Admissibility
1 Page3
[92-1 USTC
¶50,052]
United States of America
, Appellee v.
Rob
ert L. McGill, Defendant-Appellant
(CA-1), U.S. Court of Appeals, 1st
Circuit, 91-1145, 1/3/92, Affirming an unreported District Court
decision
[Code Sec.
7201 ]
Attempt to evade tax: Jury instructions: Admissibility of evidence.--A
taxpayer's conviction of tax evasion was upheld because the lower court
did not err in its jury instructions or in the admission of evidence
that met the business records exception. Although the jury instructions
were not given in the wording requested by the taxpayer, they
sufficiently conveyed the taxpayer's theory. The banking deposit slips
met the business records exception to the hearsay rule because, although
there was a deviation in the procedure of transcribing a taxpayer
identification number in the process of completing some of the forms,
they were prepared by a bank employee using the regular bank procedure.
Wayne
A. Budd, United States Attorney, Boston, Mass. 02109, Shirley D.
Peterson, Assistant Attorney General, Yoel Tobin,
Rob
ert E. Lindsay, Alan Hechtkopf, Department of Justice, Washington, D.C.
20530, for appellee. Michael L. Altman, Mark W. Corner, Helen E. Morgan,
Rubin and Rudman, 50 Rowes Wharf, Boston, Mass. 02110, for
defendant-appellant.
Before
BREYER, Chief Judge, COFFIN, Senior Circuit Judge, and SELYA, Circuit
Judge.
SELYA,
Circuit Judge:
Defendant-appellant
Rob
ert L. McGill was convicted on three counts of willfully evading the
payment of income tax owing to the federal government. 1 On appeal,
McGill raises claims of error involving both the district court's jury
instructions and the court's rulings in respect to the introduction of
certain evidence. Finding no cognizable error, we affirm the judgment
below.
I. Jury Instructions
The
appellant attacks the court's charge on two fronts. Our response
conforms to his battle plan.
A.
McGill
first claims that the district court erred in failing adequately to
instruct the jury that a mistake of law constitutes a complete defense
to a charge of willful tax evasion. In addressing this claim, we
acknowledge the self-evident: "It is hornbook law that an accused
is entitled to an instruction on his theory of defense so long as the
theory is a valid one and there is evidence in the record to support
it." United States v. Rodriguez, 858 F.2d 809, 812 (1st Cir.
1988); see also Mathews v. United States, 485
U.S.
58, 63 (1988); United States v. Victoria-Peguero, 920 F.2d 77, 86
(1st Cir. 1990), cert. denied, 111
S. Ct.
2053 (1991). Nonetheless, a defendant has no right to put words in the
judge's mouth. So long as the charge sufficiently conveys the
defendant's theory, it need not parrot the exact language that the
defendant prefers. United States v. Nivica, 887 F.2d 1110, 1124
(1st Cir. 1989), cert. denied, 494 U.S. 1005 (1990); United
States v. Cintolo, 818 F.2d 980, 1004 (1st Cir.), cert. denied,
484 U.S. 913 (1987); United States v. Coast of Me. Lobster Co.,
557 F.2d 905, 909 (1st Cir.), cert. denied, 434 U.S. 862 (1977).
In
this case the government had the burden of showing that the appellant
voluntarily and intentionally violated a known legal duty to pay taxes
on certain unreported income. See United States v. Pomponio [76-2 USTC ¶9695 ],
429 U.S. 10, 12 (1976) (per curiam); United States v. Monteiro,
871 F.2d 204, 209 (1st Cir.), cert. denied, 493 U.S. 833 (1989).
Because ignorance of the law is a defense in tax evasion cases, see
Cheek v. United States [91-1
USTC ¶50,012 ], 111 S. Ct. 604, 609 (1991), the jury, had it
concluded that McGill possessed a good-faith, subjective belief that he
did not owe taxes on the income in question, would have been duty bound
to acquit. See id. at 610-11; United States v. Aitken [85-1 USTC ¶9209 ],
755 F.2d 188, 191-92 (1st Cir. 1985). Thus, McGill, upon timely request,
enjoyed the right to have the jury instructed on this defense.
The
appellant fully availed himself of this right, asking the district court
to give a specific instruction that he could not "be held
criminally liable if in good faith he misunderstood the requirements of
[the] law, or in good faith believed that his income was not
taxable." While the court declined to give this instruction in haec
verba, it did tell the jury that the government had to prove the
defendant "attempt[ed] to evade income tax willfully,
intentionally, not by accident or mistake, knowing that he had a legal
duty to report the income in question and to pay a tax on it."
Later in the charge, the court reiterated the government's burden of
proving that McGill had the "requisite knowledge and understanding
that during the tax year involved in a particular count he had income
which was taxable and which he was required by law to report."
In
determining whether a district court's instructions to the jury
adequately conveyed a specific concept, a reviewing court must focus on
the charge as a whole. See United States v. Park, 421 U.S. 658,
674 (1975); Cupp v. Naughten, 414 U.S. 141, 146-47 (1973); Nivica,
887 F.2d at 1125; United States v. Serino, 835 F.2d 924, 930 (1st
Cir. 1987); Cintolo, 818 F.2d at 1003; New England
Enterprises, Inc. v. United States, 400 F.2d 58, 71 (1st Cir. 1968),
cert. denied, 393 U.S. 1036 (1969). Here, the lower court, though
spurning the exact phraseology which the appellant sought, accurately
communicated the meat of the defense's theory. The fact that the court's
instructions on mistake of law were dispersed throughout the charge
neither diminished their force nor robbed them of their inherent
vitality. The jury was adequately instructed that, if McGill's failure
to report the income and pay the resultant taxes stemmed from an honest
mistake as to the extent of his legal obligations, an acquittal must
follow. The concept was stated plainly and unequivocally. No more was
eligible.
B.
Appellant
urges that the charge was flawed in another respect as well:
notwithstanding a timely request, the court did not instruct the jury
that "careless disregard, negligence, even gross negligence does
not amount to willfulness sufficient to find [the defendant]
guilty." The trial court's refusal to give a particular instruction
constitutes reversible error only if the requested instruction was (1)
correct as a matter of substantive law, (2) not substantially
incorporated into the charge as rendered, and (3) integral to an
important point in the case. See United States v. Gibson, 726
F.2d 869, 874 (1st Cir.), cert. denied, 466 U.S. 960 (1984).
In
this instance, the assignment of error is hoist upon the second prong of
the test. The court repeatedly cautioned the jury that the government
had to prove willfulness anent McGill's underreporting of taxable
income. The court also told the jury, quite pointedly, that McGill could
not be found guilty if his actions were the result of "an honest
mistake with respect to what he had to report." Though the judge
never used the precise words favored by the defendant--"careless
disregard," "negligence," "gross
negligence"--the alternate language that he employed covered
substantially the same ground. See Pomponio [76-2 USTC ¶9695 ],
429
U.S.
at 12-13 (willfulness "means a voluntary, intentional violation of
a known legal duty"). When, as here, the trial court's instructions
adequately communicated the relevant law to the jury, the fact that some
other judge might have phrased a particular point better, or more
elegantly, is an irrelevancy. See, e.g., Monteiro [89-1 USTC ¶9246 ],
871 F.2d at 209 (willfulness instruction in tax cases does not have to
follow any particular formulation). Because the substance of appellant's
requested instruction was substantially covered in the court's
instructions, there was no error. See United States v.
Passos-Paternina, 918 F.2d 979, 984 (1st Cir. 1990), cert.
denied, 111 S. Ct. 1637, 2808 (1991); United States v. Noone,
913 F.2d 20, 30 (1st Cir. 1990), cert. denied, 111
S. Ct.
1686 (1991).
II. Admission of Certain
Evidence
Appellant's
remaining claim of error involves the admission of a number of deposit
tickets under the business records exception to the hearsay rule. 2 McGill does
not contest the admission of the documents per se; instead, he argues
that certain taxpayer identification numbers which were transcribed onto
the tickets when they were removed from their mailing envelopes should
have been redacted. We approach this claim mindful that the usual array
of threshold questions pertaining to the admissibility of business
records come within the ambit of the district court's discretion. These
usual questions include, of course, questions as to whether a proper
foundation was laid or whether sufficient indicia of trustworthiness
were shown. See, e.g.,
United States
v. Arboleda, 929 F.2d 858, 869 (1st Cir. 1991); United States v.
Ladd, 885 F.2d 954, 956 (1st Cir. 1989); United States v.
Patterson, 644 F.2d 890, 900-01 (1st Cir. 1981).
A.
In
the case at hand, the prosecution's theory was that the defendant failed
to report, and thereafter pay tax upon, interest income earned on
certain United States Treasury notes (T-notes) purchased through the
Bank of New England (BNE). The evidence showed that, in order to deposit
these sums, the noteholder would clip the interest coupon from the
T-note, fill out a deposit slip, put the coupon for the relevant period
and a deposit slip into a standard coupon deposit envelope provided by
BNE, and transmit the envelope to the bank. An instruction printed on
the envelope directed the depositor to write his taxpayer identification
number on the back of the envelope. 3 When the
envelope was received at BNE, a bank employee would transpose the
identification number from the deposit envelope to the deposit ticket at
the same time as he/she credited the funds to the designated account.
The identification number was thereafter used by the bank to report
taxable interest income to the Internal Revenue Service. The deposit
envelopes themselves were discarded.
The
evidence further showed that there were ten deposits of T-note interest
into the defendant's checking account during the period at issue. All
the deposit tickets bore defendant's name and bank account number. Three
of these bore the taxpayer identification number of defendant's father,
who had died in 1980; three bore no identification number; and the
remaining four bore the defendant's identification number. 4 There was no
direct evidence as to who completed which deposit tickets, although the
defendant admitted that he sometimes filled out such tickets. He also
testified, however, that his wife sometimes performed this task. The
defendant claimed that he could not recall marking the deposit
envelopes. And, he proclaimed himself unable to imagine how his father's
taxpayer identification number came to appear on certain deposit
tickets.
The
defendant did not report as taxable income any of the interest income
deposited by means of deposit tickets bearing either his father's
taxpayer identification number or no number at all.
B.
The
defendant argues that the trial court abused its discretion in allowing
the deposit tickets into evidence without first excising the taxpayer
identification numbers appearing thereon. We disagree. While defense
counsel labors valiantly to style each number as a hearsay statement
coming from McGill (i.e., "this is the identification number
that McGill requested the Bank to use for income tax purposes"), it
is clear that in each instance the challenged statement is coming from a
bank employee performing his or her routine duties (i.e.,
"this is the identification number that appeared on the deposit
envelope"). In other words, by transcribing the taxpayer
identification number from the mailing envelope onto the deposit ticket,
a bank employee, rather than the defendant, is making the challenged
assertion. It follows inexorably that, because the assertion originated
with a bank employee acting in the ordinary course of the bank's
business, the testimony before the district court constituted a proper
foundation for the admission of the unredacted deposit tickets as
business records under Evidence Rule 803(6).
This
foundation is constructed principally out of the testimony of Nelson
Soto, the assistant supervisor of the bank's coupon collection
department during the time frame in question. Soto described in
considerable detail BNE's regular procedure for processing coupon
deposit tickets. His testimony laid a solid foundation for the evidence
and sufficiently established its trustworthiness. See Patterson,
644 F.2d at 901; 4 J. Weinstein, Weinstein's Evidence, ¶803(6)
[02]; see also Wallace Motor Sales, Inc. v. American Motors Sales
Corp., 780 F.2d 1049, 1061 (1st Cir. 1985) (qualified witness need
only be person who can explain how record was kept, not necessarily the
person who actually prepared the record).
Appellant's
attempt to impugn the trustworthiness of the bank's procedures by
pointing to the lack of a taxpayer identification number on three of the
tickets is unsuccessful. The mere fact that errors or deviations have
occurred from time to time does not destroy the inference of underlying
trustworthiness which a judge may choose to draw from proof of a general
practice. See Patterson, 644 F.2d at 901 ("The fact that a
regular practice is occasionally broken is not enough to avoid
application of the business records rule; otherwise, the rule would be
swallowed up by an exception for less-than-perfect business
practices."); see also Kassel v. Gannett Co., 875 F.2d 935,
944-45 (1st Cir. 1989); United States v. Hathaway, 798 F.2d 902,
907 (6th Cir. 1986); United States v. Keplinger, 776 F.2d 678,
694-95 (7th Cir. 1985), cert. denied, 476 U.S. 1183 (1986).
Whether the numbers were missing because McGill failed to inscribe them
on the mailing envelopes or because the bank failed to transcribe them
was not critical to the finding of trustworthiness.
Appellant's
reliance on United States v. Berkowitz, 429 F.2d 921 (1st Cir.
1970), is similarly misplaced. Passing the fact that Berkowitz
was decided prior to the enactment of the Federal Rules of Evidence,
thus limiting its precedential force, there is a more fundamental flaw
in appellant's argument. Berkowitz involved a hearsay statement
regarding the value of goods which was put forth for the truth of the
stated value by a witness who had no firsthand knowledge of the actual
value.
Id.
at 927. In the case at bar, however, the critical statement, properly
visualized, involved the numbers recorded on a series of mailing
envelopes--a matter as to which the bank employee who received the
envelopes clearly possessed firsthand knowledge.
We
need go no further. Because the bank's procedures for processing coupon
deposit tickets and envelopes possessed sufficient indicia of
trustworthiness and were adequately explained to the court by a
sufficiently knowledgeable witness, we find no abuse of discretion in
the admission of the unredacted deposit tickets into evidence under the
aegis of Evidence Rule 803(6).
Affirmed.
1
The statute of conviction provides in pertinent part:
Any
person who willfully attempts in any manner to evade or defeat any tax
imposed by [the Internal Revenue Code] or the payment thereof shall, in
addition to other penalties provided by law, be guilty of a felony and,
upon conviction thereof, shall be [punished as prescribed].
26
U.S.C. §7201 (1988).
2
The exception excludes from the operation of the hearsay rule:
A
memorandum, report, record, or data compilation, in any form, of acts,
events, conditions, opinions, or diagnoses, made at or near the time by,
or from information transmitted by, a person with knowledge, if kept in
the course of a regularly conducted business activity, and if it was the
regular practice of that business activity to make the memorandum,
report, record, or data compilation, all as shown by the testimony of
the custodian or other qualified witness, unless the source of
information or the method or circumstances of preparation indicate lack
of trustworthiness.
Fed.
R. Evid. 803(6).
3
In the case of an individual taxpayer, the taxpayer identification
number would be the individual's social security number. 26 C.F.R. §301.6109-1(a) (1991).
4
A fifth deposit ticket bearing defendant's identification number
reflected the deposit of T-note principal, which McGill was not required
to report.
[75-1 USTC
¶9416]
United States of America
, Plaintiff-Appellee v. Frank F. Colacurcio, Defendant-Appellant
(CA-9), U. S. Court of Appeals,
9th Circuit, No. 74-2767, 514 F2d 1, 4/7/75, Reversing unreported
District Court decision
[Code Sec. 7201]
Criminal penalties: Evidence: Easts from prior trial.--Taxpayer's
conviction for tax evasion for his taxable years 1967 and 1969 was
reversed and remanded. The lower court had charged the jury with respect
to payments received by the taxpayer from another based on facts from a
previous trial of the taxpayer. However, such information was not
essential to the resulting judgment of that earlier trial and thus was
not subject to collateral estoppel. Further, taxpayer's tax return for
1965 was admitted to show possible fraudulent admissions of income by
the taxpayer. The appellate court concluded that the instruction and the
admission of the tax return were tied together and that both were
prejudicial to the taxpayer and constituted reversible error.
Irwin
Schwartz, Assistant United States Attorney,
Seattle
,
Wash.
, for plaintiff-appellee. William A. Helsell, Helsell, Paul, Fetterman,
Todd & Hokanson, 1610 Washington Bldg., 1325 Fourth Ave., Seattle,
Wash., George Martin, Sr., Martin, Niemi, Burch & Mentele, 1127
Washington Bldg., 1325 Fourth Ave., Seattle, Wash., for
defendant-appellant.
Before
MERRILL and TRASK, Circuit Judges, and JAMESON,* District Judge.
Opinion
JAMESON,
District Judge:
Defendant-appellant
appeals from his conviction, following a jury trial, of income tax
evasion for the years 1967 and 1969 in violation of 26 U. S. C. §7201. 1
Background
The
indictment charged the omissions of taxable income from appellant's tax
returns as follows:
Claimed
Corrected Unreported
Year Reported Income Income
1967 ...... $ 68,411.24 $134,900.61 $ 66,489.37
1968 ...... 85,375.36 117,480.31 32,104.95
1969 ...... 81,012.24 144,912.16 63,899.92
Totals .... $234,798.84 $397,293.08 $162,494.24
The net worth method 2 was used to
prove the unreported income. The Government established that the
appellant earned most of his income during the years in question from
concealed interests in various night clubs and taverns, interest on
loans, and receipts from an unlawful bingo operation run by Charles
Berger in
Seattle
.
[Earlier Trial]
In
1971 the appellant was found guilty of conspiring with Berger and Harry
Hoffman to use the facilities of interstate commerce to promote the
operation of bingo games contrary to the laws of the State of Washington
and in violation of 18 U. S. C. §1952. 3 The court
made special findings of fact, including the following:
"Originally
Berger operated one establishment and paid the defendant Colacurcio
$1,000 per month. Thereafter, Berger was directed by Colacurcio to open
an additional establishment across the street and was required to pay
$1,000 per month on that establishment. A third one was later opened and
the total payments to defendant Colacurcio were in excess of $3,000 per
month. Berger testified he made payments to insure the operation of the
clubs, otherwise they would be closed by the police."
Berger
testified for the Government at the prior conspiracy trial, but was not
called as a witness in this case. Rather, the Government, relying on the
doctrine of collateral estoppel, submitted an instruction with respect
to sums of money received by appellant during the years in question,
based on testimony at the prior trial. Over the objection of the
appellant, the court instructed the jury as follows during the
Government's case in chief:
"Ladies
and Gentlemen, the jury is instructed that it shall consider the
following as a fact proven in these proceedings. The weight if any, to
be attached to the fact is for you alone to decide.
