United States v. Rayor

• Citation: 204 F. Supp. 486
• Decision Date: 16 April 1962
• Docket Number: Crim. No. 30550.
• Court: U.S. District Court — Southern District of California
• Parties: UNITED STATES of America, Plaintiff, v. Seymour R. RAYOR, Defendant.

204 F. Supp. 486

UNITED STATES of America, Plaintiff, v. Seymour R. RAYOR, Defendant.

Crim. No. 30550.

United States District Court S. D. California, Central Division.

April 16, 1962.

Francis C. Whelan, U. S. Atty., Thomas R. Sheridan, Asst. U. S. Atty., Chief, Criminal Section, by Richard G. Sherman, Asst. U. S. Atty., Los Angeles, Cal., for plaintiff.

Ernest R. Mortenson, Pasadena, Cal., for defendant.

YANKWICH, District Judge.

On February 24, 1962, an information was filed by the United States Attorney for the Southern District of California charging the defendant, Seymour Rayor, on or about March 7, 1956, with violation of § 7206(1) of Title 26 U.S.C.A., in that the defendant

"did wilfully and knowingly make and subscribe the United States Corporation Income Tax Return of Rayor's Inc., of Inglewood, California, for the calendar year of 1955, which return was verified by a written declaration that it was made under the penalty of perjury, and which said return he did not believe to be true and correct as to every material matter in that the said return reported taxable income in the amount of $103,533.74, whereas, as he then and there well knew and believed, said corporation had taxable income in the amount of $118,204.24, in violation of Section 7206 (1). Internal Revenue Code of 1954, Title 26, United States Code, Section 7206(1)."

The referred-to clause under which the information was drawn reads:

"Any person who —

"* * * Willfully makes and subscribes any return, statement, or other document, which contains or is verified by a written declaration that it is made under the penalties of perjury, and which he does not believe to be true and correct as to every material matter"

shall be guilty of an offense.

A motion for a Bill of Particulars (Rule 7(f), Federal Rules of Criminal Procedure, 18 U.S.C.A.) filed by the defendant on March 1, 1962, was granted by the Court and the Bill was filed on March 15, 1962. It disclosed that the Government relied upon the fact that the defendant had made deductions for personal gambling losses which he paid with company checks. The Motion for Bill of Particulars¹ and the Bill of Particulars² are printed in the margin.

The disclosure made by the Bill of Particulars, considered as additions to the allegations of the information, reveals the following facts:

The defendant and his wife, who is not indicted, each own fifty percent (50%) of Rayor's Inc., a construction corporation located in Inglewood, California. Rayor paid personal (Las Vegas) gambling losses with corporation checks which he charged on the company books as "miscellaneous construction expenses" for the year 1955.

Subsequent to the filing of the returns for 1954, 1955 and 1956, Rayor, Inc. was audited by the Internal Revenue Service and it was then determined that included in the construction expenses of Rayor, Inc. was $17,000.00 in personal gambling losses. As a result of this audit there were additional disallowed expenses of $3,050.00 and the taxpayer received credit in the amount of $5,379.50 in entertainment expense which he had not previously deducted. These adjustments increased Rayor, Inc.'s taxable income for 1955 from $103,533.74 to $118,204.24, which would have created a tax liability of $55,966.20.

When the adjustments reflected by the Internal Revenue Service are merged with the proper accounting method, the following results are obtained for the year 1955:

                                                                  Taxable       Tax Liability
                                                                  Income        or (Refund)
                         Corrected 1955                        $ 88,561.87     $ 7,785.37
                         Add: Gambling Loss                      17,000.00
                         Disallowed checks                        3,050.00
                                                               ___________
                         Total                                  108,611.87
                         Less: Allowed Entertainment Expense      5,379.50
                                                               ___________
                         Corrected 1955 Taxable Income and
                         refund after consideration of the
                         above factors                          103,232.37          156.86
                                                               ============    _____________
                         Decrease in Refund due to the above
                         adjustments
                                                                                 $  7,628.51
                

Contending that a proper computation of the tax would not have shown a deficiency for the year 1955, the defendant insists that no offense is charged in the information. The argument is grounded upon the contention that before a statement under § 7206(1) of Title 26 U.S. C.A. can be said to be violative of the Section, there must be falsity as to a material fact. The argument would apply to this Section the ruling of the Court of Appeals for the Ninth Circuit in Poonian v. United States, 9 Cir., 1961, 294 F. 2d 74.

