United States v. Jannuzzio

• Decision Date: 10 June 1960
• Docket Number: Crim. A. No. 1127.
• Citation: 184 F. Supp. 460
• Parties: UNITED STATES of America v. Columbus JANNUZZIO and Dominick Merlonghi.
• Court: U.S. District Court — District of Delaware

184 F. Supp. 460

UNITED STATES of America v. Columbus JANNUZZIO and Dominick Merlonghi.

Crim. A. No. 1127.

United States District Court D. Delaware.

June 10, 1960.

COPYRIGHT MATERIAL OMITTED

Leonard G. Hagner, U. S. Atty., Robert W. Wakefield, Asst. U. S. Atty., Wilmington, Del., and Daniel H. Cochran, Sp. Asst. U. S. Atty., Philadelphia, Pa., for the United States.

E. N. Carpenter, II, of Richards, Layton & Finger, Wilmington, Del., for defendants.

WRIGHT, Chief Judge.

This matter is before the court on defendants' motion for a judgment of acquittal, or in the alternative, for a new trial.¹ Defendants, Columbus Jannuzzio and Dominick Merlonghi, were tried and convicted by a jury on four counts of willfully attempting to defeat and evade federal income taxes and Federal Insurance Contribution Act (F.I.C.A.) taxes withheld from the wages of employees of Printz Motor Sales Company in violation of 26 U.S.C. § 2707(c) of the 1939 Internal Revenue Code as made applicable by 26 U.S.C. §§ 1627 and 1430.²

The prosecution period embraces the second and third quarters of 1952. The amounts involved are:³

                       Count   I    (Income tax  2nd quarter  $525.40
                                      withheld)
                       Count  II    (F.I.C.A.)  "    "          95.60
                       Count III    (Income tax  3rd quarter   107.05
                                      withheld)
                       Count  IV    (F. I. C. A.) "    "        27.13
                

In April, 1952 defendants in conjunction with a third associate, Albert Marta, formed a corporation, Printz Motor Sales Company (Printz), for the purpose of conducting a used car business. The principals were neither lettered nor were they particularly knowledgeable in business management. Hence, a manager with experience in the field was employed to direct the firm's operations. A bookkeeper and an independent accountant were engaged to assist in administration.

In mid-July, 1952 the manager, bookkeeper and Marta terminated their association with Printz, and in May, 1953 Printz concluded its unsuccessful operations. The accountant similarly severed his connection with the firm in July of 1952. He, however, performed services for Printz commencing in the late fall of 1952 until dissolution in the early part of 1953.

No returns accounting to the government for income taxes and F.I.C.A. taxes withheld from employees' wages for the second and third quarters of 1952 were ever filed nor were any sums transmitted to the government.

The particular portion of 26 U.S.C. § 2707(c) pursuant to which defendants were prosecuted provides:

"* * * any person who willfully attempts in any manner to evade or defeat any tax imposed by this subchapter or the payment thereof, shall, in addition to other penalties provided by law, be guilty of a felony * * * (penalties omitted)."

This provision with respect to withheld monies is to be construed in the same manner as the felony sanction of the income tax section of the 1939 I.R.C. 26 U.S.C. § 145(b).⁴

The principal questions raised by defendants' motion are:

1. Did defendants' conduct constitute an attempted evasion?

2. Were defendants' actions willful as that term applies to the felony standard?

The cumulative acts of the willful failure to file a tax return required by law and the willful failure to pay the tax due are incapable without more to substantiate a willful attempt to evade or defeat the tax.⁵ Such action, absent affirmative conduct intentionally designed to evade or defeat the tax or the payment thereof establishes only lesser violations of the revenue laws.⁶

Cognizant of the legal requirements to support a 2707(c) violation, the government relied upon two positive acts of alleged tax evasion to sustain its burden. First, that defendants willfully and knowingly diverted corporate funds to themselves and to other creditors of the corporation in preference to the payment of the obligation of Printz to the government for income and F.I.C.A. taxes withheld from employees.⁷ Second, that defendants willfully and knowingly evaded the issuance of withholding tax statements (Form W-2) to the employees of the corporation after said employees had made specific requests for their issuance.⁸

In support of the first element, "the diversion of corporate funds", the government directs attention to Wilson v. United States, where the 9th Circuit in a 2707(c) prosecution announced:⁹ "* * the diversion of available funds to affiliates and other creditors in preference to payment of Government obligations qualifies as an affirmative act under the statute and would warrant conviction if done with the requisite state of mind." The defendant in Wilson had duly filed the withholding tax returns required by law, Form 941, but had a long record of not remitting the sums withheld to the proper depository. In the present prosecution, defendants neither filed Form 941 nor remitted any tax for the first two periods Printz was in business—the 2nd and 3rd quarters of 1952.

