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921 F.Supp. 261
UNITED STATES of America
Neil H. RHODES, d/b/a Straight Line Diamond Blades and Diamond Blades & Quarry
United States District Court,
March 28, 1996.
Lorna N. Graham, Assistant United States Attorney, Scranton, PA, for the U.S.
Neil H. Rhodes, Defendant, proceeding pro se.
McCLURE, District Judge.
On November 9, 1995, a grand jury sitting in the Middle District of Pennsylvania
returned an indictment charging defendant Neil H. Rhodes with offenses related
to his failure to pay income and self-employment taxes and concealment of his
income. On January 16, 1996, the jury returned a verdict of guilty with respect
to each of the four counts of the indictment. Sentencing is scheduled for Monday,
April 8, 1996. Rhodes is proceeding pro se.
Before the court are motions by Rhodes: for judgment of acquittal or, alternatively,
for a new trial; to dismiss for failure to state an offense against the United
States or for lack of subject matter jurisdiction; and for permission to file
the motion for judgment of acquittal or new trial. Although Rhodes has not
filed a brief in support of any of these motions, they will be addressed at
this time because the legal authority on which Rhodes relies is set forth in
the motions themselves. Also, the government already has filed a response to
I. MOTION FOR EXTENSION OF TIME
A motion for judgment of acquittal pursuant to Fed.R.Crim.P. 29, when made
after the entry of a verdict, "may be made or renewed within 7 days after
the jury is discharged or within such further time as the court may fix during
the 7-day period." Rule 29(c). A motion for a new trial based on any ground
other than newly discovered evidence "shall be made within 7 days after
the verdict or finding of guilty or within such further time as the court may
fix during the 7-day period." Fed.R.Crim.P. 33. The time period established
by Rule 33 is jurisdictional in nature, and the district court has no authority
to extend the time when no motion is filed within the 7-day period. United
States v. Coleman, 811 F.2d 804, 807 (3d Cir.1987) (citing, inter alia, United
States v. Smith, 331 U.S. 469, 474-475, 67 S.Ct. 1330, 1332-33, 91 L.Ed. 1610
(1947)), cert. denied, 490 U.S. 1070, 109 S.Ct. 2074, 104 L.Ed.2d 638 (1989).
In United States v. Giampa, 758 F.2d 928, 936 n. 1 (3d Cir.1985), the Third
Circuit held that a judgment of acquittal may be made sua sponte by the district
court under its inherent authority after the time period elapses. See also
Coleman at 807; United States v. Wright-Barker, 784 F.2d 161, 170 n. 8 (3d
Cir.1986). We see no basis for such action here. First, any question as to
the validity of our holdings may be raised by Rhodes on appeal to the Third
Circuit. More important is the lack of merit in the argument proffered by Rhodes.
Rhodes argues, based on language taken out of context from Eisner v. Macomber,
252 U.S. 189, 207, 40 S.Ct. 189, 193, 64 L.Ed. 521 (1920), to the effect that "income" under
the Sixteenth Amendment is limited to profit proceeding from property. Actually,
the Supreme Court held that income is "gain derived from capital, from
labor, or from both combined, provided it be understood to include profit gained
through a sale or conversion of capital assets, ..." Id. at 207, 40 S.Ct.
at 193 (internal quotations, citation omitted). The discussion centered on
gain from capital because the gain at issue was in the form of stock dividends.
Id. at 208, 40 S.Ct. at 193. Rhodes argues that the Supreme Court was clarifying
what is "gain"; actually, it was clarifying what is "gain derived
from capital." Gain from labor was not at issue, and Eisner is inapposite.
Rhodes' argument that he is not a "person" subject to the Internal
Revenue Code will be discussed, and rejected, below. In this case, the jury
returned a verdict and was discharged on January 16, 1996. Any motions under
Rule 29(c) and Rule 33 were due on or before January 25, 1996, excluding the
intervening weekend from the 7-day period. Rhodes filed his motions on March
19, 1996, well after the prescribed period had elapsed. The court is without
jurisdiction to extend the time for filing a Rule 33 motion, and no argument
of merit supporting a motion for judgment of acquittal appears. Exercise of
our inherent authority to enter a judgment of acquittal is unwarranted. Rhodes'
motion for permission to file a motion for judgment of acquittal or for a new
trial will be denied. Based on that ruling, Rhodes' motion for a judgment of
acquittal or for a new trial will be denied.