In that case a panel of the Court, with one Judge dissenting, held that to constitute a violation of § 1001 of Title 18 U.S.C.A. the matter, the falsity of which is alleged, must be material. In this respect the ruling conforms to that obtaining in other circuits. (See, Rolland v. United States, 5 Cir., 1953, 200 F.2d 678; Freidus v. United States, 1955, 96 U.S.App.D.C. 133, 223 F.2d 598) But these cases are not decisive of the point before us because, as stated, they arose not under § 7206(1) of Title 26 U.S.C.A., but under the more general Section, § 1001 of Title 18 U.S.C.A.

A comparison of these two sections shows clearly that § 7206(1) does not make materiality a decisive factor. So the teaching of those cases does not apply.

The Government was entitled to proceed against the defendant under several sections. It could have charged him with attempt to evade the income tax in violation of § 7201 of the 1954 Internal Revenue Code, 26 U.S.C.A. It could also have charged him with making a false statement to a Government agency. (18 U.S.C.A. § 1001) Or it could have charged him, as it did, with violation of the special section relating to false statement under which the information is drawn. (26 U.S.C.A. § 7206(1)) When this is the situation, the choice lies with the Government, and it is not the privilege of the defendant to say that the Government should have proceeded under a different section. In Taylor v. United States, 9 Cir., 1950, 179 F.2d 640 the Court uses this significant language:

"Congress may make each separate step in a prohibited transaction a separate offense." (p. 643)³

(See, Catrino v. United States, 9 Cir., 1949, 176 F.2d 884, 886)

When the choice is made under this principle, no constitutional norm is violated. In Albrecht v. United States, 1927, 273 U.S. 1, 11, 47 S.Ct. 250, 71 L.Ed. 505, the Court says:

"There is nothing in the Constitution which prevents Congress from punishing separately each step leading to the consummation of a transaction which it has power to prohibit and punishing also the completed transaction."

Consistent with this policy the Supreme Court has undeviatingly declined to concede that in tax matters acts which overlap to some extent cannot be prosecuted or punished separately. Thus, in one of the earliest cases arising under the Internal Revenue Act of 1918, (United States v. Noveck, 1927, 273 U.S. 202, 206, 47 S.Ct. 341, 71 L.Ed. 610) the Court held that the enactment of § 253 of the Act punishing willful evasion did not repeal the general perjury statute, § 125 of the Criminal Code. (See, Ex parte Cohen, 9 Cir., 1951, 191 F.2d 300, 303, per Denman, Chief Judge)

In United States v. Beacon Brass Co., 1952, 344 U.S. 43, 73 S.Ct. 77, 97 L.Ed. 61, the Court held that a willful attempt to evade or defeat income tax by making a false statement to treasury representatives violated § 145(b) of the Internal Revenue Code of 1939 and could be prosecuted either under it or § 1001 of Title 18 U.S.C.A. because, reasoned the court,

"the enactment of other statutes expressly outlawing false statements in particular contexts, e. g., 18 U. S.C. (Supp. V) §§ 1010, 1014, negates the assumption — which was the foundation of the decision of the court below — that Congress intended the making of false statements to be punishable only under § 35(A)." (p. 46, 73 S.Ct. p. 79, 97 L.Ed. 61)

In Achilli v. United States, 1957, 353 U.S. 373, 77 S.Ct. 995, 1 L.Ed.2d 918 the Court rejected the contention that the enactment of § 3613(a) of the Internal Revenue Code of 1939, making it punishable as a misdemeanor for a person to deliver to the Director

"any false or fraudulent list, return, account, or statement, with intent to defeat or evade the valuation, enumeration, or assessment intended to be made * * *"

prevented prosecution for a felony under § 145(b) of that Act punishing willful evasion of the tax. (See, Parmagini v. United States, 9 Cir., 1930, 42 F.2d 721, 724-725; And see the writer's opinion in United States v. Harris, 1939, D.C., 26 F.Supp. 788) And separate or consecutive acts may be prosecuted although they arose out of a single incident. (See, Ebeling v. Morgan, 1915, 237 U.S. 625, 629-631, 35 S.Ct. 710, 59 L.Ed. 1151; Blockburger v. United States, 1932, 284 U.S. 299, 303-305, 52 S.Ct. 180, 76 L.Ed. 306; Gore v. United States, 1958, 357 U.S. 386, 388-390, 78 S.Ct. 1280, 2 L.Ed. 2d 1405) As the Government had the right to choose prosecution under § 7206 (1) of Title 26 U.S.C.A., the question of materiality of statements to insure verity in tax returns should be decided by reference to that Section alone and not by a narrow interpretation of what is material under some other section. The more so, as the Section does not specify the scope of the materiality, the falsity as to which it punishes.

What it proscribes is the making of a statement which the taxpayer

"does not believe to be true and correct as to every material matter."

The test of materiality is whether the statement was material to the contents of the return....