Rehearing En Banc Granted March 26, 1979.
AINSWORTH, Circuit Judge:
This direct criminal appeal involves the novel question of the taxability of income derived from the sale of a person's own blood plasma. Dorothy R. Garber was convicted after a jury trial of one count of a three-count indictment charging income tax evasion in violation of section 7201 of the Internal Revenue Code of 1954, 26 U.S.C. § 7201 (1976),
In late 1967, Dade Reagents, Inc. of Miami, Florida approached appellant, who then lived in Oshkosh, Wisconsin, with an offer to travel to Miami for discussions regarding the sale of her blood plasma. On December 29, 1967, Garber entered into a contract with Dade providing that Dade would have the exclusive right to withdraw her blood plasma for conversion into a marketable serum and would pay her between $200 and $500 per "bleed" depending on the concentration of antibodies or titre of her blood. The commercial exploitation of appellant's blood involved two separate steps: stimulation and plasmapheresis. Stimulation involved increasing the concentration of antibodies in her blood by injecting small amounts of selected human red blood cells into her blood; this procedure heightened her existing immunity to blood with a foreign Rh factor. Plasmapheresis is a process in which whole blood is removed from a donor and immediately centrifuged to separate the red blood cells from the plasma or watery part of the blood. The red blood cells are then transfused back into the donor's body. As a donor can safely give whole blood only about eight times per year but can give blood plasma as often as twice a week, the use of plasmapheresis dramatically increased the volume of antibodies that could be taken from appellant during any given period of time. This process is generally repeated twice at a session and requires about an hour and a half to recover a pint of plasma; due to the small size of appellant's veins, however, it usually took her two and a half hours.
At the time she signed the contract with Dade, Garber also executed a comprehensive release stating that she was aware of the presence of the Rh antibodies in her blood and of their danger to any children she might carry with an incompatible Rh factor and to her if she received a transfusion of incompatible blood. She acknowledged that she had received advice not to have more children and that she had been informed of the nature and purpose of the procedures to be performed. Finally, she released Dade from liability for any damage, injury or loss that might result from stimulation or the withdrawal of blood. She routinely signed releases when blood was taken.
The process of stimulation caused a number of unpleasant side effects, including dizziness, severe headaches and muscle aches, which lasted approximately two weeks after the injection of the foreign blood cells. The process of plasmapheresis also involved pain and discomfort. On occasion the technician would have difficulty situating the needle properly in the veins in appellant's arms, allowing blood to seep into the tissues around the vein creating a minor hematoma or even hitting a nerve. These difficulties could produce lingering soreness and stiffness of the arms. In addition, Garber inevitably suffered a certain amount of scarring of the veins in her arms and ran the remote risk of contracting hepatitis or having an air bubble introduced into her bloodstream. An expert testified at trial, however, that there should be no untoward effects if the process is done properly.
Joseph N. Potts, a former Dade superintendent, testified at trial that, when appellant first began selling blood plasma to Dade, he wanted her to be informed concerning the taxability of the payments made to her. A memorandum dealing with taxation was prepared for Garber, and Potts discussed the matter with her in his office. At Dade's suggestion a savings account was opened in Garber's name in
In January 1970, having terminated her relationship with Dade, appellant began an association with Biomedical Industries, Inc. A contract signed February 25, 1970 provided for the payment of $700 per bleed and on March 1, 1972 Biomedical agreed to pay Garber up to $1,600 per bleed. In addition to these payments, Biomedical paid her a salary of $200 per week, provided her with a Lincoln Continental automobile, and paid her a sum of money in lieu of the life insurance that Biomedical had agreed to obtain but for which Garber was unable to qualify. Finally, under the 1970 agreement she received 1,000 shares of Biomedical's common stock and the 1972 agreement provided for a bonus of $25,000 for signing.
With regard to the $200 per week salary, Biomedical withheld money for tax purposes and issued appellant W-2 forms. As to the other payments and benefits, Biomedical treated appellant as an independent contractor and withheld nothing. It issued to her copies of Form 1099, an information return form, stating the amount of these latter earnings. Although Garber ostensibly received the salary of $200 per week for attempting to find other donors, aside from speaking to her twin brother she did nothing to earn this money. She testified at trial that it was her understanding that this salary represented additional compensation for the sale of her blood plasma to Biomedical. Appellant reported this salary on her income tax returns for 1970, 1971, and 1972; she did not report any other compensation for these years.