The applicable portion of § 2707(c) set forth above enunciates two separate crimes: (1) the willful attempt in any manner to evade or defeat any tax imposed by law; and (2) the willful attempt in any manner to defeat or evade the payment of any tax imposed by law. This scheme complements the misdemeanor provision, 26 U.S.C. § 2707(b) proscribing the willful failure to file a tax return required by law, and the willful failure to pay the tax.¹⁰

In Wilson, since returns were filed, defendant was charged solely with willfully attempting to defeat and evade the payment of the tax.¹¹ Present defendants having neither filed a return nor paid the tax were indicted for willfully attempting to defeat or evade the tax.

A willful attempt to defeat or evade the tax requires the coexistence of a particular subjective state of mind—"willful"—and certain affirmative activity carried on pursuant to such mental state—"attempt to evade or defeat the tax."¹² The word "attempt" as used in the statute involves two elements:¹³

1. An intent to evade or defeat the tax; and

2. Some act done in furtherance of such intent.

Since "willful" requires a particular subjective state of mind as does one of the elements of an "attempt", it can readily be seen why the 9th Circuit has referred to this apparent redundancy as "willful willfulness".¹⁴

To reduce the statute to workable proportions, in order to constitute a willful attempt to defeat or evade the tax, there must be a deliberate act capable of deceiving, misleading or defeating a tax obligation known to exist and the accused must have intentionally employed such device for tax evasion reasons. It is unnecessary for the act to have achieved the desired object.¹⁵ Proof of the specific intention that the accused engaged in conduct to evade or defeat the tax must be independently established.¹⁶ For example, in an income tax prosecution the understatement of income, although sufficient to constitute the "attempt", is incapable standing alone, of satisfying "willfulness".¹⁷

Thus, the issue initially presented in the instant action is whether the diversion of corporate funds is an act capable of evading or defeating the tax. The Wilson court held that such conduct meets the test for evasion of the payment of the tax.¹⁸ An exhaustive research of the decisional law has revealed no discussion reflecting whether a difference exists in the requirements necessary to sustain willful evasion of the tax as opposed to willful evasion of the payment of the tax. Mr. Justice Jackson in Spies indicates that there are perhaps different standards between the willfulness required in the failure to make a return, and the willfulness in the nonpayment of the tax:¹⁹

"The difference between willful failure to pay a tax when due, which is made a misdemeanor, and willful attempt to defeat and evade one, which is made a felony, is not easy to detect or define. Both must be willful, and willful, as we have said, is a word of many meanings, its construction often being influenced by its context. United States v. Murdock, 290 U.S. 389 54 S.Ct. 223, 78 L.Ed. 381. It may well mean something more as applied to nonpayment of a tax than when applied to failure to make a return. * * *" (Emphasis supplied.)

The language of Spies supports the conclusion that Congress intended to set forth two separate crimes by providing both for the punishment of "willful evasion of the payment", and "willful evasion of the tax". The dichotomy initiated in the misdemeanor provision suggests strongly that in proscribing both the "willful failure to file" and the "willful failure to pay" Congress desired to carry the symmetry over into the felony standard. Thus when the term "tax" is employed in the felony provision it means something other than payment; otherwise, the statute in part would be superfluous.

Where Congress has declared the willful attempt to defeat or evade the tax is to be punished, as well as the willful attempt to defeat or evade the payment thereof, it would seem that the plausible meaning to ascribe to the word "tax" is the assessment or ascertainment of the amount due or owing the United States under the appropriate revenue law. The intentional interference with the correct assessment by concealment or other means is thus a criminal violation. Under this view, behavior indicative of an attempt to evade the payment does not necessarily meet the standard of an attempt to evade the tax. Similarly, proof of willfulness in each instance might take a different tact.²⁰

The act of diversion in Wilson where returns had been filed would be perhaps probative of an attempt to defeat or evade the payment.²¹ It could almost be likened to a fraudulent transfer.

In the instant case, the act of diversion has simply no probative value if it is to be considered as conduct evidencing an attempt to conceal or defeat the ascertainment or assessment of the tax. The proof adduced at trial considered in the light most favorable to the government demonstrates at all times...