723 F.Supp. 1197 (E.D.Mich. 1989), Crim. A. 88-CR-50062-FL-1-2-3-4, United States v. Mohney
| Docket Number | Crim. A. 88-CR-50062-FL-1-2-3-4 |
| Citation | 723 F.Supp. 1197 |
| Date | 02 October 1989 |
| Parties | United States v. Mohney |
| Court | 6th Circuit |
Page 1197
Page 1198
Richard L. Delonis, Detroit, Mich., Joseph Allen, for plaintiff.
Clyde B. Pritchard, Edith S. Thomas, Detroit, Mich., for Mohney.
J. Terrance Dillon, Grand Rapids, Mich., for Tompkins.
Carl L. Rubin, Southfield, Mich., for Schribner.
Larry C. Willey, Grand Rapids, Mich., for Klein.
MEMORANDUM OPINION AND ORDER
NEWBLATT, District Judge.
Defendants' Motion to Dismiss Count I of the Indictment ( See Appendix A) is essentially focussed on the application of United States v. Minarik, 875 F.2d 1186 (6th Cir.1989); United States v. Hook, 781 F.2d 1166 (6th Cir.1986); United States v. Fawaz, 881 F.2d 259 (6th Cir.1989); United States v. Shermetaro, 625 F.2d 104 (6th Cir.1980).
The essential principles of these cases insofar as they relate to the defendants' motion to dismiss Count I are: In Shermetaro, 1 the defendant claimed that 18 U.S.C. § 371, 2 the statute involved in the present case, "was not intended to cover conspiracies involving violations of the Internal Revenue laws or conspiracies to defraud the Internal Revenue Service." Defendant argued "that 18 U.S.C. § 371 was preempted by Title 26 of the United States Code." 3 Title 26 is the Internal Revenue Code. Without specific or detailed reasoning, the Sixth Circuit rejected the appellant's argument and held that the conspiracy was appropriately charged under § 371 as the language of § 371 was "sufficiently broad on its face to include the offense of which Shermetaro was found guilty." 4 The court in so stating was referring to both the "offense" and the "defraud" language of § 371. It is fair to conclude that the Minarik issue was not addressed in Shermetaro --only whether Title 26 preempted § 371 as it related to criminal Internal Revenue Code violations. Even though Shermetaro is relied on by the government, the above reading thereof makes it inapplicable to the issue here. Thus, it will no longer be addressed or discussed.
Next in chronology is Hook, where the defendant engaged in conduct for the purpose of concealing assets from the IRS although he filed timely and accurate tax returns. These returns showed almost $300,000 of taxes due, but Hook paid only a few thousand dollars thereon. After the IRS failed to locate assets belonging to Hook, he, along with others, was indicted for conspiring to evade the payment of income taxes for certain years and attempting to evade the payment of taxes for certain years. On trial, he was convicted only of the charges of attempting to evade the payment of taxes for two years and the misdemeanor lesser included offense of willfully failing to pay income taxes for certain years. The felony convictions were under 26 U.S.C. § 7201 which provided in pertinent part: "Any person who willfully
Page 1199
attempts in any manner to evade or defeat any tax ... or payment thereof shall ... be guilty of a felony." Appellant Hook claimed he should have been charged under § 7206(4) which provided: "Any person who ... removes, deposits, or conceals ... any goods or commodities for or in respect whereof any tax is or shall be imposed, or any property upon which levy is authorized by § 6331, with intent to evade or defeat the assessment or collection of any tax ... shall be guilty of a felony...." 5
The Court of Appeals rejected defendant's argument that § 7201 goes to concealing assets only if the taxpayer also files a fraudulent return, or otherwise attempts to conceal the existence or amount of taxable income, and held that § 7206(4) was not intended to be the sole remedy for the concealment of assets as an act of tax evasion, 6 which is the portion of the decision which has application to the present issue. It is, however, not pertinent in the present case because it was essentially an argument as to which of two provisions of the Internal Revenue Code the defendants' conduct violated.
