Appeals from the United States District Court for the District of Nevada. D.C. No. CR-91-00120-PMP. Philip M. Pro, District Judge, Presiding. This Opinion Substituted by the Court for Withdrawn Opinion of February 10,.
Before: Thomas E. Fairchild,*fn* Robert R. Beezer and Charles Wiggins, Circuit Judges.
Ross Huebner was convicted of twelve counts of aiding and abetting taxpayers in the attempted evasion of payment of their income taxes for various years. 18 U.S.C. § 2; 26 U.S.C. § 7201.*fn** Huebner and John Williams were also convicted of conspiracy to commit the attempted evasion offense and to defraud the United States by obstructing collection of income taxes. 18 U.S.C. § 371.
These convictions arose out of the participation of Huebner and Williams in the activity of John Freeman in assisting numerous taxpayers (actually tax protesters) whose income taxes the IRS was trying to collect by levying on wages. Freeman was also indicted, but was found incompetent to stand trial. The pattern, probably devised by Freeman, was typically as follows:
When a person, whom we will refer to as "taxpayer" although usually more accurately described as a nontaxpayer, would bring Freeman an IRS notice of levy on his wages, Freeman would tell the taxpayer that he should file in bankruptcy because that would stop the levy. Freeman would supply petition forms which the taxpayer would fill out and sign. Freeman would have the taxpayer sign a backdated promissory note to Constitutional Sulphur (apparently Freeman). This would appear to establish a debt of many thousands of dollars, and require substantial monthly payments. Freeman specified the amount, large enough so that if paid the taxpayer's income would be largely or wholly absorbed. This indebtedness, which was clearly sham, and the payments, were shown on the bankruptcy forms. Huebner would prepare the notes for the taxpayer's signature and Freeman would give "receipts" for previous payments, which had not been made, and promise to give receipts for future payments, also not actually to be made. He assured the taxpayers he would not collect the notes. Williams would usually sign the note as witness, and take the petition to court and file it.
Upon filing, the IRS would be notified, and because of the automatic stay (11 U.S.C. § 362(a)) the IRS would immediately release the levy. The stay would remain in effect, unless lifted, until dismissal or other termination of the bankruptcy case or other event specified by statute. Most, if not all, the tax obligations involved in this case would not be dischargeable in bankruptcy. 11 U.S.C. § 523(a)(1). The maneuver engineered by Freeman, with the participation of Huebner and Williams, would temporarily stall the process of collection by levy or other proceeding.
While the stay remained in effect, taxpayers would receive their wages in full (except for normal withholding). Had they not obtained the stay and release, they would have received only the portion exempt from levy, and the balance would have been paid to the IRS to apply on their taxes. Thus the stay deprived the IRS of payment of those balances.
I. Attempt to Evade or Defeat Payment of Tax
26 U.S.C. § 7201 provides that "any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall . . . be guilty of a felony. . . ."
We are not concerned in this case with an attempt to evade or defeat determination of liability for tax, but rather with an attempt to evade or defeat payment. It has been recognized that violation of § 7201 "includes the offense of willfully attempting to evade or defeat the assessment of a tax as well as the offense of willfully attempting to evade or defeat the payment of a tax." Sansone v. United States, 380 U.S. 343, 354, 13 L. Ed. 2d 882, 85 S. Ct. 1004 (1965); see United States v. Waldeck, 909 F.2d 555, 556-60 (1st Cir. 1990), and decisions there cited.
As defendant Huebner correctly argues, the filing of a petition in bankruptcy will not affect the liability of Sproles, Taylor, and Barnes for the income taxes involved here. The indictment charges Huebner with willfully aiding, abetting, advising and counselling Sproles and the others in "the attempted evasion of the payment of the income tax . . . ." Although the act of filing the petition was not an attempt to conceal income or otherwise escape liability for tax, it did put beyond the reach of the IRS a portion of the taxpayers' wages during the period the stay remained in effect. The question is whether this act was punishable as an attempt to evade or escape payment.
On June 23, 1986, Sproles filed a voluntary individual petition for relief under Chapter 7. An accompanying schedule showed total monthly income of $850 and total monthly expenses of $1,650, of which $1000 was payable to Constitutional Sulphur. The unsecured claim of Constitutional Sulphur was shown as $120,000. The bankruptcy case was dismissed July 25, 1986.
On September 18, 1986, Taylor filed a voluntary individual petition for relief under Chapter 11. An accompanying schedule showed total monthly income of $2,600 and total monthly expenses of $2,930.76, of which $800 was payable to Constitutional Sulphur. The unsecured claim of Constitutional Sulphur was shown as $96,000. On October 23, 1986, Constitutional Sulphur accepted appointment as a member of the Committee of Unsecured Creditors. The bankruptcy case was dismissed May 5, 1987.
On July 18, 1985, Richard and Lillian Barnes filed a voluntary joint petition for relief under Chapter 11. An accompanying schedule showed total monthly income of $2,430.60 and total monthly expenses of $2,531.39, of which $1,000 was payable to Constitutional Sulphur. The unsecured claim of Constitutional Sulphur was shown as $120,000. The bankruptcy case was dismissed May 5, 1987. The Barneses also filed a voluntary joint petition October 22, 1986, with similar showings except for monthly income of $600 and expenses of $2,597.24. The bankruptcy case was dismissed December 10, 1987. Constitutional Sulphur was a member of the Creditors' Committee.
The evidence suggests that Freeman believed and told his clients that it would be necessary to show substantial debt and an excess of monthly expenses over income in order to file a valid bankruptcy petition. Undercover Agent Edwards (posing as a taxpayer subject to a levy) testified that Freeman advised him to go bankrupt:
[Answer:] Mr. Freeman said that it didn't matter how much money I was making, that he would have me sign a promissory note to Constitutional Sulphur which would put me in debt and cover it, it should make it okay.
[Answer:] The fact that I was going bankrupt.
June 8, 1982 Tr. at 65. Freeman told Edwards of the notes to Constitutional Sulphur of other individuals who had gone bankrupt. "Mr. Freeman indicated that these notes ...