Section 7202 - dangerous case

In this economy, lots of businesses are not paying their payroll taxes. I normally see this as a 6672 penalty issue, not a criminal case. Return preparers can easily be caught up with the 7202 fraud issue if not the 6672 penalty even if they are not shareholders or officers of the corporation. The Leroy case, uploaded below, is only a District Court case but it should be a warning to return preparers and their clients that failure to pay payroll taxes may result in a criminal indictement. Any payroll tax issues sould be immediately brought to the attention of a tax attorney so that the result in this case can be avoided. I see no discussion of the "willfulness" element to 7202 and for that reason, I do not think the best defense was argued in this case. "Willfulness" is a subjective term and that makes it difficult for the DOJ to prove fraud beyond a reasonable doubt.
A corporate officer convicted of failing to account for and pay over taxes in violation of Code Sec. 7202 was not entitled to a judgment of acquittal. Although the individual did not personally employ any of his company's employees, he was an officer of the company and could be held criminally liable for his willful failure to account for and pay over employment taxes. Contrary to the individual's assertion, the government was not required to impose a civil penalty, or provide a Code Sec. 6672 notice, before prosecuting him under Code Sec. 7202. The notice provisions of Code Sec. 6672(b) did not apply to prosecutions under Code Sec. 7202. The jury found that the government had proven beyond a reasonable doubt that the individual had committed the offenses for which he was indicted..


United States of America, Plaintiff v. Frances Leroy McLain, Defendant.
U.S. District Court, Dist. Minn.; 08-CR-0010 (PJS/FLN), February 17, 2009.

[



ORDER


SCHILTZ, United States District Judge: On November 18, 2008, defendant Francis Leroy McLain was convicted of nine counts of failing to account for and pay over taxes in violation of 26 U.S.C. § 7202.

A. Motion for Acquittal [Docket No. 132]


During the time period relevant to this action, McLain owned and operated a business --a business that was run under various names, including "Kind Hearts" and "Kirpal Nurses, LLC" (collectively "Kirpal") --that supplied temporary nursing staff to nursing homes and other healthcare facilities. McLain was convicted under 26 U.S.C. § 7202 of failing to account for and pay over income and Federal Income Contribution Act ("FICA") taxes on Kirpal employees. Section 7202 states:
Any person required under this title to collect, account for, and pay over any tax imposed by this title who willfully fails to collect or truthfully account for and pay over such tax shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $10,000, or imprisoned not more than 5 years, or both, together with the costs of prosecution.


McLain moves for acquittal on the basis that there is no evidence --indeed, the indictment does not even allege --that McLain personally employed any of the Kirpal staff. Instead, McLain argues, Kirpal was the employer, and under the relevant statutes only Kirpal had a duty to account for and pay over taxes on its employees. See 26 U.S.C. § 3402(a)(1) (imposing duty to withhold income taxes on the "employer"); 26 U.S.C. § 3403 (imposing liability for tax withheld under § 3402 on the "employer"); 26 U.S.C. § 3102(a) (imposing duty to withhold FICA taxes on the "employer"); 26 U.S.C. § 3102(b) (imposing liability for tax withheld under § 3102(a) on the "employer"). Because he was not the employer, McLain argues, he was not a "person required under this title to ... account for[] and pay over any tax imposed by this title" within the meaning of § 7202. 2


If it were writing on a clean slate, this Court would have some sympathy for McLain's argument, which finds support in the literal terms of the relevant statutes. But the slate has not been clean for over thirty years --not since the Supreme Court issued its decision in Slodov v. United States, 436 U.S. 238 (1978), and federal courts, in reliance on Slodov, began holding that an officer or employee of a corporate employer can indeed be convicted of violating § 7202.


Slodov itself was not a criminal case. Instead, it addressed the liability of an individual for failing to pay over income and FICA taxes under 26 U.S.C. § 6672, which is the civil counterpart to § 7202. Like § 7202, § 6672 applies to "[a]ny person required to collect, truthfully account for, and pay over any tax imposed by this title" and imposes a civil penalty equal to the amount of the tax delinquency on such persons. As the Supreme Court explained in Slodov, an officer or employee of a corporate employer can be a "person required to collect, truthfully account for, and pay over" taxes under § 6672 by virtue of 26 U.S.C. § 6671(b), which states:
The term "person", as used in this subchapter, includes an officer or employee of a corporation, or a member or employee of a partnership, who as such officer, employee, or member is under a duty to perform the act in respect of which the violation occurs.


See Slodov, 436 U.S. at 244-45. Although the Supreme Court did not explicitly dissect the language of §§ 6672 and 6671(b), the Court must have reasoned that while the employer is liable for payment of the taxes "imposed by this title" within the meaning of § 6672, a person can be required to "collect, truthfully account for, and pay over" those taxes even if that person is not himself the employer, but merely an officer or employee of the employer.