"You
are instructed that the defendant received the following sums of money
from a
Seattle
businessman in payment stemming from that person's business operations
in the City of
Seattle
:
1965 .... $13,000
1966 .... 24,000
1967 .... 24,000
1968 .... 36,000
1969 .... 27,000
and that these
payments have not previously been the subject of evidence in this trial.
"The
court does not mean by this instruction to tell you that these payments
did or did not constitute taxable income."
The
total payments by Berger to appellant in each of the five years from
1965 through 1969 were not set forth in the special findings in the
prior case. However, the information necessary to arrive at the figures
given to the jury was contained in Berger's testimony. Berger testified
further that it was his understanding that of each $1,100 payment to
appellant, $1,000 was going to the
Seattle
police and $100 to appellant for handling the matter. This testimony was
not mentioned in the court's instruction in this case.
[Tax Return Introduced]
The
Government attempted to introduce appellant's tax returns for the years
1961-1965. The court initially ruled that none of the returns would be
admitted. 4 Later,
however, over appellant's objection, the court admitted appellant's 1965
return on the basis of Hamman v. United States [65-1 USTC ¶9161],
340 F. 2d 145, 149 (9 Cir.) cert. denied, 380 U. S. 977 (1965).
Testifying
in his own behalf, appellant denied having been given any money by
Berger in 1965 for his own use. He testified that the amounts received
from Berger in 1965 were monies left with him for safekeeping while
Berger was out of town. He estimated that he received approximately
$20,000 for his own use from Berger in 1966, "twenty some
thousand" in 1967, $25 or $26,000 in 1968 and $15,000 or so"
in 1969. Appellant testified that the sums received from Berger for his
own use were included in the "miscellaneous income" on his tax
returns.
[Income Indadvertently
Unreported]
Appellant
testified further that he had honestly endeavored to pay income taxes on
his earnings and that any tax deficiency was attributable to his
inadvertent use of an improper income reporting method. Appellant kept
personally a book showing income from sources which he "was unable
to divulge to the bookkeeper". He recorded as "ins" all
of his business receipts and as "outs" all of his business
disbursements. At the end of each quarter he subtracted the
"outs" from the "ins", carried the net amount
forward to a new page and discarded the old page. At the end of each
year, he gave the net total to the person who prepared his income tax
returns, and this amount was reported as "miscellaneous
income".
Based
on his claim that his failure to report income was the result of
inadvertence and bona fide mistake, appellant offered two instructions
on "willfulness", to the effect that his acts in connection
with the income tax return resulting from bona fide mistakes,
negligence, carelessness, or honest misunderstanding could not be
considered "willful" or support a conviction of income tax
evasion. The court refused the offered instructions and gave its own
instructions on willfulness.
In
his charge to the jury, the court, over objection of appellant's
counsel, repeated in substance the instruction given during the
Government's case with respect to the payments by Berger.
Appellant
contends that the court erred in (1) instructing the jury that appellant
received specified sums of money from a Seattle businessman (Berger)
during the years 1965-1969, (2) admitting appellant's 1965 income tax
return, and (3) failing to expressly instruct the jury that mere
mistake, inadvertence, carelessness or negligence would not justify a
conviction.
I. 1965-1969 Receipts from
Berger
With
respect to the court's instructions as to the amounts received by
appellant from Berger, appellant argues that (1) collateral estoppel may
not be applied in a criminal case against the defendant; and (2) in any
event, the doctrine was improperly applied in this action since (a) the
facts recited in the instruction were not essential to the court's
conclusion in the prior action; (b) the facts were not
"ultimate" but "evidentiary" facts in the prior
action; (c) the instruction deprived appellant of his Sixth Amendment
right of trial by jury and his right to be confronted with the witnesses
against him; and (d) the instruction omitted significant portions of
Berger's testimony and its repetition after appellant testified unfairly
cast him as a liar.
A. Applicability of Collateral
Estoppel in Criminal Cases
As
stated by this court in Pena-Cabanillas v. United States, 394 F.
2d 785, 786 (1968):
"The
doctrine of collateral estoppel is an aspect of the broader principle of
res judicata, United States v. Marakar, 300 F. 2d 513 (3 Cir.
1962), vacated on other grounds 370 U. S. 723 . . . and a common
statement of the doctrine is that where a question of fact essential to
the judgment is actually litigated and determined by a valid and final
judgment, the determination is conclusive between the parties in a
subsequent action on a different cause of action. Hoag v. State of
New Jersey
, 356
U. S.
464, 470 . . . (1958)."
While
the doctrine of collateral estoppel has been held applicable in criminal
cases, see Sealfon v. United States, 332 U. S. 575, 578 (1948); United
States v. Adams, 281 U. S. 202 (1930); Cosgrove v. United States
[55-1 USTC ¶9539], 224 F. 2d 146, 150 (9 Cir. 1955) 5 it is not
clear from the decided cases to what extent it may be applied against a
defendant. As noted by the court in United States v. Rangel-Perez,
179 F. Supp. 619, 623 (S. D. Cal. 1959) following a thorough analysis of
relevant case law: "The reported criminal cases in which the
doctrine of collateral estoppel has been applied in the Federal courts
are largely those in which the doctrine has been involved for the
benefit of the defendant, by way of defense". 6 See also
9 A. L. R. 3d 214.
[Applicability Against
Defendants]
The
Government relies on Rangel-Perez and Pena-Cabanillas in
support of its contention that collateral estoppel is applicable against
a defendant in a criminal action. In both cases, the defendants were
charged with illegally entering the
United States
in violation of 8
U. S.
C. §1326 after having been previously deported. Both defendants in
prior cases had been found to be aliens. The issue was whether the prior
determination of alienage precluded the defendants from again litigating
their status. Holding collateral estoppel applicable, the court in Rangel-Perez,
supra at 625, stated:
"The
wise public policy underlying the doctrine [to put an end to the
litigation of a given subject matter, once the parties have had a full
hearing and fair adjudication of the issue], and commonsense judicial
admin
istration as well, combine to advocate application of collateral
estoppel against a defendant in a criminal case, at least as to certain
issues, where such issues have been in fact litigated and necessarily
adjudicated in a prior criminal case between the identical
prosecutor and the identical accused. Issues as to status, for example,
would seem most appropriate for application of the doctrine . . .".
(Emphasis added).
This court in Pena-Cabanillas
adopted the reasoning of Rangel-Perez in concluding that the
defendant's status as an alien was a proper subject for the application
of collateral estoppel. Quoting from Rangel-Perez the court
stressed:
`. . . it is
equally beyond question that the accused is always entitled to have any
prior proceeding carefully examined in order to determine surely whether
a prior adjudication of alienage was made after a full and adequate
hearing, and was essential to a determination of the case'".
394 F. 2d at 788. (Emphasis added).
Appellant
argues that if Rangel-Perez and Pena-Cabanillas are
interpreted to mean that the court may instruct the jury on facts which
have been directly and necessarily adjudicated in a prior trial without
production of any further evidence, their holding would ignore the
defendant's constitutional right to be confronted with the witnesses
against him and his right to have all of the facts decided by the jury.
We cannot agree. With respect to all facts which were essential to a
determination of the charges against appellant in the 1971 conspiracy
trial, the appellant had the opportunity to cross-examine all witnesses
against him and was accorded his constitutional right to trial by jury. 7 While Rangel-Perez
and Pena-Cabanillas are limited to the question of defendant's
status, we conclude that the rationale of those cases is equally
applicable to those facts actually decided which were essential to the
judgment in the prior case.
B. Application of Collateral
Estoppel Herein
The
crucial question is whether the facts upon which the Government relies
were in fact decided and were essential to the judgment in the prior
case. The requirements for collateral estoppel are set forth in 1B
MOORE
'S FEDERAL, PRACTICE
Para
. 0.443[1]:
"The issue
to be concluded must be the same as that involved in the prior action.
In the prior action, the issue must have been raised and litigated, and
actually adjudged. The issue must have been material and relevant to the
disposition of the prior action. The determination made of the issue
in the prior action must have been necessary and essential to the
resulting judgment." (Emphasis added).
The
offense charged in the 1971 action involved conspiracy to use facilities
of interstate commerce to carry on illegal bingo games. Appellant admits
that the fact of the Berger payments was material and relevant in
deciding whether appellant was engaged in the alleged conspiracy, but
argues that the specific amounts of the Berger payments were not
essential and that proof of those amounts was not subject to the
doctrine of collateral estoppel.
[No Distinct Determination]
We
agree. The amounts of the Berger payments were not significant in
the prior action. Only the fact that appellant was receiving protection
money from Berger with respect to the illegal bingo operations was
necessary to establish appellant's involvement in the conspiracy. 8 Since the
amount of the Berger payments was not a necessary element of the
conviction in the prior case and was not "distinctly put in issue
and directly determined", Frank v. Mangum, supra at 333-334,
it was not subject to collateral estoppel. See United States v.
Fabric Garment Co., 366 F. 2d 530, 533 (2 Cir. 1966.) 9
Moreover,
as noted supra, after appellant had testified with respect to the
Berger payments, the court in its charge to the jury repeated the
instruction that appellant had received specified sums from a "
Seattle
businessman in payments stemming from that person's business operations
in the City of
Seattle
". The figures contradicted appellant's figures, particularly with
respect to the year 1965. As appellant argues, the discrepancy between
his figures and those contained in the court's instructions may well
have cast him as a liar.
Furthermore,
the instruction did not include that portion of Berger's testimony in
the conspiracy trial that appellant was to keep only $100 of each $1,100
paid, with $1,000 going to the
Seattle
police. In the prior action it was unnecessary for the court to consider
whether the money Berger gave appellant was in turn held for Berger or
given to some third party. It was an issue in this case. There was no
direct evidence to contradict appellant's testimony that the money from
Berger was not for his own use. It could, however, be inferred from the
court's instruction that appellant was the intended recipient of the
Berger payments and not merely a conduit through whom the money passed
to another. The court's closing statement in the instruction that
"the court does not mean by this instruction to tell you that these
payments did or did not constitute taxable income" did not clarify
the matter, particularly in view of the fact that counsel for the
Government in his argument to the jury repeatedly stressed the fact that
appellant had intentionally failed to report income in 1965, relying in
large part on the court's instruction. 10
II. Admission of the 1965 Tax
Return
Appellant's
1965 income tax return was admitted on the theory that a fraudulent
omission of income for a pre-indictment year was provable in support of
the charge that appellant fraudulently omitted income from his returns
during the indictment years. As stated by this court in Hamman v.
United States
, supra at 149, "Understatement of income tax in prior years,
without further evidence of willfulness is admissible to show
intent."
In
1965 appellant reported $7,400 in miscellaneous income. The only
evidence that appellant may have fraudulently omitted income was the
court's instruction that appellant had received $13,000 from a
Seattle
businessman in 1965. The Government relied heavily on appellant's
failure to report this income. The admissibility of the 1965 return and
the instructions on the Berger payments were tied together. Given the
impropriety of the instruction, it was error to admit the 1965 tax
return for the purpose for which it was used.
The
Government suggests that, "If the matter of the Berger payments was
the sole evidence which reflects upon the defendant's credibility",
there might be some merit in the contention that appellant was unfairly
cast in the role of a liar, assuming he is correct on the law. It is
argued, however, that gross inconsistencies in his trial testimony and
prior deposition afforded the jury an ample basis to reject his claim of
innocent error. In other words, the Government contends that for this
reason any error was harmless.
It
is true that there was other impeaching testimony. Unfortunately,
however, the Government relied heavily on the improper instruction and
1965 tax return. We cannot escape the conclusion that this evidence was
prejudicial to appellant and did not constitute harmless error.
III. Instructions
Appellant's
primary defense was that any deficiencies in his tax returns were the
result of a mistaken belief that his method of recording income was
proper. The instructions offered by appellant stressed the fact that
willfulness required a showing of a bad purpose to evade the law and
that bona fide mistake, negligence, carelessness or misunderstanding
were not sufficient to support a conviction of income tax evasion. While
the proffered instructions are a correct statement of the applicable
law, we conclude that the instructions given by the court sufficiently
apprised the jury of the state of mind that was required for conviction.
11
Contrary
to appellant's position, this court and other courts have held that
"magic words" such as "bad purposes" or "evil
motive" are not necessary as part of the willfulness instruction in
cases of this nature. United States v. Hawk [74-1 USTC ¶9465],
497 F. 2d 365, 368 (9th Cir.), cert. denied, 95 S. Ct. 67 (1974);
United States
v. DiV arco [73-2 USTC ¶9607], 484 F. 2d 670, 674 (7 Cir.
1973), cert. denied, 415
U. S.
916 (1974). The notion of the necessary mens rea can be conveyed
without the use of these shorthand terms. In its instructions the court
stressed that the jury could not find the appellant guilty unless the
evidence established beyond a reasonable doubt that he had acted
willfully, i. e., that he had the specific intent to evade the taxes he
was legally obligated to pay. The instructions adequately establish the
nature of the mens rea necessary for conviction. Likewise they
eliminate the possibility that the jury might find appellant guilty
based on negligence, bona fide mistake, carelessness, or
misunderstanding. See
United States
v. Shavin [63-2 USTC ¶9584], 320 F. 2d 308, 313 (7 Cir.), cert.
denied, 375
U. S.
944 (1963); Loux v. United States, 389 F. 2d 911, 921-922 (9
Cir.) cert. denied, 393
U. S.
867 (1968).
Reversed
and remanded for a new trial.
*
Honorable W. J. Jameson, United States Senior District Judge for the
District of Montana, sitting by designation.
1
Appellant was acquitted on a count charging tax evasion in 1968.
2
"The net worth method seeks to derive taxable income in any given
year by determining from all available evidence of assets and
liabilities the increase (or decrease) in taxpayer's net worth over a
twelve-month period, adding to it his nondeductible expenses for that
year, and subtracting from the sum any amount attributable to nontaxable
sources. For example, if a taxpayer begins the year with a net worth
(cost of property less liabilities) of $40,000, ends it with $50,000,
and has spent $7,500 during the year on living expenses, his receipts
must have been at least $17,500. And if there is no likely nontaxable
source of funds, such as gifts or inheritances, this set of facts
constitutes strong circumstantial evidence that the receipts were
taxable income." McGarry v. United States [68-1 USTC ¶9136],
38 F. 2d 862, 864 (1 Cir. 1967), cert. denied, 394
U. S.
921 (1969).
3
Appellant was sentenced to three years imprisonment. In the present case
the court imposed concurrent three-year sentences on each count, to run
concurrently with the sentence in the first case. The prior conviction
was affirmed after appellant's conviction in the court below.
United States
v. Colacurcio, 499 F. 2d 1401 (9 Cir. 1974).
4
The Government sought to introduce appellant's tax returns for the years
1961-1965 for the purposes of (1) establishing understatement of income
in the past; (2) proving that appellant had failed to file returns for
1961-1965 and did so only after he was investigated; and (3)
corroborating the net worth of appellant as of 1966. The court initially
refused to permit the tax returns to be admitted because of the undue
prejudice to appellant which would arise from a showing that he had
previously failed to file.
5
See also Frank v. Mangum, 237 U. S. 309, 333-334 (1915), where
the Court, in affirming denial of a petition for a writ of habeas
corpus, said in part: "It is a fundamental principle of
jurisprudence, arising from the very nature of courts of justice and
objects for which they are established, that a question of fact or of
law distinctly put in issue and directly determined by a court of
competent jurisdiction cannot afterwards be disputed between the same
parties . . .. The principle is as applicable to the decisions of
criminal courts as to those of civil jurisdiction." The last
sentence was quoted with approval in Emich Motors v. General Motors,
340
U. S.
558, 568 (1951), where it was held that a "prior criminal
conviction may work an estoppel in favor of the Government in a
subsequent civil proceeding."
6
In Rangel-Perez, the court recognized that the majority of the
courts "lean toward acceptance of the view that the doctrine of
collateral estoppel, while available to the accused against the
Government is not available to the prosecutor in Federal criminal
cases".
Id.
at 625. The court noted that the only federal cases which directly
discussed the problem (both by way of dicta) held that only the
defendant can benefit from the application of the doctrine of collateral
estoppel in criminal cases.
United States
v. DeAngelo, 138 F. 2d 466 (3 Cir. 1943) and
United States
v. Carlisi, 32 F. Supp. 479 (E. D. N. Y. 1940).
7
Barber v. Page, 390
U. S.
719 (1968), upon which appellant relies, is distinguishable. There, a
transcript of a witness's testimony at a preliminary hearing was
introduced at the defendant's trial for armed robbery. In reversing the
Supreme Court noted that, "A preliminary hearing is ordinarily a
much less searching exploration into the merits of a case than a trial,
simply because its function is the more limited one of determining
whether probable cause exists to hold the accused for trial."
Id.
at 725. Here, the evidence sought to be introduced by way of collateral
estoppel was established at a prior trial. The appellant does not
suggest that his right to confront witnesses against him was in any way
abridged in that trial.
8
Since appellant was attempting to establish that he was not involved in
the conspiracy, he was not in a position to question the amount
of the Berger payments. To do so would have been to concede the ultimate
point, i. e., that he was being paid off by Berger.
9
In
United States
v. Fabric Garment
Co.
, a civil action for conversion of wool serge, the Government relied
on a prior conviction of conspiracy to defraud and make false
statements. The court held that the conspiracy convictions determined
that the defendants had made false and fraudulent statements, but noted
that the district court had properly held that the prior action had not
conclusively determined the amount of goods converted since the amount
was not a necessary element of the criminal conviction and was not
"distinctly put in issue and directly determined" in the
conspiracy trial, citing Emich Motors v. General Motors, supra.
10
Counsel argued in part:
"In
1965 you have been instructed that the defendant received $13,000 in
payments from the
Seattle
businessman. Those payments the Court instructed you continued into
1969. What do those payments stem from? Mr. Colacurcio testified that
they were payments from Charles Berger which were proceeds from bingo
games.
"I
asked Mr. Colacurcio what he did that entitled him to receive these very
substantial sums of income from 1965 through 1969 and his answer
essentially was, 'I had some part in setting up these operations. I
found the place for them and I found a board of directors for them and I
helped them get incorporated.'
