Admissibility
3 Page1
7203:
Willful Failure to File Return, Supply Information, or Pay Tax:
Evidence: Admissibility
Part 3
[72-1 USTC
¶9227]
United States of America
, Plaintiff-Appellee v. Richard D. Dana, Defendant-Appellant
(CA-7),
U. S.
Court of Appeals, 7th Circuit, No. 18966, 457 F2d 207, 2/3/72, Aff'g
unreported District Court decision
[Code Sec. 7201]
Crimes: Tax evasion: Defenses: Summaries of evidence: Proffered
instructions: Self-incrimination: Examination.--The taxpayer's
conviction of tax evasion was affirmed. The following assignments of
error were rejected: (1) The lower court did not err in allowing the
government to present summaries of its evidence; (2) certain
instructions proffered by the taxpayer that would have explained his
theory of the case were properly refused; (3) the taxpayer's right
against self-incrimination was not violated by statements by the
prosecutor that referred to checks not in the government's possession
and not introduced by the defense; and (4) the court did not abuse its
discretion in not allowing the taxpayer to take the stand to refute
certain testimony without being subject to cross-examination.
David
J. Cannon, United States Attorney, Steven C. Underwood, Assistant United
States Attorney Milwaukee, Wis., for plaintiff-appellee. Stanley P.
Gimbel, 152 W.
Wisconsin Ave.
,
Milwaukee
,
Wis.
, for defendant-appellant.
Before
DUFFY, Senior Circuit Judge, KILEY and KERNER, 1 Circuit
Judges.
KILEY,
Circuit Judge:
Defendant
Dana appeals from his conviction by a jury on each of five counts of an
indictment charging willful attempts to evade income tax for the years
1962-66, in violation of 26 U. S. C. §7201.
The
evidence most favorable to the government shows that during the years in
question Dana was a salesman for Inland Container Corporation and sold
packaging materials to Western Printing Company (Western). During this
same time he also operated a business known as Display Products
(Display) which sold coin displayers to Western.
Mielke,
the production manager of Western, was a good friend of Dana. They
devised the following scheme: Mielke, for Western, would order
merchandise from Display. Although Display would make no delivery or
only part delivery of the merchandise ordered, it would bill Western for
the full amount of the order. Mielke would then approve the bills and
the issuance of checks to Display in payment of the bills. They agreed
to divide 60% of the proceeds of the Western checks equally between
them, and Dana promised to use the remaining 40% to pay their respective
income taxes.
Dana
claims that the court erred in allowing the government to introduce
summaries of its evidence; by failing to give certain instructions; by
making prejudicial comments; and by erroneously ruling with respect to
examination of witnesses.
[Summaries of Evidence]
I.
In presenting its case to the jury the government relied essentially on
the testimony of Mielke, and on the inflated invoices and Western checks
issued for the spurious orders. The government also introduced summaries
of the evidence for the 1962-66 tax years. The summaries were prepared
for the jury by the government witness Kabaker.
We
see no merit in Dana's contention that the district court abused its
discretion in admitting Kabaker's summaries of unreported income into
evidence. Dana argues that the exhibits do not contain proper references
to the evidence on which the summaries are based, and that he was denied
the "opportunity to voir dire" Kabaker before his summaries
were admitted. We are not persuaded by the argument.
There
were four summaries pertaining to Dana's tax liability for the year
1962. The first is captioned: Summary of Evidence of Unreported
Receipts from Western Printing and Lithographing Company, Unreported
Purchases and Unreported Expenses of Richard D. Dana Doing Business as
Display Products Company--to
August 31, 19
62. It has several columns showing the dates, numbers, and the
amounts of invoices billed to Western. It also lists the numbers and
amounts of checks issued to Display in payment of the invoices, with
appropriate references to corresponding exhibit numbers. A second
summary contains similar data from September through
December 31, 19
62. 2
The
third summary is captioned: Summary of Evidence of Merchandise
Purchases by Display Products Company for 1962. It contains five
columns listing the date, amount and number of the Western checks issued
in payment to Display. It also sets out the name of the payee and the
exhibit numbers corresponding to the transactions.
The
fourth summary for 1962 is entitled: Computation of Taxable Income
for the Year 1962. It lists Dana's reported and unreported taxable
income, with reference to the exhibit number of the original 1962 tax
return and the preceding summaries showing the total unreported receipts
for 1962. It computes Dana's additional income tax liability for 1962 by
taking the difference between the total corrected income tax due and the
tax actually reported.
The
summaries for the years 1963, 1964, 1965 and 1966 are essentially
similar to those pertaining to 1962. The respective columns give the
dates, check numbers, amounts and pertinent exhibit numbers. The tax
computations for the later years are also analogous to those in the 1962
summary.
This
court has approved the use of summaries such as those prepared and
testified to by the government witness Kabaker. United States v.
Tolbert [69-1 USTC ¶9173], 406 F. 2d 81, 85 (7th Cir. 1969); United
States v. Bernard [61-1 USTC ¶9221], 287 F. 2d 715, 722 (7th Cir.
1961), cert. denied, 366
U. S.
961 (1961). And the district court's ruling here can be reviewed
"only upon a clear showing of abuse and resulting prejudice"
to Dana. Lloyd v. United States, [55-2 USTC ¶9665], 226 F. 2d 9,
16 (5th Cir. 1955).
Kabaker's
typewritten summaries, in our opinion, must have been of material aid to
the jury in its deliberations for purposes of recalling and identifying
source exhibits and for classifying the underlying evidence presented at
the trial. The exhibit references in the summaries identifying the
sources of the evidence were guards against the inherent danger of
conviction upon summaries rather than upon primary evidentiary proof. Lloyd
v.
United States
, at 17. The summary captions and source references were adequate to
enable the jury to easily determine their accuracy by cross checking to
the underlying exhibits. United States v. Tolbert, supra.
No
prejudice is shown by Dana as a result of the court's ruling against the
claimed right to voir dire examination of Kabaker. The extensive
cross-examination of Kabaker tested the proper weight to which the
summaries were entitled. And the summaries were further tested by the
court's clear instruction against their prejudicial use. The court told
the jury that the summaries should be considered "solely" as
summaries, and that they did not per se constitute evidence. It
instructed the jury that the summaries had no "independent
value," were weighty only in so far as they "reflect[ed]
accurately the primary evidence" and should be disregarded in so
far as they did not reflect the truth of the underlying evidence.
[Instructions]
II.
The court refused Dana's proffered instruction that monies received by
officers and agents of a corporation from its sales constituted
corporate income even if the person receiving the money embezzled it and
the money was not deposited in any corporate bank account. We think,
however, that the court's refusal to give the instruction could
reasonably have been prompted by a fear of confusing the jury, and was
not erroneous.
This
court did approve a similar instruction in United States v. Bernard
[61-1 USTC ¶9221], 287 F. 2d 715, 723 (7th Cir. 1961). The question
there, however, was whether defendants had fraudulently reported
corporate income. They had contended that corporate money they took had
not been received by the corporation. Here Dana is not charged with
evading income tax of Display.
Dana
also complains that the court erred in refusing to give his proffered
instructions Nos. 4, 5 and 18 covering, respectively, "willful
attempt . . . to defraud the government," the distinction between
civil and criminal liability for failure to pay income taxes, and the
effect of a taxpayer's "honest doubt" in a prosecution for tax
evasion.
Dana
was entitled, of course, to an instruction upon his theory of defense. United
States v. Vole, 435 F. 2d 774, 776 (7th Cir. 1970). But we think the
district court's instruction on "specific intent" effectually
covered the essence of refused instruction No. 4 3 on willful
attempt. True, the court did not emphasize, as Dana's instruction did,
the term "attempt"--but that was unnecessary. The court could
have decided with reason that the rejected instruction overemphasized
that term, to suggest a confusing and erroneous implication, i. e.,
if Dana succeeded in evading payment, his success obviated the
idea of guilt for an "attempt." O'Brien v. United States
[1931 CCH ¶9474], 51 F. 2d 193, 197 (7th Cir. 1931); see also Spies
v. United States [43-1 USTC ¶9243], 317 U. S. 492, 498-99 (1942); Guzik
v. United States [1931 CCH ¶9681], 54 F. 2d 618, 619 (7th Cir.
1932).
With
reference to instruction No. 5 there was evidence at the trial that
Dana's accountant had received a letter from the Wisconsin Department of
Taxation concerning Dana's failure to report commissions from Display in
his 1963 state tax return. Dana thereafter filed amended federal income
tax returns for the years 1963 and 1964, but prior to any contact by the
IRS. He argues that this evidence required the district court to give
his proffered instruction No. 5 that whether "[Dana] may or may not
have settled his civil liability, for the payment of taxes . . . to the
United States . . . is not considered . . . in determining the issue [in
the criminal case] . . . except" to the extent that it bears on the
question of intent.
We
think the instruction 4 which was
given adequately covered the point, and see no error in the rejection of
the proffered instruction. Accordingly, Spies v. United States
[43-1 USTC ¶9243], 317 U. S. 492, 500 (1943), and Hill v. United
States [66-2 USTC ¶9511], 363 F. 2d 176 (5th Cir. 1966), cited to
this point by Dana, are inapposite.
Dana's
proffered instruction No. 18 concerned the defendant's "honest
doubt" as to the taxability or nontaxability of certain commissions
of Display, which had not been reported originally but which had been
subsequently reported in the amended returns. The court rejected the
instruction as unnecessary surplusage. We agree that it was not needed,
since its subject matter was covered by another instruction given. The
given "specific intent" instruction precluded any finding of
guilty "because of mistake or accident or other innocent
reason." And the court further told the jury that the
"necessary element of willfulness and specific intent to evade . .
. cannot be inferred from a mere understatement of income."
In
instructing the jury on intent the court deleted certain "general
illustrations" pertaining to examples of conduct pointing to intent
to evade taxes. Dana asserts error in the trial court's failure to give
the entire instruction which was based on language from Spies v.
United States [43-1 USTC ¶9243], 317 U. S. 492 (1943). The trial
court decided that since the illustrations were not based on evidence in
the case, he would not give them. We find no abuse of discretion, or
other error, in the court's decision. The court in Spies does not
require that the illustrations be given. And the illustrations requested
by Dana could have confused the jurors about the issues before them.
Furthermore, Dana's counsel discussed the various illustrations in jury
argument. We find no error in the court's failure to give the
illustrations.
[Self-Incrimination]
III.
During cross-examination the government witness Kabaker was questioned
about "cash . . . or check payments" made by Dana to Mielke
and not reflected in the summaries. Dana's counsel asked Kabaker whether
his summaries would be incorrect if he had checks payable to Mielke
which were not "considered on the schedules." The court then
inquired, "Are there any checks . . . in existence that you know of
that aren't now in this courtroom?" The prosecutor responded,
"Defendant hasn't produced any, and we don't know of any."
Dana's counsel them moved for mistrial on the Fifth Amendment ground
that Dana's right to remain silent was violated because of the
intimation that Dana had a duty to produce evidence against himself. He
requested a cautionary instruction and the court immediately addressed
the jury that he wanted "to again emphasize . . . that a defendant
has no duty to come forth with any evidence under our system of
law." We think the court's instruction was effective to remove any
prejudice Dana could have suffered from the incident.
Subsequently,
during rebuttal argument, the prosecutor asked rhetorical questions of,
and made statements to, the jury 5 with respect
to the checks referred to above. The argument was in response to jury
argument by Dana's counsel concerning checks Dana had produced to show
that Kabaker did not credit him with disbursements to Mielke and
accordingly the Kabaker summaries should not be accepted by the jury as
a truthful computation of Dana's income.
We
see no denial of Dana's Fifth Amendment right by the court or prosecutor
in the circumstances here. In support of his case Dana had produced
checks which he had passed to Mielke and which were not in the
government's possession or case. His counsel put questions about them to
Kabaker which led to the clearly spontaneous response of the prosecutor.
The court promptly cautioned the jury, as counsel requested. And Dana's
counsel's jury argument justified the prosecutor's response. See
United States v. Blassick, 422 F. 2d 652, 654 (7th Cir. 1970).
[Examination]
IV.
Nor do we see an abuse of discretion in the court's refusal to grant
Dana permission to take the stand for the limited purpose of impeaching
certain testimony by Mielke against him, but without the risk of being
cross-examined as to incriminatory matters. The court properly ruled
that any testimony by Dana with respect to his defense would waive his
Fifth Amendment right as to all other relevant facts. Johnson v.
United States [43-1 USTC ¶9288], 318 U. S. 189, 195 (1943); Nash
v. United States, 405 F. 2d 1047, 1054 (8th Cir. 1969).
