99-543
In the Supreme Court of the United States
JOHN R. LOUIS, PETITIONER
v.
COMMISSIONER OF INTERNAL REVENUE
ON PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
BRIEF FOR THE RESPONDENT IN OPPOSITION
SETH P. WAXMAN
Solicitor General
Counsel of Record
LORETTA C. ARGRETT
Assistant Attorney General
DAVID I. PINCUS
CAROL BARTHEL
Attorneys
Department of Justice
Washington, D.C. 20530-0001
(202) 514-2217
QUESTION PRESENTED
Whether the Double Jeopardy Clause or the Excessive Fines Clause of the
Constitution precludes the assessment of an addition to tax for civil fraud
on an individual who previously has been convicted and sentenced for criminal
tax offenses with respect to the same tax years.
In the Supreme Court of the United States
No. 99-543
JOHN R. LOUIS, PETITIONER
v.
COMMISSIONER OF INTERNAL REVENUE
ON PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
BRIEF FOR THE RESPONDENT IN OPPOSITION
OPINIONS BELOW
The opinion of the court of appeals (Pet. App. A1-A9) is reported at 170
F.3d 1232. The memorandum opinion of the Tax Court (Pet. App. B1-B9) is
unofficially reported at 71 T.C.M. (CCH) 3143.
JURISDICTION
The judgment of the court of appeals was entered on March 24, 1999. A petition
for rehearing was denied on June 25, 1999 (Pet. App. C1). The petition for
a writ of certiorari was filed on August 31, 1999. The jurisdiction of this
Court is invoked under 28 U.S.C. 1254(1).
STATEMENT
1. Petitioner John R. Louis was the subject of a grand jury investigation
based on information developed by the Criminal Investigation Division of
the Internal Revenue Service (Pet. App. B2). In 1984, petitioner was indicted
on two counts of criminal tax offenses with respect to his returns for 1977
and 1978 (id. at B3).1 After a jury trial, petitioner was found guilty on
both counts. He was sentenced to imprisonment for one year on the first
count and three years on the second count, with the three-year sentence
suspended contingent upon completion of a five-year probationary period.
He was also fined $5000 on each count (ibid.). He served his prison term,
completed his probationary period, and paid the criminal fines (ibid.).
2. On December 23, 1991, the Commissioner issued statutory notices of deficiency
to petitioner for 1976, 1977 and 1978 (Pet. App. B2).2 Based upon the items
of omitted gross income that were also involved in the criminal prosecution,
the Commissioner determined (i) that petitioner had underpaid his taxes
by $1,448 for 1976, $14,340 for 1977, and $74,609 for 1978 and (ii) that
such underpayments were due to fraud (id. at B2-B3). Under the provisions
of Section 6653(b) of the Internal Revenue Code then in effect, the Commissioner
further determined that an addition to tax equal to fifty percent of the
deficiency for each of these years was required. See 26 U.S.C. 6653(b) (1976).
The resulting additions to tax were $724 for 1976, $7,170 for 1977, and
$37,305 for 1978 (Pet. App. B2-B3).3
3. Petitioner filed petitions in Tax Court to contest the asserted deficiencies
and additions to tax. He thereafter entered into a stipulation, however,
in which he agreed that he would not contest his liability for the tax deficiencies
and would contest his liability for the Section 6653(b) additions to tax
only on constitutional grounds. Tax Ct. No. 5942-92: CR 24 (Stipulation
of Settled Issues); Tax Ct. No. 5943-92: CR 27 (Stipulation of Settled Issues).
The Tax Court rejected the contention that the additions to tax were barred
by either the Double Jeopardy Clause or the Excessive Fines Clause of the
Constitution. The court concluded (Pet. App. B8) that the Double Jeopardy
issue is controlled by Helvering v. Mitchell, 303 U.S. 391 (1938), which
held that additions to tax for fraud under the Internal Revenue Code are
remedial, rather than punitive, and may therefore be imposed following a
criminal prosecution without implicating the Double Jeopardy Clause. Because
additions to tax are remedial rather than punitive, the Tax Court concluded
that neither the Double Jeopardy Clause nor the Excessive Fines Clause is
implicated in this case (Pet. App. B9).