"Yet
he said that although the first operation was started with his
assistance in 1965, 'None of the money that I received in 1965 was mine.
It was all supposed to go to someone else.'
"Well,
who was it supposed to go to. It was supposed to go to Tom Smith. Tom
Smith, Mr. Colacurcio says, always received a lesser share of the
proceeds from these bingo games than he did.
"I
submit to you ladies and gentlement, that that $13,000 in 1965 was Mr.
Colacurcio's share for his services rendered, just as it was in 1966,
1967, 1968 and 1969."
11
Both the Government and the defendant offered additional instructions
which were rejected by the court. Appellant argues that an isolated
instruction defining "willfulness" was erroneous in that it
failed to state that there must be a showing of evil motive, purpose or
interest. The instructions as a whole, however, were adequate and a
correct statement of the applicable law.
[73-1 USTC
¶9426]
United States of America
, Plaintiff-Appellee v. George C. Walker and Marie H. Walker,
Defendants-Appellants
(CA-9), U. S. Court of Appeals,
9th Circuit, No. 72-2667, 479 F2d 407, 4/27/73
[Code Sec. 7203]
Crimes: Willful failure to file return: Error in admission of
evidence.--A conviction for failure to file income tax returns was
reversed and remanded. Since the trial court improperly admitted
evidence pertaining to the net worth of certain of the taxpayer's
assets, evidence that was not probative of gross income and would tend
to prejudice a jury in a failure to file case, the convention was
reversed.
Rob
ert S. Linnell, Assistant United States
Attorney (argument) and Dean Smith, United States Attorney, Yakima,
Wash., for plaintiff-appellee. George Constable,
Seattle
,
Wash.
, for defendants-appellants.
Before
TRASK, GOODWIN, and WALLACE, Circuit Judges.
WALLACE,
Circuit Judge:
A
jury found Walker guilty of failure to file income tax returns for 1965
and 1966 in violation of 26 U. S. C. §7203. No question is raised as to
whether he should have filed--his defense was that the failure was not
willful. He alleges that the trial court erred in failing to instruct
the jury properly as to willfulness, refusing to admit evidence that no
tax was due, and improperly admitting evidence pertaining to the net
worth of certain of his assets. We concur with the last contention and
reverse.
Walker
engaged in farming, land levelling and
concrete irrigation ditch lining. His wife kept his books.
Walker
's income tax returns for 1955 and 1956 had been prepared together and
both were filed late. Likewise, his 1957, 1958 and 1959 tax returns were
all prepared together and filed late. In both instances,
Walker
experienced "no trouble" from the Internal Revenue Service.
Walker
had his 1960 and 1961 tax returns
prepared together but, due to a dispute with his accountant, these
returns were never filed. In late 1967 or early 1968,
Walker
contacted another accounting firm and asked it to prepare his tax
returns for 1960 through 1966. Subsequently, he was indicted, tried and
convicted of failure to file tax returns for 1965 and 1966.
Over
objection, the trial court allowed proof of an increase of $248,241 in
Walker
's net worth between 1958 and 1967. Because the facts indicated
Walker
's gross income for both years exceeded the statutory minimum, the
prosecution had already proved that he was required to file returns.
Therefore, this evidence was unnecessary to show the duty to file.
Moreover, unrealized increases in net worth resulting from a higher
market value are not probative of gross income. Holland v. United
States [54-2 USTC ¶9714], 348
U. S.
121, 137-38 (1954); Eisner v. Macomber [1 USTC ¶32], 252
U. S.
189, 214-15 (1920). The admission of this evidence would have a definite
tendency to prejudice a jury in a failure to file case where the defense
is a lack of knowledge of the need to file. When there is no legitimate
basis for admissibility and the prejudice is such that the defendant
could not receive a fair trial, a reversal is required.
[Remaining Issues]
Because
the case must be retried, we will discuss the remaining issues raised.
The
trial court instructed the jury that:
It
is the gross income of $600.00 or more, according to the law, that
requires one to file an income tax return. Whether the taxpayer's return
would show that he owed a tax is irrelevant, and should not be
considered by you on the question of the taxpayer's duty to file a
return.
Walker
contends this instruction is erroneous. We disagree. At most, it
presents the possibility of slight confusion because the jury might
believe that the instruction also referred to
Walker
's defense, but it does not amount to reversible error. 1
Walker
also contends that the trial court erred
by refusing to give his following proposed instruction:
If
a taxpayer honestly thinks he owes no income tax for a certain year and
if he honestly believes that a lack of tax due affects his duty to file
a return, such are factors to be considered in determining whether his
failure to file a return for that year was willful.
The government's position is that
the content of the proposed instruction was essentially covered by the
general instruction on willfulness 2 and that the
trial court has considerable discretion in determining whether to give
such an instruction. Suhl v. United States, 390 F. 2d 547, 556
(9th Cir.), cert. denied, 391
U. S.
964 (1968). We agree.
The
trial court rejected
Walker
's offer of proof that in fact there was no federal income tax owing for
any year during the period 1960 through 1966, with the exception of
$2,720.87 owing for 1962. The purpose for offering this evidence, and
the reason it was admissible was to substantiate
Walker
's testimony and sole defense: that he did not think he had to file his
returns promptly because he honestly did not think he owed any taxes.
Whether or not a jury will believe his story, even with this evidence,
only a new trial will tell. But it is obvious that he has the right to
introduce this corroborating evidence. If he had taxable income in these
prior years, the government could have shown that fact to attempt to
have the opposite inference drawn.
Reversed
and remanded for further proceedings consistent with this opinion.
1
For the sake of clarity, however, the instruction might read:
Whether
the taxpayer's return would show that he owed a tax should not be
considered by you on the question of the taxpayer's duty to file a
return. Compare 2 E. Devitt & C. Blackmar, Federal Jury
Practice and Instructions §52.30 (2d ed. 1970).
2
The court instructed the jury that:
"The
word 'willful' as used in this particular statute, that is, Section 7203
of Title 26, United States Code, means with a bad purpose or without
grounds for believing one's act is lawful, or without reasonable cause,
capriciously, or with a careless disregard whether one has the right so
to act. In other words, the prosecution must establish, beyond any
reasonable doubt that the failure to file returns was intentional, as
opposed to being by accident or other innocent cause."
Compare
Devitt & Blackmar, supra note 1, §52.31.
[68-2 USTC
¶9564]
United States of America
, Plaintiff-Appellee v. Dominick
E. Bartone
, Defendant-Appellant
(CA-6), U. S. Court of Appeals,
6th Circuit, No. 18132, 400 F2d 459, 9/6/68, Aff'g unreported District
Court opinion
[1954 Code Sec. 7201]
Crimes: Willful evasion of tax: Evidence: Admissibility:
Attorney-client privilege: Summaries of financial dealings:
Miscellaneous assertions of error.--Evidence as to the taxpayer's
financial dealings with his wholly owned corporation and others
supported the government's charge that he wilfully evaded reporting
certain items of income. The taxpayer's contention that certain
testimony offered by three attorneys should not have been admitted as
being within the attorney-client privilege was rejected; the testimony
neither disclosed any confidence within the privilege nor concerned
legal advice given to the taxpayer or his corporation. Nor was the
taxpayer correct in arguing that the use of a summary by the government
in analyzing his financial dealings was improper; the summary was
carefully examined by the trial judge, out of the jury's hearing, and
the jury was repeatedly cautioned to accept the summary as significant
only if the underlying evidence was believed. Other assertions of error,
to wit: the taxpayer's alleged reliance on advice of counsel; a claimed
business deduction on an investment loss; and a claim that the
corporation was a foreign corporation not subject to tax, were dismissed
by the appeals court as without merit. Finally, the trial court's
instructions to the jury as to willful intent, while not technically
accurate, were sufficient to properly present the issue. Accordingly,
the taxpayer's conviction for willful evasion was affirmed.
Fred
M. Vinson, Jr., Assistant Attorney General, William Lynch, Philip R.
Michael,
Rob
ert D. Gray, Department of Justice, Washington, D. C. 20530, for
plaintiff-appellee. Arlene B. Steuer, Cozza and Steuer, 345 Leader
Bldg.,
Cleveland
,
Ohio
, for defendant-appellant.
Before
PHILLIPS, CELEBREZZE, and COMBS, Circuit Judges.
COMBS,
Circuit Judge:
Appellant
Dominick E. Bartone, was found guilty by a jury on two counts of willful
evasion of federal income taxes in violation of 26 U. S. C. §7201. It
was charged in Count I that he should have reported $202,693.25 taxable
income in 1959, but reported only $7,167. It was charged in Count II
that he should have reported $19,190.63 in 1961, but reported $10,400.
He was sentenced to three years on Count I and to eighteen months on
Count II, the sentences to run concurrently. Several grounds of error
are assigned.
The
facts relating to Bartone's 1959 income are not susceptible to easy
summarization. The evidence reveals a complicated web of financial
dealings between Bartone, representatives of the
Dominican Republic
, and other individuals who were partners with or agents of Bartone in
various enterprises. The general pattern of the evidence reveals that
Bartone was engaged in selling munitions and airplane parts to the
Dominican Republic
. Involved in these transactions was a Panamanian corporation, Servicios
Internacionales, S. A. There is considerable evidence that Servicios was
a corporate shell, engaged in no business and wholly owned by Bartone.
Much of the money Bartone received and expended in 1959 went into or
came out of bank accounts in the name of Servicios.
We
will not attempt a chronological recital of receipts and disbursements.
Two specific instances will serve as examples. On July 23, 1959, Barton
purchased, with cash, a $150,000 cashier's check in
Miami
. In late August, this check was used to open a checking account in
Servicios' name in the Royal Bank of
Canada
. In July, 1959, Bartone, through agents, purchased arms in
North Carolina
for $12,000. The individual who obtained these arms for him testified
that Bartone said they were worth $307,000. On July 24, 1959, Bartone
accompanied a member of the Dominican consulate in
Miami
, Emanuel Perez Sosa, to a Miami bank. There, $300,000 was obtained on a
check to Sosa from the Dominican Consul in
Miami
. The money was counted and apparently turned over to Bartone. The
evidence supports the conclusion that Bartone received from these and
other transactions in 1959 income in at least the amount charged in
Count I of the indictment.
The
principal item of 1961 income was $25,000 Bartone borrowed from
Rob
ert Meissner. The money was loaned to him for use as a deposit on a bid
for the purchase of a bankrupt Canadian corporation. Niagra Crushed
Stone. Meissner was told that the money was to be used only in making
the bid and that it would be returned to him after it had served that
purpose. However, after the bid was unsuccessful and the money returned
to Bartone, he used it for his own purposes without Meissner's
knowledge. There was evidence of other financial deals in 1961 from
which Bartone received income in the amount claimed by the Government.
No evidence was offered by appellant.
Much
of the Government's evidence as to Bartone's financial deals and his
connection with Internacionales Servicios is based on the testimony of
three attorneys. This testimony was admitted over the strenuous
objections of appellant who contends it falls within the attorney-client
privilege since the attorneys represented him and the corporations
involved.
It
is true, as appellant contends, that the attorney-client privilege
extends to corporations. Radiant Burners Inc. v. American Gas
Association, 320 F. 2d 314 (7th Cir. 1963). But, the privilege is
not all inclusive. Here, the testimony of the attorneys was limited
almost entirely to tracing the transfer of funds to and from Bartone and
various corporations. One of the attorneys, who was also
Secretary-Treasurer and a Director of Servicios, testified as to the
nature and organization of that corporation. There is no indication that
any of this testimony concerned legal advice given to Bartone or to the
corporations, nor was any confidence disclosed which came to the
witnesses through an attorney-client relationship.
The
mere fact that a person is an attorney does not render as privileged
everything he does for and with a client. Ministerial or clerical
services such as those testified to here are not within the privilege. McFee
v. United States [53-2 USTC ¶9549], 206 F. 2d 872 (9th Cir. 1953); Pollock
v. United States [53-1 USTC ¶9229], 202 F. 2d 281 (5th Cir. 1953).
We find no error in regard to admission of the attorney's testimony.
By
the use of charts and general explanation, a Government agent was
permitted to summarize Bartone's financial dealings in 1959 and 1961.
Appellant contends that admission of the summary was error since it
included as income to Bartone money which had gone to Servicios and
other corporations, as well as the Meissner loan.
The
use of summaries is not without danger, as the Supreme Court said in Holland
v. United States [54-2 USTC ¶9714], 348 U. S. 121, 128 (1954):
"[B]are figures have a way of acquiring an existence of their own,
independent of the evidence which gave rise to them." Thus, it is
necessary that the trial judge carefully examine this type of evidence
and supporting exhibits, out of hearing of the jury, in order to
determine that everything contained in the summary is supported by the
proof. Moreover, the jury should be carefully admonished that a summary
is not evidence and has no significance if the underlying evidence is
not believed.
The
trial court in this case scrupulously examined the proposed summary and
charts prior to admission, and thereafter painstakingly and repeatedly
cautioned the jury as to their purpose. Thus, there was no error in
admission of this testimony and the exhibits. Barber v. United States
[59-2 USTC ¶9784], 271 F. 2d 265 (6th Cir. 1959); Epstein v. United
States [57-2 USTC ¶9797], 246 F. 2d 563 (6th Cir. 1957), cert.
denied, 355
U. S.
868 (1957).
Other
assignments of error relate to the District Court's failure to give
instructions on certain factors bearing on the appellant's intent to
evade taxes. These concern his alleged belief that he had the right to
rely on advice of counsel; that he was entitled to a business deduction
for a lost investment; and that as a foreign corporation Servicios, was
not subject to tax. We have considered these contentions and find them
to be without merit.
Complaint
is also made of the court's definition of willful intent. While the
instructions could have been more technically accurate on this point, we
are of the opinion that when considered as a whole they properly
presented this issue to the jury. We note, too, that there was no
objection to the court's instructions.
Other
contentions are similarly without merit.
Judgment
affirmed.
[64-1 USTC
¶9201]
United States of America
, Plaintiff-Appellee v. Frank Leonard Wortman and Gregory Moore,
Defendants-Appellants
(CA-7), U. S. Court of Appeals,
7th Circuit, Nos. 13941, 13942, 1/14/64, Reversing and remanding
unreported District Court decision
[1954 Code Sec. 7201 and 1939 Code Sec. 145(b)]
Tax evasion: Conspiracy conviction: Evidence: Erroneous admission of
evidence at trial.--The Court of Appeals reversed the taxpayers'
conspiracy conviction where evidence that was admitted at the trial for
the purpose of establishing the alleged conspiracy was inadmissible.
Louis
F. Oberdorfer, Assistant Attorney General, Joseph M. Howard, John B.
Jones, Jr., Meyer Rothwacks, Norman Sepenuk, Department of Justice,
Washington, D. C., 20530, Carl W. Feickert, United States Attorney, East
St. Louis, Ill., for plaintiff-appellee. Morris A. Shenker, Suite 802,
408 Olive St., Norman S. London, 418 Olive St., St. Louis, Mo., for
defendants-appellants.
Before
DUFFY, CASTLE and MAJOR, Circuit Judges.
MAJOR,
Circuit Judge:
Defendants
Frank Leonard Wortman and Gregory Moore separately appeal from judgments
entered July 17, 1962, following a jury verdict finding them guilty of
conspiracy. The indictment, returned January 11, 1960, originally
contained nine counts, all of which were disposed of prior to trial
except 1, 2, 3 and 4. Counts 1, 2 and 3 charged Frank Leonard Wortman
(afterwards referred to as defendant Wortman to distinguish him from his
brother, Edward Wortman) with attempted evasion of his personal income
tax for the years 1953, 1954 and 1955. Count 4 charged that defendant
Wortman, Elmer Sylvester Dowling, Edward Wortman, Gregory Moore, Sam
Magin and George Frank conspired in the manner and for the purposes and
objectives subsequently shown. Because of a physical condition, Frank
was not tried. The jury was unable to agree as to Edward Wortman on the
conspiracy count and as to defendant Wortman on the substantive counts
(1, 2 and 3). Defendant Wortman, Moore and Dowling were convicted on the
conspiracy count. Magin was acquitted. Dowling died subsequent to the
trial.
After
a trial which lasted more than six weeks, the case was submitted to the
jury on the afternoon of Thursday, February 22, 1962. The jury
deliberated the remainder of that day, all of Friday, Saturday and
Sunday (9 a.m. to 9 p.m. each day), and returned the verdict above noted
at about 4 p.m. on Monday, February 26.
Defendants
argue that numerous prejudicial errors were committed which require a
reversal of the judgments. Leaving for further consideration, if
necessary, many of the issues thus advanced, we shall first consider the
contention that a large amount of immaterial, incompetent and
prejudicial evidence was admitted over defendants' objections and that
the proof of a conspiracy, if any, was not that charged.
We
think in the beginning, for reasons which we hope will subsequently
become apparent, that the material averments of the conspiracy should be
set forth. It alleges in customary language that defendants Wortman and
Moore, together with the other persons heretofore named, from July 1,
1944, and continuously thereafter to and including the date of the
filing of the indictment (January 11, 1960), conspired and agreed
together:
"a.
Wilfully to defraud the United States of America of income taxes due and
owing for the calendar years 1944 to date from defendant Frank Leonard
Wortman.
"b.
Wilfully to defraud the
United States
of and concerning the exercise of its governmental function and right of
ascertaining, computing, levying, assessing, and collecting income taxes
due and owing to the
United States of America
for the calendar years 1944 to date by defendant Frank Leonard Wortman.
"c.
To commit certain offenses against the
United States
, to-wit:
(1)
The crime of wilfully attempting to evade and defeat a large part of the
income taxes to be due and owing to the United States of America by the
defendant Frank Leonard Wortman, for the calendar years 1944 to date in
violation of Section 145(b) of the Internal Revenue Code of 1939 (26 U.