Finally,
we deem it unnecessary to discuss Dana's claim that the court improperly
limited recross-examination of Mielke. Suffice to say we see no undue
limitation in the court's confining the recross-examination to the
redirect, and no prejudice to Dana from the ruling.
AFFIRMED.
1
Judge Kerner heard oral argument but did not participate in the adoption
of this opinion.
2
On
August 31, 19
62, Display Products Co., which had been operated as a sole
proprietorship, became a corporation known as Display Products Ltd. The
separate summaries of unreported receipts from Western to Display in
1962 reflect this change in status.
3
The instruction given by the court states, inter alia, that the
government must prove beyond a reasonable doubt that Dana "wilfully
attempted to evade" the taxes in question; and that "the only
way you have of arriving at the intent of defendant . . . is . . . to
take into consideration all the facts and circumstances . . . and
determine . . . whether it was the intent of the defendant . . . to
defraud the government of the tax which he knew was due from him."
4
The court told the jury, inter alia:
. . . The filing of an amended
return does not constitute evidence in any manner that the original
returns filed for the same years were false and untrue. In other words,
you are instructed that the filing of the amended return by the
Defendant cannot be considered evidence of an attempt to evade and
defeat taxes at the time the Defendant filed the original returns. If
you find that the amended returns were filed at a time that the
Defendant was not under compulsion, attributable to an assertion of
deficiency or threat of prosecution, then you may consider the filing of
the returns as evidence relating to the defendant's intent, and may draw
whatever inference you might reasonably find as to the ultimate issues
in this case.
5
"Where are the checks? Don't you think Defendant would have
produced the checks, if he had them . . . of course he would have. They
are not going to rely on the fact that they don't have to come forward
to produce any evidence. They have started the ball rolling by producing
these. . . . He could have gone to the bank if he doubted what we had.
He has subpoena powers . . . [for] all the records . . . there are no
more checks."
[72-1
USTC ¶9111]United States, Appellee v. Robert J. Callanan, Appellant
(CA-4), U. S. Court of Appeals,
4th Circuit, Nos. 71-1377, 71-1582, 450 F2d 145,
12/10/71
, Affirming unreported District Court Decision
[Code Sec. 7201--Result unchanged by '69 Tax Reform Act]
Attempt to evade tax: Failure to report income: Evidence:
Admissibility: Trial: Miscellaneous assertions of error.--The
evidence tended to show that the taxpayer was guilty beyond a reasonable
doubt of willfully attempting to evade taxes by knowingly omitting a
substantial portion of his income. The District judge properly overruled
the objections to the testimony of a revenue agent. Even if his
statements about the omissions were deemed conclusory, the witness was
competent, as a duly qualified expert, to express an opinion based on
underlying facts which had been admitted into evidence. Furthermore, the
payments to members of the County Commissioners' office were properly
admitted where the judge did not permit the deductions to be
characterized as illegal or as bribes or payoffs. Finally, the conduct
of the government's attorney was not so unfair and prejudicial that the
taxpayer was entitled to a new trial.
George
Beall, United States Attorney, Baltimore, Md., Fred B. Ugast, Acting
Assistant Attorney General, Richard B. Buhrman, Meyer Rothwacks, Crombie
J. D. Garrett, John P. Burke, Department of Justice, Washington, D. C.
20530, for appellee. Norman P. Ramsey, Randy H. Lee, 10 Light St., 17th
Floor, Baltimore, Md., for appellant.
Before
BUTZNER, RUSSELL and FIELD, Circuit Judges.
BUTZNER,
Circuit Judge:
Robert
J. Callanan was convicted of attempting to evade income taxes in 1962
and 1963 in violation of 26 U. S. C. §7201. 1 His
assignments of error challenge the sufficiency of the evidence, the
admission of certain testimony, and the denial of motions for a mistrial
and for a new trial on the ground of perjudice. During the course of the
trial the district judge painstakingly considered these points. His
rulings were proper, and we affirm the convictions for both tax years.
[Evasion of Tax]
I.
To establish that a taxpayer has violated §7201 of the Internal Revenue
Code the government must show a substantial tax deficiency, an
affirmative act by the taxpayer to attempt evasion of the tax, and that
the taxpayer acted willfully. Sansone v. United States [65-1 USTC
¶9307], 380 U. S. 343 (1965). These requirements have been met, the
government contends, because the evidence showed that Callanan attempted
to evade additional taxes amounting to $21,642.41 in 1962 and $9,274.05
in 1963 by filing false returns from which he knowingly omitted specific
items of income aggregating $34,878.93 in 1962 and $15,011.15 in 1963.
[Facts]
Callanan,
a lawyer, maintained two bank accounts for his office in Baltimore,
Maryland and one bank account for his office in nearby Glen Burnie.
Receipts deposited in one of the Baltimore accounts and the Glen Burnie
account were recorded in cash books which identified the source and
nature of the funds. Income noted in these cash books was properly
reported.
The
second Baltimore account, for which no corresponding cash book was kept,
was called the "escrow" account. Initially, it was designed to
receive and disburse real estate settlements and loans. Soon, however,
large sums of money unrelated to sales and mortgages of real estate were
deposited in the escrow account. Other sums of money were deposited in
savings accounts or received as cash. Through documentary evidence and
the testimony of clients and other lawyers, the government introduced
proof that these sums of money were legal fees. An internal revenue
agent testified (over objection of Callanan discussed in Part II) that
these specific fees were not included in the gross income of Callanan
reported in 1962 and 1963.
[Sufficient Evidence]
Filing
a false return is an affirmative act constituting an attempted evasion
of taxes within the meaning of §7201, Sansone v. United States
[65-1 USTC ¶9307], 380 U. S. 343, 352 (1965). The statute's requirement
that the attempt be willful is not ordinarily met, however, by showing
the understatement of income in the return. Holland v. United States
[54-2 USTC ¶9714], 348 U. S. 121, 139 (1954); United States v.
Bagdasian [68-2 USTC ¶9501], 398 F. 2d 971, 973 (4th Cir. 1968).
The government must also supply proof that the taxpayer knew of the
understatement. Sansone v. United States [65-1 USTC ¶9307], 380
U. S. 343, 352 (1965). Callanan insists that the government has failed
to prove that he knew that any fees had been omitted from the income
reported on his returns. He did not testify, but during the
investigation preceding the indictment he gave several exculpatory
statements to the effect that only fees from the settlement of real
estate transactions were deposited in his escrow account, that he did
not know his secretary had deposited other fees in this account, and
that he thought the accountant who set up his books and prepared his tax
returns had properly included all of his fees in the amount reported as
gross income.
The
government, however, introduced testimony and documentary evidence
contradicting Callanan's exculpatory statements. Witnesses testified
that he directed his employees to deposit certain fees not related to
real estate settlements in the escrow account. The fees deposited in
this account were not clearly identified as income in any book or
journal or in the records kept in connection with the escrow account.
The government also showed that Callanan, contrary to his explanations,
was familiar with his books and bank accounts.
The
government evidence disclosed that Callanan personally received other
fees which he did not record in any account book or deposit in any of
his office checking accounts. The jury could justifiably conclude that
Callanan's failure to record fees he personally received or to deposit
them in his office bank accounts made it virtually impossible for his
accountant to include them in the tax returns.
In
view of this evidence, neither the trial court nor the jury were
required to find that Callanan was the innocent victim of mistakes made
by his secretary and his accountant. Guilty knowledge and willfulness
may be inferred from "the handling of one's affairs to avoid making
the record usual in transactions of the kind . . .." Ingram v.
United States [59-2 USTC ¶15,245], 360 U. S. 672, 677 (1959), from
false explanations, United States v. Wilkins [67-2 USTC ¶9739],
385 F. 2d 465, 472 (4th Cir. 1967), cert. denied, 390 U. S. 951
(1968), and from a pattern of concealment of true income from one's
accountant. United States v. Madden [62-1 USTC ¶9378], 300 F. 2d
757, 758 (1962).
In
summary, we find no merit in Callanan's contention that the evidence is
insufficient to sustain his conviction. Substantial evidence taken in
the light most favorable to the United States tended to show that he was
guilty beyond a reasonable doubt of willfully attempting to evade taxes
by knowingly omitting a substantial portion of his income from his
return. The district judge, therefore, committed no error by overruling
the motion for a judgment of acquittal and submitting the case to the
jury. Bell v. United States [50-2 USTC ¶9499], 185 F. 2d 302,
310 (4th Cir. 1950).
[Revenue Agent's Testimony]
II.
Protesting that testimony of a revenue agent was conclusory and
unsupported by the evidence, Callanan claims the district court erred in
permitting the agent to testify that specific items of income mentioned
in the bill of particulars were omitted from the 1962 and 1963 tax
returns.
The
government exhibited all of Callanan's pertinent records, consisting
primarily of the Baltimore and Glen Burnie office books of account, the
records of his checking accounts, records of certain savings accounts,
correspondence concerning certain fees, the worksheets used by his
accountant, and his tax returns. Having examined these exhibits, the
witness testified that the total gross income shown on each year's
worksheets prepared by Callanan's accountant corresponded with the total
gross income reported on each year's tax return. He also testified that
the accountant properly included all of the income reported in the
Baltimore and Glen Burnie cash books. This income had been deposited in
the business checking accounts for these offices. The accountant also
included some of the fees arising out of real estate settlements that
had been deposited in the escrow account. The omitted items of income,
the revenue agent testified, fell into two classifications: (a) fees
that were not recorded in any cash book and not deposited in any office
checking account; (b) fees that were deposited in the escrow account and
not recorded in any cash book. The bulk of these omitted fees were not
connected with real estate settlements.
Thus,
with the exception of a relatively small amount of omitted real estate
settlement fees, the omitted income could not be readily identified by
examination of any account book or checking account. The government
showed their nature and amount through correspondence relating to them,
the testimony of clients and other lawyers, and the admissions Callanan
made during the course of the investigation.
But
Callahan complains that the government's witness did not sufficiently
analyze the Baltimore business account to disprove that omitted items of
income were not included by the accountant in his computation of gross
income. We find no merit in this argument. Deposits in the Baltimore
business account tallied with the entries in the Baltimore cash book
where income was adequately identified. The government makes no claim
that the income in the office business account was not reported.
Moreover, the cash book contains no entries showing that the items,
claimed by the government to have been omitted, were in fact included on
the accountant's worksheets or the returns. All of the books and records
were introduced into evidence, and if the revenue agent had been
mistaken, the defendant could have shown on cross examination the
inclusion of any items claimed to have been omitted.
Kirsch
v. United States [49-1 USTC ¶9274],
174 F. 2d 595 (8th Cir. 1949), on which the defendant primarily relies,
dealt with an entirely different situation. There, a revenue agent
contending that all of a money changer's bank deposits were income,
testified: "If Kirsch went to his safety deposit box and took out
$2,000.00 . . . to cash checks and then deposited $2,400.00, we would
include the entire $2,400.00 as income. We included everything that went
into those deposits." 174 F. 2d at 599. Since the witness's
testimony was so patently illogical, the court of appeals, reversing
Kirsch's conviction, refused to allow an expert to base his conclusions
on it.
Here,
in contrast to Kirsch, the government did not designate as income
hundreds of thousands of dollars that flowed through Callanan's checking
accounts during each of the tax years. The specific sums that the
government claimed as unreported income were clearly identified as fees
by documentary evidence and by witnesses who dealt with Callanan. The
vice disclosed by Kirsch is missing. Here the revenue agent did
not base his conclusions about the omitted income on assumptions. He
based it on proof that showed each item was in fact a fee.
The
district judge properly overruled the objections to the testimony of the
revenue agent. Even if his statements about the omission of the items
are deemed conclusory, the witness was competent, as a duly qualified
expert, to express an opinion based on underlying facts which had been
admitted into evidence. Turner v. United States [55-1 USTC ¶9489],
222 F. 2d 926, 932 (4th Cir. 1955); Beaty v. United States [54-2
USTC ¶9466], 213 F. 2d 712, 719 (4th Cir. 1954).
[Payments to Commissioners]
III.
Callanan also complains that the district court improperly admitted
evidence about payment of large sums of money Callanan made to two
members of the Board of County Commissioner of Anne Arundel County, one
of whom was his accountant. Callanan deducted these payments on his tax
returns as "Legal and Professional Fees to Associates." Since
the government did not disallow these deductions, Callanan contends that
evidence about them was irrelevant and prejudicial.
