United States v. Goodman

• Decision Date: 11 November 1959
• Docket Number: Civ. A. No. 2311.
• Citation: 178 F. Supp. 338
• Parties: UNITED STATES of America and O. Gordon Delk, Acting Commissioner of Internal Revenue, Petitioners, v. Richard GOODMAN, also known as Dick Goodman, Respondent.
• Court: U.S. District Court — Eastern District of Virginia

178 F. Supp. 338

UNITED STATES of America

and

O. Gordon Delk, Acting Commissioner of Internal Revenue, Petitioners, v. Richard GOODMAN, also known as Dick Goodman, Respondent.

Civ. A. No. 2311.

United States District Court E. D. Virginia, Norfolk Division.

November 11, 1959.

COPYRIGHT MATERIAL OMITTED

L. S. Parsons, Jr., U. S. Atty., W. Farley Powers, Jr., Asst. U. S. Atty., Norfolk, Va., F. J. Neuland, Attorney, Department of Justice, Washington, D. C., for petitioners.

Harry Spilka, Norfolk, Va., Kenneth Carroad, New York City, for respondent.

WALTER E. HOFFMAN, District Judge.

This action, filed pursuant to the provisions of § 7402(b) of the Internal Revenue Code of 1954, 26 U.S.C.A. 7402(b), seeks to compel the respondent, Goodman, to testify in the Tax Court of the United States in response to a subpoena duces tecum issued out of that court in a proceeding instituted therein by Associated Barr Stores, Inc., against the Commissioner of Internal Revenue.

Continuously during the years 1944 to 1948 and thereafter until some date in 1950, Goodman, then a resident of Norfolk, Virginia, was employed as the manager of the Norfolk branch of Associated Barr Stores, Inc.,¹ a corporation engaged in the retail jewelry business. Commencing the latter part of 1949 and continuing the first few months of 1950, the tax liability of Associated Barr Stores was under investigation for the taxable years 1944 to 1948, both inclusive,² and Goodman was interrogated by agents for the Internal Revenue Service as to certain irregularities suggested in the handling of cash sales at the Norfolk store. During the course of these investigations, the Court finds that Goodman, after being warned of his constitutional rights, voluntarily gave the agents information as to the method of handling these cash sales and the instructions given to him by his employer. This information was subsequently reduced to writing in the form of an affidavit which the Court finds that Goodman executed and swore to on January 19, 1950, in the presence of the two agents. Attached to the affidavit and made a part thereof was a photostatic copy of instructions which Goodman had stated were forwarded to him by one of the corporate officers of the Associated Barr Stores, Inc. While the details are not essentially pertinent to the present inquiry, the affidavit states in substance that Goodman was directed to take substantial cash sales and forward the cash by Railway Express to a corporate officer in Philadelphia, without making any record of such sales at Norfolk on the corporate books.

On June 22, 1953, the Commissioner of Internal Revenue notified Associated Barr Stores, Inc., of the determination of deficiencies in tax and penalty for the taxable years 1944 to 1948, both inclusive. Thereafter, on September 9, 1953, Associated Barr Stores, Inc., filed a petition in the Tax Court seeking a redetermination of the deficiencies ascertained to be due by the Commissioner.

In June, 1954, Goodman, through his Norfolk attorney, Harry Spilka, furnished the Commissioner further information, and turned over the originals of the exhibits attached to the affidavit of January 19, 1950, for use at the trial in the Tax Court, with the understanding that they be returned after additional photostats were made.

One year later, on June 13, 1955, the Tax Court conducted its hearing at Philadelphia. Associated Barr Stores, Inc., presented its evidence and rested. Counsel for the Commissioner called Goodman as the first witness. It immediately became apparent that Goodman's prior willingness to cooperate no longer existed. When questioned as to instructions received by him from one or more corporate officers with respect to the manner of handling cash sales at the Norfolk store and other facts as stated in the affidavit, Goodman refused to answer on the ground that his answers would tend to incriminate him. The presiding judge, having previously ruled that Goodman had waived his right to invoke the Fifth Amendment by giving a statement and subsequent affidavit, directed Goodman to answer, but such direction was to no avail.

As the Tax Court has no authority to enforce compliance, the proceeding was continued on motion of the Commissioner to afford the Commissioner an opportunity to take action in the District Court to compel Goodman to testify.

