United States v. Pack, Crim. A. No. 757

• Decision Date: 16 March 1956
• Docket Number: 758,Crim. A. No. 757,838.,837
• Citation: 140 F. Supp. 121
• Parties: UNITED STATES of America v. David PACK. UNITED STATES of America v. Harry PACK.
• Court: U.S. District Court — District of Delaware

140 F. Supp. 121

UNITED STATES of America v. David PACK.

UNITED STATES of America v. Harry PACK.

Crim. A. Nos. 757, 758, 837, 838.

United States District Court D. Delaware.

March 16, 1956.

COPYRIGHT MATERIAL OMITTED

Leonard G. Hagner, U. S. Atty., H. Newton White, Asst. U. S. Atty., Wilmington, Del., George Willi, Special Asst. to the Atty. Gen., and Fred G. Folsom, Atty., Dept. of Justice, Washington, D. C., for plaintiff.

S. Samuel Arsht (of Morris, Steel, Nichols & Arsht), Wilmington, Del., for defendants.

RODNEY, District Judge.

This matter involves four criminal indictments against the defendants for having willfully attempted to evade their individual income tax liability for the years 1945 and 1946. Each of the defendants was indicted February 29, 1952 with reference to the income tax for the year 1945, and each defendant was indicted June 15, 1953 with respect to the income tax for the year 1946. Because, however, the present questions are common to all four indictments, they will be treated together.

The present questions arise from practically similar motions in all four cases to suppress the evidence obtained by the Government from the books, records and personal communications of the defendants. The records and communications were made available to the tax agents by the defendants and they insist it was done in compliance with a, so-called, "voluntary disclosure" policy of the Treasury Department, which policy in general terms allowed repentant taxpayers to disclose the incorrectness of their returns, before an investigation has been commenced, and with immunity from criminal prosecution.¹

An extended hearing has been had upon the facts surrounding the claimed voluntary disclosure and separate findings of fact and conclusions of law have been filed.

Now in a matter involving a false or fraudulent income tax evasion there may be involved a criminal liability, or civil or monetary liability, or both. Under the 5th Amendment to the Constitution, no person, in a criminal case, may be required to give evidence against himself. Consequently, in a criminal case the books and records of a taxpayer may not be used against a taxpayer against his will and without his consent. From this there grew up a policy of the Treasury Department which, in general, provided that a repentant taxpayer who made a voluntary disclosure of a fraudulent or erroneous tax return before the Governent had commenced an investigation and who then cooperated with the Government in the disposition of the matter would be immune from criminal prosecution, though he might still be subject to civil liability.

Just when the policy of the Government as to voluntary disclosures first took form does not appear, but it apparently originated as a departmental policy with no public announcement. It is in evidence that on August 21, 1945 the Secretary of the Treasury publicly stated in part:

"* * * The Commissioner of Internal Revenue does not recommend criminal prosecution in the case of any taxpayer who makes a voluntary disclosure of omission or other misstatement in his tax return or of failure to make a tax return. Monetary penalties may be imposed for delinquency, for negligence or for fraud but the man who makes a disclosure before an investigation is under way protects himself and his family from the stigma of a felony conviction * * *"

On May 14, 1947, Mr. J. P. Wenchel, the then Chief Counsel of the Bureau of Internal Revenue, in a public address, reaffirmed the policy of the Government in cases of voluntary disclosure. Among other things he said

"* * * the tax laws define two entirely different kinds of tax fraud. One is criminal. The other is civil. Of course a person may be guilty of both. But if you keep this distinction in mind you will be better able to understand the Treasury's policy of encouraging the repentant taxpayer to clear himself without criminal punishment even though he may be required to pay his taxes plus a civil money penalty for his fraud upon the government."

Speaking of the discretionary powers of the Treasury Department, he said:

"* * * The Department acting under that power, does not recommend to the Attorney General prosecution of the evader who repents in time. There is nothing new in the position. For years the position of the Department has been that where the taxpayer makes a voluntary disclosure of intentional evasion before investigation has been initiated criminal prosecution will not be recommended."

"* * * a voluntary disclosure occurs when a taxpayer of his own free will and accord, and before any investigation is initiated, discloses fraud upon the Government * * *."