S. C. 145(b) and Section 7201 of the Internal Revenue Code of 1954 (26
U. S. C. 7201).
(2)
The crime of knowingly and wilfully falsifying, concealing and covering
up by trick, scheme and device, material facts in matters within the
jurisdiction of an agency of the United States, viz., the Internal
Revenue Service of the United States Treasury Department, during the
period from 1944 to date, in violation of Section 1001 of the Criminal
Code (18 U. S. C. 1001).
"2.
It was a part of said conspiracy that the defendant would conceal and
continue to conceal the nature and extent of the proprietary and
financial interest of the said Frank Leonard Wortman in various
partnerships, associations and corporations, and the sources, nature and
amounts of his income from the calendar years 1944 to date.
"a.
It was further a part of said conspiracy that the defendants would cause
false and misleading entries to be made in the books and records of (1)
the partnership known as Gregory Moore et al., (2) a partnership known
as Plaza Amusement Company, and (3) a proprietorship known as Paddock
Liquor Company, all for the purpose of concealing the financial
interests therein of Frank Leonard Wortman.
"b.
It was further a part of said conspiracy that the defendants would
organize and operate gambling casinos in the form of partnerships, and
that in the operation of said gambling casinos in defendants would fail
to keep proper books and records concerning their operations, would fail
to file certain partnership returns of income required by law, would
file inadequate and incomplete partnership returns of income, would
cause false and fraudulent books and records to be kept in connection
with the casino operations, and would cause to be prepared certain false
and fraudulent partnership returns of income, all for the purpose of
concealing the true income of said casinos and of the said Frank Leonard
Wortman.
"c.
It was further a part of said conspiracy that the defendants would cause
property and interests in business ventures to be concealed in the names
of persons other than Frank Leonard Wortman, for the purpose of
concealing the interests of Frank Leonard Wortman therein.
"d.
It was further a part of said conspiracy that the defendants would cause
false and misleading entries to be made in the books and records of Jack
Langer's Mounds Club, Inc. and Plaza Amusement Company, Inc., for the
purpose of concealing the true ownership of said companies and the
capital investment therein by said Frank Leonard Wortman.
"3.
It was further a part of said conspiracy that the defendants would cause
to be prepared and filed false and fraudulent individual income tax
returns of Frank Leonard Wortman."
Then follows the enumeration of
twenty-five overt acts (five of which were eliminated at the trial)
alleged to have been performed in furtherance and in execution of the
conspiracy.
It
is significant to note from the allegations of the indictment that the
alleged conspiracy was pursued by all the named defendants for a period
of almost sixteen years for the benefit of and as an aid to defendant
Wortman in his income tax matters in one way or another. None of the
other alleged conspirators (including
Moore
) were to have received any benefit from or been aided by their sixteen
years of concerted action.
The
Government's proof in the main relates to five different business
enterprises operated over a period of sixteen years: the Hyde Park Club,
the National Amusement Company, the Plaza Amusement Company, the Paddock
Restaurant and the Premier Club (also referred to as the Peerless Club
and the Paramount Club). The testimony concerning the first three named
businesses was admitted solely with reference to the conspiracy charge.
That concerning the other businesses was admitted primarily on the
substantive charges against defendant Wortman upon which the jury failed
to agree. It appears, however, that the Government also relies upon this
testimony in support of its theory of a continuing conspiracy.
The
Hyde Park
Club
This
Club, organized February 5, 1943 as a partnership, was engaged in the
operation of a gambling casino. The partnership consisted of seventeen
partners, all named and their respective interests set forth.
Moore
, with a 71/2% interest, was named as a partner. Defendant Wortman was
not named. This partnership after some four years of operation
terminated its business.
In
1950, Wm. C. Long, a Revenue agent and the first Government witness,
commenced an examination of Moore's income tax return for 1947, during
the course of which he wrote Moore, "It is noted that you only
reported one half of your distributive share of net income from the
partnership, 'per a partnership agreement.' Please furnish this office
with a copy of such agreement for inspection purposes so that it can be
established if a partnership existed as concerns your distributive share
of income * * *."
Moore
responded, "I am enclosing the only copy of this agreement that has
been duly signed and witnessed * * *." The agreement (hereinafter
called the Moore-Wortman agreement), purportedly signed by Moore and
defendant Wortman, bore the names of
Moore
's wife and his attorney, John W. Joynt, as witnesses, and recited:
"Frank
Wortman, aforesaid, is to place in the custody of Gregory E. Moore,
aforesaid, $5,000.00 in cash to be used if and as needed in the
furtherance of the business of the Hyde Park Club and is to receive in
return from said Gregory E. Moore one half of all monies received by
Gregory E. Moore as profits from the Hyde Park Club.
"The
name of Frank Wortman shall not appear on the partnership of the Hyde
Park Club for obvious reasons. But the interests of both Wortman and
Moore will be carried in the name of Gregory E. Moore in the Hyde Park
Club partnership as reported to the United State Government, Bureau of
Internal Revenue. This interest amounts to $71/2% of the profits which
is to be divided 33/4 percent to Wortman and 33/4 percent to
Moore
. If, at a later date, the percentage of interest in the Hyde Park Club
is increased to Moore the profits will still be divided on a 50-50
basis, i.e., 1/2 to Wortman and 1/2 to Moore; but the name of Wortman
shall not appear on the original partnership agreement of the Hyde Park
Club at any time.
"Gregory
E. Moore acknowledges herewith receipt of $5,000.00 in cash from Frank
Wortman on July 1, 1944.
"Frank
Wortman acknowledges now that he received $6,910.14 during the year 1944
from Gregory E. Moore as profits from the Hyde Park Club; and Frank
Wortman acknowledges that he received from Gregory E. Moore $7,872.75 as
profits from the Hyde Park Club for the year 1945.
"This
agreement dated as of January 10, 1946, as a Nunc Pro Tunc agreement for
verbal agreement of July 1, 1944.
"This
agreement can be terminated by either party on ten (10) days notice
verbal or written.
"Signed
by Frank Wortman and Gregory E. Moore. Witnessed by John W. Joynt and
Mrs. Gregory E. Moore."
The
correspondence between Long and
Moore
, together with the Moore-Wortman agreement produced by
Moore
, were admitted in evidence over defendants' objection that they were
incompetent as hearsay and immaterial as to all defendants other than
Moore
. It is at once evident that these exhibits, particularly the agreement,
if erroneously admitted were highly prejudicial. The conspiracy is
alleged to have commenced July 1, 1944, the date on which the agreement
became effective by reason of its Nunc Pro Tunc provision. The agreement
constitutes the foundation upon which the Government's case is based
insofar as it relates to conspiracy. It permeates and colors the picture
during the entire period of the alleged conspiracy. A study of the
Government's brief affords abundant support for this appraisal.
The
Government commences its statement of facts under the heading, "The
starting point of the conspiracy--Hyde Park Agreement," and as to
that business relies entirely upon the Moore-Wortman agreement and the
use to which it was put by
Moore
in his controversy with the Revenue Service. In its summary of argument,
the Government states:
"The
evidence established that the appellants entered into a written
agreement in January, 1946, to confirm their oral agreement of June 1,
1944, the gist of which was that the fact that Wortman had a financial
interest in the Hyde Park Club would be concealed from the Internal
Revenue Service."
Again it states:
"As
we have shown, the appellants entered into a written agreement on
January 10, 1946, to confirm the terms of their oral agreement of July
1, 1944, which provided that (1) the financial interest of Wortman in
the Hyde Park Club would not appear on the partnership records 'for
obvious reasons'; (2) Wortman's interest would be concealed under that
of Moore and the two would share equally in that portion of the Club's
profits which ostensibly belonged to Moore; (3) Wortman's name would not
appear on the partnership agreement at any time; and (4) 'the interests
of both Wortman and Moore will be carried in the name of Gregory E.
Moore * * * as reported to the United States Government, Bureau of
Internal Revenue.' The appellants abided by this agreement and none of
the annual partnership returns of the Hyde Park Club disclosed Wortman's
interest. It was not until mid-1950 that
Moore
, faced with a $30,000 tax deficiency after an investigation of his own
tax returns by Treasury agents, disclosed the agreement with Wortman as
proof that he (Moore) had been justified in reporting only 50% of his
ostensible profits in the venture."
In its argument that the evidence
established a single rather than separate conspiracies as contended by
defendants, the Government states:
"Wortman
and Moore, by reason of their knowledge of the plans' essential features
and general scope, as shown by their
Hyde Park
agreement, were joined together by that knowledge and by their single
common goal."
In response to defendants'
statement that "there is no evidence at all that appellant
Moore
had any connection with appellant Wortman during the period from 1947 to
1953," the Government states:
"Indeed,
though Moore was temporarily absent from the conspiracy during these
years, he later became a key figure in the gambling casino, and as we
have shown, his conduct at that time in furtherance of the conspiracy
clearly reveals that he never intended to terminate his express
agreement with Wortman to defraud the revenue."
Finally, in support of its theory
of a continuing conspiracy, the Government states:
"To
begin with, the express terms of the 1946 written agreement showed that
appellants had already devised a scheme to prevent the Internal Revenue
Service from learning that Wortman had an interest in the Hyde Park
Club."
Some
of the circumstances leading up to
Moore
's supplying the Revenue agent with the Moore-Wortman agreement have
already been shown. The original agreement was not produced, and both
the Government and defendants denied having it in their respective
possessions. There was testimony that a typewritten copy was made, with
the original returned to
Moore
. A photostat of this typewritten copy was offered and admitted, without
the slightest competent proof that defendant Wortman signed the
agreement, that he directed or authorized it to be done on his behalf,
or that he had knowledge of its contents. 1 Agent Long
testified that he received from
Moore
"a signed agreement." He made no pretension of knowing or
being familiar with the signature of Wortman; in fact, he was not
questioned in that respect. There was not even testimony by the typist
who made the copy as to whether the name of Frank Wortman on the
original was in typewritten or handwritten form. In
Moore
's letter to Long, he stated that he was enclosing a copy of the
agreement "that has been duly signed and witnessed."
Obviously, this statement by
Moore
was not admissible against or binding on defendant Wortman.
Moore
's wife and his attorney, who purportedly witnessed the signatures, were
not called as witnesses. Revenue agent Victor R. Glenn, a witness for
the Government who disallowed
Moore
's claim, refused to recognize the Moore-Wortman agreement. The agent on
cross-examination stated, "It was my contention that Mr. Wortman
was not, and nobody has ever alleged that Mr. Wortman was, a partner in
the Hyde Park Club."
We
might determine on this record that defendant Wortman is a man of ill
repute, but it taxes all credulity to believe that he is so deficient in
mentality that he became a party to a written agreement with Moore that
from then on he would conceal his assets from the Revenue Service and
for two years previously had done so. It is not strange that the
Government offered no proof that defendant Wortman signed the agreement
and made no explanation as to why the Revenue Service refused to
recognize it as bona fide.
The
Moore-Wortman agreement was admitted against defendants Wortman and
Moore without any reservation at a time when admittedly there was no
proof of a conspiracy; in fact, it was offered for that purpose. It was
a declaration by one alleged conspirator against another, made out of
the latter's presence and without proof that he had in any manner
authorized it. We cite a few of the many cases which have held such
declarations inadmissible. Krulewitch v. United States, 336 U. S.
440, 443; Glasser v. United States, 315 U. S. 60, 74; Carbo et
al. v. United States, 314 F. 2d 718, 735; Dennis et al. v. United
States, 302 F. 2d 5, 10; Tripp v. United States, 295 F. 2d
418, 422; Taylor v. United States, 260 F. 2d 737, 738; Panci
v. United States, 256 F. 2d 308, 311.
In
Glasser, the Court stated:
"*
* * such declarations are admissible over the objection of an alleged
co-conspirator, who was not present when they were made, only if there
is proof aliunde that he is connected with the conspiracy."
In Tripp, the Court stated:
"The
existence of the conspiracy cannot be established against an alleged
conspirator by evidence of the acts or declarations of his alleged
coconspirators done or made in his absence. Such declarations are
admissible against him only where there is proof aliunde of his
connection with the conspiracy."
In Panci, the Court commented upon
the prejudicial nature of testimony of an alleged co-conspirator
admitted in violation of the rule, which is pertinent here:
"Leaving
the hearsay testimony out of consideration destroys the case in fact.
Taking it into consideration destroys it in law."
The
trial court recognized the rule by instructing the jury:
"In
considering whether or not a particular defendant was a member of the
conspiracy, you must do so without regard to and independently of the
statements and declarations of others."
The
Government in its argument that the testimony under discussion was
properly admitted states:
"If
the appellants became members of a conspiracy on July 1, 1944, to
conceal material facts from the Internal Revenue Service--as we submit
they obviously did--there is certainly no substance to the argument that
proof of that agreement and the activities which followed it should have
been excluded from evidence."
In the abstract, we see nothing
wrong with this argument, but it is beside the issue. The point is that
at the time the Moore-Wortman agreement as well as the other exhibits
which we have discussed were admitted, there was no proof aliunde
of a conspiracy. The agreement was admitted to establish the conspiracy
without proof that defendant Wortman was a party to it.
The
income tax returns of both defendant Wortman and Moore disclose that as
early as 1944 there was some arrangement between them by which the
latter was to pay to defendant Wortman one-half of the profits which he
received from the Hyde Park Club. Defendant Wortman in his 1944 tax
return showed "Greg Moore" as the source of
Hyde Park
income. For some reason not disclosed, the Government did not offer
defendant Wortman's tax returns for the years 1945, 1946 and 1947.
Moore
's returns for these years disclosed that he had paid to defendant
Wortman one-half of the profits which he received as a partner in
Hyde Park
. A revenue agent testified that his investigation disclosed that
defendant Wortman for each of the years 1944 to 1947, inclusive, had
reported in his tax returns the same amounts which
Moore
had stated in his returns as having been paid. Such fact is no proof of
a conspiracy to evade taxes or defraud the Government. More importantly,
it is no proof that defendant Wortman entered into the Moore-Wortman
agreement, and the Government does not so contend.
Assuming
that the Government before the jury analyzed the Moore-Wortman agreement
as it does here, its prejudicial effect is further emphasized. In its
brief it states:
"While
Wortman annually reported this income on his tax returns, both he and
Moore, during these years, abided by their agreement and at no time
disclosed to the Internal Revenue Service Wortman's financial interest
in the
Hyde Park
partnership."
This assertion fails to
distinguish between the
Hyde Park
partnership and the Moore-Wortman agreement. Defendant Wortman was not a
partner in the former and thus had no financial interest therein to
disclose. The Government states:
"The
partnership returns of the Hyde Park Club for the years 1944 through
1947, inclusive, did not list Frank Wortman as a partner."
The uncontradicted proof is that
he was not a partner. The Government asserts:
"* * * nor
did either Moore or Wortman, despite the existence of their 'partnership
agreement,' file or cause to be filed a partnership information return
showing the distribution of this income."
Whether the law required them to
do so is arguable. The Revenue Service in 1950 rejected
Moore
's claim that a partnership agreement existed. In any event,
Moore
filed his tax returns showing the amounts paid by him to defendant
Wortman and the latter filed returns disclosing receipt. The Government
asserts that defendant Wortman concealed the $5,000.00 cash which,
according to the agreement, he paid to
Moore
, which "would naturally tend to frustrate an investigation of
Wortman's net worth." This is a flimsy contention and its validity,
if it has any, would depend upon a number of factors. Assuming that the
net worth period commenced in 1944, the year of the payment, the alleged
concealment would be to the Government's benefit rather than that of
defendant Wortman. The fewer assets disclosed at the beginning, the more
there would be at the end of the net worth period.
We
think it pertinent to observe that the Moore-Wortman agreement was by
its terms limited to the Hyde Park Club. The parties appear to have so
recognized because
Moore
had no association with defendant Wortman from the time the Hyde Park
Club ceased to exist in 1947 until 1953, a period of six years. The
Government attempts to meet this situation by reliance upon the rule
that once a defendant is shown to be a party to a conspiracy he remains
so until he takes some affirmative step to disassociate himself from it.
There is no case, however, so far as we are aware, where the alleged
conspiracy was shown by an express agreement of the parties, which by
its own terms fixed the time of termination and thereafter the parties
pursued their own separate ways for a period of six years. Such being
the situation, it is not discernible how the agreement can be relied
upon as the foundation for a conspiracy which endured for sixteen years.
We
now return to
Moore
's controversy with the Revenue Service, wherein he produced the
Moore-Wortman agreement in support of his claim that he was entitled to
credit on his gross income for payments made to defendant Wortman,
allegedly by virtue of the agreement. This contention was denied by the
Commissioner and a deficiency assessed against
Moore
which on appeal by
Moore
was sustained by the Tax Court. A settlement was afterward reached and a
stipulation entered into between the Revenue Service and Moore by which
the latter was given credit on his taxes for the amounts he had paid
defendant Wortman. In this way, the Government received some $18,000
more than it would have had it recognized the Moore-Wortman agreement,
for the reason that
Moore
was in a higher income bracket than Wortman.
The
Court over objection admitted against Moore and defendant Wortman a
petition dated January 25, 1951, for a redetermination of Moore's income
taxes for the calendar years 1945, 1946 and 1947, signed by John W.
Joynt, counsel for Moore, as well as a stipulation entered into May 9,
1952, agreeing to and settling the amount of tax to be paid by Moore.
The Court also admitted as against Moore and defendant Wortman three
petitions signed by
Moore
, dated March 13, 1958, for refund of taxes paid by him for each of the
years 1945, 1946 and 1947. We need not recite in detail the contents or
allegations of these exhibits. It is sufficient to note that all were
submitted in connection with
Moore
's contention that he was entitled to a reduction in the deficiency
assessed against him by reason of the Moore-Wortman agreement, or to a
refund of such taxes because of the Tax Court's refusal to recognize it.
Typical of the material shown in these exhibits is the following
allegation in his petition for a redetermination of the deficiency
assessed against him:
"This
partner [defendant Wortman] or joint-venturer owned jointly with
petitioner a share in the enterprise in question and deposited with
petitioner a sum of money, which sum was placed in the hands of
petitioner and was to be used for financial purposes related to the
enterprise, if and when necessary. These facts were known and agreed to
by the other partners to the enterprise. 2 Upon the
declaration of a dividend of the earnings of the partnership, petitioner
paid to his joint-venturer fifty per cent of the sum received on [in]
each of the years in question and said joint-venturer thereupon declared
such payments as income and paid taxes thereon. The agents in charge of
the
St. Louis
,
Missouri
, Division of Internal Revenue disallowed as deductions the said sums
paid by petitioner to his said joint-venturer."
