Opposition Brief — Louis v. Commissioner

—/ i

No. 99-543 :

AILS SLL EASE SEL CREEL LA LISS OLD EIS IE LILLE SE LALB BE EDD BAM SEBEL LLIN PRESALE

Jn the Supreme Court of the Gnited States

JOHN R. LOUIS, PETITIONER

COMMISSIONER OF INTERNAL REVENUE

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

BRIEF FOR THE RESPONDENT IN OPPOSITION

SETH P. WAXMAN

Solicitor General

Counsel of Record

LORETTA C. ARGRETT

Assistant Attorney General

DAVID I. PINCUS

CAROL BARTHEL

Attorneys

Department of Justice

Washington, D.C. 20530-0001

(202) 514-2217

QUESTION PRESENTED

Whether the Double Jeopardy Clause or the Ex-

cessive Fines Clause of the Constitution precludes the

assessment of an addition to tax for civil fraud on an

individual who previously has been convicted and

sentenced for criminal tax offenses with respect to the

same tax years.

TABLE OF CONTENTS

Page

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TABLE OF AUTHORITIES

Cases:

Ames v. Commissioner, 112 T.C. 304 (1999) .................. &

Austin v. United States, 509 U.S. 602 (1998) vocccccccccccccese-. 1]

Bickham Lincoln-Mercury, Inc. v. United States,

168 F.3d 790 (Sth Cir. 1999) uu. .ccccceccscececcesesesssssescesesesseees &

Blockburger v. United States, 284 U.S. 299 (1982) .......... 6

Department of Revenue v. Kurth Ranch, 511 U.S. 767

RUUD stisseinsihsintetdiensiimninbacspiohiscsahaalechntentaadletaideiasiatiauindiocdsceuess 7,8,9

Helvering v. Mitchell, 303 U.S. 391 (1988) ............. 3, 5, 6, 7, 8,

9, 10, 11, 12-13

Hudson v. United States, 522 U.S. 93 (1997) coco. 4,6,7,8

1 & O Publishing Co. v. Commissioner, 131 F.3d 1314

GN i ED detensteitceateine cderonichimn Saige eieteitininianpiaiieieres 7-%

Kennedy v. Mendoza-Martinez, 372 U.S. 144 (1963) ...... 4,8

LaCrosse v. Commodity Futures Trading Comm’n,

ee Gy |_| ene ral

Little v. Commissioner, 106 F.3d 1445 (9th Cir. 1997) ... 1]

MeNichols v. Commissioner, 13 F.3d 432 (1st Cir.

1993), cert. denied, 512 U.S. 1219 (1994) ooo. 8,12

Murphy v. United States, 272 U.S. 630 (1926) .occccccccccssee. i)

One Lot Emerald Cut Stones v. United States, 409

SAG ERIE cactus icon ticlaisenneee satan ea 7

S.A. Healy Co. v. Occupational Safety & Health Review

Comm'n, 138 F.3d 686 (7th Cir. 1998) coeccccccccccccocccccocceeees. &

SEC v. Palmisano, 135 F.3d 860 (2d Cir.), cert. denied,

Oe Ces I CD scckiscnntsiscacecscscencdecisatentneuiamassinasenmndaces &

Spies v. United States, 317 U.S. 492 (1943) ....................... 7

(III)

IV

Cases—Continued: Page

Thomas v. Commissioner, 62 F.3d 97 (4th Cir.

