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 decision regarding withholding and payment to civil and criminal penalties for the employers' delinquency." Slodov, 98 S. Ct. at 1785.
Secondly, the Second Circuit expressly stated "it would be inconsistent for Congress to have prescribed a six-year limitation period for the misdemeanor offense defined in 26 U.S.C. § 7203 (failure to file a return or pay a tax) while providing only a three-year limitation period for the felony offense defined in § 7202." Musacchia, 900 F.2d at 500. While Defendant argues that this is merely a superficial argument, the Second Circuit found it to be pure common sense, as it would make little logical sense if the period in which an offender could be prosecuted for the misdemeanor of failing to file a tax return was twice as long as the period in which an offender could be prosecuted for failing to pay taxes collected on behalf of employees over to the IRS. Id.
Finally, the Second Circuit found "the language of section 6531(4) -- applying the six-year statute of limitations to 'the offense of willfully failing to pay any tax, or make any return... at the time or times required by law or regulations' -- suggests that it applies to any of several sections of the Code that define such an offense." Id.
The Second Circuit did consider the only district court case on point to the contrary at the time, United States v. Block, 497 F. Supp. 629 (N.D.Ga. 1980), but dismissed its reasoning as unpersuasive. Therefore, the Second Circuit held that § 7202 was subject to the six year period of limitation under § 6531(4).
Defendant asserts that the two district cases on point are more persuasive in their analysis than the opinions of the circuit courts. In United States v. Block, the district court went through a detailed analysis of each of the sections of § 6531. Id. In its analysis, the court found that Congress had the statutory scheme of 26 U.S.C. § 7201 et. seq. in mind when fashioning § 6531. Id. at 632. This was inferred based on the fact that specific mention is made of certain code sections by number in § 6531, and that there is a substantial borrowing of statutory language from certain of the code sections. Id. The district court reasoned that "it seems unlikely to the court that Congress would have used the language of so many of the § 7201 et seq. code sections when drafting the subsections of § 6531 but omit use of the key words of § 7202 if it had intended to make failure to pay over third party taxes subject to the six year statute of limitations." Id. at 632.
This Court disagrees with the district court's opinion that § 6531(4) solely "tracks" the language of § 7203, and therefore does not apply to § 7202. While some of the exceptions under § 6531 are directed toward specific code sections, other exceptions are general descriptions of offenses, reaching beyond a single offense.
Despite the fact that this Court finds the analogy of the Supreme Court's decision in Slodov to this issue unpersuasive, this Court finds the Second Circuit's reasoning in Musacchia to be more persuasive than the district court's reasoning in Block. This Court agrees with the Second Circuit that the language of § 6531(4) "suggests that it applies to any of several sections of the Code that define such an offense" dealing with the failure of an individual to pay taxes. 900 F.2d at 500. Under the cardinal rules of statutory interpretation, "the plain meaning of legislation should be conclusive, except in the rare cases in which the literal application of a statute will produce a result demonstrably at odds with the intentions of its drafters." Nat'l Union Fire Insurance Co. of Pittsburgh v. City Savings, F.S.B., 28 F.3d 376, 384 (3d Cir. 1994), citing United States v. Ron Pair Enter. Inc., 489 U.S. 235, 242, 103 L. Ed. 2d 290, 109 S. Ct. 1026 (1989). This Court holds that § 6531(4), like § 6531(1), is a general description of offenses, applicable to numerous tax offenses, including § 7202. If Congress wanted § 6531(4) to apply solely to § 7203, Congress could have limited it specifically to crimes under that statute. Because the plain meaning of § 6531(4) covers offenses under § 7202 and § 7203, this Court finds that the six year statute of limitation applies to offenses under § 7202 and therefore respectfully finds the reasoning in Block unpersuasive.
Recently, another district court also held that § 7202 offenses were subject to a three year limitation period. United States v. Brennick, 908 F. Supp. 1004 (D. Mass. 1995). The district court in Brennick found that § 6531(4) referred only to "the offense of willfully failing to pay any tax, or make any return," while § 7202 described the offense of intentionally failing "to collect, account for and pay over" any tax. Id. at 1018. The distinction made by the district court was that "pay" in § 6531(4) referred to the direct obligation of a taxpayer, whereas § 7202's phrase "pay over" referred to the obligation of a collection agent such as an employer. Id. at 1019. Because this Court interprets § 6531 under the plain meaning rule, "the offense of willfully failing to pay any tax" covers offenses under § 7202, and therefore, this Court also declines to follow the reasoning of Brennick.
Furthermore, by using the words "failing to pay any tax," which includes the failure to pay third party taxes as covered by § 7202, the language appears to include § 7202 within the six year statute of limitation. In evaluating the predecessor sections to §§ 7202 and 6531, the Ninth Circuit stated that "it is true that a difference exists in respect to the capacity in which the tax monies are held. But the duty to pay is the same... It would require a clear manifestation of Congressional intent that the Internal Revenue Code should be construed to set up one rule for 'special fund' taxes, and another rule for income taxes, before we could do so." Wilson v. United States, 250 F.2d 312, 320-21 (9th Cir. 1957).
As the legislative history of § 6531 and § 7202 does not provide any guidance as to the reach of the general offense description provisions under 6531(1) and (4), this Court agrees with the analysis of the Second, Tenth, and Ninth Circuits regarding §§ 7202 and 6531. The focus must be on the duty imposed by these specific sections of the Code, not on the particular words present or absent in an attempt to reconstruct congressional intent. An employer's duty to pay taxes withheld from his employees is at least as great as the duty to pay personal income taxes.
B. Defendant Is Ordered to Provide Reciprocal Discovery.
Rule 16(b)(1)(A), (B), and (C) of the Federal Rules of Criminal Procedure firmly establishes the right of the United States to reciprocal discovery from a criminal defendant. As Rule 16(b)(1)(A) states:
If the defendant requests disclosure under subdivision (a)(1)(C) or (D) of this rule, upon compliance with such request by the government, the defendant or request of the government, shall permit the government to inspect and copy or photograph books, papers, documents, photographs, tangible objects, or copies or portions thereof, which are within the possession, custody, or control of the defendant and which the defendant intends to introduce as evidence in chief at the trial.
Fed. R. Crim. Pro. 16(b)(1)(A).
The Government has already made a request to the Defendant in a letter dated May 29, 1996 for reciprocal discovery, yet to date, the government has not received any reciprocal discovery from the defendant. Because the United States has made discovery available to the defendant, the government is entitled to reciprocal discovery under Rule 16(b) pre-trial. Therefore, this Court directs the defendant to disclose all discoverable information.
Because the Court finds that § 6531(4) applies to § 7202, the Defendant's motion to dismiss Counts One through Nine of the Indictment is hereby DENIED. Furthermore, this Court hereby GRANTS the government's request for reciprocal discovery. An appropriate order accompanies this Opinion.
William G. Bassler, U.S.D.J.
Date: Oct. 15, 1996
This matter having come before the Court on the motion of Defendant Gollapudi to dismiss Counts One through Nine of the Indictment on the basis of expiration of the statute of limitations, and this Court having considered all papers submitted by the parties; it is
For good cause;
On this 15 th day of October, 1996, ORDERED that the motion to dismiss is hereby DENIED;
IT IS ALSO ORDERED that the Defendant provide the government with reciprocal discovery pursuant to Fed. R. Crim. Pro. 16(b).
William G. Bassler, U.S.D.J.
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