Defenses
7207- Fraudulent
Returns, Statements, or Other Documents: Defenses
[91-1
USTC ¶50,154]
United States of America
, Plaintiff v. Alexander Galaniuk, Defendant
U.S.
District Court, East. Dist.
Mich.
, So. Div., 90-CR-80205-DT,
6/7/90
, 738 FSupp 225
[Code Sec.
7207 ]
Penalties, criminal: Fraud and false statements: Defenses.--A
taxpayer who was charged with submitting false and fictitious documents
to the IRS during an audit of his return could not raise the
'exculpatory no' doctrine as a defense. Under the doctrine, the
government is precluded from prosecuting individuals for false or
fraudulent statements made in response to government initiated
questioning if a truthful statement would be self-incriminating. The
doctrine applies only to prosecutions under 18 U.S.C. §1001 and is not extended
to prosecutions for tax fraud. Even assuming that the defense could be
asserted in tax fraud prosecutions, the taxpayer would be unable to
satisfy the five-part test for invoking the doctrine.
Susan
Murnane, Assistant United States Attorney,
Detroit
,
Mich.
48226
, for plaintiff. La Rene, N.C., Deday, 2000 Penobscot Bldg., Detroit,
Mich. 48226, for defendant.
OPINION
GILMORE,
District Judge:
This
matter is before the Court upon a motion by Defendant for clarification
of whether he can offer an "exculpatory no" defense to charges
contained in Counts 6 through 17 of an indictment against him brought
under 26 U.S.C. §7207 . In the counts,
Defendant is charged with submitting false and fictitious invoices to an
IRS agent, who was auditing Defendant's returns. There is no judicial
authority on point. After careful consideration, the Court has
determined that such a defense may not be raised.
The
"exculpatory no" doctrine provides, in essence, that:
.
. . under certain circumstances, the government may not prosecute an
individual for false or fraudulent statements which are made in response
to questioning initiated by the Government where a truthful statement
would have incriminated the defendant.
United
States v. Steele [90-1
USTC ¶50,102 ], 896 F.2d 998, 1001 (6th Cir. 1990). In the Steele
case, the Sixth Circuit recognized the "exculpatory no"
doctrine as a judicially created exception to prosecution under 18
U.S.C. §1001 .
Several
other courts have also applied the doctrine to prosecutions under 18
U.S.C. §1001 .
United States
v. Cogdell, 844 F.2d 179, (4th Cir. 1988); United States v.
Bush [75-1 USTC ¶9120 ],
503 F.2d 813 (1974), rehg. denied, 511 F.2d 1402 (5th Cir. 1975);
United States v. King, 613 F.2d 670, (7th Cir. 1980); United
States v. Medina De Perez, 799 F.2d 540, (9th Cir. 1986); United
States v. Tabor, 788 F.2d 714, (11th Cir. 1986). However, as pointed
out above, there is no judicial authority extending the doctrine to
prosecutions under 26 U.S.C. §7207 , and the Court
therefore writes on a clean slate.
18
U.S.C. §1001 is an expansive
provision, which 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.
The
Supreme Court has explicitly recognized that Congress intentionally
drafted this section expansively so that it would be accorded the
broadest possible interpretation. In United States v. Rodger, 466
U.S.
475, 481, the Court said: "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."
In
contrast, 26 U.S.C. §7207 concerns only false
returns, statements, or other tax-related documents; it reaches only tax
fraud. It provides in pertinent part:
Any
person who willfully delivers or discloses to the Secretary any list,
return, account, statement, or other document, known by him to be
fraudulent or to be false as to any material matter, shall be fined not
more than $10,000 . . . or imprisoned not more than 1 year, or both.
In
United States v. Hajecate [83-1 USTC ¶9192 ],
683 F.2d 894 (5th Cir. 1982), the court determined that the
"exculpatory no" doctrine precluded a prosecution under 18
U.S.C. §1001 when the defendant
had falsely stated on his tax return that he had no interest in any bank
account in any foreign countries. However, the court made clear that the
"exculpatory no" doctrine applied only to 18 U.S.C. §1001 , and that the
government could pursue prosecution under the applicable provisions of
the Internal Revenue Code. The court stated:
We
are quick to assuage the government's fears that this holding sanctions
false answers to any tax return question. . . . [T]his doctrine
[exculpatory no] is only a creature of section
1001 ; the government may still prosecute fraudulent tax
returns containing this question under the perjury statute of the IRS,
26 U.S.C. §7206 .
Id.
at 901 (emphasis in original).