DT sicibditidin picaleaciididalaaciisaaaDincaatcestactantice er A Ace 8,9, 12, 13

United States ex rel. Marcus v. Hess, 317 U.S. 537

RCRA eNO On IEE ELAINE 7

United States v. Alt, 83 F.3d 779 (6th Cir.), cert.

embed, GID USS, STB (RGB) caccecceecscocssscsnsesanscecessossscocanane 8, 12,13

United States v. Bajakajian, 524 U.S. 321

UI inci etaba tha a a Tee 5-6, 11, 12, 13

United States v. Dixon, 509 US. 688 (1993) c..cccccccsossscsseee 6

United States v. Ursery, 518 U.S. 267 (1996) ..c.ecccceseceee 6,7

United States v. Ward, 448 U.S. 242 (1980) wo.ceceseceeeees 4,7

Constitution and statutes:

U.S. Const.:

Amend. V (Double Jeopardy Clause) ........... 3, 4, 6, 7, 8, 9, 10

Amend. VIII (Excessive Fines Clause) ............. 3, 4, 5, 6, 10,

10, 11, 12, 13

Omnibus Budget Reconciliation Act of 1989, Pub. L.

No. 101-239, § 7721(a), 103 Stat. 2395 wo eesesceceseees 3

Revenue Act of 1928, ch. 852, § 293, 45 Stat. 791 oo... 7

Internal Revenue Code:

I Ea CR ica eT 2

ST oR) | RRO Ree eRe 3, 10

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ets + UE chsaiedinntociedieiaatcheiie tea eet 2

By ra RG ia cactaeccasten id cc a Ee 2

Fie Riess MOMNNINE RED tassoustsinicealctnteesidtideinciahiasdiaiisaninaeisiassicibiaaiadi 12

In the Supreme Court of the United States

No. 99-543

JOHN R. LOUIS, PETITIONER

Vv.

COMMISSIONER OF INTERNAL REVENUE

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

BRIEF FOR THE RESPONDENT IN OPPOSITION

OPINIONS BELOW

The opinion of the court of appeals (Pet. App. A1-A9)

is reported at 170 F.3d 1232. The memorandum opinion

of the Tax Court (Pet. App. B1-B9) is unofficially

reported at 71 T.C.M. (CCH) 3143.

JURISDICTION

The judgment of the court of appeals was entered on

March 24, 1999. A petition for rehearing was denied on

June 25, 1999 (Pet. App. C1). The petition for a writ of

certiorari was filed on August 31, 1999. The jurisdiction

of this Court is invoked under 28 U.S.C. 1254(1).

(1)

STATEMENT

1. Petitioner John R. Louis was the subject of a

grand jury investigation based on information devel-

oped by the Criminal Investigation Division of the

Internal Revenue Service (Pet. App. B2). In 1984,

petitioner was indicted on two counts of criminal tax

offenses with respect to his returns for 1977 and 1978

(id. at B3).' After a jury trial, petitioner was found

guilty on both counts. He was sentenced to imprison-

ment for one year on the first count and three years on

the second count, with the three-year sentence sus-

pended contingent upon completion of a five-year

probationary period. He was also fined $5000 on each

count (ibid.). He served his prison term, completed his

probationary period, and paid the criminal fines (ibid.).

2. On December 23, 1991, the Commissioner issued

statutory notices of deficiency to petitioner for 1976,

1977 and 1978 (Pet. App. B2).° Based upon the items of

omitted gross income that were also involved in the

criminal prosecution, the Commissioner determined (i)

that petitioner had underpaid his taxes by $1,448 for

1976, $14,340 for 1977, and $74,609 for 1978 and (ii) that

' The documents attached to the Commissioner’s Answer in

the Tax Court show that petitioner was indicted and convicted of

filing false returns, a violation of 26 U.S.C. 7206(1). See Tax Ct.

No. 5942-92: CR 3: Answer (Exh. A: Indictment; Exh. B: Criminal

Judgment); Tax Ct. No. 5943-92: CR 3: Answer (Exh. A: Indict-

ment; Exh. B: Criminal Judgment). The parties nonetheless

incorrectly stipulated that he was convicted under 26 U.S.C. 7201

(tax evasion). See C.A. E.R. 64-65. This error in the stipulation

was pointed out in the government’s brief in the court below. See

C.A. Gov't Br. 3 n.2, 24-26.

* There is no statute of limitations on the assessment or collec-

tion of taxes with respect to a year for which the taxpayer has filed

a fraudulent return. 26 U.S.C. 6501(c).

