Friday, October 27, 2017
Ninth Circuit Affirms $1.1 Million Civil Tax Penalty
Says Assessment for Not Reporting Funds in Swiss Bank Account on Tax Return Doesn’t Breach Eighth Amendment’s Bar on Excessive Fines
By a MetNews Staff Writer
A $1.1 million penalty for failing to disclose overseas holdings on a 2006 tax return does not violates the Eighth Amendment’s ban on “excessive fines,” the Ninth U.S. Circuit Court of Appeals has ruled.
The decision comes in the case of Dr. Letantia Bussell, a Beverly Hills dermatologist. The doctor—who was the first to diagnose the late actor Rock Hudson as suffering from AIDS—was convicted in 2002 of bankruptcy fraud.
When she refused to pay a civil penalty assessed by the Internal Revenue Service on June 5, 2013, the government sued. U.S. District Court Judge James Otero of the Central District of California on Jan. 11, 2016, granted partial summary judgment in favor of the government.
Otero slightly lowered the penalty imposed by the IRS of approximately $1.2 million to $1,129,513. Added to that sum is statutory interest accruing from the date of the penalty assessment.
In a memorandum opinion, filed Wednesday, a three-judge panel recited that under an opinion the Ninth Circuit handed down in 2014, the burden is on the defendant to show that a fine is excessive, which requires demonstrating that it is “grossly disproportional to the offense.”
The opinion says:
“[T]he assessment against her is not grossly disproportional to the harm she caused because Bussell defrauded the government and reduced public revenues….Therefore, Bussell has failed to carry her burden to establish that the penalty is grossly disproportional to her offense.”
The opinion also says the action was not time-barred because her return was filed in 2007, there is a six-year statute of limitation, and the government’s action was filed in June 2013, within the six years; due process was not denied based on the delay in suing because the suit was filed before the statute of limitation elapsed; and that laches cannot be asserted against the government.
Among other rejected contentions are that Bussell was being subjected to multiple punishments. The opinion responds:
“Even if the funds at issue here were traceable to the funds at issue in her criminal prosecution, the offense here, failing to report her foreign bank account on her 2006 tax return, was unrelated to her criminal conviction.”
That was the closest the court came to addressing the contention that Bussell’s attorney, Victor Sherman of Los Angeles, spent nearly all of his time discussing during oral argument on Oct. 6 in Pasadena. He told the three-judge panel that in 1996, his client placed about $1.5 million in a U.S. account, later transferred roughly $1.15 million to a Swiss account, and that, following Bussell’s 2002 conviction, the IRS sought to tax the funds, and Bussell paid about $850,000.
“[T]his money that was deposited in the Swiss bank account was already taxed and the tax was paid by the defendant.”
Judge Milan D. Smith Jr. questioned the lawyer as to what evidence there was that the funds that were already taxed were the same funds that IRS claimed were not reported.
He responded that both the government and Bussell had proceeded throughout on the understanding that they were the same funds; Otera declared in granting summary judgment that they were separate funds; that finding was “a complete surprise”; and reconsideration was sought.
Message to Otera
Sherman said that in seeking reconsideration, he told Otera, in effect:
“Judge, both sides had litigated this case on the theory that it was the same money. All of a sudden, you’re saying it wasn’t the same money.
“Give us an opportunity to make a showing that it was the same money.”
“And I would have been able to produce lots of evidence.”
He said his client would have testified that she deposited only one set of funds and that those were the only funds that “left the United States.”
Under questioning, he acknowledged that he did not specify in his motion for reconsideration what evidence he would proffer if reconsideration were granted.
Sherman said yesterday he will seek reconsideration on that issue as well as one relating to a treaty with Switzerland. He maintained the introduction of banking evidence contravened the treaty; the Ninth Circuit responded:
“Because Bussell has not shown that the treaty she relies on creates an enforceable right…, Bussell is not entitled to relief under this theory.”
The case is U.S.A. v. Bussell, 16-55272.
In 2002, Bussell, now 68, was sentenced on bankruptcy fraud to three years in prison and ordered to pay nearly $2.4 million in restitution, including $353,394 in back taxes, along with a $50,000 fine and about $56,000 in recompense to the government for the costs of prosecution. Restitution was later lowered to $2.2 million.
Her husband and co-defendant the case, Dr. John Bussell, fell from a hotel window during jury deliberations, in what was apparently a suicide.
The Ninth U.S. Circuit Court of Appeals affirmed the sentence on Sept. 27, 2007, saying that Letantia Bussell engaged “in a lengthy, orchestrated scheme to defraud creditors” in the amount of $3,057,927.09.
She proclaimed innocence based on merely following advice of her attorneys, with obliviousness as to the illegality of her actions.
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