Petition for Writ of Certiorari — McNichols v. Commissioner
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Supremé Court, U.S.
ath &
931540 MAR 28 19%
OFFICE OF THE CLERK
NO.
IN THE SUPREME COURT OF THE UNITED STATES
October Term, 1993
THOMAS H. MCNICHOLS, Petitioner,
Ve
COMMISSIONER OF INTERNAL REVENUE,
Respondent.
PETITION FOR A WRIT CF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS FOR THE
FIRST CIRCUIT
PHILIP M. GIORDANO, ESQ.
RICKLEFS & GIORDANO, P.C.
One Washington Mall
Boston, MA 02108
Counsel of Record
PHILIP M. GIORDANO, ESQ.
RICKLEFS & GIORDANO, P.C.
One Washington Mall
Boston, MA 02108
Attorney for Petitioner
i
a} J \\
QUESTIONS PRESENTED
1. Whether the Government's imposition of
tax and additions to tax, together with a
criminal prosecution and forfeiture of all
of the Petitioner's assets under the
Racketeer Influenced and Corrupt
Organizations Act, are sanctions in
violation of the Excessive Fines Clause of
the Eighth Amendment to the United States
Constitution, particularly in light of this
Court's recent decision in Austin v. United
States, (No. 92-6073, June 28, 1993).
2. Whether the Government's civil tax
proceedings against the Petitioner are penal
in nature, and separate and distinct from
the criminal prosecution and forfeiture
proceedings, in violation of the Double
Jeopardy Clause of the Fifth Amendment to
the United States Constitution.
-i-
”
LIST OF PARTIES
The parties to the proceedings below were
the Petitioner Thomas H. McNichols and the
Respondents Commissioner of Internal
Revenue.
=e
a
TABLE OF CONTENTS
QUESTIONS I PE ee i
LIST OF PARTIES.......¢. Ceocccccccoces di
TABLE OF AUTHORITIES....... cocccccee iii
Cra Gs cocrcccccooseceesoeve 1
PUMEMUECELOM cc ccccccocescecececes eee 2
STATEMENT OF THE CASE... ccccccccccce 3
REASONS FOR GRANTING THE WRIT....... 12
I. The First Circuit's Rejection of
the Violations of the Excessive
Fines Clause of the Eighth Amendment
Conflicts with Decisions of this
Court and Other Circuits........... 12
II. The First Circuit's Rejection
of the Violations of the Double
Jeopardy Clause of the Fifth
Amendment Conflicts with the
Beamer Court Decigion...ccccccceces 38
re eocccee 43
APPENDIX (Opinion and Judgment of
U.S. Court of Appeals, U.S. TAX
Court Decision and Memorandum)... la
-iii-
TABLE OF AUTHORITIES
CASES:
Austin v. United States, No. 92-6073
(June 28, 1993).9, 12, 15, 22, 23, 24, 32
Harmelin v. Michigan, 111 S. Ct. 2680
(2992) cc ccccceseccccccccceceeee’, 21, 30
Helvering v. Mitchell, 303 U.S. 391
GR OS 60h cderdbeddedtededdvitocoatiern®
Hicks v. Feiock, 108 S.Ct. 1423 (1988) .38
Karpa v. C.I.R., 909 F.2d 784 (4th Cir.
a ae
Kennedy v. Mendoza-Martinez, 372 U.S.
ee nee a
Kenney v. C.I.R., 111 F.2d 374 (5th Cir.
MURONG Sc witcuscdbccddoedsccdues see
Morris v. Mathews, 475 U.S. 237, 106
S. Cee 1032 Pt eedeecoceedooctoscsedoctll
Peterson v. Richardson, 370 F. Supp.
1259, 1267 (N.D. Tex. 1973), aff'd,
508 F.2d 45 (5th Cir.), cert. denied,
423 U.S. 830, 96 S. Ct. 50 (1975)...... 41
Solem v. Helm, 463 U.S. 277 (1983)
CCC m meee rere rereeeesessesseld, 23, 24, 27
Traficant v. C.I.R., 884 F.2d 258 (6th Cir.
gE eS TT ESOP TYP EPPS EEC re TT Cree ers
United States v. Busher, 817 F.2d 1409
(OGM CEG. CEOOT Ps ccc cccsccccesDOy 37, 28
and Premises Known as 38 Whalers Cove
Drive, Babylon, New York, 954 F.2d 29
(2d Cir. 1992) e*eee#ee Coe eeeressesssees aD, 26
United States ex rel. Marcus v. Hess,
317 U.S. 537, 551, 63 S. Ct. 379,
TR MAROGR bbs c0Kbcs eee ei pewdrevidees 39
United States v. Halper, 109 S. ct.
1892 (1989)........ 10, 22, 38, 39, 40, 41
United States v. Sarbello, 985 F.2d 716
eer TT Core ube dows 29, 30
United States v. Ward, 448 U.S. 242, 254
SN ee POS eben BS eChs Leh dSsi weds. a3, 23
Wood v. United States, 863 F.2d 417 (5th
Cir. oo Pee Pe ee eee | |
STATUTES:
21 U.S.C. § 881......... oeeeeeel5, 16, 25
SS De... § 19CB. cccccccccceces 16, 17, 26
OTHER AUTHORITIES:
Brickey, RICO Forfeiture as "Excessive
Fines" or "Cruel and Unusual Punishment",
35 Vill. L. Rev. 905, 923-24 (1990)
SR ss eietec sc. bb0bede 6éic chk SS
Reed & Gill, "RICO Forfeitures, Forfeitable
'Interests', and the Procedural Process",
62 N.C.L. Rev. 57, 59-69 (2963) ccccccccldS
Smith & Reed, "Civil RICO", 4410.05[2], at
10-25- 10-30 (M. Bender, 1993).....14, 15
-vi-
IN THE SUPREME COURT OF THE UNITED STATES
October Term, 1993
THOMAS H. MCNICHOLS, Petitioner,
Vv.
COMMISSIONER OF INTERNAL REVENUE,
Respondent.
PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS FOR THE
FIRST CIRCUIT
The Petitioner Thomas H. McNichols
respectfully prays that a writ of certiorari
to review the judgment and opinion of the
United States Court of Appeals for the First
Circuit, entered in the above entitled
proceeding on December 29, 1993.
OPINIONS BELOW
The opinion of the United States Court
of Appeals for the First Circuit is reported
at 13 F.3d 432 (1st Cir. 1993) and is
1
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ng!
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reprinted in the Appendix hereto, infra, and
the opinion of the United States Tax Court
is reprinted in the Appendix hereto, infra.
JURISDICTION
On February 23, 1993, the United States
Tax Court ordered and determined that there
was a deficiency in income tax and interest
due from the Petitioner. Pursuant to Rule
13 of the Federal Rules of Appellate
Procedure, Petitioner brought an appeal on
June 9, 1993 in the United States Court of
Appeals for the First Circuit as of right
for a review of the Decision and Order of
the Tax Court. On Petitioner's appeal, the
United States Court of Appeals for the First
Circuit on December 29, 1993, entered a
judgment and an opinion affirming the Tax
Court's decision.
The jurisdiction of this Court to
review the judgment of the First Circuit is
invoked under 28 U.S.C. § 1254(1).