In
our judgment, all of these exhibits which were read to the jury were
highly prejudicial and erroneously admitted. In the first place, they
were mere narratives by
Moore
of past facts, particularly as to the claims for refund filed some
fourteen years after the occurrence, Logan et al. v. United States,
144
U. S.
263, 309. Secondly, they contained assertions by one alleged conspirator
against another, with which the latter had nothing to do. Such
declarations are inadmissible. (See cases heretofore cited in support of
this rule.) Thirdly, they were not admissible against either Moore or
defendant Wortman because they did not prove or tend to prove the charge
as made; in other words, they were not relevant. In Fiswick et al. v.
United States, 329
U. S.
211, 217, the Court stated:
"* * * the
act of one partner in crime is admissible against the others where it is
in furtherance of the criminal undertaking * * *."
In Krulewitch v. United States,
336
U. S.
440, 443, the Court stated:
"* * * it
is firmly established that where made in furtherance of the objectives
of a going conspiracy, such statements are admissible as exceptions to
the hearsay rule."
In Lutwak et al. v. United
States, 344
U. S.
604, 617, the Court stated:
"But such
declaration can be used against the co-conspirator only when made in
furtherance of the conspiracy."
A
study of the conspiracy charge is convincing that the declarations of
Moore
contained in his Tax Court proceeding were not in "furtherance of
the objectives of the conspiracy." As we have noted, the objective
of the alleged conspiracy was to aid defendant Wortman in one way or
another in his tax matters. In brief summary, it was alleged that the
defendants conspired to defraud the United States of income taxes owed
by defendant Wortman; to defraud the United States in the exercise of
its governmental function and right of ascertaining, computing, etc. the
taxes owing by defendant Wortman; to assist defendant Wortman in the
evasion and defeat of his income taxes; to conceal by trick, scheme and
device material facts within the jurisdiction of the Internal Revenue
Service; to keep false books and records so as to show their gambling
operations in names other than defendant Wortman, and to cause to be
prepared and filed false individual income tax returns of defendant
Wortman.
Defendant
Wortman, as far as the record discloses, was a stranger to
Moore
's Tax Court proceedings. He had no interest therein, financial or
otherwise. The proceedings and the declarations of
Moore
contained therein were solely on
Moore
's behalf, made in an effort to obtain a reduction in his income tax
deficiency. They bore no relation to tax matters with which defendant
Wortman was concerned. Certainly the proceedings or any of the
allegations made therein did not show a concealment by trick, scheme or
device on the part of Moore or defendant Wortman. In fact, all of
Moore
's activities with reference to his tax matters under discussion were
the very antithesis of secrecy or concealment. They were all in the
open, spread upon the records of the Revenue Service. We think there is
no escape from the conclusion that
Moore
's petition for a reduction in his tax deficiency, the stipulated
settlement agreement and his claims for refund bore no relevancy to the
charge of conspiracy as made. They were erroneously admitted as to both
defendant Wortman and Moore, and were particularly prejudicial to the
former.
In
view of what we have heretofore shown, it is evident that the Government
relies upon its proof relative to National Amusement Company and Plaza
Amusement Company on the premise of a going conspiracy. As we have held,
its reliance on its proof relative to the Hyde Park Club is misplaced.
However, inasmuch as the proof regarding these three business was
admitted solely on the charge of conspiracy, and National Amusement and
Plaza were operated within the same period of time as
Hyde Park
, we shall briefly discuss them. In doing so, it is pertinent to note
that
Moore
was in active charge of National Amusement and Plaza, as he was in
Hyde Park
. Defendant Wortman had no interest in
Hyde Park
, owned 14% of the shares in National Amusement and 20% in Plaza.
The National Amusement Company
On
December 12, 1944,
Moore
purchased from one Peter Brandt for a price of $22,500 all of the
outstanding stock in National Amusement Company, a corporation engaged
in the operation of phonographs and amusement devices. Shortly
thereafter (the record does not disclose the exact date), Moore,
defendant Wortman, Edward Wortman, Elmer Dowling, Thomas A. Pagan, Louis
C. Smith, Barney Barts and Frank O'Mara (the last four named not alleged
to be conspirators) organized the "Gregory E. Moore, et al.,
partnership," to which the shares purchased from Brandt by Moore
were transferred.
On
March 15, 1945, the National Amusement Company was incorporated, the
stock of which was owned by the Gregory E. Moore, et al., partnership.
Moore
as President-Treasurer of the company caused a corporate tax return to
be filed for the year 1945. No return was made by the partnership for
the year 1944, and in the 1945 corporate return Moore answered,
"No," in response to a question, "Did any * * *
partnership * * * own at any time during the taxable year 50% or more of
the corporation's voting stock?"
In
1945,
Moore
in his individual capacity brought suit against Brandt from whom the
stock in National Amusement Company had been purchased, alleging fraud,
for the purpose of forcing Brandt to repurchase the stock. On April 25,
1946, by reason of a settlement agreement, Brandt repurchased the stock
for $112,500. The purchase price, at
Moore
's request, was paid to him in the form of checks, each dated April 25,
1946. The largest check was in the amount of $89,172.42; the other four
checks were last endorsed by the National Amusement Company and Brandt
could not recall whether these checks were redeposited to his account or
to that of National Amusement Company.
Moore
received the amount of the largest check in cash. In 1946,
Moore
filed a tax return on behalf of the corporation, which disclosed the
purchase price of the stock, its sale price, the gross long term capital
gains and the capital investment. This return named the partners and the
amount of the capital investment and net long term capital gain for
each. Shortly after making this return, checks were drawn by
Moore
, payable to the Internal Revenue Service, for the capital gains tax of
each of the eight partners.
The
Government argues:
"While
each check purported to pay the tax on the distributive share received
by that member of the partnership, it was the position of the Government
that Moore and Wortman had engaged in a course of conduct designed to
prevent the Internal Revenue Service from ascertaining the amounts
actually received by each partner."
It seems to us that the inference
of concealment is dispelled by the fact that in March 1947, a
partnership return signed by
Moore
was filed for the year 1946. The Government concedes that by this return
it was furnished the desired information. In its brief it states:
"This
partnership return disclosed to the Internal Revenue Service for the
first time, the financial interest of both Moore and Wortman in the
National Amusement Company."
Thus, in March 1947, the parties
revealed what the Government infers they concealed in 1946.
The
Government offers much documentary evidence purportedly to show the
concealment of assets by Moore and defendant Wortman in connection with
the operation of the National Amusement Company, which in the main rests
upon the premise that Moore paid Brandt $22,500 for the stock, shortly
afterward sold it back to Brandt for $112,500, and that in some way this
profit was not accurately accounted for. In its brief it states,
"At least $54,000 of the proceeds of the sale had been withdrawn
from
Moore
's bank account and disappeared from view." The Government without
proof indulges in the dubious inference that this money was received by
defendant Wortman.
This
argument, in our view, is completely annihilated by information elicited
on cross-examination of Government's witness Brandt which we hope
inadvertently, is not mentioned either in the Government's statement of
facts or in its argument. Brandt testified as follows:
"Q.
Now, with reference to--you said that you sold this company for, I
believe you testified, $22,500?
"A.
Right.
"Q.
Was that twenty-two thousand, was that the entire price or was there
some indebtedness?
"A.
There was indebtedness.
"Q.
How much indebtedness?
"A.
I would say approximately ninety thousand.
"Q.
Approximately ninety thousand dollars?
"A.
Yes."
Brandt
made it plain that when he testified that he received from
Moore
$22,500 for the sale of the stock he was referring to cash received,
with the indebtedness assumed by
Moore
. hen he repurchased the stock from
Moore
for $112,500, it was free and clear of indebtedness. Brandt did not
specifically know who cleared the indebtedness or in what manner. He
testified, however, that under his agreement with
Moore
he was to receive the property free and clear, that
Moore
promised to take care of the indebtedness and that Brandt later
ascertained that it had been paid. Thus, the purchase of the stock in
National Amusement Company by
Moore
for $22,500, with a company indebtedness of $90,000, and its resale by
Moore
to Brandt for $112,500, cleared of all indebtedness, indicates there was
no profit in the transaction. It also should be remembered that
defendant Wortman was not shown to have had anything to do with the
activities of National Amusement Company other than to own 14% of its
stock. He was not responsible for the activities of
Moore
, absent proof of a going conspiracy.
The Plaza Amusement Company
On
March 1, 1947, Plaza Amusement Company was incorporated. It was an
operating company for phonographs, pinball, pool and shuffleboard games.
The company had previously operated as a partnership from May 1, 1946,
consisting of the eight partners, including defendant Wortman and Moore,
who had been stockholders in National Amusement Company. The corporation
issued 250 shares of stock (par value $100) fully paid, for a total
capitalization of $25,000, the stock being issued to and held as
follows: 50 shares each by Dowling, Barts and defendant Wortman; 33
shares each by O'Mara, Smith and Edward Wortman, and 1 qualifying share
by Edward Heiby, attorney for the corporation. It may be noted that no
stock was issued to
Moore
and it appears that he had no connection with the corporation. In fact,
as previously noted, Moore at that point dropped out of the picture and
had no connection with defendant Wortman until some six or seven years
later.
The
cash receipts book and general ledger of the corporation disclose that
during the period from March 22, 1947 to October 9, 1947, inclusive, a
total of $98,400 was loaned by the stockholders to the corporation. The
Government states that according to the corporate records $68,170 of
this amount was loaned to the corporation by its attorney, Heiby, who
was the owner of only one share of stock. This statement is hardly
accurate. What the record shows is that the cash receipts book in
connection with this loan noted "Heiby," which might mean the
loan was made by him or by some other party through him. Otherwise, the
proof does not disclose who advanced the loans.
On
October 21, 1947, the loan accounts in the amount of $98,400 were closed
out and the liability transferred to the capital account. A Revenue
agent who was a Government witness, with reference to this transfer
testified, "It was not taxable when placed in stock. It was an
investment in capital." On the same date the loan accounts were
transferred to capital, an additional 1000 shares of capital stock of
the corporation of the par value of $99,900 were issued to the existing
stockholders as follows: 200 shares each to Dowling, Barts and defendant
Wortman; 133 shares each to O'Mara, Smith and Edward Wortman, and 1
share to the bookkeeper, Ann Barrett, for which she was charged $100.
Thereafter from October 1, 1947 to August 31, 1948, additional sums were
advanced to the corporation and carried in the general ledger as loans
from its stockholders, without designating which stockholder or
stockholders made such loans. In August 1949, the balance remaining in
the "Loans Payable Stockholders" account totaled $40,600. By
August 31, 1950, the account was closed out by the issuance by the
corporation of four checks, three of which were made payable to four
individuals and endorsed by all, without disclosing the amount received
by each. 3
The
Government concludes its statement relative to Plaza Amusement Company
by summarizing the activities of the alleged conspirators up to early
1948. This summary again emphasizes the Government's dependence upon the
Moore-Wortman agreement allegedly entered into in connection with the
Hyde Park Club. In its brief, referring to the Hyde Park Club, it
states:
"Wortman's
cash investment therein together with his interest in the Hyde Park
profits for the years 1944 through 1947, had not been disclosed to the
Internal Revenue Service in accordance with his agreement with
Moore
."
The Government reiterates its
theory relative to National Amusement Company, which we have heretofore
discussed, and again ignores the fact that a company indebtedness of
approximately $90,000 was discharged as a part of the transaction in
connection with which Brandt paid
Moore
$112,500 for the stock.
The
Government emphasizes two circumstances in connection with Plaza
Amusement Company: (1) that the books did not disclose the amounts
loaned to the corporation by the respective stockholders, and (2) that
the distribution of the balance of the corporate funds was made by
checks in such a manner that it could not be determined the amount
received by each. As already noted, the loans made by the stockholders
were transferred to capital which, according to the testimony of a
Revenue agent, was a non-taxable investment. It may be recalled that
Moore
was not a stockholder in Plaza Amusement Company and that defendant
Wortman both before and after the stock increase owned 20% of its
shares. It is a dubious inference from the manner of the distribution
that 80% of the shareholders were engaged in concerted action to aid
defendant Wortman in tax evasion or in concealing assets from the
Revenue Service. Moreover, the income tax returns of defendant Wortman
for the years in question were in possession of the Government but not
offered in evidence. It would seem that the Government, with knowledge
of the amount distributed to the shareholders, could have determined
from defendant Wortman's tax returns whether he accounted for his
proportionate share.
In
view of what we have held, no good purpose could be served in stating or
discussing the situation as it relates to the Paddock Restaurant and the
Premier Club (also referred to as the Peerless Club and the Paramount
Club). The operation of these businesses followed those which we have
discussed. They involved a different period of time, and in the main
different persons were connected with their operation. Whether the
evidence as to them shows a conspiracy and, if so, the parties thereto,
and whether it was a different conspiracy from that alleged or a
continuation thereof, are questions which we need not decide. Numerous
other contentions advanced by defendants need not be resolved. Our
exhaustive study of this voluminous record bolsters our appreciation of
the statement in Krulewitch v. United States, 336
U. S.
440, 453, by Mr. Justice Jackson (concurring opinion):
"As
a practical matter, the accused often is confronted with a hodgepodge of
acts and statements by others which he may never have authorized or
intended or even known about, but which help to persuade the jury of
existence of the conspiracy itself. In other words, a conspiracy often
is proved by evidence that is admissible only upon assumption that
conspiracy existed. The naive assumption that prejudicial effects can be
overcome by instructions to the jury, cf. Blumenthal v. United
States, 332 U. S. 539, 559, all practicing lawyers know to be
unmitigated fiction. See Skidmore v. Baltimore & Ohio R. Co.,
167 F. 2d 54."
That
statement could have been written for this case. With an indictment
difficult to comprehend because of its verbosity; with voluminous
exhibits, many of a technical nature; with evidence admitted on promise
by the prosecutor that it later would be connected and with the jury
left to make the determination; and with a trial that lasted six weeks,
it is a matter of grave doubt as to whether the verdict reached after
four days of deliberation resulted from a proper appraisement of the
record, confusion or exhaustion.
Nothing
we have said is any reflection on the manner in which the case was tried
by Judge Juergens. We doubt if any other Judge could have done better.
The unfortunate situation arises from the inherent nature of the crime
of conspiracy, particularly as it was sought to be employed by the
Government in this case.
We
hold that the evidence which we have previously discussed was
erroneously admitted. The error was prejudicial inasmuch as it was
calculated to produce a substantial influence on the jury verdict. As
was stated in Krulewitch v. United States, 336
U. S.
440, 444:
"In
Kotteakos v. United States, 328
U. S.
750, we said that error should not be held harmless under the harmless
error statute if upon consideration of the record the court is left in
grave doubt as to whether the error had substantial influence in
bringing about a verdict. We have such doubt here."
The
judgment are reversed and the cause remanded.
1
C. J. S., page 1286, states, "The signature to a writing is placed
there for the purpose of authenticating it or to give notice of its
source, and for the purpose and with the intent that the individual
signing the writing shall be bound thereby," and on the following
page, "A signature may be made by the purported signer himself * *
* or through someone duly authorized by him, but the name of a person
attached to a paper does not make it his act and deed unless he put it
there himself or caused or permitted it to be put there by
another." See
Rob
erts v. Johnson et al., 212 F. 2d 672, 674, and Joseph
Denunzio Fruit Co. v. Crane et al., 79 F. Supp. 117, 128 (footnote),
affirmed 188 F. 2d 569, 570.
2
The Government on brief, citing this statement in
Moore
's petition, asserts, "The facts concerning the Moore-Wortman
agreement were 'known and agreed to by' the remaining partners of the
Hyde Park Club." This is an erroneous and misleading assertion. The
statement in
Moore
's petition was admitted only as to defendants Wortman and Moore and not
as to other partners of the Hyde Park Club. The Government's statement
does highlight the prejudicial nature of the admission of this testimony
as to defendant Wortman.
3
Sometime during the period under discussion Barts and O'Mara, original
stockholders, disposed of their shares to the corporation or other
stockholders. George Frank, the accountant for Plaza Amusement Company,
was unable because of a physical disability to appear as a witness, and
Edward Heiby, attorney for the corporation, died October 5, 1947.
[87-1 USTC
¶9199]
United States of America
, Plaintiff-Appellee v. Jackie R. Whiteside, Defendant-Appellant
(CA-5), U.S. Court of Appeals, 5th
Circuit, 86-2425, Summary Calendar, 1/21/87, 810 F2d 1306, 310 F2d 1306,
Affirming an unreported District Court decision
[Code Sec.
7203 --Result unchanged by the Tax Reform Act of 1986 ]
Criminal penalties: Failure to file return: Evidence: Admissibility:
Defenses: Good faith: Jury instructions.--There was no reversible
error in the trial of a taxpayer who was convicted of failure to file
returns. A tax protest flier and the taxpayer's W-4 forms were properly
admitted to show willfulness. There was no abuse of discretion in the
court's refusal to admit in evidence income tax literature offered to
support his defense that his failure to file returns was a result of his
good faith misunderstanding of the law. The trial court did not err when
it held that the articles could only be admitted with a limiting
instruction to the jury that the conclusions reached in the articles
were contrary to the law. Finally, the court's instruction on
willfulness clearly set out a subjective intent standard and was not in
error.
Leonard
Davis, Michael C. Coker, Keith Dollahite, Potter, Guinn, Minton,
Rob
erts & Davis, 1500 Interfirst Tower, Tyler, Tex. 75702, for
plaintiff-appellee. Roger M. Olsen, Assistant Attorney General, Michael
L. Paup,
Rob
ert E. Lindsay, Department of Justice, Washington, D.C. 20530, for
defendant-appellant.
Before
POLITZ, WILLIAMS and JONES, Circuit Judges.