We turn now to Minarik, the Sixth Circuit decision upon which defendants so strongly rely. Here, the court dealt directly with the two separate clauses of § 371, the "offense" clause and the "defraud" clause, in a case where the defendant was charged and convicted under the "defraud" clause. The court said: "The statute was written in the disjunctive in order to criminalize two categories of conduct: conspiracies to commit offenses specifically defined elsewhere in the federal criminal code, and conspiracies to defraud the United States. The first category requires reference in the indictment to another criminal statute which defines the object of the conspiracy. The second category, the "defraud" clause stands on its own without the need to refer to another statute which defines the crime." 7
After trial, the district judge granted defendant's motion for a judgment notwithstanding the verdict. The Court of Appeals affirmed on a wholly different basis--that the evidence on trial constituted:
"only a conspiracy under the offense clause to violate 26 U.S.C. § 7206(4), which provides that any person who: [r]emoves, deposits, or conceals, or is concerned in removing, depositing or concealing, any goods or commodities for or in respect whereof any tax is or shall be imposed or any property upon which levy is authorized by section 6331 [providing for levy after notice and assessment of a tax], with intent to evade or defeat the assessment or collection of any tax imposed by this title ... shall be guilty of a felony." 8
Judge Merritt noted that the government's theory shifted throughout the case, but that putting the indictment together with the government's Bill of Particulars and the evidence offered at trial, showed that the defendants should have been charged under the "offense" clause of the statute which required a reference to the underlying statute, since the final claim of the government was that the conspiracy was to " 'thwart the purpose of the government in collecting the taxes.' " 9 Judge Merritt pointed out that a Supreme Court decision had stripped the word "defraud" of its "common law roots limiting it to purposeful misrepresentation and broadened it to include 'interference' with 'lawful government functions ... at least by means that are dishonest.' " 10 Of great importance was the government's failure to charge "the conspiracy to commit the statutory offense directly relevant to the alleged conduct--a conspiracy to violate § 7206(4) of the Internal Revenue Code...." 11
Page 1200
Judge Merritt made the meaning of Minarik very clear when he said: "The court should require that any conspiracy prosecution charging that conduct (conduct defined by a specific federal criminal statute) be brought under the offense clause in order 'to achieve the remedial purposes that Congress had identified' ... if it is clear that Congress has specifically considered a given pattern of wrongful conduct and enacted a specific statute with a specific range of penalties to cover it." 12
Judge Merritt explained further dealing with prior cases: "These precedents, taken together, show that § 371 creates one crime that may be committed in one of two alternate ways." 13 Speaking of the "defraud" clause, he said " '[i]ts purpose was to reach conduct not covered elsewhere in the criminal code.' " 14
Judge Merritt concluded his opinion as follows:
But where the duties of a citizen are as technical and difficult to discern as they are when a taxpayer, before levy, engages in otherwise legitimate activities that may make ultimate collection more difficult, we hold that a Congressional statute closely defining those duties takes a conspiracy to avoid them out of the defraud clause and places it in the offense clause. The conspiracy is still an indictable offense under the first clause of § 371. But compliance with our rule today will mean that prosecutors and courts are required to determine and acknowledge exactly what the alleged crime is. They may not allow the facts to define the crime through hindsight after the case is over.
In the case before us, the prosecutors, either intentionally or unintentionally, used the defraud clause in a way that created great confusion about the conduct claimed to be illegal. The case should have been brought under the offense clause of § 371, and Judge Higgins was correct in his judgment that the verdict cannot be allowed to stand. Accordingly, the judgment of the District Court is affirmed.
Two months ago, the Sixth Circuit decided United States v. Fawaz. There, the defendant was charged under § 7206(1) with several counts of filing false tax returns, and under § 7201 with evading excise taxes. Defendant claimed that the false statements made--understating the amount of gasoline purchased by his filling station business--had to obscure some other false entry in the tax return or the understatement would not be material. The government responded by claiming that the false entries made it more difficult for the IRS to verify the returns and thus materiality had been established. Moreover the understatements referred to in the § 7206(1) counts were material to the § 7201, evasion of gasoline excise tax counts. Both bases of materiality were held to be appropriate by the Court of Appeals reasoning that the understatements of gasoline purchased made it more difficult for the IRS to verify defendant's income tax returns and his fuel excise tax returns.
The court pointed out that "our tax assessment scheme relies on truthful self-reporting by taxpayers in order to make the IRS's task of verifying returns feasible. Courts have held that false entries are material within the meaning of § 7206(1) if they baffle the IRS in its effort to perform that function." 15
Judge Merritt, the author...
To continue reading
Request your trial