3

such underpayments were due to fraud (id. at B2-B3).

Under the provisions of Section 6653(b) of the Internal

Revenue Code then in effect, the Commissioner further

determined that an addition to tax equal to fifty percent

of the deficiency for each of these years was required.

See 26 U.S.C. 6653(b) (1976). The resulting additions to

tax were $724 for 1976, $7,170 for 1977, and $37,305 for

1978 (Pet. App. B2-B3).°

3. Petitioner filed petitions in Tax Court to contest

the asserted deficiencies and additions to tax. He

thereafter entered into a stipulation, however, in which

he agreed that he would not contest his liability for the

tax deficiencies and would contest his liability for the

Section 6653(b) additions to tax only on constitutional

grounds. Tax Ct. No. 5942-92: CR 24 (Stipulation of

Settled Issues); Tax Ct. No. 5943-92: CR 27 (Stipulation

of Settled Issues).

The Tax Court rejected the contention that the addi-

tions to tax were barred by either the Double Jeopardy

Clause or the Excessive Fines Clause of the Constitu-

tion. The court concluded (Pet. App. B8) that the

Double Jeopardy issue is controlled by Helvering v.

Mitchell, 303 U.S. 391 (1938), which held that additions

to tax for fraud under the Internal Revenue Code are

remedial, rather than punitive, and may therefore be

imposed following a criminal prosecution without impli-

cating the Double Jeopardy Clause. Because additions

% The current counterpart to former Section 6653(b) is in

Section 6663(a), which provides that, “[i]f any part of any under-

payment of tax required to be shown on a return is due to fraud,

there shall be added to the tax an amount equal to 75 percent of

the portion of the underpayment which is attributable to fraud.”

26 U.S.C. 6663(a). That Section is effective for all returns due after

December 31, 1989. See Omnibus Budget Reconciliation Act of

1989, Pub. L. No. 101-239, § 7721(a), 103 Stat. 2395.

4

to tax are remedial rather than punitive, the Tax Court

concluded that neither the Double Jeopardy Clause nor

the Excessive Fines Clause is implicated in this case

(Pet. App. B9).

4. The court of appeals affirmed (Pet. App. A1-A9).

The court applied the two-step process described in

Hudson v. United States, 522 U.S. 93 (1997), for deter-

mining whether a sanction is civil or criminal for Double

Jeopardy Clause purposes: (i) looking first to whether

Congress manifested a preference for one label or the

other and (ii) then, if Congress intended to establish a

civil penalty, evaluating whether the statutory scheme

is nevertheless so punitive in purpose or effect as to

transform the intended civil sanction into a criminal

penalty (Pet. App. A3, citing Hudson v. United States,

522 U.S. at 99, and United States v. Ward, 448 U.S. 242,

248-249 (1980)). With respect to the first step of this

analysis, the court of appeals held that Congress plainly

intended the addition to tax for fraud to be “a civil, not

a criminal sanction” (Pet App. A4). Then, applying

the “guideposts” set forth in Kennedy v. Mendoza-

Martinez, 372 U.S. 144, 168-169 (1963), the court deter-

mined that the additions to tax imposed on petitioner

were not so punitive as to transform what Congress

intended to be a civil sanction into a criminal penalty.’

* The “guideposts” described by the court of appeals were

(Pet. App. A3-A4):

(1) “|wlhether the sanction involves an affirmative dis-

ability or restraint”; (2) “whether it has historically been

regarded as a punishment”; (3) “whether it comes into play

only on a finding of scienter”; (4) “whether its operation will

promote the traditional aims of punishment—retribution and

deterrence”; (5) “whether the behavior to which it applies is

already a crime”; (6) “whether an alternative purpose to which

it may rationally be connected is assignable for it”; and (7)