As the Supreme Court recognized, § 7202 tracks the wording of § 6672. Slodov, 436 U.S. at 245. And § 7202 incorporates a similar definition of "person." See 26 U.S.C. § 7343. Thus, just as an individual corporate officer or employee can be civilly liable under § 6672, that officer or employee can be criminally liable under § 7202. "[A]n employer-official or other employee responsible for collecting and paying taxes who willfully fails to do so is subject to both a civil penalty equivalent to 100% of the taxes not collected or paid, and to a felony conviction." Slodov, 436 U.S. at 245 (emphasis added). Under Slodov, then, McLain can be convicted under § 7202 even though he personally did not employ any of the staff at Kirpal.

McLain also argues that, even if he could be held criminally liable under § 7202, the United States must seek to impose a civil penalty against him under § 6672 before it can prosecute him under § 7202. McLain argues further that he cannot be ordered to pay a civil penalty under § 6672(a) because he did not receive the written notice required by § 6672(b). Because he received no notice under § 6672(b), McLain argues, he cannot be penalized under § 6672(a), and because he cannot be penalized under § 6672(a), he cannot be convicted under § 7202.

McLain misreads the statute. Nothing in any statute or judicial opinion requires the government to proceed against an individual civilly under § 6672(a) before bringing a criminal prosecution under § 7202. In addition, nothing in any statute or judicial opinion requires the government to provide notice under § 6672(b) before proceeding under § 7202. To the contrary, the notice provision of § 6672(b), on its face, applies only to the civil "penalty ... imposed under subsection (a) [of § 6672] ... ." Obviously, a sentence of imprisonment or fine imposed on someone convicted of violating § 7202 is not a civil "penalty ... imposed under subsection (a) [of § 6672] ... ." Moreover, both § 6672 and § 7202 provide that the penalties they authorize are "in addition to other penalties provided by law ... ." Thus, the civil and criminal penalties of the two statutes, although complementary, are separate, and the notice provision of § 6672(b) does not apply to prosecutions under § 7202.

McLain suggests that it is anomalous to require the government to provide notice before seeking a civil sanction but not to provide notice before seeking a criminal sanction. McLain overlooks the fact that a person charged with a crime enjoys numerous constitutional protections, including not only the right to specific written notice of the charges against him, but a presumption of innocence that can be overcome only by proof of guilt beyond a reasonable doubt. There is nothing anomalous about requiring notice before a civil penalty is imposed on someone who does not enjoy the protections afforded to criminal defendants, but not requiring notice before a fine or sentence of imprisonment is imposed on someone who does enjoy those protections.

Finally, McLain cites the recent case of United States v. Farr, 536 F.3d 1174 (10th Cir. 2008), contending that it supports his argument that only employers may be criminally liable under § 7202. McLain reads too much into Farr. In Farr, the defendant was indicted for evading income and FICA taxes "due and owing by her" under 26 U.S.C. § 7201, a generic taxevasion provision. Id. at 1177-78. The defendant argued that, because she personally was not the employer, the taxes were not "due and owing by her." Id. at 1178. At trial, the government did not attempt to prove that the taxes were "due and owing by" the defendant, but instead offered proof that she had failed to pay the civil penalty that had been assessed against her under § 6672. Id. at 1178. The Tenth Circuit reversed the defendant's conviction because she had not been charged with failure to pay the civil penalty; thus, the district-court proceedings impermissibly amended the indictment. Id. at 1179.

The question in Farr, then, was whether the defendant was convicted of the same crime with which she was charged. Farr did not have occasion to consider whether the defendant could have been convicted for failing to account for and pay over taxes under § 7202 despite the fact that she was not the "employer." To the extent Farr is relevant at all, it suggests that the defendant could have been found criminally liable under § 7202. After all, she had been held civilly liable for a penalty under § 6672, the civil counterpart to § 7202. But rather than indicting the Farr defendant under § 7202, the government chose to indict her under § 7201 for failure to pay taxes "due and owing by her."

Section 7202 does not require that the taxes be "due and owing" by the person charged. 3 Instead, § 7202 requires that the person be required to "account for" and "pay over" taxes. Again, as a number of courts have held, an individual who works for the "employer" can be a person required to "account for" and "pay over" taxes under § 7202 and can be held criminally liable for a willful failure to perform those duties. See, e.g., United States v. Thayer, 201 F.3d 214, 219-20 (3d Cir. 1999). McLain's motion for acquittal is therefore denied.

McLain's motion for acquittal (which, again, was filed by his attorney shortly before McLain decided to represent himself) was meritless, but certainly not frivolous. The same cannot be said of McLain's pro se motions. For the most part, those motions rely on tired taxprotester arguments that have been rejected on countless occasions by the federal courts. The Court now turns to these motions.


