The opinion of the court was delivered by: BASSLER
Defendant Rao Gollapudi was indicted on nine counts of violation of 26 U.S.C. § 7202,
the willful failure to collect or truthfully account for and pay over federal withholding taxes and FICA taxes, for the final quarter of 1989, for all four quarters of 1990, and for all four quarters of 1991. Additionally, Defendant Rao Gollapudi was indicted on three counts of violation of 26 U.S.C. § 7206(1),
willfully making and subscribing false personal income tax returns, for the tax years 1989, 1990, and 1991.
The Defendant waived his constitutional right to a jury trial in a knowing and intelligent manner, after a colloquy with this Court.
After a bench trial, for the following reasons, this Court finds beyond a reasonable doubt the Defendant, Rao Gollapudi, GUILTY of Counts One to Nine of the indictment, violations of 26 U.S.C. § 7202. Furthermore, this Court finds beyond a reasonable doubt the Defendant, Rao Gollapudi, GUILTY of the counts ten to twelve of the indictment, violations of 26 U.S.C. § 7206.
Rao Gollapudi is the President and sole shareholder of Softstar Computer Consultants, Inc. This corporation was incorporated in Michigan in July 1984 and has operated in New Jersey since 1985.
Though the company began with only two employees, for the years 1989 through 1991, Softstar employed approximately 15 people. At the end of each pay period, Softstar's employees were paid their salary by check. The checks reflected the fact that Mr. Gollapudi, as Softstar's President, withheld federal income taxes and Federal Insurance Contributions Act (FICA) taxes from Softstar employees' paychecks. These federal income taxes and FICA taxes that were withheld remained in the corporate checking account. Despite the fact that Mr. Gollapudi withheld the taxes from his employees' paychecks and issued them official Statements of Wages, Forms W-2, Mr. Gollapudi never filed Employer's Quarterly Tax Returns, Forms 941 and never remitted the withheld funds to the Internal Revenue Service. From the last quarter of 1989 to the last quarter of 1991, Mr. Gollapudi failed to remit approximately $ 320,313 in federal income taxes and FICA taxes withheld from his employees.
For the tax years 1989, 1990, and 1991, Mr. Gollapudi filed his own income tax returns with the Forms W-2 he had generated for all Softstar employees. Using the Forms W-2 as proof of withholding, Mr. Gollapudi took a $ 6000 tax credit on his personal tax returns, despite the fact that he knew the that the W-2 was fraudulent as Softstar had not remitted any taxes withheld to the federal government.
In April, 1996, the Grand Jury in and for the District of New Jersey returned a twelve-count Indictment charging Rao Gollapudi with violating two provisions of the Internal Revenue Code, 26 U.S.C. §§ 7202 and 7206(1).
In order to establish guilt of tax evasion, the government must prove, beyond a reasonable doubt: (1) the existence of a tax deficiency; (2) an affirmative act constituting an attempted evasion of payment of taxes; and (3) willfulness. United States v. Ashfield, 735 F.2d 101, 105 (3d Cir.), cert. denied, 105 S. Ct. 189 (1984), citing Sansone v. United States, 380 U.S. 343, 351, 13 L. Ed. 2d 882, 85 S. Ct. 1004 (1965). Neither the government nor the defendant dispute the existence of a tax deficiency. There is no real dispute that the evidence demonstrates that there was a tax deficiency and that Mr. Gollapudi did undertake affirmative acts that constitute an attempted evasion of the payment of taxes. The only issue is willfulness.
A. The Elements of Willfulness.
Willfulness is defined in the tax cases as the "voluntary, intentional violation of a known legal duty." Cheek v. United States, 498 U.S. 192, 112 L. Ed. 2d 617, 111 S. Ct. 604 (1991); United States v. Pomponio, 429 U.S. 10, 11-13, 50 L. Ed. 2d 12, 97 S. Ct. 22 (1976); United States v. Bishop, 412 U.S. 346, 359-60, 36 L. Ed. 2d 941, 93 S. Ct. 2008 (1973). Despite the fact that most cases interpret the word willfully in regard to violations of § 7201 and § 7206, the analysis is the same under 26 U.S.C. §§ 7201-07, all of which use the word willfully in the same sense. United States v. Greenlee, 517 F.2d 899, 903 (3d Cir. 1975), citing United States v. Bishop, 412 U.S. 346, 36 L. Ed. 2d 941, 93 S. Ct. 2008 (1973).
