Rau v. United States

• Decision Date: 14 May 1919
• Docket Number: 233.
• Citation: 260 F. 131
• Parties: RAU v. UNITED STATES.
• Court: U.S. Court of Appeals — Second Circuit

260 F. 131

RAU v. UNITED STATES.

No. 233.

United States Court of Appeals, Second Circuit.

May 14, 1919

Henry P. Kieth and Lamar Hardy, both of New York City, for appellant.

Francis G. Caffey, U.S. Atty., of New York City (Francis L. Kohlman Sp. Asst. U.S. Atty., of New York City, of counsel), for the United States.

Before WARD, ROGERS, and MANTON, Circuit Judges.

MANTON J.,

Circuit Judge. The defendant was indicted and convicted for a violation of section 1004 of the Act of Congress of October 3, 1917, c. 63, 40 Stat. 325 (Comp. St. 1918, Sec. 5896b). This statute makes it a criminal offense for a failure to file an income tax return as prescribed by law. The indictment contains two counts, charging a failure to file a return for the year 1916, and one for the year 1917. The conviction was had on both counts. It was conceded that the defendant did not file a return. The returns for 1916 and 1917 were required to be filed on or before March 1st of the following year. As to 1916, a return was required to be made by each person of lawful age having a net income of $3,000 or over for the taxable year. An exemption of $3,000, plus $1,000 additional, was granted to a person making a return if he was the head of a family or married man with a wife living with him. Section 7, Act Sept. 8, 1916 (39 Stat. 761, c. 463 (Comp. St. Sec. 6336g)). For the year 1917 a return was required in the case of net incomes of $1,000 or over in case of an unmarried person and $2,000 or over in case of a married person.

In pursuance to a request, the defendant appeared at the office of the revenue collector on September 27, 1918, and made a statement of his earnings for 1916 and 1917, which indicated that for the year 1916 the defendant had a net income of $2,000 above exemption, and in 1917 $1,758 net above the exemption. Rau stated that he did not know these figures were subject to tax, and that he did not know the law, but wanted to pay any tax that was due the government. He was a broker or salesman on commission, and had been in the insurance business for 20 years; also engaged in selling stocks and securities since August, 1917. Of course, his ignorance of the law was no excuse.

Upon the trial, he testified that he never kept books; he had no bank account; that he had been separated from his wife since 1913, and admitted that he made no effort to pay the tax until called upon by the collector. After he saw the collector, he executed income tax returns and gave figures as his correct income for five years, showing that in the year 1917 his net income was $3,834.10, and in 1916, $3,531.22. At a subsequent call at the collector's office, the amount of his tax indebtedness was calculated as $324.62. A certified check was then drawn and given to the official in charge for this amount, plus a penalty of $250 which was imposed. After the acceptance of this check, this indictment was found.

Section 3229 of the Revised Statutes (Comp. St. Sec. 5952) provides:

'The Commissioner of Internal Revenue, with the advice and consent of the Secretary of the Treasury, may compromise any civil or criminal case arising under the internal revenue laws, instead of commencing suit thereon; and, with the advice and consent of the said Secretary and the recommendation of the Attorney General, he may compromise any such case after a suit thereon has been commenced.'

This statute authorized a compromise of any criminal or civil obligation. If an offer of compromise was made and accepted no criminal proceedings could thereafter be successfully prosecuted for failure to pay the tax. Willingham v. United States, 208 F. 137, 127 C.C.A. 263.

The defendant endeavored to establish that he offered to compromise and that he paid his check for the tax found to be due, together with the penalty, and that this was accepted in compromise of the criminal responsibility. He was entitled to urge this as a defense. We are of the opinion that the District Judge disregarded this right which the defendant had as a defense of the criminal prosecution. The District Judge evidently was of the opinion that the defendant could not defend upon the theory that he had compromised the criminal prosecution, for he stated:

'It makes no difference as to whether he has paid the tax or not.'

This and similar remarks occur frequently in the record. For example, the court said:

'I will instruct this jury that it makes no difference whether the amount of the tax which had been agreed upon here was paid or not, so far as the criminal liability of the defendant is concerned.'

And again:

'And so it is here-- that if this man had committed a violation of the law at the time he made his offer in compromise or settlement, if you find that he willfully failed to file his income tax return under all the evidence of the case beyond a reasonable doubt, I instruct you that such tender of payment would not affect such criminal liability.'

This position was taken by the court in reference to other efforts made by the defendant to offer his defense of a compromise of the criminal prosecution. It is presented by offers of evidence and questions asked of witnesses, to which objections were sustained, tending to show that a compromise was in fact made. Much of this evidence was erroneously excluded by the trial judge.

The defendant testified that--

'At the time of the presentation of the check, Mr. Bowden told me that there would be no further proceedings of any kind or character, that the offer of $324.62, the receipt of the government for that, the offer of $250 in compromise, that in consideration of that there would be no proceedings, no indictment; nothing would be done whatever.'

He was then asked if it was on that condition that he paid the money, and his answer thereto, 'I did,' was stricken out upon objection by the United States attorney. Defendant then attempted to trace the money to the Treasury Department, and endeavored to show that it was never returned; by this making an effort to establish it was received by the United States Treasury after approving the compromise, and this was excluded.

The Commissioner of Internal Revenue had the power and authority by virtue of the statute above referred to, and with the advice and consent of the Secretary of the Treasury, to compromise the criminal case as well as the civil case arising under the internal revenue laws. The compromise may have been made before the institution of the criminal proceedings or after. The provision relating to the necessary consent of the Attorney General evidently intends a compromise after the institution of a civil or criminal action. If the defendant, in good faith, made the payment of the tax and penalty for the purpose of compromising the impending action, he is entitled to full protection and the benefits derived therefrom. If the money was accepted with the promise of immunity from further punishment in a criminal proceeding, it would be a complete defense to this indictment. Willingham v. United States, 208 F. 137, 127 C.C.A. 263.

The acceptance, not only of the tax, but of the penalty, coupled with the statement of the internal revenue officer, that payment would end the matter, and that there would be no indictment, if true, would be a good defense. The fact that the money was retained by the United States is some evidence of its acceptance in compromise. We believe that under the facts disclosed in this record, as far as the defendant was permitted to show them, it was required of the court to submit as a question of fact to the jury, under proper instructions, whether or not a compromise was entered into. It was not a question of law for the District Judge. As was said in United States v. Chouteau, 102 U.S. 603, 26 L.Ed. 246:

'He has been punished in the amount paid upon the settlement for the offense with which he was charged, and that should end the present action, according to the principle on which a former acquittal or conviction may be invoked to protect against a second punishment for the same offense.'

Since there must be a new trial, we shall advert to errors committed in the admission of evidence, so that there may be no reoccurrence at the new trial.

As a witness, the defendant was interrogated as to alleged improper and illegal transactions with Warwick, Love, and Williams. He denied charges of improprieties in business transactions and alleged embezzlements or grand...