By order dated November 14, 1955, this Court required Goodman to appear and show cause why he should not be required to testify in the Tax Court proceedings. The initial hearing was conducted on December 2, 1955, and, since that date, the hearings have been continued at intervals; the delays being in part attributable to counsel for both the Commissioner and respondent, and in part to the congested docket of this Court.

Goodman left the employ of Associated Barr Stores, Inc., during the year 1950, but continued to reside in Norfolk until the early part of 1957.

When Goodman was initially interviewed on January 17, 1950, he admitted the existence of certain papers in his personal safe deposit box at the Seaboard Citizens National Bank which related to the cash sales of the corporation. In company with the agents, the safe deposit box was opened by Goodman and certain documents were delivered to the agents. While Goodman now contends that he was acting under coercion, obviously there is no merit to such a suggestion. In the first place, Goodman's statement that he was threatened is hardly susceptible of belief when we consider his conflicting affidavits. Moreover, even if it be assumed that the agents did tell Goodman that, if the safe deposit box was not opened voluntarily, the agents would obtain an order from the federal court, this would not destroy the voluntary act. Finding as a fact that Goodman voluntarily delivered the controverted exhibits to the agents, it becomes unnecessary to consider whether said papers were the property of the corporation, or the property of Goodman personally. This disposes of respondent's contention under the Fourth Amendment, and the motion to suppress must be denied.

The documents presented by Goodman to the agents, when considered in the light of respondent's affidavit of January 19, 1950, strongly suggest fraud on the part of the corporate taxpayer, in which fraud Goodman played an active part. The instructions received from Samuel Berman and directed to Goodman state that (1) under the daily statement of business only the contract sales of merchandise, less contract sales returns and repossessions, are to be shown, (2) all cash sales and cash receipts for such cash sales, as well as cash sales tax, are to be omitted, (3) on the daily statement of cash receipts, cash sales of merchandise and the sales tax for such cash sales are to be omitted, (4) on a special report (referred to as an "A" report) the cash sales of merchandise, distribution and cash sales tax, were to be shown, but this report was to be mailed special delivery to Berman in a separate envelope, and the actual cash covering such cash sales and tax was to be placed in a package and sent by Railway Express to "S. Berman, personal."

This procedure started in September, 1943, and continued thereafter through January, 1947. Goodman, for his own reasons, maintained a record of such cash sales and sales tax thereon for each of the months in question, with the exception of seven months when no entry was made. Approximately $175,000 is the total recorded thereon. This record was among the papers delivered to the agents on January 17, 1950.

Such facts, assuming that a criminal act has been committed, suggest that Goodman was a party to a conspiracy to fraudulently evade and defeat the payment of income taxes. This brings us to the crucial question as to whether the statute of limitations has run to bar any prosecution against Goodman. If Goodman is protected by the statute from prosecution for any federal crime, he cannot now claim the privilege of the Fifth Amendment. If the statute has not run, or if this be a continuing conspiracy, then Goodman cannot be required to give evidence against himself in the Tax Court proceeding.

Counsel apparently agree that the applicable statute of limitations is governed by the Internal Revenue Code of 1939, 26 U.S.C. § 3748(a), which provides that no person shall be prosecuted, tried, or punished, for any of the various offenses arising under the internal revenue laws of the United States unless the indictment is found or the information instituted within three years next after the commission of the offense, except that the period of limitation shall be six years in case of fraudulent acts such as may be involved herein. The statute further provides:

"For offenses arising under section 37 of the Criminal Code, March 4, 1909, 35 Stat. 1096, where the object of the conspiracy is to attempt in any manner to evade or defeat any tax or the payment thereof, the period of limitation shall also be six years. The time during which the person committing any of the offenses above mentioned is absent from the district wherein the same is committed shall not be taken as any part of the time limited by law for the commencement of such proceedings."

The Internal Revenue Code of 1954, 26 U.S.C. § 6531, modified the provision respecting the tolling of the statute of limitations by eliminating the words "absent from the district" and inserting in lieu thereof the words "outside the United States or is a fugitive from justice". The statute then makes this notation in parenthesis:

"(The preceding sentence shall also be deemed an amendment to section 3748(a) of the Internal Revenue Code of 1939, and

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