WILLIAMS,
Circuit Judge:
Appellant,
Jackie Ray Whiteside, was charged with three counts of willful failure
to file individual federal income tax returns for the years 1981 through
1983, in violation of 26 U.S.C. §7203 . He is one of a
number of tax protesters who undertook to make the wholly fallacious
claim that wages are not taxable income. After a jury trial Whiteside
was convicted on Counts II and III, the willful failure to file income
tax returns for tax years 1982 and 1983. A mistrial was declared as to
Count I because the jury could not reach a verdict. Whiteside was
sentenced to consecutive one-year terms of imprisonment on each of
Counts II and III. He filed a timely notice of appeal.
I.
Appellant
contends that the district court erred in admitting government exhibits
consisting of a tax protest flier, appellant's W-4 form dated April 6,
1984, and his W-4 form dated May 10, 1984. He argues, first, that the
government violated Fed.R. Crim.P. 16(a)(1)(C) by not producing these
exhibits prior to the day before trial. Second, he claims that the
district court should have granted his motion for a continuance to
obtain evidence to counter the material in the exhibits. Third, he
argues that the exhibits were not properly admitted during
cross-examination and rebuttal because they did not relate to issues
raised on direct examination of appellant and because the W-4 forms were
inadmissible as containing evidence of other crimes.
As
to the first asserted ground for inadmissibility of the exhibits, Fed.R.
Crim.P. 16(a)(1) provides as follows:
(C) Documents
and Tangible Objects. Upon request of the defendant the government shall
permit the defendant to inspect and copy or photograph books, papers,
documents, photographs, tangible objects, buildings or places, or copies
or portions thereof, which are within the possession, custody or control
of the government, and which are material to the preparation of his
defense or are intended for use by the government as evidence in chief
at the trial, or were obtained from or belong to the defendant.
In order for appellant to prevail
under Rule 16 he must make a prima facie showing of the materiality of
the evidence;i.e., he must show that the pretrial disclosure of
the disputed evidence would have enabled him significantly to alter the
quantum of proof in his favor. United States v. Buckley [79-1 USTC ¶9290 ],
586 F.2d 498, 506 (5th Cir. 1978),cert. denied, 440 U.S. 982, 99
S.Ct. 1792, 60 L.Ed.2d 242 (1979), quoting from United States v. Ross
[75-1 USTC¶9428 ], 511 F.2d
757, 762 (5th Cir.), cert. denied, 423 U.S. 836, 96 S.Ct. 62, 46
L.Ed.2d 54 (1975).
Appellant
has made no such showing here. He has alleged only one action that he
would have taken had he known about the three exhibits earlier. That
action would have been to locate and call witnesses to testify that he
had not distributed the flier, which announced that a speaker would be
coming to the area to discuss, inter alia, how to build a defense
against willfulness upon failure to pay income taxes and how to file a
Fifth Amendment tax return.
There
was also other evidence that appellant had willfully refused to file and
that he did not merely erroneously believe that he was under no
obligation to file. Appellant filed income tax returns each year until
1977, but failed to file any for the years 1978-1984, although appellant
earned sufficient money to require him to file a return. Appellant's
employers provided him with wage and tax statements, forms W-2,
reflecting the amount he had been paid. From 1981 through 1983 defendant
filed forms W-4 in which he claimed he was exempt from withholding.
Appellant continued to file forms W-4 claiming that he was exempt from
withholding even after he received three letters from the Internal
Revenue Service questioning his exempt status. One of the letters
specifically informed him that he was no longer entitled to claim exempt
status because he had not shown the IRS that he was entitled to exempt
status.
In
1981, appellant filed a civil suit against one of his employers when the
employer began to withhold taxes from his payroll check contrary to his
directions. The employer informed Whiteside that the IRS had instructed
the withholding. The employer showed appellant the letter and pamphlet
sent by the IRS explaining the W-4 form with instructions to withhold
taxes. The suit was dismissed, and in its order the court specifically
stated that defendant's taxes were properly withheld.
Under
all these circumstances, calling a witness to say that Whiteside had
nothing to do with the flier mentioning how to build a defense against
willfulness would not have significantly altered the quantum of proof in
his favor. Thus, admission of the flier did not violate Rule 16. Buckley,
586 F.2d at 506.
Appellant's
second argument is that the district court abused its discretion in not
granting him a continuance to gather evidence to counter the exhibits.
An abuse of discretion has not occurred unless the defendant was
seriously prejudiced by the denial of the continuance.
United States
v. Khan, 728 F.2d 676, 681 (5th Cir.1984). Since the continuance
was requested for trial preparation, appellant must show that the court
acted with "unreasoning and arbitrary insistence upon
expeditiousness in the face of a justifiable request for delay." United
States v. Terrell [85-1 USTC¶9249 ], 754 F.2d
1139, 1149 (5th Cir.), (quoting Morris v. Slappy, 461
U.S.
1, 11, 103 S.Ct. 1610, 1616, 75 L.Ed.2d 610 (1983)), cert. denied,
--
U.S.
--, 105 S.Ct. 3505, 87 L.Ed.2d 635 (1985). Such was not the case here.
The district court did not act arbitrarily and unreasonably in denying a
continuance to allow the appellant to locate witnesses to testify that
the appellant had not passed out the pamphlet, in view of the fact that
this was only a small part of the evidence that appellant had willfully
failed to file a tax return.
Finally,
appellant argues that the exhibits were inadmissible on
cross-examination and in rebuttal because they did not pertain to
matters he had raised during direct examination and because the W-4
forms were evidence of other criminal offenses. On direct, appellant
testified that based on his study of the law, he believed that he was
not required to file a tax return. The flier, which stated that the
speaker would discuss how to build a defense against willfulness, tended
to call into question the sincerity of appellant's belief that he was
not required to file a return. The W-4 forms also were relevant to
appellant's good faith in refusing to file tax returns. He filed these
forms, which stated that he was exempt from federal income tax
withholding, three weeks after he had been told by a federal court in
Utah
that he was required to pay federal income taxes. This court decision
further undermined his assertion that the only reason he had not filed
his returns was that he believed that he was not required by law to do
so.
The
appellant also seems to argue that the W-4 forms were inadmissible under
Fed.R.Evid. 404(b). Under Fed.R.Evid. 404(b) evidence of other crimes,
wrongs, or acts is admissible to prove such things as motive, intent, or
knowledge. The admissibility of extrinsic evidence pursuant to
Fed.R.Evid. 404(b) is determined in light of the two-part test
established by this Court: (1) it must be determined that the extrinsic
offense evidence is relevant to an issue other than defendant's
character, and (2) the evidence must possess probative value that is not
substantially outweighed by its undue prejudice.United States v.
Merkt, 794 F.2d 950, 962 (5th Cir.1986). A trial court's decision to
admit extrinsic evidence of other offenses will be rejected only for an
abuse of discretion.Id. Appellant put his intent in dispute with
testimony that he held his beliefs in good faith and believed that parts
of the law did not apply to him as a wage earner. Consequently, the W-4
forms were admitted to show intent, state of mind, and willfulness. In
light of the other substantial evidence of willfulness its admission did
not unduly prejudice appellant. There was no abuse of discretion here.
Even if the W-4s were improperly admitted, their admission was harmless
in light of the other substantial evidence.
II.
Appellant
next contends that the district court erred in refusing to admit in
evidence income tax literature, on which appellant based his
no-tax-liability belief, and also evidence of his request for an
admin
istrative hearing with the IRS. Appellant claims that his primary
defense was that his failure to file income tax returns was a result of
his good faith misunderstanding of the law, and he attempted to show
this by proffering income tax literature which he had studied over a
period of years. Appellant lists in his brief the literature he intended
to introduce. The proposed evidence includes books, several tax protest
articles, and a congressional report. The district court considered the
material and ruled that the defendant would be permitted to testify as
to the basis of his belief, but that a page-by-page discussion of the
items would not be allowed. The district court also stated that the
articles could be admitted with an instruction to the jury that the
conclusions reached therein were contrary to the law. The appellant then
withdrew his offer from the jury in the light of the court's indication
of the instructions it would give.
With
respect to the request for an IRS
admin
istrative hearing, the district court stated that the defendant's
request for an
admin
istrative hearing was admissible, but that if Whiteside testified as to
the contents of the request the court would instruct the jury that the
request itself, as the justification for defendant's alleged belief that
he was not required to file income tax returns, had no basis in law.
Defense counsel stated that he would have to object to any such
instruction. At trial appellant did not testify about his belief
concerning the legal effect or the contents of the
admin
istrative hearing request. Thus, the district court never gave the
cautionary instruction.
Pursuant
to Fed.R.Evid. 103(a) error may not be predicated upon a ruling which
admits or excludes evidence unless a substantial right is affected. In
this case the court ruled that appellant could testify that he made the
request, and the court did not prohibit him from testifying concerning
its contents. Thus, no substantial right of the appellant was affected
by the exclusion of the request. See
United States
v. Grote, 632 F.2d 387, 390 (5th Cir. 1980), cert. denied,
454 U.S. 819, 102 S.Ct. 98, 70 L.Ed.2d 88 (1981).
Appellant
argues that all the materials he proffered as well as his belief about
the
admin
istrative hearing request should have been admitted without any limiting
instruction. He contends that the proposed instructions constituted
either (1) a comment on the ultimate factual issue in the case which was
defendant's good faith belief that he was not required to file income
tax returns; or (2) an expression of opinion on whether defendant's
testimony was worthy or unworthy of belief. The district court did not
abuse its discretion in refusing to admit this evidence without a
cautionary instruction that the conclusions reached in the materials
were contrary to the law. The proposed instruction would merely have
informed the jury that appellant's beliefs and those reflected in the
documents were not the law. The instruction would not control the
ultimate factual issue in the case, which was whether appellant actually
held his erroneous views of the law. It also was not a comment on
appellant's credibity, but was only a comment on the accuracy of his
supposed understanding of the law. In addition, evidence that others
shared defendant's misunderstanding of the law, while relevant to the
credibility of that defense, is not automatically admissible. The judge
must weigh the marginal contribution against potential prejudice,
keeping in mind that the judge remains the jury's source of information
regarding the law. See
United States
v.
Burton
[84-2 USTC¶9689 ], 737 F.2d
439, 443 (5th Cir. 1984).
United
States v. Malquist [86-2 USTC ¶9484 ],
791 F.2d 1399, 1402 (9th Cir.), cert. denied, --
U.S.
--, 107 S.Ct. 445, 93 L.Ed.2d 394 (1986), is a similar case. To support
his good faith belief, the defendant proffered as evidence copies of the
Constitution, Declaration of Independence, portions of a Ninth Circuit
opinion, a trial transcript in another person's prosecution, and six tax
protester articles. The Court found no abuse of discretion in the
refusal to admit those documents because the court was not obligated to
admit legal materials as evidence and the defendant had testified on his
reliance upon the documents in support of his defense. See also
United States v. Anderson [78-2 USTC ¶9678 ],
577 F.2d 258, 260 (5th Cir. 1978). Since the court could have refused to
admit the documents altogether, it would not be an abuse of discretion
to admit them with a cautionary instruction designed to avoid confusing
the jurors about the state of the law.
III.
Appellant
finally contends that the district court erred in giving the following
instruction to the jury over his objection: "But if a person acts
without reasonable ground for belief that his conduct is lawful, it is
for you to decide whether he acted in good faith or whether he willfully
intended to fail to file a tax return." Appellant argues that the
district court's instruction improperly directed the jury to apply an
objective test to determine the willfulness of his conduct. In support
of this contention, he cites United States v. Burton [84-2
USTC ¶9689 ], 737 F.2d 439 (5th Cir. 1984), in addition to
cases from other circuits. His reliance is misplaced. In
Burton
, we reviewed an instruction to the jury that "[a] good
faith belief that wages are not income is not a defense in this
case."
Id.
at 441. This Court found the instruction erroneous because the
instruction took away Burton's defense of an alleged good faith belief
that wages are not taxable and because such an instruction supplanted
the jury's role as factfinder with respect to defendant's state of mind.
Id.
The
following instruction on willfulness given in this case clearly shows
that the district court employed a subjective, not an objective,
standard.
The defendant's
conduct is not willful if he acted through negligence, inadvertence,
justifiable excuse, mistake, or due to his good faith misunderstanding
of the requirements of the law. If a person believes in good faith that
he has done all that the law requires, he cannot be guilty of the
criminal intent to willfully fail to file a tax return. But, if a person
acts without reasonable ground for belief that his conduct is lawful, it
is for you to decide whether he acted in good faith or whether he
willfully intended to fail to file a tax return.
A defendant's conduct is not
willful, if he had a genuine misunderstanding of the tax laws. On the
other hand, one who believes, even in good faith, that the income tax
laws are unconstitutional is a willful violator of the law if he
understands the duties the law imposes upon him. A disagreement with the
law is not a defense. In considering the defendant's good faith
misunderstanding of the law, you must make your decision based upon what
the defendant believed in his own mind, and not upon what you or someone
else believe or think the defendant ought to believe. The test is
whether the defendant himself believed in good faith that he was not
required to file a federal income tax return. If he did, then you must
find him not guilty of the offense charged.
Thus,
unlike the district court in
Burton
, the district court in this case clearly instructed the jury
that a person has not acted willfully if he believes in good faith that
he has done all that the law requires or has a genuine misunderstanding
of the law. The court's instruction given in this case has been
repeatedly approved and held to set out a subjective intent standard. See
United States v. Payne [86-2 USTC ¶9673 ],
800 F.2d 227, 229 (10th Cir. 1986);United States v. Aitken [85-1 USTC ¶9209 ],
755 F.2d 188, 192 (1st Cir. 1985);
United States
v. McCarty [82-1USTC ¶9150], 665 F.2d 596, 597 n.2 (5th Cir.), cert.
denied, 456 U.S. 991, 102 S.Ct. 2273, 73 L.Ed.2d 1287 (1982). The
portion of the instruction which appellant challenges is virtually
identical to a pattern instruction in Devitt & Blackmar, FEDERAL
JURY PRACTICE AND INSTRUCTIONS, Section 35.12 (3d ed.
1977).
We
find no reversible error in the trial of this case.
AFFIRMED.
[97-1 USTC
¶50,469]
United States of America
v. Barbara Breuer
U.S.
District Court, East.
Dist.
Pa.
, Civ. 97-0082-02, 6/2/97
[Code
Sec. 7203 ]
Crimes: Failure to file: Willfulness: Gross income: Tax liabilities:
Evidence: Exclusion of.--A taxpayer's motion to preclude the
admission of evidence regarding her gross income and outstanding tax
liabilities at her trial on charges of willful failure to file a return
was denied. Evidence relating to the amount of income she received
during the years at issue and to the amount of taxes owed to the
government were relevant for purposes of establishing willfulness.
MEMORANDUM AND ORDER
HUTTON,
District Judge:
Presently
before this Court is the Defendant Barbara Breuer's Motion in Limine to
Preclude Admission of Certain Evidence, and the Government's response
thereto.
I. BACKGROUND
The
defendant, Barbara Breuer, is being tried before a jury on charges of
willfully failing to file a tax return for the years 1990, 1991, 1992
and 1993 in violation of 26 U.S.C. §7203. In her motion, the defendant
seeks to preclude the admission of: (1) the amount of defendant's gross
income; (2) the amount of any tax due and owing to the government; and
(3) residential housing expenditures made by defendant and her husband
pursuant to Federal Rules of Evidence 103, 402, 403, and 404(b).
II. DISCUSSION
A.
Amount of Defendant's Gross Income
The
defendant contends that because she offers to stipulate that she earned
sufficient income to require her to file an income tax pursuant to 26
U.S.C. §6012, the government should be precluded from offering any
evidence of her income amount for the years 1990, 1991, 1992 and 1993. 1 The
defendant argues that the key factual dispute in the case will be
whether or not the defendant was aware that her husband had failed to
file joint returns for their income during the years in question.
Moreover, the defendant states that the amount of income actually earned
by the defendant does not bear on that question, and poses a
considerable risk of misleading, confusing and prejudicing the jury. The
government, however, states that evidence of the amount of a defendant's
yearly income is relevant to the issue of whether the defendant's
failure to file a return was willful.
The
United States Court of Appeals for the Third Circuit held that evidence
of a defendant's income "is very probative as to the element of
willfulness" in a prosecution for willful failure to file an income
tax return. United States v. Rosenfeld [72-2 USTC ¶9734], 469
F.2d 598, 600 (3d Cir. 1972), cert. denied, 411 U.S. 932 (1973).
Additionally, in United States v. Green [85-1 USTC ¶9178], 757
F.2d 116 (7th Cir. 1985), the Court ruled that even when a defendant
stipulates to the fact that he made sufficient income to be required to
file a return, evidence of the amount of the defendant's income is
admissible to establish the defendant's intent or willfulness in failing
to file a return. Id. at 119-20; see also United States v.
Payne [86-2 USTC ¶9673], 800 F.2d 227, 229 (10th Cir. 1986)
(evidence of defendant's gross income is admissible in prosecution for
failure to file income tax returns to show that failure to file return
was willful).
Based
on the above authorities, this Court finds that evidence relating to the
amount of income the defendant made during the years charged, is
relevant to the question of willfulness, and therefore, denies the
defendant's motion to preclude admission of such evidence.
B.
Evidence of Amount of Tax Liability
Next,
the defendant seeks to preclude the admission of evidence relating to
the amount of money due and owing to the government in the years
charged. In United States v. Wunder [90-2 USTC ¶50,575], 919
F.2d 34 (6th Cir. 1990), the Court held that evidence of the tax due and
owing by the defendant was admissible for purposes of showing
willfulness in a prosecution for failing to file a tax return.
Id.
at 37. Accordingly, this Court finds that evidence of the defendant's
tax liability for the years charged is relevant, and admissible to show
willfulness. Therefore, the defendant's motion to preclude such evidence
is denied.
C.
Evidence of Housing Expenditures
Lastly,
the defendant moves to preclude the admission of evidence related to the
purchase of a new home in September, 1994, and the pay off of a mortgage
in 1992. The government, in its responsive memorandum, states that it
does not seek to offer any evidence in its case in chief with respect to
these transactions. Therefore, the motion to exclude such evidence is
moot.