B. Motion to Dismiss for Lack of In Personam and Territorial Jurisdiction [Docket No. 142]


McLain moves to dismiss the charges against him because, he argues, (1) he is a "natural human being" and the United States therefore does not have jurisdiction over him; (2) the United States lacks jurisdiction over crimes not committed on federal property; and (3) the Court lacks jurisdiction over crimes codified in Title 26 of the United States Code. McLain is wrong on all three counts. Under 18 U.S.C. § 3231, the Court has original jurisdiction over "all offenses against the laws of the United States," including offenses under Title 26 of the United States Code. United States v. Schmitt, 784 F.2d 880, 882 (8th Cir. 1986). The argument that the United States lacks jurisdiction over McLain because he is a "natural human being" is similarly frivolous. Id. Finally, as federal courts have held time and again, it is simply not true that the United States cannot prosecute crimes that are not committed on federal property. See United States v. Mundt, 29 F.3d 233, 237 (6th Cir. 1994).


C. Motion to Dismiss for Due Process Violations [Docket No. 144]


McLain moves to dismiss the indictment against him for violations of due process and the Fourth Amendment. In his motion, McLain alleges a number of procedural defects in the prosecution of his case. The Court will specifically address two of McLain's arguments.

First, McLain argues that the indictment is defective because no Fed. R. Crim. P. 3 complaint appears on the docket. This argument misconstrues the nature and purpose of a criminal complaint. The purpose of a complaint is to establish probable cause for an arrest; it is not a prerequisite to the issuing of an indictment. United States v. Wash. Water Power Co., 793 F.2d 1079, 1085 (9th Cir. 1986) ("an indictment can be brought in lieu of filing a complaint"). Nor is it necessary, as McLain seems to argue, for a criminal complaint to be filed as a prerequisite to the issuance of a search warrant, as opposed to an arrest warrant. Cf. Fed. R. Crim. P. 4 (setting forth standards for issuing an arrest warrant on a criminal complaint); see also Giordenello v. United States, 357 U.S. 480, 485 (1958) ("Criminal Rules 3 and 4 provide that an arrest warrant shall be issued only upon a written and sworn complaint ... ."); 1 Charles Alan Wright & Andrew D. Leipold, Federal Practice and Procedure: Criminal § 41 at 33 (4th ed. 2008) (criminal complaint's "main function is to serve as the basis for an application for an arrest warrant"). Moreover, even if his arrest or the searches of his property were illegal, McLain does not identify any evidence that he thinks should have been suppressed, and he cites no authority for the proposition that the proper remedy for an illegal search or seizure is the dismissal of the indictment.

Second, McLain argues that the indictment is defective because the docket does not include a grand-jury concurrence form. McLain, of course, was convicted because twelve of his fellow citizens --jurors who were polled in open court in front of McLain --found that the government had proven beyond a reasonable doubt that McLain had committed the offenses for which he was indicted. But McLain argues that the indictment was defective because there is no grand-jury concurrence form on the docket to prove that at least twelve members of the grand jury concurred in the indictment --i.e., to prove that twelve of his fellow citizens found that the government had established probable cause to believe that McLain had committed the offenses for which he was indicted.

Under Fed. R. Crim. P. 6(c), the grand-jury foreperson is required to record the number of jurors concurring in every indictment and file that record with the Clerk of Court. But Rule 6(c) also states that the record of concurring jurors "may not be made public unless the court so orders." To be entitled to disclosure of the grand-jury concurrence form, a defendant must meet the standards articulated in Rule 6(e)(3)(E)(ii), which requires the defendant to make a particularized showing that grounds for dismissal might exist because of matters occurring before the grand jury. McLain has made no such showing. See United States v. Broyles, 37 F.3d 1314, 1318 (8th Cir.1994) ("A long line of cases in this Circuit note that 'a bare allegation that the records [of a grand jury] are necessary to determine if there may be a defect in the grand jury process does not satisfy the "particularized need" requirement.' United States v. Warren, 16 F.3d 247, 283 (8th Cir. 1994)."). McLain's motion to dismiss for due process violations is therefore denied. 4


D. Motion to Arrest Judgment for Unconstitutionality of Title 18 [Docket No. 150]


This motion reiterates the argument that the Court lacks jurisdiction over crimes codified in Title 26, which the Court has rejected, and adds the new argument that Title 18 was not constitutionally enacted into law. This argument, too, is frivolous. See United States v. Abdullah, 289 Fed. Appx. 541, 543 n.1 (3d Cir. 2008); United States v. Miles, 244 Fed. Appx. 31, 33 (7th Cir. 2007); United States v. Martinez, Nos. 04-0157, 05-0423, 2006 WL 1293261, at *5-6 (S.D. Tex. May 6, 2006). This motion is therefore denied.


E. Motion to Arrest Judgment for Lack of Federal Jurisdiction [Docket No. 152]


In this motion, McLain argues that the federal government's taxing authority is coextensive with its power to regulate, and argues that, because the United States lacks the power to regulate him or his company, it therefore lacks the power to require him or his company to account for and pay over taxes. Although McLain's argument is somewhat difficult to follow, it seems to rest on at least three contentions: (1) the employment taxes at issue are "indirect" taxes on activities rather than "direct" taxes on individuals because, according to McLain, the federal government lacks the power to tax individuals directly; (2) the federal government lacks the power to tax activities that it cannot regulate; and (3) the federal government cannot regulate McLain's business activities because they do not take place on federal property.