On June 13, 1973, IRS Special Agent Ted F. Brown met with appellant and her then husband to discuss their joint income tax return for 1971. At that meeting she told Brown that the return was true and correct, that the W-2 form attached to the return reflected payments for employment as a secretary for Biomedical, that she had received no income from Biomedical other than that indicated on the W-2 form, and that she had never had a savings account. Two days later, on June 15, 1973, Brown had a second meeting with appellant at her request; she indicated that she had not wanted to discuss certain matters in her husband's presence since they were in the process of getting a divorce. At this interview she told Brown that she earned money selling blood plasma to laboratories but that she believed that this money was not taxable because the plasma was part of her body. She brought the 1099 forms for 1970 and 1971 with her, but stated that she did not know their purpose and had never tried to find out.
On March 24, 1977, appellant was charged in a three-count indictment with willfully and knowingly attempting to evade and defeat a large part of the income tax owed by her for the years 1970, 1971, and 1972. She and her husband had filed joint returns for those years reporting taxable income of $7,593.34 for 1970, $13,603.60 for 1971, and $9,512.80 for 1972. The indictment alleged that their taxable income was actually $91,426.06 in 1970, $84,821.55 in 1971, and $96,477.50 in 1972. Appellant's husband was not indicted and Garber entered a plea of not guilty to all three counts. At trial the jury returned a verdict of not guilty as to the first two counts and guilty as to the third. At the time of trial in 1977, appellant
Appellant raises three issues on appeal. First, she contends that the district court erred in deciding as a matter of law that the funds received for the sale of plasma constituted taxable income and in instructing the jury accordingly. She argues that these payments were potentially excludable from gross income under section 104(a)(2) of the Internal Revenue Code as "damages received (whether by suit or agreement) on account of personal injuries or sickness,"
The essential element of an exclusion under section 104(a)(2) is that the income involved must derive from some sort of tort claim against the payor. The regulations promulgated with respect to section 104(a)(2) specify that "the term `damages received (whether by suit or agreement)' means an amount received (other than workmen's compensation) through prosecution of a legal suit or action based upon tort or tort type rights, or through a settlement agreement entered into in lieu of such prosecution."
In the instant case, there has been no suggestion, nor it seems could there have been, that the payments to appellant by the laboratories to which she sold plasma were either intended or understood as a settlement of some tort liability. The record contains no indication that the laboratories' actions with respect to Garber were in any sense tortious or that they or she ever believed that a tort claim existed. Undoubtedly appellant suffered pain and discomfort as the necessary and inevitable corollary of the means by which she chose to make her living; the mere presence of pain and discomfort, however, does not give rise to a cause of action in tort. Appellant was fully cognizant of the side effects involved with the sale of her plasma; she negotiated her contracts with this in mind and was significantly remunerated for her troubles.
Absent any suggestion that the payments to Garber were in settlement of a possible tort liability, these payments could not as a matter of law fall within the exclusion of section 104(a)(2). There is no disputed issue of fact whose resolution would alter this conclusion. This is not a case where there exists some factual question as to whether payments were intended as a settlement of a tort claim or were made for some other purpose. In such a case, the applicability of section 104(a)(2) would depend on the characterization of the payments. See, e. g., Knuckles, supra; Agar, supra; Seay, supra. Where the relevant facts are not in dispute and the decision regarding an issue hinges solely on an
Given the unavailability of an exclusion from income, the compensation received by appellant was clearly gross income under section 61(a) of the Internal Revenue Code.
