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Mr. Hendrickson is NOT the "person" (§ 7343 ) who can be charged with a criminal penalty

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  • dave
    Introduction Was Mr. Hendrickson a person pursuant to 26 U.S.C. § 7343 who could be charged with a criminal penalty? What about Irwin Schiff, Lindsey
    Message 1 of 1 , Mar 4 7:53 PM

     

     

    Introduction
    Was Mr. Hendrickson a "person" pursuant to 26 U.S.C. § 7343 who could be charged with a criminal penalty? What about Irwin Schiff, Lindsey Springer, Larkin Rose, Cynthia Lynn Neun, Walter Allen Thompson, Bonita Lynn Meredith, Ward Dean, Walter M. Maken, Wayne Bentson, David R. Hinkson, John Thomas Harpole, Oscar Stilley, or Sherry Peal Jackson? Were all these convicted under Title 26, Subtitle F, Chapter 75?

    When I reviewed the indictments of Mr. Hendrickson, and Mr. Springer and Mr. Stilley, the DOJ never asserted they met all the predicate factual issues surrounding the term "person" as utilized in the criminal penalties chapter of the internal revenue code (Title 26, Chapter F, Chapter 75). A predicate issue is a determining factual element of the law that determines whether the rest of the law applies. So, in this case, if these people are not the "person" pursuant to § 7343, then nothing else after that can be applied to them. But what we've seen and learned first-hand, is that the government likes to "back into" these arguments. They argue that since all the subsequent elements of the law were met, that means the individual must have been the "person" to whom the law applies.

    Did all these people meet all the key factual elements necessary to be the "person" in § 7343 who could be charged with a crime? I propose to you that they did not meet the key criteria. In my research of over 125 cases involving clear disputes with 26 U.S.C. § 7343, not a single person challenged all the factual elements of that law. So, in order to understand the factual elements, we'll have to do some research into it's civil counterpart § 6671(b) "person" and see if we can make any parallels to the criminal "person" in § 7343.



    Definitions
    After reviewing over 389 cases dealing with the term "person" as defined in 26 U.S.C. § 6671(b) that applies to the penalties in Title 26, Subtitle F, Chapter 68, Subchapter B, I found some very interesting case law that may potentially exonerate Mr. Hendrickson. Here's how § 6671(b) is defined:

    (b) Person defined
    The term “person”, as used in this subchapter, includes an officer or employee of a corporation, or a member or employee of a partnership, who as such officer, employee, or member is under a duty to perform the act in respect of which the violation occurs.

    Factual Elements

    1. Must be an individual;
    2. Must be under a duty; and
    3. The duty must be connected with a corporation or attached to his position within a corporation.


    Note the similarity to that definition with 26 U.S.C. § 7343 in Title 26, Subtitle F, Chapter 75, Subchapter D:

    § 7343. Definition of term “person”
    The term “person” as used in this chapter includes an officer or employee of a corporation, or a member or employee of a partnership, who as such officer, employee, or member is under a duty to perform the act in respect of which the violation occurs.

    Factual Elements - what are the factual elements of § 7343? They have never been defined in case law.

    Since we have good case law about § 6671(b) "person," we'll look at what the law and the case law show first.


    The 1st Factual Element - One Must Be an Individual

    Nearly universally in the civil and criminal cases I studied, everyone claimed they weren't the "person" because they (1) weren't an employee; (2) weren't an officer; (3) weren't a member of a partnership; (4) weren't tied to the corporation in any other position of authority (board of directors, stock holder, human resources/payroll officer, etc.). In Mr. Hendrickson's case, he went to great lengths discussing the constitutional and legal reasons why he wasn't a person based on "includes and including." No matter what any of the defendants argued about not being the person, the courts found that, at a minimum, they were an individual and thus could be charged.

    Here's how the 9th Circuit explains "includes and including."