Among
the specific items of omitted income claimed by the government were
thousands of dollars which the evidence showed had been paid to Callanan
as fees for obtaining the rezoning of property in Anne Arundel County,
Maryland. These receipts were deposited in the escrow account. They were
not listed on any book of account as fees. During the pre-indictment
investigation, Callanan told a revenue agent that he paid this money to
two members of the board of commissioners who, he said, controlled
zoning. At the trial, the men named by Callanan admitted receipt of the
money, but claimed it was paid for other reasons. They denied any
wrongdoing.
The
district judge permitted the government to show that Callanan had
deducted the payments but he would not permit the deductions to be
characterized as illegal or as bribes or payoffs. The admission of this
evidence was not error. To establish that the zoning fees were income to
Callanan it was imperative for the government to show that he was
not--as he contended--a mere conduit of money to other persons. Clearly,
since Callanan deducted the payments to the board members from his gross
income, testimony about the deductions was relevant to show he should
have included the receipt of the zoning fees as gross income on his
return. The testimony was relevant also because it disclosed a motive
for not depositing these fees in the office account and for not listing
them along with other fees in the defendant's cash book. Although a
defendant's guilt may not be established by proof of unrelated offenses,
relevant testimony is not rendered inadmissible because it may expose
questionable or improper conduct. United States v. Dutsch, 357 F.
2d 331, 333 (4th Cir. 1966); Welch v. United States [66-2 USTC ¶9503],
371 F. 2d 287, 293 (10th Cir.), cert. denied, 385 U. S. 957
(1966).
[Conduct of Government's
Attorneys]
IV.
Callanan asserts that the conduct of the government's attorneys
throughout the proceedings was so unfair and prejudicial that he is
entitled to a new trial. Only two of his complaints merit comment.
Over
objection, the district judge permitted a former United States Attorney
for the District of Maryland to testify that Callanan had stated at a
pre-indictment conference attended by his attorneys that he "never
looked at a book." Also, over objection the court permitted an
Assistant United States Attorney to testify that at another conference
Callanan said he never told his secretary "where to deposit 25
cents." Callanan claims that the testimony was "a prejudicial
attempt to interject into the proceedings the prestige of the office of
the witnesses."
Callanan's
charge is untenable. The attorneys who testified did not otherwise
participate in the trial of the case. Since no revenue agent was present
at the conferences, the government lacked other witnesses to Callanan's
denials. His exculpatory statements were relevant to prove willfulness, United
States v. Wilkins [67-2 USTC ¶9739], 385 F. 2d 465, 472 (4th Cir.
1967), cert. denied, 390 U. S. 951 (1968), and the government
should not be deprived of this essential evidence because of the
prominence of its witnesses. We conclude, therefore, that the district
judge committed no error by overruling Callanan's objections to their
testimony.
Just
before the final argument, the prosecutor asked the court whether he
could describe the payments Callanan made to the county commissioners as
"payoffs." The court admonished him not to use inflammatory
language. 2 During the
course of the argument the prosecutor said the deductions were "not
lawful" and not "legitimate." He also told the jury that
the government did not charge Callanan with taking false deductions, but
that the deductions were relevant to show intent. 3 After the
second reference to the illegality of the deductions, the defendant
objected and moved for a mistrial. The judge sustained the objection,
but denied the motion for a mistrial. He reprimanded the prosecutor and
immediately gave the jury a special charge in which he explained that
the legitimacy of the payments and the deductions was not an issue in
the case.
Insinuation
and innuendo about collateral matters should play no part in the
prosecution of a criminal charge. United States v. Elmore [70-1
USTC ¶9275], 423 F. 2d 775, 780 (4th Cir.), cert. denied, 400 U.
S. 825 (1970). And the prosecutor's argument must be specially
scrutinized when the trial judge, alert to potential prejudice, has
cautioned restraint. If it is probable that a prosecutor's argument has
engendered prejudice, the defendant must be afforded a new trial. Berger
v. United States, 295 U. S. 78, 89 (1935); Wallace v. United
States [60-2 USTC ¶9661], 281 F. 2d 656, 668 (4th Cir. 1960). The
remarks of the government's attorney were improper. The legitimacy of
the deductions had not been raised in the bill of particulars and it
should not have been introduced into the case. Whether the untoward
remarks prejudiced Callanan must be tested by "the closeness of the
case, the centrality of the issue affected by the error, and the steps
taken to mitigate the effects of the error." Gaither v. United
States, 413 F. 2d 1061, 1079 (D. C. Cir. 1969).
The
record discloses that this was not a close case. The government proved
that time and again Callanan received fees without recording them in any
book of account and indeed often without depositing them in any of his
office checking accounts. Callanan's explanations were discredited, and
he offered neither his own testimony nor the testimony of any accountant
to disprove the government's evidence. The legitimacy of the deductions
did not directly bear on the central issue of the case. The deductions
were relevant to show intent, and, therefore, fair comment about them
was permissible. Only their characterization as unlawful was forbidden.
Moreover, the zoning fees, with which the deductions were linked, were
not the only items of omitted income on which the government relied. For
each tax year the evidence disclosed substantial unreported income that
in no way was connected with Callanan's payments to the county
commissioners. Finally, we believe the measures taken to mitigate the
effects of the prosecutor's remarks were sufficient to protect Callanan
from prejudice. When the prosecutor assailed the deductions as illegal
her told the jury that the government was not charging Callanan with
false deductions. The court, too, in a special charge given in the midst
of the prosecutor's closing argument told the jury that the legality of
the payments to the county commissioners and the lawfulness of the
deductions were not issues in the case. 4 In view of
these circumstances we deem it unlikely that the prosecutor's remarks
misled the jury or produced a wrongful conviction.
[Conclusion]
We
find no grounds for reversal because of other incidents of trial which
Callanan claims prejudiced his case. The trial judge carefully
considered these matters when he heard Callanan's motion for a new
trial. His denial of the motion was proper. The judgment is affirmed.
AFFIRMED.
1
§7201. Attempt to evade or defeat tax.
Any
person who willfully attempts in any manner to evade or defeat any tax
imposed by this title or the payment thereof shall, in addition to other
penalties provided by law, be guilty of a felony and, upon conviction
thereof, shall be fined not more than $10,000, or imprisoned not more
than 5 years, or both, together with the costs of prosecution.
2
The district judge instructed the prosecuting attorney as follows:
"I
do not want you to use inflammatory language in terms of the payments to
[the county commissioners]. You can talk about them in connection with
the zoning problem, but I ask you not to use inflammatory language.
"It
is quite clear that the evidence which [the defendant's attorney]
obpected to came in for purposes of establishing intent and in
connection with motive, not reporting certain specific items of income
that are involved in this case, but I do not want any inflammatory
langauge used.
"It
seems to me that understatement . . . sometimes can be as effective as
overstatement."
3
The prosecutor stated in his closing argument:
'So
in effect, what the defendant is doing with respect to this Ritchmount
fee, this $6,291.66 fee, is he took an expense for paying it out to [the
county commissioners], because he said they controlled the County--the
zoning activities, and he didn't report it as income, so he got a double
tax benefit, and I submit to you, ladies and gentlemen, that the is
absolute greed, and that is the mark of tax evasion, greed, taking a
deduction which was not lawful in the first instance because it was a
payment to a County Commissioner, which he said was made because these
commissioners controlled the various zoning activities, and then not
even reporting the zoning fee itself.
But
[the defendant's attorney] told you on opening statement that this case
does not involve fraudulent deductions. And he's right. The Government
does not charge Mr. Callanan with a false deduction in this case. But I
only tell you about the item to point up the intent. It's relevant to
show intent. We are not claiming that he took a false deduction, but we
are stating this fact to show the whole scheme, his whole method of
operation with respect to this item.
. . .
Again
I submit that there is a real motive for him to not report certain of
these zoning fees. Again I refer to my double tax benefit theory. It's
my own phrase.
With
respect to the Ritchmount item, for example, he's receiving a $6,291.66
fee and he tells Agent Sikorsky on several occasions by way of saying
this is not income, I gave this money to [the county commissioners].
Well,
it's still income to him and he didn't report it but he did take a
deduction for the monies he paid to [the county commissioners], which
was not a legitimate deduction, again with which the Government is not
charging him, but it wasn't a legitimate deduction."
4
The court gave the following special charge:
"Ladies
and gentlemen of the jury, [the prosecutor] has told you that certain
payments made by Mr. Callanan to [the county commissioners] were
unlawful.
Whether
such payments were or were not unlawful is not in issue in this case. .
. .
There
is no issue in this case as to whether any deduction taken by Mr.
Callanan on either of the returns was or was not legally taken or was
not legitimate or illegitimate.
On
the other hand, if in fact you find that Mr. Callanan claimed a
deduction for a payment of part of a sum of money allegedly received by
him, the fact that he claimed that deduction can be taken into account
by you.
Nevertheless.
I want to repeat to you--and this was the basis upon which [the
defendant's attorney] came to the Bench to object--I want to repeat to
you that [the prosecutor] has told you that certain payments made by Mr.
Callanan to [the county commissioners] were unlawful.
Whether
such payments were or were not unlawful is not in issue in this case,
nor is there any issue in this case as to whether any deduction taken by
Mr. Callanan on the 1962 return or the 1963 return was or was not
legally taken or what or was not legitimate or illegitimate."
[71-1 USTC
¶9245]United States of America, Plaintiff-Appellee v. John W. Flanagan,
Defendant-Appellant
(CA-5), U. S. Court of Appeals,
5th Circuit, No. 30533--Summary Calendar, *, 435 F2d
1223,
3/2/71
[Code Sec. 7201--Result unchanged by '69 Tax Reform Act]
Willful attempt to evade taxes: Bill of particulars: Admission of
government exhibit.--The taxpayer's conviction for wilfully
attempting to evade income taxes was upheld. The denial of a bill of
particulars was not in error since the Government turned over to the
defense a report which contained the specific items of income it
intended to rely on. Furthermore, the taxpayer's complaint against the
admission of an exhibit (checks written by the taxpayer) was without
merit.
Seagal
V. Wheatley, United States Attorney, Reese L. Harrison, Assistant United
States Attorney, San Antonio, Tex., Johnnie M. Walters, Assistant
Attorney General, Meyer Rothwacks, Joseph M. Howard, Richard B. Buhrman,
Department of Justice, Washington, D. C. 20530, for plaintiff-appellee.
James R. Gillespie, 1208 Tower Life Bldg., San Antonio, Tex., for
defendant-appellant.
Before
WISDOM, COLEMAN, and SIMPSON, Circuit Judges.
PER
CURIAM:
John
W. Flanagan was convicted of wilfully attempting to evade his federal
income taxes for the years 1963 and 1964, in violation of §7201 of the
Internal Revenue Code. On appeal, Mr. Flanagan complains only of the
denial of a motion for a bill of particulars and the admission of a
government exhibit [204].
As
to the bill of particulars, the prosecution stated at the hearing on the
motion that the government would rely on the omission of specific items
of income, all of which were included in a thirteen page report which
has been turned over to the defense. The denial of the bill of
particulars was not in error, Demetree v. United States, 5 Cir.,
1954, [53-2 USTC ¶9646] 207 F. 2d 892, 894.
The
complaint about the admission of the exhibit (checks written by the
defendant) is likewise without merit.
The
judgment of conviction must be, and is, AFFIRMED.
*
Rule 18, 5th Cir.; See Isbell Enterprises, Inc. v. Citizens Casualty
Co. of New York, et al., 5 Cir., 1970, 431 F. 2d 409, Part I.
[70-2
USTC ¶9719]United States of America, Appellee v. Max Platt,
Defendant-Appellant
(CA-2), U. S. Court of Appeals,
2nd Circuit, Docket No. 35252, 435 F2d 789, 11/24/70, Reversing
unreported District Court decision
[Code Sec. 7203--Result unchanged by '69 Tax Reform Act]
Failure to file return: Evidence: Admissibility: Instructions to
jury: Willfulness.--The record contained an evidentiary basis
sufficient to entitle the taxpayer to an instruction on the defense of
reliance. Also, withholding tax returns should have been admitted
although the government would be entitled to an instruction concerning
their limited relevance. Instructions to the jury that a willful failure
means a conscious, deliberate, purposeful failure as opposed to an
unconscious, unwilling, negligent or mistaken failure were correct.
"Willful" in Code Sec. 7203 requires only its ordinary
meaning.
Whitney
North Seymour, Jr., United States Attorney, Jay S. Horowitz, Harold F.
McGuire, Assistant United States Attorneys, New York, N. Y., for
appellee. Lloyd A. Hale, Louis Bender, 225 Broadway, New York, N. Y.,
for defendant-appellant.
