Albert Edwards v. United States of America, S. Frank Edwards v. United States ( 1963 )

HAYS, Circuit Judge.

Defendants appeal from judgments of conviction in the United States District Court for the Southern District of Florida, Joseph P. Lieb, J., and a jury, for “willful” failure to pay the special federal tax on persons engaged in the business of accepting wagers. 26 U.S.C. §§ 4401, 4411, 4412, 7203. It is conceded that defendants did not pay the tax. There was no proof, however, that defendants were aware of the federal tax and “willfully” refused to pay it. We hold that such proof was indispensable, and accordingly reverse both convictions and direct that the informations be dismissed.

It is unnecessary to review the evidence. Suffice it to say that there was ample proof from which the jury could conclude that defendants were engaged in the gambling business.

Appellants were convicted under § 7203 of the Code (26 U.S.C. § 7203) which section provides:

“Any person required under this title to pay any estimated tax or tax * * * who willfully fails to pay such estimated tax or tax * * * shall, in addition to other penalties provided by law, be guilty of a misdemeanor * * *.” (emphasis supplied).

The government argues that ignorance of the law is no excuse and that evidence that defendants engaged in gambling as a business, together with the concession that they did not pay the required tax, is sufficient to support a conviction.

But this court has long held that, where the statutory definition of the crime of failure to pay a tax includes the element of willfulness, “a specific wrongful intent, that is, actual knowledge of the existence of obligation and a wrongful intent to evade it, is of the essence.” Hargrove v. United States, 67 F.2d 820, 90 A.L.R. 1276 (5th Cir. 1933).

In Yarborough v. United States, 230 F.2d 56, 61 (4th Cir.), cert. denied, 351 U.S. 969, 76 S.Ct. 1034, 100 L.Ed. 1487 (1956), the Court of Appeals for the Fourth Circuit, citing the Hargrove case and United States v. Murdock, infra, said:

“Ignorance of the law is no defense to crime, except that, where wilfulness is an element of the crime, ignorance of a duty imposed by law may negative wilfulness in failure to perform the duty.”

In United States v. Murdock, 290 U.S. 389, 54 S.Ct. 223, 78 L.Ed. 381 (1933) the defendant was convicted of a misdemeanor ¹ under the predecessor statute to 26 U.S.C. § 7203 for refusal to answer certain questions put by revenue agents. Defendant maintained that his refusal to answer was based upon fear of prosecution under state law. The Court, reversing the conviction in reliance upon Felton v. United States, 96 U.S. 699, 24 L.Ed. 875 (1877) found error in the charge regarding the element of willfulness :,

“Congress did not intend that a person, by reason of a bona fide misunderstanding as to his liability for the tax, as to his duty to make a return, or as to the adequacy of the records he maintained, should become a criminal by his mere failure to measure up to the prescribed standard of conduct. And the requirement that the omission in these instances, must be willful, to be criminal, is persuasive that the same element is essential to the offense of failing to supply information.

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“The respondent’s refusal to answer was intentional and without legal justification, but the jury might nevertheless find that it was not prompted by bad faith or evil intent, which the statute makes an element of the offense.”

290 U.S. at 396-98, 54 S.Ct. at 226.

Subsequent cases involving failure to report or pay taxes have closely followed the rule in Murdock. See, e. g., Barrett v. United States, 296 F.2d 309 (5th Cir. 1961) ; United States v. Palmero, 259 F.2d 872 (3d Cir. 1958) (“mere laxity, careless disregard of the duty imposed by law, or even gross negligence, unattended by ‘evil motive’ are not probative of ‘willfulness’ ”); United States v. Cirillo, 251 F.2d 638 (3d Cir. 1957), cert. denied, 356 U.S. 949, 78 S.Ct. 914, 2 L.Ed.2d 843 (1958) (“[‘willfulness’ requires] knowledge of the legal obligation”); Ripperger v. United States, 248 F.2d 944 (4th Cir. 1957), cert. denied, 355 U.S. 940, 78 S.Ct. 428, 2 L.Ed.2d 421 (1958); United States v. Litman, 246 F.2d 206 (3d Cir.), cert. denied, 355 U.S. 869, 78 S.Ct. 118, 2 L.Ed.2d 75 (1957) (the omission must be “advertent” and motivated by “bad purpose”); Yarborough v. United States, 230 F.2d 56 (4th Cir.), cert. denied, 351 U.S. 969, 76 S.Ct. 1034, 100 L.Ed. 1487 (1956); Pappas v. United States, 216 F.2d 515 (10th Cir. 1954); 10 Mertens, Law of Federal Income Taxation § 55A.09 (1958).

