# Petition — Kourakos v. Tully

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition
- **Published:** January 1, 1984
- **Citation:** 464 U.S. 1070

## Text

Office - Supreme Court, U.S.

83-847 FILED

NOV 29 1968
ALEXANDE
3n The aa" Co
Supreme Court of the United States
October Term, 1983
PETER KOURAKOS,
Petitioner,

-against-
JAMES H. TULLY, JR., PRESIDENT, and others, MEMBERS

CONSTITUTING THE STATE TAX COMMISSION OF THE
STATE OF NEW YORK,

Respondents.

PETITION FOR WRIT OF CERTIORARI TO
THE NEW YORK STATE COURT OF APPEALS

MURRAY APPLEMAN
Attorney for Petitioner
225 Broadway
New York, N.Y.10007
(212) 349-6966

Dok Burley Pricbus, tb tdeed en Island, New York 10302
Tel.: (212) 447-5358 — (516) 222-2470 — (914) 682-0848

i
QUESTIONS PRESENTED

1. Does a condition precedent or special rule of
preclusion exist requiring that prior to being allowed
or permit‘cd assertion of the privilege against self in-
crimination (¥ifth Amendment to the Constitution of
. the United States) in an investigative or ad-
ministrative setting, where no challenge as to its basis
is raised, that in order to effect the protections of the
Fifth Amendment to the Constitution, demonstration
before that body is required to show that disclosure
might tend to incriminate or in the alternative should
effective enforcement of tax laws take precedence
over constitutional protections?

2. Does Section 697(e) of New York Tax Law,
which precludes the use of tax returns in most non-tax
criminal proceedings negate or frustrate a taxpayer’s
claim of privilege under the Fifth Amendment to the
Constitution of the United States?

3. May the New York State Tax Department, ex-
clusively on the reporting of an amount of income
received, deem income from an unknown source to
originate from a trade, business or occupation subject
to Unincorporated Buxiness Tax solely based on the
presumption of correctness which attaches to a notice
of deficiency (Tax Law Section 689(e))?

ii

TABLE OF CONTENTS

NS OE ee re i
I no Cis DO Via Swit vw 60 034 2 1
ND re 2
Reasons for Granting the Writ.............. 4

POINT I—
A Condition Precedent or Special Rule of
Preclusion Does not Exist Requiring that
Prior to Being Allowed or Permitted Asser-
tion of the Privilege Against Self-incrimina-
tion (Fifth Amendment to the Constitution
of the United States) Before an Investigative
or Administrative Body, Where no Challenge
as-to the Privilege’s Basis is Raised, that
in Order to Effect the Protections of the
Fifth Amendment to the Constitution, De-
monstration Before that Body is Required
that Disclosure Might Tend to Incriminate
and/or Effective Enforcement of Tax Laws

POINT II—
New York Tax Law Section 697(e), Which
Precludes the Use of Tax Returns in Most
Non-tax Criminal Proceedings Does not
Negate or Frustrate a Taxpayer’s Claim of
Privilege Under the Fifth Amendment to the
Constitution of the United States.......... . 16

iii
POINT III—
The New York State Tax Department, Exclu-
sively on the Reporting of an Amount of
Income Received, Cannot Deem Income from
an Unknown Source to Originate from a
Trade, Business or Occupation Subject to
Unincorporated Business Income Tax Solely
Based on the Presumption of Correctness
Which Attaches to a Notice of Deficiency
Pursuant to Tax Law Section 689 (e)........

NNER OES Pee AE LE 75S hee tee

APPENDICES

A—Order of the New York State Court of Ap-
peals Denying Motion ....................

B—Order of the New York State Court of Ap-
peals Dismissing Appeal ..................

C—Decision of the Appellate Division Third
EE 0 oes i a gis Care nec o aS pee eeenee

19

25

la

5a

iv

TABLE OF CASES
Page
Biliskie v. American Livestock Insurance Co.,
W.D., Okla., 1977 73 F.R.D.124............. 16,17
Bere. U8, Tab UG. Gi «sive cies ee Hes 15

Credit Life Insurance Co. v. Uniworld Ins. Co.,
S.D. Ohio, 1982 94 F.R.D.118.............. 16

Cudahy Packing Co. v. Holland 1942, 315 U.S.
_—_ LE i aaa ne ee oe, ae AN Ate. 2. 7 7,8

Edwards v. Commissioner of Internal Revenue,
A I: ook re woe bo hy wren wae 10, 12

Eglin Federal Credit Union v. Cantor Fitz-
gerald Securities Corp., N.D. Ga. 1981, 91

| on | MAO SE Ae SR DESDE Meme sc egy 16, 17
Elkins v. U.S. 1960, 364 U.S. 206............ 21
Federal Savings & Loan Ins. Corp. v. Krueger,

Sem MB To A 8S 3S ee en ey 17
Fulenwider v. Wheeler 5th Cir., 1958, 262 F.2d

BSR Pane ype an ats gkko 17
Garner v. U.S., 424 U.S. 648................ 7
Garrity v. State of New Jersey, 385 U.S. 493... 15

Gerardo v. C.I.R. 3rd Cir., 1977, 552 F.2d 549. . 20, 22

Vv

Grosso v. U.S., 1968, 390 U.S. 62............ 22
Heathman v. U.S. District Court, 9th Cir., 1974,

oe sa, ais bb eos 17
Hoffman v. U.S., 1951, 341 U.S. 479......... 5, 6
Deananen Gee Ue. BOD... cede eee 5, 8

In re Grand Jury Empanelled 3/19/80 680 F.2d
327 (3rd Cir., 1982) cert. granted............ 15

In re Grand Jury Subpoena for N.Y. State In-
come Tax Records, N.D. N.Y. 1979, 468 F. Sup.
ING ee Ate oer are La sk os = See ke bw 18

In re Grand Jury Subpoena for N.Y. State In-
come Tax Records, 2d Cir. 1979, 607 F.2d 566. 18, 19

Janis v. U.S., 1976, 428 U.S. 433............ 20
Kastigar v. U.S., 1972, 406 U.S.441......... 5, 8,13
Maldonado v. St. Croix Discount, Inc., D. St.

