USA. v. Gilbert

• Decision Date: 24 September 2001
• Docket Number: DEFENDANT-APPELLANT,PLAINTIFF-APPELLEE,No. 00-10314,00-10314
• Parties: (9th Cir. 2001) UNITED STATES OF AMERICA,, v. TOMMY LEE GILBERT,
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1180

266 F.3d 1180 (9th Cir. 2001)

UNITED STATES OF AMERICA, PLAINTIFF-APPELLEE, v. TOMMY LEE GILBERT, DEFENDANT-APPELLANT.

No. 00-10314

UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

Argued and Submitted June 14, 2001

Filed September 24, 2001

[Copyrighted Material Omitted] Katherine Alfieri, Law Offices of Katherine Alfieri, San Francisco, California, for the defendant-appellant.

Robert E. Lindsay and S. Robert Lyons, United States Department of Justice, Tax Division, Washington, D.C., for the plaintiff-appellee.

Appeal from the United States District Court for the Northern District of California D. Lowell Jensen, District Judge, Presiding D.C. No. CR-99-40066-DLJ

Before: Mary M. Schroeder, Chief Judge, Donald P. Lay^* and Robert Boochever, Circuit Judges.

Lay, Circuit Judge

I.

Tommy Lee Gilbert appeals from the district court's finding that he violated 26 U.S.C. §§ 7202 of the Internal Revenue Code ("IRC") by failing to remit to the Internal Revenue Service ("IRS") withholding tax that he collected for the employees of his business.

Gilbert owned and operated a business called Best in the West Security ("BITW") between 1988 and 1993. The business provided security guard services for private companies. BITW was required to collect, account for, and pay over to the IRS withholding tax for each of its employees. BITW collected and accounted for the taxes, but it failed to pay over the withholding tax to the IRS. Gilbert claimed that his business did not have the necessary funds to pay the taxes. Nonetheless, Gilbert continued to pay his employees' salaries while failing to pay over the withholding tax.

Gilbert was subsequently indicted on six counts of willful failure to collect and pay over tax, in violation of 26 U.S.C. §§ 7202 (Counts 1-6); one count of tax evasion, in violation of 26 U.S.C. §§ 7201 (Count 7); one count of willful failure to file a tax return, in violation of 26 U.S.C. §§ 7203 (Count 8); and one count of willfully subscribing to a false statement, in violation of 26 U.S.C. §§ 7206(1) (Count 9).

A jury found Gilbert guilty of Counts 3, 4, and 5, ¹ and Gilbert now appeals. On appeal, Gilbert argues that (1) the district court did not properly construe §§ 7202 of the IRC; (2) there was insufficient evidence to find him guilty under §§ 7202; (3) the indictment was barred by the statute of limitations; (4) his due process rights were violated by vindictive prosecution; and (5) his due process rights were violated by pre-indictment delay. We affirm.

II.

A. Statutory Construction

Gilbert contends that the district court improperly construed 26 U.S.C. §§ 7202 in finding that he violated the statute by failing to pay over withholding tax to the IRS. ² Gilbert argues that §§ 7202 requires the failure to both account for and pay over withholding tax. The Government urges an interpretation of §§ 7202 imposing a dual obligation to account for and pay over withholding tax, thus §§ 7202 is violated by the failure to account for or pay over withholding tax. The issue raises a question of first impression in this circuit.

In construing a statute, the court's objective is to ascertain the intent of Congress in enacting it and give effect to legislative will. Negonsett v. Samuels, 507 U.S. 99, 104 (1993). Where legislative "will has been expressed in reasonably plain terms, that language must ordinarily be regarded as conclusive." Id. (citation omitted). If the plain language of a statute renders its meaning reasonably clear, the court will not investigate further unless its "application leads to unreasonable or impracticable results." United States v. Daas, 198 F.3d 1167, 1174 (9th Cir. 1999).

Gilbert argues that in Wilson v. United States , 250 F.2d 312 (9th Cir. 1958) and United States v. Poll, 521 F.2d 329 (9th Cir. 1975), this court interpreted §§ 7202 as punishing the failure to both account for and pay over withholding tax. In Wilson and Poll, however, this court was not concerned whether §§ 7202 required the failure of both elements, but instead addressed the issue of how to define willfulness under §§ 7202. We hold, as did the Second Circuit in United States v. Evangelista, 122 F.3d 112, 121 (2d Cir. 1997), that this court's statements in Wilson and Poll, as to whether §§ 7202 required the failure to both account for and pay over the tax, were dicta.

