U.S. v. Paulton, 75-1916

• Decision Date: 09 September 1976
• Docket Number: No. 75-1916,75-1916
• Parties: 76-2 USTC P 9577 UNITED STATES of America, Appellee, v. Gilbert H. PAULTON, Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 886

540 F.2d 886

76-2 USTC P 9577

UNITED STATES of America, Appellee, v. Gilbert H. PAULTON, Appellant.

No. 75-1916.

United States Court of Appeals Eighth Circuit.

Submitted May 10, 1976.

Decided July 30, 1976.

Rehearing Denied Sept. 9, 1976.

Gilbert H. Paulton, pro se.

William P. Fuller, Sioux Falls, S. D., on briefs for appellant.

Robert D. Hiaring, Asst. U. S. Atty., Sioux Falls, S. D., for appellee; William F. Clayton, U. S. Atty., Sioux Falls, S. D., and Michael Hickey, Legal Intern, on briefs.

Before VOGEL, Senior Circuit Judge, and HEANEY and HENLEY, Circuit Judges.

HENLEY, Circuit Judge.

Gilbert H. Paulton, hereinafter called defendant, appeals from a judgment of the United States District Court for the District of South Dakota ¹ entered after a jury had found the defendant guilty of nine violations of 26 U.S.C. § 7215(a). The nine-count information charged that with respect to pay periods extending from about December 5, 1974 through about March 26, 1975 the defendant, an employer of labor, failed to pay over federal withholding taxes collected from his employees into a special trust account in a bank as required by 26 U.S.C. § 7512(b) after being formally required by notice to do so as provided by § 7512(a). ²

After a motion for a continuance had been denied, trial before the jury began on September 24, 1975 and was concluded on September 26. Throughout the trial the defendant served as his own attorney, but had the assistance of a legal intern appointed by the district court the day before the trial.

After having been found guilty, defendant remained at liberty until December 2, 1975 when he appeared for sentence. The district court imposed cumulative fines on the defendant aggregating $900.00 ($100.00 on each count); and also sentenced the defendant to confinement in a jail type institution for six months on each count of the information, but with the sentences to run concurrently.

Execution of the jail sentence was suspended and defendant was put on probation under certain conditions. Two of those conditions had to be met by 10:30 a.m. on the following day, December 3. The defendant did not meet at least one of them and was immediately confined by the marshal pursuant to the district court's oral directive given during the sentencing hearing. However, defendant immediately filed a notice of appeal, and on December 4 he was enlarged on bail pending disposition of the appeal.

After the appeal had been docketed, this court on its own motion appointed counsel to represent the defendant. Counsel has acted with skill and with diligence. While professing satisfaction with his appointed counsel, defendant sought and obtained leave to make an argument before us, and did so. ³

For reversal, the defendant advances a number of contentions that we will discuss but not in the order in which they appear in defendant's brief.

As is well known, employers are required by pertinent provisions of the Internal Revenue Code to withhold social security and federal income taxes from the wages of employees, to make quarterly returns of their withholdings on IRS Form 941, and to pay over to the government the amounts of wages withheld. Under the provisions of 26 U.S.C. § 7501 wages withheld from employees are deemed to be held in trust for the benefit of the United States, and the employees in question are given credit for the amounts of the withholdings regardless of whether their employers pay the money over to the government as required. The statutory and regulatory scheme and the obligations of employers thereunder were recently discussed by this court in some detail in Hartman v. United States, 538 F.2d 1336 (8th Cir. 1976). See also Kelly v. Lethert, 362 F.2d 629 (8th Cir. 1966), and United States v. Strebler, 313 F.2d 402 (8th Cir. 1963).

If an employer is persistently delinquent with respect to his withholdings, the Internal Revenue Service may invoke against him the rather stringent provisions of 26 U.S.C. § 7512. When that section is invoked, the employer is notified by a hand delivered notice that he must open a special trust account in a bank for the benefit of the government, and must pay over into that account all withholdings from wages within two banking days after the withholdings are effected. After that notice has been served, the employer is required by § 7512(b) to open the account and make the payments into it. In addition, he is required to file monthly returns using Form 941M and to make monthly remittances to the government out of the trust account.

