United States of America, Plaintiff-appellee, v. J. Archie Gay, Defendant-appellant, 576 F.2d 1134 (5th Cir. 1978)

Defendant J. Archie Gay, doing business as Comfort Central Engineers, was the sole proprietor of a heating and air conditioning business. As an employer of labor Gay was required to collect, account for, and pay over to the United States, Federal Insurance Contribution Act taxes and federal income taxes withheld from the wages of Comfort Central Engineers' employees. See 26 U.S.C. §§ 3102, 3402. In January 1976 after Gay fell into arrears in fulfilling this obligation, the Internal Revenue Service assigned Agent Illingsworth to collect the delinquent withholding taxes. Because of conflicts between Agent Illingsworth and Gay, on February 26, 1976, Agent Donovan replaced Illingsworth on the case. About a month later, a letter, Form L-54, was delivered to Gay. This letter informed Gay that if submission of quarterly withholding returns and payment of any taxes due continued to be delinquent, Gay would be placed under the stricter provisions of 26 U.S.C. § 7512.¹  When Gay failed to file a withholding return for the quarter ending June 30, 1976 on the due date, Agent Donovan recommended the issuance of Form 2481²  and personally served that form on the defendant on August 26, 1976. The issuance of Form 2481 required Gay to file monthly returns and to pay withheld taxes into a special trust account two days after the collection of the taxes.³ 

Despite the receipt of Form 2481, Gay failed to make timely deposits into the trust account for the remainder of 1976. During the first three months of 1977, no deposits were made to the trust account. In addition, Gay never filed the monthly returns on their due date. As a result of this noncompliance with section 7512, the case was referred to the Intelligence Division of the Internal Revenue Service for possible criminal prosecution.

On July 25, 1977, an eight-count information was filed against Gay charging a violation of 26 U.S.C. § 7215⁴  for failing to deposit taxes withheld on each of the eight paydays in January and February 1977. A jury found Gay guilty on all counts. For each count, Gay was fined $300 and was sentenced to concurrent three-year terms of probation. Gay now appeals from that conviction. Finding the contentions raised to be without merit, we affirm the conviction.

The trial court properly excluded evidence of Gay's altercation with Agent Illingsworth as irrelevant to the issue of whether Form 2481 was properly issued or whether Gay complied with the requirements of 26 U.S.C. § 7512. There is no evidence that the issuance of Form 2481 was in any way related to the altercation between Gay and Illingsworth. Instead, the evidence of Gay's failure to account for withheld taxes fully supports the decision to issue the form. The altercation is also irrelevant as a possible motive for Agent Donovan's allegedly misrepresenting to Gay Gay's duties under Form 2481. While Gay suggests on this appeal that such misrepresentations were made, Gay and his wife did not testify that Agent Donovan made any misleading statements. Because Donovan's conduct was not brought into question during the trial, evidence of any motive for alleged misrepresentations by Donovan was irrelevant.

In addition, expert testimony offered by the defense concerning the requirements of section 7512 was properly excluded. Gay's legal obligations in the circumstances were a matter for instructions from the trial court and not properly a subject for testimony by an expert witness. See United States v. Phillips, 5 Cir., 1973, 478 F.2d 743; Huff v. United States, 5 Cir., 1959, 273 F.2d 56.

Gay also was not entitled to have evidence of payment of any advance deposits that he may have made into the trust account treated as an absolute defense to the offenses charged in the information. To ensure collection of withheld taxes, section 7215 imposes strict compliance with the deposit requirements of section 7512 and any deviation from these provisions constitutes an offense. "(A)n offense under section 7215 has nothing directly to do with payment at all, but with the failure to comply with mandatory accounting procedures." United States v. McMullen, 7 Cir., 1975, 516 F.2d 917, 921, cert. denied, 423 U.S. 915, 96 S. Ct. 222, 46 L. Ed. 2d 144 (1977). The only basis for excusing noncompliance with section 7512 is that the defendant either had a reasonable doubt about his obligation to collect the taxes or was unable to comply as a result of circumstances beyond his control. See 26 U.S.C. § 7215(b).

The district court permitted Gay to introduce evidence of any overpayment to prove that Gay had a reasonable doubt as to his obligation to collect taxes since he would have already deposited any taxes due.⁵  This evidence showed that while the deposits made between September 26 and December 14, 1976 exceeded the taxes withheld during that period, these overpayments, amounting to about $70, were insufficient to cover the approximately $1,500 of taxes which were withheld in the first two months of 1977. Further, testimony indicated that the excess deposits were to repay the withholding taxes that Gay had collected but not paid to the United States for the first part of 1976 and at no time were sufficient funds deposited to fulfill Gay's withholding tax liability from the beginning of 1976.

Although Gay further contends that he may have been relieved from the provisions of section 7512 prior to January 1977, the evidence clearly shows that Form 2481 was still in effect. Form 2481 was hand delivered to Gay on August 26, 1976. Treasury Regulations § 31.6011(a)-5(a) (2) and § 301.7512-1(e) specify that only a written notice from the District Director can cancel the obligations of Form 2481. See also Treas.Reg. § 31.6161(a) (1)-1 (requirements of Form 2481 cannot be waived). At no time prior to the offenses charged in the information did Gay receive such a written notice cancelling his obligations.

Lastly Gay contends that the evidence was insufficient since the Government failed to show that taxes were withheld on the dates specified in the information. While Gay's business normally paid its employees every Friday and recorded the payments in its books on those days, employees were often requested not to cash their checks immediately because the business lacked sufficient funds to cover the checks. Nonetheless, the Government sufficiently proved the offense charged in the information. Since the checks were expected to be paid shortly after their issuance, the taxes should be considered withheld on the normal payday. "It is not material that the checks may not have been delivered on the exact dates appearing thereon or that particular employees may not have cashed their checks immediately after receiving them." United States v. Paulton, 8 Cir., 1976, 540 F.2d 886, 891. Further, the Government also showed that in some instances wages were paid in cash near the dates shown in the information and, hence, that some deposit of withheld taxes was required on the dates specified in the indictment. It is unnecessary to prove the exact amount of each deposit required. The essence of the offense is failing to make a timely deposit and since no deposits had been made during January or February 1977, demonstrating that any deposit was due proved that Gay failed to comply with the provisions of section 7512.

AFFIRMED.