State v. Hagen, 12–1542.

• Decision Date: 22 November 2013
• Docket Number: No. 12–1542.,12–1542.
• Citation: 840 N.W.2d 140
• Parties: STATE of Iowa, Appellant, v. Marc A. HAGEN, Appellee.
• Court: Iowa Supreme Court

840 N.W.2d 140

STATE of Iowa, Appellant,

v.Marc A. HAGEN, Appellee.

No. 12–1542.

Supreme Court of Iowa.

Nov. 22, 2013.

Thomas J. Miller, Attorney General, Martha E. Trout, Assistant Attorney General, and Kasey E. Wadding, County Attorney, for appellant.

John W. Holmes of Holmes & Holmes, Waterloo, for appellee.

ZAGER, Justice.

Marc Hagen pled guilty to four counts of fraudulent practices, willful failure to file or pay taxes, in violation of Iowa Code section 422.25(1)(5) (2005).¹ The State sought as restitution Hagen's unpaid taxes, penalties, and interest. The district court, after a restitution hearing, ordered Hagen to pay restitution in the form of unpaid taxes, but denied the State's request for penalties and interest as part of the restitution order. The State claims the district court erred by not ordering Hagen to pay the statutory penalties and statutory interest as part of the restitution order. For the reasons set forth below, we reverse the district court and remand for further proceedings consistent with this opinion.

I. Background Facts and Proceedings.

Marc Hagen was charged with four counts of fraudulent practices for willfully failing to file his Iowa income tax returns and pay taxes for years 2006 through 2009. The State alleged violations of Iowa Code section 422.25(1)(5). Three of the counts were class “D” felonies because the alleged amount of Hagen's unpaid tax obligation for three of the years exceeded $1000. One count was an aggravated misdemeanor because Hagen's unpaid tax obligation for one of the years was greater than $500, but less than $1000. For the same period of years, the State also charged Hagen with four counts of tax evasion in violation of Iowa Code section 422.25(1)(8). These counts were all punishable as class “D” felonies.

In February 2012, the State offered to dismiss the four counts of tax evasion in exchange for Hagen's guilty pleas to the four counts of fraudulent practices for failing to file tax returns and pay the taxes. Under the terms of the plea agreement, Hagen was required to pay restitution to the Treasurer of the State of Iowa.

The following month, Hagen entered written guilty pleas to the four counts of fraudulent practices. In April 2012, the district court engaged Hagen in a plea colloquy during which Hagen acknowledged that, for each of the years from 2006 through 2009, he willfully failed to file Iowa individual income tax returns and failed to pay the taxes. The district court accepted Hagen's guilty pleas.

On April 27, 2012, the State filed a statement of restitution seeking restitution of $20,385.19. Accompanying the statement of restitution was a summary prepared by the Iowa Department of Revenue (department) explaining the amounts sought as restitution. For each of the years from 2006 through 2009, the State sought unpaid taxes, penalties, and interest. In total, the State sought $10,355 in unpaid taxes, $8237.40 in penalties representing a seventy-five percent civil fraud penalty and a “2210 penalty,” ² and $1792.79 in interest, which was calculated through June 2012. Hagen initially objected to the statement of restitution on the ground that he lacked the ability to pay restitution.

On May 29, 2012, the district court sentenced Hagen to five years in prison for the three felony counts of fraudulent practices and two years in prison for the aggravated misdemeanor count of fraudulent practices. The sentences were to run concurrently. The district court suspended the sentences and fines and placed Hagen on supervised probation. The court also ordered that Hagen pay restitution. The court reserved its determination of the amount of restitution for a later hearing.

At the restitution hearing conducted on July 23, 2012, the State submitted the summary prepared by the department. The State also provided the testimony of the department auditor who prepared the summary. The auditor explained the summary and how she calculated the amount of unpaid taxes, penalties, and interest sought by the State. The State reiterated its request that the court order Hagen to pay $20,385.19 in restitution. Hagen objected to the imposition of interest and the fraud penalty as parts of the order for restitution. Hagen also asserted the department was not a “victim” for purposes of restitution.

After the hearing, the court entered its restitution order. It ordered Hagen to pay as restitution $10,355, which represented unpaid taxes due for the years 2006 through 2009. The court concluded, however, that it could not require Hagen, as part of a criminal restitution order, to pay either the penalties or interest sought by the State. The court thus denied the State's request for $8237.40 in penalties and $1792.79 in interest. The State sought discretionary review of the district court's ruling denying the State's request for penalties and interest in the restitution order. We granted discretionary review.