Before
MOORE, FRIENDLY and ADAMS, * Circuit
Judges.
FRIENDLY,
Circuit Judge:
Max
Platt, sole owner of a pharmacy in Mamaroneck, N. Y., appeals from his
conviction, after a jury trial in the District Court for the Southern
District of New York, of the misdemeanor of willfully failing to file
his personal income tax returns for 1963 and 1964 "at the time or
times required by law or regulations," 26 U. S. C. §7203. The
returns were not filed until April 1966, long after extensions proved to
have been granted by the Internal Revenue Service had expired. The only
issue of substance was whether the failure to file the returns when
required was willful.
From
about 1939 until mid-1960 Platt was a client of a New York City
accounting firm, Knopf, Raeman & Tepper. A representative of the
firm would make quarterly visits to the pharmacy, where the accountant
would audit and write up the store's books of account, and then prepare
payroll and sales tax returns. After the close of the year, the firm
wound prepare personal income tax returns, which were presented for
Platt's signature along with appropriate checks. During this long period
all Platt's Federal income tax returns were filed by the due date or
within an extension granted by the IRS; indeed the Government so
stipulated with respect to the years 1950-59.
In
mid-1960 the accounting firm was dissolved. Reaman, who continued to
maintain his office with the former partnership, was assigned various
accounts, including Platt's, but was no longer under Knopf's
supervision. It is unclear whether Platt was made aware of the change.
The
1960 federal income tax return was not filed until October 17, 1961,
although there was no proof of extensions beyond August 15. 1 That was a
minor peccadillo compared with what was to come. The returns for 1961
(not a subject of the indictment), 1962 (as to which the jury acquitted,
rather unaccountably in light of its verdict for the two later years),
1963 and 1964, were not filed until April 1966. 2 Late in
1965, Knopf, who was a close personal friend of Platt's, visited the
pharmacy to suggest that Platt sell it or take in a partner, because the
store was open seven days a week and "Mr. Platt, in my judgment,
found it awfully difficult to contend with." When Knopf's request
for the pharmacy's general ledger and the information which it should
have contained revealed that neither was available, he discovered the
failure to file income tax returns for the years 1961-1964. Knopf
thereupon initiated action intended to cure the defaults by calling
Raeman and telling him to "[g]et those books written up and get tax
returns prepared immediately." During the same period, the I. R. S.
for the first time sent Platt a letter concerning his delinquency. 3 After some
delay due to Platt's hospitalization, Raeman prepared the long overdue
returns, and these were filed in April 1966. Although the returns showed
liabilities of $17,690.44 for 1963 and $19,803.08 for 1964, Platt made
only token payments of $250 for each year. With this and other evidence
the Government had a strong case.
[Defense of Reliance]
Platt's
principal defense was that he had relied on Raeman to keep him in
compliance with the law and therefore lacked the willfulness required
for conviction under §7203. Since Platt did not testify, the defense
was presented through Raeman. He stated that he had requested and
received extensions of time for filing the federal income tax returns,
that these extensions had been sent by the I. R. S. to his office, and
that he had told Platt that extensions had been granted. The record
shows that extensions were issued in respect of 1962 from April to June
1963, in respect of 1963 from April to June 1964, then to July, to
August, to September, and finally to October 1964, and in respect of
1964 from April to June 1965. However, despite a long cross-examination,
the prosecutor never elicited from Raeman whether his statements to
Platt that extensions had been granted related merely to the limited
extensions that had in fact been obtained or constituted an assurance
that these were continuing.
[Requested Instructions]
With
the record so pleasingly ambiguous, defense counsel submitted two
requested instructions here relevant, which we set forth in the
footnote. 4 In his
charge, after telling the jury that to ask it to conclude that the
returns were filed within periods of extension "would be an
atrocious imposition on your intelligence," which was correct
enough although a bit on the vigorous side, the trial judge dealt with
the point raised by these requests by saying only:
There
is evidence which entitles you to come to the conclusion that certain
applications for extension were made and while we are not absolutely
certain that they are all here, we know that in two instances
misrepresentation was made that for the prior year there had been a
timely return filed.
We
also know that in the other cases of applications which we know about,
which we have here, there was no representation made as to whether the
return had been filed the previous year or not. So, somebody at some
time did something about getting applications here in to the Internal
Revenue, but there is no proof before you that there was a timely filing
and there is no proof before you that there was a filing in 1966 within
any periods of extension granted by the Internal Revenue Service. 5
Counsel objected that the charge
had "totally eliminated" a consideration of the extensions on
the question of willfulness, sought and apparently obtained agreement
that no further exception was needed where he had submitted a specific
charge, and expressly excepted "to the failure to charge that the
jury could infer that the defendant had been told by Mr. Raeman that
extensions had been granted and that he could rely upon that."
Although
defendant, in challenging the court's refusal to charge more adequately
with respect to the defense of reliance, relies principally on this
court's decision in Haywood Lumber & Mining Co. v. C. I. R.
[50-1 USTC ¶9131], 178 F. 2d 769 (1950), and the Government seeks to
distinguish it on the grounds of Platt's failure to provide Raeman with
necessary information, we do not find the case to have much bearing. We
there reversed a holding by the Tax Court that failure to file returns
as a personal holding company was due to "willful neglect"
rather than "reasonable cause" when a corporate taxpayer had
requested a qualified accountant to prepare the proper returns and the
accountant, although knowing the taxpayer to have been a personal
holding company, had prepared only the ordinary corporation returns. The
facts in that case were not in dispute. The only question was whether a
corporate taxpayer who selects a competent tax expert to prepare its
returns and provides him with the necessary information to do so, has
done all that ordinary business care and prudence can reasonably
demand--the applicable standard for "reasonable cause" as
defined by the regulations. In answering that question in the
affirmative, the court was careful to point out, doubtless because of
the limitations on review of the Tax Court, that it was dealing not with
the question of fact whether the elements which constitute reasonable
cause were present, but with a question of law, what elements must be
present to constitute reasonable cause.
[Evidentiary Basis]
We
have here the different question whether the record contained an
evidentiary basis sufficient to entitle the defendant to an instruction
on the defense of reliance. The threshold required for this is not very
high:
A
criminal defendant is entitled to have instructions presented relating
to any theory of defense for which there is any foundation in the
evidence, no matter how weak or incredible that evidence may be.
United States v. O'Connor
[56-2 USTC ¶9956], 237 F. 2d 466, 474 n. 8 (2 Cir. 1956).
If there were no facts in the record supporting Platt's claim of
reliance, the judge would have been justified in refusing to charge more
specifically on that point. But here the jury could have found that
Raeman's conversations with Platt concerning extensions amounted to an
assurance that such extensions would continue to be forthcoming and that
all of Platt's failures, whether to file the returns or to provide
Raeman with the information necessary for their preparation, were
founded on an honest, although mistaken, belief that Raeman had secured
such extensions.
It
is no answer that it would have been much more reasonable for the jury
to come to other conclusions: that Raeman never made any such broad
statements to Platt; that even if he did, Platt, as an experienced
businessman, could not really have believed the I. R. S. had displayed
such extraordinary indulgence; and that Platt, with full knowledge of
his delinquency, sanctioned Raeman's procrastination and even encouraged
it by refusing to provide Raeman with the information needed to prepare
the returns. These are all questions of fact which the jury should have
had an opportunity to resolve. While the judge was not required to give
Instructions 15 and 17 in the form submitted and would have been
justified in advising the jury that on the facts here the defense of
reliance should be scrutinized with particular care, he was not
privileged to withdraw the point from consideration. United States v.
O'Connor, supra. We are bound to agree with defense counsel that
this was the effect of the charge; indeed, the references to
misrepresentations in applications for extension, see fn. 5, despite the
lack of evidence that Platt had any knowledge of them, resulted in
converting a defense shield, however fragile, into a prosecution sword.
We
shall deal with two other points since these seem likely to arise again
in a new trial:
[Admission of Withholding Tax
Returns]
Platt
makes a major attack on the court's having sustained the Government's
objection to the admission in evidence of the quarterly and annual
withholding tax returns regularly filed during the years for which he
defaulted in filing income tax returns. Insofar as the contention is
that this evidence was relevant to rebut any claim that the taxpayer was
endeavoring to conceal the continued operation of his business, we
reject it. The Government did not seek to establish criminal intent on
such a theory; 6 it did not
contend that Platt had intended to refrain from filing returns forever
but rather that he comfortably accepted or even encouraged Raeman's
sloth, thereby utilizing for his own purposes moneys which he knew he
should have reported as owed to the United States. If this had been all,
the court would thus have been within its discretionary power to reject
evidence that has only minimal relevancy and may confuse or delay, United
States v. Bowe, 360 F. 2d 1, 15 (2 Cir.), cert. denied, 385
U. S. 961 (1966). However, appellant urges that the withholding returns
were also relevant to bolster the defense of reliance. Platt's knowledge
that Raeman was regularly filing these returns, it is argued, would
strengthen the inference that he supposed Raeman was taking care of
everything which the law required. In this respect, then, the regular
filing of the withholding returns was relevant--albeit indirectly--to
Platt's criminal intent. Bearing in mind Judge Learned Hand's wise
counsel in United States v. Matot, 146 F. 2d 197 (2 Cir. 1944),
concerning the latitude that should be accorded a defendant with respect
to evidence tending to negate criminal intent, we think the withholding
tax returns should be admitted, although the Government would be
entitled to an instruction concerning their limited relevance. 7
[Willfulness Charge]
Platt
also complains of the charge with respect to willfulness. After
expressly rejecting the defense's contention that it was necessary to
find that the failures to file "were motivated by an intent to
conceal from the government the amount of taxes owed by the
defendant," the judge charged:
A
willful failure means a conscious, deliberate, purposeful failure as
opposed to an unconscious, unwilling, negligent or mistaken failure. A
defendant must know of the requirement that he file his return on or
before the date fixed by law. 8
[Ordinary Meaning of
Willfulness]
The
instruction was entirely right. Platt's contention that §7203 requires
something more than the ordinary meaning of willfulness, namely, acting
knowingly and purposefully with respect to the material elements of the
offense, see A. L. I., Model Penal Code, §2.02(8), runs counter to the
teaching of Spies v. United States [43-1 USTC ¶9243], 317 U. S.
492 (1943), as followed and applied in Sansone v. United States
[65-1 USTC ¶9307], 380 U. S. 343 (1965). The clear holding of these
cases is that "willful" both in the felony statute, §7201,
and in the misdemeanor statute, §7203, has its usual meaning but that
this intent must exist with respect to the particular conduct made
criminal. The defendant's knowing failures to file a return and to pay
the tax in Spies were held insufficient to sustain a conviction
under the felony statute for willfully attempting to defeat and evade
the tax, not because the standard of willfulness was more exacting under
the felony statute than under the misdemeanor statute but because the
Court construed the former as requiring "some willful commission in
addition to the willful omissions that make up the list of
misdemeanors." 317 U. S. at 499. With respect to the latter,
willfulness must be determined in light of the distinct forms of conduct
made criminal. Thus, "Mere voluntary and purposeful, as
distinguished from accidental, omission to make a return might meet the
test of willfulness," whereas "mere knowing and intentional
default in payment of a tax" would not, since in that instance
financial circumstances might be the cause, and the failure to pay
therefore not purposeful, 317 U. S. at 497-98.
Appellant's
primary challenge to this is that to give "willful" in §7203
only its ordinary meaning would mean that no more evil intent was
required for the misdemeanor there made punishable than for the civil
penalty of 5% per month up to a maximum of 25% imposed by 26 U. S. C. §6651
for a failure to file a return other than a failure "due to
reasonable cause and not due to willful neglect." It is argued that
in order to avoid what is though so irrational a result, the courts must
construct for §7203 a standard of willfulness higher than
"voluntary and purposeful, as distinguished from accidental
omission," the phrase used in the dictum in Spies, although
without the need for "some willful commission" that exists
under §7201. This conclusion is claimed to follow from language in Spies
that refers to the civil penalty as the lowest stone and the §7201
felony as the capstone "of a system of sanctions which singly or in
combination were calculated to induce prompt and forth-right fulfillment
of every duty under the income tax law and to provide a penalty suitable
to every degree of delinquency." 317 U. S. at 497.