Croix 1978, 77 F.R.D.501............. = hienee 17
Malloy v. Hogan, 1964, 378 U.S.1........... b
Maness v. Meyers, 1975, 419 U.S. 449........ 5, 8,9
Marchetti v. U.S., 1968, 390 U.S. 39.......... 15

New York State Department of Taxation v.
N.Y. State Dept. of Law, 44 N.Y.2d 575....... 16

vi
Ohio Bell Tel. Co. v. Public Utilities Com., 301
MME ds oo 8's lod. on tees ae abn SRL CR 24

Oleshko v. N.Y.S. Liquor Authority, 285 N.Y.S.
2d 696, Aff’d 288 N.Y.S. 2d 474, 21 N.Y. 2d 778 8

Payne v. Howard, D.D.C. 1977, 75 F.R.D. 465. 17

People ex rel Taylor v. Forbes, 143 N.Y.219... 7,8
Pillsbury Co. et al. Petitioners v. John Conboy,

AE Ma MIE So wre nid'0 $n dh hme 14
Pizzarello v. U.S., 2d Cir., 1969, 408 F.2d 579. . 20

Premium Service Corp. v. Sperry & Hutchinson
Co., 9th Cir., 1975, 511 F.2d 225............. 16

Reeves v. Pennsylvania R.R. Co., D. Del., 1948,
as MINN o's" 0 0's cin's ede eee 16

Richland Wholesale Liquors Inc. v. Joseph E.
Seagram & Sons Inc., D.S.C. 1966, 40 F.R.D.

WP Ahn cxicutekss <> bret 24

New York State Tax Law Sections 689, 697 and
MR Tos nod G Eee tc. o v «dake eee i, 16, 19

1

IN THE
SUPREME COURT OF THE UNITED STATES
OCTOBER TERM, 1983

PETER KOURAKOS,
Petitioner,
vs.
JAMES H. TULLY, JR., PRESIDENT, and others,
MEMBERS CONSTITUTING THE STATE TAX
COMMISSION OF THE STATE OF NEW YORK,

Respondents.

PETITION FOR WRIT OF CERTIORARI TO
THE NEW YORK STATE COURT OF APPEALS

JURISDICTION

Opinions of the courts below, New York Court of
Appeals affirming the judgment of the New York
Supreme Court, Appellate Division—Third Depart-
ment are set forth in Appendix, Infra.

The order of the New York Court of Appeals, the
court below, is dated June 16, 1983 and its refusal of a
motion for clarification or in the alternative for leave
to appeal is dated September 29, 1983, served by mail
dated October 13, 1983, received October 19, 1983.
The jurisdiction of this court is invoked, made and
conferred under 28 U.S.C. 2101 (b\\c\d) and 2104, Rule

2
21 of the Supreme Court and the Fifth and Fourteenth
Amendments to the Constitution of the United States
are involved herein.

STATEMENT OF THE CASE *

A proceeding pursuant to Civil Practice Law and
Rules Article 78 was transferred to the New York
Supreme Court, Appellate Division—Third Depart-
ment from Special Term, New York Supreme Court,
Albany County to review a determination of the New
York State Tax Commission, which sustained a notice
of deficiency for Unincorporated Business Tax pur-
suant to New York Tax Law Article 23.

Petitioner reported “Other Income” in the
amounts of $30,000 for 1972 and $37,000 for 1973.
Department of Taxation and Finance of New York
when it received no response as to the source of this in-
come, deemed it to be business income subject to unin-
corporated business tax solely due to the refusal of
taxpayer to respond. An administrative hearing was
requested and held in which petitioner’s attorney in-
voked the privilege against self-incrimination and the
Commission sustained the notice of deficiency.

At the administrative hearing as provided by New
York Law, the sole challenge to taxpayer’s assertion
of his Fifth Amendment’s rights was:

“The position of the Audit Division is that Peter
Kourakos’ income from miscellaneous and other
sources as shown on his income tax returns is subject
to unincorporated business tax. That there is no self
incrimination right that accrues in this kind of tax
proceeding because it’s not a criminal proceeding and
that the only possible penalty is for failure to file the
*There has been no change in the parties involved in the original
proceedings.

‘
ie
Ss -. as”,lU

3

returns and that’s a monetary penalty, that there is no
possibility of any jail term or confinement and
therefore most of the Supreme Court cases cited by
the petitioner are inapplicable.”

The Hearing Officer stated that:

“I can understand the position you're taking, you
know, and this becomes a public record no matter
what we discuss here, when I write my report up,
there’s nothing I could put aside and say, you know,
the protection of the petitioner’s right of privacy,
right against self incrimination, I can’t guarantee you
anything.

*** I’m very limited, you know, as far as my ap-
proach. I just have to make a determination, is the in-
come subject to U.B.T.”

4
REASONS FOR GRANTING THE WRIT

POINT I

A CONDITION PRECEDENT OR SPECIAL RULE OF
PRECLUSION DOES NOT EXIST REQUIRING THAT
PRIOR TO BEING ALLOWED OR PERMITTED
ASSERTION OF THE PRIVILEGE AGAINST SELF-
INCRIMINATION (FIFTH AMENDMENT TO THE
CONSTITUTION OF THE UNITED STATES) BEFORE
AN INVESTIGATIVE OR ADMINISTRATIVE BODY,
WHERE NO CHALLENGE AS TO THE PRIVILEGE’S
BASIS IS RAISED, THAT IN ORDER TO EFFECT THE
PROTECTIONS OF THE FIFTH AMENDMENT TO
THE CONSTITUTION, IMPLICIT DEMONSTRATION
BEFORE THAT BODY IS REQUIRED THAT
DISCLOSURE MIGHT TEND TO INCRIMINATE
AND/OR IN THE ALTERNATIVE EFFECTIVE EN-
FORCEMENT OF TAX LAWS DOES NOT TAKE
PRECEDENCE OVER CONSTITUTIONAL PROTEC-
TIONS.

It is apparent that no justification exists for
creating such an anomalous rule and like all other
governmental agencies, the New York State Tax
Department must obey the Constitution.