II. Issues on Appeal.

There are three issues on appeal. First, we must decide whether the State is a victim for purposes of the restitution statute. Second, we must determine whether the district court erred by failing to order penalties as part of the restitution order. Finally, we must decide whether the court erred by failing to impose interest on the unpaid taxes as part of the restitution order.

III. Standard of Review.

We review restitution orders for correction of errors at law. State v. Jenkins, 788 N.W.2d 640, 642 (Iowa 2010). In reviewing a restitution order “we determine whether the court's findings lack substantial evidentiary support, or whether the court has not properly applied the law.” State v. Bonstetter, 637 N.W.2d 161, 165 (Iowa 2001). Questions of statutory interpretation also are reviewed for correction of errors at law. State v. Romer, 832 N.W.2d 169, 174 (Iowa 2013).

IV. Discussion.

A. Other Arguments of the Defendant. Before discussing the issues preserved in this appeal, we will address two additional arguments raised by Hagen for the first time in this appeal.

1. Lack of sufficient information. Hagen does not dispute the underlying amount of unpaid Iowa taxes assessed against him as part of the restitution order.³ Rather, Hagen first insists that he lacked sufficient information at the time of the July 23 restitution hearing to determine whether the amounts sought by the State as restitution were correct. We disagree.

Iowa Code section 910.3 requires the prosecution's statement of restitution to be submitted “no later than thirty days after sentencing.” Iowa Code § 910.3 (emphasis added). The record clearly discloses the State filed its statement of restitution with the sentencing court on April 27, 2012, more than a month before Hagen was sentenced on May 29, and nearly three months before the restitution hearing. The State attached to its statement of restitution an exhibit prepared by a department auditor explaining the amounts the State sought and the calculations used to determine the amounts. Hagen filed an objection to restitution on May 17, but then argued only that he could not afford to pay restitution.

At the restitution hearing on July 23, the court accepted into evidence the same exhibit the State had attached to the initial statement of restitution. The auditor who prepared the exhibit testified at the restitution hearing, and Hagen's attorney cross-examined her. We conclude that Hagen had both sufficient information and sufficient opportunity to determine whether the restitution amounts sought by the State were correct.

2. Lack of sufficient proof. Hagen argues the State did not prove he had the requisite intent to support imposition of the seventy-five percent civil fraud penalty. See id. § 421.27(4)( a ) (requiring assessment of a seventy-five percent penalty “[i]n case of willful failure to file a return ... with the intent to evade tax”). There is serious doubt whether Hagen successfully preserved this issue for appeal. From a review of the record, it is questionable whether Hagen urged the sufficiency issue at the restitution hearing.⁴See Johnston Equip. Corp. of Iowa v. Indus. Indem., 489 N.W.2d 13, 16 (Iowa 1992) (holding that “a successful party need not cross-appeal to preserve error on a ground urged but ignored or rejected in trial court”). In any event, we conclude the State did prove Hagen had the requisite intent to support imposition of the civil fraud penalty.

The State must prove fraud by clear and convincing evidence. Clark v. Iowa Dep't of Revenue & Fin., 644 N.W.2d 310, 318 (Iowa 2002). Hagen, a dentist, explains his failures to file or pay his Iowa income taxes as bad accounting and business practices, combined with a misunderstanding of the tax laws. But Hagen did understand the law; he just chose to disregard it. During the plea colloquy conducted in April 2012, the result of which was Hagen's conviction on four counts of fraudulent practices, Hagen admitted understanding that he had to file tax returns. In spite of appreciating his obligation, he also admitted that he decided not to file his returns. Further, the minutes of testimony filed with the State's trial information, which Hagen consented to as further factual support for his pleas, revealed a longer period of unfiled tax returns and unpaid taxes than those years for which he was charged and ultimately convicted. Years of failing to file or pay his taxes resulted in large balances of unpaid state and federal taxes. Hagen's failure to pay his Iowa income taxes, or even to file his tax returns, cannot be attributed simply to a lack of sophistication and a misunderstanding of the law. This was not excusable neglect, but fraudulent practices to which he pled guilty. Hagen's failures to file or pay taxes demonstrate his intent to evade taxes. The State provided clear and convincing evidence to support the imposition of the civil fraud penalty.

B. State as Victim. Hagen asserts that the State is not a victim under Iowa Code chapter 910....