STATEMENT OF THE CASE
Petitioner Thomas H. McNichols
("Petitioner") was involved in the
importation and sale of marijuana from 1981
to 1982. Also during this time frame, the
Petitioner failed to report the taxable
income received or expenses incurred in
connection with such drug activities on his
1981 and 1982 federal income tax returns and
failed to maintain accurate books or records
in connection with these activities during
the taxable years.
On or about October 15, 1987, the
United States Grand Jury, District of
Massachusetts, returned a Second Superseding
Indictment ("Indictment") naming the
Petitioner in thirty-six (36) Counts,
3
including two (2) Counts for violations of
the Racketeering Influenced and Corrupt
Organizations Act, 18 U.S.C. §§ 1962 and
1963 ("RICO" or "the RICO Statute"). The
Indictment set out the properties subject to
the forfeiture provisions of the RICO
Statute.
On or about June 20, 1988, in the
criminal case of United States v. Frederick
A. Carroll, et al., (D. Mass. Criminal No.
87-182-N), the Petitioner entered into a
plea agreement ("Plea Agreement") with the
United States Attorney, whereby he agreed to
plead guilty to all of the counts in which
he was named in the Indictment and further
agreed to forfeit all right, title and
interest which he held in any of the
properties set out in the Indictment, which
were virtually all of his assets.
On October 21, 1988, judgment in this
matter was entered against the Petitioner.
4
Pursuant to such judgment, the Petitioner
was sentenced to ten (10) years imprisonment
and has served a substantial portion of that
sentence. In November 1993, the Petitioner
was released from incarceration and is
presently on parole.
Also in accordance with his Plea
Agreement, the Petitioner forfeited all
properties identified in the Indictment to
the United States Government, worth
approximately $1,200,000.00. The only
significant asset owned by the Petiticner
and not forfeited to the United States was a
residential house in Roslindale,
Massachusetts. The Petitioner had inherited
this real estate from his father prior to
the period of his drug activities.
The Plea Agreement also included a
provision which stated, in pertinent part:
Any monies recovered in this manner
shall be held in escrow in an interest-
bearing account in the name of the
5
OO O_o
Office or by the Clerk of the District
Court. Should it be determined by a
Court of appropriate jurisdiction (e.g.
United States Tax Court), or by
agreement between the parties, that Mr.
McNichols owes any taxes, interest or
penalties to the United States, then
the Office agrees that any of the
recovered monies held in the above-
described escrow account which were
once held on behalf of Mr. McNichols
will be paid to the Internal Revenue
Service in partial satisfaction of any
tax debt owed by Mr. McNichols. Should
it be determined that Mr. McNichols
owes no taxes, interest, or penalties,
the recovered monies shall be forfeited
to the United States. In that case,
Mr. McNichols’ will provide any
assistance requested of him to forfeit
the recovered monies to the United
States.
Id.
On or about February 16, 1988, the
Internal Revenue Service ("IRS") issued a
notice of deficiency to the Petitioner
assessing deficiencies for income tax and
additions to the tax for 1981 and 1982. The
underlying Petition in this matter was filed
in United States Tax Court ("Tax Court") on
May 16, 1988. As of January 26, 1990, the
Petitioner's tax liability totalled over
$2,400,000.00, with the interest and
penalties assessed continuing to accrue.
On November 1, 1991, the Petitioner
filed a Motion for Summary Judgment in the
Tax Court arguing, among other things, that
the imposition of tax and additions to tax
on the property forfeited to the Government
was in violation of the Eighth and Fifth
Amendments. On February 27, 1992, the Tax
Court issued a decision denying the
Petitioner's Summary Judgment Motion. On
August 10, 1992, in accordance with Rule 122
of the Tax Court Rules, this case was
submitted by the parties fully stipulated to
the Honorable Theodore Tannenwald, Jr.
On February 23, 1993, the Tax Court
ordered and determined that there was a
deficiency in income tax due from the
Petitioner for 1981 in the amount of
$251,228.00; that there was an addition to
7
tax due from Petitioner for 1981 under
Section 6653(b) of the Internal Revenue Code
("the Code" or "IRC") in the amount of
$125,614.00; that there was a deficiency in
income tax due from the Petitioner for 1982
in the amount of $453,025.00; and that there
were additions to tax due from the
Petitioner in the amount of $226,513.00
under IRC Section 6653(b)(1), 50% of the
interest due on the deficiency under IRC
Section 6653(b) (2) and $113,256.00 under IRC
Section 6661.
In so holding, the U.S. Tax Court
found, with reference to the issues raised
on appeal, that:
i. the Petitioner had failed to
recognize that the various forfeitures
to which he had been subjected relate
to conviction for crimes separate and
distinct from the charge of fraudulent
tax evasion; and
2. the Petitioner's emphasis on the
absence of proof by the Respondent of
costs for which the additions to tax
for fraud are considered reimbursement
8
was misplaced in that proof of costs is
not a necessary element of the addition
to tax.
The Petitioner's tax liability, interest and
penalties have continued to accrue and total
several million dollars at the present time.
Pursuant to Rule 13 of the Federal
Rules of Appellate Procedure, Petitioner
brought an appeal on June 9, 1993 in the
United States Court of Appeals for the First
Circuit as of right for a review of a
Decision and Order of the Tax Court.
The First Circuit thereupon addressed
the Excessive Fines and Double Jeopardy
issues and rejected both the Eighth and
Fifth Amendment claims. The Court cited a
series of tax cases and also distinguished
United States v. Austin, in holding that no
violation of the proportionality
requirements of the Eighth Amendment had
occurred. The Court stated, in pertinent
part:
First there is an insurmountable wall
of tax cases ... holding that the
government has a right to do precisely
what it has done here. Second the
instant cases is a civil income tax not
a forfeiture case as was Austin. And
Austin does not directly or impliedly
suggest that either its holding or
statements to the effect that a
forfeiture can be an excessive fine
under the Eighth Amendment are or
Should be applicable to any actions
other than forfeitures under 21
U.S.C.§§ 881(a) (4) and (a)(7).
Furthermore, in dismissing the Fifth
Amendment claim, the Court distinguished
United States v. Halper. The Court stated:
We recognize that the language of the
(Halper] Court may play an appealing
tune to one in petitioner's straits but
the case is in apposite. Halper
involved a specific statutory penalty.
The circumstances giving rise to the
double jeopardy violation were unique.
To use Halper as a base for vaulting
into the tax arena would be to misapply
the case and distort its holding.
The final portion of tthe First
Circuit's opinion rejects Petitioner's
argument that public. policy supports
rehabilitation over the pecuniary interests
of the IRS.
10
The Petitioner respectfully prays that
a writ of certiorari to review the judgment
and opinion of the United States Court of
Appeals for the First Circuit, entered in
the above-entitled proceeding on December
29, 1993.
11
ee ee eee —_—
REASONS FOR GRANTING THE WRIT
I.
THE FIRST CIRCUIT'S REJECTION OF THE
VIOLATIONS OF THE EXCESSIVE FINES
CLAUSE OF THE EIGHTH AMENDMENT
CONFLICTS WITH DECISIONS OF THIS
COURT AND OTHER CIRCUITS.