Subsequent to U.S.A. v. Leroy Barnes, 2d Cir.,
1979, 604 F.2d 121, 147-149, wherein it was stated
that since appellant did not claim the privilege on his
return and reported large amounts of income:

1. Fifth Amendment rights were not violated at
trial;

2. Prosecutor’s summation in which he discussed

large sums reported on the return was appropriate.
It is suspect if any question on an income tax return

5
can be deemed neutral although directed at the public
at large.

The United State: Supreme Court noting that the
Fifth Amendment privilege ‘‘is that no person shall be
compelled in any criminal case to be a witness against
himself...’ found that “the availability of the
privilege does not turn upon the type of proceeding in
which its protection is invoked, but upon the nature of
the statement or admission and the exposure which it
invites. The privilege may for example be claimed in a
civil or administrative proceeding, if the statement is
or may be inculpatory.’”’ In re Gault, 387 U.S. 149. The
Fifth Amendment privilege against self-incrimination
is not self executing.

The privilege against self-incrimination protects
the person claiming it from being compelled to give
‘answers that would in themselves support a convic-
tion’”’ or that “‘would furnish a link in the chain of
evidence needed to prosecute the claimant’ for a
crime. Hoffman v. U.S., 341 U.S. 479, 486 (1951). The
privilege extends to questions propounded in a civil
action, whether the claimant is a party or a witness.
Maness v. Meyers, 419 U.S. 449, 464 (1975); Kastigar
v. U.S., 406 U.S. 441, 444-45 (1972). The individual
asserting the privilege is not ‘‘required to prove the
hazard (of incrimination) in the sense in which a claim
is usually required to be established in court.’”’ Hoff-
man, 341 U.S. at 486; rather the privilege may validly
be asserted whenever “the witness has reasonable
cause to apprehend danger from a direct answer.” Id.
That a witness actually fears incrimination from
answering questions is not enough. The fear must be
reasonable in light of the witness’ specific cir-
cumstances, the content of the questions, and the set-

ON

6
ting in which the questions are asked. Id. accord
Zicarelli v. New Jersey State Commission of In-
vestigation, 406 U.S. 472, 480 (1972); Malloy uv.
Hogan, 378 U.S. 1, 11-14 (1964). The trial court is to
evaluate the incriminatory potential of questions ask-
ed. Hoffman, 341 U.S. at 487. Underlines scored.

If the government desires information protected
from compelled disclosure solely to help it to deter-
mine tax liability, it should be willing to grant
Kourakos immunity from prosecution in order to ob-
tain the information. If the government cannot at this
time so confine the use to which it desires to put
privileged information, it must obtain the information
by some other means other than compelled self
disclosure. Based on the State’s ability to neutralize
Kourakos’ potential for self-incrimination via a grant
of immunity, it is apparent that a claim of failing or
refusing to produce a witness in the party’s control is
negated and inapplicable. Further the privilege was
claimed as a shield, not as a sword. Evasion of taxes
was not the basis for refusing to relate the source of
the amount of income reported on his return.

Clearly individuals may not be forced to surrender
one constitutional right in order to assert another, nor
may they be placed in a position where the defense of
their property enhances their prosecution for a crime.
Simmons v. U.S., 390 U.S. 377, 394 (1968), U.S. v. U.S.
Currency, 626 F.2d 11 (CA-6, 1980). It is equally true
that civil penalties may not be placed upon the exer-
cise or assertion of an individual's privilege against

7

derived from an illegal source which could furnish a
link in the chain of evidence which could be used to
prosecute the petitioner herein. Thus it is uncon-
troverted that petitioner’s alleged fear of prosecution
was more than fanciful. Where it is not so perfectly
evident and manifest that the answer called for cannot
incriminate, as to preclude all reasonable doubt of fair
argument, the privilege must be recognized and pro-
tected. People ex rel. Taylor v. Forbes, 143 N.Y. 219,
231.

A Taxpayer is free to refuse to fill in particular
items on the tax return and when subsequently ques-
tioned as to those admissions, i.e., amount of income
received, he may assert his Fifth Amendment
privilege against self incrimination. Cudahy Packing
Co. v. Holland, 315 U.S. 357 (1942); Garner v. U.S.,
424 U.S. 648.

Witness himself is judge in each case whether he
is entitled to claim privilege against self incrimina-
tion, and he may not be compelled to give testimony
by which he himself may, in any manner whatever,
pave the way to possible prosecution. People ex rel.
Taylor v. Forbes, 143 N.Y. 219, 231.

In opposition, the State Tax Commission did not
aver that such refusal for non-compliance to reveal the
source of income was not based on belief that peti-
tioner stands in danger of criminal prosecution by giv-
ing a responsive answer but instead:

eee Oe ae Soe > Oe oe
’ income from miscellaneous and other
sources as shown on his income tax returns is subject
to business tax. That there is no self

right that accrues in this kind of tax

8
proceeding because its not a criminal proceeding and
that the only possible penalty is for the failure to file
the returns and that’s a monetary penalty. That there
is no possibility of any jail term or confinement and
therefore most of the Supreme Court cases cited by
the petitioner are inapplicable.” ps. 13-14 of

transcript.

Totally disregarding Jn re Gault, supra; Maness v.
Meyers, supra; Kastigar v. U.S., supra; Cudahy Pack-
ing Co. v. Holland, supra; People ex rel. Taylor v.
Forbes, supra and Oleshko v. N.Y.S. Liquor Authori-
ty, 285 N.Y.S. 2d 696 Aff’d 288 N.Y.S. 2d 474, 21 N.Y.
2d 778, the latter specifically holding that an ad-
ministrative body cannot compel one to testify in
violation of his Constitutional right.

If challenged, not accomplished here, only a court
could demand a factual predicate for the invoking of
the privilege raised after which a determination could
be made whether the yoke of silence should be pierced
or protected. The courts not administrative agencies
can only decide as to whether one can properly invoke
one’s Fifth Amendment privilege. No one in an ad-
ministrative agency can be granted such an important
vehicle as to deny one’s Fifth Amendment rights in an
arcade and cryptic manner. Petitioner was frustrated
from being able to assert or define his basis of the
Fifth Amendment Claim and since the basis of his
claim was never challenged, it never became necessary
to appear before a judge. In the administrative hear-
ing the Hearing Officer on page 8 of transcript stated:

9
the protection of the petitioner’s right of privacy,
right against self-incrimination, I can’t guarantee you
anything.”
“*** T am very limited you know, as far, as my ap-
proach. I just have to make a determination is the in-
come subject to Unincorporated Business Tax.”