All of McLain's premises are wrong. The federal government indeed has the power to tax income directly, even if that income is neither earned on federal property nor through federal employment. See Mundt, 29 F.3d at 237; United States v. Sloan, 939 F.2d 499, 501 (7th Cir. 1991) ("All individuals, natural or unnatural, must pay federal income tax on their wages, regardless of whether they requested, obtained or exercised any privilege from the federal government." (citation and quotations omitted)); United States v. Collins, 920 F.2d 619, 630 (10th Cir. 1990) ("For seventy-five years, the Supreme Court has recognized that the sixteenth amendment authorizes a direct nonapportioned tax upon United States citizens throughout the nation, not just in federal enclaves ... ."). Likewise, the United States has the authority to regulate McLain's business, even though its activities did not take place on federal property. That authority is found in, among other places, the Commerce Clause (Article 1, Section 8, Clause 3) and the Necessary and Proper Clause (Article 1, Section 8, Clause 18) of the United States Constitution. Moreover, even if McLain were correct that the United States has no direct authority to regulate his business activities --and he is not --the Supreme Court long ago recognized that Congress can tax activities that it lacks the power to regulate directly. See License Tax Cases, 72 U.S. (5 Wall.) 462, 471-75 (1866) (upholding federal law imposing a tax on activities that the federal government had no direct power to regulate). McLain's motion to arrest judgment for lack of federal jurisdiction is therefore denied.


F. Motion to Dismiss for Lack of Subject-Matter Jurisdiction [Docket No. 160]


In this motion, McLain argues generally that the Court has a duty to determine whether it has jurisdiction, but he adds nothing substantive to his other jurisdictional arguments. This motion is therefore denied for the same reasons that his other motions are denied.


G. Motion to Dismiss for Defective Indictment [Docket No. 162]


In this motion, 5 McLain argues that the failure to collect, account for, and pay over income and FICA taxes cannot give rise to criminal liability under 26 U.S.C. § 7202. As noted above, § 7202 imposes criminal penalties on "[a]ny person required under this title to collect, account for, and pay over any tax imposed by this title" who willfully fails to perform those duties. McLain argues that income and FICA taxes are not taxes "imposed by this title" because, according to McLain, "this title" refers to something other than Title 26 of the United States Code.

Specifically, McLain claims that the phrase "this title" in § 7202 is intended to refer to Title I of the Revenue Act of 1938, ch. 289, 52 Stat. 447 (1938). According to McLain, § 145 of the 1938 Act, which contains language similar to § 7202, is the original Statute at Large upon which § 7202 is based. And because Title I of the 1938 Act does not impose any income or FICA taxes, McLain argues, income and FICA taxes are not "imposed by this title" for purposes of § 7202.

McLain acknowledges that the Statute at Large which serves as the basis of Title 26 of the United States Code (including the modern-day version of § 7202) is the Internal Revenue Code of 1954. 6 See Internal Revenue Code of 1954, ch. 736, 68A Stat. 3 (1954). But according to McLain, the 1954 Code is not particularly relevant because it was intended to serve mostly as a reorganization --rather than revision --of existing tax law. Specifically, McLain cites the legislative history of the 1954 Code to argue that § 7202 of the Code was not intended to change existing law. With respect to § 7202 of the 1954 Code, the Senate and House Committee Reports state:
This section provides that, in the case of any tax imposed by this title which any person must collect and pay over to the United States, it is a felony punishable by a fine of not more than $10,000, or imprisonment for not more than 5 years, or both, willfully to fail to collect or truthfully account for and pay over such tax. This provision corresponds to numerous sections of existing law which cover this offense.

S. Rep. 83-1622 (1954), as reprinted in 1954 U.S.C.C.A.N. 4621, 5251; H.R. Rep. 83-1337 (1954), as reprinted in 1954 U.S.C.C.A.N. 4017, 4572. McLain relies on the last sentence to argue that § 7202 is merely a restatement of previous law and that no change in its scope was intended.

McLain's reliance on this sentence of legislative history is misplaced. When the text of a statute is clear, courts do not look to legislative history --at all. Ratzlaf v. United States, 510 U.S. 135, 147-48 (1994) ("we do not resort to legislative history to cloud a statutory text that is clear"). 7 And an examination of the Internal Revenue Code of 1954 makes plain that the phrase "this title" in § 7202 refers to the entire 1954 Code, including the income and FICA taxes imposed thereunder. The 1954 Code states that "[t]he provisions of this Act set forth under the heading 'Internal Revenue Title' may be cited as the 'Internal Revenue Code of 1954'." Ch. 736, 68A Stat. 3, 3 (1954). In other words, the "Internal Revenue Code" is another name for the "Internal Revenue Title" that forms the basis of Title 26. The phrase "this title" in § 7202 of the 1954 Code thus refers to the entire 1954 Code, and likewise the identical phrase in 26 U.S.C. § 7202 refers to all of Title 26.