Notwithstanding, Gilbert contends that an examination of the plain meaning of §§ 7202, and its context within the statutory scheme, compels the conclusion that the intent of §§ 7202 was to provide a penalty for those who intentionally failed to account for as well as pay over withholding taxes. Assuming that Gilbert's construction of §§ 7202 is not necessarily inconsistent with the plain meaning of the statute, we conclude that it leads to "unreasonable or impracticable results." See Daas, 198 F.3d at 1174.

In Evangelista, the Second Circuit explained that construing §§ 7202 as requiring the failure to both account for and pay over the tax would "result in a greater penalty for one who simply failed to collect trust fund taxes than for one who collected them and, as is charged here, used them for his own selfish purposes . . ., so long as he notified the IRS that he had collected the tax." 122 F.3d at 121 (citation omitted). The court further noted, "[t]hat Congress intended to make such a distinction is simply inconceivable." Id. The Third Circuit, in United States v. Thayer, agreed with the Second Circuit and provided additional support by noting the title of§§ 7202: "Willful failure to collect or pay over tax." 201 F.3d 214, 221 (3d Cir. 1999).

According to Gilbert, his construction of §§ 7202 is not impracticable because there are reasons why a person who fails to account for and pay withholding taxes is punished more severely than a person who fails to account for or pay over such taxes. Gilbert explains that the employer who fails to account for the taxes is paying an employee "under the table," and as such frustrates the IRS's policy objective of assessing and collecting taxes. In contrast, a person who truthfully accounts for withholding taxes, but fails to turn the money over, does not frustrate the policy objectives of the IRS because the IRS is aware that money is owed and it knows where to collect the money. Gilbert concludes that "[w]hile compliance may not be timely, it can ultimately be achieved."

We are not persuaded by such arguments. As the Government explains, when an employer collects and accounts for withholding tax for an employee, the employee gets the benefit of the withholding tax, regardless of whether the IRS is paid. Thus, if the Government never receives the tax money, the Government has to carry the burden of crediting the employee for withholding taxes that were never paid. On the other hand, when an employer fails to collect the tax, the employee is not credited for the tax, and the Government does not have to carry the burden of crediting the employee for taxes that were never paid. In theory, the Government suffers a loss either way, but the Government correctly asserts that the loss is greater when an employer accounts for the tax, but never remits it to the IRS.

The Government further contends that Slodov v. United States, 436 U.S. 238 (1978) supports its interpretation of §§ 7202 as punishing the failure to account for or pay over withholding tax. In Slodov, the Supreme Court interpreted 26 U.S.C. §§ 6672, the civil counterpart to §§ 7202, and focused on language similar to the language of §§ 7202, where a person is liable if he "willfully fails to collect such tax, or truthfully account for and pay over such tax." 26 U.S.C.§§ 6672. The Court analyzed this language to address whether§§ 6672 makes a person liable for paying over taxes collected by his predecessors.

The Supreme Court concluded that a person was obligated to pay over withholding tax, regardless of whether that person had personally collected the tax. The Court explained that "Sections 6672 and 7202 were designed to assure compliance by the employer with its obligation to withhold and pay the sums withheld, by subjecting the employer's officials responsible for the employer's decisions regarding withholding and payment to civil and criminal penalties for the employer's delinquency." Slodov, 436 U.S. at 247.

Although Slodov is not directly on point,³ it expressly states the general purpose of §§ 6672 and §§ 7202 -that a person has an obligation to both withhold and pay over the tax. As such, when an individual fails to perform one of the required duties, he is subject to conviction under§§ 7202.

We conclude, consistent with the holdings of Evangelista and Thayer and the Supreme Court's reasoning in Slodov, that Gilbert was properly convicted under §§ 7202 for failing to pay over the taxes he withheld from his employees.

B. Insufficient Evidence

Gilbert asserts that there was insufficient evidence to prove that he willfully failed to account for and pay over withholding taxes, and as such the district court erred by denying his motion for judgment of acquittal. "Willfulness in the context of criminal tax cases is defined as a voluntary, intentional violation of a known legal duty . . . [it] need not include bad faith or bad purpose." United States v. Powell, 955 F.2d 1206, 1210 (9th Cir. 1992) (citation omitted).

Gilbert contends that his failure to pay over the withholding tax was not willful because BITW did not have the funds to pay the taxes. The Government, however, asserts that it presented sufficient evidence at trial that Gilbert voluntarily and intentionally paid net wages to his employees with knowledge that withholding taxes were not being remitted to the IRS. See Sorenson v. United States, 521 F.2d 325, 328 (9th Cir. 1975) (addressing §§ 6672 and holding that "the payment of net wages in circumstances where there are no available funds in excess of net wages from which to make withholding is a willful...