While the cases we have cited were concerned with taxes other than the gambling tax, we can conceive of no reason why the same rule should not apply to failui'e to comply with the gambling tax provisions. The legislative history of the gambling tax reveals no intention to impose a stricter standard in gambling cases than in other tax cases. See H. Rep. 586, 82d Cong., 1st Sess. (1951), reproduced 2 U.S.Code Cong. & Admin. Serv. 1781, at 1837-44 (1951); S.Rep. 781, 82d Cong., 1st Sess. (1951), reproduced 2 U.S.Code Cong. & Admin. Serv. 1969, at 2089-96 (1951).

United States v. Simon, 241 F.2d 308 (7th Cir. 1957) involved failure to pay the gambling tax. The court in construing § 7203 quoted extensively from a number of gambling tax cases which required a showing of knowledge of the statute violated, and then held:

“Defendant had knowledge of the law and intentionally refused to comply. There is no proof that such refusal was in good faith.”

241 F.2d at 312.²

We conclude that since the government wholly failed to prove an essential element of the crimes charged, the convictions must be reversed and the informa-tions dismissed.³

Reversed and informations dismissed.

1 . The law is settled that in a felony prosecution for “willful” attempt to “evade or defeat any tax”, 26 U.S.C. § 7201, or conspiracy to violate that section, the evidence must show that the defendant know of the tax, and took some “affirmative action” (such as acts of concealment), with a “bad purpose” to prevent the government from collecting its revenue. Spies v. United States, 317 U.S. 492, 63 S.Ct. 364, 87 L.Ed. 418 (1943); Ingram v. United States, 360 U.S. 672, 79 S.Ct. 1314, 3 L.Ed.2d 1503 (1959); United State v. Shaffer, 291 F.2d 689 (7th Cir.), cert. denied, 368 U.S. 915, 82 S.Ct. 192, 7 L.Ed.2d 130 (1961); United States v. Mollet, 290 F.2d 273 (2d Cir. 1961); Wardlaw v. United States, 203 F.2d 884 (5th Cir. 1953); United States v. Martell, 199 F.2d 670 (3d Cir. 1952), cert. denied, 345 U.S. 917, 73 S.Ct. 728, 97 L.Ed. 1350 (1953).

2 . In other cases arising under these statutes, where the issue of willfulness was not raised, there was evidence that the defendant knew of the requirements. United States v. Shaffer, 291 F.2d 689 (7th Cir.), cert. denied, 368 U.S. 915, 82 S.Ct. 192, 7 L.Ed.2d 130 (1961) (one of defendants had registered, served as front for others); Rutherford v. United States, 264 F.2d 180 (9th Cir.), cert. denied, 359 U.S. 1003, 79 S.Ct. 1140, 3 L.Ed.2d 1001 (1959) (asked if he knew of the requirements, defendant replied that they were inapplicable because he was not a bookmaker) ; Brown v. United States, 249 F.2d 306 (5th Cir. 1957), cert. denied, 356 U.S. 924, 78 S.Ct. 710, 2 L.Ed.2d 719 (1958) (defendant had complied in prior years): Contreras v. United States, 213 F.2d 96, 99 (5th Cir. 1954) (defendant had been warned to pay the tax but failed to do so).

3 . We may assume, without deciding, that in cases involving nonpayment of income tax, e. g. Holland v. United States, 348 U.S. 121, 75 S.Ct. 127, 99 L.Ed. 150 (1954); Spies v. United States, 317 U.S. 492, 63 S.Ct. 364, 87 L.Ed. 418 (1943); Wardlaw v. United States, 203 F.2d 884 (5th Cir. 1953), the almost universal knowledge of the existence of that tax would justify placing the initial burden of proof of ignorance on the defendant. Cf. Abdul v. United States, 254 F.2d 292 (9th Cir. 1958) and 278 F.2d 234 (9th Cir. 1960), cert. denied, 364 U.S. 832, 81 S.Ct. 44, 5 L.Ed.2d 58 (1960) (two justices dissenting) (withholding tax). There is absolutely no evidence, however, to support our dissenting colleague’s basic premise that the federal gambling tax is equally well known, nor may we take judicial notice of such a dubious proposition. IX Wigmore Evidence § 2571 (1940). Defendants’ knowledge of the tax, like all other elements of the crime, was therefore to be proved by the government.