Although direct attempts were made for an
evidentiary hearing or directly asserting the basis for
this claim of petitioner’s privilege of self incrimina-
tion, solely due to the procedures mandated in a tax
proceeding (Civil Practice Law & Rules), the taxpayer
was forced to permeate the hearing with suggestions,
indicia of potential incrimination and a colorable
showing that the privilege applied to him despite the
fact that no issue was raised with regard to the validi-
ty of his claim.

It is uncontroverted that the privilege against self
incrimination may be claimed by counsel for peti-
tioner. As the Court stated in Maness v. Meyers, 419
U.S. 449 (1975) a defendant should not be forced to let
the cat out ‘‘with no assurance whatever of putting it
back.”” Moreover, the State all during this hearing
never questioned or challenged the basis for peti-
tioner’s Fifth Amendment Claim.

10

sustained by the Court, unless it is ‘perfectly evident
and manifest’’ that there is no legitimate claim to the
privilege (See Ronayne v. Lombard, Sup. Ct., Monroe
County, 92 Misc. 2d 693, 697 (1977) and in the extant
situation there being nothing in the record to rebut or
contradict the validity of petitioner’s claim of his
privilege, or that the State challenged the basis for
such claim at the hearing the Court citing U.S. v.
Verkuilen, 690 F.2d 648, 654 and U.S. v. Karsky,
610 F.2d 548, 550 n5, cert. den. 444 U.S. 1092,
stated that ‘‘A taxpayer’s reliance on the Fifth
Amendment to block disclosure is ineffectual unless
he made a colorable showing that he is involved in
some activity for which he could be criminally pro-
secuted.’’ It was also stated that if neither the ques-
tion nor the setting in which it is asked suggests a real
and appreciable danger of self incrimination, the tax-
payer is obliged to come forward with some indicia of
potential incrimination. U.S. v. Neff, 615 F.2d 1235,
1240 cert. den. 447 U.S. 925. Thus it was held “that
unsupported assertion is an insufficient predicate for
the invocation” citing U.S. v. Verkuillen, supra and
Edwards v. Commissioner of Internal Revenue, 680
F.2d 1268, 1270.

It would appear that based on the aforemention-
ed, whenever one appears before any civil proceeding
that as a prerequisite to being able to invoke the Fifth
Amendment privilege, prior thereto, a foundation
therefor is required, contrary to U.S. Supreme Court
and New York Court of Appeals decisions. Further
that it was irrelevant that petitioner’s hearings are
permeated with suggestions and a colorable showing
that the income originated from an illegal source and
direct attempts to come forward with indicia of poten-
tial incrimination was prohibited due to the type of

11
hearings. In addition prior to being able to claim a
Fifth Amendment privilege it becomes essential to ap-
pear before a judge who apparently must rule ir-
regardless of whether any issue existed pertaining to
the validity of the claim, none raised herein, for its
foundation, herein deemed required.

To draw such a line of demarcation not only is ir-
rational in view of the nature and substance of the
Constitutional right against self incrimination, but
operates to deny petitioner his constitutional rights.

First, as was suggested at the hearing on p. 6 that
the source of income would not be divulged based on
petitioner’s right of silence under the Fifth Amend-
ment to the Constitution and it was indicated and sug-
gested at the hearing that the income originated from
an illegal source.’ There can be no doubt that at the
least a suggestion and colorable claims were made
that petitioner could be criminally prosecuted. Cir-
cumstances justifying recognition of the claimed
privilege and reasonable cause to apprehend danger
from a direct answer were testified to at the hearing.’
Based on these assertions no challenge per se was
made by the State Tax Commission to the validity of
the claim made by petitioner.

1. It cannot be denied that this act gives rise to a permissible in-
ference that Korakos obtained these funds from an illegal source.
This inference is made possible by the general obligation to
report the source of income and the exception when the report
would result in an incriminating disclosure.

2. Moreover it is sufficient if a court can by the use of reasonable
inference or judicial imagination conceive a sound basis for a
reasonable fear of prosecution present herein.

12

The cases cited by the Appellate Division in sup
put ef this Gectetan thes o temmibatten stant Ge tans
before a Fifth Aimendment claim can be asserted dif-
fers in the crucial respect in that in U.S. v. Verkuilen,
690 F.2d 654 n6 ‘*** appellant conceded during an in

was not based upon any activities for which he could
be criminally prosecuted and in Karsky, 610 F.2d 548,
550 n5 it was stated:

“Karsky never suggested that he was involved in any
activity in which he wished not to incriminate himself.
He claimed the Fifth Amendment privilege on his
return solely because of what he had been told by
speakers at tax protest sermons.”’

U.S. v. Neff, supra at page 1240 stated:

“Moreover the peculiarities of the case did not
strengthen Neff's claim. If anything, the tax protest
nature of defense witness Holmes’ testimony and the
materials that Neff appended to his returns suggest
that Neff's refusal to complete the forms was
motivated by a desire to protest taxes, rather than a
fear of self incrimination.”

Further, in Edwards, supra at 1270 it was reveal-
ed “Appellants steadfastly assert that they have
engaged in no criminal activity relating to their auto
repair business, nor is any criminal investigation
pending.”

In the extant situation a valid claim was made by
petitioner of his Fifth Amendment privilege against
self incrimination. He attempted to directly indicate
at the hearing that the hazard was real, substantial,

13

appreciable and reasonable cause existed for ap
prehension of such danger. Kourakos is not a tax pro-
testor and he was barred via the Civil Practice Law &
Rules and the hearing officer's comments from further
testimony. Moreover, the hearing is permeated with
suggestions and a colorable showing that the income
originated from an illegal source plus the fact that the
Respondent at the hearing never questioned peti-
tioner’s basis for claiming his constitutional privilege
of silence pursuant to the Fifth Amendment to the
Constitution. This arbitrary truncation of the Fifth
Amendment privilege claim constitutes a deprivation
of Constitutional rights. The zeal to protect public
revenue must not be able to blind the peril to our free
society that lies in a court’s disregard of the provec-
tions afforded by the Fifth Amendment to the Con-
stitution.