Similarly,
this Court concludes that the "exculpatory no" doctrine must
be limited to prosecutions under 18 U.S.C. §1001
. 26 U.S.C. §7207 is a narrowly drawn
statute which in no way has the expansive coverage of 18 U.S.C. §1001 . Because of the
broad language of §1001
, the reasoning behind the "exculpatory no"
doctrine does not flow over to its use in prosecutions under 26 U.S.C. §7207 . Under 18 U.S.C. §1001 , a logical argument
can be made that the "exculpatory no" defense is necessary to
protect the Fifth Amendment rights of Defendant. Such argument is not
applicable in this prosecution.
Even
if it were applicable, the doctrine would not apply to the facts before
the Court. The "exculpatory no" exception is very limited, and
does not apply in every case where a question is asked by a government
official during the course of an investigation. The 9th Circuit has
established a five-part test that must be satisfied before the exception
can be invoked. This test appears to this Court to be reasonable and
necessary to invoke such a drastic doctrine. The five-part test, as
stated in United States v. Becker, 855 F.2d 644, (9th Cir. 1988),
follows:
(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.
Id.
at 646.
In
the matter before the Court, prongs 4 and 5 of the test cannot be
satisfied. Initially, the facts do not indicate that the IRS, or any
other agency, was conducting an investigation of tax fraud at the time
it requested the documents; courts have generally distinguished between
routine audits and audits that are essentially criminal investigations.
In United States v. Cogdell, 844 F.2d 179, 184 (4th Cir. 1988),
the court found that, in a prosecution under 18 U.S.C. §1001 , when the IRS had
referred a matter to the Secret Service, the agents were "police
investigators" and not "administrators." In contrast, in
the instant case, the agent was acting in his capacity as an
administrator to verify deductions claimed by Defendant on his tax
returns.
With
reference to the final prong, the IRS is rehired by law to "make
the inquiries, determinations, and assessments of all taxes . . . which
have not been duly paid . . . at the time and in the manner provided by
law." 26 U.S.C. §6201 . Here, the
Defendant allegedly provided false documentation to the agent who was
auditing Defendant's return. False documentation, if in fact given,
impaired the agent's ability to determine and assess all taxes not duly
paid. Therefore, Defendant cannot satisfy this prong.
For
the reasons stated, the Court finds the "exculpatory no"
doctrine inapplicable to prosecutions under 26 U.S.C. §7207
. It further finds that, even if the exception were
applicable, it would be unavailable in the instant case.
Therefore,
the "exculpatory no" doctrine may not be offered as a defense
to the charges under Counts 6 to 17 of the indictment.
An
appropriate order may be entered.
[92-2
USTC ¶50,442]
United States of America
, Plaintiff-Appellee v. Victor Parsons, Defendant-Appellant
(CA-10),
U.S. Court of Appeals, 10th Circuit, 91-2091,
6/23/92
, 967 F2d 452, Affirming an unreported District Court decision
[Code Sec.
7207 ]
False claims: Forms 1099.--A taxpayer who filed false Forms 1099
was guilty of willfully making a false statement to a United States
agency under 18 U.S.C. §1001 and of making false
claims under 18 U.S.C. §287. The taxpayer argued that he did not sign
the forms. However, the taxpayer failed to rebut the Code Sec. 6064 statutory
inference that he signed the forms. Further, although the taxpayer could
have been prosecuted under Code Sec.
7207 , the government was not precluded from prosecuting him
under 18 U.S.C. §1001 .
James
A. Bruton III, Acting Assistant Attorney General, James P. Springer,
Robert E. Lindsay, Alan Hechtkopf, Barbara A. Curran, Department of
Justice, Washington, D.C. 20530, for plaintiff-appellee. Reber Boult,
1412 Lomas Blvd., N.W.
,
Albuquerque
,
N.M.
87104
, for defendant-appellant.
Before
ANDERSON, MCWILLIAMS, and SNEED, * Circuit
Judges.
SNEED,
Circuit Judge:
Parsons
appeals his conviction on thirteen counts of willfully making a false
statement to a
United States
agency, in violation of 18 U.S.C. §1001
, and of one count of knowingly making and presenting a false
claim, in violation of 18 U.S.C. §287. We affirm.
I.
FACTS
A.
The Indictment
Parsons's
actions followed a pattern of using Forms 1099 Misc., which are Internal
Revenue Service Forms used by a payor to report non-wage payments to
taxpayers, to show that certain individuals had received large payments
from Parsons, when, in fact, no such payments had been made. In some
instances the dispatches of the Forms 1099 were preceded by demands by
Parsons that the recipients designated in the Forms 1099 pay the amounts
so reported to Parsons.
Thus,
Frank Brown, an IRS collection officer, was sent in 1989 a "Notice
of Bill due and payable to Victor K. Parsons" in the amount of
$3,026,347.35 because of Brown's unlawful conduct and violation of
Parsons's civil rights. The same type of notice was sent to Paul L.