4. The court of appeals affirmed (Pet. App. A1-A9). The court applied the
two-step process described in Hudson v. United States, 522 U.S. 93 (1997),
for determining whether a sanction is civil or criminal for Double Jeopardy
Clause purposes: (i) looking first to whether Congress manifested a preference
for one label or the other and (ii) then, if Congress intended to establish
a civil penalty, evaluating whether the statutory scheme is nevertheless
so punitive in purpose or effect as to transform the intended civil sanction
into a criminal penalty (Pet. App. A3, citing Hudson v. United States, 522
U.S. at 99, and United States v. Ward, 448 U.S. 242, 248-249 (1980)). With
respect to the first step of this analysis, the court of appeals held that
Congress plainly intended the addition to tax for fraud to be "a civil,
not a criminal sanction" (Pet App. A4). Then, applying the "guideposts"
set forth in Kennedy v. Mendoza-Martinez, 372 U.S. 144, 168-169 (1963),
the court determined that the additions to tax imposed on petitioner were
not so punitive as to transform what Congress intended to be a civil sanction
into a criminal penalty.4
The court found it particularly significant that the addition to tax for
fraud has not historically been regarded as punishment and that its purpose
is remedial, for it serves "as a safeguard for the protection of the
revenue and to reimburse the Government for the heavy expense of investigation
and the loss resulting from the taxpayer's fraud" (Pet. App. A5, quoting
Helvering v. Mitchell, 303 U.S. at 401). Although the court acknowledged
that several of the "guidepost" factors were present to some degree,
it found them insufficient to render the addition to tax criminal or punitive
in nature. For example, the court stated that the third guidepost factor
("scienter") is present in that fraudulent intent is a prerequisite
to imposition of the addition to tax. The court concluded, however, that
the existence of that factor is of little significance because "punishing
fraudulent intent is not the central focus of [the addition to tax]";
instead, "[t]he fraud requirement is designed to ensure that the additions
are imposed only on taxpayers who engage in the type of deceptive behavior
that is difficult and costly for the IRS to detect" (ibid.).
The court of appeals also determined that the imposition of the addition
to tax for fraud following petitioner's sentencing for criminal tax evasion
did not implicate the Excessive Fines Clause. The court noted that the purposes
of the addition to tax for fraud are primarily remedial: to protect the
revenue and to reimburse the government for the expense of investigating
fraud (Pet. App. at A8). The court noted that-unlike the forfeiture provision
that implicated the Excessive Fines Clause in United States v. Bajakajian,
524 U.S. 321 (1998)-the addition to tax for fraud is not imposed as part
of a criminal sentence and is imposed without regard to whether the taxpayer
has been convicted of a felony (Pet. App. A8). The court concluded that,
because the addition to tax for fraud is remedial rather than punitive,
it is not barred by the Excessive Fines Clause (ibid.).
ARGUMENT
The decision of the court of appeals is correct and does not conflict with
any decision of this Court or any other court of appeals. Further review
is therefore not warranted.
1. a. The Fifth Amendment of the Constitution states that no "person
[shall] be subject for the same offence to be twice put in jeopardy of life
or limb." This Clause protects against "the imposition of multiple
criminal punishments for the same offense" (Hudson v. United States,
522 U.S. at 99) and "serves the function of preventing both 'successive
punishments and . . . successive prosecutions'" (United States v. Ursery,
518 U.S. 267, 273 (1996)). The court of appeals correctly held that the
imposition of the addition to tax for fraud for petitioner's 1977 and 1978
tax years, after his conviction for criminal tax offenses for those years,
did not expose him to unconstitutional double jeopardy.5
In Helvering v. Mitchell, 303 U.S. at 401-406, this Court concluded that
the addition to tax for fraud is civil and remedial in nature and does not
implicate the constitutional prohibition against double jeopardy.6 The Court
explained in Mitchell that civil tax sanctions are imposed primarily to
protect the revenue and to reimburse the government for the expense of investigating
and correcting the taxpayer's return. Id. at 401. The Court emphasized that
"Congress may impose both a criminal and a civil sanction in respect
to the same act or omission; for the double jeopardy clause prohibits merely
punishing twice, or attempting a second time to punish criminally, for the
same offense." Id. at 399. The Court held that additions to tax for
fraud were "[o]bviously * * * intended by Congress as civil incidents
of the assessment and collection of the income tax." Id. at 405.
This Court has repeatedly cited the decision in Mitchell with approval.
See, e.g., Hudson v. United States, 522 U.S. at 99, 103, 104; Ursery, 518
U.S. at 273, 289, 292; Department of Revenue v. Kurth Ranch, 511 U.S. 767,
779 n.16 (1994); United States v. Ward, 448 U.S. 242, 250 (1980); One Lot
Emerald Cut Stones v. United States, 409 U.S. 232, 236 (1972); Spies v.
United States, 317 U.S. 492, 495 (1943); United States ex rel. Marcus v.