5

The court found it particularly significant that the

addition to tax for fraud has not historically been re-

garded as punishment and that its purpose is remedial,

for it serves “as a safeguard for the protection of the

revenue and to reimburse the Government for the

heavy expense of investigation and the loss resulting

from the taxpayer’s fraud” (Pet. App. A5, quoting

Helvering v. Mitchell, 303 U.S. at 401). Although the

court acknowledged that several of the “guidepost”

factors were present to some degree, it found them

insufficient to render the addition to tax criminal or

punitive in nature. For example, the court stated that

the third guidepost factor (“scienter”) is present in that

fraudulent intent is a prerequisite to imposition of the

addition to tax. The court concluded, however, that the

existence of that factor is of little significance because

“punishing fraudulent intent is not the central focus of

[the addition to tax]”; instead, “[t]he fraud requirement

is designed to ensure that the additions are imposed

only on taxpayers who engage in the type of deceptive

behavior that is difficult and costly for the IRS to de-

tect” (2bid.).

The court of appeals also determined that the imposi-

tion of the addition to tax for fraud following peti-

tioner’s sentencing for criminal tax evasion did not

implicate the Excessive Fines Clause. The court noted

that the purposes of the addition to tax for fraud are

primarily remedial: to protect the revenue and to reim-

burse the government for the expense of investigating

fraud (Pet. App. at A8). The court noted that—unlike

the forfeiture provision that implicated the Excessive

Fines Clause in United States v. Bajakajian, 524 U.S.

“whether it appears excessive in relation to the alternative

purpose assigned.”

6

321 (1998)—the addition to tax for fraud is not imposed

as part of a criminal sentence and is imposed without

regard to whether the taxpayer has been convicted of a

felony (Pet. App. A8). The court concluded that, be-

cause the addition to tax for fraud is remedial rather

than punitive, it is not barred by the Excessive Fines

Clause (ibid.).

ARGUMENT

The decision of the court of appeals is correct and

does not conflict with any decision of this Court or any

other court of appeals. Further review is therefore not

warranted.

l. a. The Fifth Amendment of the Constitution

states that no “person [shall] be subject for the same

offence to be twice put in jeopardy of life or limb.” This

Clause protects against “the imposition of multiple

criminal punishments for the same offense” (Hudson v.

United States, 522 U.S. at 99) and “serves the function

of preventing both ‘successive punishments and

successive prosecutions’” (United States v. Ursery, 518

U.S. 267, 273 (1996)). The court of appeals correctly

held that the imposition of the addition te tax for fraud

for petitioner’s 1977 and 1978 tax years, after his

conviction for criminal tax offenses for those years, did

not expose him to unconstitutional double jeopardy.”

In Helvering v. Mitchell, 303 U.S. at 401-406, this

Court concluded that the addition to tax for fraud is

civil and remedial in nature and does not implicate the

® In Tax Court, petitioner challenged the addition to tax for

1976 as well as those for 1977 and 1978. The addition to tax

for 1976, however, raises no double-jeopardy issue because his

criminal convictions involved only the years 1977 and 1978. See

United States v. Dixon, 509 U.S. 688, 704 (1993); Blockburger v.

United States, 284 U.S. 299, 304 (7932).

7

constitutional prohibition against double jeopardy.°®

The Court explained in Mitchell that civil tax sanctions

are imposed primarily to protect the revenue and to

reimburse the government for the expense of investi-

gating and correcting the taxpayer’s return. /d. at 401.

The Court emphasized that “Congress may impose both

a criminal and a civil sanction in respect to the same act

or omission; for the double jeopardy clause prohibits

merely punishing twice, or attempting a second time to

punish criminally, for the same offense.” Jd. at 399.

The Court held that additions to tax for fraud were

“Lo]bviously * * * intended by Congress as civil

incidents of the assessment and collection of the income

tax.” Id. at 405.

This Court has repeatedly cited the decision in

Mitchell with approval. See, e.g., Hudson v. United

States, 522 U.S. at 99, 103, 104; Ursery, 518 U.S. at 273,

289, 292; Department of Revenue v. Kurth Ranch, 511

U.S. 767, 779 n.16 (1994); United States v. Ward, 448

U.S. 242, 250 (1980); One Lot Emerald Cut Stones v.