Bougeant, an IRS agent, which demanded payment of $3,071,743.26. Both
notices were subscribed and sworn to before a notary public. Harold
Peterson, another IRS agent, received a similar claim. Each recipient of
Parsons's claims ignored them. Parsons then sent Forms 1099 to the IRS,
accompanied by two Forms 1096, showing that Brown and Bougeant each had
received from Parsons $3,071,743.26 and Peterson $3,076,928.69.
The
remainder of Parsons's Forms 1099 had their origin in his work as a
boilermaker for Electrical Energy Services, Inc. (EESI), and the Western
States Construction Boilermakers' Vacation Trust (Trust) in which
Parsons had an account. The IRS placed levies on Parsons's wages and his
account in the Trust. In response, Parsons sent to the IRS Forms 1099
representing that he had paid to EESI, the Trust, and various
individuals associated with these entities the amount of $3,076,928.69
to the Trust and the individuals associated with it, and $3,071,743.26
to EESI and each individual associated with it. Finally, Parsons sent a
form 1099 to the International Vice President of the Boilermakers'
Union
indicating that he had paid the Vice President $3,076,928.69.
In
the fall of 1989 Parsons filed a tax return (Form 1040) on which he
reported $55,322,491.26, designated as default income, withheld taxes in
the same amount, and claimed a refund of $39,830,259.96.
Parsons
was indicted initially in February, 1990, but this indictment was
replaced by a second one on
April 12, 1990
alleging thirteen counts of violating 18 U.S.C. §1001 and one count of
violating 18 U.S.C. §287.
B.
Evaluation of Competency to Stand Trial
Not
surprisingly, the court-appointed attorney for Parsons raised the issue
of his competency to stand trial. On
September 20, 1990
, that attorney moved to have Parsons ordered to undergo a psychiatric
or psychological evaluation pursuant to 18 U.S.C. §§4241 and 4247.
Parsons disagreed with his attorney's motion and the attorney moved to
rescind his motion, which the district court granted on the condition
that Parsons be examined by one of three named physicians to determine
his competency to stand trial.
He
was examined by a Dr. Cecilia Garcia de Ortega who found him competent
to stand trial. When asked by the court if he agreed, Parsons said,
"Yes, most definitely." Trial was set and a new stand-by
attorney was appointed. On the day of trial, Parsons insisted he was
ready, but stand-by counsel expressed doubts about his competence. The
district court entered an order pursuant to 18 U.S.C. §4241(b)
requiring Parsons to submit to an examination by a psychologist, Dr.
William Foote, to determine his competency both to stand trial and to
form the requisite criminal intent. In December, 1990, Dr. Foote found
Parsons not competent to stand trial.
The
government by this date had reason to believe that Parsons was following
a procedure set forth by the
Farmington
,
New Mexico
office of the National Commodity and Barter Association (NCBA) designed
to hinder and delay the orderly collection of taxes. Parsons was
persuasively linked to persons who operated the
Farmington
office of NCBA and who had been prosecuted for offenses similar to those
charged against Parsons. Accordingly, the government moved on
December 20, 1990
"for Determination and Disposition of Defendant Pursuant to 18
U.S.C. §4241(d)." The district court held another competency
hearing, at which Parsons asserted he was competent, and at the
conclusion of which Parsons was committed to the custody of the Attorney
General for not more than sixty days and ordered to submit to a
psychiatric examination pursuant to 18 U.S.C. §4241(d). Parsons entered
the Mental Health Division of the Federal Correctional Institution in
Butner
,
North Carolina
, on
January 23, 1991
.
He
emerged with the opinion of the authorities of that institution that he
was not suffering from a mental disease or defect and that he was
competent to stand trial. Armed with that report, Parsons, ignoring the
position of his stand-by counsel who insisted the "Butner
report" was invalid, stated that he was ready to stand trial. The
district court found Parsons competent to stand trial under 18 U.S.C. §4241(d).
C.
The Trial
On
April 8, 1991
, Parsons received a bench trial. He was found guilty on all counts and
sentenced to a six-month term with full credit for time served. Because
he had served more than six months, he was released from custody.
Stand-by counsel during the trial sought to establish that the proof
that Parsons signed the forms was insufficient to justify conviction.
The district court held to the contrary.
II.
OPINION
A.