The Court therefore rejects McLain's argument that it is necessary (or even permissible) to refer to the 1938 Act, or any other prior version of the tax laws, in order to interpret the meaning of § 7202. The Internal Revenue Code of 1954 is the correct Statute at Large to consider when construing the meaning of "this title" in § 7202, and § 7202 plainly applies to income and FICA taxes imposed under Title 26. For these reasons, McLain's motion to dismiss for defective indictment is denied.


ORDER


Based on the foregoing, and on all of the files, records, and proceedings herein, IT IS HEREBY ORDERED that:
1. Defendant's motion for acquittal [Docket No. 132] is DENIED.

2. Defendant's motion to dismiss for lack of in personam and territorial jurisdiction [Docket No. 142] is DENIED.

3. Defendant's motion to dismiss for due process violations [Docket No. 144] is DENIED.

4. Defendant's motion to arrest judgment for unconstitutionality of Title 18 [Docket No. 150] is DENIED.

5. Defendant's motion to arrest judgment for lack of federal jurisdiction [Docket No. 152] is DENIED.

6. Defendant's motion to dismiss for lack of subject-matter jurisdiction [Docket No. 160] is DENIED.

7. Defendant's motion to dismiss for defective indictment [Docket No. 162] is DENIED.

8. Defendant's motion for disclosure of grand-jury transcripts and concurrence form [Docket No. 164] is DENIED.

1 McLain hand-delivered several of these motions to Court personnel during the course of his trial. Only some of the hand-delivered motions were also filed electronically. Motions that were not filed electronically include a motion to dismiss for lack of subject-matter jurisdiction and a motion to dismiss for defective indictment. These motions have now been docketed and are addressed in this order.

2 McLain concedes the possibility that he could be a person required to "collect" federal income and FICA taxes, but points out that the indictment does not charge him with a failure to collect.

3 Similarly, § 7201 does not contain language requiring that the taxes be "due and owing by" the defendant. The "due and owing by" language, which caused the government so much trouble, appeared in the Farr indictment. As Farr noted, "[h]ad the government simply charged Ms. Farr generically under Section 7201 with the willful evasion of a tax, we might have a different situation." Farr, 536 F.3d at 1181.

4 For the same reason, the Court also denies McLain's most recent motion for disclosure of the concurrence form and transcripts of the grand-jury proceedings. Docket No. 164.

5 This motion was signed by McLain's attorney, but only after the attorney explained to the Court that McLain had prepared the motion and was insisting that it be filed, and only after the attorney sought and received the Court's permission to file the motion on McLain's behalf. For all practical purposes, the motion was filed by McLain pro se.

6 McLain also contends that the Internal Revenue Code of 1954 is prima facie evidence of the law on which Title 26 is based. Docket No. 163 at 4. McLain is incorrect. The Internal Revenue Code of 1954 was enacted into positive law in the form of a separate code and, as amended, is the authoritative statement of the law. 1 U.S.C. § 204(a) & note; ch. 736, 68A Stat. 3, 3 (1954); Pub. L. No. 99-514, 100 Stat. 2085, 2095 (1986) (stating that the Internal Revenue Title enacted in 1954, as amended, may be cited as the Internal Revenue Code of 1986); Tax Analysts v. IRS, 214 F.3d 179, 182 n.1 (D.C. Cir. 2000). Moreover, while McLain is technically correct in arguing that Title 26 is merely prima facie evidence of the law, the distinction is largely academic because the relevant sections of Title 26 are identical to the relevant sections of the Internal Revenue Code. 1 U.S.C. § 204(a) note; O'Boyle v. United States, No. 07-10006, 2007 WL 2113583, at *1 & n.1 (S.D. Fla. July 23, 2007).

7 Even if the Court did look to legislative history, that history would not necessarily compel the conclusion suggested by McLain. The ambiguous statement on which McLain relies merely states that § 7202 corresponds to existing law; it does not say that it is identical to existing law or that no substantive change was intended. In contrast, the Congressional reports repeatedly use some variation of the phrase "[t]his section contains no material change from existing law" when no substantive change was intended. See, e.g., H.R. Rep. 83-1337 (1954), as reprinted in 1954 U.S.C.C.A.N. 4017, 4572, 4573.



Willful Failure to File Return, Supply Information, or Pay Tax: Motion for acquittal

Taxpayer not having interposed a motion for judgment of acquittal at the close of all the testimony, the court could not consider the question of sufficiency of the evidence to sustain the judgment and sentence of conviction.

R.D. Leeby, CA-8, 51-2 USTC ¶9497, 192 F2d 331.

There was no reversible error in refusing to direct a verdict for taxpayer at the close of all the evidence.

P. Dillon, CA-8, 55-1 USTC ¶9131, 218 F2d 97. Rem'd, SCt, 56-1 USTC ¶9111, 350 US 906.

Bostwick, CA-5, 55-1 USTC ¶9170, 218 F2d 790.

E.P. Black, CA-8, 62-2 USTC ¶9792, 309 F2d 331. Cert. denied, 372 US 934.

G.M. Michals, CA-10, 72-2 USTC ¶9737, 469 F2d 215.