AL THE GOVERNMENT'S CIVIL TAX PROCEEDINGS
ARE INTENDED TO BE A_ FINANCIAL
PUNISHMENT AGAINST THE PETITIONER
1. Tax Proceedings, the Criminal
Prosecution, and Forfeiture, Are "In
Personnem" Sanctions Against Petitioner
In this matter, the Petitioner has been
punished for his crimes and been subject to
a forfeiture of his illegally gained
properties. The Government which has
prosecuted him criminally and now seeks to
gain more through civil sanctions. The
egregious nature of this case argues for a
line to be drawn, a line which was suggested
by this Court in Austin v. United States,
No. 92-6073, 61 U.S.L.W. 4811 (June 28,
1993).
12
The Eighth Amendment to the
Constitution of the United States provides
that: "Excessive bail shall not be
required, nor excessive fines imposed, nor
cruel and unusual punishments inflicted."
The history of the Eighth Amendment clearly
indicates that proportionality, as an
underlying premise, applies to Governmental
forfeitures. See generally, Solem v. Heln,
463 U.S. at 284, 103 S. Ct. 3006-3007 (1983)
("The principle that a punishment should be
proportionate to the crime is deeply-rooted
and frequently repeated in common-law
jurisprudence."). In accordance with this
principle, after a criminal prosecution and
forfeiture, the taxes and the additions to
tax are sanctions by the Government which
are clearly penal in nature and are designed
to be additional punishment imposed upon the
Petitioner. In this context, this Court
should examine carefully the circumstances
13
under which the extraordinary remedy of an
"in personnem" criminal forfeiture is levied
together with civil IRS sanctions.
Two types of statutory forfeitures,
civil and criminal, are the initial premise
upon which an examination must be based. A
civil forfeiture determines, in essence,
that the property involved in the violation
of law is itself "guilty" of such violation
and therefore accountable under the law as
being forfeited to the Government. Criminal
forfeitures, however, are premised on the
theory that the property used or acquired in
an illicit manner by a criminal defendant
should be taken from him as punishment for .
his acts. Each forfeiture proceeding is
prosecuted solely by the Government. See
generally, Rough Justice Note, infra, at
456-460; Smith & Reed, "Civil RICO", » & |
10.05[2], at 10-25 - 10-30 (M. Bender,
1993) (hereinafter referred to as "Civil
14
RICO"), citing, Reed & Gill, "RICO
Forfeitures, Forfeitable ‘Interests', and
the Procedural Process", 62 N.C.L. Rev. 57,
59-69 (1983).
In weighing the punitive impact of the
two types of forfeitures, this Court should
compare civil "in rem" forfeiture statutes,
such as under 21 U.S.C. § 881(a), the drug
laws which were examined in Austin, with the
criminal forfeiture provisions of Section
1963 under RICO. ! The First Circuit in its
' Section 881(a), entitled "Subject
Property”, states, in pertinent part:
The following shall be subject to forfeiture to
the United States and no property right shall
exist in them: ...
(4) All conveyances, including aircraft,
vehicles, or vessels, which are used, or are
intended for use, to transport, or in any
manner facilitate the transportation, sale,
receipt, possession, or concealment of property
described [above] ....
(6) All moneys, negotiable instruments,
securities, or other things of value furnished
or intended to be furnished by any person in
exchange for a _ controlled substance, in
violation of this title, all proceeds traceable
to such an exchange, and all moneys, negotiable
instruments, and securities used or intended to
be used to facilitate any violation of this
15
decision drew technical distinction on this
basis which is inconsistent with the intent
of this Court as described in Austin.
Section 881(a) of Title 21 clearly
focuses the forfeitures within its
provisions on the property, or the "rem",
which became tainted or "guilty" and
therefore subject to forfeiture. In sharp
contrast, the Petitioner's forfeiture
targeted him personally, in a criminal "in
personnem" forfeiture. The Government's
Superseding Indictment charged the
Petitioner under Section 1963(a)(1)'s
title, e*eee
(7) All real property, including any right,
title, and interest ... in the whole of any lot
or tract of land and any appurtenances or
improvements, which is used, or intended to be
used, in any manner or part, to commit, or to
facilitate the commission of, a violation of
this title ....
21 U.S.C. $§ 881(a)(4), (a)(6) & (a)(7).
16
forfeiture provisions. ? The criminal
forfeiture applies to the Petitioner's real
property and personal property, whether
tangible or intangible. Id. § 1963(b)(1) &
(2). As criminal forfeitures and civil tax
liability are both “in personnem", the
Government seeks to punish the Petitioner
beyond Constitutional limits. 3
e Section 1963(a)(1) states, in pertinent
part, as follows:
(a) Whoever violates any provision of section
1962 ... shall forfeit to the United States,
irrespective of any provision of State law -
(1) any interest the person has acquired or
maintained in violation of section 1962; ...
18 U.S.C. § 1963(a)(1).
’ Compare the Congressional intent
evidenced by Section 1963(a), which states, in
pertinent part:
The court, in imposing sentence on such person
shall order, in addition to any other sentence
imposed pursuant to this section, that the
person forfeit to the United States all
property described in this subsection. In lieu
of a fine otherwise authorized by this section,
a defendant who derives profits or other
proceeds from an offense may be fined not more
than twice the gross profits or other proceeds.
Id. $ 1963(a).
17
2. The Tax Proceedings are not
Remedial in Nature under Objective
Criteria as Established by this Court
This case should be considered by this
Court under standards set in Kennedy v.
Mendoza-Martinez, 372 U.S. 44 (1963). In
Mendoza-Martinez, this Court examined seven
(7) factors for a determination of whether
an enactment is deemed a punishment. Id. at
168-69. * Particularly pertinent to this
Court's inquiry is the seventh factor of
Mendoza-Martinez, namely, the excessiveness
. These seven factors, considered by the
Court are as follows:
{1) Whether the sanction involves an
affirmative disability or restraint, {2}
whether it has historically been regarded as
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{,] are all
relevant inquiry....
Id. (footnotes omitted).
18
of the financial sanction in comparison to
available alternatives. Id.
The Court's analysis must focus, per
Mendoza-Martinez and Halper, on: a) the
nature of the sanction, b) the effect of the
criminal prosecution and forfeiture, and c)
the effect of the tax liabilities and
proceedings in this particular case.
Against this backdrop, the Court may then
determine whether the sanction solely serves
a remedial purpose or if it also serves
either the retributive or deterrent purposes
of punishment.
In this case, there is no record that
the IRS had any interest in the Petitioner
before his arrest by the U.S. Attorney's
Office. The U.S. Attorney's Office, with
the Federal Bureau of Investigation and the
Drug Enforcement Agency, investigated,
arrested, charged, and ultimately punished
the Petitioner with imprisonment. He has
19
served the term of his incarceration and has
lost virtually all of his property in the
United States' criminal forfeiture charge.
To assert, at this stage and with this
procedural background, that the United
States is now simply interested in the
remedial activity of tax revenue, is
attenuated at best. On these facts, it is
difficult to conceive of any overriding
interest of the federal government besides
financial gain, or further punishment by
retribution or deterrence. 5° Even the
’ Consider the application of the Excessive
Fines proportionality test, by Justice Scalia, in
, 111 S. Ct. 2680, 2693 (1991),
who described the unique financial incentive for
governmental abuse in forfeiture proceedings,
stating:
There is good reason to be concerned that
fines, uniquely of all punishments, will be
imposed in a measure out of accord with the
penal goals of retribution and deterrence.
