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UNITED STATES v. CARLSON

August 11, 1966

United States of America,
v.
Walter O. Carlson, Defendant


Dooling, District Judge.


The opinion of the court was delivered by: DOOLING

Memorandum and Order

DOOLING, District Judge

 Defendant has moved to suppress evidence obtained by the Special Agents of the Intelligence Division of the Internal Revenue Service through interviews conducted by them with defendant at which defendant was not advised that he was entitled to be represented by counsel and that the investigation was addressed to fixing upon him criminal responsibility for his understatements of income tax in the years 1957, 1958, 1959, 1960 and 1961. Defendant moved also, on the ground that it is necessarily founded upon evidence illegally obtained, to dismiss the indictment and all the counts of it.

 The indictment, under Internal Revenue Code § 7206(1) charges that defendant willfully made tax returns for 1958, 1959 and 1960 which he did not believe to be true and correct in material matters; the specification is understatement of income tax liability due to the omission of dividends, capital gains, and interest.

 Admittedly - now at least - defendant's income tax liability in each year was substantially understated. Defendant reported some dividends every year and in one year reported a capital gain; he did not report all his dividends, nor any of his savings bank interest, nor all his capital gains. The data available for prosecution include defendant's own statements of his dividend income derived from securities kept in his own custody, the records of Goldman Sachs & Co., Bache & Co. and Merrill, Lynch, Pierce, Fenner & Smith (and Form 1087s filed by Merrill, Lynch) copies of the savings bank pass books, and Form 1099s filed by various dividend-paying corporations. Suppression is significant only as to such evidence as the taxpayer produced against himself about his knowledge that he had the income and had not reported it and the reason for not reporting it, and as to the data, if any, which came to the Government's hands only after the Intelligence Division began its criminal inquiry and by reason of leads obtained from defendant in the challenged interviews.

 The Government, here, is transactionally interested as tax-collecting sovereign in the tax owed to it and not paid. Apart from being prosecuting sovereign the Government is interested to get the data to compute its tax for collection. As a prosecuting sovereign it is additionally interested in matter relevant only to criminal punishment or to the related but milder punishment of the fraud and negligence penalties that are collectible as additions to tax.

 In this latter aspect the Government is interested in making such inquiries - irrelevant to the tax computation - as these: Were you conscious that you had omitted material items and that the tax you showed was less than the tax due? Did you intend by the conscious omission from the returns of items that you knew were taxable to evade and defeat the payment of the tax? Did you observe on the brokerage statement that you received the printed legend advising you to preserve the broker's statement for use in preparing your income tax return? Did you know that capital gains on securities are taxable even though within 18 months the proceeds are re-invested in property of substantially the same sort? The answers to such questions bear upon criminal responsibility and on liability to "civil" penalties for negligence or fraud.

 The United States as tax-imposing sovereign was entitled under Internal Revenue Code §§ 6011(a), 6012 and 6013 to have a return of tax from the defendant or from the defendant and his wife which sets forth the information required by the tax form and the regulations. It is idle to suggest that the duty to file that return or to supply the information called for by the tax form and regulations was discharged by filing an incorrect return. The duty to respond correctly to the inquiries made by the form of tax return is a continuing duty. It is not distinctively a duty of self-accusation for, considered by itself, the supplementing of a return by additional information relevant to tax computation is wholly compatible with innocence and with the absence of negligence, fraud, willfulness and criminality.

 Internal Revenue Code §§ 7601-7606 empower the Internal Revenue Service to examine records relative to an inquiry directed to ascertain the correctness of any tax return and to summon the persons liable to the tax, and anyone having custody of books of account relating to the tax liability, and such summonses are enforceable in the District Courts. There can be no question that appropriate inquiries under Sections 7602 through 7605 are necessary governmental implementations of the duty to file the returns and to pay the taxes. The mere filing of an inadequate tax return can not discharge the responsibility to make the disclosure that will complete the return merely because to do so will supply indispensably necessary data preconditioning any governmental case for criminal responsibility. So, the present case may involve delineating the boundary between the area of responsibility for civil disclosure and the area in which, if ever, interrogation and the eliciting of evidence and evidentiary leads were material only, or only significantly, to the pursuit of criminal objectives.

