Court Opinion

ID: 7210850
Source: CourtListenerOpinion
Date Created: 2022-07-24 19:53:38.898542+00
Date Added: 2024-06-11T16:16:50.020563
License: Public Domain

RONEY,
Senior Circuit Judge,
Dissenting.
I respectfully dissent. The portion of the indictment containing counts 13-17 challenged on this appeal is set forth in full as follows:
*25The Grand Jury further charges T H A T MARIA LILIA ARAUJO, aka Lüy Araujo, defendant herein, on or about the dates listed below, in the County of Tulare, State and Eastern District of California, did wilfully attempt to evade and defeat a large part of the tax due and owing by the individuals named below to the United States of America, for the tax years listed below, by diverting the payments of said federal taxes, in the appropriate amounts listed below, to the United States of America by depositing the taxpayers’ personal checks intended to be applied for the payment of federal taxes into her business bank account or converting them to cash:
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All in violation of Title 26, United States Code, Section 7201. A TRUE BILL. Counts 13 through 17 involved estimated tax payments in the amount of $3,000 each, not final payment of taxes due. The evidence showed that for each of these counts, Jesse Ortega gave defendant Araujo one lump sum check, made out to either Araujo or her company, Servimex, to cover an estimated tax of $3,000, EDD contributions, and her own services. She deposited some of those checks into her bank account and cashed the others. This is what Araujo was supposed to do with those checks because they were made payable to her, and thus she did not “divert” the checks to her account. The checks themselves were not “intended to be applied for the payment of federal tax” as alleged in the indictment because they were not made payable to the United States of America, but rather to Araujo. Nor were they made payable to Araujo in the amount of a tax payment with the intent that Araujo would endorse them over to the United States of America.
Araujo had promised Ortega, however, that she would then write her own check to the government on his behalf to pay his estimated taxes. She broke that promise. She kept his money. She thus may well have been guilty of breach of fiduciary duty and theft vis-a-vis Ortega, but committed no act vis-a-vis the IRS that could be considered § 7201 tax evasion. The government did not charge Araujo with non-payment of estimated taxes under 26 U.S.C. § 7203.
Therefore,' there was insufficient evidence to support Araujo’s conviction for tax evasion under 26 U.S.C. § 7201 for the challenged counts because:
(1) No case has held that the intentional non-payment of estimated tax is a crime under 26 U.S.C. § 7201, the statute under which Araujo was charged. 26 U.S.C. § 7203 is the section that specifically covers willful failure to pay estimated tax or tax.
(2) Non-payment of tax is not a felony under 26 U.S.C. § 7201
(3) 26 U.S.C. § 7201 does not cover stealing from a taxpayer but covers tax evasion from the government only.
While the district court correctly stated that a § 7201 conviction requires affirmative conduct constituting an evasion or at*26tempted evasion of tax in accordance with Sansone v. United States, 380 U.S. 343, 351, 85 S.Ct. 1004, 13 L.Ed.2d 882 (1965), it improperly interpreted Araujo’s misappropriation of her clients’ money as “tax evasion” for the purposes of § 7201 failing to recognize that “tax evasion” is not just stealing money from a taxpayer as Araujo did here. Rather, “tax evasion” is lying to or concealing the truth from the IRS, or, “[t]he willful attempt to defeat or circumvent the tax law in order to illegally reduce one’s tax liability.” BLACK’S LAW DICTIONARY 1474 (7th ed.1999).
Courts have uniformly held that affirmative acts associated with tax evasion involve its traditional notions, such as filing a false return, concealing the taxpayer’s ability to pay taxes, or removing assets from the IRS’ reach or knowledge (e.g. moving money offshore to conceal its existence). See, e.g., Spies v. United States, 317 U.S. 492, 499, 63 S.Ct. 364, 87 L.Ed. 418 (1943) (listing examples of what constitutes a willful attempt to evade tax); United States v. McGill, 964 F.2d 222, 233 (3d Cir.1992) (hiding money from IRS by depositing money in spouse’s account and office expense account are affirmative acts of tax evasion); United States v. Robinson, 974 F.2d 575, 578 (5th Cir.1992) (filing unsigned tax returns constitutes an affirmative act); United States v. Daniel, 956 F.2d 540, 542-543 (6th Cir.1992) (failing to file tax returns while dealing almost exclusively in cash were affirmative acts of tax evasion); United States v. DiPetto, 936 F.2d 96, 97 (2d Cir.1991) (falsifying W-4 forms to conceal accurate amount of their taxable income are affirmative acts); United States v. Connor, 898 F.2d 942, 945 (3d Cir.1990) (filing false W-4 information is an affirmative act of § 7201 evasion); United States v. Conley, 826 F.2d 551, 556-57 (7th Cir.1987)(plaeing assets in son’s name and manipulating accounts to shield them from IRS are affirmative acts); United States v. Shorter, 809 F.2d 54, 57 (D.C.Cir.1987) (affirming conviction where defendant carried on “cash lifestyle”), abrogated on other grounds, Daubert v. Merrell Dow Pharms., 509 U.S. 579, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993); United States v. Hook, 781 F.2d 1166, 1169 (6th Cir.1986) (concealing assets from the IRS, even though return was timely and accurately filed, was § 7201 tax evasion).