In a tax evasion case, willfullness has been defined by this Circuit as "an attempt made voluntarily and intentionally and with specific intent to keep from the government a tax imposed by the income tax laws which it was the legal duty of the defendants to pay to the government and which the defendants knew it was their legal duty to pay." United States v. Ashfield, 735 F.2d at 105.
Despite the Supreme Court's references to other formulations of the willfulness standard, the Court has made it clear that in the tax crime context, willfulness means simply a voluntary, intentional violation of a known legal duty. United States v. Pomponio, 429 U.S. 10, 12, 50 L. Ed. 2d 12, 97 S. Ct. 22 (1976). The Supreme Court explained its definition by stating "we did not, however, hold that the term [willfully] requires proof of any motive other than an intentional violation of a known legal duty." Id. Therefore, it is clear that in proving the defendant acted willfully, it is not necessary that the government establish that the defendant had an evil motive.
The need to prove specific intent for willfulness "does not imply that the government must prove more than that the defendant acted with a guilty mind, i.e., voluntarily and with the deliberate intent to violate the law." United States v. Greenlee, 517 F.2d 899, 904 (3d Cir. 1975). "The only bad purpose or bad motive necessary for the Government to prove... is the deliberate intention not to file returns which the defendant knew ought to be filed." Id.
The Supreme Court found that "willful tax evasion may be proven by a consistent pattern of underreporting large amounts of income and by the taxpayer's failure to include all his income on his books and records." Id. citing Holland v. United States, 348 U.S. 121, 139, 99 L. Ed. 150, 75 S. Ct. 127 (1954); see also United States v. Frank, 245 F.2d 284, 287-88 (3d Cir. 1957). Likewise, the Third Circuit held that "willfulness, may however, be inferred from circumstantial evidence." Ashfield, 735 F.2d at 105. The Third Circuit has also found that "although mere understatement of tax liability cannot substantiate the charge, consistent understatement is evidence of willfulness." United States v. Alker, 260 F.2d 135, 148 (3d Cir. 1958).
In another case regarding willfulness of tax evasion, the Third Circuit held "a two year pattern of derelictions in fulfilling defendant's obligations to make timely returns, [is] itself indicative of the willfulness of his actions... We are satisfied that the evidence taken as a whole warranted a finding that the failure to file here was attended by the bad purpose of an intention to violate the law by not fulfilling defendant's obligation of timely filing of which he was well aware." United States v. Greenlee, 517 F.2d 899, 903 (3d Cir. 1975).
Most recently, in United States v. Doan, 710 F.2d 124, 126 (3d Cir. 1983), the Third Circuit held that there was sufficient evidence, independent of defendant's underreporting of income, from which the jury could find the element of willfulness beyond a reasonable doubt. Despite the fact that the defendant was not assisted in filing his tax return, the Third Circuit noted "he was sophisticated enough in his preparation to itemize deductions for state, local, real estate, and sales taxes, interest paid on loans, contributions and certain business expenses which were contained in records he kept." Id. The Court held that the evidence was sufficient given the proof of a long-run pattern of reporting at variance with the taxpayer's defenses, the substantiality of the sums the taxpayer failed to report, and the number of times taxpayer received income checks he claimed to have forgotten. Id.
B. Rao Gollapudi Acted Willfully In Failing To Pay Over Taxes For His Employees.
In order to find Mr. Gollapudi guilty of a violation of 26 U.S.C. § 7202, the United States must establish: (1) Defendant Rao Gollapudi was aware of the legal duty to file Forms 941; (2) Defendant Rao Gollapudi was aware of the legal duty to remit the taxes withheld from his employees to the Internal Revenue Service; and (3) Defendant Rao Gollapudi voluntarily and ...