 A whole second range of consideration is presented in this case, because of the nature of the defendant's professional experience. If a defendant is entitled to be told - or reminded - that he has the right to the assistance of counsel, must that be done for men equally competent with the interrogating officer to remind him that the right exists? And if no broad generalization can be made based on the calling and competency of the particular taxpayer and potential defendant - for he may not be sensitive to the moment when inquiry has become oriented toward eliciting evidence for use in a criminal proceeding - does that become a factor in the context of a particular interrogation and the possibility that the taxpayer and potential defendant is calculatedly investing a mixture of self-condemning statements, exculpatory arguments and proffers of belated cooperation with the Internal Revenue Service even as the Internal Revenue Service may be skirmishing for inculpatory statements as well as pursuing objective factual data?

 The final range of consideration brought to bear upon this case arises out of defendant Carlson's health.

 The taxpayer-defendant's tax history, his professional advancement and his health problems require a chronological statement.

 Defendant was born in 1908 in Connecticut, was graduated from high school, took special courses at Columbia University and the College of the City of New York - apparently in the late 20s or early 30s - which may have amounted to no more than the equivalent of a year and a half or so of college. Carlson's first employment was with Lawyers Trust Company and thereafter with County Trust Company and Bankers Trust Company, successors by merger to Lawyers Trust Company. On November 2, 1942, defendant joined Lybrand, Ross Bros. & Montgomery, a well known public accounting firm, at a salary of $2,400 a year. By October 1, 1955, defendant was on a base salary of $8,500 a year and was receiving an annual bonus of $2,500 a year. His later salary and bonus history was as follows: Salary Bonus October 1, 1956 $ 9,000 $2,500 October 1, 1957 $10,000 $2,500 October 1, 1958 $11,000 $2,500 October 1, 1959 $11,000 $2,300

 About March of 1960 defendant left Lybrand. He was then an audit supervisor and was in charge of the conduct of field audits of clients' accounts. He would have under him from 1 to 10 or 20 men at any one time. The grades junior to defendant's grade in the staff organization of Lybrand were seniors, staff A and staff B accountants. Senior to defendant in the Lybrand plan of staffing would be "managers," to whom a person in the position of defendant would report, and senior to the managers would be the partners of the firm. In the 18 years with Lybrand defendant had fairly routine business experience that was not markedly successful although it was adequate and satisfactory. On April 1, 1960, defendant joined Philip Morris, Inc. as a general accounting manager at $16,000 a year. His work was to supervise the preparation and consolidation of accounting statements; he was in charge of a staff of 12 or 15 persons; he reported to the comptroller of the corporation. While with Philip Morris and in January of 1963, defendant was made Comptroller of Philip Morris International Division. His responsibilities in that job were to prepare the statements and supervise the keeping of the records of the division. A staff of 12 or 15 worked under him. Defendant's rates of pay at Philip Morris were as follows: Annual Rate of Year Commencing Salary 4/1/60 $16,000 5/1/61 $17,500 5/1/63 $20,000 9/1/64 $21,500 Defendant had accruals in the company's profit sharing plan equal to $3,600 at December 31, 1965.

 Some time in or before 1952 defendant Carlson had qualified as a certified Public Accountant in the District of Columbia. Defendant never practiced accountancy in the District but he sat for the examination there because his pre-accountancy education was inadequate to qualify him for the New York examination.

 In May 1952 defendant applied for and was granted admission to practice before the United States Treasury Department. He stated his position at the time as being that of Senior Accountant with Lybrand. The basic qualification that defendant presented was that he was a certified public accountant. In January 1957 defendant applied to renew his Treasury Department enrollment ...


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