Hess, 317 U.S. 537, 548-549 (1943). Every appellate court that has considered
the matter (both before and after the decision of this Court in the Kurth
Ranch case) has followed Mitchell in concluding that the civil additions
to tax for fraud do not constitute "punishment" within the scope
of the Double Jeopardy Clause. See I & O Publishing Co. v. Commissioner,
131 F.3d 1314, 1316 (9th Cir. 1997); United States v. Alt, 83 F.3d 779,
782 (6th Cir.), cert. denied, 519 U.S. 872 (1996); Thomas v. Commissioner,
62 F.3d 97, 100-102 (4th Cir. 1995); McNichols v. Commissioner, 13 F.3d
432, 435-436 (1st Cir. 1993), cert. denied, 512 U.S. 1219 (1994). See also
Bickham Lincoln-Mercury, Inc. v. United States, 168 F.3d 790 (5th Cir. 1999)
(civil sanction for failing to file forms reporting receipt of more than
$10,000 in cash is not "punishment" within the scope of the Double
Jeopardy Clause); Ames v. Commissioner, 112 T.C. 304 (1999) (same with respect
to negligence penalty).7 There is thus no conflict among the circuits nor
other reason to warrant further review of the decision in this case.
b. Petitioner errs in contending (Pet. 12-13) that the decision of the court
of appeals conflicts with Department of Revenue v. Kurth Ranch, supra, in
which this Court held that a Montana tax on the possession of drugs constituted
a criminal punishment within the constraints of the Double Jeopardy Clause.
The state "tax" involved in the Kurth Ranch case was quite unusual:
(i) it could be imposed only after an arrest for a drug offense; (ii) it
was extremely high, amounting to 400 percent of the market value of the
illegal drug; and (iii) it had no relation to the costs incurred by the
State in investigating and prosecuting drug offenses. 511 U.S. at 784. Moreover,
while the state tax in Kurth Ranch purported to be a property tax on the
possession and storage of marijuana, it was not imposed until after the
marijuana had been destroyed. None of these anomalous factors is present
here. To the contrary, as other courts have emphasized in upholding the
constitutionality of the addition to tax for fraud, "[t]he addition
to tax imposed in this case is at the opposite end of the punitive/remedial
spectrum from the tax levied in Kurth Ranch." Thomas v. Commissioner,
62 F.3d at 101-102.
c. Petitioner errs in contending (Pet. 6-7, 13) that Helvering v. Mitchell,
supra, does not apply to this case. Petitioner asserts that Mitchell is
inapplicable here because the taxpayer in that case had been acquitted,
rather than convicted, of tax crimes before imposition of the addition to
tax for fraud. This Court has long held that application of the Double Jeopardy
Clause does not depend on the outcome of the first case: it applies whether
the first case resulted in a conviction or in an acquittal. Murphy v. United
States, 272 U.S. 630, 632 (1926). Indeed, in Mitchell itself the Court specifically
held that the same principles apply under the Double Jeopardy Clause "whether
the verdict [in the criminal case] was an acquittal or a conviction."
303 U.S. at 398 (emphasis added). As the court of appeals correctly stated
in this case, "Mitchell's conclusion that Congress intended additions
to tax for fraud to be a civil sanction is not limited to cases in which
the taxpayer has previously been acquitted, rather than convicted, of criminal
tax fraud" (Pet. App. A4).
Petitioner errs in contending that, in Helvering v. Mitchell, 303 U.S. at
397-398, this Court left open the question whether the Double Jeopardy Clause
is implicated "where a conviction for tax fraud simultaneously determines
a taxpayer's tax liability and § 6653(b) addition to tax for fraud
for the same tax years" (Pet. 6-7). In Mitchell, the taxpayer had been
acquitted of tax evasion and contended that his acquittal would, under the
doctrine of res judicata, bar the Commissioner from seeking to impose the
addition to tax for fraud. The Court rejected that contention because "[t]he
difference in degree of the burden of proof in criminal and civil cases
precludes application of the doctrine of res judicata." 303 U.S. at
397. Having reached that conclusion, the Court stated that it was unnecessary
to reach the government's alternative contention that the doctrine of res
judicata was also inapplicable because of "the difference in the issues
presented in the two cases." Id. at 398. The Court concluded that it
was unnecessary to reach the question of the difference, if any, between
"wilfully" (in the criminal statute) and "fraud" (in
the civil statute) because the acquittal in the criminal case "is not
a bar to a civil action by the Government, remedial in its nature, arising
out of the same facts on which the criminal proceeding was based * * * ."