Imprisonment, corporal punishment and even
capital punishment cost a State money; fines
are a4 source of revenue. As we have recognized
in the context of other Constitutional
provisions, it makes sense to scrutinize
governmental action more closely when the State
stands to benefit.
20
recognized remedial goals of making the
Government whole for its costs and expenses
for pursuing the Petitioner is certainly
reduced given the IRS’ extremely limited
role in the criminal prosecution of the
Petitioner and in the brevity of the Tax
Court proceedings, which were fully
stipulated.
Given the Petitioner's present
impoverishment, this action merely acts as a
financial albatross around his neck for
years to come, which liability cannot even
be discharged through personal bankruptcy.
Knowing that the Petitioner cannot possibly
discharge a multi-million dollar liability
and that it can never become "whole" for its
expenses, the Respondent clearly seeks only
retribution. On this record, the tax
id. at 2693 n.9. Given the IRS's history of
targeting revenue sources, such analysis applies with
even greater weight when a criminal forfeiture is
added to IRS tax liens, penalties, and interest.
21
proceedings in the U.S. Tax Court cannot
fairly be characterized as necessarily
accomplishing any particularized remedial
purpose.
B. AFTER A CRIMINAL FORFEITURE, THE
GOVERNMENT'S TAX AND ADDITIONS TO TAX
ARE GROSSLY DISPROPORTIONATE PUNISHMENT
UNDER THE EIGHTH AMENDMENT
1. This Court's Dicta to the Courts of
Appeal to Consider “Excessiveness"
Factors under the Eighth Amendment
In Austin v. United States, this court
examined the application of the Excessive
Fines Clause to a civil "in rem" drug
forfeiture proceeding and declined a request
by the appellant in that action to establish
a multi-factor test for "excessiveness" in
an Eighth Amendment. © In refusing to set
6 The Austin Court noted that in Halper, it
focused on whether the sanction in the particular
case served a punitive objective.
Austin, supra, at 4816 n.14. It stated, that Halper,
however, involved a fixed-penalty provision, namely
$2,000 per violation, which typically will do little
more than make the Government whole. The value of
forfeitures, however, "can vary so dramatically that
any relationship between the Government's actual
costs and the amount of the sanction is merely
coincidental. Id., citing, United States v. Ward,
22
a standard, this Court indicated that it
would be "prudent" for the lower courts
first have an Opportunity to consider the
issue. ’
The Petitioner requested that the First
Circuit consider this proposition and
establish factors for "“excessiveness".
While there is limited case law in this
area, the Excessive Fines Clause appeared
most appropriate for a proportionality
analysis of the circumstances of this
action.
Although the Solem Court's factors,
previously described, are an appropriate
starting point for a proportionality
448 U.S. 242, 254 (1980). The Court indicated
further that even "in rem” forfeitures typically
serve more than just remedial goals, but also act in
the objectives of punishment and deterrence.
7 In Austin, Justice Scalia suggested that
the sole measure of a forfeiture's excessiveness is
the relationship between the forfeited property and
the offense. The majority noted that this was not the
sole factor for the Courts of Appeal to consider.
Vv . Supra, at 4816-17 & n.15.
23
analysis, they seem to be most applicable to
criminal prison sentences. ® As argued by
the appellant in Austin, a review of the
Courts of Appeals in the Second, Third and
Ninth Circuits have examined the Eighth
Amendment's application to financial
punishments, such as forfeitures and tax
penalties.
s In Solem _v. Helm, the United States
Supreme Court addressed the proportionality
requirement of the Eighth Amendment. ’
463 U.S. 277, 284 (1983)("The principle that a
punishment should be proportionate to the crime is
deeply rooted and frequently repeated in common-law
jurisprudence.").
The Solem Court held as follows:
a court's proportionality analysis under the
Eighth Amendment should be guided by objective
criteria, including (i) the gravity of the
offense and the harshness of the penalty; (ii)
the sentences imposed on other criminals in the
same jurisdiction; and (iii) the sentences
imposed for commission of the same crime in
other jurisdictions.
Id. at 292. In determining the gravity of the
offense, the Solem Court suggested that the reviewing
court consider the harm caused or threatened to the
victim of society and noted that “nonviolent crimes
are less serious than crimes marked by violence or
the threat of violence.” Id.
24
~ Nei nail tata Mlle 8s tks PR a et Le ea Paella Ds Bate et | Ret alie
MA nth nb
(2a Cir. 1992) (hereinafter cited as
"Whalers Cove"), the Second Circuit examined
an appeal in which a judgment of forfeiture
under 21 U.S.C. § 881(a) deprived the
appellant of his residence. The Whalers
Cove Court read Halper to apply and stated
that "forfeitures that are overwhelmingly
disproportionate to the value of the offense
must be classified as punishment unless the
forfeitures are shown to serve articulated,
legitimate civil purposes." Id. at 32-33.
It held that,
Where the seized property is not itself
an instrumentality of crime, however,
and its total value is overwhelmingly
disproportionate to the value of
controlled substances involved in the
statutory violation, there is a
rebuttable presumption that the
forfeiture is punitive in nature.
25
Id. at 36 (emphasis added). % In Whalers
Cove, since the value of the interest lost
to the Government was nearly 300 times the
value of the drugs, the Second Circuit
found, as a matter of law, "that the
forfeiture is overwhelmingly
disproportionate compared to the value of
the relevant drug transactions, and that
therefore a rebuttable presumption that the
forfeiture is punitive in nature is
created." Id. at 37.
In United States v. Busher, 817 F.2d
1409 (9th Cir. 1987), the Ninth Circuit
examined a criminal forfeiture under 18
U.S.C. § 1963, the RICO statute. In its
The Court noted that
While we are extremely sympathetic to the need
to address our nation's serious narcotics
problems, we do not believe that a
disproportionately large forfeiture can be
reasonably justified as a civil fine as opposed
to punishment by placing full responsibility
for the “war on drugs" on the shoulders of
every individual claimant.
Id. at 37.
26
analysis, 1° the court stated, that "the
Eighth Amendment, as interpreted in Solen,
embodies fluid concepts that vary in
application with the circumstances of each
case...." Id. at 1415 (citations omitted).
The Court also identified several
additional factors to the Solem factors to
be considered, including the following: a)
the magnitude of the harm caused by the
defendant's conduct; b) "the dollar volume
of the loss caused"; c) whether physical
harm to persons was inflicted, threatened or
risked; d) whether the crime had severe
collateral consequences, e.g., drug
addiction; e) the benefit reaped by the
convicted defendant; f) the defendant's
" The Busher Court held that the forfeiture
under § 1963(a) of RICO was "clearly punishment as
that term is used in the Eighth Amendment.” Id. at
1413. It held that where, as here, plaintiff makes
a prima facie showing that the forfeiture may be
excessive, the District Court must make a
determination, based upon appropriate findings, that
the interest forfeited is not 80 @grossly
disproportionate to the offense committed as to
violate the Eighth Amendment. id. at 1415.
27
ee
0 le
DE ID ST eS ne Pee NP ee ee ee See ee ee eer a
oa
?
state of mind and his motive in committing
the crime; and g) the extent to which a RICO
enterprise operated by the criminal
defendant is infected by criminal conduct.
11 3q.
