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UNITED STATES v. PETRO HAWRYLUK

March 27, 1987

United States of America
v.
Petro Hawryluk


Newcomer, J.


The opinion of the court was delivered by: NEWCOMER

Newcomer, J.

On this prosecution, the defendant is charged in a superceding indictment with three counts of tax evasion for the tax years 1979-1981, 26 U.S.C. § 7201, and three counts of making and subscribing false income tax returns for those same tax years, 26 U.S.C. § 7206(1). I have before me certain discovery motions by the defendant, in which he challenges the sufficiency of the government's responses to his discovery requests under Fed.R.Crim.P. 16 and the requirements of Brady v. Maryland, 373 U.S. 83, 10 L. Ed. 2d 215, 83 S. Ct. 1194 (1963).

 I. Background

 A brief explanation of the circumstances of this case and the theory of the defense is necessary to understand the nature and necessity of the discovery requested. The defendant is 56 years old. He immigrated with his family to this country from Poland in 1948, and has minimal education. See Petro Hawryluk's Theory of Defense at 1. Defendant is the sole proprietor of Quality Roofing, a general roofing contractor. Defendant vigorously disputes that he ever intended to avoid payment of taxes on actual income or to file false returns; *fn1" and that he wilfully made and subscribed tax returns which he did not believe to be true. *fn2"

 A. Extortion Payments

 Defendant claims that during the relevant years, substantial sums of money were extorted from him by the roofers union. In particular, defendant alleges that the roofer union required defendant "to make extortionate payments to Roofers Union officials to insure the contractor's physical safety, as well as for that of their employees, their property, the property of totally innocent customers, and other third parties." Petro Hawryluk's Theory of Defense at 8. Defendant also claims that he was required to pay union benefits *fn3" and salaries to the union for union members who did not work. Id. at 9. Defendant claims that the extortion payments were, in certain instances, related to particular roofing jobs, in other instances, the payments were not connected to particular jobs. Id. at 12. Defendant asserts that such payments entitle him to deductions as ordinary and necessary business expenses under 26 U.S.C. § 162.

 Section 162(a) allows taxpayers to deduct in the calculation of income "all ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business." Certain categories of payments, however, are excluded from deductible business expenses. Illegal payments to government officials are not deductible. 26 U.S.C. § 162(c)(1). In addition, section 162(c)(2) provides as follows:

 
Other illegal payments. No deduction shall be allowed under subsection (a) for any payment . . . made, directly or indirectly, to any person, if the payment constitutes an illegal bribe, illegal kickback, or other illegal payment under any law of the United States, or under any law of a state . . ., which subjects the payor to a criminal penalty or the loss of license or privilege to engage in a trade or business. (Emphasis supplied).

 See Raymond Bertolini Trucking Co. v. Commissioner of Internal Revenue, 736 F.2d 1120, 1122 (6th Cir. 1984) (kickback payments which do not subject payor to criminal sanction or loss of business privileges deductible under section 162(a)).

 The Hobbs Act, 18 U.S.C. § 1951, makes extortion intended to obstruct, delay and or affect interstate commerce a crime against the United States. The Act defines extortion as "the obtaining of property from another, with his consent, induced by wrongful use of actual or threatened force, violence, or fear, or under color of official right." 18 U.S.C. § 1951(b)(2). Similarly in Pennsylvania, extortion is governed by 18 Pa. C.S.A. § 3923, which prohibits theft by extortion, i.e., the intentional withholding of property of another by threatening, inter alia, to commit another criminal offense. Id. Nothing in either statute indicates that the payor would be subjected to criminal penalty or loss of a business license. Both statutes plainly envision that the victim of the extortion scheme will not be subject to criminal sanction therefor. Furthermore, the Pennsylvania prohibition of bribery only pertains to governmental or political matters, and is thus inapplicable here. 18 Pa. C.S.A. § 4701 et. seq.

 Fundamentally, there is a difference in principle between illegal payments listed in section 162(c)(2), and the payment of extortion. Voluntary, willful payments intended to influence a decision of a public official or some other individual or to reward an individual for the performance of an official duty demonstrate a criminal intent which is absent when payments are coerced by the recipient. Compare United States v. Goldman, 439 F. Supp. 337 (D.N.Y. 1977) (illegal payment of bribes not deductible as business expenses), with United States v. Kahn, 472 F.2d 272, 277-79 (2d Cir. 1973) (extortion while not necessarily a complete defense to bribery, can negate criminal intent), and United States v. Barash, 365 F.2d 395, 401-02 (2d Cir. 1966) (same). If the payments allegedly made were ordinary and necessary expenses of doing business see Raymond Bertolini Trucking Co., supra, and not illegal to the payor, 26 U.S.C. § 162(c)(2), then such payments would be deductible to the taxpayer. As such, they could offset certain taxes the government asserted the taxpayer owed, and could also be relevant to the issue of intent.

 B. Conduit Theory

 Defendant's second theory of defense is that certain payments nominally made to him were in actuality payments to the roofers union. He alleges that, while certain bills were submitted under his letterhead and payments were made on those bills on many large roofing projects he was forced, by extortion, to allow the Union to perform the work and immediately sign over all payments to the union. *fn4" Petro Hawryluk's Theory of Defense at 8-11. Defendant did not ...


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