Id. at 397.
2. a. The Eighth Amendment of the Constitution provides that "[e]xcessive
bail shall not be required, nor excessive fines imposed, nor cruel and unusual
punishments inflicted." The Excessive Fines Clause "limits the
government's power to extract payments, whether in cash or in kind, as punishment
for some offense." United States v. Bajakajian, 524 U.S. 321, 328 (1998)
(internal quotation marks omitted). The court of appeals correctly held
that the additions to tax involved in this case were remedial, rather than
punitive, and that the Excessive Fines Clause is therefore not implicated
in this case (Pet. App. A7-A9).
Petitioner errs in contending (Pet. 14-22) that this holding of the court
of appeals conflicts with Austin v. United States, 509 U.S. 602 (1993).
In Austin, the Court held that the determinative question under the Excessive
Fines Clause "is not * * * whether [the challenged sanction] * * *
is civil or criminal, but rather whether it is punishment." Id. at
610. The Court noted that the civil forfeiture statute involved in Austin
had historically been viewed as punishment (id. at 618) and that the presence
of a merely incidental remedial purpose in a forfeiture statute does not
save such a punitive sanction from scrutiny under the Excessive Fines Clause.
Id. at 610, 621-622.
The present case obviously differs from Austin, in which the Court concluded
that the forfeiture sanction at issue in that case was sufficiently punitive
to warrant scrutiny under the Eighth Amendment. The Court has long held
that the addition to tax for fraud is remedial, rather than punitive, and
that it functions as a safeguard for the protection of the revenue and to
reimburse the government for the expense of investigating and redetermining
the taxpayer's liability. Helvering v. Mitchell, 303 U.S. at 401. For that
reason, the courts of appeals have consistently held, both before and after
Austin, that civil additions to tax imposed under the Internal Revenue Code
do not violate the Excessive Fines Clause. See, e.g., Little v. Commissioner,
106 F.3d 1445, 1454-1455 (9th Cir. 1997); United States v. Alt, 83 F.3d
at 783; Thomas v. Commissioner, 62 F.3d at 100-102; McNichols v. Commissioner,
13 F.3d at 434.
b. Petitioner further errs in contending (Pet. 14-22) that the decision
in this case conflicts with United States v. Bajakajian, supra. In Bajakajian,
a traveler seeking to leave the country with $357,144 in cash was arrested
for failing to comply with reporting requirements. In the criminal indictment,
the government sought not only a conviction for violation of the reporting
requirement but also a forfeiture of the entire $357,144. The relevant statute
mandated the forfeiture of any property "involved in" the offense
(18 U.S.C. 982(a)(1)). The lower courts concluded, however, that a forfeiture
of the entire amount would violate the Excessive Fines Clause. 524 U.S.
at 326-327.
This Court affirmed. The Court held that the forfeiture qualified as a "fine"
within the meaning of the Excessive Fines Clause because it was imposed
only as an additional sanction upon a person who has been convicted of a
crime and thus represented "punishment for an offense." 524 U.S.
at 328. In the present case, by contrast, the addition to tax is not "imposed
at the culmination of a criminal proceeding" and does not "require[]
conviction of an underlying felony" (ibid.). The addition to tax is
assessed and collected as part of civil tax proceedings. It may be imposed
without regard to whether the taxpayer has been convicted of a related tax
offense. Indeed, as noted by the court below (Pet. App. A8), it may be imposed
even when the taxpayer has been acquitted of a related criminal offense.
As this Court held in Mitchell, the addition to tax for civil fraud is a
remedial measure designed to safeguard the revenue. 303 U.S. at 401. Unlike
the forfeiture at issue in Bajakajian, the addition to tax is not "punishment
for an offense" (524 U.S. at 328) and therefore does not constitute
a "fine" within the meaning of the Excessive Fines Clause.
Moreover, even if the addition to tax were thought of as a "fine,"
this civil sanction for the recovery of costs associated with investigating
and redetermining the taxpayer's liability is not "excessive."
A "fine" violates the Excessive Fines Clause only "if it
is grossly disproportional to the gravity of a defendant's offense."
United States v. Bajakajian, 524 U.S. at 334, 336. In Bajakajian, where
"[t]here was no fraud on the United States, and respondent caused no
loss to the public fisc" (id. at 339), the Court held that the criminal
forfeiture of $337,144 was disproportionate to what was "solely a reporting
offense" (id. at 337). The additions to tax involved in this case are
set by Congress at one-half the amount that petitioner wrongfully withheld.
