U.S. v. Gollapudi

• Decision Date: 17 November 1997
• Docket Number: No. 97-5137,97-5137
• Citation: 130 F.3d 66
• Parties: -7861, 97-2 USTC P 50,978, Unempl.Ins.Rep. (CCH) P 15805B UNITED STATES of America, v. Rao GOLLAPUDI, Appellant.
• Court: U.S. Court of Appeals — Third Circuit

Page 66

130 F.3d 66

80 A.F.T.R.2d 97-7861, 97-2 USTC P 50,978,

Unempl.Ins.Rep. (CCH) P 15805B

UNITED STATES of America, v. Rao GOLLAPUDI, Appellant.

No. 97-5137.

United States Court of Appeals Third Circuit.

Argued Sept. 23, 1997.

Decided Nov. 17, 1997.

Howard W. Goldstein, (Argued), Laura Grossfield Birger, Fried, Frank, Harris, Shriver & Jacobson, New York City, for Appellant.

Faith S. Hochberg, United States Attorney, Amanda Haines (Argued), Kevin McNulty, Assistant United States Attorneys, Office of United States Attorney, Newark, NJ, for Appellee.

Before: COWEN, ROTH and LEWIS, Circuit Judges.

OPINION OF THE COURT

ROTH, Circuit Judge.

I. INTRODUCTION

This is an appeal from a twelve-count indictment charging the defendant, Rao Gollapudi, with violating two provisions of the Internal Revenue Code. More specifically, Gollapudi was charged with failing to account for and pay over to the Internal Revenue Service federal income taxes, deducted and collected from the total taxable wages of his employees, between 1989 and 1991, in violation of 26 U.S.C. § 7202. Additionally, Gollapudi was indicted for filing a false personal income tax return, Form 1040, for the years 1989 through 1991, in violation of 26 U.S.C. § 7206(1). Gollapudi now appeals on the grounds (1) that his prosecution for violating 26 U.S.C. § 7202 is barred by the three-year statute of limitations of § 6531, and (2) that because the responses on the 1040 he filed were truthful he cannot be found guilty of filing a false statement under § 7206(1). For reasons set forth below, we affirm the decision of the District Court.

II. FACTS

From the company's inception in 1984, the appellant, Rao Gollapudi, has been the president and sole shareholder of Softstar Computer Consultants, Incorporated ("Softstar"), a Michigan corporation involved in the business of analyzing and improving computer systems for Fortune 500 companies. Following the departure of his partner from the company in 1986, Gollapudi became solely responsible for preparing and filing the company's tax returns and paying the wages of its employees. Shortly after assuming this responsibility, Gollapudi failed to make any payment of employment taxes and stopped filing Employer's Quarterly Tax Returns ("941's") with the IRS.

During the years 1989 through 1991, Softstar employed fifteen individuals, who were paid by checks drawn from the company's corporate checking account. Although the checks indicated that federal income taxes and Federal Insurance Contributions Act ("FICA") taxes were being withheld from the employees' wages, Gollapudi did not remit the withheld funds to the IRS. Rather, these funds, totaling approximately $527,828, were deposited into Softstar's corporate checking account where they were used to pay corporate operating expenses. ¹ Furthermore, by failing to file 941's, Gollapudi never reported the collection of these withholding taxes to the IRS and, thus, avoided detection.

After an IRS tax examiner discovered that Softstar had failed to file the required 941's and remit any tax refunds to the federal government, Gollapudi admitted that although he collected the appropriate taxes from his employees, he did not turn over the withholdings to the IRS. Instead, he kept the money in the company. Gollapudi further admitted that, although he was aware of his obligations, he did not file the required 941's, W-2's, or corporate tax forms with the IRS. Subsequently, Gollapudi contacted an accountant, David Karpel, who on behalf of Gollapudi filed the delinquent 941's and corporate tax returns and paid $591,000 in back taxes.

Gollapudi's handling of the withdrawals from his own salary was also questionable. Gollapudi filed a personal income tax return, Form 1040, for the tax years 1989, 1990, and 1991, in which he claimed that he had withheld approximately $6,000 in federal income taxes from himself. This amount was not turned over to the IRS. Additionally, there was a question of whether the funds were in fact withheld. Although the government argued that such funds were not withheld, Gollapudi testified that, because he did not receive a regular salary, his withholdings were calculated in a unique manner. Gollapudi explained that instead of receiving a regular salary, he periodically took disbursements from the company. At the end of each year he received the corporate records, calculated the total sum that he had paid as salary, checked the relevant tax tables and calculated the gross salary that would correspond to the net salary he had actually received. The difference between the gross and net salaries, he argued, was treated as having been withheld from his gross pay.