[Difference in Standard of
Proof]
We
do not agree. For one thing, as pointed out in Spies, 317 U. S.
at 495-96, the civil penalty is unavailing "when there is no tax
liability to serve as a base for application of a percentage delinquency
penalty." More important, even though "willful" is read
as having the same meaning in 26 U. S. C. §§ 6651 and 7203, there is a
significant difference in the standard of proof--preponderance of the
evidence under §6651, beyond a reasonable doubt under §7203. Finally,
as also suggested in Spies, the offense which the Government
decides to prosecute under §7203 "may be more grievous than a case
for a civil penalty." 317 U. S. at 496. A taxpayer going on a
spring holiday who knows he has not filed the return that will become
due on April 15 but intends to and does file it in early May, would not
be a likely candidate for prosecution under §7203 even though the
elements of the offense exist; the Commissioner would almost certainly
be content with the 5% penalty imposed by §6651 unless the incident was
part of a regular pattern of disobedience. We thus adhere to the
statement in United States v. Schipani [66-2 USTC ¶9512], 362 F.
2d 825, 831 (2 Cir.), cert. denied, 385 U. S. 934 (1966):
"Willfully"
under §7203 calls only for proof that the taxpayer failed to file his
tax return intentionally and knowingly and not through accident or
mistake or other innocent cause.
To such extent as other circuits
may require something more, their struggles to define just what the more
is would not encourage us to emulate them, even if we entertained
greater doubt on the subject than we do.
[Judgment]
The
conviction is reversed for a new trial.
*
Of the Third Circuit, sitting by designation.
1
Raeman testified he was under the impression that a further extension
was granted that would have made the filing timely, but he could produce
no documentation for this.
2
Platt had likewise failed to file declarations of estimated tax and to
make any payments of such tax for 1962, 1963 and 1964.
3
There was some conflict in the testimony whether Platt ever received the
letter or, if he did, whether he so informed Raeman.
4
REQUEST NO. 15
Extension of Time
The
evidence before you indicates that for each year in question
applications for extensions of time to file the defendant's returns were
made and granted. Filing a return within any extension of time granted
is a timely filing. If you find that the returns filed on behalf of the
defendant were filed pursuant to an extension granted, or if you have a
reasonable doubt about that, you shall acquit the defendant.
Even
if you find beyond a reasonable doubt that one or more of the returns in
question were filed beyond the period for which an extension was
granted, but that the defendant was unaware of the limitation on the
extended period, or if you have a reasonable doubt about that, then you
shall acquit the defendant, because he did not knowingly fail to
file his returns on time.
REQUEST NO. 17
Delegation of Responsibility to an Accountant
The
criminal law does not penalize a taxpayer for delegating the
responsibility of the preparation of his tax returns to a person whom he
has reason to believe is competent to handle such matters. The mistakes
of such a person are not attributable to the taxpayer. Thus, if a
taxpayer selects a person believed competent to prepare his returns and
relies upon him to prepare and file proper returns, he has done all that
the law requires of him.
5
The judge also said:
There
has been evidence introduced here of various applications and grants of
extension, but the evidence would not permit you to conclude in this
case that the filings of defendant's 1962, 1963 and 1964 returns on
April 15, 19
66, were filed within periods of extension.
In
one or two instances misrepresentations were made about the timely
filing of the previous year's reports and the accountant Raeman
testified he signed them either in blank or without looking at them.
You
should ask yourselves whether these applications were used as a means of
exploiting the IRS procedures improperly. You should ask yourselves what
significance their grant or denial may have had in your judgment on the
issue of wilfulness.
6
While proof of an intent to conceal income would indeed establish
willfulness, see United States v. Marquez, 332 F. 2d 162, 166 (2
Cir.), cert. denied, 379 U. S. 890 (1964), this is not an
essential element, as is shown below.
7
This is not to say we would reverse the conviction because of the
exclusion. Despite that ruling, defense counsel elicited testimony from
Raeman concerning the preparation and filing of the withholding returns,
and the checks evidencing payment were received in evidence. The
additional effect of the returns themselves would hardly be so material
as to justify reversal.
8
In answer to a request from the jury, the court amplified this:
What
do we mean by willful? Within the context of the law with which we are
speaking, the willful failure is one which is voluntary, purposeful,
deliberate and intentional as opposed to one which is accidental,
inadvertent or careless and in short the element of willfulness as used
in this statute involves a specific wrongful intent, namely, actual
knowledge of the existence of a legal obligation and the intent to evade
that obligation and if you can not find that, anything less would be
considered to be either a mistake or inadvertence or carelessness.
[70-1
USTC ¶9448]United States of America, Appellee v. Jack I. Chikata,
Appellant.
(CA-9), U. S. Court of Appeals,
9th Circuit, No. 24,298, 427 F2d 385,
5/26/70
, Affirming an unreported District Court decision
[Code Secs. 7201, 7203 and 7602]
Crimes: Tax evasion: Conviction: Miscellaneous assignment of
errors.--Taxpayer's conviction for income tax evasion was upheld.
Charges that the lower Court erred (1) in admitting into evidence facts
obtained by the IRS from meeting with the taxpayer wherein he was not
given a Miranda type warning, (2) in refusing to give the
taxpayer a fair trial, (3) in refusing to strike all exhibits and
testimony offered in violation of the court's order, (4) in instructing
the jury to consider only the net worth of the taxpayer, (5) in
overruling the taxpayer's motion to dismiss on the grounds that Code
Sec. 7201 under which he was indicted was unconstitutionally indefinite,
(6) in failing to exclude exhibits acquired by the special agent by use
of an
admin
istrative summons, and (7) in ordering the taxpayer to stipulate as to
the authenticity of certain government exhibits, were without merit.
Stan
Pitkin, United States Attorney, J. S. Obernour, Assistant United States
Attorney, Tacoma, Wash., for appellee. Martin J. Durkan, Durkan &
Durkan, Olympic Nat'l Bldg., Seattle, Wash., for appellant.
Before
JERTBERG, WRIGHT and KILKENNY, Circuit Judges.
KILKENNY,
Circuit Judge:
Appellant,
a Seattle druggist, was convicted by a jury of income tax evasion, 1 for the
years 1961, 62 and 63. He was sentenced to a year and a day on each
court, the sentences to run concurrently, and to pay a fine of $7,500.00
on each of the three counts, to be noncumulative. He appeals. We affirm.
In
January, 1966, a group supervisor of the Internal Revenue Service, when
work was low, selected at random from the Seattle telephone directory,
ten names of pharmacists. From the income tax returns of this group, he
designated three for audit and assigned
Rob
ert Anderson, a revenue agent in the supervisory group, to make the
audit. One so designated was appellant's 1964 return, which showed a
large amount of interest income compared to the reported business
income. At this time, there was no thought of possible fraud, although
the supervisor's group was commonly known as the fraud group because
approximately one-third of its work consisted of cooperating with
special agents in criminal investigations.
Anderson,
after receiving thereturns, called appellant and told him of the
assignment and that he wanted to see his books and records on the '67
return. Appellant invited Anderson to his place of business. Upon
arrival, Anderson found that appellant had only his 1965-66 records on
hand. After an examination of these records, Anderson proceeded with an
interview for background and history and made arrangements to return the
next day for further information.
The
following day, an examination was made of the 1964 bank records. The
agent found that in 1964, appellant had deposited $36,000.00 into his
checking account, an amount far in excess of his reported gross receipts
of $23,000.00. In a hurried analysis of appellant's reported income from
retained copies of prior returns to 1959, the agent arrived at a net
worth statement amounting to $130,000.00 in assets at the end of 1964,
including $17,000.00 in cash that appellant said he had deposited in his
checking account in 1965.
During
the court of the investigation, the agent found that appellant's cash
register could record sales no larger than $9.99 and that appellant
recorded sales over $10.00 by ringing the extra amount and writing down
the $10.00 on a piece of paper. Sometimes, he told the agent, he forgot
to write down the $10.00 sales and that this might occur two or three
times daily. Armed with this information, the agent computed an
unexplained increase in assets of $46,000.00 for 1959 through 1964, this
being an amount that would equal three unreported $10.00 sales for each
working day during the period. Based on this information, Anderson
offered a referral report, suggesting that there was an indication of
fraud. This report was reviewed and assigned to special agent Catlow of
the Intelligence Division for preliminary examination. Anderson was
assigned as a cooperating agent.
Appellant,
in the meantime, had hired attorney Bernard Greene and so advised
Anderson. Greene called Anderson and told him that he represented
appellant. Although Catlow was informed of these facts, he did not
contact Greene because Greene had not filed a power of attorney as
required by the Internal Revenue regulations. Instead, accompanied by
Anderson, he went to appellant's place of business. He there identified
himself and advised appellant that he could have his attorney present,
that he need not answer any question, nor furnish any information.
Appellant was told that the initial examination indicated a shortage of
reported income. Appellant then called his attorney, who arranged for an
appointment the next day at his office. At this meeting, Greene
expressed a willingness to cooperate with the agents. Catlow then
questioned appellant, covering much of the same areas that Anderson had
covered during the initial interviews. Some time later, John Durkan,
another attorney, took over the case for the appellant.
Contentions
Appellant
charges that the lower court erred in the following particulars: (1) in
admitting in evidence any facts directly elicited from the appellant by
the government agents or indirectly by leads furnished by appellant; (2)
in refusing to give appellant a fair trial; (3) in refusing to strike
all exhibits and testimony offered in violation of the court's order;
(4) in instructing the jury to consider only the net worth of appellant;
(5) in overruling appellant's motion to dismiss on the ground that the
statute under which he was indicted was unconstitutionally indefinite;
(6) in failing to exclude exhibits acquired by the special agent by use
of an
admin
istrative summons; and (7) in ordering the appellant to stipulate as to
the authenticity of certain government exhibits.
Contention One
Appellant
argues that all evidence acquired by Anderson and Catlow during the
course of their interviews with appellant and any evidence acquired as a
result of leads obtained from appellant, during those meetings, was
inadmissible because at no time was appellant given the necessary Miranda
type warning. We note that appellant was in his own place ob business on
the occasion of the conversations with the government agents. He was not
in custody, nor at the time was he, in any way, deprived of his freedom.
In these circumstances, we are controlled by a number of our own
authorities, which have refused to enlarge the Miranda rule
beyond its stated limits. Spahr v. United States [69-1 USTC ¶9315],
409 F. 2d 1303, 1304-1305 (9th Cir. 1969), cert. denied 396 U. S.
840; Simon v. United States, 421 F. 2d 667 (9th Cir. 1970). In Simon,
we declined to follow United States v. Dickerson [69-2 USTC ¶9556],
413 F. 2d 1111 (7th Cir. 1969), the principal case on which appellant
relies. In Mathis v. United States [68-1 USTC ¶9357], 391 U. S.
1 (1968), on which appellant also leans, the taxpayer was in custody
in a state prison on another charge at the time he was questioned by
Internal Revenue Agents. The Court, in Mathis, again limited Miranda
to a person in custody or otherwise deprived of his freedom in some
significant way. We resolve this issue against appellant. Additionally,
we hold there was no coercive conduct on the part of the Internal
Revenue Agents.
Contention Two
Appellant
here charges that he was deprived of a fair trial because he was
harassed by the Internal Revenue Agents and by the trial court. With a
few exceptions, the complaints are those of the attorney, rather than
appellant, and are concerned with what occurred during pre-trial
hearings, rather than during the trial. Of course, what occurred in the
pretrial hearings can have no bearing on the fairness of the trial
unless some relationship is shown. Our examination of the record reveals
no such connection and appellant points to none. Additionally, our
examination of the record leads us to the conclusion that the trial
court's actions in the pretrial hearings were fully justified. The
alleged harassment by the Internal Revenue Service, during the pretrial
period, is completely irrelevant.
During
the trial, the court asked appellent's counsel not to "be so
aggressive", told appellant's counsel that a certain question was
propounded in "an improper way" and on one occasion, in
commenting on counsel's repetitious interrogation, commented, "It
is just ridiculous." Read in context with the relevant questions,
we find nothing objectionable in the court's comments. In his closing
argument to the jury, counsel for appellant referred to his client, who
was born in Japan, as a sick old man who was imprisoned by the United
States in a World War II concentration camp. He had emphasized this
internment throughout the trial. Responding to this argument, the United
States Attorney called attention to the fact that the concentration
camps were established as a result of the sinking of American
battleships in Pearl Harbor. Neither argument had anything to do with
the merits of the case. While we do not condone this type of argument by
a prosecuting attorney, we have no doubt that the prosecutor's response
was prompted by the argument of appellant's own counsel. In these
circumstances, we do not feel that the prosecutor's conduct should be
treated as reversible error.
Contentions Three and Seven
These
contentions are related and should be considered together.