Section 7215(a) makes it a misdemeanor for an employer to violate § 7512(b). However, § 7215(b) makes certain exceptions to criminal liability under the preceding subsection. Subsection (a) does not apply where a defendant shows that there was reasonable doubt as to whether the taxes were legally collectible or as to whether he was a person required to collect them, or where the defendant shows that his failure to collect and pay over was due to circumstances beyond his control. However, the statute provides that a mere lack of funds immediately following a payment of wages, whether brought about by the payment or not, is not deemed to be a circumstance beyond the control of a defendant. See in this connection United States v. Plotkin, 239 F.Supp. 129, 131 (E.D.Wis.1965).

We turn now to the facts of the case which are largely undisputed.

During 1974 and 1975 defendant was engaged in Sioux Falls, South Dakota in the business of cleaning floors and upholstery. Although it is inferable that his business was relatively small, he did have a number of employees whom he paid by check approximately once every two weeks. He withheld taxes from the wages of those employees but consistently failed during the period with which we are concerned to file his quarterly returns promptly, and he also failed to pay over his withholdings. He apparently used them as a source of funds for his own business purposes.

In August, 1974 defendant was delinquent with respect to his withholdings and was called upon by Internal Revenue Agent Robert Baily. Defendant was given detailed information by Agent Baily with respect to defendant's duty to file returns and make payments, and he was warned that if he continued to be delinquent, he would be subjected to the requirements of § 7512(b).

The defendant did not heed that warning. On November 24, 1974 Agent Baily called on the defendant again and served on him personally the notice called for by § 7512(a). In late December Agent Baily called on the defendant yet again and was advised that a special trust account had been opened in an identified bank. As to his returns, defendant said that he had mailed them to Ogden, Utah, rather than to Aberdeen, South Dakota. Investigation revealed that no special bank account had been opened, and IRS records failed to reflect the filing of returns in either Ogden or Aberdeen.

With affairs in this state, Agent Baily turned the file over to the Intelligence Division of the IRS for investigation and possible criminal prosecution. The case was assigned to Special Agent Charles Smith of the Intelligence Division.

Smith and Baily visited defendant at his place of business on the morning of April 7, 1975. The defendant was already acquainted with Baily. Smith identified himself as a Special Agent of the Intelligence Division and advised the defendant that the purpose of the visit was to investigate his withholding delinquencies, and that a criminal prosecution might result or that a fraud penalty might be assessed. The defendant was advised of certain of his constitutional rights. The agents then left after advising the defendant that they would return and that in the meantime he might consult an attorney if he so desired. At the defendant's suggestion the agents returned about the middle of the afternoon.

The defendant indicated that he was willing to answer questions. He stated that he was responsible for the records of the business, and he admitted that he had not opened a special bank account and had not mailed the required Forms 941M. Although advised that he was not required to turn over his records to the agents, the defendant did so, and the agents made copies of pertinent documents.

Thereafter, the prosecution of the defendant was instituted. Further facts will be stated in the course of the discussion of defendant's several contentions.

Defendant contends, among other things, that 26 U.S.C. § 7512 is unconstitutional in that it does not provide for a prior administrative hearing before an employer is required to comply with § 7512(b). The same contention was made and rejected in United States v. Patterson, 465 F.2d 360 (9th Cir.), cert. denied, 409 U.S. 1038, 93 S.Ct. 516, 34 L.Ed.2d 487 (1972), and in United States v. Plotkin, supra. We agree with the result reached in those cases. Had defendant desired a judicial review of the administrative action taken with respect to him, he could have opened the required special account, made a deposit in it, and then sued for a refund. United States v. Plotkin, supra, 239 F.Supp. at 131-32, cited with approval in United States v. Patterson, supra, 465 F.2d at 361.

We next consider defendant's claim that the district court erred in overruling a motion for a continuance filed on the first day of the trial.

The record reflects that after the information was filed, defendant employed local counsel who appeared with him at arraignment at which time a plea of not guilty was entered. Prior to August 11, 1975 defendant's attorney was notified that the case was being set for trial as a back-up case on September 8. On August 11 counsel advised the Assistant United States Attorney who was handling the case that he had been discharged as of that day, but that defendant was being notified of the setting.

On September 8 defendant appeared in court without counsel and filed a written motion for a continuance. The district court...