The Court of Appeals remanded and
instructed the District Court to determine
whether the forfeiture was so
disproportionate to the offense as to
violate the Eighth Amendment. Upon such a
determination, it stated that the District
Court then
" The Busher Court stated:
The Court should be reluctant to order
forfeiture of a defendant's entire interest in
an enterprise that is essentially legitimate
where he has committed relatively minor RICO
violations not central to the conduct of the
business and resulting in relatively little
illegal gain in proportion to its size and
legitimate income. Conversely, if illegal
activity accounts for almost all of an
enterprise's activity, or almost entirely with
ill-gotten funds, it would not normally violate
the Eighth Amendment to order forfeiture of all
of the defendant's interest in that enterprise.
28
ey ee oe ee
Clete Rrra Chai hime ag oS
hE Sa MB Sainte cas Sa:
must limit the forfeiture to such
portion of the interest as it deems
consistent with these principles; or it
may condition the forfeiture upon
payment of such sum or relinquishment
of such other property as seems just
under the circumstances; or it may
limit or eliminate other punishment it
would otherwise impose so as to bring
the total sanction within
Constitutional boundaries.
Id. at 1416.
Finally, in United States v. Sarbello,
985 F.2d 716 (3d Cir. 1993), the Third
Circuit held that the District Court "may
reduce the statutory penalty, a mandatory
100% statutory criminal forfeiture, in order
to conform to the Eighth Amendment." Id. at
724-25. The Court further held that the
Appellant had established a prima facie
showing of an Eighth Amendment violation,
which justified a remand for "more than a
summary finding as to whether the forfeiture
provision of the statute as applied to
Sarbello's interest in the RICO enterprise
is either an unconstitutionally ‘cruel and
29
es
- ™ —_—
lai ts 6a oh
unusual punishment’ or an ‘excessive fine'."
id.
The Sarbello Court pointed out that the
Solem standard may have been "placed in
question" by the Supreme Court's decision in
Harmelin v. Michigan. It stated, however,
that the "Eighth Amendment requires that a
criminal RICO forfeiture order be justly
proportioned to the charged offense." Id.
at 723-26. In its holding, the Sarbello
Court held that "f{ujpon a prima facie
showing of gross disproportionality by the
defendant, the Eighth Amendment requires
more than a conclusory finding that [a] 100%
forfeiture is within constitutional limits."
Id. at 725.
The Petitioner requested that the First
Circuit consider the above decision for a
standard applicable to the instant case.
Instead, the First Circuit relied upon one
case from this Court's decision in Helvering
30
v. Mitchell, 303 U.S. 391 (1938) and certain
tax cases. Helvering v. Mitchell involved
the imposition of a 50% civil penalty to one
acquitted on a charge of a wilful attempt to
evade taxes. Id. at 401 ("the addition to
tax for fraud is imposed ‘primarily as a
safeguard for the protection of the revenue
and to reimburse the government for the
heavy expense in the investigation and the
loss resulting from the taxpayer's
fraud.'"); see also Karpa v. C.I.R., 909
F.2d 784 (4th Cir. 1990); Traficant v.
C.I1.R., 884 F.2d 258 (6th Cir. 1990); Wood
v. United States, 863 F.2d 417 (5th Cir.
1989); Kenney v. C.I.R., 111 F.2d 374 (5th
Cir. 1940).
Helvering is inapposite, however, for a
number of reasons. First and most
importantly, the Petitioner has already
forfeited over $1,000,000.00 to the
Government to satisfy costs and delinquent
31
Oe
clade a A eon ow rt allem ots as ls
+ Bret “
oS IRS ne at ile ale Ol conte Pires
tax payments. Secondly, Petitioner was not
acquitted on his criminal charges and has
served a substantial prison sentence as
punishment for his crime. Petitioner's
underlying offense was not related to tax
evasion but to drug trafficking. The
Excessive Fines Clause of the Eighth
Amendment must be implicated in these
circumstances.
2. The First Circuit Refused to
Consider Factors Setting out
“Excessiveness" under the Eighth
Amendment
As in Austin, the Petitioner requested
that the First Circuit establish factors in
applying the Excessive Fines Clause to
forfeitures and subsequent civil tax
proceedings of a punitive nature. The
recommendation of these factors was designed
to establish, at a threshold basis, clarity
of Eighth Amendment financial determinations
by the Court, and predictability of the
32
aay
en ee RE Fae oy
ee ee
o Se
application of forfeitures/tax proceedings
to defendants. The Court of Appeals,
however, rejected this consideration.
The Petitioner contended that the First
Circuit establish a prima facie or threshold
determination that a forfeiture/ tax
liability falls within Eighth Amendment
considerations if one (1) of the following
two (2) conditions are met:
1) if the value of the forfeiture/tax
liability is excessive as compared to
the criminal behavior involved of the
owner; or
2) if the value of the forfeiture/tax
liability is excessive as compared to
the financial condition of the owner.
Second, the Petitioner argued that upon
a prima facie finding of excessiveness, the
Government is to have the burden of
demonstrating that the aggregate of the
forfeiture/tax liability was not "grossly
disproportionate" so as to violate the
Excessive Fines Clause.
33
RE RE OMS nye! oak Pr en CNR PR a rs rs
“~ toe cyl Re
In considering the "grossly
disproportionate" standard on financial
punishments, the Petitioner respectfully
suggested to the First Circuit that the
following test be applied: A) the extent of
the Government's investigation, prosecution,
and aggregate cost and resource allocation;
and B) the defendant's relevant property and
financial information. The Petitioner noted
that Court of Appeals should determine that
it is per se grossly disproportionate under
the Excessive Fines Clause of the Eighth
Amendment if the aggregate of assets seized
and/or liability incurred exceeds 100% of
the defendant's assets.
In every respect, the First Circuit
rejected the Petitioner's contention and
failed to consider the guidelines on
forfeitures set by the other Courts of
Appeal.
34
3. The Government has Exceeded
Proportionality Requirements of
the Eighth Amendment by its
Forfeiture + Tax Proceedings
The Petitioner respectfully suggests
that the instant case meets the threshold
inquiry and is prima _ facie "grossly
disproportionate" under the Eighth
Amendment. Furthermore, under a proposed
100% disproportionality test, the instant
case is per se "excessive".
In reviewing the proportionality of the
sanctions at issue herein, the Petitioner
respectfully submits that this Court should
initially consider the extent of the
property subject to the criminal forfeiture.
The Government has already seized assets
from the Petitioner of over $1,200,000.00 of
personal and real property, a listing of
which is identified in the Indictment.
Furthermore, since this forfeiture is "in
personnem", its impact is not closed. The
35
2 wigktig
Government conceivably could seek other
assets, if such even existed, and attempt to
trace them to the Petitioner's illicit
activities. The forfeiture has eliminated
virtually all of the Petitioner's property,
leaving him and his family with little to
start their lives over with after the end of
his incarceration.
But, instead of having a "zero net
worth", the Government has imposed a tax,
along with interest, fines and penalties,
totalling well over several millions of
‘dollars. The Petitioner cannot discharge
this liability in bankruptcy. He must carry
it with him for at least ten (10) years,
whether it is collectible or not. It is
currently being levied on the only property
which has not been forfeited to the
Government, the house which he inherited
from his father. Although the Petitioner
does not dispute the serious nature of his
36
&
}
4
€
?
ee
crime, he submits that such a multi-million
dollar penalty is disproportionate.
