On Appeal from the United States District Court
for the District of New Jersey (D.C. Criminal Action No. 96-cr-00220)
Before: COWEN, ROTH and LEWIS, Circuit Judges
Argued September 23, 1997
This is an appeal from a twelve-count indictment charging the defendant, Rao Gollapudi, with violating two provisions of the Internal Revenue Code. More specifically, Gollapudi was charged with failing to account for and pay over to the Internal Revenue Service federal income taxes, deducted and collected from the total taxable wages of his employees, between 1989 and 1991, in violation of 26 U.S.C. Section(s) 7202. Additionally, Gollapudi was indicted for filing a false personal income tax return, Form 1040, for the years 1989 through 1991, in violation of 26 U.S.C. Section(s) 7206(1). Gollapudi now appeals on the grounds (1) that his prosecution for violating 26 U.S.C. Section(s) 7202 is barred by the three-year statute of limitations of Section(s) 6531, and (2) that because the responses on the 1040 he filed were truthful he cannot be found guilty of filing a false statement under Section(s) 7206(1). For reasons set forth below, we affirm the decision of the District Court.
From the company's inception in 1984, the appellant, Rao Gollapudi, has been the president and sole shareholder of Softstar Computer Consultants, Incorporated ("Softstar"), a Michigan corporation involved in the business of analyzing and improving computer systems for Fortune 500 companies. Following the departure of his partner from the company in 1986, Gollapudi became solely responsible for preparing and filing the company's tax returns and paying the wages of its employees. Shortly after assuming this responsibility, Gollapudi failed to make any payment of employment taxes and stopped filing Employer's Quarterly Tax Returns ("941's") with the IRS.
During the years 1989 through 1991, Softstar employed fifteen individuals, who were paid by checks drawn from the company's corporate checking account. Although the checks indicated that federal income taxes and Federal Insurance Contributions Act ("FICA") taxes were being withheld from the employees' wages, Gollapudi did not remit the withheld funds to the IRS. Rather, these funds, totaling approximately $527,828, were deposited into Softstar's corporate checking account where they were used to pay corporate operating expenses. *fn1 Furthermore, by failing to file 941's, Gollapudi never reported the collection of these withholding taxes to the IRS and, thus, avoided detection.
After an IRS tax examiner discovered that Softstar had failed to file the required 941's and remit any tax refunds to the federal government, Gollapudi admitted that although he collected the appropriate taxes from his employees, he did not turn over the withholdings to the IRS. Instead, he kept the money in the company. Gollapudi further admitted that, although he was aware of his obligations, he did not file the required 941's, W-2's, or corporate tax forms with the IRS. Subsequently, Gollapudi contacted an accountant, David Karpel, who on behalf of Gollapudi filed the delinquent 941's and corporate tax returns and paid $591,000 in back taxes.
Gollapudi's handling of the withdrawals from his own salary was also questionable. Gollapudi filed a personal income tax return, Form 1040, for the tax years 1989, 1990, and 1991, in which he claimed that he had withheld approximately $6,000 in federal income taxes from himself. This amount was not turned over to the IRS. Additionally, there was a question of whether the funds were in fact withheld. Although the government argued that such funds were not withheld, Gollapudi testified that, because he did not receive a regular salary, his withholdings were calculated in a unique manner. Gollapudi explained that instead of receiving a regular salary, he periodically took disbursements from the company. At the end of each year he received the corporate records, calculated the total sum that he had paid as salary, checked the relevant tax tables and calculated the gross salary that would correspond to the net salary he had actually received. The difference between the gross and net salaries, he argued, was treated as having been withheld from his gross pay.
On April 19, 1996, Gollapudi was indicted on nine counts of failing to account for and pay over to the IRS federal income taxes and FICA taxes, deducted and collected from the total taxable wages of his employees, for thefinal quarter of 1989 and for all four quarters of the years 1990 and 1991, in violation of 26 U.S.C. Section(s) 7202. In addition, Gollapudi was charged with three counts of filing false personal income tax returns for the calendar years 1989 through 1991 in violation of 26 U.S.C. Section(s) 7206(1). Prior to trial, Gollapudi moved to dismiss the first nine counts of the indictment as barred by the three year statute of limitations. This motion was denied. Gollapudi was found guilty on all counts and now appeals.
This is an appeal from a final judgment of the United States District Court for the District of New Jersey, entered March 7, 1997. An appeal was filed on March 10, 1997. The District Court had jurisdiction pursuant to 18 U.S.C. Section(s) 3231. We have jurisdiction pursuant to 28 U.S.C. Section(s) 1291 and 18 U.S.C. Section(s) 3742.
A. Statute of Limitations.
The first issue before the court is whether a violation of 26 U.S.C. Section(s) 7202, which prohibits the willful failure "to collect or truthfully account for and pay over" any tax, *fn2 is subject to a three-or six-year statute of limitations. For the following reasons, we hold that the violation is subject to a six-year statute of limitations and thus will affirm the decision of the District Court on this issue.
The statute of limitations governing 26 U.S.C. Section(s) 7202, as well as other criminal tax violations, is set forth in 26 U.S.C. Section(s) 6531. This section generally provides that criminal tax proceedings must be initiated within three years of the offense, unless the offense falls into one of eight exceptions providing for a six-year period of limitations. Specifically, the relevant section, Section(s) 6531(4), provides 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 ...