United States v. Swarthout, 17942.
| Decision Date | 22 January 1970 |
| Docket Number | No. 17942.,17942. |
| Parties | UNITED STATES of America, Plaintiff-Appellee, v. Russell L. SWARTHOUT, Defendant-Appellant. |
| Court | U.S. Court of Appeals — Sixth Circuit |
S. Allen Early, Jr., Detroit, Mich., for defendant-appellant.
Robert J. Grace, U. S. Atty., Detroit, Mich., for plaintiff-appellee.
Before EDWARDS, CELEBREZZE and COMBS, Circuit Judges.
This is an appeal from a conviction and sentence after jury trial in the United States District Court for the Eastern District of Michigan for violation of 26 U.S.C. § 7206(4) (1964). This statute prohibits concealment of property with intent to evade or defeat assessment or collection of income taxes. The appellant is a lawyer and at the time of these events was also a Municipal Judge.
This record is full of improbabilities. Not the least of these is the originating fact that one Edward Vitale, then a convict in a federal penal institution, won the Irish Sweepstakes in October of 1960. Vitale thereby acquired title to $140,000. He also acquired an undying interest on the part of the United States Internal Revenue Service for an appropriate tax on same.
Defendant-appellant represented Vitale in relation to his parole and his tax problems. The government claims he participated in a scheme for concealing some of his client's assets by investing some $20,000 of Vitale's money in a restaurant (Here's Snack Shack) under concealed ownership.
A chronology of events may be helpful:
In September 1960 Vitale was committed to the federal penitientiary for making false, fictitious and fraudulent statements and representations to a federal officer.
In October 1960 his wife learned that Vitale had won $140,000 in the Irish Sweepstakes.
In February or March of 1961 an attorney named Hoffiz, who had been retained by Vitale, received payment of the $140,000 Sweepstakes winnings and deposited it in a trust account in a Detroit bank. It was shortly after this deposit that Hoffiz brought Swarthout into the picture.
During the Spring of 1961 Hoffiz expended certain sums on behalf of Vitale, and collected a $15,000 fee.
In August 1961 Hoffiz turned the balance of $72,000 over to attorney Swarthout in order, according to Hoffiz, to protect the money against garnishment by Vitale's creditors and for Swarthout to handle the tax problems.
In November 1961 an IRS agent named Brown was assigned to investigate Vitale's tax matters and to secure an estimated tax return for 1961.
On April 15, 1962, Vitale was in the Springfield Medical Center when his 1961 income tax return and payment fell due.1
On May 21, 1962, Vitale was released on parole.
In late July and early August 1962 there were meetings between the owners of a restaurant called Herc's Snack Shack and lawyers representing some proposed purchasers. These meetings culminated in the transfer of all the shares of stock in the restaurant to one Gertrude Bolle for a consideration which was in the neighborhood of $20,000. As to this transaction there was testimony from which the jury could have found: 1) that the consideration was supplied (or was to be supplied) by Vitale's funds; 2) that the taking of the stock in Gertrude Bolle's name was subterfuge to conceal Vitale's actual ownership; and 3) that (at a minimum) appellant Swarthout knew all about this scheme and assisted materially in its execution.
On October 9, 1962, appellant Swarthout gave IRS agent Brown Vitale's income tax return for 1961 reporting the $140,000 Sweepstakes winnings. Swarthout also gave Brown a form 433-AB purporting to show Vitale's assets. This form did not disclose any equity on Vitale's part in Herc's Snack Shack. It appears that no tax payment accompanied the forms.
On December 7, 1962, an assessment of taxes was filed pertaining to Vitale's 1961 income tax.
On December 13, 1962, appellant Swarthout filed another form 433-AB which purported to list all of Vitale's assets but which again contained no reference to Herc's Snack Shack.
Originally there were three counts in defendant-appellant Swarthout's indictment. The other two counts charged that Swarthout and Vitale had knowingly prepared and filed Statements of Financial Condition (Form 433-AB) on October 9, 1962 and December 13, 1962, which purported to show all of Vitale's assets, but which were false and fraudulent in that they did not show Vitale's investment in Herc's Snack Shack. On motion after close of the government's case, the District Judge dismissed these two counts. He did so because while there was testimony showing Vitale's investment in this restaurant, there was no testimony that he still owned his equity therein as of the dates of the two Statements of Financial Condition.
Swarthout and Vitale had been jointly indicted, but on motion the District Judge granted severance of the trials.
Under our system of justice it is not enough that evidence in a criminal case might support a finding of unethical conduct or of some violation of some law. It is essential that there be evidence from which a jury could have found the defendant guilty beyond reasonable doubt of the particular offense against the federal criminal law with which defendant has been charged.
This case went to the jury on a single-count indictment which charged the defendant as follows:
"That on or about August 14, 1962, in the Eastern District of Michigan, Southern Division, defendants RUSSELL L. SWARTHOUT and EDWARD J. VITALE did wilfully and knowingly conceal Twenty Thousand Dollars ($20,000.00) of the property of said Edward J. Vitale upon which property levy was authorized by Section 6331 of the Internal Revenue Code 1954 and said concealment was made with the intent to evade and defeat the collection of income tax assessed upon said property on or about November 30, 1962; in violation of Section 7206(4), Title 26, United States Code and Section 2, Title 18, United States Code."
Our review of this entire record convinces us that the conviction must be set aside. Accepting all of the facts favorable to the government and all of the legitimate inferences from those facts which are favorable to the government, this record does not afford proof that appellant was guilty as charged in Count I of this indictment of violating 26 U.S. C. § 7206(4) (1964).
The government stated at trial that the $20,000 appellant is charged with concealing was the equity which the government asserts Vitale acquired in Herc's Snack Shack. The indictment indicates clearly (by reference to the December 7, 1962, assessment) that the intent to evade taxes as charged in Count I pertains to an intent to evade taxes due from Vitale as a result of his 1961 income.2 The trouble with this is that the alleged acts of concealment which are the operative facts charged in Count I took place before an income tax return had been filed, before there had been any assessment of tax by the Internal Revenue Service, and before there had been any notice and demand for payment as required in 26 U.S.C. § 6331 (1964).
The District Judge viewed 26 U. S.C. § 7206(4) (1964) as providing a criminal penalty for concealing assets in order to defeat collection of a tax on personal income which had not yet been the subject of either assessment or notice and demand and neglect or refusal to pay. Although the matter is not without difficulty, we feel this was error.
Section 7206(4) provides as follows:
The indictment applicable here specifically referred to concealment of property as to which "levy was authorized by § 6331."
Section 6331, as the emphasized portions indicate, authorizes levy only after one "liable to pay" a tax "neglects or refuses" to do so after "notice and demand" by the government's agent.3 Bershad v. Wood, 290 F.2d 714 (9th Cir. 1961); Mrizek v. Long, 187 F.Supp. 830 (N.D.Ill.1960); Code Commentary, J. Mertens, Law of Federal Income Taxation § 6331:1 (1969).
Our view in this regard is strengthened by the income tax statutes and regulations which clearly provide that notice and demand must follow assessment.
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