United States, 409 U.S. 232, 236 (1972); Spies v. United

States, 317 U.S. 492, 495 (1943); United States ex rel.

Marcus v. Hess, 317 U.S. 537, 548-549 (1943). Every

appellate court that has considered the matter (both

before and after the decision of this Court in the Kurth

Ranch case) has followed Mitchell in concluding that

the civil additions to tax for fraud do not constitute

“punishment” within the scope of the Double Jeopardy

Clause. See J & O Publishing Co. v. Commissioner,

6 The addition to tax involved in Mitchell stated that, “[i]f any

part of any deficiency is due to fraud with intent to evade tax, then

50 per centum of the total amount of the deficiency (in addition to

such deficiency) shall be so assessed, collected and paid.” Revenue

Act of 1928, ch. 852, § 293, 45 Stat. 791.

&

131 F.3d 1314, 1316 (9th Cir. 1997); United States v. Alt,

83 F.3d 779, 782 (6th Cir.), cert. denied, 519 U.S. 872

(1996); Thomas v. Commissioner, 62 F.3d 97, 100-102

(4th Cir. 1995); MceNichols v. Commissioner, 13 F.3d

432, 435-436 (Ist Cir. 1993), cert. denied, 512 U.S. 1219

(1994). See also Bickham Lincoln-Mercury, Inc. v.

United States, 168 F.3d 790 (5th Cir. 1999) (civil

sanction for failing to file forms reporting receipt of

more than $10,000 in cash is not “punishment” within

the scope of the Double Jeopardy Clause); Ames v.

Commissioner, 112 T.C. 304 (1999) (same with respect

to negligence penalty).’ There is thus no conflict among

the circuits nor other reason to warrant further review

of the decision in this case.

b. Petitioner errs in contending (Pet. 12-13) that the

decision of the court of appeals conflicts with Depart-

ment of Revenue v. Kurth Ranch, supra, in which this

Court held that a Montana tax on the possession of

drugs constituted a criminal punishment within the

‘For the reasons described in detail in the decision of the

court of appeals (Pet. App. A4-A7), the addition to tax for fraud

satisfies the two-part test articulated by this Court in the Hudson

and Mendoza-Martinez decisions. See pages 4-5, supra. Although,

as petitioner notes (Pet. 10), the conduct to which the civil fraud

statute applies would also generally constitute a crime, this Court

has expressly held that fact is “insufficient to render the money

penalties * * * criminally punitive.” Hudson v. United States,

522 U.S. at 105. Accord, Helvering v. Mitchell, 303 U.S. at 399.

Similarly, while scienter is a prerequisite to the imposition of the

civil fraud additions, the existence of a scienter prerequisite to a

civil sanction is not determinative of the double jeopardy issue.

See, e.g., S.A. Healy Co. v. Occupational Safety & Health Review

Comm'n, 138 F.3d 686, 688 (7th Cir. 1998); LaCrosse v. Commodity

Futures Trading Comm’n, 137 F.3d 925, 931, 932 (7th Cir. 1998);

SEC vy. Palmisano, 135 F.3d 860, 865-866 (2d Cir.), cert. denied,

1198. Ct. 555 (1998).

ee Eee

9

constraints of the Double Jeopardy Clause. The state

“tax” involved in the Kurth Ranch case was quite

unusual: (i) it could be imposed only after an arrest for a

drug offense; (ii) it was extremely high, amounting to

400 percent of the market value of the illegal drug; and

(ili) it had no relation to the costs incurred by the State

in investigating and prosecuting drug offenses. 511

U.S. at 784. Moreover, while the state tax in Kurth

Ranch purported to be a property tax on the possession

and storage of marijuana, it was not imposed until

after the marijuana had been destroyed. None of these

anomalous factors is present here. To the contrary, as

other courts have emphasized in upholding the consti-

tutionality of the addition to tax for fraud, “{t]he addi-

tion to tax imposed in this case is at the opposite end of

the punitive/remedial spectrum from the tax levied in

Kurth Ranch.” Thomas v. Commissioner, 62 F.3d at

101-102.