Appellant's second contention on appeal is that, as a matter of law, she could not have had the requisite intent to evade taxes since two government agencies disagreed as to whether giving blood should be classified as a personal service or as the sale of a product. She relies on United States v. Critzer, 4 Cir., 1974, 498 F.2d 1160, in which the conviction of the defendant, an Eastern Cherokee Indian, for tax evasion was reversed due to the great uncertainty in the law concerning the taxability of income from various transactions that took place on the Eastern Cherokee Reservation. In that case, the Bureau of Indian Affairs and the Internal Revenue Service strongly disagreed on the taxability of the income, and the local superintendent of the Bureau had twice advised defendant Critzer that the income was exempt. Under the circumstances the Fourth Circuit concluded that the defendant could not be guilty of willfully evading and defeating income taxes. 498 F.2d at 1162.
The instant case is quite different from Critzer. There is no disagreement between government agencies concerning the taxability of Garber's income, nor has any governmental authority advised her or otherwise led her to believe that income from the sale of her plasma would be exempt from taxation. Throughout this litigation, appellant has placed considerable emphasis on the fact that the IRS has, for certain purposes, classified the donation of blood as a personal service
There is, therefore, no basis in this case for holding that the law regarding the taxability of the compensation paid appellant was so confused and ambiguous that she could not, as a matter of law, have had the intent willfully to evade her income taxes. The jury concluded on the basis of ample credible evidence that Garber willfully evaded her tax liability for 1972 and there is no valid reason to disturb its verdict.
Finally, appellant contends that the trial court erred in excluding the testimony of an expert witness concerning the existence
While a defendant is entitled to present testimony to demonstrate the absence of a tax deficiency, such testimony must be relevant to some issue within the competence of the jury in order to be admissible. As proffered, accountant Nall's testimony consisted entirely of his opinion with regard to the proper interpretation of the law governing the taxability of appellant's income. He stated that, in his view, the sale of a part of the body, including blood, was not a taxable transaction and that, in any event, the law in this area was too vague and ambiguous to permit an accurate determination of the existence of a tax liability. These opinions concerned questions of law that are exclusively the responsibility of the court.
As we explained above, the taxability of appellant's income in the circumstances of this case was an issue of law for the court. In our judicial system the court instructs the jury on the applicable law, and directs the jury to determine the facts from the evidence and to apply the law as given by the court to those facts. The law is neither introduced as evidence nor presented through witnesses at trial. Cooley v. United States, 9 Cir., 1974, 501 F.2d 1249, cert. denied, 419 U.S. 1123, 95 S.Ct. 809, 42 L.Ed.2d 824 (1975); White v. United States, 5 Cir., 1954, 216 F.2d 1. To permit a witness to testify in the presence of the jury on the proper interpretation of the law would impermissibly infringe on the function of the court and would risk serious confusion of the jury. Appellant could have adduced testimony at trial relevant to any factual proposition tending to negate the existence of a tax deficiency. She could not, however, present to the jury testimony directed solely to the legal issue of whether the sale of blood is a taxable transaction. The district court, therefore, properly excluded this proffered testimony.
Appellant's conviction is, accordingly,
CHARLES CLARK, Circuit Judge, dissenting:
I fully agree with the majority that the question of taxability of funds received for plasma taken from human blood is novel. I further agree that defendant's voluntary submission to the plasmapheresis process negates any legal construct of the funds as damages received for personal injuries. My problem arises because the court charged the jury that all funds received by the defendant were taxable income. I do not believe the government proved beyond a reasonable doubt that this was legally true.
I am quick to admit I have no idea what basis a taxpayer would have when selling a part of his or her body. It is only necessary to say that the government failed to prove that Mrs. Garber knew what this basis was or that it was substantially below the value she received.
ON PETITION FOR REHEARING AND PETITION FOR REHEARING EN BANC
Before BROWN, Chief Judge, and COLEMAN, GOLDBERG, AINSWORTH, GODBOLD, CLARK, RONEY, GEE, TJOFLAT,
BY THE COURT:
A member of the Court in active service having requested a poll on the application for rehearing en banc and a majority of the judges in active service having voted in favor of granting a rehearing en banc,
IT IS ORDERED that the cause shall be reheard by the Court en banc on briefs without oral argument. The Clerk shall set a briefing schedule for the filing of supplemental briefs.
Appellant was, of course, free to present any direct evidence regarding her state of mind and she testified at length concerning her belief that the compensation paid to her did not constitute taxable income.