Acting
under the authority of Rule 17.1, FRCrimP, the trial court, after a
lengthy pre-trial conference, ordered appellant's counsel to examine
government proposed exhibits 1 through 41 and appear some seven days
later and then given reasons why he and his client should not stipulated
to the authenticity of such exhibits, reserving all objections to
relevancy and materiality. During the course of the conference,
appellant's attorney took the position that the exhibits were
inadmissible on various grounds, but did not challenge their identity or
authenticity. Repeatedly, the court explained to appellant's counsel
that the stipulation as to identity and authenticity of the documents
would in no way prejudice future objections to admissibility on any
other ground. Appellant's counsel finally said that he did not care to
stipulate, under any circumstances, being of the belief that he should
not, in any way, help the government meet is burden of proof. After this
statement by counsel, the court explained that Rule 17.1 required a
certain amount of cooperation by a defendant in a criminal case and the
court had power to require counsel to study the documents in order to
determine whether he had a valid reason for doubting their authenticity.
The transcript of the hearing makes it patently clear that appellant's
counsel was given every opportunity to study the documents, as well as
the list of the proposed witnesses who would authenticate the exhibits,
if called for that purpose. The hearing was held on
February 3, 19
69. Appellant and his counsel were ordered to return on February 10th
and state their reasons for not agreeing to the authenticity of the
proposed exhibits. Instead of returning on February 10th and stating
reasons for not agreeing to the exhibits, the appellant and his attorney
signed the stipulation, which had been prepared by the government. This
instrument was filed with the Clerk on February 7th.
Appellant
and his attorney now contend they were intimidated into signing the
stipulation. We do not agree. Although the court was forceful, and, to
an extent, even demanding in his efforts to "promote a fair and
expeditious trial" under the provisions of Rule 17.1, we hold that
the record does not support a finding that he exercised his persuasion
beyond permissible limits. The record makes it perfectly clear that
appellant and his attorney were given the opportunity and, for that
matter, were instructed to return on February 10th and then state any
and all objections they might have to signing the stipulation. Then, and
only then, the record makes clear, would the judge decide what future
action, if any, might be appropriate.
During
the trial, the court received in evidence exhibits in addition to those
mentioned in the stipulation. Appellant, in urging error, calls
attention to the court order requiring the government, in advance of
trial, to disclose all of its exhibits and the names of its witnesses.
The
record of the pre-trial conference makes it quite apparent that the main
purpose of stipulating to the authenticity of exhibits 1 through 41 was
to avoid calling over 20 witnesses to identify the documents. Nothing
said in the conference indicates that these would be the only exhibits
offered by the government. The judge who was responsible for the
disclosure order, in ruling on this contention, found it completely
without merit. 2 So do we,
Far in advance of the trial, the appellant and his attorney were made
aware of the fact that the government was going to use the "net
worth method of proof" and that the material supplied to appellant
prior to trial would be illustrated and amplified during the course of
the trial. The additional exhibits and testimony to which appellant
objects are in connection with those subjects.
Contention Number Four
Next,
appellant argues that the court erred in instructing the jury to
consider only the net worth of the appellant and not of his wife. In
this connection, the court carefully instructed the jury that in the
state of Washington a wife had a vested property right in the community
property and in the income of the community equal to that of her
husband. Beyond doubt, the prosecution was premised on the net worth of
the appellant, rather than that of his wife. There is no claim that the
separate property of the wife in any way contributed to the net worth of
appellant as shown by the record. This contention is patently
groundless.
Contention Number Five
Appellant
challenges the constitutionality of 26 U. S. C. §7201, the statute
under which he was convicted. He says the statute is too vague. It does
not, he argues, set up standards which are ascertainable and
understandable by men of ordinary intelligence. Appellant cites no
specific authority for his position. Insofar as we can determine, the
only cases considering the subject have held the statute constitutional.
United States v. Schipani [66-2 USTC ¶9512], 362 F. 2d 825 (2d
Cir. 1966), cert. denied 385 U. S. 934; United States v. Conti
[66-1 USTC ¶15,694], 361 F. 2d 153 (2d Cir. 1966), vacated on other
grounds 390 U. S. 204; and United States v. Keig [64-2 USTC
¶9563], 334 F. 2d 823 (7th Cir. 1964). We have carefully examined those
cases and believe they are judicially sound.
Contention Number Six
Relying
on United States v. Powell [64-2 USTC ¶9858], 379 U. S. 48
(1964) and Wild v. United States [66-2 USTC ¶9500], 362 F. 2d
206 (9th Cir. 1966), appellant suggests that the lower court committed
error in failing to exclude all exhibits acquired by the special agent,
by use of an
admin
istrative summons under the provisions of 26 U. S. C. §7602 (1964).
Wild,
as well as Powell, pointedly recognizes that where the objective
of the investigation is to obtain information which may be utilized in
determining whether there is civil liability for a tax or a tax
penalty, the obtaining of documents under the summons is legitimate,
notwithstanding the fact that the information might, in the future, be
also used in a criminal prosecution. Beyond all legitimate argument, the
investigation in this case was conducted for a legitimate purpose.
Recent cases sustaining this view are Howfield, Inc. v. United States
[69-1 USTC ¶9298], 409 F. 2d 694, 697 (9th Cir. 1969); United States
v. Ahmanson [69-2 USTC ¶9572], 415 F. 2d 785, 787 (9th Cir. 1969); United
States, et al. v. M. P. Ruggeiro [70-1 USTC ¶9381], -- F. 2d --,
Nos. 24519-24524 (9th Cir., April 28, 1970).
AFFIRMED.
1
26 U. S. C. §7201.
2
"Moreover, in this particular case far beyond anything in my
experience in dealing with literally hundreds of tax evasion cases,
there has been an extraordinary disclosure made to the defendant and his
counsel of the evidence to be offered by the government. Never before
have I ever required so sweeping disclosure as has been voluntarily
offered by the government in this case." (T. R. Vol. IV, p. 355).
[69-2 USTC
¶9675]United States of America, Plaintiff-Appellee v. Francis D. White
and Gertrude W. White, Defendants-Appellants
(CA-2), U. S. Court of Appeals,
2nd Circuit, Docket Nos. 33446-7, 417 F2d 89, 10/10/69
[Code Sec. 7201]
Crimes: Tax evasion: Criminal investigation: Voluntary cooperation
with agents: Noncustody case: Constitutional rights: Admissibility of
evidence.--Taxpayer was not entitled to suppress evidence against
him based on the violation of his constitutional rights under the Miranda
rule where he voluntarily cooperated with IRS agents and was interviewed
at his office, with his accountant present, and at the accountant's
office. Other evidence from which it could be inferred that he had
unreported income was properly admitted.
[Code Secs. 7201 and 7206]
Crimes: Tax evasion: False and fraudulent returns: Pyramiding of
penalties.--Taxpayer's conviction for tax evasion and for signing
false returns was upheld. However, since the false returns were steps in
the consummation of the greater offense--attempt to defeat or evade
tax--additional fines under Sec. 7206 were vacated.
Richard
B. Buhrman, Johnnie M. Walters, Assistant Attorney General, Joseph M.
Howard, Department of Justice, Washington, D. C. 20530, for
plaintiff-appellee. J. F. Henry DeLange, Charles K. Rice, Albert R.
Mugel, 720 Liberty Bank Bldg., Buffalo, N. Y., for
defendants-appellants.
Before
MOORE, HAYS and ANDERSON, Circuit Judges.
MOORE,
Circuit Judge:
I.
The primary point urged by appellants upon this appeal relates to the
voluntariness with which they produced, during the investigation of
their affairs by a Special Agent of the Internal Revenue Service
Intelligence Division, the great bulk of the evidence used against them
at trial. During the investigative sessions at which the incriminating
evidence came out, appellants were not told that a possibility then
existed of criminal prosecution for tax evasion. The Special Agent
admonished Francis White (referred to as "Francis") 1 that he was
not required to answer any questions or turn over any personal records,
but did not state specifically that anything he said might be used
against him in a criminal prosecution. He was not advised of his right
to counsel, nor was he advised that counsel would be furnished in the
event he qualified as an indigent. Thus appellant argues that he was not
given the full Miranda warnings at the point when investigation
of his affairs became essentially accusatory, see Escobedo v. State
of Illinois, 378 U. S. 478 (1964), and that his Fourth and Fifth
Amendment rights were therefore abridged by the admission of evidence
garnered through the investigative interviews.
The
case presented by appellants does not differ in any essential from the
situation confronting this Court in United States v. Mackiewicz
[68-2 USTC ¶9461], 401 F. 2d 219 (2d Cir. 1968) and in United States
v. Squeri [68-2 USTC ¶9493], 398 F. 2d 785 (2d Cir. 1968). In Mackiewicz
we held that questioning by a Special Agent under circumstances almost
identical to these here presented did not create an atmosphere
sufficiently coercive to generate the necessity for the full range of
warnings contemplated by the Miranda decision for essentially
"custodial" interrogations. Francis was interviewed by the
Special Agent at his own place of business in the presence of his
accountant, and was interviewed once more in the office of his
accountant, who was again present throughout the interview. Under these
circumstances, Francis's confrontations with the Service's Intelligence
Division was not inherently coercive, and he and his wife were not
entitled to suppress evidence against them garnered from that
confrontation on the basis of Miranda. In accord with this view
are decisions in seven other Circuits: Morgan v. United States
[67-1 USTC ¶9449], 377 F. 2d 507 (1st Cir. 1967); United States v.
Mancuso [67-2 USTC ¶9487], 378 F. 2d 612 (4th Cir. 1967); Agoranos
v. United States [69-1 USTC ¶9316], 409 F. 2d 833 (5th Cir. 1969); United
States v. Maius [67-2 USTC ¶9521], 378 F. 2d 716 (6th Cir. 1967); Cohen
v. United States [69-1 USTC ¶9132], 405 F. 2d 34 (8th Cir. 1969); Feichtmeir
v. United States [68-1 USTC ¶9217], 389 F. 2d 498 (9th Cir. 1968);
and Hensley v. United States [69-1 USTC ¶9146], 406 F. 2d 481
(10th Cir. 1969). Contra, United States v. Dickerson [69-2 USTC
¶9556], 413 F. 2d 1111, 38 U. S. L. W. 2133 (7th Cir.,
July 28, 19
69).
Aside
from the Miranda-based decisions, appellant asserts the novel
proposition that the government's right to introduce evidence obtained
from Francis is even more narrowly circumscribed by the requirements for
voluntariness of "confessions" under 18 U. S. C. §3501. That
section lists five factors which a Judge should consider in his
determination of voluntariness before submission of the evidence to the
jury. From this appellant argues that disclosures and evidence
sufficiently voluntary to be admissible under Miranda
nevertheless may be involuntary as a matter of law under the Omnibus
Crime Control and Safe Streets Act of 1968.
That
contention does not require extended discussion. It is sufficient to
note that neither the language of §3501 nor its legislative history
indicate that Congress intended to expand the protection of potential
criminal defendants beyond the scope of protection established by the Miranda
line of cases.
II.
Special Agent Martin, whose investigation in 1962 formed the basis of
the prosecution against the Whites in this case, testified at trial
concerning his investigation. Martin also had testified for the
Government before the grand jury in 1965 but no record of his grand jury
testimony was kept. However, minutes were kept and a record made of the
testimony of all defense witnesses at the grand jury hearing.
Appellant
argues, on authority of our decision in United States v. Youngblood,
379 F. 2d 365 (2d Cir. 1967), that a defendant in a criminal case is
entitled to a transcript of all testimony against him given before the
grand jury. We noted in Youngblood that transcripts of testimony
at grand jury hearings in this Circuit are now regularly kept and filed
away, but that this "may not always have been the practice, and
where it has not been we do not imply that a defendant is entitled as of
right to minutes that do not exist." 379 F. 2d at 370, fn. 4.
Had
this failure occurred subsequent to our decision in Youngblood,
supra, very possibly a different question would have been presented.
However, Youngblood was given prospective application only, and
the indictment against the Whites was returned two years prior to that
decision. Minutes of Agent Martin's testimony were not made at the grand
jury hearing in 1965. Since they did not exist at the date of decision
in Youngblood, his trial testimony cannot now be held improperly
admitted on that basis.
III.
The Government adduced evidence at trial showing that Francis maintained
a separate personal bank account in a neighboring town in which he
deposited large amounts of currency from unidentified sources. The
evidence was offered to show the wilfulness of his conduct in seeking to
conceal his financial activities or mislead others who had an interest
in his financial affairs. Spies v. United States [43-1 USTC ¶9243],
317 U. S. 492, 499 (1943). White's accountant, who prepared his tax
returns, was unaware of the separate account and the large cash
deposits. Appellant contends that this evidence was prejudicial and
improperly admitted, suggesting that the jury may have erroneously
inferred that these cash deposits represented still other unreported
income, unrelated to the specific items upon which the evasion
indictments were based.