    The definition of "persons" in section 6671(b) indicates that the liability imposed by section 6672 upon those other than the employer is not restricted to the classes of persons specifically listed — officers or employees of corporations and members or employees of partnerships. "[B]y use of the word `include[s]' the definition suggests a calculated indefiniteness with respect to the outer limits of the term" defined. First National Bank In Plant City, Plant City, Florida v. Dickinson, 396 U.S. 122, 90 S.Ct. 337, 24 L.Ed.2d 312 (1969).
    Pacific National Insurance v. United States, 422 F. 2d 26 (9th Cir., 1970) at 29, 30


    Based on this, it seems pretty clear that "includes" really means anybody. So where is the limit "within the meaning of the term defined" (26 U.S.C. 7701(c)"? That's easy! Two paragraphs later, the court clarifies where the limit of "includes" ends:

    Indeed, the language itself does not require that they be officers or employees of the corporation at all, so long as they are in fact responsible for controlling 31 corporate disbursements.[11] As we held in Graham, supra, 309 F.2d at 212, "the section must be construed to include all those so connected with a corporation as to be responsible for the performance of the act in respect of which the violation occurred"
    Pacific National Insurance v. United States, 422 F. 2d 26 (9th Cir., 1970) at 30, 31


    And just so there's no confusion, here's the fuller quote from Graham:

    In support of the district court Graham here contends that he was not a "person," as defined in § 6671(b), since he was simply a member of the corporation's board of directors, was not employed by the corporation and did not serve as an executive officer.[2]'

    This is too narrow a reading of the section. The term "person" does include officer and employee, but certainly does not exclude all others. Its scope is illustrated rather than qualified by the specified examples. In our judgment the section must be construed to include all those so connected with a corporation as to be responsible for the performance of the act in respect of which the violation occurred.
    United States v. Graham, 309 F. 2d 210 (9th Cir., 1962)

    So, as you should be able to conclude, it's not a good idea to argue "includes and including" because they are expansive but limited "within the meaning of the term defined." The limit of includes is overwhelmingly clear in this (and other cases), "of a corporation" and "under a duty." This is so clear that "duty" and "connected with a corporation" are the two fact elements that must be proved in order that one be the "person" within the meaning of § 6671(b).


    The interesting thing that the Graham case shows is that 6671(b) applies to anyone! But it also reveals the correct factual issues that need to be proved in order to be the § 6671(b) "person:"

    1. He (1) has a duty; and
    2. The duty is connected with a corporation as to be responsible for the performance of the act in respect of which the violation occurred.

     


    The 2nd Factual Element - An Individual Must Have a Duty

    "Person" Applied in 6671(b) in Case Law
    While reviewing the case law, the overwhelming cases involving an explanation of § 6671(b) were applied to § 6672, penalties where the person was required to collect, withhold, and pay-in taxes. But within those cases, there were some startling explanations of how the term "person" in § 6671(b) is applied. There are two factual elements in order to be the § 6671(b) "person": duty and that the duty is connected with a corporation

    DUTY
    "Duty" under § 6671(b) has a much more focused meaning than the generalized duty of all taxpayers to pay taxes and is expressly limited to the duty that attaches to the position an employee holds within the corporation.
    US v. Burger, 717 F. Supp. 245 - Dist. Court, (SDNY, 1989)

    The mere fact that an individual is a corporate officer [or employee] is not, by itself, sufficient to make that individual a responsible person within the definition of the statute.
    U.S. v. McCOMBS, 30 F.3d 310 (2nd Cir. 1994)
    [author's addition]

    Not every "officer" or "employee" of a corporation is subject to the "penalty" but only if he be "under a duty to perform the act," namely, be responsible for making the deductions and payments.
    Botta v. Scanlon, 288 F. 2d 504 (2nd Cir., 1961)


    Here's what we can conclude from the prior case law:

    • Duty has a focused meaning
    • It doesn't apply to the individual taxpayer as a rule
    • It is limited to those who had a duty attached to their position within a corporation
    • Not everyone who is an officer is a responsible person
    • Simply being employed in a corporation doesn't make someone responsible either.

     


    The 3rd Factual Element - The Duty Must Be Connected to a Corporation

    Up until now, we've shown that not everyone is a § 6671(b) "person" within the meaning of the law. Just being an employee or an officer within a corporation is not sufficient to establish that one is a "person". Having a duty to file a tax return is not sufficient to show duty, either. And the case law continues by saying that the duty must be attached to a corporation [or partnership] or connected with a corporation [or partnership].