Materiality
The
first issue Parsons raises on appeal is that his statements on the Forms
1099 could not meet the materiality element of 18 U.S.C. §1001 . See
United States
v. Fitzgibbon, 619 F.2d 874, 879 (10th Cir. 1980). His position
is that the forms were so ludicrous that no IRS agent would believe
them. This is not the proper test. The test for materiality is whether
the falsification "has a natural tendency to influence, or was
capable of influencing, the decision of the tribunal in making a
determination required to be made." Gonzales v. United States,
286 F.2d 118, 122 (10th Cir. 1960), cert. denied, 365 U.S. 878
(1961). The determination required to be made in this case was whether
the forms depicted truth. They influenced that judgment. Even Parsons'
counsel argued that perhaps he did not sign them. That and other
features of the forms required evaluation to determine the proper course
for the IRS to follow. The forms clearly were material.
The
large amounts involved do not reduce the forms to scraps of blank paper.
If anything, the reverse is the case. They cry out for attention and it
would be blameworthy administration to ignore them.
Finally,
materiality is not an element required by 18 U.S.C. §287. See United
States v. Irwin, 654 F.2d 671, 682 (10th Cir. 1981), cert.
denied, 455
U.S.
1016 (1982). Perhaps Irwin does depart from the law of other
circuits, but that does not enable us to overrule it.
B.
Sufficiency of the evidence to establish that appellant made the false
statements and filed the false claim
Parsons
argues that the evidence did not establish that he made false statements
or filed false claims. The handwriting expert compared his known
signature with that on the forms and return and concluded that it was
"highly probable" that the signatures on the latter were that
of Parsons. In addition, a statute, 26 U.S.C. §6064 , provides that the
signature of a person on a "return, statement, or other
document" is prima facie evidence that the person signed the
document. Parsons offers nothing to refute either the experts' finding
or the statutory inference.
C.
Competency of persons to stand trial
To
be competent to stand trial, the defendant must not be suffering from a
mental disease or defect rendering him unable to understand the nature
and the consequences of the proceedings against him or to assist
properly in his defense. See 18 U.S.C. §4241(d). Obviously we must rely
heavily on the discretion of the district court in applying this
standard to the defendant. We so rely in this case, confident that, in
the light of the district court's initial dubiety about Parsons'
competency, its conclusion of competency was reached only after careful
consideration of all the evidence. The Butner report obviously was
influential, as it should have been. The earlier examination by Dr.
Foote did not preclude the court from relying on the Butner report.
It
is true, of course, that Parsons sometimes did not cooperate with his
lawyers and that the forms and returns were quite bizarre. On the other
hand, it is quite possible that Parsons sought unlawfully to divert the
IRS from its more normal enforcement efforts.
Finally,
Parsons is wrong when he claims that the Butner evaluation failed to
comply with 18 U.S.C. §4241. There was no need to hospitalize Parsons
for a reasonable time because of the district court's one-time finding
of incompetence. It was enough for the Butner examination to find
Parsons competent to stand trial. It was not necessary for the Attorney
General, acting through the Butner officials, to find that Parsons would
regain his capacity to stand trial. Under these circumstances,
there was no requirement for a finding that Parsons had improved or
recovered sufficiently to permit the trial to proceed. See id.
§§4241(d) and 4247(c).
D.
Propriety of prosecuting under 18 U.S.C. §§1001 and 287
Finally,
Parsons argues that he should have been charged and prosecuted under 26
U.S.C. §7207 rather than the
provisions under which he was charged. Section 7207 provides in
pertinent part:
Any
person who willfully delivers or discloses to the Secretary any list,
return, account, statement, or other document, known by him to be
fraudulent or to be false as to any material matter, shall be fined . .
. .
While
it is true that Parsons probably could have been prosecuted under this
section, it is not true that he must have been so prosecuted. Making a
false claim for a tax refund is specifically covered by 18 U.S.C. §287.
See United States v. Haynie, 568 F.2d 1091 (5th Cir. 1978); Kercher
v. United States [69-1 USTC ¶9361 ],
409 F.2d 814 (8th Cir. 1969). Moreover, we agree with the Eleventh
Circuit that the existence of section
7207 does not preclude prosecution under 18 U.S.C. §1001 . See United
States v. Fern [83-1
USTC ¶9151 ], 696 F.2d 1269, 1274 (11th Cir. 1983).
The
rule of lenity, which states that an ambiguity in a criminal statute
must be resolved in favor of the accused, is not applicable to this
case. Sections 1001 and 287
unambiguously cover the conduct charged thereunder. Prosecutors are not
required to prosecute under another statute perhaps covering the same
wrongful acts merely because the other statute imposes a lesser penalty.
See United States v. Barrett, 837 F.2d 933, 934-35 (10th Cir.
1988); United States v. Fitzgibbon, 576 F.2d 279, 283 (10th
Cir.), cert. denied, 439 U.S. 910 (1978).
AFFIRMED.
*
Honorable Joseph T. Sneed, Senior Circuit Judge of the United States
Court of Appeals for the Ninth Circuit, sitting by designation.