II. MOTION TO DISMISS
Rhodes moves to dismiss the indictment under Fed.R.Crim.P. 12(b)(2), which
permits the court to hear a motion to dismiss an indictment that fails to show
jurisdiction in the court or to charge an offense at any time during the pendency
of the proceedings. In this instance, Rhodes was charged under 26 U.S.C. s
7201, which makes it a felony to willfully evade the payment of any tax imposed
under Title 26 of the United States Code. As has previously been pointed out
to Rhodes, crimes defined within the Internal Revenue Code, specifically Chapter
75 of Title 26 of the Internal Revenue Code, are offenses against the United
States over which a federal district court has jurisdiction under 18 U.S.C.
s 3231. Tax evasion is properly a subject for the exercise of federal power
under Article I, s 8 and the Sixteenth Amendment to the Constitution of the
United States. United States v. Isenhower, 754 F.2d 489, 490 (3d Cir.1985).
The authority of Congress to confer jurisdiction on federal courts is well-established.
W.G. v. Senatore, 18 F.3d 60, 64 (2d Cir.1994) (citing Marbury v. Madison,
5 U.S. (1 Cranch) 137, 173-180, 2 L.Ed. 60 (1803); Bender v. Williamsport Area
School District, 475 U.S. 534, 541, 106 S.Ct. 1326, 1331, 89 L.Ed.2d 501 (1986)).
Rhodes makes two arguments in his motion to dismiss the indictment. The first
is that the income he received from his business was not taxable income under
Title 26. Second, he argues that he is not a "person" subject to
The latter argument is easily addressed. An individual is a person under the
Internal Revenue Code. United States v. Sloan, 939 F.2d 499, 500- 501 (7th
Cir.1991), cert. denied, 502 U.S. 1060, 112 S.Ct. 940, 117 L.Ed.2d 110, reh'g
denied, 503 U.S. 953, 112 S.Ct. 1518, 117 L.Ed.2d 654 (1992). See also 26 U.S.C.
s 1 (imposing an individual income tax). The remainder of Rhodes' argument
in this respect relates to his duty to take action under the Internal Revenue
Code, and will be discussed below.
B. Sufficiency of the Indictment
Rhodes' argument regarding taxable income goes to the sufficiency of the indictment.
[A]n indictment is sufficient if it, first, contains the elements of the offense
charged and fairly informs the defendant of the charge against which he must
defend, and, second, enables him to plead an acquittal or conviction in bar
of future prosecutions for the same offense. United States v. Bailey, 444 U.S.
394, 414, 100 S.Ct. 624, 636, 62 L.Ed.2d 575 (1980) (citation, quotation marks
omitted). See also United States v. Scanzello, 832 F.2d 18, 22 (3d Cir.1987)
(applying same standard).
The elements of the offense charged, i.e. tax evasion under s 7201, are: ...
willfulness; the existence of a tax deficiency ...; and an affirmative act
constituting an evasion or attempted evasion of the tax.... Sansone v. United
States, 380 U.S. 343, 351, 85 S.Ct. 1004, 1009, 13 L.Ed.2d 882 (1965) (citations
omitted). See also Sloan at 501 (reciting same elements).
Each count of the indictment alleges a tax deficiency, in approximately the
following amounts: Count I --$18,000.00; Count II -- $43,000.00; Count III
- -$60,000.00; and Count IV -- $90,000.00. Each count alleges that Rhodes "did
willfully attempt to evade and defeat the said income and self employment tax
due and owing by him to the United States of America ..." Indictment at
1, 3, 5, 7. Finally, the indictment alleges that Rhodes committed affirmative
acts, including: failing to make an income tax return, failing to pay the taxes;
concealing his correct income by such means as extensive use of cash, handling
business affairs in such a way as to avoid making records, and maintaining
duplicate invoices; purchasing interests in the Turks and Caicos Islands to
divert and conceal income; and causing title in a personal residence to be
transferred to offshore trusts, and causing false returns to be filed. All
of the elements of a violation of s 7201 are set forth in the indictment.
