United States v. Dorothy R. Garber
1979 U.S. App. LEXIS 10349, 607 F.2d 92, 44 A.F.T.R.2d (RIA) 6095 (1979)
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Rule of Law:
When the taxability of income is a novel legal question, unsettled by clear precedent and subject to plausible, non-frivolous debate, a defendant lacks the requisite 'willfulness' for a criminal tax evasion conviction because the vagueness of the law itself negates criminal intent.
Facts:
- Dorothy Clark Garber was discovered to have a rare antibody in her blood useful for producing medical serum.
- Beginning in 1967, Garber entered into contracts with various companies to sell her blood plasma through a painful process called plasmapheresis.
- Her compensation was based on the strength of the antibody in her plasma, not the time or effort spent.
- For the years 1970, 1971, and 1972, she received substantial payments for her plasma.
- One company, Biomedical Industries, Inc., also paid her a $200 weekly salary, for which it withheld taxes and provided a W-2 form, which Garber reported on her tax returns.
- For the larger, separate payments for the plasma itself, no taxes were withheld, and Garber did not report this money as income.
- Biomedical provided Garber with Form 1099 Information Returns for a portion of the non-salary payments.
- Garber testified that she believed the proceeds from selling a part of her body were not taxable.
Procedural Posture:
- Dorothy Clark Garber was indicted in a federal district court for willfully attempting to evade income taxes for the years 1970, 1971, and 1972.
- At trial, the court ruled as a matter of law that the income Garber received from plasma sales was taxable income.
- The trial court excluded the proffered testimony of the defense's expert witness, who would have testified that the taxability of the income was a legally debatable and unresolved question.
- The jury was instructed that the funds Garber received were taxable income.
- The jury acquitted Garber of the charges for 1970 and 1971 but convicted her of the charge for 1972.
- Garber, as the appellant, appealed her conviction to the United States Court of Appeals for the Fifth Circuit.
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Issue:
Does the legal uncertainty surrounding the taxability of income derived from the sale of blood plasma negate the element of 'willfulness' required for a criminal tax evasion conviction under 26 U.S.C. § 7201?
Opinions:
Majority - Clark, J.
Yes. A defendant cannot have willfully evaded a tax if there existed a reasonable doubt in the law that a tax was due. The taxability of payments for blood plasma is a novel and unsettled legal question. There are two legitimate, competing legal theories: the payments could be for a taxable service or for the sale of a product. If it is the sale of a product, its tax basis might be equal to its market value, resulting in no taxable gain. The trial court erred by ruling as a matter of law that the income was taxable and simultaneously preventing the jury from hearing expert testimony about this legal uncertainty. This deprived Garber of her defense that she lacked the requisite willful intent. Citing United States v. Critzer, the court held that when the law is vague or highly debatable, the requisite intent to violate it is missing, regardless of the defendant's actual knowledge of the specific legal debate.
Dissenting - Ainsworth, J.
No. The income was clearly taxable, and the trial court's rulings were correct. Section 61 of the Internal Revenue Code defines gross income as 'all income from whatever source derived,' which unambiguously includes these payments as an accession to wealth. Whether the transaction is a service or the sale of a product is immaterial, as the basis in the plasma is zero, making the entire amount taxable gain. The taxability of the income is a question of law for the judge, not a matter for jury debate via expert testimony, which would only cause confusion. The trial judge's jury instructions on willfulness were sufficient, allowing the jury to consider Garber's subjective good faith belief.
Dissenting - Tjoflat, J.
No. The majority confuses distinct legal and factual issues and creates a pernicious new rule of evidence. The court should decide two legal questions: 1) Is the income taxable? (Yes), and 2) Was the law so vague as to violate due process? (No). The jury should only decide the factual question of whether Garber acted with subjective willfulness. Expert testimony on the state of the law is irrelevant to the defendant's actual, subjective state of mind, especially since she never consulted the expert. Admitting such testimony would undermine the trial process by inviting a confusing 'battle of the experts' on legal matters that are the sole province of the court.
Concurring - Hill, J.
Yes. The income was taxable as a service. However, because the taxability of such transactions was a novel question when it arose, the defendant should have been permitted to demonstrate its novelty to the jury. This evidence is relevant not for the jury to decide the law, but for it to properly determine the factual question of willfulness. Therefore, the case should be remanded for a retrial where the willfulness issue can be determined upon consideration of all relevant evidence.
Analysis:
This case is significant for establishing that genuine, debatable legal uncertainty over a novel issue of tax law can serve as a defense to the 'willfulness' element of criminal tax evasion. It effectively allows a mistake of law defense where the law itself is unsettled. This decision blurs the traditional line between questions of law for the court and questions of fact for the jury by permitting expert testimony on legal uncertainty to be presented to the jury as evidence relevant to the defendant's state of mind. It creates a higher bar for the government in criminal prosecutions involving 'pioneering interpretations of tax law.'