c. Petitioner errs in contending (Pet. 6-7, 13) that

Helvering v. Mitchell, supra, does not apply to this

case. Petitioner asserts that Mitchell is inapplicable

here because the taxpayer in that case had been

acquitted, rather than convicted, of tax crimes before

imposition of the addition to tax for fraud. This Court

has long held that application of the Double Jeopardy

Clause does not depend on the outcome of the first case:

it applies whether the first case resulted in a conviction

or in an acquittal. Murphy v. United States, 272 U.S.

630, 632 (1926). Indeed, in Mitchell itself the Court

specifically held that the same principles apply under

the Double Jeopardy Clause “whether the verdict [in

the criminal case] was an acquittal or a conviction.”

303 U.S. at 398 (emphasis added). As the court of ap-

peals correctly stated in this case, “Mitchell’s con-

clusion that Congress intended additions to tax for

10

fraud to be a civil sanction is not limited to cases in

which the taxpayer has previously been acquitted,

rather than convicted, of criminal tax fraud” (Pet. App.

A4). .

Petitioner errs in contending that, in Helvering v.

Mitchell, 303 U.S. at 397-398, this Court left open the

question whether the Double Jeopardy Clause is impli-

cated “where a conviction for tax fraud simultaneously

determines a taxpayer’s tax liability and § 6653(b)

addition to tax for fraud for the same tax years” (Pet. 6-

7). In Mitchell, the taxpayer had been acquitted of tax

evasion and contended that his acquittal would, under

the doctrine of res judicata, bar the Commissioner from

seeking to impose the addition to tax for fraud. The

Court rejected that contention because “|t ]he difference

in degree of the burden of proof in criminal and civil

cases precludes application of the doctrine of res judi-

cata.” 303 U.S. at 397. Having reached that conclusion,

the Court stated that it was unnecessary to reach the

government’s alternative contention that the doctrine

of res judicata was also inapplicable because of “the

difference in the issues presented in the two cases.” /d.

at 398. The Court concluded that it was unnecessary to

reach the question of the difference, if any, between

“wilfully” (in the criminal statute) and “fraud” (in the

civil statute) because the acquittal in the criminal case

“is not a bar to a civil action by the Government,

remedial in its nature, arising out of the same facts on

which the criminal proceeding was based * * * .” /d.

at 397.

2. a. The Eighth Amendment of the Constitution

provides that “[e]xcessive bail shall not be required, nor

excessive fines imposed, nor cruel and unusual punish-

ments inflicted.” The Excessive Fines Clause “limits

the government’s power to extract payments, whether

1]

in cash or in kind, as punishment for some offense.”

United States v. Bajakajian, 524 U.S. 321, 328 (1998)

(internal quotation marks omitted). The court of

appeals correctly held that the additions to tax involved

in this case were remedial, rather than punitive, and

that the Excessive Fines Clause is therefore not

implicated in this case (Pet. App. A7-A9).

Petitioner errs in contending (Pet. 14-22) that this

holding of the court of appeals conflicts with Austin v.

United States, 509 U.S. 602 (1993). In Austin, the

Court held that the determinative question under the

Excessive Fines Clause “is not * * * whether [the

challenged sanction] * * * jigs civil or criminal, but

rather whether it is punishment.” Jd. at 610. The

Court noted that the civil forfeiture statute involved in

Austin had historically been viewed as punishment (id.

at 618) and that the presence of a merely incidental

remedial purpose in a forfeiture statute does not save

such a punitive sanction from scrutiny under the Ex-

cessive Fines Clause. Jd. at 610, 621-622.

