S. investigators who entered onto taxpayer's property clearly marked "no trespassing," was a valid exercise of taxpayer's constitutional right to redress grievances through proper channels. Id. at 1111-12. The magistrate judge concluded the present case was more analogous to the situations addressed by our court in United States v. Moss [79-2 USTC ¶9580 ], 604 F.2d 569, 571-72 (8th Cir. 1979) (actions challenging the constitutionality of the income tax and encouraging others to file false tax forms is not protected speech), cert. denied, 444 U.S. 1071 (1980), and United States v. Buttorff [78-1 USTC ¶9265 ], 572 F.2d 619, 623-24 (8th Cir.) (free speech right not absolute where speech is so closely intertwined with encouragement of imminent conduct which violates federal law and has the potential of substantially hindering the administration of the revenue), cert. denied, 437 U.S. 906 (1978). The district court adopted the magistrate judge's findings. After being convicted by the jury, appellant was sentenced to a total of eight months incarceration.

FIRST AMENDMENT

Appellant's argument on appeal repeats the argument made to the district court. Appellant argues that the 1099 returns were purely protest speech, filed with an appropriate government agency, not for the purpose of obtaining any personal monetary gain in terms of tax avoidance, and intended to be provocative as opposed to conclusory regarding the amounts reported. Appellant suggests that the strong governmental interest in permitting citizens to redress grievances, question potentially illegal behavior, and notify authorities of wrongdoing, justifies his conduct. Appellant also cites 26 U.S.C. §7623 (1989), the tax code provision authorizing the payment of money to tax informants, in support of his redress argument.

While appellant's constitutional arguments are persuasively made, they appear to miss the mark. It has not been suggested that the statute in this case is a content based regulation of speech. In light of this, the magistrate judge correctly points out that the freedom of speech is not so absolute as to protect speech or conduct which otherwise violates or incites a violation of the tax law. See, e.g., United States v. White [85-2 USTC ¶9606 ], 769 F.2d 511, 516 (8th Cir. 1985); Moss [79-2 USTC ¶9580 ], 604 F.2d at 569; Buttorf [78-1 USTC ¶9265 ], 572 F.2d at 619.

Appellant was charged with knowingly and willfully making a false statement or false writing to a government agency. Although a defendant's reason for making a false statement may be relevant to the jury's deliberations, the desire to redress grievances or protest for change does not necessarily exclude a finding of a criminal violation. See United States v. Freeman [85-1 USTC ¶9421 ], 761 F.2d 549, 551 (9th Cir. 1985) ("words alone may constitute a criminal offense, even if they spring from the anterior motive to effect political or social change"), cert. denied, 476 U.S. 1120 (1986); cf. United States v. Rowlee [90-1 USTC ¶50,189 ], 899 F.2d 1275 (2d Cir. 1990) (speech); United States v. Quinones, 871 F.2d 1436 (9th Cir. 1989) (religion).

We believe the magistrate judge identified relevant case authority even though the cases cited involved encouragement to and assistance of others in violating the tax laws. Where, as here, a defendant's conduct directly violates a content neutral tax law, the case against the defendant seems even stronger. See, e.g., United States v. Mal [91-2 USTC ¶50,518 ], 942 F.2d 682 (9th Cir. 1991) (false W-4 forms filed); United States v. Williams [91-1 USTC ¶50,197 ], 928 F.2d 145 (5th Cir.) (same), cert. denied, 112 S. Ct. 58 (1991); and United States v. Daly [85-1 USTC ¶9404 ], 756 F.2d 1076 (5th Cir.) (encouraging and assisting in the filing of false tax returns is not protected speech), cert. denied, 474 U.S. 1022 (1985). As the magistrate judge stated when distinguishing between the filing of the 1099s in the present case and a criminal complaint in Hylton, appellant's actions in this case simply "cannot be viewed as the proper path for petitioning for redress under the rights protected by the First Amendment."

SUFFICIENCY OF THE EVIDENCE

Appellant next argues that the evidence did not support a jury finding of a false statement or intent to submit false information to a government agency. Appellant appears to be arguing that in addition to his desire to redress grievances, he also filed the 1099s because he reasonably believed that he may have been required to file them and that the specific amounts were stated in good faith. In support of this proposition, appellant cites 26 U.S.C. §6041 (1989), which describes the duty to file a 1099. In short, the code section requires that when certain payments of $600 or more are made in the same year, to the same person, in the course of a trade or business, a 1099 return must be filed. Appellant testified at his trial and apparently explained his actions in a manner consistent with our summary here.

Viewing the evidence in the light most favorable to the government, we cannot say that a reasonable jury could not have found appellant guilty beyond a reasonable doubt. The jury was asked to decide whether appellant had submitted false statements, knowingly, to the I.R.S. and it concluded he had. Our review of the record suggests there was little if any question at trial about these elements of the offense charged. See Freeman [85-1 USTC ¶9421 ], 761 F.2d at 552-53 (falsity was determined as a matter of law where there was "no issue for the trier of fact as to what the returns stated or whether the calculations and entries were correct"). The government introduced testimony and physical evidence suggesting that appellant's motives were vindictive and his actions were intended to harass the victims. We find no evidence to suggest any rational basis for the 1099 amounts selected by appellant. The jury heard the evidence, had the opportunity to evaluate the appellant's explanation of his conduct, and apparently believed he submitted false statements knowingly and willfully.

Appellant also refers us to Cheek v. United States [91-1 USTC ¶50,012 ], 111 S. Ct. 604 (1991), which he claims stands for the proposition that when unlawful conduct, such as the conduct in question in this case, occurs in good faith, it is not necessarily a criminal violation. Of course, in almost any criminal case, a jury must evaluate both conduct and mental state. While Cheek generally stands for the proposition stated, id. at 611, the determination of good faith motivation is left to the jury. Id. In Cheek, the Supreme Court simply determined that the district court acted improperly by instructing the jury that it could not consider the defendant's subjective beliefs if his conduct was objectively unreasonable. Id. at 611-12. No such issue arose in the present case; the jury was not precluded from considering defendant's subjective motives in determining whether his actions were knowing and willful.

SENTENCING

Finally, appellant challenges the three point addition to his offense level based on their being "official" victims of his crime. See U.S.S.G. §3A1.2 (1989). After this appeal was docketed, our court decided an appeal of a sentence only in United States v. Telemague, 934 F.2d 169 (8th Cir. 1991) (when victims of a crime were a bankruptcy judge, Congressman and the Commissioner of the I.R.S., an upward adjustment for official victims was not a clearly erroneous application of the guidelines). As in Telemague, we find no clear error here in application of the guidelines.

We therefore affirm appellant's conviction and sentence.

¹ The Honorable J. Earl Cudd, United States Magistrate Judge for the District of Minnesota.