Public policy argues against the
impoverishment of criminal defendants, and
the Government must not apply, on an
inconsistent basis, criminal and monetary
sanctions against its citizens. The
Petitioner's ability to eliminate such debt
is essentially nonexistent and he thus
becomes virtually foreclosed from ever
reentering society as a productive member.
Unquestionably, public policy argues on
behalf of the Petitioner and against the
Government's levying of an additional
sanction in this case.
37
Baran tee
i lle Ug P ay mellem
It.
THE FIRST CIRCUIT'S REJECTION OF THE
VIOLATIONS OF THE DOUBLE JEOPARDY
CLAUSE OF THE FIFTH AMENDMENT
CONFLICTS WITH THE HALPER COURT DECISION.
The Petitioner contends that the
Supreme Court's language in United States v.
Halper, 109 S. Ct. 1892 (1989) is on point
to the instant facts. In Halper, this Court
noted that the labels "criminal" and "civil"
are not of critical importance. Id. at
1901; see Hicks v. Feiock, 108 S. Ct. 1423
(1988) ("the labels affixed either to the
proceeding or to the relief imposed ... are
not controlling and will not be allowed to
defeat the applicable protections of federal
constitutional law"). Thus, it stated that
the "determination of whether a given civil
sanction constitutes punishment in the
relevant sense requires a particularized
assessment of the penalty imposed and the
purposes that the penalty may fairly be said
38
to serve." Id. at 1901 & n.7 (The Court
notes that the determination of whether a
sanction constitutes punishment is not from
the defendant's perspective, citing, United
States ex rel. Marcus v. Hess, 317 U.S. 537,
551, 63 S. Ct. 379, 387 (1943)).
As the Halper Court noted, subsequent
civil proceedings constitute punishment when
the civil sanction, as applied in a
particular case, serves the goal or
objective of punishing a defendant. Id. at
1902. Justice Blackmun, writing for the
majority, went on to state:
These goals are familiar. We have
recognized in other contexts that
punishment serves the twin aims of
retribution and deterrence....
Furthermore, '(rjetribution and
deterrence are not legitimate
nonpunitive governmental objectives!
+++» From these premises, it follows
that a civil sanction that cannot
fairly be said to solely to serve a
remedial purpose, but rather can be
explained only as also serving either
retributive or deterrent purposes, is
punishment, as we have come to
understand the term....
39
Id. The Court went on to hold that under
the Double Jeopardy Clause, a defendant who
had already been punished in a criminal
prosecution may not be subjected to an
additional civil sanction, which was
designed as retribution or as a deterrent.
Id.
The Halper Court held that an element
of “rough justice" may be achieved when a
sanction is fixed compensates the United
States for its costs. Id. at 1902. As
Justice Blackmun noted,
{[wjhere a defendant previously has
sustained a criminal penalty and the
civil penalty sought bears no rational
relation to the goal of compensating
the Government for its loss, but rather
appears to qualify as 'punishment' in
the plain meaning of the word, then the
defendant is entitled to damages and
costs to determine if the penalty
sought in fact constitutes a second
punishment. We must leave to the trial
court the discretion to determine on
the basis of such an accounting, the
size of the civil sanction the
Government may receive without crossing
the line between remedy and punishment.
40
Id.; cf. Morris v. Mathews, 475 U.s. 237,
i fe a: - 1032 (1986); Peterson v.
Richardson, 370 F. Supp. 1259, 1267 (N.D.
Tex. 1973), aff'd, 508 F.2d 45 (5th Cir.),
cert. denied, 423 U.S. 830, 96 S. Ct. 50
(1975).
Without specifically citing to the
Eighth Amendment in its holding, the Halper
Court found "tremendous disparity" between
the Government's actual costs and the civil
penalty imposed. Id. at 1903. It indicated
that a defendant is protected from a civil
sanction which is "so disproportionate" to
the damages caused." Id.
Such circumstances as present in the
Halper case are directly on point in this
action. With a limited exception, the
Petitioner has previously forfeited all of
his property, real or personal. He is
currently seeking to protect his only
remaining asset, the home inherited from his
41
en es a ee PO Np ae Sa = se 08 > mm, wee oth ie fs
father. The Petitioner has been subject to
a rigorous tax proceeding by the Government,
which is based completely on the same
conduct. Knowing the Petitioner's
impoverishment, the Government's policy
objective can only be considered as
retribution and further punishment. Given
that the Petitioner has recently left prison
and is seeking to rejoin society, the United
States seeks to impose a burdensome tax
liability which will effectively force him
and his family into poverty for several
years. The Government's objective of
Placing a multi-million dollar liability
upon the Petitioner, while having no
likelihood of collecting upon it, is
constitutionally impermissible.
This Court can do no less for the Petitioner
in the matter before it. See generally,
Brickey, RICO Forfeiture as "Excessive
s" " + ; _. 35
we
Vill. L. Rev. 905, 923-24 (1990); Note,
teiied era: sae Cts eens
* " "
2. ’
14 Hastings Const. L.Q. 451 (1987).
CONCLUSION
The Petitioner Thomas H. McNichols
respectfully prays that a writ of certiorari
to review the judgment and Opinion of the
United States Court of Appeals for the First
Circuit.
Respectfully submitted,
Petitioner-Appellant,
Thomas H. McNichols
By:
M. Giordano, Esq.
EFS & GIORDANO, P.C.
One Washington Mall
Boston, MA 02108
Dated: March 25, 1994
43
UNITED STATES COURT OF APPEALS
Vor the First Circuit
No. 93-1622
THOMAS H. MCNICHOLS,
Petitioner, Appellant,
Vv.
COMMISSIONER OF INTERNAL REVENUE,
Respondent, Appellee.
APPEAL FROM THE UNITED STATES TAX COURT
(Hon. Theodore Tannenwald, Jr., Tax Court
Judge }
Before
Selya, Circuit Judge,
Bownes, Senior Circuit Judge,
Cyr, Circuit Judge.
Philip M. Giordano, with whom Linda L.
Trent, and Ricklefs & Giordano were on brief
for petitioner.
, Counselor to the
Assistant Attorney General, with whom
Michael _L. Paup, Acting Assistant Attorney
General, Gary R. Allen, Kenneth L. Greene,
and Alice L. Ronk, Attorneys, Tax Division,
Department of Justice, were on brief for
respondent.
December 29, 1993
BOWNES, Senior Circuit Judge. This is
an appeal from a decision of the tax court
holding the petitioner civilly liable for
deficiencies in income tax for the years
1981 and 1982. The tax court also found
petitioner liable for additions to the tax
due. The amounts are substantial, but the
computations are not contested. The tax
court brushed aside petitioner’s main
defense, that imposition of the deficiencies
and additions to tax violates the
proscription against excessive fines of the
Eighth Amendment and violates the Double
Jeopardy protection against multiple
punishments under the Fifth Amendment. That
contention is the main issue before us.
I.
Petitioner is a convicted drug dealer.
In October 1987 petitioner was indicted
along with Frederick A. Carroll on a number
of criminal charges: distribution of and
conspiracy to distribute marijuana;
violations of the Racketeering Influenced
and Corrupt Organizations Act (RICO), 18
U.S.C. § 162 and 163; conspiracy to defraud
the United States; and subscribing to false
tax returns.