“The power to compel testimony, is not absolute.
There are a number of exceptions from the testimonial
duty, the most important of which is the Fifth Amend-
ment privilege against compulsory self incrimination.
The privilege reflects a complex of our fundamental
values and aspirations, and marks an important ad-
vance in the development of our liberty. It can be
asserted in any proceeding, civil or criminal, ad-
ministrative or judicial, investigatory or ad-
judicatory, and it protects against any disclosures
that the witness reasonably believes could be used ina
criminal prosecution or could lead to other evidence
that might be so used. This court has been zealous to

the values that underlie the
Kastigar v. U.S., 406 U.S. 441, 444-445 (1972) (Foot-
notes omitted). Underlines Scores.

The aforementioned would answer Respondent's

14

claim at the hearing, i.e., no right to claim privilege in
a civil tax proceeding.

Moreover, as was recently stated by Justice Mar-
shall in his concurring opinion in The Pillsbury Co. et
al. Petitioners v. John Conboy, 51 U.S.L.W. 4061,
4066 (1983)

Whenever a witness is forced to give incriminating
testimony, there is significant risk that fruits of that
testimony will later be used against him. Further in-
criminating evidence that is derived from

testimony cannot always be traced back to its source.

A witness who suspects that his compelled testimony
was used to develop a lead will be hard pr essed indeed
to ferret out the evidence necessary to prove it, for
though the Court puts the burden of proof on the
government, the government will have no difficulty in
meeting its burden by mere assertion if the witness
produces no contrary evidence. The good faith of the
prosecuting authorities is thus the sole safeguard of
the witness’ rights.

... Even their good faith is not a safeguard. For the
paths of information through the investigativie
bureaucracy may well be long and winding, and even a
prosecutor acting in the best faith cannot be certain
that somewhere in the depths of his investigative ap-
paratus, often including hundreds of employees, there
was not some prohibited use of the compelled
testimony.”

The situation facing Kourakos is not too
dissimilar from that presented to the Seventh Circuit
in the U.S. v. U.S. Coin and Currency in the amount of
$8,674.00, 393 F.2d 499 (7th Cir., 1968) where the
Court stated:

15

“The prospect of a felony conviction involved in Mar-
chetti* of course has a greater coercive effect than the
possible loss of money involved herein. On the other
hand, the prospect of losing in excess of $8,000 has a
substantial coercive effect. In this respect the land-
mark case of Boyd v. U.S., 116 U.S. 616, 6 S. Ct. 524,
29 L.Ed. 746 is controlling. Boyd was a civil forfeiture
action in which the claimant was given a choice be-
tween producing a possibly incriminatory document
and forfeiting the property. The Court held that such
a choice was impermissible under the Fourth and
Fifth Amendments. See Garrity v. State of New
Jersey, 385 U.S. 493, 496-497, 87 S.Ct. 616, 17 L.Ed.
2d 562 which reaffirms and follows Boyd.

* Marchetti v. U.S., 390 U.S. 398, 88 S.Ct. 697 (1968).

As was related in Shaffer v. U.S., (4th Cir., 1976)
528 F.2d 920 “If the government wishes to depose the
taxpayer, it should obtain immunity for him as to any
criminal proceeding other than one relating to per-
jury.”’ As was stated in U.S. v. Fox, 2d Cir., 1983 , n6,
Docket No. 83-6055 10/19/83:

“We do not believe that effective enforcement of the
tax laws should take precedence over constitutional

It would appear that the issue presented herein is
analagous to U.S. v. Doe, 51 U.S.L.W. 3789 (U.S. May
2, 1983) (summarized at 51 U.S.L.W. 3424) granting
cert. to In re Grand Jury Empanelled March 19, 1980,
680 F.2d 327 (3rd Cir., 1982).

i6
POINT II

NEW YORK TAX LAW SECTION 697(e), WHICH
PRECLUDES THE USE OF TAX RETURNS IN MOST
NON-TAX CRIMINAL PROCEEDINGS DOES NOT
NEGATE OR FRUSTRATE A TAXPAYER'S CLAIM
OF PRIVILEGE UNDER THE FIFTH AMENDMENT
TO THE CONSTITUTION OF THE UNITED STATES.

The Appellate Division claims that the hazard of
self incrimination through the use of tax returns has
been considerably reduced with the enactment of Sec-
tion 697 (subd. (e)) of the Tax Law, which precludes
their use in most non-tax criminal proceedings, citing
Matter of New York State Department of Taxation &
Finance v. New York State Department of Law,
Statewide Organized Claim Task Force, 44 N.Y.2d
575, 581.

The issue of whether income tax returns enjoy
any but limited privilege has been addressed by a few
courta, none of which have recognized the existence of
a general privilege against disclosure.

Premium Service Corp. v. Sperry & Hutchinson
Co., 511 F.2d 225 (9th Cir. 1975); Eglin Federal Credit
Union v. Cantor Fitzgerald Securities Corp., 91 F.R.D.
414(N.D. Ga. 1981); Biliske v. American Livestock In-
surance Co., 73 F.R.D. 124 (W. D. Okla. 1977);
Richland Wholesale Liquors, Inc. v. Joseph E.
Seagram & Sons, Inc., 40 F.R.D. 480 (D.S.C. 1966);
Reeves v. Pennsylvania R. Co., 80 F. Supp. 107 (D.
Del. 1948). Rather, a ‘‘qualified’”’ reining! emerges
from the law that disfavors the disclosure of income
tax returns as a matter of general federal policy.
Premitim Service Corp. v. Sperry & Hutchinson Co.,
supra, Credit Life Insurance Co. v. Uniworld Ins. Co.,

17

94 F.R.D. 113, 120 (S.D. Ohio 1982); Tele-Radio
Systems, Ltd. v. DeForest Electronics, Inc., 92 F.R.D.
371 (D.N.J. 1981); Smith v. Bader, 83 F.R.D. 437, 438
(S.D.N.Y. 1979); Maldonado v. St. Croix Discount,
Inc., 77 F.R.D. 501 (D. St. Croix 1978); Payne v.
Howard, 75 F.R.D. 465 (D.D.C. 1977); Shaver v. Yacht
Outward Bound, 71 F.R.D. 561, 563 (N.D. IIl., 1976);
Federal Savings and Loan Ins. Corp. v. Krueger, 55
F.R.D. 512 (N.D. Ill. 1972); Weisenberger v. W. E.
Hutton & Co., 35 F.R.D. 556 (S.D.N.Y. 1964).