Motion to direct an acquittal on a count dealing with defendant's wife's separate return should have been granted. However, a new trial is ordered instead of reversal with directions to acquit on this count.

Steele, CA-5, 55-1 USTC ¶9438, 222 F2d 628; conviction for 1948 aff'd after new trial, CA-5, 57-1 USTC ¶9607, 243 F2d 712.

Motion for acquittal properly granted on two counts because of insufficient evidence.

W.A. Mousley, CA-3, 63-1 USTC ¶9245, 311 F2d 795. Cert. denied, 372 US 966.

The court granted the taxpayer's motion for judgment of acquittal where the government did not present evidence to prove intent to evade taxes and no conviction for understatement of income with intent to evade taxes could be sustained.

D.O. Hestnes, DC, 80-2 USTC ¶9669, 492 FSupp 999.

Court of Appeals, in granting new trial because of numerous errors in decision of court below, did not see fit to direct acquittal.

J.V. Gikas, CA-1, 58-1 USTC ¶9147, 250 F2d 858.

Under the broad conspiracy allegations of the indictment, it was proper for the Court to refuse to limit the Government's case to specific acts of concealment or particular theories, so long as it properly emphasized that a common unity of purpose among the defendants had to be established.

H.H. Klein, CA-2, 57-2 USTC ¶9912, 247 F2d 908.

A motion for acquittal was improperly denied as to a count involving 1954 taxes where the taxpayer was charged with stating that "the amount of taxes due and owing ... was the sum of zero dollars," and the form used did not contain such a statement nor any computation or determination of tax.

J.W. Janko, CA-8, 60-2 USTC ¶9580, 281 F2d 156.

Motion for acquittal was properly denied where the evidence was sufficient to warrant submission to the jury of an indictment for tax evasion. A reconstruction showed substantial tax to be owing for taxable years and deficiency assessments had also been made against the taxpayer for earlier years.

J.J. Burke, Jr., CA-1, 61-2 USTC ¶9617, 293 F2d 398. Cert. denied, 368 US 930.

Motion for acquittal granted where the evidence indicated that taxpayer had no knowledge of the contents of business records and that his mother and sister maintained them. The evidence also indicated that his mother forged his name on the tax returns.

N. Melillo, DC, 67-2 USTC ¶9717, 274 FSupp 314.

Motion for acquittal granted where evidence indicated that the taxpayer's failure to file was due to lack of funds and that he submitted W-2 forms disclosing his tax liability.

R.R. Power, DC, 68-2 USTC ¶9443.

Although the trial court erroneously failed to rule on the taxpayer's motion for acquittal before requiring the taxpayer to proceed with his case, such error was not prejudicial because the government's evidence at that stage of the case was sufficient to support the jury verdict.

J.L. Sullivan, CA-9, 69-2 USTC ¶9533, 414 F2d 714.

Motion for acquittal was denied because government's use of net worth method was reliable, and evidence of willfulness was sufficient to put case before a jury. Therefore, taxpayer's conviction for willful failure to file tax returns, where he admitted receiving gambling income, was proper.

I.L. Shy, DC, 75-1 USTC ¶9206, 383 FSupp 673.

A motion for acquittal was granted. The government failed to establish the existence of deficiencies in that it did not show that the cash-basis taxpayers received certain checks in time to deposit them before the end of the years in question. Furthermore, there was insufficient evidence to show that certain checks that were negotiated by the taxpayer-husband rather than deposited were excluded from reported gross receipts.

E.F. House, CA-3, 75-2 USTC ¶9782, 524 F2d 1035, rev'g in part and rev'g and rem'g in part, DC, 75-1 USTC ¶9285. Reh'g denied by CA-3, 76-2 USTC ¶9616.

The district court's order granting the taxpayers' post-verdict motions for judgments of acquittal based on a finding that venue in the Northern District of West Virginia was improper was reversed and remanded with directions to reinstate the jury's verdict of guilty.

B.F. Goodyear, CA-4, 81-1 USTC ¶9423, 649 F2d 226.

A federal district court improperly granted a married couple's motion for judgments of acquittal after a jury had convicted the couple for income tax evasion. The government produced sufficient evidence for a jury to conclude that the couple had knowledge of the contents of their return and that the income figure reported on the return was vastly understated. The couple's expenditures greatly exceeded their reported income, and they failed to record business receipts, withheld material from their accountant, and deliberately understated rental income.

A.G. Olbres, CA-1, 95-2 USTC ¶50,401, 61 F3d 967. Cert. denied, 116 SCt 522.

The evidence overwhelmingly supported the jury's verdict of failure to file and the court denied the taxpayer's motion for acquittal, asserted on the grounds of vindictive prosecution and on the grounds that his Fifth Amendment rights were violated.

J.M. Grabinski, CA-8, 84-1 USTC ¶9201, 727 F2d 681.

Although there were signs that the taxpayer was merely careless in preparing his returns, the court refused to overturn a jury's conviction of the taxpayer for intentionally evading income taxes by filing false tax returns. One evidence of intent was the taxpayer's request for and receipt of a salary raise that he failed to report on his returns.