In
cases involving income tax evasion, evidence purporting to show the
wilfulness of misconduct through extensive dealings in cash is properly
admissible. E.g., Gariepy v. United States [51-1 USTC ¶9318],
189 F. 2d 459, 463 (6th Cir. 1951); Schuermann v. United States
[49-1 USTC ¶9281], 174 F. 2d 397, 398 (8th Cir. 1949). The Government's
proof showed that a large number of checks were cashed by the Whites
throughout the period covered by the indictment instead of being
deposited to the proper business accounts. Cash deposits in the separate
bank account thus had a substantial tendency to prove their intent in
converting unreported income received in check form into cash. The value
of this evidence as proof of a material element in the case overcame
whatever prejudice might have operated against appellants through
improper inferences made by the jury on the evidence, and the evidence
was therefore properly admitted.
IV.
Several items charged in the indictment as unreported income were in the
form of checks from a corporation controlled by Francis. The Government
introduced evidence that those payments were entered on the paying
corporation's books as expense items. This evidence was offered for the
purpose of showing that the payments were not repayments of loans or
other items which would not represent reportable income to the Whites.
Appellants argue that this evidence was improperly admitted because it
may have raised the inference of misdealing by the corporations, which
was not charged in the indictment. However, as was the case with the
cash deposits, any prejudicial inference was overbalanced by the
positive value of the evidence in showing a material element of the
case, i.e., the income nature of the Whites' receipts, and its admission
was not reversible error.
V.
The indictment brought by the Government against the Whites charged each
defendant with (a) four counts (for the years 1958, 1959, 1960, 1961) of
wilful attempts to evade or defeat income taxation under 26 U. S. C. §7201,
and (b) four separate counts (for the same years) under 26 U. S. C. §7206(1)
for making and subscribing documents which contain "a written
declaration that it is made under the penalties of perjury, and which he
[the taxpayer] does not believe to be true and correct as to every
material matter." The documents were signed joint tax returns for
the four years of the indictment period. The prosecutions under §7201
were based on understatements of income and overstatements of expenses
in the four-year series of filed returns, together with proof of overt
acts by both defendants tending to show the wilfulness of their
affirmative efforts to evade the tax.
The
jury returned a verdict of guilty on all eight counts against each
defendant. Each was subsequently sentenced to the maximum fine of
$10,000 for each violation of §7201, totaling $40,000. Each was
additionally sentenced to the maximum fine of $5,000 for each violation
of §7206(1), which provides a felony penalty for perjured returns
whether or not a wilful attempt to evade or defeat payment of taxes is
shown. Total fines under this section were $20,000 for each defendant.
We affirm the convictions on all counts, but the additional fines for
violation of §7206(1) must be vacated. United States v. Lodwick
[69-2 USTC ¶9586], 410 F. 2d 1202, 23 AFTR 2d 69-1760 (8th Cir.,
May 22, 19
69); Gaunt v. United States [50-2 USTC ¶9412], 184 F. 2d 284,
290 (1st Cir. 1950), cert. denied 340 U. S. 917, rehearing denied
340 U. S. 939 (1951). Under the circumstances of this case, the perjured
returns were "incidental step[s] in the consummation of the
completed offense of attempted defeat or evasion of tax," Gaunt,
supra at 290, and as such each offense constituted a "crime
within a crime" under the lesser included offense doctrine. Id.
Both offenses charged were properly submitted simultaneously to the
jury, but the cumulative fines, insofar as they exceeded the maximum
possible fine under the greater offense charged in §7201, constituted
an unauthorized pyramiding of penalties.
Section
7206(1), although it charges an offense separate and distinct in itself,
is only one part in a comprehensive statutory scheme to prohibit and
punish fraud occurring in the assessment and collection of taxes by the
government. Section 7201 is the inclusive section, prohibiting all
attempts to evade or defeat any tax in any manner, and such an
attempt is punishable as a felony. There follows a series of sections
prohibiting specific methods of fraud in the collection and payment of
taxes, all of which are separately punishable standing alone. Among
these are §§ 7203, 7206 and 7207, all directed against the taxpayer.
Other sections are directed at persons involved in the process of tax
collection. Section 7203 prohibits the failure to file a return, supply
information or pay a tax. Section 7207 prohibits the filing of
fraudulent returns, statements or other documents required by the
Service. Both these sections have been held by the Supreme Court to
constitute, under appropriate circumstances, lesser offenses included
within the prohibition of §7201. Sansone v. United States [65-1
USTC ¶9307], 380 U. S. 343 (1965). Section 7206(1) provides penalties
for signing, under oath, false returns or statements made in the process
of tax collection. The offense charged is perjury, the operative element
is the signature under oath, and the felony penalties reflect the
seriousness of this method of committing fraud. Thus the perjury
offenses charged under §7206 may separately form the basis for an
indictment; but where proof of wilfully attempted evasion under §7201
also proves, as an incident to the wilful evasion, the preparing and
subscribing of a fraudulent return, the specific form of fraudulent
conduct merges into the inclusive fraud charged under §7201. To
cumulate penalties beyond the maximum authorized by §7201 is,
therefore, improper under these circumstances, and the $20,000 in
additional fines assessed against each appellant on the §7206(1) counts
must be vacated.
VI.
The sentencing court suspended the additional sanction of imprisonment
against the Whites, placing them both on probation for five years.
Continuation of probation was expressly conditioned, however, upon their
payment, within 30 days, of all existing tax liabilities together with
full interest and all penalties, including the fraud penalties.
In
imposing these conditions, the trial court referred to information it
had received from the Internal Revenue Service assessing appellants'
civil liability for the four years covered by the indictment. However,
that figure represented only a computation by the Service, and the
Government concedes that the appellants here are entitled to litigate
that civil liability before payment. It is further conceded that the
conditions imposed on appellants' probation would hamper the
determination by legal process of the civil liability. For these
reasons, the conditions attached to probation must be removed. United
States v. Taylor [62-2 USTC ¶9590], 305 F. 2d 183 (4th Cir.) cert.
denied 371 U. S. 894, rehearing denied 371 U. S. 943 (1962); United
States v. Stoehr [52-1 USTC ¶9299], 196 F. 2d 276 (3d Cir.) cert.
denied 344 U. S. 826 (1952).
The
judgment of the District Court is modified by striking therefrom the
$40,000 in fines applicable to the convictions under 26 U. S. C. §7206(1),
and is remanded for removal of the conditions to probation; in all other
respects, the judgment is affirmed.
1
Both Francis and Gertrude White were convicted on the evidence produced
in Agent Martin's investigation. The books, records and statements which
appellants sought to suppress, however, were turned over to the
investigator as a result of, and during, interviews with Francis alone.
Mrs. White does not claim any failure of consent or any right to
suppress evidence against her based on failure of consent, since their
joint returns, for which they are both liable, formed the basis of the
prosecution.
[69-2 USTC
¶9616]United States of America, Plaintiff-Appellee v. Seymour J. Lacob,
Defendant-Appellant
(CA-7), U. S. Court of Appeals,
7th Circuit, No. 16747, 9/4/69, Aff'g an unreported District Court
decision
[Code Sec. 7201]
Crimes: Income tax evasion: Bill of particulars: Bank
deposits-expenditures method: Self-incrimination: Due process:
Evidence.--The taxpayer's conviction on one count alleging income
tax evasion was affirmed. At trial, the government was not permitted to
exceed a limiting effect of its bill of particulars; the bank
deposits-expenditures method of reconstructing income was properly used;
the taxpayer was not compelled to testify in violation of his
constitutional privilege against self-incrimination; the exclusion of
taxpayer's cancelled checks as exhibits was proper; and six other
alleged trial errors did not deprive the taxpayer of due process of law.
Thomas
A. Foran, United States Attorney, Chicago, Ill., for plaintiff-appellee.
Anna R. Lavin, 53 W. Jackson Blvd., Chicago, Ill., for
defendant-appellant.
Before
SWYGERT and CUMMINGS, Circuit Judges, and MORGAN, District Judge. 1
MORGAN,
District Judge:
Defendant
was tried on Count III of an indictment charging income tax evasion for
the calendar year 1960. 2 He was found
guilty by a jury and has prosecuted this appeal from the judgment of
conviction.
Defendant
is a lawyer who specialized in personal injury claims. While he was
represented by his present counsel in the proceedings prior to trial in
this case, he chose to defend himself at the trial and his counsel of
record was permitted to withdraw.
The
indictment charged a false and fraudulent return, in violation of 26 U.
S. C. §7201, reporting taxable income of $8,329.70 with a tax of
$1,765.72, while defendant's correct taxable income was $30,146.15 with
a tax of $9,528.69.
The
Government proved by records of two banks, without dispute, that
defendant deposited slightly over $99,000 in 1960. It was stipulated
that in 1960 defendant received 69 case settlement checks from 29
different insurance carriers totaling $38,322.89. $36,000 of that amount
was identified among the deposits to defendant's bank accounts. $1,475
was proved to have been received but not deposited. Records of the
Illinois Industrial Commission, received in evidence, disclosed 22 cases
handled by defendant on which checks were issued in 1960, and $17,100
from those sources was traced into defendant's bank accounts. Checks for
$1,477 from these latter sources were proved to have been received but
not deposited.
An
Internal Revenue Service accounting expert testified that he made a bank
deposit analysis and various computations from the material in evidence.
Deposits of $14,569.90 were eliminated and not considered as unreported
income because they represented salary which was reported and small, and
unidentifiable, checks. Also, deposits of $5,415.12 were eliminated as
transfers from other accounts. Deposits of currency were also
eliminated. Since the defendant received a fee of 331/3% of personal
injury settlements, defendant was charged with income of $6,206.90 on
$18,620.89 of deposits of identified personal injury settlement checks
and $491.67 on the $1,475 of personal injury settlements received but
not deposited. Since the fee on workmen's compensation settlements was
20%, defendant was charged with income of $3,420 on the $17,100 of
identified workmen's compensation settlement check deposits and $295.40
on the $1,477 workmen's compensation settlement checks which were not
deposited. Of $39,356.33 of substantial checks deposited but not
identified or explained, defendant was charged with income of $7,871.27,
or 20%, because it was assumed, in the absence of other proof, that
these were proceeds of cases and that his fee was the lower of the two
fee bases used.
Defendant's
1960 taxable income was then recomputed by adding these items to the
identified income shown on the return, allowing personal deductions and
exemptions as claimed on the return and deducting $1,483 for bar
association dues, filing fees, etc., which had not been claimed by
defendant on his original return. This computation resulted in finding
taxable income of defendant for 1960 of $25,131.64, with a tax due of
$7,286 against the $1,765 returned, or an unreported tax for 1960 of
$5,521. 3
Defendant's
efforts at proof of a defense were somewhat abortive. A judge of the
Circuit Court of Cook County, Illinois, was not able to testify to
defendant's good reputation for truth and veracity in the community in
which he resided, and two attorneys who did so thought that he lived in
a community other than his place of residence as shown on his income tax
return. Defendant sought to have his wife identify checks which he had
made out, and, upon Government objection, the court did not permit her
to do it, so the defendant took the stand to identify them himself.
Based upon defendant's admissions that many of such checks covered
expenditures which were charged to and, ultimately at least, paid by
clients, and that he couldn't relate them directly to case files or
other records, and upon Government objection that no proper foundation
had been laid for their admission without invoices, files or book
records showing that they were business connected expenses actually
borne by defendant, the trial court excluded all the checks except some
few to which such objection was not raised and for which defendant was
given credit. A Certified Public Accountant was not permitted to testify
about, or analyze, the checks which had not been admitted into evidence.
Defendant testified that the checks which were excluded did represent
expenses of his law practice for 1960 and that his expenses that year
totaled more than his income. Accordingly, he argued that he had no net
law practice income in 1960, and hence had reported none because he said
he was advised that it was not necessary to detail the actual income and
expenses.
As
grounds for reversal, defendant urges that the Government was permitted
to exceed a limiting effect of its Bill of Particulars to the
defendant's prejudice; that the "bank deposit theory" employed
in the Government's evidence was misused and may not, consistent with
constitutional guarantees to the defendant, be the basis of a
conviction; that the defendant was compelled to testify in violation of
his constitutional privilege against self-incrimination; that by
excluding his cancelled checks as exhibits, the trial court effectively
denied defendant any jury consideration of his defense; and that six
other alleged trial errors deprived defendant of due process of law.