Thus, the courts have defined “evade” and “evasion” in the tax context as concealing from or misrepresenting information to the IRS, not a willful failure to pay tax or stealing a taxpayer’s money. The Third Circuit, citing this Court, stated that “[a]n affirmative act is anything done to mislead the government or conceal funds to avoid payment of an admitted and accurate deficiency.” McGill, 964 F.2d at 230 (citing Cohen v. United States, 297 F.2d 760, 762, 770 (9th Cir.1962)). The McGill court stated that “[generally, affirmative acts associated with § 7201 evasion of payment involve some type of concealment of the taxpayer’s ability to pay his or her taxes or the removal of assets from the reach of the Internal Revenue Service.” Id. (emphasis added). The McGill court went on to list examples of evasion of payment (as opposed to evasion of assessment) such as “placing assets in the name of others; dealing in currency; causing receipts to be paid through and in the name of others; and causing debts to be paid through and in the name of others.” Id. The McGill court then went on to state that “[mjerely failing to pay assessed taxes, without more, however, does not constitute evasion of payment, though it may satisfy the requirements for the willful failure to pay taxes under § 7203 ____[o]nly affirmatively evasive acts — -acts intending to conceal — are punishable under § 7201” Id. at 231 (citing United States v. Sansone, 380 U.S. at 351, 85 S.Ct. 1004; United *27States v. Romano, 938 F.2d 1569, 1573 (2d Cir.1991)).
Finally, the McGill court noted that “[t]he government advises its attorneys that ‘[o]bstinately refusing to pay taxes due, possession of the funds needed to pay the taxes, or even the open assignment of the income, without more, merely constitute a willful failure to pay taxes .... They do not meet the requirement of the affirmative act necessary for an evasion charge.’ ” Id. (citing U.S. Dept. of Justice, Criminal Tax Manual, § 8.04 at 8-7, 8-8 (6th ed.1985); Joint App. at A-229-30).
Where tax preparers are charged under § 7201, the case law again shows that evasion consists of fraud, concealment, or misrepresentation vis-a-vis the government, and not theft, embezzlement, or misappropriation vis-a-vis the taxpayer. A third-party tax preparer who steals from his client cannot be convicted of 26 U.S.C. § 7201 without also committing one of the affirmative evasive acts previously discussed. Leathers v. United States, 250 F.2d 159 (9th Cir.1957) (upholding defendant — accountant’s § 7201 conviction where he both (1) prepared and filed a false return for his client and (2) defrauded his client by collecting an excess amount of money supposedly for payment to the IRS).
In the instant case, with respect to the counts Araujo challenges, the record indicates that Araujo did not file a false return nor attempt to conceal assets from the IRS, nor was she charged in the indictment with filing a false return or failure to file a return.
In United States v. Mesheski, 286 F.2d 345, 346 (7th Cir.1961), a case factually similar to this one, the issue was whether a “a person who converts money entrusted to him by another for the payment of such other’s income tax by failing to turn it over to the Internal Revenue Service [is] guilty of a felony within the meaning of [26 U.S.C.] Section 7201 ....” The court said no, holding that the defendant’s conduct (prepared tax returns for others, failed to file those returns, and diverted to his own use his taxpayer-clients’ money which was to go to the IRS) did not constitute such affirmative conduct inferring the motive to evade or defeat tax as to make him guilty of a felony under 26 U.S.C. § 7201.
Further support for this decision is gleaned from the IRS itself, which defines violations of § 7201 in terms of some kind of fraud against the government, not theft from individuals.
For example, in the INTERNAL REVENUE MANUAL, which is the internal instruction manual for the agents, I.R.M. § 9.1.3.3.2.3 — WILLFULNESS (in the context of § 7201) specifically cites the examples the Supreme Court set forth in Spies.
In INTERNAL REVENUE MANUAL § 9.1.3.3.2.2.2 — ATTEMPT TO EVADE OR DEFEAT ANY TAX § 7201, the IRS again cites the examples from Spies, 317 U.S. at 499, 63 S.Ct. 364, which stated that the “affirmative act” language should be construed broadly to include, inter alia: (1) filing false returns, (2) keeping a double set .of books, (3) making false entries or alterations, (4) making false invoices or documents, (5) destroying books or records, (6) concealing assets or covering up sources of income, or (7) avoiding making records usually kept for transaction or conduct where the likely effect would be to mislead or to conceal.
All of these examples involve some kind of concealment from or misrepresentation to the IRS, not individuals. The INTERNAL REVENUE MANUAL specifically states that
“[i]n an attempt to evade or defeat the payment of any tax, the mere failure or willful failure to pay any tax does not *28constitute an attempt to evade or defeat the payment of any tax .... Examples of such action or conduct relating to the attempted evasion of the payment of the tax are found in [United States v. Giglio, 282 F.2d 589 (2d Cir.1956) ]. These are as follows: (a) concealing assets; (b) reporting income through others; (c) misappropriating, converting, and directing corporate assets; (d) filing late returns; (e) failing to withhold taxes as required by law; (f) filing false declarations of estimated taxes; (g) filing false tentative corporate returns.” I.R.M. § 9.1.3.3.2.2.2 (emphasis added).
Thus, on the challenged counts, while Araujo defrauded and stole from her clients and violated their trust, she did not evade or attempt to evade tax within the meaning of 26 U.S.C. § 7201.
I would reverse Araujo’s convictions on Counts 13 — 17 and remand for re-senteneing accordingly.