The present case obviously differs from Austin, in

which the Court concluded that the forfeiture sanction

at issue in that case was sufficiently punitive to warrant

scrutiny under the Eighth Amendment. The Court has

long held that the addition to tax for fraud is remedial,

rather than punitive, and that it functions as a

safeguard for the protection of the revenue and to

reimburse the government for the expense of

investigating and redetermining the taxpayer’s

liability. Helvering v. Mitchell, 303 U.S. at 401. For

that reason, the courts of appeals have consistently

held, both before and after Austin, that civil additions

to tax imposed under the Internal Revenue Code do not

violate the Excessive Fines Clause. See, e.g., Little v.

Commissioner, 106 F.3d 1445, 1454-1455 (9th Cir. 1997);

12

United States v. Alt, 83 F.3d at 783; Thomas v.

Commissioner, 62 F.3d at 100-102; McNichols v.

Commissioner, 13 F.3d at 434.

b. Petitioner further errs in contending (Pet. 14-22)

that the decision in this case conflicts with United

States v. Bajakajian, supra. In Bajakajian, a traveler

seeking to leave the country with $357,144 in cash was

arrested for failing to comply with reporting require-

ments. In the criminal indictment, the government

sought not only a conviction for violation of the re-

porting requirement but also a forfeiture of the entire

$357,144. The relevant statute mandated the forfeiture

of any property “involved in” the offense (18 U.S.C.

982(a)(1)). The lower courts concluded, however, that a

forfeiture of the entire amount would violate the Exces-

sive Fines Clause. 524 U.S. at 326-327.

This Court affirmed. The Court held that the for-

feiture qualified as a “fine” within the meaning of the

Excessive Fines Clause because it was imposed only as

an additional sanction upon a person who has been

convicted of a crime and thus represented “punishment

for an offense.” 524 U.S. at 328. In the present case,

by contrast, the addition to tax is not “imposed at the

culmination of a criminal proceeding” and does not

“require[] conviction of an underlying felony” (ibid.).

The addition to tax is assessed and collected as part of

civil tax proceedings. It may be imposed without regard

to whether the taxpayer has been convicted of a related

tax offense. Indeed, as noted by the court below (Pet.

App. A8), it may be imposed even when the taxpayer

has been acquitted of a related criminal offense.

As this Court held in Mitchell, the addition to tax for

civil fraud is a remedial measure designed to safeguard

the revenue. 303 U.S. at 401. Unlike the forfeiture at :

issue in Bajakajian, the addition to tax is not “punish-

ee ee

13

ment for an offense” (524 U.S. at 328) and therefore

does not constitute a “fine” within the meaning of the

Excessive Fines Clause.

Moreover, even if the addition to tax were thought of

as a “fine,” this civil sanction for the recovery of costs

associated with investigating and redetermining the

taxpayer’s liability is not “excessive.” A “fine” violates

the Excessive Fines Clause only “if it is grossly dis-

proportional to the gravity of a defemdant’s offense.”

United States v. Bajakajian, 524 U.S. at 334, 336. In

Bajakajian, where “(there was no fraud on the United

States, and respondent caused no loss to the public fisc”

(id. at 339), the Court held that the criminal forfeiture

of $337,144 was disproportionate to what was “solely a

reporting offense” (id. at 337). The additions to tax

involved in this case are set by Congress at one-half the

amount that petitioner wrongfully withheld. That

amount is designed to compensate the government for

the significant costs incurred in investigating and

redetermining petitioner’s liability. The additions to

tax resulting from petitioner’s fraud are thus plainly

not “grossly disproportiona!” to petitioner’s acts. See

United States v. Alt, 83 F.3d at 782-783 (additions to

tax “not outrageous” in light of purpose to compensate

government for the costs of investigation, detection,

and recovery of lost money); Thomas v. Commissioner,

62 F.3d at 102 (civil fraud penalty not excessive).

14

CONCLUSION

The petition for a writ of certiorari should be denied.

Respectfully submitted.

SETH P. WAXMAN

Solicitor General

LORETTA C. ARGRETT

Assistant Attorney General

DAVID I. PINCUS

, CAROL BARTHEL

Attorneys

NOVEMBER 1999