Spies v. United States, 278

CourtUnited States Supreme Court
Citation63 S.Ct. 364,87 L.Ed. 418,317 U.S. 492
Docket NumberNo. 278,278
Decision Date11 January 1943

Mr. David V. Cahill, of New York City, for petitioner.

Mr. Samuel O. Clark, Asst. Atty. Gen., for respondent.

Mr. Justice JACKSON delivered the opinion of the Court.

Petitioner has been convicted of attempting to defeat and evade income tax in violation of § 145(b) of the Revenue Act of 1936, 49 Stat. 1648, 1703, now § 145(b) of the Internal Revenue Code, 26 U.S.C.A. Int.Rev.Code § 145(b). The Circuit Court of Appeals found the assignment of error directed to the charge to the jury the only one of importance enough to notice. The charge followed the interpretation put upon this section of the statute in O'Brien v. United States, 7 Cir., 51 F.2d 193, and United States v. Miro, 2 Cir., 60 F.2d 58 which followed it. The Circuit Court of Appeals affirmed, stating that 'we must continue so to construe the section until the Supreme Court decided otherwise.' 128 F.2d 743. One Judge said that as a new matter he would decide otherwise and expressed approval of the dissent in the O'Brien case. As the construction of the section raises an important question of federal law not passed on by this Court, we granted certiorari. 317 U.S. 610, 63 S.Ct. 56, 87 L.Ed. —-.

Petitioner admitted at the opening of the trial that he had sufficient income during the year in question to place him under a statutory duty to file a return and to pay a tax, and that he failed to do either. The evidence during nearly two weeks of trial was directed principally toward establishing the exact amount of the tax and the manner of receiving and handling income and accounting, which the Government contends shows an intent to evade and defeat tax. Petitioner's testimony related to his good character, his physical illness at the time the return became due, and lack of willfulness in his defaults, chiefly because of a psychological disturbance, amounting to something more than worry but something less than insanity.

Section 145(a) makes, among other things, willful failure to pay a tax or make a return by one having petitioner's income at the time or times required by law a misdemeanor.1 Section 145(b) makes a willful attempt in any manner to evade or defeat any tax such as his a felony.2 Petitioner was not indicted for either misdemeanor. The indictment contained a single count setting forth the felony charge of willfully attempting to defeat and evade the tax, and recited willful failure to file a return and willful failure to pay the tax as the means to the felonious end.

The petitioner requested an instruction that 'You may not find the defendant guilty of a willful attempt to defeat and evade the income tax, if you find only that he had willfully failed to make a return of taxable income and has willfully failed to pay the tax on that income.' This was refused, and the Court charged that 'If you find that the defendant had a net income for 1936 upon which some income tax was due, and I believe that is conceded, if you find that the defendant willfully failed to file an income tax return for that year, if you find that the defendant willfully failed to pay the tax due on his income for that year, you may, if you find that the facts and circumstances warrant it find that the defendant willfully attempted to evade or defeat the tax.' The Court refused a request to instruct that an affirmative act was necessary to constitute a willful attempt and charged that 'Attempt means to try to do or accomplish. In order to find an attempt it is not necessary to find affirmative steps to accomplish the prohibited purpose. An attempt may be found on the basis of inactivity or on refraining to act, as well.'

It is the Government's contention that a willful failure to file a return together with a willful failure to pay the tax may, without more, constitute an attempt to defeat or evade a tax within § 145(b). Petitioner claims that such proof establishes only two misdemeanors under § 145(a) and that it takes more than the sum of two such misdemeanors to make the felony under § 145(b). The legislative history of the section contains nothing helpful on the question here at issue, and we must find the answer from the section itself and its context in the revenue laws.

The United States has relied for the collection of its income tax largely upon the taxpayer's own disclosures rather than upon a system of withholding the tax from him by those from whom income may be received. This system can function successfully only if those within and near taxable income keep and render true accounts. In many ways taxpayers' neglect or deceit may prejudice the orderly and punctual administration of the system as well as the revenues themselves. Congress has imposed a variety of sanctions for the protection of the system and the revenues. The relation of the offense of which this petitioner has been convicted to other and lesser revenue offenses appears more clearly from its position in this structure of sanctions.

The penalties imposed by Congress to enforce the tax laws embrace both civil and criminal sanctions. The former consist of additions to the tax upon determinations of fact made by an administrative agency and with no burden on the Government to prove its case beyond a reasonable doubt. The latter consist of penal offenses enforced by the criminal process in the familiar manner. Invocation of one does not exclude resort to the other. Helvering v. Mitchell, 303 U.S. 391, 58 S.Ct. 630, 82 L.Ed. 917.

The failure in a duty to make a timely return, unless it is shown that such failure is due to reasonable cause and not due to willful neglect, is punishable by an addition to the tax of 5 to 25 per cent thereof, depending on the duration of the default. § 291 of the Revenue Act of 1936 and of the Internal Revenue Code, 26 U.S.C.A. Int.Rev.Code § 291. But a duty may exist even when there is no tax liability to serve as a base for application of a percentage delinquency penalty; the default may relate to matters not identifiable with tax for a particular period; and the offense may be more grievous than a case for civil penalty. Hence the willful failure to make a return, keep records, or supply information when required, is made a misdemeanor, without regard to existence of a tax liability. § 145(a). Punctuality is important to the fiscal system, and these are sanctions to assure punctual as well as faithful performance of these duties.

Sanctions to insure payment of the tax are even more varied to meet the variety of causes of default. It is the right as well as the interest of the taxpayer to limit his admission of liability to the amount he actually owes. But the law is complicated, accounting treatment of various items raises problems of great complexity, and innocent errors are numerous, as appear from the number who make overpayments.3 It is not the purpose of the law to penalize frank difference of opinion of innocent errors made despite the exercise of reasonable care. Such errors are corrected by the assessment of the deficiency of tax and its collection with interest for the delay. §§ 292 and 294 of the Revenue Act of 1936 and of the Internal Revenue Code, 26 U.S.C.A. Int.Rev.Code §§ 292, 294. If any part of the deficiency is due to neg- ligence or intentional disregard of rules and regulations, but without intent to defraud, five per cent of such deficiency is added thereto; and if any part of any deficiency is due to fraud with intent to evade tax, the addition is 50 per cent thereof. § 293 of the Revenue Act of 1936 and of the Internal Revenue Code, 26 U.S.C.A. Int.Rev.Code § 293. Willful failure to pay the tax when due is punishable as a misdemeanor. § 145(a). The climax of this variety of sanctions is the serious and inclusive felony defined to consist of willful attempt in any manner to evade or...

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