U.S. v. Garber

• Decision Date: 14 February 1979
• Docket Number: No. 78-5024,78-5024
• Parties: 79-1 USTC P 9212 UNITED STATES of America, Plaintiff-Appellee, v. Dorothy R. GARBER, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 843

589 F.2d 843

79-1 USTC P 9212

UNITED STATES of America, Plaintiff-Appellee, v. Dorothy R. GARBER, Defendant-Appellant.

No. 78-5024.

United States Court of Appeals,

Fifth Circuit.

Feb. 14, 1979.

Rehearing En Banc Granted March 26, 1979.

Samuel S. Forman, Hollywood, Fla., Lawrence R. Metsch, Miami, Fla., for defendant-appellant.

Jack V. Eskenazi, U. S. Atty., Marsha L. Lyons, Asst. U. S. Atty., Miami, Fla., for plaintiff-appellee.

Appeal from the United States District Court for the Southern District of Florida.

Before WISDOM, AINSWORTH and CLARK, Circuit Judges.

AINSWORTH, Circuit Judge:

This direct criminal appeal involves the novel question of the taxability of income derived from the sale of a person's own blood plasma. Dorothy R. Garber was convicted after a jury trial of one count of a three-count indictment charging income tax evasion in violation of section 7201 of the Internal Revenue Code of 1954, 26 U.S.C. § 7201 (1976), ¹ and appeals. We affirm the conviction. ² Appellant Garber's blood has substantial commercial value due to the presence of an extremely rare antibody known to be possessed by only two or three other persons in the world. This antibody is used in the production of diagnostic reagents for blood typing serums. Garber's blood has a very rare Rh factor and she produces the antibody as an immunological response to the introduction of blood with a different Rh factor into her bloodstream. The unusual character of appellant's blood first became evident as a result of several pregnancies between 1955 and 1965 and of blood transfusions administered in the course of those pregnancies.

In late 1967, Dade Reagents, Inc. of Miami, Florida approached appellant, who then lived in Oshkosh, Wisconsin, with an offer to travel to Miami for discussions regarding the sale of her blood plasma. On December 29, 1967, Garber entered into a contract with Dade providing that Dade would have the exclusive right to withdraw her blood plasma for conversion into a marketable serum and would pay her between $200 and $500 per "bleed" depending on the concentration of antibodies or titre of her blood. The commercial exploitation of appellant's blood involved two separate steps: stimulation and plasmapheresis. Stimulation involved increasing the concentration of antibodies in her blood by injecting small amounts of selected human red blood cells into her blood; this procedure heightened her existing immunity to blood with a foreign Rh factor. Plasmapheresis is a process in which whole blood is removed from a donor and immediately centrifuged to separate the red blood cells from the plasma or watery part of the blood. The red blood cells are then transfused back into the donor's body. As a donor can safely give whole blood only about eight times per year but can give blood plasma as often as twice a week, the use of plasmapheresis dramatically increased the volume of antibodies that could be taken from appellant during any given period of time. This process is generally repeated twice at a session and requires about an hour and a half to recover a pint of plasma; due to the small size of appellant's veins, however, it usually took her two and a half hours.

At the time she signed the contract with Dade, Garber also executed a comprehensive release stating that she was aware of the presence of the Rh antibodies in her blood and of their danger to any children she might carry with an incompatible Rh factor and to her if she received a transfusion of incompatible blood. She acknowledged that she had received advice not to have more children and that she had been informed of the nature and purpose of the procedures to be performed. Finally, she released Dade from liability for any damage, injury or loss that might result from stimulation or the withdrawal of blood. She routinely signed releases when blood was taken.

The process of stimulation caused a number of unpleasant side effects, including dizziness, severe headaches and muscle aches, which lasted approximately two weeks after the injection of the foreign blood cells. The process of plasmapheresis also involved pain and discomfort. On occasion the technician would have difficulty situating the needle properly in the veins in appellant's arms, allowing blood to seep into the tissues around the vein creating a minor hematoma or even hitting a nerve. These difficulties could produce lingering soreness and stiffness of the arms. In addition, Garber inevitably suffered a certain amount of scarring of the veins in her arms and ran the remote risk of contracting hepatitis or having an air bubble introduced into her bloodstream. An expert testified at trial, however, that there should be no untoward effects if the process is done properly.