That amount is designed to compensate the government for the significant
costs incurred in investigating and redetermining petitioner's liability.
The additions to tax resulting from petitioner's fraud are thus plainly
not "grossly disproportional" to petitioner's acts. See United
States v. Alt, 83 F.3d at 782-783 (additions to tax "not outrageous"
in light of purpose to compensate government for the costs of investigation,
detection, and recovery of lost money); Thomas v. Commissioner, 62 F.3d
at 102 (civil fraud penalty not excessive).
CONCLUSION
The petition for a writ of certiorari should be denied.
Respectfully submitted.
SETH P. WAXMAN
Solicitor General
LORETTA C. ARGRETT
Assistant Attorney General
DAVID I. PINCUS
CAROL BARTHEL
Attorneys
NOVEMBER 1999
1 The documents attached to the Commissioner's Answer in the Tax Court show
that petitioner was indicted and convicted of filing false returns, a violation
of 26 U.S.C. 7206(1). See Tax Ct. No. 5942-92: CR 3: Answer (Exh. A: Indictment;
Exh. B: Criminal Judgment); Tax Ct. No. 5943-92: CR 3: Answer (Exh. A: Indictment;
Exh. B: Criminal Judgment). The parties nonetheless incorrectly stipulated
that he was convicted under 26 U.S.C. 7201 (tax evasion). See C.A. E.R.
64-65. This error in the stipulation was pointed out in the government's
brief in the court below. See C.A. Gov't Br. 3 n.2, 24-26.
2 There is no statute of limitations on the assessment or collection of
taxes with respect to a year for which the taxpayer has filed a fraudulent
return. 26 U.S.C. 6501(c).
3 The current counterpart to former Section 6653(b) is in Section 6663(a),
which provides that, "[i]f any part of any underpayment of tax required
to be shown on a return is due to fraud, there shall be added to the tax
an amount equal to 75 percent of the portion of the underpayment which is
attributable to fraud." 26 U.S.C. 6663(a). That Section is effective
for all returns due after December 31, 1989. See Omnibus Budget Reconciliation
Act of 1989, Pub. L. No. 101-239, § 7721(a), 103 Stat. 2395.
4 The "guideposts" described by the court of appeals were (Pet.
App. A3-A4):
(1) "[w]hether the sanction involves an affirmative disability or restraint";
(2) "whether it has historically been regarded as a punishment";
(3) "whether it comes into play only on a finding of scienter";
(4) "whether its operation will promote the traditional aims of punishment-retribution
and deterrence"; (5) "whether the behavior to which it applies
is already a crime"; (6) "whether an alternative purpose to which
it may rationally be connected is assignable for it"; and (7) "whether
it appears excessive in relation to the alternative purpose assigned."
5 In Tax Court, petitioner challenged the addition to tax for 1976 as well
as those for 1977 and 1978. The addition to tax for 1976, however, raises
no double-jeopardy issue because his criminal convictions involved only
the years 1977 and 1978. See United States v. Dixon, 509 U.S. 688, 704 (1993);
Blockburger v. United States, 284 U.S. 299, 304 (1932).
6 The addition to tax involved in Mitchell stated that, "[i]f any part
of any deficiency is due to fraud with intent to evade tax, then 50 per
centum of the total amount of the deficiency (in addition to such deficiency)
shall be so assessed, collected and paid." Revenue Act of 1928, ch.
852, § 293, 45 Stat. 791.
7 For the reasons described in detail in the decision of the court of appeals
(Pet. App. A4-A7), the addition to tax for fraud satisfies the two-part
test articulated by this Court in the Hudson and Mendoza-Martinez decisions.
See pages 4-5, supra. Although, as petitioner notes (Pet. 10), the conduct
to which the civil fraud statute applies would also generally constitute
a crime, this Court has expressly held that fact is "insufficient to
render the money penalties * * * criminally punitive." Hudson v. United
States, 522 U.S. at 105. Accord, Helvering v. Mitchell, 303 U.S. at 399.
Similarly, while scienter is a prerequisite to the imposition of the civil
fraud additions, the existence of a scienter prerequisite to a civil sanction
is not determinative of the double jeopardy issue. See, e.g., S.A. Healy
Co. v. Occupational Safety & Health Review Comm'n, 138 F.3d 686, 688
(7th Cir. 1998); LaCrosse v. Commodity Futures Trading Comm'n, 137 F.3d
925, 931, 932 (7th Cir. 1998); SEC v. Palmisano, 135 F.3d 860, 865-866 (2d
Cir.), cert. denied, 119 S. Ct. 555 (1998).