This qualified privilege may be overcome,
however, in ‘‘appropriate circumstances.’ Heathman
v. United States District Court, 503 F.2d 1032, 1035
(9th Cir. 1974); Fulenwider v. Wheeler, 262 F.2d 97, 99
(5th Cir. 1958); Eglin Federal Credit Union v. Cantor
Fitzgerald Securities Corp., supra, at 416; Richland
Wholesale Liquors, Inc. v. Joseph E. Seagram & Sons,
supra, at 482-483.

Several courts have adopted a two-prong test to
guide them in their determination of the appropriate
circumstances in which the qualified privilege of tax
returns is overcome. That is to say, in order to compel
the disclosure of tax returns, the court must be shown
that the information sought from the returns bears
some relevance to the subject matter of the litigation;
and that the information sought from the returns is
not readily obtainable from other sources. Eglin Fed.
Credit Union v. Cantor Fitzgerald Securities Corp.,
supra; Tele Radio Systems v. DeForest, supra; Smith
v. Bader, supra; Maldonado v. St. Croix Discount,
Inc., supra; Biliske v. American Livestock Ins. Co.,
supra; Federal Savings and Loan Corp. v. Krueger,
supra at 515; Richland Wholesale Liquors v. Jos.

Seagram & Sons, supra.

:
—

18

As is readily revealed, New York has not been suc-
cessful in contesting Federal subpoenas of state tax
returns. At the United States District Court level, the
courts have simply viewed the issue as a conflict be-
tween federal and state power, resolvable by resort to
the Supremacy clause of the United States Constitu-
tion, i.e., Article VI cl. 2 with the Federal power of
course prevailing. See In re Grand Jury Subpoena for
New York State Income Tax Records, 468 F. Supp.
575, 577 (N.D.N.Y., 1979).

“Thus, inasmuch as the federal grand jury is a pro-
duct of the Fifth Amendment and its powers, a result
of its long history and specific Congressional atten-
tion, the conflict between state confidentiality provi-
sions and Congressional or constitutional in-
vestigatory powers has resulted in enforcement of
federal grand jury subpoenas despite state statutes,
which would otherwise prohibit compliance... Com-
pliance with this grand jury subpoena will not,
however, subvert New York interest in safeguarding
individual privacy because federal grand jury pro-
ceedings are conducted secretly. Furthermore, even
assuming that honest income tax reporting will be en-
couraged by protecting New York State income tax
returns from grand jury scrutiny, this objective is
more than counter-balanced by the necessity of
thorough grand jury investigations into violations of
federal law—particularly since the State’s interest in
honest tax reporting will still be protected by the ever
present threat of criminal sanctions which may be im-
posed upon individuals who file false or materially

misleading returns.”

New York has thus far been foreclosed from ap-
pellate review of this issue because a denial of a mo-
tion to quash is not a final appealable order. See Jn re

19

Grand Jury Subpoena for New York State Income Tax
Records, 607 F.2d 566, 568 (2d Cir. 1979).

Thus the Court’s reliance on the New York State
Tax Secrecy Law is misplaced as a basis for
abrogating one’s Fifth Amendment privilege.

POINT III

THE NEW YORK STATE TAX DEPARTMENT, EX-
CLUSIVELY ON THE REPORTING OF AN AMOUNT
OF INCOME RECEIVED, CANNOT DEEM INCOME
FROM AN UNKNOWN SOURCE TO ORIGINATE
FROM A TRADE, BUSINESS OR OCCUPATION SUB-
JECT TO UNINCORPORATED BUSINESS INCOME
TAX SOLELY ON THE PRESUMPTION OF CORRECT-
NESS WHICH ATTACHES TO A NOTICE OF DEFI-
CIENCY PURSUANT TO TAX LAW SECTION 68e).

Tax Law Section 703 defines an unincorporated
business as (a) *** any trade, business or occupation
conducted, engaged in or being liquidated by | an )1-
dividual or unincorporated entity ***.

No evidence appears which links Kourakos to any
trade, business or occupation. No rational foundation
for this assessment has been established nor is there
any evidence which could conceivably support an in-
ference that the taxpayer was involved in any activity
let alone one which could be considered a trade,
business or occupation. The United States Court of
Appeals for the Second and Third Circuits have held

‘We are obliged to conclude therefore that absent
proof in the record that Gerardo was involved in
gambling activities from April 4, 1966 through
August 5, 1966, no court could properly draw an in-
ference of such involvement.”

20

Pizzarello v. U.S., 408 F.2d 579 (2d Cir., 1969) cert.
den. 396 U.S. 986 (1970) and Gerardo v. C.I.R., (3d
Cir., 1977) 552 F.2d 549. The latter quoting Pizzarello
stated at 553

“Pizzarrello produced no records to contradict the
Commissioner’s assessment. Nevertheiess, the Se-
cond Circuit held that the assessment was excessive,
arbitrary and without some foundation declaring:
there is no proof in the record before us that Pizzarello
operated as a gambler for five years... No court could
properly make such inferences without some founda-
tion of fact.’’ Id. at 583

The absence of adequate tax records (as in the
case here) does not give the Commissioner carte blan-
che for imposing Draconian absolutes, citing Webb v.
C.LR., 394 F.2d 366, 373 (5th Cir., 1968).

The Appellate Division determined that attribu-
tion of Miscellaneous Other Income to Unincor-
porated Business Tax was reasonable, given the other
information on petitioner’s returns plus presumption
of correctness which attaches to Notice of Deficiency.
It should be noted that the only items on these
returns are petitioner’s name and address and prior to
the decision in U.S. v. Barnes, supra, the amount of in-
come.