The indictment fairly informed Rhodes of the charges which he was required
to defend. The elements of the offense and the conduct constituting the offense
are set forth. Each count sets forth the tax deficiency for a specific year.
And the type of tax (income and self-employment) are stated. The information
set forth in the indictment was sufficient under Bailey. We note as well that
the indictment was sufficient in this respect under Fed.R.Crim.P. 7(c)(1).
Finally, Rhodes may plead a conviction to bar any future prosecution for the
same events. The tax year, type of tax, and means of evading the tax were sufficiently
identified to eliminate the possibility of double jeopardy.
Based on the foregoing, the indictment was sufficient under the standard set
forth in Bailey.
Rhodes' argument is that his income is not subject to any tax imposed under
Title 26. He quotes Brushaber v. Union Pacific Railroad Co., 240 U.S. 1, 17,
36 S.Ct. 236, 241, 60 L.Ed. 493 (1915), to the effect that "[t]axation
on income is an excise." Actually, Brushaber reads: Nothing could serve
to make this clearer than to recall that in the Pollock Case, in so far as
the law taxed incomes from other classes of property than real estate and invested
personal property, that is, income from "professions, trades, employments,
or vocations" ( [Pollock v. Farmers' Loan & Trust Co.] 158 U.S. 
637 [15 S.Ct. 912, 920, 39 L.Ed. 1108 (1895) ] ) its validity was recognized;
indeed, it was expressly declared that no dispute was made upon that subject,
and attention was called to the fact that taxes on such income had been sustained
as excise taxes in the past. Id. This quotation appears in a discussion of
the historical context of the passage of the Sixteenth Amendment. The point
being made is that, prior to the passage of the Sixteenth Amendment, any tax
was viewed as either a "direct" tax, such as a property tax, or a
duty, impost, or excise. Under the Constitution as originally drafted, any
direct tax was subject to the requirement of apportionment. Id. at 13, 36 S.Ct.
at 239 (citing U.S. Const. art. I, s 2, cl. 3; art. 1 s 9, cl. 4). A duty,
impost, or excise was subject to the rule of uniformity. Id.
In Pollock v. Farmers' Loan & Trust Co., 157 U.S. 429, 15 S.Ct. 673, 39
L.Ed. 759 (1895), the Supreme Court was faced with the question of taxation
without apportionment upon carriages used for conveying persons. The tax was
held to be within the class of duties, imposts, and excises, not subject to
apportionment. Brushaber, 240 U.S. at 14, 36 S.Ct. at 240. The result of Pollock
and other opinions of the Supreme Court was that the limitation on a "direct
tax" in the constitutional sense came to refer to a proscription against
a burden by taxation of accumulations of property, both real and personal,
except subject to the regulation of apportionment. Brushaber at 16, 36 S.Ct.
at 240. Congress at that time could, in fact, impose income taxes, subject
to apportionment; in other words, income taxes could be imposed, but not when
they amounted to a direct tax as defined above. Id. at 16-17, 36 S.Ct. at 240-241.
The Sixteenth Amendment was passed specifically to eliminate the need to subject
any income tax to the requirement of apportionment: This is the text of the
Amendment: 'The Congress shall have power to lay and collect taxes on incomes,
from whatever source derived, without apportionment among the several states,
and without regard to any census or enumeration.' It is clear on the face of
this text that it does not purport to confer power to levy income taxes in
a generic sense,--an authority already possessed and never questioned,--or
to limit and distinguish between one kind of income taxes and another, but
that the whole purpose of the Amendment was to relieve all income taxes when
imposed from apportionment from a consideration of the source whence the income
was derived. Indeed, in the light of the history which we have given and of
the decision in the Pollock Case, and the ground upon which the ruling in that
case was based, there is no escape from the conclusion that the Amendment was
drawn for the purpose of doing away for the future with the principle upon
which the Pollock Case was decided; that is, of determining whether a tax on
income was direct not by a consideration of the burden placed on the taxed
income upon which it directly operated, but by taking into view the burden
which resulted on the property from which the income has derived, since in
express terms the Amendment provides that income taxes, from whatever source
the income may be derived, shall not be subject to the regulation of apportionment....
Id. at 17-18, 36 S.Ct. at 241-242.