    The term "person" does include officer and employee, but certainly does not exclude all others. Its scope is illustrated rather than qualified by the specified examples. In our judgment the section must be construed to include all those so connected with a corporation as to be responsible for the performance of the act in respect of which the violation occurred.
    United States v. Graham, 309 F. 2d 210 (9th Cir., 1962)


    As we held in Graham, supra, 309 F.2d at 212, "the section must be construed to include all those so connected with a corporation as to be responsible for the performance of the act in respect of which the violation occurred"
    Pacific National Insurance v. United States, 422 F. 2d 26 (9th Cir. 1970)


     "[T]he section must be construed to include all those so connected with a corporation as to be responsible for the performance of the act in respect of which the violation occurred." United States v. Graham, 309 F.2d 210, 212 (9th Cir. 1962).
    Dudley v. United States, 428 F. 2d 1196 (9th Cir. 1970)


    The word "person" is said in Section 6671(b) to include

    "* * * an officer or employee of a corporation, or a member or employee of a partnership, who as such officer, employee, or member is under a duty to perform the act in respect of which the violation occurs."

    Section 6671(b) has been read not to be exclusive:

    "In our judgment the section must be construed to include all those so connected with a corporation as to be responsible for the performance of the act in respect of which the violation occurred." United States v. Graham, 9 Cir., 1962, 309 F.2d 210, 212.

    U.S. v. Moore, et. al., 368 F.2d 617 (5th Cir. 1963)


    Section 6671(b) has been read not to be exclusive:

    "In our judgment the section must be construed to include all those so connected with a corporation as to be responsible for the performance of the act in respect of which the violation occurred." United States v. Graham, 9 Cir., 1962, 309 F.2d 210, 212.

    United States v. Hill, 368 F. 2d 617 (5th Cir. 1966)


    A similar contention was answered by the Ninth Circuit, as follows:

    "Graham next contends that he was not a person under § 6672 `required to collect, truthfully account for, and pay over' the taxes in question, since he was not a disbursing officer of the corporation and had no authority to draw or sign checks on the corporation's bank account."This again, we feel, is too narrow a construction. The statute's purpose is to permit the taxing authority to reach those responsible for the corporation's failure to pay the taxes which are owing. It would make little sense to confine liability to those performing the mere mechanical functions of collection and payment when such functions are performed simply in accordance with the executive judgment of others whose duty it is to decide for the corporation in this area." United States v. Graham, 9 Cir. 1962, 309 F.2d 210, 212.
    Liddon v. United States, 448 F. 2d 509 (5th Cir 1971)


    In United States v. Graham, 309 F.2d 210 (1962), the Ninth Circuit held that a director could be liable under § 6672, saying that the word "person" was not strictly limited to officers and employees, but included "all those so connected with a corporation as to be responsible for the performance of the act in respect of which the violation occurred." Id. at 212.
    Botta v. Scanlon, 314 F. 2d 392 (2nd Cir. 1963)


    SUMMARY
    We have the same case law being cited by the 9th, 5th, and 2nd circuit court of appeals without modification and using the exact same application and interpretation. I believe it is well-established that the duty an individual has must be connected with a corporation [or partnership] or attached to one's position within a corporation [or partnership].



    Connecting 6671(b) "Person" to § 7343 "Person"
    Application to 26 U.S.C. § 7434 "Person"
    What does all this have to do with the "person" defined in § 7434? Well, let's look at this case where a direct comparison is made between 6671(b) and 7434:

    He contends that a corporate officer is a "person" for purposes of § 6672(a) only because § 6671(b) specifies that the term "person," as used in I.R.C. ch. 68, subchapter B, encompassing §§ 6671-6724, "includes an officer or employee of a corporation, or a member or employee of a partnership, who as such officer, employee, or member is under a duty to perform the act in respect of which the violation occurs." But for purposes of § 7202, the term "person" is defined by identical language. See I.R.C. § 7343 ("The term `person' as used in this chapter 220[I.R.C. ch. 75, encompassing §§ 7201-7344], includes an officer or employee of a corporation, or a member or employee of a partnership, who as such officer, employee, or member is under a duty to perform the act in respect of which the violation occurs."). Therefore, Thayer, as the president and majority owner of MIS and ELOP, was properly charged and convicted as a "person" under § 7202.
    US v. Thayer, 201 F. 3d 214 (3rd Cir., 1999)

    There's a couple of things we can apply from our discussion of 6671(b). First of all, this person had a duty to perform the act in respect of which the violation occurred in a civil case, that is, he was required, under § 6672, to collect and withhold taxes, and pay those taxes to the IRS. Further, this court held that because he was a person in 6671(b), he could also be charged criminally under 7202 using the definition of person at § 7343. This person met the criteria for the "civil person" (6671(b)) thus he also met the criteria for the "criminal person" (7343) because those terms are identically defined.

