McNichols v. C.I.R., 93-1622

• Decision Date: 01 November 1993
• Docket Number: No. 93-1622,93-1622
• Citation: 13 F.3d 432
• Parties: -618, 94-1 USTC P 50,005 Thomas H. McNICHOLS, Petitioner, Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Respondent, Appellee. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 432

13 F.3d 432

73 A.F.T.R.2d 94-618, 94-1 USTC P 50,005

Thomas H. McNICHOLS, Petitioner, Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Respondent, Appellee.

No. 93-1622.

United States Court of Appeals, First Circuit.

Heard Nov. 1, 1993.

Decided Dec. 29, 1993.

Philip M. Giordano, with whom Linda L. Trent, and Ricklefs & Giordano, Boston, MA, were on brief for petitioner, appellant.

Francis M. Allegro, Counselor to the Asst. Atty. Gen., with whom Michael L. Paup, Acting Asst. Atty. Gen., Gary R. Allen, Kenneth L. Greene, and Alice L. Ronk, Attys., Tax Div., Dept. of Justice, Washington, DC, were on brief for respondent, appellee.

Before SELYA, Circuit Judge, BOWNES, Senior Circuit Judge, CYR, Circuit Judge.

BOWNES, Senior Circuit Judge.

This is an appeal from a decision of the tax court holding the petitioner civilly liable for deficiencies in income tax for the years 1981 and 1982. The tax court also found petitioner liable for additions to the tax due. The amounts are substantial, but the computations are not contested. The tax court brushed aside petitioner's main defense, that imposition of the deficiencies and additions to tax violates the proscription against excessive fines of the Eighth Amendment and violates the Double Jeopardy protection against multiple punishments under the Fifth Amendment. That contention is the main issue before us.

I.

Petitioner is a convicted drug dealer. In October 1987 petitioner was indicted along with Frederick A. Carroll on a number of criminal charges: distribution of and conspiracy to distribute marijuana; violations of the Racketeering Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. Secs. 1962 and 1963; conspiracy to defraud the United States; and subscribing to false tax returns.

In February of 1988 the Internal Revenue Service sent a notice of deficiency to petitioner assessing deficiencies in income and additions to tax for the years 1981 and 1982. The interest on the tax and additions thereto continue to accrue. As of January 26, 1990, petitioner's tax liability totalled $2,422,963.94.

On June 20, 1988, petitioner entered into a plea agreement with the United States Attorney whereby he agreed to plead guilty to all the counts in the indictment in which he was named. He also agreed to forfeit all right, title and interest in the properties described in the indictment. Petitioner claims that the value of the forfeited property is "approximately $1,200,000." (Brief at 3.) The pertinent provisions of the plea agreement provide:

7. Mr. McNichols agrees to relinquish all right, title or interest in any monies held in any foreign bank accounts (or those located in St. Thomas, United States Virgin Islands) held in his name or on his behalf, or on behalf of any entity as to which he is the true beneficiary. (The monies so held on behalf of Mr. McNichols and Thomas H. McNichols are believed to be in excess of $600,000.00). Mr. McNichols further agrees promptly to take all steps necessary to place any of the above-described monies within the custody and control of the United States. Mr. McNichols also agrees to hold harmless any person, corporation or bank which assists the United States in recovering such monies.

Any monies recovered in this manner shall be held in escrow in an interest-bearing account in the name of the Office or by the Clerk of the District Court. Should it be determined by a court of appropriate jurisdiction (e.g. United States Tax Court), or by agreement between the parties, that Mr. McNichols owes any taxes, interest or penalties to the United States, then the Office agrees that any of the recovered monies held in the above-described escrow account which were once held on behalf of Mr. McNichols will be paid to the Internal Revenue Service in partial satisfaction of any tax debt owed by Mr. McNichols. Should it be determined that Mr. McNichols owes no taxes, interest, or penalties, the recovered monies shall be forfeited to the United States. In that case, Mr. McNichols will provide any assistance requested of him to forfeit the recovered monies to the United States.

8. The United States Attorney's Office makes no promises with respect to any civil tax liability incurred by Mr. McNichols (with the exception of the promise made in paragraph 7 above). To the extent permitted under all applicable laws and regulations, the United States Attorney's Office will recommend that the Internal Revenue Service not seek to satisy [sic] any tax assessment by levying and forfeiting the house and real property at 12 Edgemont Street, Boston, Massachusetts. The United States does not in any way represent that it can prevent the Internal Revenue Service from levying on the above-described property.