Succinctly stated, Brushaber holds that Congress had, even before the Sixteenth
Amendment was passed, the authority to tax income. If the income tax was a
direct tax in the constitutional sense, it was subject to the requirement of
apportionment. The Sixteenth Amendment eliminated the requirement of apportionment
as it relates to "taxes on incomes, from whatever source derived." [FN1]
FN1. The distinction between direct taxes and other forms of taxation, such
as an excise, continue to have effect. In United States v. Wells Fargo
Bank, 485 U.S. 351, 355, 108 S.Ct. 1179, 1182, 99 L.Ed.2d 368 (1988), the
Court reviewed the distinction for estate tax purposes, concluding that
an estate tax is an excise because it taxes the transfer of property rather
the property itself. The latter form of taxation, i.e. on the property
itself, is a direct tax. The distinction was important because property subject
a general exemption from "all taxation" is not thereby exempt from
excise taxes such as the estate tax. Historically, "when Congress has
exempted property from estate taxation it has generally adverted explicitly
to that tax, rather than generically to 'all taxation.' " Id. at 356,
108 S.Ct. at 1182. The distinction does not impact the conclusion that
Rhodes' income, excise or otherwise, is subject to taxation under the Constitution
and the Internal Revenue Code.
Under Title 26, taxable income is gross income less enumerated deductions.
26 U.S.C. s 63(a), (b). Gross income is defined as follows: Except as otherwise
provided in this subtitle, gross income means all income from whatever source
derived, including (but not limited to) the following items: (1) Compensation
for services, including fees, commissions, fringe benefits, and similar items;
(2) Gross income derived from business; (3) Gains derived from dealings in
property; (4) Interest; (5) Rents; (6) Royalties; (7) Dividends; (8) Alimony
and separate maintenance payments; (9) Annuities; (10) Income from life insurance
and endowment contracts; (11) Pensions; (12) Income from discharge of indebtedness;
(13) Distributive share of partnership gross income; (14) Income in respect
of a decedent; and (15) Income from an interest in an estate or trust. 26 U.S.C.
s 61(a). Specific items otherwise are included in or excluded from "gross
income." See 26 U.S.C. s 61(b) (cross-reference to items included and
excluded). A tax on the taxable income of individuals is imposed under 26 U.S.C.
s 1. An additional tax is imposed under 26 U.S.C. s 1401 on self-employment
income, as defined in
26 U.S.C. s 1402.
It is clear from the above that income and self-employment taxes are taxes
imposed under Title 26. A willful attempt to evade or defeat these taxes or
payment of these taxes is a violation of s 7201. Under the Sixteenth Amendment,
an income tax may fall under the category of a direct tax or under the category
of a duty, impost, or excise. In either case, the income is subject to taxation
without apportionment, consistent both with the Sixteenth Amendment and Title
26. Rhodes' argument that the taxing of his income is an "excise" is
immaterial to a finding that he violated s 7201.
At trial, the evidence showed that Rhodes earned substantial income from the
sale of diamond saw blades to the operators of stone quarries. Apparently,
these business dealings also involved the process of reconditioning the blades
for further use. As such, Rhodes clearly earned gross income under s 61(a),
and the evidence showed that there was taxable income, as derived during trial
by a tax expert. All of this is consistent with the allegations in the indictment
that Rhodes had received a taxable income, and that he owed income and self-employment
income taxes to the United States. Contrary to his assertions, Rhodes was a
person under a duty to report his income and to pay the tax thereon. Rhodes'
motion to dismiss the indictment will be denied.
Rhodes' motion for judgment of acquittal is untimely, and an exercise of our
inherent authority to enter judgment of acquittal is unwarranted. The court
is without authority to consider Rhodes' motion for a new trial because the
time limitation imposed under Rule 33 is jurisdictional in nature. Rhodes'
motion for permission to file a motion under Rules 29 and 33 will be denied,
and the Rule 29/33 motion itself will be denied.
Rhodes is a "person" subject to the duties imposed under the Internal
Revenue Code, and the purported classification of a tax on Rhodes' income as
an excise is immaterial to the duty to pay income and self-employment taxes
thereon. Rhodes' motion to dismiss will be denied.
to Tax Protestor Exhibit