M.S. Tishberg, CA-7, 88-2 USTC ¶9492, 854 F2d 1070.

Defendant, who dealt in bets on sporting events, was entitled to acquittal on the charge of failing to file information returns.

Carroll, DC, 54-1 USTC ¶9335, 117 FSupp 209.

Motion for acquittal upon grounds that the verdict was based only upon circumstantial evidence was denied as there was sufficient evidence to support the verdict.

C.R. O'Day, DC, 60-2 USTC ¶9605, 186 FSupp 572.

A motion for judgment of acquittal or, in the alternative, for a new trial were denied, there being sufficient evidence to show willfulness.

Dr. F.L. Benus, DC, 61-2 USTC ¶9669, 196 FSupp 601.

R.R.P. Perna, DC, 61-2 USTC ¶9621, 197 FSupp 853.

H.W. Polk, CA-9, 72-1 USTC ¶9127, 446 F2d 1401.

R.F. Wilson, CA-5, 71-1 USTC ¶9391, 440 F2d 1103. Cert. denied, 404 US 882.

R.F. Wilson, CA-5, 72-1 USTC ¶9262, 450 F2d 795. Cert. denied, 405 US 1016.

J.W. Greenlee, DC, 75-1 USTC ¶9192.

A motion for acquittal notwithstanding the verdict was denied because there was sufficient evidence to support the verdict.

J.R. Crocker, DC Del., 92-1 USTC ¶50,008.

A motion for acquittal raised by a diamond sawblade seller who had been convicted of tax evasion was denied. The motion was untimely filed, and the evidence at trial showed that he earned substantial taxable income. Further, his argument that income described in the Sixteenth Amendment and subject to tax was limited to profit proceeding from property was meritless.

N.H. Rhodes, DC Pa., 96-2 USTC ¶50,341, 921 FSupp 261.

An individual was not entitled to a judgment of acquittal or for a new trial with regard to his indictment for several counts of willful tax evasion. The government's evidence at trial clearly showed that he operated his business under a false name, that he took elaborate steps to conceal his true identity and income, and that he had not filed a tax return for any of the tax years at issue. Further, the individual's motion for a mistrial on the ground that the government failed to provide him with copies of third-party summonses it issued to witnesses for production of requested documents was rejected because the government was not required to provide a notice of third-party summonses issued with regard to criminal investigations.

N. Stierhoff, DC R.I., 2007-2 USTC ¶50,626.

An individual convicted of willful failure to collect or pay over tax was not entitled to a judgment of acquittal or a new trial. The individual controlled and operated the company that was his employer and he freely chose to spend corporate funds on non-essential goods and entertainment rather than paying the taxes. Further, the individual failed to prove that a new trial was required. The jury instructions were appropriate and, contrary to the individual's argument, the ability to pay was not an essential element of the crime required to be included in the jury instruction. Additionally, a special verdict form was not required because it was presumed that the jury followed the instructions.

R. Blanchard, DC Mich., 2008-2 USTC ¶50,535.

A federal district court properly convicted and sentenced an individual for income tax evasion. The individual operated his business under a false name, concealed his identity and income, and did not file a tax return for any of the tax years at issue. A rational jury could easily infer that the individual knew of his obligation to file federal income tax returns and that his failure to do so was an intentional violation of a known legal duty.

N. Stierhoff, CA-1, 2009-1 USTC ¶50,103.

An individual was not entitled to an acquittal or a new trial with respect to his indictment for willful failure to file returns. The individual did not introduce into evidence a purported IRS letter that allegedly excused the individual from filing returns for the years charged, and an IRS agent stated he had never seen such a letter during his decades as an IRS employee. The jury had sufficient evidence to conclude that the individual was obligated to file tax returns. The government's characterization of testimony at the closing argument, although inaccurate, was not prejudicial. The jury was properly instructed that statements and arguments by counsel were not evidence and that it had to base its decision solely on the evidence presented before the court. Finally, the individual was not prevented from presenting his defense and was not entitled to a new trial on the basis of the alleged prosecutorial misconduct because the prosecutorial errors were not significant and did not deprive the individual of his right to a fair trial.

W. Orr, DC Colo., 2009-1 USTC ¶50,221.

A federal district court improperly acquitted an individual after a jury found him guilty of tax evasion. The government produced sufficient evidence for a jury to conclude that the individual transferred his house to avoid an IRS lien and made false statements to IRS agents about his income to deter them from pursuing further collection efforts. However, the court acted within its discretion in conditionally granting a new trial.

C.V. Herrera, CA-5, 2009-1 USTC ¶50,226.



Willful Failure to File Return, Supply Information, or Pay Tax: Willful failure to pay over withheld taxes

The president and sole shareholder of a computer consulting company was properly convicted of willful failure to pay over withheld employment taxes. He knew about his obligations regarding the withheld taxes, and his testimony established that he voluntarily and intentionally violated his known legal duty to remit the taxes. Further, the prosecution was brought in a timely manner because the six-year, rather than the three-year, statute of limitations applied to violations of Code Sec. 7202.