On October 21, a judgment of conviction was entered. Pursuant to that judgment petitioner was sentenced to ten years incarceration and is now serving that sentence.

The case before the tax court was submitted fully stipulated along with joint exhibits. Taxpayer conceded: that "[d]uring the taxable years 1981 and 1982, [he] derived taxable income and incurred costs from the importation and sale of marijuana"; that he "did not report any of the taxable income received or costs incurred from the sale of marijuana ... on his federal income tax returns for [the 1981 and 1982] taxable years"; and that "[i]n connection with [his] illegal drug activities, [he] did not maintain and, therefore, could not submit complete and accurate books and records of his income producing activities for the taxable years 1981 and 1982 as required by the applicable provisions of the Internal Revenue Code and the regulations promulgated thereunder." In addition, the taxpayer agreed that he had "fraudulently, and with intent to evade tax omitted taxable income from his federal tax returns for the taxable years 1981 and 1982," and that "[a] part of the underpayments of tax which was required to be shown in his federal income tax returns for the taxable years 1981 and 1982 was due to fraud." Taxpayer also stipulated that he had purchased two shell companies, opened various bank accounts in behalf of these companies, and had "deposited, or caused to be deposited" over $1,720,565 into these companies' bank accounts during 1981 and 1982.

Based on the stipulated facts the tax court found the petitioner liable for tax deficiencies and additions thereto for the years 1981 and 1982 in the total amount of $1,169,699.00. This appeal followed. We affirm.

II.

Petitioner contends that the imposition by the IRS of the tax deficiencies and additions thereto on property already forfeited to the government constitutes an excessive fine under the Eighth Amendment and double jeopardy under the Fifth Amendment.

Although it could be argued that under the plea agreement petitioner agreed to accept the assessment of income taxes due we will do, as the parties have done, and address the merits of petitioner's appeal. Petitioner relies primarily on two recent Supreme Court cases, Austin v. United States, --- U.S. ----, 113 S.Ct. 2801, 125 L.Ed.2d 488 (1993) and United States v. Halper, 490 U.S. 435, 109 S.Ct. 1892, 104 L.Ed.2d 487 (1989).

Austin was a forfeiture case. Austin was indicted and subsequently pleaded guilty in a South Dakota state court to one count of possessing cocaine and was sentenced to seven years imprisonment. Shortly after he pled guilty the United States filed a forfeiture action under 21 U.S.C. Secs. 881(a)(4) and (a)(7) in the United States District Court for South Dakota seeking forfeiture of Austin's mobile home and auto body shop. Austin, --- U.S. at ----, 113 S.Ct. at 2803. The Court found that the Excessive Fines Clause of the Eighth Amendment was not limited to criminal actions. It phrased the issue as follows: "the question is not, as the United States would have it, whether forfeiture under Secs. 881(a)(4) and (a)(7) is civil or criminal, but rather whether it is punishment." Id. --- U.S. at ----, 113 S.Ct. at 2806. The Court found that historically forfeiture was viewed as punishment. It then found that because Congress "has chosen to tie forfeiture directly to the commission of drug offenses" the forfeiture statutes were punitive in nature, and were "subject to the limitations of the Eighth Amendment's Excessive Fines Clause." Id. --- U.S. at ----, 113 S.Ct. at 2812. The Court refused to establish a multifactor test for determining whether a forfeiture is constitutionally excessive, but left that for the lower courts to work out in the first instance. Id.

Using Austin as a springboard, petitioner argues that the additions to the income tax were punitive, and that, by seizing his property and then subjecting that same property to an income tax along with penalties and interest, the IRS has violated the proportionality requirements of the Eighth Amendment. We decline to take the giant leap that petitioner urges for several reasons. First there is an insurmountable wall of tax cases, discussed infra, holding that the government has a right to do precisely what it has done here. Second, the instant case is a civil income tax not a forfeiture case as was Austin. And Austin does not directly or impliedly suggest that either its holding or statements to the effect that a forfeiture can be an excessive fine under the Eighth Amendment are or should be applicable to any actions other than forfeitures under 21 U.S.C. Secs. 881(a)(4) and (a)(7). Nor, under the facts of this case, do we perceive any reason for applying the principles of Austin to petitioner. Petitioner agreed to the forfeiture. He stipulated to the tax court that he derived unreported taxable income in 1981 and 1982 from the sale of marijuana. The plea agreement warned petitioner that income tax might be due. Indeed, prior to signing the plea agreement, petitioner was sent a notice of deficiency assessing taxes and penalties for the years 1981 and 1982. The Supreme Court in James v. United States, 366...