An
appropriate Order follows.
ORDER
AND
NOW, this 2nd day of June, 1997, upon consideration of the Defendant
Barbara Breuer's Motion in Limine to Preclude Admission of Certain
Evidence, IT IS HEREBY ORDERED that the Defendant's Motion is DENIED
in part and DENIED as moot in part.
IT
IS FURTHER ORDERED that the Defendant's Motion to Preclude Admission of
Evidence of:
(1)
the amount of defendant's gross income is DENIED;
(2)
the amount of any tax due and owing to the government is DENIED;
and
(3)
residential housing expenditures made by defendant and her husband is DENIED
as moot.
1
The offense of failure to file an income tax return has three elements,
which are as follows:
(1)
the defendant was required by law to file an income tax return for the
years charged;
(2)
the defendant failed to file such a return at the time prescribed by
law; and
(3)
in failing to file the return, the defendant acted willfully. Devitt,
Blackmar, and O'Malley (4th Ed.), §56.11.
[86-2 USTC
¶9547]
United States of America
, Appellee v. Edwin L. Schmitt, Appellant
(CA-10), U.S. Court of Appeals,
10th Circuit, 85-2525, 6/18/86, 794 F2d 555, Affirming unreported
District Court decision
[Code Sec.
7203 ]
Criminal penalties: Failure to file return: Verdict: Evidence:
Constitutionality: Admissability.--Prosecutorial comments on a
taxpayer's silence during pre-indictment meetings with the IRS at the
trial where the taxpayer was convicted for failure to file returns did
not constitute reversible error. The first two meetings, which centered
on the civil aspects of the taxpayer's failure to file returns and took
place during the investigatory stages of the proceedings, did not
trigger the taxpayer's Fifth Amendment privilege against
self-incrimination. At neither of the meetings did the agents induce the
taxpayer's silence by assurances that his silence would not later be
used against him in a criminal proceeding. While the third meeting was
with an agent from the Criminal Investigation Division of the IRS, it
was unnecessary to determine whether the taxpayer's Fifth Amendment
privilege was violated. The prosecutor's comments on the taxpayer's
failure to produce records and to inquire whether his wages were income
constituted harmless error. The comments were used to rebut the
taxpayer's defense that he believed in good faith that his wages were
not income. The comments did not permeate the trial and it was clear
beyond a reasonable doubt that the taxpayer would have been convicted in
their absence. Evidence of the taxpayer's tax liability for the years
that he failed to file returns was properly admitted. The tax liability
established that the taxpayer had claimed sixty allowances on his W-4
forms, which was relevant on the issue of willful conduct.
Benjamin
L. Burgess, Jr., United States Attorney, Jackie N. Williams, Assistant
United States Attorney,
Wichita
,
Kan.
, for appellee. Donald W. MacPherson, Lawrence N. Bazrod, MacPherson
& McCarville, 10220 North 31st Ave., Phoenix, Ariz. 85201, for
appellant.
Before
LOGAN, MOORE and TIMBERS *, Circuit
Judges.
TIMBERS,
Circuit Judge:
Edwin
L. Schmitt ("appellant") appeals from a judgment of
conviction, entered October 4, 1985 after a jury trial during August
1985 in the District of Kansas, Sam A. Crow, District Judge, for
willful failure to file individual income tax returns for the years
1979, 1980 and 1981, in violation of 26 U.S.C. §7203 (1982).
A
grand jury returned a three-count indictment on December 18, 1984.
Appellant conceded that he did not file income tax returns for the three
years involved. As an aircraft design engineer, appellant received wages
of $49,213, $57,969, and $52,321 for the three years, respectively. His
unconvincing defense at trial was that he believed in good faith that
wages were not considered income under the tax laws. Following the jury
verdict of guilty on each of the three counts, the court sentenced him
to one year imprisonment and a $1,000 fine on Count I; to one year
imprisonment and $1,000 fine on Count II, the prison sentence on Count
II to run consecutively to the prison sentence imposed on Count I; and
to one year imprisonment and a $1,000 fine on Count III. The prison
sentence imposed on Count III was ordered suspended and appellant was
placed on probation for a period of three years on that count, to
commence upon his release from prison under Counts I and II. Pursuant to
18 U.S.C. §4205(f) (1982), the court ordered that appellant serve
one-third of his prison sentence. At the time of oral argument before
us, we were informed that appellant had completed his prison sentence
and was in a half-way house; but we were not informed whether appellant
had paid his fine. 1
Appellant's
primary claim of error on appeal is that his Fifth Amendment privilege
against self-incrimination was violated because the prosecutor, during
examination of witnesses and in summation, commented on appellant's
silence during meetings with Internal Revenue Service ("IRS")
personnel. We hold that, even if we were to assume arguendo that the
prosecutor's comments violated appellant's Fifth Amendment privilege,
such comments were harmless under the circumstances of this case.
A
subordinate claim of error is raised regarding the admissibility of
evidence of appellant's tax liability in this failure to file case.
We
affirm the judgment of conviction.
I.
Turning
to appellant's Fifth Amendment claim, we shall examine first the
conversations which appellant asserts triggered his Fifth Amendment
privilege; then we shall discuss the application of the harmless error
doctrine in this case.
(A)
Conversations Alleged To Have Triggered Appellant's Fifth Amendment
Privilege. Appellant asserts that in three of his meetings with IRS
personnel during the investigation that preceded his indictment, he
received government assurances akin to warnings under Miranda v.
Arizona, 384 U.S. 436 (1966), that his silence would not be used
against him in subsequent proceedings. He argues therefore that the
prosecutor improperly alluded at trial to his failure to produce records
and to his failure to inquire of IRS personnel whether his wages were
considered income under the tax laws.
In
February 1981 the IRS began investigating appellant's failure to file
income tax returns. He responded in letters and telephone conversations
that he did not believe his wages were income. The first meeting at
which appellant claims he received government assurance that his silence
would not be used against him was the November 25, 1981 meeting at the
IRS office in
Wichita
with Revenue Agent Terry Schneider of the Examination Division. The
purpose of the meeting was to determine whether appellant was required
to file tax returns for 1979 and 1980. Appellant asked Schneider if the
proceedings could result in criminal charges. Schneider responded
"that it was possible, but not usually." Appellant then
requested that Schneider grant him immunity, to which Schneider
explained that he did not have authority to do so. This discussion
clearly did not amount to government assurance that appellant's silence
would not be used against him. The revenue agent's explanation of
possible future proceedings was equivocal, unlike Miranda
warnings. Schneider did not explain particular legal rights, nor did he
mention any privilege against self incrimination. Moreover, this
conversation took place at an investigatory stage of the proceedings.
Schneider was a revenue agent in the civil division of the IRS.
Appellant was not in custody at the time. He was not subjected to
postarrest interrogation.
The
second meeting with IRS agents during which appellant claims his Fifth
Amendment privilege against self-incrimination was triggered took place
on May 5, 1982. Appellant met with Revenue Agent Sam Seward and his
acting group manager, George Hoffman. Seward had asked appellant to
produce books and records for the 1979 and 1980 tax years. At this
meeting, appellant stated that he might not wish to answer some
questions and inquired about possible self incrimination. The agents
explained that at the time of this meeting proceedings against appellant
were civil in nature. The following discussion, inter alia, took place:
"[Appellant]:
Well, you mean that you're telling me that I have to answer these
questions that you're asking me? It's a law that says I have to answer
these questions or give you these papers or whatever it is that I do?
[Seward]: Well,
I'm not sure.
[Appellant]: Is
that what that means? I mean, you read that section, but is that what
that means?
[Seward]: Is
there any reason that you don't want to, to--
[Appellant]:
Well, there could be, yes.
[Seward]: Okay.
I guess I'm not sure why you're, you know, we have requirements here
that you are to provide us your records ([Appellant]: Uh-huh) There may
be certain legal rights that you might be entitled to under certain
situations. You know, regarding the Constitution, I suppose, you know,
as far as self-incrimination or something along that matter
([Appellant]: Uh-huh) but if that's where you're at, I guess you need to
tell us that at this point.
[Appellant]:
Okay, well, yes, that was certainly on my mind. Simply because it does
sound like that we're leading towards something that would certainly try
and incriminate me here.
[Seward]: Are
you claiming then your Fifth Amendment right?
[Appellant]:
Well, not yet. So far, I guess. I still had some more questions. By the
way, you know, we did forget one thing, your identifications here.
. . . .
[Appellant]:
Uh-huh. So, it's not a criminal type of discussion then?
[Hoffman]: No,
it's not.
[Appellant]:
You're not in the Criminal Division. I see. Well, see, I guess that's
where my confusion comes in because Mr. Schneider said that these things
that I say could be used in criminal litigation against me, and you
know, that kind of scares me. I don't want like (sic) to think that I'm
going to be charged with a crime and that these things are going to be
used against me. An[d] you mentioned the Fifth Amendment, of course,
that does say that I don't have to give things that's (sic) going to be
used against me so that was the reason why I didn't want to give all
that stuff up.
[Hoffman]:
I--can you explain that to him a little bit, or you want me to attempt
to?
[Seward]: Well,
as far as Fifth Amendment?
[Hoffman]:
Well, no just the Civil vs. Criminal. At this point, we're just trying
to determine whether there is a civil liability.
[Appellant]:
Uh-huh.
[Hoffman]: And
it's true that if you did, you know, (sic) items that you submit to us,
if it did become a criminal matter, then it would be in the Revenue
Agent's workpapers.
[Appellant]:
Uh-huh.
[Hoffman]: But,
as far as right now, the only thing that we're really interested in is
the civil aspects of the case.
[Appellant]: So
the--
[Hoffman]:
Determination of tax.--
. . .
[Appellant] . .
. I'm not saying I'm guilty; I am innocent but, but yet there's always
that chance that people are going to say that I am and take me to court
on it and so I tend, (sic) I think it could tend to incriminate
me."
As
the agents explained, this meeting centered on the civil aspects of
appellant's failure to file tax returns. The references to any
constitutional right or privilege which appellant might have were not
tantamount to the unequivocal Miranda type warning that
emphatically assures a person that silence will not be used against him
in a later criminal proceeding and thereby induces a person into silence
in reliance on such a guarantee. Significantly, it was appellant
who raised the self-incrimination issue--not the agents.
The
third meeting at which appellant claims he received government assurance
that his silence would not be used against him presents a closer
question. On November 21, 1982 appellant met with IRS Special Agent
Cheryl Admire of the Criminal Investigation Division. At the beginning
of this meeting, the agent informed appellant that under the Fifth
Amendment he could not be compelled to answer questions or to submit
information tending to incriminate him. Appellant also was informed that
information he furnished could be used against him in a criminal
proceeding. Of the three conversations which appellant claims triggered
his Fifth Amendment privilege, this third one with Special Agent Admire
of the Criminal Investigation Division included representations most
closely analogous to Miranda warnings.
We
need not decide, however, whether Special Agent Admire's statements were
equivalent to the government assurances contained in Miranda
warnings given to a custodial defendant. We find it unnecessary to
determine whether appellant's Fifth Amendment privilege was violated in
this case, since we are convinced, for the reasons set forth below, that
the prosecutor's reference to appellant's failure to produce records and
to ask IRS agents about his wages was harmless.
(B)
Harmless Error. It is well settled that where a defendant's
silence is induced by government action, such as the giving of Miranda
warnings, it is improper for a prosecutor to comment on a defendant's
invocation of his privilege to remain silent. See Fletcher v. Weir,
455
U.S.
603, 605 (1982); Doyle v.
Ohio
, 426
U.S.
610, 618 (1976);
Griffin
v.
California
, 380
U.S.
609, 615 (1965). Appellant asserts that such a Fifth Amendment violation
constitutes reversible error in this case. We disagree.
As
the Supreme Court recognized in Chapman v. California, 386 U.S.
18, 22 (1967), "there may be some constitutional errors which in
the setting of a particular case are so unimportant and insignificant
that they may, consistent with the Federal Constitution, be deemed
harmless, not requiring automatic reversal of the conviction." In
deciding whether the improper conduct or error was harmless, the
determination which we as an appellant court must make is "absent
the prosecutor's allusion to the failure of the defense to proffer
evidence to [rebut the testimony], is it clear beyond a reasonable doubt
that the jury would have returned a verdict of guilty?" United
States v. Hasting, 461
U.S.
499, 510-11 (1983) (citing Harrington v. California, 395
U.S.
250, 254 (1969)).
In
United States v. Remigio, 767 F.2d 730, 735 (10th Cir. 1985)
(quoting United States v. Massey, 687 F.2d 1348, 1353 (10th Cir.
1982)), we have held that in applying the harmless error doctrine the
following factors should be considered:
"1. The
use to which the prosecution puts the postarrest silence.
2. Who elected
to pursue the line of questioning.
3. The quantum
of other evidence indicative of guilt.
4. The
intensity and frequency of the reference.
5. The
availability to the trial judge of an opportunity to grant a motion for
mistrial or to give curative instructions."
Applying
the above factors which are relevant to the instant case, it is
significant that the IRS agents' references to appellant's legal rights
were made during the investigatory stage of the proceedings and not in a
custodial or postarrest context. See Beckwith v. United States [76-1 USTC ¶9352 ],
425 U.S. 341, 347 (1976). What appellant complains of is the
prosecutor's attack on his asserted good faith belief that he did not
believe wages were considered income. Part of the prosecutor's assertion
was that, if appellant truly believed his wages were not income, he
would have questioned IRS personnel about this. In short, the use to
which the prosecutor put appellant's silence and inaction centered on
the willfulness element of a §7203 violation.
At
trial, the prosecutor asked Agent Seward whether appellant had turned
over any books or records to the IRS. His answer was "No". The
prosecutor, on redirect examination, asked Special Agent Admire whether
appellant ever asked her any questions about income or wages. Her answer
was "No". The final reference to appellant's silence to which
he takes exception was the prosecutor's statement during closing
argument:
"Cheryl
Admire told [appellant] on November 23rd, 1982 the same thing [that
appellant was required to file] and in each and every one of those
interviews, testimony from the agents and the testimony from the
[appellant] was [appellant] didn't ask them any questions about that. He
keeps saying, well I wanted answers and he never asked them. When he
actually had a face-to-face interview, he never brought it up."
These attempts on the part of the
prosecutor to rebut appellant's good faith defense by referring to
appellant's failure to inquire whether wages were income and his failure
to produce records are not as egregious as, for example, commenting on a
defendant's failure to testify at trial or his silence after arrest and
receipt of Miranda warnings. See, e.g., Wainwright v.
Greenfield
, 106 S. Ct. 634 (1986). Moreover, the three references at trial, on
the issue of good faith, did not permeate the prosecutor's case. We are
satisfied beyond a reasonable doubt that the quantum of other evidence
of appellant's willfulness and guilt supports the jury's verdict that
appellant willfully failed to file tax returns.
The
government introduced appellant's tax returns for the years 1975, 1976,
1977 and 1978, i.e. for the four years prior to the ones involved in the
instant case for which he was charged with failure to file. Appellant
acknowledged that he prepared those returns himself. He listed his wages
as income for those years. He also received letters from the IRS which
explained that his wages were income. He listed his wages as monthly
income on a loan application with a savings and loan institution. In
1979 he filed a Form W-4 Employee's Withholding Allowance Certificate,
claiming 60 allowances so that his employer would not deduct taxes from
his wages. This case does not involve a confused or uneducated person.
Nor does it involve a little known provision of the tax laws. We are
convinced that, if any Fifth Amendment violation occurred, it was
harmless. Absent the prosecutor's brief allusions to appellant's failure
to ask IRS agents questions and his failure to produce records, it is
clear to us beyond a reasonable doubt that the jury would have returned
a verdict of guilty.
II.
Appellant
also asserts, as a subordinate claim of error, that the government's
introduction of his tax liability for the three years for which he
failed to file returns was admitted erroneously since it was irrelevant
and prejudicial. He argues that, while gross income to establish that
appellant was required to file a return is an element of a §7203
violation, the actual amount of taxes claimed to be due is
irrelevant and prejudicial. We find this argument to be without merit.
Not only was there no prejudice in such evidence, but actual tax
liability was relevant in this case because appellant's entire income
was derived from wages. This was not a case where a taxpayer might have
believed that allowable deductions offset his income and therefore might
have believed, albeit erroneously, that he was not required to file a
tax return. Moreover, the tax liability established that appellant was
not entitled to claim 60 allowances on his W-4 Forms. Such a
manipulation is relevant on the issue of appellant's willful conduct.
The court did not abuse its discretion under Fed. R. Evid. 403 in
admitting this evidence.
III.
To
summarize: We hold that, even in the unlikely event that the
prosecutor's allusions to appellant's failure to produce records or to
inquire of IRS agents whether wages were income constituted a Fifth
Amendment violation, such allusions were harmless under United States
v. Hasting, supra, and United States v. Remigio, supra.
Highly probative evidence of appellant's willfulness in not filing tax
returns for three years clearly supported the jury's verdict of guilty.
We also find without merit appellant's claim that the court abused its
discretion in allowing the government to introduce evidence of
appellant's tax liability.
Appellant
was convicted on the basis of overwhelming evidence after a fair trial
of serious offenses committed five to eight years ago in violation of
the revenue laws of the
United States
. We order that the mandate issue forthwith.
AFFIRMED.
2
*
Of the Second Circuit, by designation.
1
At oral argument, appellant withdrew his claim that the district court
abused its discretion in sentencing appellant to prison whereas others
found guilty of violating §7203 were placed on
probation. We note, however, that the sentence imposed was within the
statutory limits for violations of §7203
. See
United States
v. Floyd, 477 F.2d 217, 224 (10th Cir.), cert. denied, 414
U.S.
1044 (1973) (a sentence within statutory limits and within discretion of
court will not be disturbed by reviewing court).
2
Appellant's motion, filed prior to oral argument, to strike portions of
the government's brief on appeal is in all respects denied.
[86-1 USTC
¶9169]
United States of America
, Plaintiff-Appellee v. Michael Popenas, Defendant-Appellant
(CA-6), U.S. Court of Appeals, 6th
Circuit, 84-1668, 12/26/85, 780 F2d 545, Reversing and remanding
unreported District Court decision
[Code Sec.