R. Gollapudi, CA-3, 97-2 USTC ¶50,978, 130 F3d 66. Cert. denied, 118 SCt 1190.

Related taxpayers who owned and operated several businesses were properly convicted of willful failure to pay over withheld payroll taxes. Resolving an issue of first impression, the court concluded that Code Sec. 7202 creates a dual obligation to both truthfully account for and to pay over the taxes. Thus, even though the taxpayers truthfully accounted for the taxes by submitting the necessary forms to the IRS, they committed a crime when they neglected to pay over the funds.

P. Evangelista, CA-2, 97-2 USTC ¶50,608, 122 F3d 112.

A debtor who co-owned two corporations with his wife was properly convicted of failing to pay over federal withholding and FICA taxes on behalf of the businesses. As the president and majority owner of the corporation, he qualified as a person required to pay over withheld taxes under Code Sec. 7202. Moreover, the fact that the taxpayer collected and accounted for the withheld funds did not preclude his conviction since his failure to pay over the taxes was sufficient to support his conviction.

W.H. Thayer, CA-3, 2000-1 USTC ¶50,136, 201 F3d 214. Cert. denied, 6/19/2000.

The taxpayer was properly convicted of failing to pay over employment taxes.

T.L. Gilbert, CA-9, 2001-2 USTC ¶50,655.

C.D. Morrison, CA-4 (unpublished opinion), 2002-1 USTC ¶50,231, aff'g, per curiam, an unreported District Court decision.

A.S. Adam, CA-5, 2002-2 USTC ¶50,502.

D.G. Pflum, CA-10 (unpublished opinion), 2005-2 USTC ¶50,603, aff'g an unreported District Court decision.

An individual's conviction for tax evasion and willful failure to account for and pay over payroll taxes was affirmed. Although the taxpayer withheld taxes from his employees' wages, he failed to pay over those taxes to the IRS and retained the funds in a corporate bank account that he controlled and accessed for personal expenditures.

M.W. May, CA-6 (unpublished opinion), 2006-1 USTC ¶50,260, aff'g, per curiam, an unreported DC Ohio decision.

A federal district court did not err by admitting evidence relating to a defendant's prior noncompliance with federal tax laws for purposes of proving her intent to commit the crime of knowingly and willfully attempting to evade the payment of her corporation's payroll tax liability by directing its clients to pay their outstanding balances to a successor corporation. The evidence of prior misconduct was properly admissible under Federal Rule of Evidence 404(b) to establish the requisite intent to commit the charged crime and did not amount to a constructive amendment of the terms of the indictment or a prejudicial variance from the allegations in the indictment. The district court's repeated and precise instructions to consider this evidence solely for purposes of determining intent ensured that the jury could convict her only for a crime based on the wrongful conduct charged in the indictment.

D. Daraio, CA-3, 2006-2 USTC ¶50,544.

The owner of a corporation was properly convicted and sentenced by a federal district court for several counts of willful failure to pay employment tax, and embezzlement from his company's 401(k) plan and its health benefits plan. The evidence presented at trial sufficiently showed that the owner retained significant, if not exclusive, control over the company's finances during the tax periods at issue. Moreover, the owner was entrusted with control of employee contributions to the 401(k) and health care benefits plans and he wrongfully diverted those amounts for his own purposes.

A.M. Armstrong, CA-8 (unpublished opinion), 2007-1 USTC ¶50,105, aff'g, per curiam, an unreported DC Iowa decision.

Evidence pertaining to married businessowners' indictments for willful failure to pay withheld income and FICA taxes was not prejudicial and was, therefore, admissible at a jury trial. The evidence pertaining to the couple's expenditures from the intermingled personal and company funds for the lease of two automobiles, amounts spent on gambling at a casino, and the husband's purchase of firearms and a compact disc player, was relevant to the issue of the existence of sufficient funds to satisfy the couple's tax obligations.

R. Blanchard, DC Mich., 2007-2 USTC ¶50,596.

An individual was properly convicted and sentenced for willful failure to pay over withheld employment taxes to the IRS for the years at issue. The government's evidence at trial sufficiently showed that the individual, as the responsible person to pay withheld payroll taxes, willfully failed to make such payment.

M.D. Cordell, CA-5 (unpublished opinion), 2007-2 USTC ¶50,628, aff'g, per curiam, an unreported DC Texas decision.

An individual was not entitled to a jury instruction contending that his failure to pay over employee payroll taxes was not willful because he did not have money to pay the taxes. In order to establish willfulness, the government was not required to prove that the individual had the ability to meet his tax obligations. Instead, the failure to pay was willful because the individual knew that he owed taxes and did not pay them.

J.E. Easterday, CA-9, 2008-2 USTC ¶50,512.

An individual convicted of willful failure to collect or pay over tax was not entitled to a judgment of acquittal or a new trial. The individual controlled and operated the company that was his employer and he freely chose to spend corporate funds on non-essential goods and entertainment, rather than paying the taxes.

R. Blanchard, DC Mich., 2008-2 USTC ¶50,535.