In February of 1988 the Internal
Revenue Service sent a notice of deficiency
to petitioner assessing deficiencies in
income and additions to tax for the years
1981 and 1982. The interest on the tax and
additions thereto continue to accrue. As of
January 26, 1990, petitioner’s tax liability
totalled $2,422.963.94.
On June 20, 1988, petitioner entered
into a plea agreement with the United States
Attorney whereby he agreed to plead guilty
to all the counts in the indictment in which
he was named. He also agreed to forfeit all
right, title and interest in the properties
- 3-
described in the indictment. Petitioner
claims that the value of the forfeited
property is “approximately $1,200,000."
(Brief at 3.) The pertinent provisions of
the plea agreement provide:
7. Mr. McNichols agrees to relinquish
all right, title or interest in any monies
held in any foreign bank accounts (or those
located in St. thomas, United States Virgin
Islands) held in his name or on his behalf,
or on behalf of any entity as to which he is
the true beneficiary. (The monies so held
on behalf of Mr. McNichols and Thomas H.
McNichols are believed to be in excess of
$600,000.00). Mr. McNichols further agrees
promptly to take all steps necessary to
place any of the above-described monies
within the custody and control of the United
States. Mr. McNichols also agrees to hold
harmless any person, corporation or bank
which assists the United States in recovery
such monies.
Any monies recovered in this manner
shall be held in escrow in an interest-
bearing account in the name of the Office or
by the Clerk of the District Court. Should
it be determined by a court of appropriate
jurisdiction (e.g. United States Tax Court),
or by agreement between the parties, that
Mr. McNichols owes any taxes, interest or
penalties to the United States, then the
Office agrees that any of the recovered
monies held in the above-described escrow
account which were once held on behalf of
Mr. McNichols will be paid to the Internal
Revenue Service in partial satisfaction of
any tax debt owed by Mr. McNichols. Should
it be determined that Mr. McNicols owes no
taxes, interest, or penalties, the recovered
monies shall be forfeited to the United
States. In that case, Mr. McNichols will
provide any assistance requested of him to
forfeit the recovered monies to the United
States.
8. The United States Attorney’s Office
makes no promises with respect to any civil
tax liability incurred by Mr. McNichols
(with the exception of the promise made in
paragraph 7 above). To the extent permitted
under all applicable laws and regulations,
the United States Attorney’s Office will
recommend that the Internal Revenue Service
not seek to satisfy [sic] any tax assessment
by levying and forfeiting the house and real
property at 12 Edgemont Street, Boston,
Massachusetts. The United States does not
in any way represent that it can prevent the
Internal Revenue Service from levying on the
above-described property.
On October 21, a judgment of conviction
was entered. Pursuant to that judgment
petitioner was sentenced to ten years
incarceration and is now serving that
sentence.
The case before the tax court was
submitted fully stipulated along with joint
exhibits. Taxpayer conceded: that
"(djuring the taxable years 1981 and 1982,
(he) derived taxable income and incurred
costs from the importation and sale of
marijuana"; that he "did not report any of
the taxable income received or costs
incurred from the sale of marijuana... on
his federal income tax returns for {the 1981
and 1982) taxable years"; and that "(ijn
connection with {his} illegal drug
activities [he] did not maintain and,
therefore, could not submit complete and
accurate books and records of his income
producing activities for the taxable years
1981 and 1982 as required by the applicable
provisions of the Internal Revenue Code and
the regulations promulgated thereunder." In
addition, the taxpayer agreed that he had
“fraudulently, and with intent to evade tax
omitted taxable income from his federal tax
returns for the taxable income from his
federal tax returns for the taxable years
1981 and 1982," and that "[{a] part of the
underpayments of tax which was required to
be shown in his federal income tax returns
for the taxable years 1981 and 1982 was due
to fraud." Taxpayer also stipulated that he
had purchased two shell companies, opened
various bank accounts in behalf of these
companies, and had "deposited, or caused to
be deposited" over $1,720,565 into these
companies’ bank accounts during 1981 and
1982.
Based on the stipulated facts the tax
court found the petitioner liable for tax
deficiencies and additions thereto for the
years 1981 and 1982 in the total amount of
$1,169,699.00. This appeal followed. We
affirn.
II.
Petitioner contends that the imposition
by the IRS of the tax deficiencies and
-7-
‘additions thereto on property already
forfeited to the government constitutes an
excessive fine under the Eighth Amendment
and double jeopardy under the Fifth
Amendment.
Although it could be argued that under
the plea agreemert petitioner agreed to
accept the assessment of income taxes due we
will do, as the parties have done, and
address the merits of petitioner’s appeal.
Petitioner relies primarily on two recent
Supreme Court cases, Austin v. United
States, U.S. » 423 8. CO. BOCA
(1993) and United States v. Halper, 490 U.S.
435 (1989).
Austin was a forfeiture case. Austin
was indicted and subsequently pleaded guilty
in a South Dakota state court to one count
of possessing cocaine and was sentenced to
seven years imprisonment. Shortly after he
pled guilty the United States filed a
forfeiture action under 21 U.S.C.
$§$881(a)(4) and (a)(7) in the United States
District Court for South Dakota seeking
forfeiture of Austin’s mobile home and auto
body shop. Austin, 113 S. Ct. at 2803. The
Court found that the Excessive Fines Clause
of the Eighth Amendment was not limited to
criminal actions. It phrased the issue as
follows: "the question is not, as the
United States would have it, whether
forfeiture under §§881 (a)(4) and (a)(7) is
civil or criminal, but rather whether it is
punishment." Id. at 2806. The Court found
that historically forfeiture was viewed as
punishment. It then found that because
Congress "has chosen to tie forfeiture
directly to the commission of drug offenses"
the forfeiture statutes were punitive in
nature, and were "subject to the limitations
of the Eighth Amendment’s Excessive Fines
Clause." Jd. at 2812. The Court refused
to establish a multifactor test for
determining whether a forfeiture is
constitutionally excessive, but left that
for the lower courts to work out in the
first instance. Id.
Using Austin as a springboard,
petitioner argues that the additions to the
income tax were punitive, and that, by
seizing his property and then subjecting
that same property to an income tax along
with penalties and interest, the IRS has
violated the proportionality requirements of
the Eighth Amendment. We decline to take
the giant leap that petitioner urges for
several reasons. First there is an
insurmountable wall of tax cases, discussed
infra, holding that the government has a
right to do precisely what it has done here.
Second, the instant case is a civil income
tax not a forfeiture case as was Austin.
And Austin does not directly or impliedly
suggest that either its holding’ or
statements to the effect that a forfeiture
can be an excessive fine under the Eighth
Amendment are or should be applicable to any
actions other than forfeitures under 21
U.S.C. §§881(a)(4) and (a)(7). Nor, under
the facts of this case, do we perceive any
reason for applying the principles of Austin
to petitioner. Petitioner agreed to the
forfeiture. He stipulated to the tax court
that he derived unreported taxable income in
1981 and 9182 from the sale of marijuana.
The plea agreement warned petitioner that
income tax might be due. Indeed, prior to
signing the plea agreement, petitioner was
sent a notice of deficiency assessing taxes
and penalties for the years 1981 and 1982.
