U.S. v. Landsberger

• Decision Date: 31 August 1982
• Docket Number: No. 81-2426,81-2426
• Citation: 692 F.2d 501
• Parties: 82-2 USTC P 9497 UNITED STATES of America, Appellee, v. Gerald J. LANDSBERGER, Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 501

692 F.2d 501

82-2 USTC P 9497

UNITED STATES of America, Appellee, v. Gerald J. LANDSBERGER, Appellant.

No. 81-2426.

United States Court of Appeals,

Eighth Circuit.

Submitted June 15, 1982.

Decided July 29, 1982.

Rehearing and Rehearing En Banc Denied Aug. 31, 1982.

Gerald J. Landsberger, St. Paul, Minn., pro se for appellant.

Glenn L. Archer, Jr., Asst. Atty. Gen., Michael L. Paup, Carleton D. Powell, Wynette J. Hewett, Attys., Tax Div., Dept. of Justice, Washington, D. C., for appellee; James M. Rosenbaum, U. S. Atty., Minneapolis, Minn., of counsel.

Before LAY, Chief Judge, FAIRCHILD, ^* Senior Circuit Judge, and JOHN R. GIBSON, Circuit Judge.

LAY, Chief Judge.

Pursuant to sections 7402(a) and 7407 of the Internal Revenue Code, title 26, the district court, the Honorable Robert G. Renner presiding, permanently enjoined Gerald J. Landsberger from engaging in fraudulent and deceptive conduct that substantially interfered with the proper administration of the tax laws. The court also found Landsberger in contempt of its earlier preliminary injunction and fined him $10,000 and the additional sum of $500 per day until he made a showing satisfactory to the court that he had ceased all of his activities that were in violation of the tax laws. Landsberger has appealed. We affirm the grant of the permanent injunction; we vacate the contempt decree proceedings and remand to the district court, 534 F.Supp. 142, for reconsideration in light of this opinion.

Landsberger promoted a plan called "Foreign Tax Haven Double Trust." Under the plan, each participant entered into an irrevocable "Intrusted Personal Services Contract" with an organization known as Professional & Technical Services (P&TS). In exchange for 27 economic justifications, the participant agreed to sell his personal services to the organization for $1 per year. The contract required that each paycheck the participant received from his employer be endorsed and delivered to P&TS. P&TS sold the checks to International Dynamics for $1, and International Dynamics forwarded the proceeds of the checks to IDI Credit Union, a charitable organization. A participant had an expectation, but no written guarantee, that IDI would give him a gift approximating 90 per cent of the proceeds of his paycheck. Ten per cent of the participant's payment to P&TS was retained as a trustee's fee by International Dynamics. Landsberger admitted that he received money by virtue of this scheme, but maintained that the sums he received were gifts. He also admitted that through his power to draw checks on the IDI account he could give himself a gift.

Landsberger described the DOUBLE TRUST as "the finest taxhaven ever invented." In his promotions, he represented that "the 'Double Trust' can and does reduce and/or eliminate all income and/or capital gain profits being taxed/withheld." Defendant prepared returns for the participants and aided them in filing W-4 forms to eliminate the withholding of federal income taxes from their wages.

In the district court, it was undisputed that (1) Landsberger had enrolled approximately 80 taxpayers in the program for the taxable year 1980; (2) the participants had paid fees ranging from $800 to $1,400 plus ten per cent of the amount of funds transmitted by means of this device; and (3) it would require approximately 2,000 employee hours to collect the unpaid taxes, not including hours spent by supervisors to oversee that process, or the expenditure of time and resources necessary to process cases that were challenged at the administrative level or in court.

The Permanent Injunction.

The defendant has filed a pro se brief urging reversal on the ground that the Personal Services Contract Program is a legal program. We disagree, and affirm the district court on the basis of its reasoning. Judge Renner observed:

The documents which form the Double Trust package marketed by defendant, ... permit no other conclusion than that the scheme is illegal. The principle is well settled that "income must be taxed to him who earns it." Commissioner v. Culbertson, U.S. 733, 739-740 [69 S.Ct. 1210, 1212-1213, 93 L.Ed. 1659] (1949). Defendant cannot avoid this doctrine by including in the Intrusted Personal Services Contract a clause which specifies that the client thereby enslaves himself for life to a trust which then "owns" him as well as the fruits of his physical labors. According to [Landsberger], this clause saves the individual from tax liability because in signing such a clause, he has conveyed away the "tree" as well as the "fruit". See Lucas v. Earl, 281 U.S. 111, 115, 50 S.Ct. 241, 74 L.Ed. 731 (1930).

The district court correctly held that such a clause has no effect on the legality of this plan; one cannot legalize an arrangement simply by saying it is legal. The Supreme Court has held that the person who, by the exercise of a power to command income, enjoys the benefit of the income, is liable for the tax thereon. This is so regardless of any anticipatory arrangement by the one vested with the right to income to transfer the income to another. Harrison v. Schaffner, 312 U.S. 579, 582, 61 S.Ct. 759, 761, 85 L.Ed. 1055 (1941). Income is taxable to the person whose performance of services creates the right to receive the income. See Daugherty v. Commissioner, 63 F.2d 77, 79 (9th Cir. 1933). The district court continued:

Defendant admits that the person who signs the contract with Professional and Technical Services continues to perform services for his original employer. He refuses to state what services the person performs for Professional and Technical Services Group. Instead, he merely asserts that there are "15 or 20 economic justifications involved that are provided to the employee from Professional and Technical Services." ... As plaintiff argues, however, the Professional and Technical Services Group has no control over the daily work of the individual. Similarly, it has no control over the other incidents of employment such as sick leave, health benefits and vacation which continue to inure solely to the individual. See, Millette & Assoc. Inc. v. Commissioner, T.C. Memo 1978-1980, 37 TCM 774, (CCH) (1978), aff'd, 594 F.2d 121 (5th Cir. 1979). The Court finds that...