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United States v. Scotto

August 29, 2006


The opinion of the court was delivered by: Hon. Harold Baer, Jr., District Judge


Ralph Joseph Scotto ("Scotto" or "Defendant") was indicted on April 5, 2006 on one count of tax evasion and 28 counts of aiding and assisting in the preparation of false payroll tax returns. Defendant filed a pre-trial motion that seeks dismissal only of Count One -- evasion of payment of payroll taxes, 26 U.S.C. § 7201. The Defendant contends the charge is 1) barred by the statute of limitations, 2) was the product of unnecessary delay in presentation to the grand jury, 3) facially insufficient because Scotto is charged with taxes for which he is not personally liable, and 4) that pursuant to the Federal Rule of Criminal Procedure 7(d), the surplusage must be stricken. For the reasons set forth below, the motion is DENIED.


The Indictment alleges that the Defendant was owner and operator of several now defunct restaurants, among them Waterset Enterprises, Inc. ("Waterset"), d/b/a "Harbor Club Restaurant," and R3A6 ("R3A6"), d/b/a "Sasha Delicatessen." The Government charges that as owner and operator of these restaurants, Scotto was required to pay the IRS payroll taxes withheld from the employees' salaries and that he failed to do so. As a result, by in or about September 1985, Waterset owed the IRS approximately $43,423.23 and by in or about June 1990, R3A6 owed the IRS approximately $21,403.29 in payroll taxes. Since Scotto was an individual responsible to pay over these monies to the IRS, he was personally assessed for the Waterset and R3A6 unpaid payroll taxes on or about December 23, 1991 and March 25, 1992, respectively. The Indictment alleges that Scotto chose to evade payment of this IRS debt by concealment and attempted concealment of substantial income and other assets. The acts of concealment included, inter alia, failure to file federal, state, and local individual income taX returns for the tax years 1998, 1999, and 2000 as well as the payment of his personal expenses by cash, money orders, and checks from the businesses.


A. Statute of Limitations

The Defendant argues that Count One of the Indictment must be dismissed as untimely since Scotto is charged with evading taxes that were assessed over a decade ago and the civil statute of limitations for collection of those debts has expired. I disagree.

Scotto is charged with tax evasion pursuant to 26 U.S.C. § 7201. The section provides that Any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than 5 years, or both, together with the costs of prosecution.

All agree that the applicable statute of limitations for a charge of tax evasion is six years. 26 U.S.C. § 6531 provides, in relevant part, that

No person shall be prosecuted, tried, or punished for any of the various offenses arising under the internal revenue laws unless the indictment is found or the information instituted within 3 years next after the commission of the offense, except that the period of limitation shall be 6 years-

(2) for the offense of willfully attempting in any manner to evade or defeat any tax or the payment thereof.

The Defendant argues that any tax evasion ended when the corporate entities, Waterset and R3A6, went out of business in 1985 and 1990, respectively. In the alternative, the Defendant argues that this criminal prosecution is time-barred because the civil statute of limitations that governed collection of these taxes ended over six years ago -- an argument for which Scotto fails to provide any support in the law, nor have I been able to find any.

The Government contends that Scotto engaged in a course of conduct to evade payment of taxes through 2002, well within the statute of limitations. The Indictment was filed on April 5, 2006. For Count One to be timely, the Indictment must charge Scotto with crimes that occurred on or after April 5, 2001. The Indictment alleges the following acts of tax evasion occurred after April 5, 2001.

1. For various tax years between 1996 through 2002, Scotto failed to file U.S. Corporate Income Tax Returns for approximately twelve of the approximately sixteen corporations he owned and controlled.

2. From on or about January 7, 1999, through on or about September 23, 2002, Scotto paid a total of approximately $16,033.73 in money orders for monthly utility bills for his weekend ...

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