The Supreme Court in James v. United States,
366 U.S. 213 (1961) made an observation that
applies to petitioner:
- ili -
We should not continue to confound
confusion, particularly when the result
would be perpetuate the injustice of
relieving embezzlers of the duty of paying
income taxes on the money they enrich
themselves with through theft while honest
people pay their taxes on every conceivable
type of income.
id. at 221. We find no Eighth Amendment
violations.
Petitioner’s claim that tthe tax
assessment, including penalties, violates
the Fifth Amendment proscription against
multiple punishments is based on United
States v. Halper. In Halper, defendant was
the manager of a company which provided
medical services for patients eligible for
medicare benefits. He submitted sixty-five
separate false claims for services rendered
to Blue Cross and Blue Shield of New York
City. Blue Cross overpaid Halper’s company
a total of $585 and passed the overcharges
along to the federal government. Halper was
indicated on sixty-five counts of violating
the False Claims Act, 18 U.S.C. §287. He
was convicted on all sixty-five counts as
well as on sixteen counts of mail fraud. He
was sentenced to imprisonment for two years
and fined $5,000.
The government then sued Halper under
the civil False Claims Act. Halper’s
criminal conviction was, of course,
sufficient to ground civil liability. Under
the provisions of the statute, Halper was
subject to a penalty of more than $130,000.
The district court refused to assess such a
penalty, holding that to do so would result
in punishment barred by the double jeopardy
clause. The Supreme Court affirmed. The
Court pointed out that the double jeopardy
protection was "intrinsically personal."
Its violation can be identified only by
assessing the character of the actual
sanctions imposed on the individual by the
machinery of the state.
In making this assessment, the labels
"criminal" and "civil" are not of paramount
importance. It is commonly understood that
civil proceedings may advance punitive as
well as remedial goals, and, conversely,
- 13 -
that both punitive and remedial goals may be
served by criminal penalties.
United States v. Halper, 490 U.S. at 447.
The Court went on to say:
To that end, the determination whether
a given civil sanction constitutes
punishment in the relevant sense requires a
particularized assessment of the penalty
imposed and the purposes that the penalty
may fairly be said to serve. Simply put, a
civil as well as a criminal sanction
constitutes punishment when the sanction as
applied in the individual case serves the
goals of punishment.
Id. at 448.
We recognize that the language of the
Court may play an appealing tune to one in
petitioner’s straits but the case is
inapposite. Halper involved a_ specific
statutory penalty. The circumstances giving
rise to the double jeopardy violation were
unique. To use Halper as a base for
vaulting into the tax arena would be to
misapply the case and distort its holding.
We hold that there was no double jeopardy violation.
- 14 -
Petitioner has also cited to bits and
pieces of a number of other cases in an
effort to bolster his arguments. We have
examined them all and find they do not
advance his claims by even one step.
Itt.
We now outline the wall of cases
that bars the way to any defense by
petitioner to the judgment of the Tax Court.
Helvering v. Mitchell, 303 U.S. 391 (1938),
is the foundation stone for the wall. The
Court held that an acquittal on the criminal
charge of a wilful attempt to evade taxes
does not bar assessment and collection of
the 50% civil penalty. The Court rejected
defendant’s contention that the 50% addition
to the tax was not a tax but a criminal
penalty intended as punishment. Id. at
399-400. It held that the 50% addition was
remedial:
The remedial character of sanctions
imposing additions to a tax has been made
clear by this Court in passing upon similar
legislation. They are provided primarily as
a safeguard for the protection of the
revenue and to reimburse the Government for
the heavy expenses of investigation and the
loss resulting from the taxpayer’s fraud.
Id. at 401. (Footnote omitted.)
In James v. United States, the Court
stated:
When a taxpayer acquires earnings,
lawfully or unlawfully, without the
consensual recognition, express or implied,
of an obligation to repay and without
restriction as to their disposition, "he has
received income which he is required to
return, even though it may still be claimed
that he is not entitled to retain the money,
and even though he may still be adjudged
liable to restore its equivalent." North
American Oil v. Brunet, supra, at p. 424.
366 U.S. at 219. Further, the court noted
that Congress did not intend to treat a law-
breaking taxpayer differently from a law-
abiding one. Id. at 220.
There are also some significant circuit
court cases. In Karpa v. C.I.R., 90 F.2d
784 (4th Cir. 1990), the Fourth Circuit held
that the retroactive imposition of a tax
- 16 -
penalty for substantial understatement of
tax liability did not violate the ex post
facto clause of the Constitution. After
discussing Halper, the court ruled that the
increased tax penalty was a civil sanction
and therefore the ex post facto prohibition
was not implicated. Karpa, 909 F.2d at 788.
In Traficant v. C.I.R., 884 F.2d 258
(6th Cir. 1989), the petitioner argued that
his prior acquittal on criminal charges of
bribery precluded the tax court from finding
that he took bribes. Relying heavily on
Helvering, the Sixth Circuit upheld the tax
court’s ruling that neither issue preclusion
nor double jeopardy foreclosed such a
finding because the tax case was a civil
proceeding and the burden of proof different
that the one required in a criminal case.
Wood v. United States, 863 F.2d 417
(5th Cir. 1989), is very similar to the case
at bar. As here, the IRS had imposed a tax
-17-
on proceeds that had been forfeited to the
government. Wood argued that this was
"fundamentally unfair." In words that are
directly applicable here, the court rejected
Wood’s claim:
There is no dispute that Wood exercised
complete dominion and control over the
proceeds from the drug smuggling. It does
not matter that by operation of law all
right and title vested in the government as
soon as the money was earned.
The legal test for taxable income is
dominion and control, and that test in its
terms excludes consideration of what happens
to income after it flows from the taxpayer’s
hands.
Id. at 419.
Our final case is Kenney v. C.I.R., 111
F.2d 374 (5th Cir. 1940). Its holding
speaks for itself:
The imposition of civil fraud penalties
is not prohibited by the Fifth Amendment to
the Constitution by reason of the
petitioner’s having previously plead guilty
to such indictment, because the penalty
imposed by Section 293(b) is a civil and not
a
‘
ee
ae
6 RARE IES
a criminal penalty. Helvering v. Mitchell,
303 U.S. 391, 58 S.Ct. 630, 82 L.Ed. 917.
Id. at 375-76.
Iv.
As a final issue, petitioner argues
that the public policy that supports
rehabilitation outweighs the pecuniary
interest of the IRS. It is difficult to
understand that this means and how it is
relevant. We can only conjecture that
petitioner suggests that if he does not have
to pay income tax and additions thereto on
his ill-gotten gains, he will be better
prepared to again live in the style that his
drug dealing made possible after he finishes
his prison term. This is somewhat akin to
the defendant who had killed both his
parents asking mercy from the court because
he was an orphan.
- 19 -
ji
CERTIFICATE OF SERVICE
I, Philip M. Giordano, Esq., attorney
for the Petitioner-Appellant, Thomas H.
McNichols, do hereby certify that on this
25th day of March, 1994, I caused to be
served Petitioner Thomas H. McNichols'
Petition For a Writ of Certiorari to the
United States Court of Appeals for the First
Circuit, by causing to be delivered, one (1)
true copy of same, by first class nail,
postage prepaid, to Gary Allen, Esquire, and
Alice Ronk, Esquire, United States
Department of Justice, Tax Division, P.O.
Box 502, Washington, D.C. 20044.
One Washington Mall
Boston, MA 02108
(617) 722-0222
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.