Joseph N. Potts, a former Dade superintendent, testified at trial that, when appellant first began selling blood plasma to Dade, he wanted her to be informed concerning the taxability of the payments made to her. A memorandum dealing with taxation was prepared for Garber, and Potts discussed the matter with her in his office. At Dade's suggestion a savings account was opened in Garber's name in which Dade was to deposit a portion of the payments to her so there would be funds available to pay income taxes. Dade made deposits in this account from 1967 to 1969 and the statements of earnings accompanying the checks issued to Garber during this period bore the notation "less accrual for taxes." She did not, however, pay the money in the account to the Government but gradually withdrew it for a variety of personal uses. Appellant testified at trial that she did not recall Potts telling her anything about taxes and, although she remembered the savings account, she stated that she did not recall that the account was for taxes or that the statements were marked "less accrual for taxes." She also testified that she filed a return for the 1969 tax year on which she had written: "I have no W-2 forms as my income was made up entirely from donating blood plasma from various blood banks." An employee of the IRS District Director's Office, however, later testified that the IRS had no record of a return for 1969 having been filed.

In January 1970, having terminated her relationship with Dade, appellant began an association with Biomedical Industries, Inc. A contract signed February 25, 1970 provided for the payment of $700 per bleed and on March 1, 1972 Biomedical agreed to pay Garber up to $1,600 per bleed. In addition to these payments, Biomedical paid her a salary of $200 per week, provided her with a Lincoln Continental automobile, and paid her a sum of money in lieu of the life insurance that Biomedical had agreed to obtain but for which Garber was unable to qualify. Finally, under the 1970 agreement she received 1,000 shares of Biomedical's common stock and the 1972 agreement provided for a bonus of $25,000 for signing.

With regard to the $200 per week salary, Biomedical withheld money for tax purposes and issued appellant W-2 forms. As to the other payments and benefits, Biomedical treated appellant as an independent contractor and withheld nothing. It issued to her copies of Form 1099, an information return form, stating the amount of these latter earnings. Although Garber ostensibly received the salary of $200 per week for attempting to find other donors, aside from speaking to her twin brother she did nothing to earn this money. She testified at trial that it was her understanding that this salary represented additional compensation for the sale of her blood plasma to Biomedical. Appellant reported this salary on her income tax returns for 1970, 1971, and 1972; she did not report any other compensation for these years.

On June 13, 1973, IRS Special Agent Ted F. Brown met with appellant and her then husband to discuss their joint income tax return for 1971. At that meeting she told Brown that the return was true and correct, that the W-2 form attached to the return reflected payments for employment as a secretary for Biomedical, that she had received no income from Biomedical other than that indicated on the W-2 form, and that she had never had a savings account. Two days later, on June 15, 1973, Brown had a second meeting with appellant at her request; she indicated that she had not wanted to discuss certain matters in her husband's presence since they were in the process of getting a divorce. At this interview she told Brown that she earned money selling blood plasma to laboratories but that she believed that this money was not taxable because the plasma was part of her body. She brought the 1099 forms for 1970 and 1971 with her, but stated that she did not know their purpose and had never tried to find out.

On March 24, 1977, appellant was charged in a three-count indictment with willfully and knowingly attempting to evade and defeat a large part of the income tax owed by her for the years 1970, 1971, and 1972. She and her husband had filed joint returns for those years reporting taxable income of $7,593.34 for 1970, $13,603.60 for 1971, and $9,512.80 for 1972. The indictment alleged that their taxable income was actually $91,426.06 in 1970, $84,821.55 in 1971, and $96,477.50 in 1972. Appellant's husband was not indicted and Garber entered a plea of not guilty to all three counts. At trial the jury returned a verdict of not guilty as to the first two counts and guilty as to the third. At the time of trial in 1977, appellant was 42 years old, divorced and the mother of three children, ages 22, 18 and 12.

Appellant raises three issues on appeal. First, she contends that the district court erred in deciding as a matter of law that the funds received for the sale of plasma constituted taxable income and in instructing the jury accordingly. She argues that these payments were potentially excludable from gross income under section 104(a)(2) of the Internal Revenue Code as "damages received (whether by suit or...