On April 19, 1996, Gollapudi was indicted on nine counts of failing to account for and pay over to the IRS federal income taxes and FICA taxes, deducted and collected from the total taxable wages of his employees, for the final quarter of 1989 and for all four quarters of the years 1990 and 1991, in violation of 26 U.S.C. § 7202. In addition, Gollapudi was charged with three counts of filing false personal income tax returns for the calendar years 1989 through 1991 in violation of 26 U.S.C. § 7206(1). Prior to trial, Gollapudi moved to dismiss the first nine counts of the indictment as barred by the three year statute of limitations. This motion was denied. Gollapudi was found guilty on all counts and now appeals.

III. JURISDICTION

This is an appeal from a final judgment of the United States District Court for the District of New Jersey, entered March 7, 1997. An appeal was filed on March 10, 1997. The District Court had jurisdiction pursuant to 18 U.S.C. § 3231. We have jurisdiction pursuant to 28 U.S.C. § 1291 and 18 U.S.C. § 3742.

IV. DISCUSSION

A. Statute of Limitations.

The first issue before the court is whether a violation of 26 U.S.C. § 7202, which prohibits the willful failure "to collect or truthfully account for and pay over" any tax, ² is subject to a three-or six-year statute of limitations. For the following reasons, we hold that the violation is subject to a six-year statute of limitations and thus will affirm the decision of the District Court on this issue.

The statute of limitations governing 26 U.S.C. § 7202, as well as other criminal tax violations, is set forth in 26 U.S.C. § 6531. This section generally provides that criminal tax proceedings must be initiated within three years of the offense, unless the offense falls into one of eight exceptions providing for a six-year period of limitations. Specifically, the relevant section, § 6531(4), provides that:

No person shall be prosecuted, tried, or punished for any of the various offenses arising under the internal revenue laws unless the indictment is found or the information instituted within 3 years next after the commission of the offense, except that the period of limitations shall be 6 years-

* * * *

(4) for the offense of willfully failing to pay any tax, or make any return (other than a return required under authority of part III of subchapter A of chapter 61) at the time or times required by law or regulations;

26 U.S.C. § 6531(4). The question here is whether a failure to "pay over" any tax under § 7202 constitutes a failure to "pay any tax, or make any return," under § 6531(4), and thus is subject to a six rather than three-year statute of limitations.

While the Third Circuit has not yet addressed the issue of whether § 6531(4) applies to criminal offenses under § 7202, the District Court followed the decisions of the Second and Tenth Circuits in holding that prosecutions for violations of § 7202 must be commenced within six years under § 6531(4). Conversely, two district courts that have addressed the issue have held that section 6531(4) does not apply to § 7202 offenses and that the applicable statute of limitations is three years. Gollapudi contends that the two district court cases are more persuasive in their analysis than the opinions of the circuit courts and the District Court in this case.

Relying on United States v. Block, 497 F.Supp. 629 (N.D.Ga.1980), and United States v. Brennick, 908 F.Supp. 1004 (D.Mass.1995), Gollapudi maintains that the plain language of the statute dictates that failure "to pay any tax, or make any return" under § 6531(4) does not encompass "the offense of failing to collect, account for or pay over any tax" under § 7202 (emphasis added). Gollapudi contends that because Congress explicitly distinguished between the failure to "pay" a tax and the failure to "pay over" a tax collected from another in other sections of the Internal Revenue Code and did not include such "pay over" language in § 6531, it did not intend to include the failure to "pay over" any tax in § 6531(4).

In support of his first argument, Gollapudi notes that in designing the criminal tax offense set forth in 26 U.S.C. § 7202 et seq., Congress explicitly distinguished between the failure to pay a tax and the failure to pay over a tax collected from another, as is evident in the comparison between § § 7202 and 7203. Furthermore, Gollapudi maintains that the phrase "pay over" or "paid over" was used by Congress sixteen times in the Internal Revenue Code and, thus, constitutes a statutory term of art, referring to (1) third-party taxes as in §§ 3505(b), 6672(a) and 7501; (2) other amounts collected from third parties as in §§ 3304(a)(3) and 7652(b)(3); and (3) non-tax amounts as in §§ 143(g)(3)(D) and 6096(a). Gollapudi argues that because the phrase is a term of art, "pay over" has a specific meaning which is not included in nor interchangeable with "pay".

Next, Gollapudi argues that because § 6531(4) applies to "the offense" (singular) of willfully failing to pay any tax or make any return, as opposed to any other offense, and because § 7203 is "the offense" which criminalized such acts, Congress intended that § 6531(4) apply only to the offense identified in § 7203,3 ³ and not to other criminal tax viol...