7201 ]
Evidence: Hearsay: Affidavit of available witness: Prior tax
returns.--A trial court erred when it concluded that it was not
required to rule on the admissibility of certain evidence under
Fed.R.Evid. §803(24) on the basis that
it consisted of a prior statement of an available witness which was
inadmissible as hearsay under Fed.R.Evid. §801(d)(1). The district
court's approach would otherwise render the rule a nullity, and that was
not the intent of Congress. With respect to another issue, however, the
court correctly determined that prior tax returns were admissible to
show a pattern of underreporting from which willfulness could be
inferred.
Stephen
T.
Rob
inson, Assistant United States Attorney,
Detroit
,
Mich.
48226
, for plaintiff-appellee. Richard Zuckerman,
755 West Big Beaver Road
,
Troy
,
Mich.
48084
, for defendant-appellant.
Before:
MARTIN and CONTIE, Circuit Judges; and CELEBREZZE, Senior Circuit Judge.
MARTIN,
JR., Circuit Judge.
Michael
Popenas was convicted of four counts of income tax evasion in violation
of 26 U.S.C. §7201 . The only question
at trial was whether Popenas' failure to report substantial amounts of
income during the years 1977 to 1980 was willful, as required by the
statute. Popenas appeals two evidentiary rulings of the district court
bearing on willfulness. We affirm the district court's admission of
Popenas' prior tax returns, but must remand its decision concerning the
admissibility of an affidavit of an available witness for analysis under
Rule 803(24), Fed. R. Evid.
In
its first and most significant ruling, the district court refused to
admit an affidavit of an available witness as substantive evidence in
the case. The affidavit was admitted for impeachment purposes. Popenas
wished to introduce the affidavit of Victor Freliga, the attorney who
prepared Popenas' tax returns, as substantive evidence that the
falsehoods in the returns were due to Freliga's incompetence. The
affidavit was inconsistent with much of Freliga's trial testimony.
Popenas concedes that the affidavit was hearsay evidence, but argues
that it should have been admitted under the residual exception to the
hearsay rule, which reads as follows:
Rule 803. Hearsay Exceptions;
Availability of Declarant Immaterial
The
following are not excluded by the hearsay rule, even though the
declarant is available as a witness:
.
. . .
(24) Other
exceptions
A
statement not specifically covered by any of the foregoing exceptions
but having equivalent circumstantial guarantees of trustworthiness, if
the court determines that (A) the statement is offered as evidence of a
material fact; (B) the statement is more probative on the point for
which it is offered than any other evidence which the proponent can
procure through reasonable efforts; and (C) the general purposes of
these rules and the interests of justice will best be served by
admission of the statement into evidence. However, a statement may not
be admitted under this exception unless the proponent of it makes known
to the adverse party sufficiently in advance of the trial or hearing to
provide the adverse party with a fair opportunity to prepare to meet it,
his intention to offer the statement and the particulars of it,
including the name and address of the declarant.
The
district court avoided assessing the affidavit's admissibility under
803(24) by holding that it was a prior inconsistent statement which
should be analyzed in the first instance under Rule 801(d)(1), Fed. R.
Evid. This rule provides that a prior statement by a witness is not
hearsay if
[t]he declarant
testifies at the trial or hearing and is subject to cross-examination
concerning the statement, and the statement is (A) inconsistent with his
testimony, and was given under oath subject to the penalty of perjury at
a trial, hearing, or other proceeding, or in a deposition, or (B)
consistent with his testimony and is offered to rebut an express or
implied charge against him of recent fabrication or improper influence
or motive, or (C) one of identification of a person made after
perceiving him . . . .
Both parties acknowledge the
affidavit is hearsay under 801(d)(1). According to the district court,
classification of a prior statement of a witness as hearsay under
801(d)(1) precludes analysis under 803(24). Relying on the legislative
debate prior to the adoption of 801(d)(1), the district court determined
that the limitations found in this rule constitute the sole guidelines
as to the admissibility of a witness' prior statements.
We
cannot agree with such broad reasoning. The validity of the residual
exceptions to the hearsay rule was expressly addressed by Congress
during its consideration of the Federal Rules of Evidence. The House
Judiciary Committee deleted the residual exceptions, but the Senate
Judiciary Committee reinstated them, fearing that without these
provisions the more established exceptions would be unduly expanded in
order to allow otherwise reliable evidence to be introduced. S. Rep. No.
1277, 93d Cong., 2d Sess., reprinted in 1974 U.S. Code Cong.
& Ad. News 7065-66. The limitations contained in the current rule
illustrate the undeniably restrictive nature of the exception, United
States v. Love, 592 F.2d 1022, 1026 (8th Cir. 1979), yet we feel the
district court's approach would render it a nullity. This was not the
intent of Congress. See In Re Japanese Electronic Products Antitrust
Litigation, 723 F.2d 238, 302 (3rd Cir. 1983) (applying similar
reasoning in rejecting what the district court termed the "near
miss" theory); United States v. Bailey, 581 F.2d 341, 346-47
(3rd Cir. 1978); 4 M. Berger & J. Weinstein, Weinstein's Evidence
§803(24) [01] (1985).
Several
circuits have considered the applicability of 803(24) in ruling on the
admissibility of a prior inconsistent statement of an available witness.
In United States v. Williams, 573 F.2d 284, 288-89 (5th Cir.
1978), the Fifth Circuit upheld a district court's admission of a prior
inconsistent affidavit as substantive evidence as well as for
impeachment purposes under 803(24). Again, we do not hold that the
failure of the district court in this case to admit similar testimony
constitutes an abuse of its wide discretion in evidentiary matters; we
disagree only with the lower court's language indicating that a
statement that fails to meet the 801(d)(1) criteria cannot ever qualify
for an admission under 803(24). Cf.
United States
v. McCall, 740 F.2d 1331, 1342-44 (4th Cir. 1984) (Widener, J.,
concurring but expressing the opinion of the court that 803(24) analysis
was appropriate in determining the admissibility of an affidavit of a
deceased witness); United States v. Bailey, 581 F.2d 341, 346-51
(3rd Cir. 1978) (analyzing admissibility of confession of unavailable
declarant under residual exception).
Thus,
the proper analysis in the instant case does not end with the
application of 801(d)(1)(A). Once it is determined that the evidence in
question is indeed hearsay, its admissibility may be properly argued
under 803(24). Five findings must be made in order to determine the
admissibility of evidence under 803(24). The statement must have
circumstantial guarantees of trustworthiness equivalent to those in the
first twenty-three exceptions, it must be offered as evidence of a
material fact, and must be more probative on the point for which it is
offered than any other evidence which can be secured through reasonable
efforts. In addition, admissibility must be consistent with the
interests of justice, and the proponent must give notice of his intent
to offer the statement sufficiently in advance of trial. Because none of
the requisite factual findings were made in the court below, we must
remand this case for a determination of the admissibility of Freliga's
affidavit under 803(24).
Exclusion
of Freliga's affidavit cannot be considered harmless error. A violation
of 26 U.S.C. §7201 must be willful.
Freliga's affidavit indicates that the falsehoods in Popenas' tax
returns were due to Freliga's incompetence, and therefore is directly
relevant to a necessary element of the violation.
Popenas
also argues that the admission of his tax returns from the seven prior
years to show a pattern of underreporting from which willfulness could
be inferred was inflammatory and prejudicial. Popenas concedes that
evidence of acts similar to those changed in the indictment is
admissible to show a pattern. Fed. R. Evid. 403(b). Thus, evidence of
these very similar acts was properly admitted by the district court.
The
decision of the district court is reversed and remanded for a
determination of the admissibility of Freliga's affidavit under 803(24),
Fed. R. Evid.
[81-1 USTC
¶9109]
United States of America
, Plaintiff-Appellee v. Alex R. Grote, Jr., Defendant-Appellant
(CA-5), U. S. Court of Appeals,
5th Circuit, No. 79-5279, Summary Calendar *, 632 F2d
387, 7/14/80
[Code Sec. 7203]
Criminal penalties: Failure to file return: Arraignment proceedings:
Defective arrest warrant: Evidentiary rulings: Jury instructions:
Selective prosecution.--The Appellate Court affirmed the taxpayer's
conviction for failure to file for 1975 and 1976 income tax returns
stating specifically the items of his gross income and any deductions
and credits to which he was entitled. The court found that no prejudice
resulted from the failure of the trial judge to personally inform the
defendant of the charges when the judge had assigned appointed counsel
that responsibility. The taxpayer failed to object to the court's
personal jurisdiction under a faulty arrest warrant at the arraignment
and thus waived that objection under Fed. R. Crim. P. 12. The court
upheld the trial judge's instructions to the jury as being an accurate
statement of the law in light of the evidence introduced at trial. The
trial judge did not err in excluding documentary evidence of another
court opinion where a tax consultant testified at the taxpayer's trial
as to the same issue and presented the same argument to the jury. The
district court properly admitted opinion testimony by an IRS agent
concerning the "acceptability" to the Service of the
taxpayer's 1040 forms filed in the years in question and previous years.
The taxpayer's motion for acquittal was properly denied because he
failed to establish his claim of selective prosecution when he alleged
that the government prior to 1975 had not prosecuted protest tax returns
of his variety but the taxpayer failed to offer any evidence of such a
rule.
Jamie
C. Boyd, United States Attorney, Le Roy Morgan Jahn, Assistant United
States Attorney, James E. Bock, San Antonio, Tex. 78206, for
plaintiff-appellee. Rip Collins,
507 West Tenth Street
,
Austin
,
Tex.
78701
, for defendant-appellant.
Before
HILL, GARZA and THOMAS A. CLARK, Circuit Judges.
CLARK,
Circuit Judge:
The
appellant, Alex Grote, was convicted under two counts of an information
charging him with violating 26 U. S. C. §7203, in that, for the years
1975 and 1976, he failed to file income tax returns "stating
specifically the items of his gross income and any deductions and
credits to which he was entitled." 1
On appeal he challenges the trial court's instructions to the jury; the
exclusion of evidence offered as relevant to his specific intent; the
admission of opinion testimony by an IRS agent concerning the
"acceptibility" to the Service of those 1040 forms filed by
the appellant for the two years in question; the adequacy of his
arraignment proceedings; his prosecution under an allegedly unpublicized
change in agency policy; and the trial court's exercise of personal
jurisdiction over him based on an arrest warrant issued pursuant to an
unverified information. Finding no merit in any of appellant's
contentions of error, we affirm.
The
evidence at trial disclosed that during the years in question the
defendant Grote was an employee of the Hill Bookbindery in
Austin
,
Texas
. His employer's W-2 forms show that Grote received $10,000 in
"wages, tips, and other compensation" in 1975, $10,323.00 in
1976. Grote did not submit his W-2's for either of those years along
with his 1040's; instead his returns reported "total income"
figures of $155.00 for 1975 and $554.00 for 1976. He attached to his
1975 return a letter explaining his belief, only recently arrived at,
that Federal Reserve notes were not "legal money" under the
Constitution, and complaining further that his privacy rights are
violated by the filing requirements of the income tax laws. Grote
applied for a refund of the $177.30 which was withheld by his employer
in 1975. No withholdings were made in 1976, presumably the result of a
withholding exemption certificate, purportedly filed by Grote in January
of that year, in which he stated that he expected to incur no income tax
liability in 1976.
The
first of Grote's enumerations of error, in the order in which they are
said to have occurred, concerns the trial court's jurisdiction over his
person. It is undisputed that the defendant's presence at his
arraignment proceedings was secured by an arrest warrant issued pursuant
to an unverified information. Fed. R. Crim. P. 9(a) provides for the
issuance of an arrest warrant for a defendant named in an information,
but only "if it is supported by oath . . .." The procedure for
raising objections to the personal jurisdiction of the court, however,
is governed by Fed. R. Crim. P. 12.
Rule 12(b)(1)
of the Rules of Criminal Procedure requires that objections based on the
institution of the prosecution be raised prior to trial, and the failure
to adhere to the requirements of that Rule results in a waiver of the
objection. Unlike the objections to the subject matter jurisdiction of
the court which cannot be waived under Rule 12(b)(1), . . . objections
to personal jurisdiction over a particular defendant can be.
United States v. Kahl, 583
F. 2d 1351, 1356 (5th Cir. 1978) (citation omitted).
Grote contends that his objection to the court's jurisdiction at
arraignment preserves the issue of the defective warrant on appeal. 2
As the motions which were filed by Grote's counsel after arraignment and
before trial make clear, however, defendant's objection was to the
subject matter jurisdiction of the trial court. R., pp. 22, 44-51. At no
time was the trial court's attention ever called to the defective
warrant. Grote's failure specifically to object to the personal
jurisdiction of the court under the faulty arrest warrant thus
constitutes a waiver of that objection under Rule 12(b)(1).
Grote
next complains of the conduct of the arraignment proceedings. The record
discloses that the trial court failed specifically to read the
indictment, to read the contents of the information to the defendant or
to state to him the substance of the charge. 2
But the record also reveals that, subsequent to the appointment of
counsel to represent Grote, a recess in the arraignment proceedings was
held in order for counsel to consult with Grote concerning the charges
against him. 4
"Vacating convictions for lack of formal arraignment proceedings is
predicated on the existence of possible prejudice."
United States
v.
Rogers
, 469 F. 2d 1317, 1317-18 (5th Cir. 1972). We do not believe that
any prejudice has resulted from the failure of the trial judge
personally to inform the defendant of the charges against him. The trial
judge assigned that responsibility to appointed counsel, and he
satisfied himself that that responsibility had been discharged before
calling upon the defendant to plead.
The
appellant next complains of two evidentiary rulings made by the court in
the course of trial. The first of these concerns the testimony of David
Clore of the IRS. In its effort to prove knowledge on the part of the
defendant in failing to make the required disclosures of income on his
1975 and 1976 returns, the Government sought testimony from Clore
concerning the contents of Grote's returns for the three years prior to
1975. Throughout this line of inquiry Clore was allowed, over objection,
to contrast the evidence of these returns with those of 1975 and 1976 in
terms of the "acceptability" of each return to the Service for
purposes of computing a tax. 5
Grote
objects to the use of the word "acceptable" as suggesting to
the jury that it should defer to the opinion of the IRS on the question
of his guilt. This arguis without merit. As the Government's counsel
made clear by successive questioning, the purpose of this inquiry was to
contrast the contents of those returns which were in fact accepted by
the Service with those which were not, in order to show prior knowledge
on Grote's part of what was required of him. Clore's qualifications as a
witness were as Chief of the Criminal Investigation Staff at the Austin,
Texas, Service Center with access to the documents themselves. Trans.,
Vol. 2, pp. 46-48. As such, his testimony in the form of an opinion
concerning the acceptability to the Service of the returns in question
is admissible under F. R. E. 701 so long as it is "limited to those
opinions or inferences which are (a) rationally based on the perception
of the witness and (b) helpful to a clear understanding of his testimony
or the determination of a fact in issue." The "facts[s] in
issue" were the contents of the returns and the inferences that the
jury might draw therefrom. It might have been possible for the
Government to highlight this contrast without having Clore express an
opinion as to the acceptability of any of these returns. But
"[t]estimony in the form of an opinion or inference otherwise
admissible is not objectionable because it embraces an ultimate issue to
be decided by the trier of fact." F. R. E. 704. We conclude that it
was not an abuse of discretion to admit this testimony.
Appellant
also objects to the exclusion from evidence of a court opinion which
purportedly held that returns substantially similar to Grote's had been
accepted by the court and the Government in that prior action.
Unfortunately, the record fails to disclose the citation of this
authority, so we have no occasion to assess its relevance to Grote's
argument that he relied thereon in filing his own returns. This does not
foreclose us from ruling on this objection, however, for it appears from
the record that Grote's argument was fully developed before the jury.
David Martin, the "tax consultant" whose advise is no doubt
partly responsible for the trouble Grote finds himself in, was called,
recalled, and recalled again, to testify to the defendant's version of
this missing judgment. "With the essence of desired evidence before
the jury, any harm in the . . . exclusion [of the documentary evidence]
was eliminated."
United States
v. Sanfilippo, 581 F. 2d 1152, 1155 (5th Cir. 1978). See also United
States v. Ashley, 555 F. 2d 462, 465 (5th Cir. 1977). Since we are
unable to conclude that "a substantial right of the [appellant] is
offected," F. R. E. 103(a), we find no abuse of discretion in the
exclusion of this opinion.
When
both sides closed, Grote moved the court for a judgment of acquittal.
His motion was denied. He contends that it had been the policy of the
Government not to prosecute protest tax returns of his variety before
1975, and that his prosecution marked a departure from that alleged
policy without the benefit of notice and comment rulemaking. The sole
support for the existence of this policy is the cross-examination
testimony of Clore that such returns "may have been" accepted
before 1975. 6 In short,
Grote contends that similar transgressors in the past have not been
prosecuted.
Mindful of the
separation-of-powers implications-permeating this entire area, [this
court has held] that in order to make out a claim of selective
prosecution, the defendant must show: (1) that others similarly situated
have not been prosecuted, and (2) that the Government's prosecution of
him is selective, invidious, in bad faith or based on impermissible
considerations such a race, religion, or his exercise of constitutional
rights.
United States v. Hayes, 589
F. 2d 811, 819 (5th Cir. 1979) (footnote omitted); U. S. v. Kahl,
supra, at 1353.
Grote alleges no more than that he had been "caught in the net of
increased awareness and sensitivity to particular classes of
crimes," Hayes, supra, at 818. Alone this fails to support a
motion for acquittal.
Grote's
last objection, in point of time, concerns the trial court's charge to
the jury. In the course of its charge the court instructed the jury as
follows:
There are three
essential elements which the Government must prove beyond a reasonable
doubt in order to establish the offense or failure to file a return as
charged in Count One and Count Two of the information.
First, the
defendant was required by law or regulation to make a return of his
income for the taxable year charged.
Secondly, that
the defendant failed to make such a return at the time required by law,
and
Third, that the
defendant's failure to make the return was willful.