As was stated in Weimerskirch v. Commissioner,
(9th Cir., 1979), 596 F.2d 358, 360:

In Janis, 428 U.S. 433, 441-442, 96 S.Ct. 3021, 49
L.Ed. 2d 1046 (1976) the Supreme Court decided that
the exclusionary rule did not prevent the Internal
Revenue Service (IRS) from using illegally-seized
evidence as the basis from which to extrapolate a tax-

21
payer’s unreported income from wagering activities.
Prior to addressing the exclusionary question, the
Court stated that if the illegally-seized evidence could
not be used, then the result would be:

“a naked assessment without any foundation
whatsoever.... The determination of tax due
then may be one ‘without rational foundation and
excessive,’ and not properly subject to the usual
rule with respect to the burden of proof in tax
cases.”’ (citations and footnotes omitted)

428 U.S. at 441, 96 S.Ct. at 3026. The Court noted,
that there was apparently some conflict between the
Federal Courts of Appeals as to the burden of proof in
tax cases and then went on to make these observa-
tions:

“‘However that may be, the debate does not ex-
tend to the situation where the assessment is
shown to be naked and without any foundation.

“Certainly proof that an assessment is utterly without
foundation is proof that it is arbitrary and erroneous.”

428 U.S. at 442, 96 S.Ct. at 3026. While the language
may not have been dispositive of the issue decided in
Janis, supra, it certainly is a strong indication that the
Commissioner must offer some foundational support
for the deficiency determination before the presump-
tion of correctness attaches to it. After all as the Court
observed in Elkins v. United States, 364 U.S. 206, 80
8.Ct. 1437, 4 L.Ed. 2d 1669 (1960)

‘*.,. a8 a practical matter it is never easy to prove
a negative... .” 364 U.S. at 218, 80 S.Ct. at 1444.
See also Flores v. United States, 551 F.2d 1169,
1175 (9th Cir. 1977)

22

An initial presumption of correctness applies to
assessments. At the outset, therefore, taxpayers
usually have the burden of producing evidence to
refute the validity of the assessment. It devolves at
once upon the taxpayer to challenge the assessment.
Where it is a negative assertion that a successful tax-
payer would have to prove though, the law imposes
much less of a burden upon a taxpayer. Weir v. Com-
missioner, 283 F.2d 675, 679 (6th Cir. 1960).
Reasonable denials of the assessment’s validity have
sufficed in such cases to shift the burden back to the
government. The government then bears the task of
substantiating its assessment in cases of this type.
See also Gerardo v. C.I.R., 552 F.2d 549, 552 (3rd Cir.
1977).

Petitioner denies that he is subject to Unincor-
porated Business tax. The proof required, i.e.,
negative assertion, justifies use of the lighter burden
and allocation of the ultimate risk of non persuasion
on the government. See generally C. McCormick,
Handbook of the Law of Evidence, sec. 378; J.
Wigmore, Evidence sec. 2485 (discussing apportion-
ment consideration).

Indeed the burden of proof could not otherwise be
allocated without risking violation of petitioner’s
privilege against self incrimination. In Grosso v. U.S.,
390 U.S. 62, 65-69, 88 S.Ct. 709, 19 L.Ed. 2d 706
(1968), the Supreme Court ruled that the Fifth
Amendment privilege against self incrimination
precluded federal criminal prosecutions for failure to
file the required wagering tax forms. As the basis of
the Court’s decision was the Hobson’s choice the
Federal Wagering tax laws pose to gamblers. Prior to
the Grosso decision, a gambler had no choice but to

23

file returns and pay the tax and possibly incriminate
himself under state law, or not comply and possibly in-
cur a federal penalty. To preserve the efficacy of the
self incrimination privilege, the court prohibited the
imposition of certain criminal sanctions for failure to
comply with the wagering tax laws.

The choice between self incrimination and undue
forfeiture looms no less ominously in the context of a
civil action. One reporting income derived from an il-
legal source who desires to challenge the correctness
of an assessment runs the high risk of incriminating
himself. The government may impose an assessment
as in the extant situation solely from bare surmise,
conjecture, speculation and rumor when in fact none is
due. To show error in the assessment, a taxpayer may
have no choice but to divulge the inculpating details
of an illegal involvement and thus expose himself to
prosecution. If a prudent taxpayer decides not to
challenge the assessment lest he invite another
criminal prosecution, this often averts self incrimina-
tion only at the cost of unwarranted tax liability. To
allow one reporting income from an illegal source to
disprove an assessment only by a preponderance of
evidence could penalize the exercise of the privilege
against self incrimination in a manner that the
Supreme Court outlawed in Grosso.

The aforementioned burden of proof accomodates
both the privilege against self incrimination and the
presumption of accuracy normally accorded to
government tax assessments. It neither forces the
protesting taxpayer to expose himself to other
criminal liabilities nor robs the government of the ad-
vantage gained by the initial presumption. It merely
spares the taxpayer from the threat of self incrimina-
tion by requiring the government to justify its claim.

24

It is well established that compulsion of potential-
ly self incriminating testimony is permissible only
where the witness is provided immunity protection
which is coextensive with his constitutional privilege
against self incrimination. Immunity statute
represents an accomodation between the
goverument’s need, in certain circumstances to com-
pel testimony from knowledgeable citizens and a
citizen’s constitutionally based privilege against self
incrimination under the Fifth Amendment of the
Federal Constitution and Article I, Section 6 of the
New York State Constitution.

The Commissioner offered no evidence linking
Kourakos to any activity that could be deemed sub-
ject to Unincorporated Business Tax. No evidence
was proferred from which it could even be inferred
that he engaged in any activity subject to Unincor-
porated Business Tax. Thus the assessment falls of its
own weight as wholly without support. There has not
been the “protection of the individual against ar-
bitrary action’’ which Mr. Justice Cardozo
characterized as the very essence of due process. See
Slochower v. Board of Ed. of N.Y., 350 U.S. at 559.
citing Ohio Bell Tel. Co. v. Public Utilities Com., 301
U.S., 292, 302.

25
CONCLUSION

It is respectfully submitted that this petition for
certiorari be granted.