    Here are two more examples. Congress intentionally made the terms 6671(b) and 7343 identical. This is but one example: in a court decision, the court even states that the terms 6672 (civil withholding penalty) and 7702 (criminal withholding) penalty "tracks the wording" so that the person liable under a 6671(b) civil penalty could also be potentially charged as the same person under a 7702 criminal penalty:

    As the Supreme Court recognized, § 7202 tracks the wording of § 6672. Slodov, 436 U.S. at 245, 98 S.Ct. 1778. And § 7202 incorporates a similar definition of "person." See 26 U.S.C. § 7343. Thus, just as an individual corporate officer or employee can be civilly liable under § 6672, that officer or employee can be criminally liable under § 7202.
    US v. McLain, 597 F. Supp. 2d 987 (District Court Minnesota 2009)


    For purposes of this provision, 26 U.S.C. § 6671(b) defines "person" to include "an officer or employee of a corporation, or a member or employee of a partnership, who as such officer, employee, or member is under a duty to perform the act in respect of which the violation occurs." The penalty imposed by section 6672 is civil in nature, Gephart v. United States, 818 F.2d 469 (6th Cir.1987), but 26 U.S.C. § 7202, which tracks the wording of section 6672, makes a violation a five-year felony offense. To complete the symmetrical arrangement of civil and criminal penalties, 26 U.S.C. § 7343 defines person for purposes of section 7202 in language identical to that used in section 6671(b) for section 6672.
    State v. DeJesus, 642 So. 2d 854 (La: Supreme Court, 1994)


    If someone can be found criminally liable as meeting the factual elements of  "person" in § 7343, they must also meet the factual elements of 6671(b), too. Based on that, we can reasonably argue that the factual elements of § 7343 must be the same as § 6671(b).

    § 7343. Definition of term “person”
    The term “person” as used in this chapter includes an officer or employee of a corporation, or a member or employee of a partnership, who as such officer, employee, or member is under a duty to perform the act in respect of which the violation occurs.

    Factual Elements

    1. Must be an individual;
    2. The individual must have a duty; and
    3. The duty must be connected to a corporation or attached to his position within a corporation.




    Similarity of Interpretation of "Person"
    Now look at what the 9th Circuit had to say in a completely unrelated case in U.S. v. IVERSON, 162 F.3d 1015 (9th Cir. 1998):

    Because Congress used a similar definition of the term "person" in the CWA, we can presume that Congress intended that the principles of Dotterweich apply under the CWA. See Long v. Director, Office of Workers' Compensation Programs, 767 F.2d 1578, 1581 (9th Cir.1985) ("[W]hen a legislature borrows an already judicially interpreted phrase from an old statute to use it in a new statute, it is presumed that the legislature intends to adopt not merely the old phrase but the judicial construction of that phrase.") (citation and internal quotation marks omitted). See also Bragdon v. Abbott, 524 U.S. 624, ___, 118 S.Ct. 2196, 2202, 141 L.Ed.2d 540 (1998) ("Congress' repetition of a well-established term carries the implication that Congress intended the term to be construed in accordance with pre-existing ... interpretations.").

      then four paragraphs later...

    Moreover, this court has interpreted similar terms in other statutes consistently with the Court's decision in Park. For example, the Internal Revenue Code (IRC) holds liable any "person required to collect, truthfully account for, and pay over any tax" under the IRC. 26 U.S.C. § 6672(a). The IRC defines "person" to include any "officer ... under a duty to perform the act in respect of which the violation occurs." 26 U.S.C. § 6671(b). This court consistently has interpreted the term "person" to include corporate officers with authority to pay taxes, whether or not they exercise that authority.


    We see here the application of 6671(b) to 6672. But note what the Court says here: "[T]his court has interpreted similar terms ["person"] in other statutes consistently with the Court's decision in Park."

    I think we could argue that since "person" is interpreted similarly across other statutes, that it must be interpreted similarly within the same statute, especially since it has the exact same wording. Thus, the same characteristics that make one under a duty connected with a corporation in 6671(b) (Civil), must also be the same characteristics that make one under a duty connected with a corporation in 7343 (Criminal).



    Includes and Including - Why It Shouldn't Be Argued
    As I mentioned earlier, all the defendants who challenged § 7343 or § 6671(b) said they weren't an employee, officer, didn't have a responsibility, or most typically, there weren't on the included list within those two statutes:  "includes an officer or employee of a corporation or a member of a partnership." The courts uniformly ruled against these arguments showing that the the person was an officer (this was obvious from the cases) or that they had a duty to collect, withhold, and pay-over taxes to the IRS (in the 6672 and 7702 cases). NO ONE argued the other factual elements of the law. Some, especially Mr. Hendrickson, tried to explain how "includes and including" didn't apply to them using statutory construction as their primary argument. They basically stated that the term had a limit as to who could be included, or that the term "person" was a more limited expression of "person" found in 7701(a)(1).