"* * * An investigation is initiated when a Special Agent, an internal revenue agent, a Deputy Collector or other Bureau officer is assigned a return for examination or where an investigating officer has requested advice of appropriate officers of the Bureau with respect to the filing of a return or the payment of taxes * * *."

On July 1, 1947 each of the defendants signed and sent to the Collector of Internal Revenue for the District of Delaware a letter as follows:

"Please be advised that within the near future I intend to file amended returns for the years 1943 to 1946, inclusive. I am doing this because I believe the returns which I filed for such years were incorrect and that in accordance with the policy of the Bureau, you will regard this letter, which indicates my intent to file amended returns as a voluntary disclosure.

"I have, at the present time, requested my accountant to prepare figures for the amended returns as quickly as possible.

"It shall be appreciated if the Bureau will make an examination of my amended returns just as soon as I have prepared and submitted them to you."

The Government denies that the letter may be considered as a "voluntary disclosure" within the expressed policy of the Department both (a) as to the timeliness of the disclosure and (b) the adequacy of the disclosure. Both of these questions must be determined from an unavoidable consideration of many facts, and many of these facts are applicable to both questions. Elaborate findings of fact and conclusions of law have been filed and only such facts will be here repeated as may be necessary to understand the conclusions reached.

The two defendants, Harry Pack and David Pack, together with a third brother, Michael Pack, were equal partners in three business enterprises concerning the growing and processing of chickens, and each was in charge of one operation as managing partner. Harry Pack managed "Harry Pack B. G. Co."² first at Milford, Delaware, and afterwards at Millsboro, Delaware; the remaining two enterprises, "Sussex Poultry Co.", at Milford, Delaware, and "Cranbury Poultry Co.", at Cranbury, New Jersey, were poultry dressing plants, the former managed by David Pack and the latter by Michael Pack.

In September 1945, the individual income tax returns of the present defendants and the partnership returns of the Sussex Poultry Company and Harry Pack B. G. Company for the years 1943 and 1944 were assigned to Revenue Agents Stolper and Rice for examination. At the commencement of the examination an unusual occurrence is noted. Agent Stolper found two or three standard ledger sheets in the books of the Sussex Poultry Company which had vertical columns of figures with no identifying caption or definitive legend, and was unable to reconcile these figures with the remainder of the Company's records. Seeking some aid, he found all the personnel had gone to lunch. Placing a scrap paper marking the location of the unidentified sheets, he also went to lunch. Upon his return, Agent Stolper could not find the unidentified sheets and they were never seen or heard of again. Reference to this incident is made by me merely because upon it the Government places considerable emphasis of suspicion in connection with other matters appearing in the examination. In August 1946, the Agents completed their examination for the years 1943 and 1944.

At or about the time that Agents Stolper and Rice were engaged in the examination of the returns of the defendants and of the Sussex Poultry Co. and Harry Pack B. G. Company for 1943 and 1944, another agent in New Jersey was examining the returns of Cranbury Poultry Company and Michael Pack for the same years. For the years 1943 and 1944 the defendants had no income except as derived from the three partnerships as above-mentioned.

In August 1946 the New Jersey Agent completed his report for the Cranbury Poultry Company for 1943 and 1944 and was pressing the Delaware Agents for the reports of the two Delaware partnerships, in which Michael Pack had an interest, so he could complete the individual returns for Michael Pack.

In August, 1946, the Delaware Agents completed and submitted to the present defendants the proposed adjustment of the two Delaware partnerships for the years 1943 and 1944. This adjustment was approved by defendants on December 23, 1946, as evidenced by the execution of Treasury Form 875 provided for the purpose. At the same time, at the Agents' request, the defendants executed Treasury Form 872 which was an extension of the Statute of Limitations covering the 1943 return, as it was doubtful that such return could be completed in time. There is no evidence that any extension concerning the 1944 return was ever requested or executed. The adjusted returns for three partnerships were duly sent by the Agents to the partnerships and duly accepted.

As a result of the adjustments of the three partnership returns, the net income of each one was substantially increased and the personal liability of Michael Pack for years 1943 and 1944 was determined and paid.

The foregoing constitutes all the material facts concerning the partnerships in Delaware and New Jersey and bearing on the present question of the efficacy of the "voluntary disclosure".

The "voluntary disclosure" letters of July 1, 1947,...