Respectfully submitted,

MURRAY APPLEMAN
Attorney for Petitioner

A Member of the Bar of the
United States Supreme Court

la

APPENDIX “A”
ORDER DATED SEPTEMBER 29, 1983

At a session of the Court, held at Court of Ap-
peals Hall in the City of Albany on the twenty-
ninth day of September, A.D. 1983.

PRESENT:
HON. LAWRENCE H. COOKE
Chief Judge, presiding.

STATE OF NEW YORK
COURT OF APPEALS

In the Matter of the Application of
PETER KOURAKOS,

Appellant,
For a Review etc.,
vs.
JAMES H. TULLY, JR., President, & ors.,
Members constituting the State Tax Commission
of the State of New York,

Respondents.

A motion having heretofore been made herein
upon the part of the appellant for clarification of this
Court’s order of dismissal dated June 16, 1983 or, in

2a
the alternative, for leave to appeal to the Court of Ap-
peals in the above cause, papers having been submit-
ted thereou and due deliberation having been
thereupon had, it is

ORDERED, that the said motion be and the same
hereby is denied in each respect.

s/Joseph W. Bellacosa
JOSEPH W. BELLACOSA
Clerk of the Court

.
=
a...
a

3a
APPENDIX “‘B”
ORDER DATED JUNE 16, 1983

At a session of the Court, held at Court of Ap-
peals Hall in the City of Albany on the Sixteenth
day of June, A.D. 1983.

PRESENT:

HON. LAWRENCE H. COOKE,
Chief Judge, presiding

STATE OF NEW YORK
COURT OF APPEALS

In the Matter of PETER KOURAKOS,
Appellant,
vs.

JAMES H. TULLY, JR., President, & ors.,
Members constituting the State Tax Commission
of the State of New York,

Respondents.

The appellant having filed notice of appeal in the
above title and due consideration having been
thereupon had, it is

4a

ORDERED, that the appeal be and the same
hereby is dismissed without costs, by the Court sua
sponte, upon the ground that no substantial constitu-
tional question is directly involved.

s/Joseph W. Bellacosa
JOSEPH W. BELLACOSA
Clerk of the Court

5a

APPENDIX “C”
DECISION DATED MARCH 24, 1983

SUPREME COURT—APPELLATE DIVISION
THIRD JUDICIAL DEPARTMENT

In the Matter of PETER KOURAKOS,
Petitioner,
Vv.

JAMES H. TULLY, JR.., et al.,
Constituting the State Tax Commission,

Respondents.

Proceeding pursuant to CPLR article 78 (transfer-
red to this court by order of the Supreme Court at
Special Term, entered in Albany County) to review a
determination of the State Tax Commission which
sustained a notice of deficiency for unincorporated
business taxes pursuant to article 23 of the Tax Law.

Petitioner and his wife filed New York combined
income tax returns covering the years 1972 and 1973
upon which petitioner reported receiving ‘‘other in-
come’ of $30,000 and $37,000, respectively. When
petitioner failed to respond to a request for informa-
tion concerning the source of this income, the Depart-
ment of Taxation and Finance issued a notice of defi-
ciency informing petitioner it deemed the “‘other in-
come” to be business income and subject to an unin-
corporated business tax of $2,585 plus interest and

6a

penalties. Upon petitioner's request for a recetermina-
tion, a hearing was held at which petitioner neither ap-
peared nor offered any evidence. However, on peti-
tioner’s behalf his attorney invoked petitioner’s
privilege against self incrimination; it is urged that
petitioner has a constitutional right to remain silent
as to the origin of the income. The commission sus-
tained the notice of deficiency and this proceeding en-
sued.

Although petitioner mainiains that the rationale
of Garner v. U.S. (424 U.S. 648), in reaffirming U.S. v.
Sullivan (274 U.S. 259), justifies his refusal to divulge
the derivation of his ‘‘other income,” we find it un-
necessary to even confront this proposition. A tax-
payer’s reliance on the Fifth Amendment to block
disclosure is ineffectual unless he has made “‘a col-
orable showing that he is involved in some activity for
which he could be criminally prosecuted’ (U.S. v.
Verkuilen, 690 F 2d 648, 654; see U.S. v. Karsky, 610
F 2d 548, 550, n. 5, cert. den. 444 U.S. 1092). If neither
the question nor the setting in which it is asked sug-
gests a real and appreciable danger of self incrimina-
tion, the taxpayer is obliged to come forward with
some indicia of potential incrimination (U.S. v. Neff,
615 F 2d 1235, 1240, cert. den., 447 U.S. 925). Nothing
in this record, apart from his counsel’s assertion to
that effect, indicates that revelation of the source of
petitioner’s other income will bring to light his in-
volvement in any criminal activity. That unsupported
assertion is an insufficient predicate for the invoca-
tion of the privilege (U.S. v. Verkuilen, supra; see Ed-
wards v. Commissioner of Internal Revenue, 680 F 2d
1268, 1270).

7a

We note also that the hazard of self incrimination
through the use of tax returns has been considerably
reduced with the enactment of section 697 (subd. [e])
of the Tax Law, which precludes their use in most non-
tax criminal proceedings (see Matter of New Yor.
State Dept. of Taxation & Fin. v. New York State
Dept. of Law, Statewide O~-ganized Crime Task Force,
44 NY 2d 575, 581), making it unavoidable that the.
taxpayer show something other than a vague and
unexplained fear of incrimination.

The argument that the assessment of an unincor-
porated business tax was without foundation is
meritless. Given the other information on petitioner’s
return, attribution of miscellaneous other income to
an unincorporated business was obviously reasonable.
Furthermore, the failure of petitioner to produce any
evidence demonstrating that the assessment was er-
roneous leaves standing the presumption of correct-
ness which attached to the notice of deficiency (Tax
Law, §689, subd. [e]; Matter of Tavolacci v. State Tax
Comm., 77 A D 2d 759).

Determination confirmed, and petition dismissed,
with costs.

KANE, J. P.. MAIN, MIKOLL, YESAWICH,
JR., and LEVINE, JJ., concur.

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385011_0637%3A1. Public record. Not legal advice.