    I will now argue that no matter what these people argued, they missed the key factual element that "includes and including" discusses: these people are individuals! Here's an example of how the courts treat "includes and including" with the definition of § 6671(b) "person":

    The definition of "persons" in section 6671(b) indicates that the liability imposed by section 6672 upon those other than the employer is not restricted to the classes of persons specifically listed — officers or employees of corporations and members or employees of partnerships. "[B]y use of the word `include[s]' the definition suggests a calculated indefiniteness with respect to the outer limits of the term" defined. First National Bank In Plant City, Plant City, Florida v. Dickinson, 396 U.S. 122, 90 S.Ct. 337, 24 L.Ed.2d 312 (1969).
    Pacific National Insurance v. United States, 422 F. 2d 26 (9th Cir., 1970) at 30, 31


    Whether I like it or not, the court is saying that "includes" really means any individual. But to remain constitutional, there must a limit "within the meaning of the term defined." And the court shows the limit two paragraphs later:

    Indeed, the language itself does not require that they be officers or employees of the corporation at all, so long as they are in fact responsible for controlling 31 corporate disbursements.[11] As we held in Graham, supra, 309 F.2d at 212, "the section must be construed to include all those so connected with a corporation as to be responsible for the performance of the act in respect of which the violation occurred"


    Here's the fuller quote from Graham discussing § 6671(b) "person":

    In support of the district court Graham here contends that he was not a "person," as defined in § 6671(b), since he was simply a member of the corporation's board of directors, was not employed by the corporation and did not serve as an executive officer.[2]'

    This is too narrow a reading of the section. The term "person" does include officer and employee, but certainly does not exclude all others. Its scope is illustrated rather than qualified by the specified examples. In our judgment the section must be construed to include all those so connected with a corporation as to be responsible for the performance of the act in respect of which the violation occurred.
    United States v. Graham, 309 F. 2d 210 (9th Cir., 1962)

    SUMMARY
    I believe it's not a good idea to argue "includes and including" because it's the wrong issue!  Sections 6671(b) and 7343 could be re-written as follows:

    The term "person" means an individual who has a duty attached to his position within a corporation or has a duty connected with a corporation such that he is responsible for the performance of the act in respect of which the violation occurs.


    Don't let "includes and including" throw you off. Arguing "includes and including" or that one wasn't an "officer or employee, or a member of a partnership" are losing arguments. You will get no traction arguing these because these are so well-settled. The courts have shown that these are illustrative examples of a much greater set of people. They are not qualitative (limiting examples). So, includes and including is expansive within the meaning of the term defined and it's (constitutionally) limited by the two delimiters mentioned above.



    Not Controlling Cases
    There is one final issue which people may have a problem with: many of the cases I've cited are not controlling, that is they're not from the Supreme Court or a circuit court that is binding on any court but the one in which the person resides.

    My answer to that is that these are federal cases from a federal court and their thoughts, while not controlling, are persuasive. So, if shepherdizing these cases show that it hasn't been overturned on appeal, then these cases are excellent examples demonstrating how the courts are interpreting these laws.

    As for the case from the Louisiana Supreme Court, while not controlling, it's persuasive in that a state Supreme Court is interpreting federal law for its application to state residents and that the Supreme Court of Louisiana came to the same conclusion as the federal courts.



    Are They Guilty of a Tax Crime?
    I hope I've given you enough reason to show that perhaps their indictments never alleged the essential element of this issue and thus did not put the defendants on notice as to the charges they were to defend against. Thus, the indictment was defective and on that basis, must be dismissed. The indictment can be challenged at any stage of the proceeding, even if the people are incarcerated.

    We should all be asking for a Writ of Habeas Corpus and get these people, unjustly and unfairly accused, tried, and convicted, OUT OF PRISON IMMEDIATELY!!!



    Regards,

     

    Pablo Rodriguez

    Tax Return Team - Facts, Law, and Procedures - Nothing More!

    +1 919.647.4768

    M-T-Th, 9-11 p.m., Eastern

    Skype - TaxReturnTeam

     

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