There
is no merit to defendant's first argument that the Government should
have been limited to proving the items of unreported income specified in
its Bill of Particulars, or to a specific-item method of proof, because
the method or theory of proof to be relied upon by the Government was
neither asked by the defendant nor stated by the Government and, in its
Bill of Particulars, the items listed were clearly stated to be a
"partial" list of payments made by "some" of the
insurance companies which made payments to defendant in 1960. If this
were not in compliance with the trial court's order under Rule 7(f) F.
R. C. P., the defendant should have sought more complete particulars at
that time, and certainly failure to do so may not change what is stated
to be partial into a complete list to which the Government is thereafter
limited in its proof. Nothing in United States v. Neff, 3 Cir.,
212 F. 2d 297, or United States v. Glaze, 2 Cir., 313 F. 2d 757,
cited by defendant, even suggests the contrary or amounts to holding
that disclosure of some specific items of unreported income in a Bill of
Particulars prevents the Government from employing thereafter a bank
deposit, a net worth, or some other additional theory of proof, which it
has in no sense renounced, as part of its case.
It
is also clear that the Government's employment here of the so-called
"bank deposit theory" of proof of unreported income was
correctly applied without any violence to defendant's rights. The plan
of proving the existence of a business and the practice of making of
deposits of business income into a bank account or accounts, and then
adjusting total deposits thereto to avoid inclusion of transfer,
redeposits, deposits otherwise explained, etc., and giving credit for
ascertainable expenses, deductions and exemptions, has been long
recognized. Morrison v. United States, 4 Cir., [59-2 USTC ¶9657]
270 F. 2d 1, cert. den. 361 U. S. 894; Gleckman v. United
States, 8 Cir., [35-2 USTC ¶9645] 80 F. 2d 394, cert. den.
297 U. S. 709. The law is likewise clear that, once the Government
proves unreported receipts having the appearance of income, and gives
the defendant credit for the deductions he claimed on his return, as
well as any others it can calculate without his assistance, the burden
is on the defendant to explain the receipts, if not reportable income,
and to prove any further allowable deductions not previously claimed. United
States v. Hornstein, 7 Cir., [49-2 USTC ¶9326] 176 F. 2d 217; United
States v. Bender, 7 Cir., [55-1 USTC ¶9142] 218 F. 2d 869, cert.
den. 349 U. S. 920; Elwert v. United States, 9 Cir., [56-1
USTC ¶9423] 231 F. 2d 928. The cases cited by defendant are not
inconsistent with these principles and the trial court's instruction
adopting these principles was thoroughly sound. The defendant here was
not called upon to come forward with evidence to rebut a presumption as
proscribed in Barrett v. United States, 5 Cir., 322 F. 2d 292,
but had the opportunity to prove any additional allowable deductions he
might have had to offset proven income or to explain why what appeared
to be income was not. Here it should be noted that almost two-thirds of
the income charged to defendant was, in fact, proved by the
specific-item method. It should be noted also, as the Government points
out, that Barrett was reversed by the Supreme Court sub nom.
United States v. Gainey, 380 U. S. 63, and hence is depreciated as
persuasive authority.
Defendant
argues as a paramount point that he was compelled to testify in
violation of his constitutional right not to do so. This point is
completely without merit, especially when viewed in relation to his
completely voluntary and unsworn "testimony" while handling
his own defense throughout the trial. As such, he told his life story,
as well as his whole defense that he had no profit from his law
practice, in his opening statement to the jury, frequently promising the
judge to prove his statements by evidence later. This was not done to
any substantial degree, but there is no question on this record that the
jury had the benefit of defendant's theory of defense and assertions of
the "facts" from his view-point from his own lips, repeatedly,
long before he took the stand. In his examination and cross-examination
of witnesses, defendant also frequently "testified" by unsworn
statements purporting to be facts. This amounts to voluntary testimony
and a waiver of the constitutional privilege not to testify. Redfield
v. United States, 9 Cir., [63-1 USTC ¶9345] 315 F. 2d 76. See,
also, U. S. ex rel. Miller v. Follette, 2 Cir., 397 F. 2d 363.
Defendant
then took the stand as a witness when his wife was not permitted to
testify about his checks which he had made out and collected for use as
evidence of expenses. He identified the checks and testified as fully as
he could about what they had been issued for as expenses of his law
practice in 1960. The cross-examination of defendant, which he contends
went beyond the scope of the direct testimony, was concerned with why
the checks hadn't been produced before, how they could be directly
related to his law practice, that they represented expenses actually
borne by the clients, etc. Defendant's constitutional privilege was not
asserted with respect to any question, and we do not believe that it was
violated by questions on cross-examination here, nor do we believe that
defendant was compelled to testify in any way by the Government or the
trial court. His right not to testify did not destroy the large deposits
proved by the Government nor permit him to offset them by incompetent
evidence. The dilemma of letting the Government evidence go unexplained
and without offset, or attempting to offset them by his own testimony,
which apparently was all he had, was no doubt a difficult choice, but it
was clearly a choice available to the defendant. The fact that he chose
to testify and his story didn't stand up very well before the jury,
after cross-examination, is hardly grounds for reversal of his
conviction.
Defendant's
argument that exclusion of most of his cancelled checks from evidence
denied him jury consideration of his defense is frivolous.
It
is clear that most of them were excluded because no proper foundation
had been laid to relate them to the case. All they tended to prove was
that defendant spent this money in 1960, but this is vastly different
from constituting evidence that such expenditures were proper offsets
against his law practice revenue in the computation of taxable income
for 1960. The record is clear that it would have been highly prejudicial
to the Government to admit the checks which were excluded if the jury
believed they had probative value as proof of law business expenses to
be offset against the receipts proved. They had no such value without
much more precise connection with the law practice through invoices,
files, book records, etc., none of which was offered. The defendant
simply cannot offer several hundred cancelled checks, claim they all
represent his law business expenses, and have them admitted into
evidence as such. The bulk of them were clearly properly excluded by the
trial court on the Government's objection of no proper foundation. See Anderson
v. United States, 8 Cir., 369 F. 2d 11, cert. den. 386 U. S.
976. Any lack of opportunity for the jury to consider the defense with
regard to these checks was due to defendant's failure to relate them to
the case under the rules of evidence.
Defendant's
final argument that he was denied due process of law embraces six
alleged errors of the trial judge during the trial.
The
first is that the judge did not comply with Title 18 U. S. C. §3500
(Jencks Act). As stated on page 28 of Defendant's Brief, after the IRS
agent in charge of the case had stated on cross-examination that he had
recommended criminal prosecution of defendant in a written report,
defendant asked for production of that report. The Court was advised by
Government counsel that "any statements concerning the
defendant" had been furnished, 4 and declined
to order the production of the entire report which was represented by
the Government to be "twenty-some volumes." The defendant
objected stating, "I feel that I am entitled to all written memos
by him regarding my case to the Internal Revenue, and why we are here
today." Clearly, defendant sought more of the Government files than
Jencks Act statements, and he made no request for an in camera
inspection of the alleged twenty volumes or any part thereof. It is the
Government's contention that such material did not constitute a
"statement" under §3500, and the two opinions of this court
in United States v. Keig support that view. (See [64-2 USTC ¶9563]
334 F. 2d 823, as well as 320 F. 2d 634.) Where the Government has
furnished what it believes are the required statements, and where the
defendant's ostensible goal is to obtain the written recommendation of
the witness rather than a factual statement, and especially in the
absence of a clear motion or request that he do so, supported by reason,
we do not conceive it the duty of the trial judge, under Title 18 U. S.
C. §3500, to peruse the entire multi-volume file or report of the
"agent in charge" in a case such as this to determine what
part or parts may relate to the subject matter of his testimony. Such
accumulated file or overall report may not be assumed to be a
"written statement" within the meaning of §3500(e)(1) on any
assumption that he has adopted it or the case wouldn't be in court. We
hold that the action of the trial judge here did not violate his duty
under the law relating to furnishing defendants with statements of
Government witnesses.
We
find no merit whatsoever in defendant's contention that he was
prejudiced because the Government elicited evidence that he did not turn
over his records or answer questions. He cites cases dealing with such
proof in relation to the Fifth Amendment right not to testify which are
wholly inapposite here in view of defendant's testimony as treated
above. Likewise, we find no merit in defendant's suggestion that the
court's sustaining of a Government objection to the question, "Does
the Government, the Internal Revenue, have some kind of blacklist for
anybody who may testify against them?", of a former Internal
Revenue employee who said he was reluctant to testify without checking
his position with regard to conflict of interest. The record makes
abundantly clear that this question by defendant was objectionable as
leading his own witness, and highly prejudicial as such. Defendant did
not pursue the matter in any other manner at the trial, and it is hardly
to be assumed that this witness or any other would have testified to any
such "blacklist" when the word "list" was used only
by defendant himself and the witness clearly explained that his own
concern was simply possible conflict of interest.
Defendant's
fourth alleged trial court error is the admission of Government summary
sheets into evidence with caption "Total Net Unreported
Income," which is called "irreparable prejudice." While
the observation in Lloyd v. United States, 5 Cir., [55-2 USTC ¶9665]
226 F. 2d 9, 17, cited by defendant is thoroughly sound, that such
sheets should be factual and should not be encumbered unnecessarily with
impressive conclusionary captions, it is noted that six such captions
possibly so characterized in that case were held not to be reversible
error. We do not think the captions here were any more conclusionary or
impressive than required to make the summaries understandable. It is
noted that they were amply justified by the testimony which laid the
foundation for their admission.
Defendant
sought to impeach, through reputation evidence, a private lawyer who
testified for the Government about his association with defendant.
Another lawyer, who said he knew them both. Testified for defendant that
defendant's reputation was good for "honesty, integrity,
veracity," and was then asked by defendant, "If I asked you
the very same questions regarding * * * (the government witness) * * *,
what would your answers be?" The court sustained Government
objection to the question, and defendant asserts here that this deprived
him of the opportunity of impeaching a chief witness against him. Again
defendant did not pursue the matter further at the trial, by other
questions or otherwise; and it is apparent that the trial court's ruling
was correct on the one question asked because "the very same
questions" could not be applied to someone else with intelligible
results. On its face it is more than one question, and what it embraces
by way of knowledge of the witness concerning the reputation of the
other person, place of residence of the other person, etc., is
incomprehensible. Defendant's failure to follow up with other efforts to
make the point cannot render improper a proper ruling by the trial
judge. This is true, even assuming, as defendant argues, that he should
have been permitted to elicit reputation evidence by way of impeachment
of a Government witness. We do not need to decide that question in this
context, and we do not decide it, because the trial court simply did not
deny defendant such an opportunity by a proper ruling on objection to
one clearly improper question.
Defendant's
final point is that plain error resulted from a question by Government
counsel on cross-examination of one of defendant's reputation witnesses
whether he had heard of defendant's indictment for grand theft at a time
which was five months after the indictment in this case. The trial judge
sustained defendant's objection to the question, it was not answered by
the witness, and, on defendant's request, the judge instructed the jury
to disregard the question. Defendant did not ask for a mistrial at the
time, but argues now that he was so unfairly prejudiced by the question
in the eyes of the jury as to have required a mistrial and here to
require reversal for a new trial. It is argued that this is especially
true in view of the testimony of one of defendant's clients who
testified that he had not been informed by defendant of, or received the
proceeds of, a case settlement. We do not agree.
It
appears that the client mentioned was called by the Government to prove
specific income to defendant in 1960, as were other clients, either in
person or by stipulated testimony. The client testified that he did not
know about or receive his share of his case settlement, but on
cross-examination that impression was corrected when defendant produced
a letter from himself to his client reporting settlement and offering
distribution, which letter had been returned to defendant by the post
office marked "Unclaimed." This must certainly also have
tended to discredit other statements by the witness concerning
defendant's failure to keep him informed.
Regardless
of whether the question concerning subsequent indictment was proper or
not, as the Government argues it was on the basis of Michelson v.
United States, 335 U. S. 469, this court has held, even where a
motion for mistrial was made and denied by the trial court, that where
there is also clear evidence of defendant's guilt, prompt action by the
trial court in striking and instructing the jury to disregard
prejudicial testimony of a post-arrest statement by defendant precludes
reversal, which would have to be based on an assumption that the jury
decided the case on evidence which was stricken rather than the sound
evidence before it. United States v. Becera-Soto, 7 Cir., 387 F.
2d 792, cert. den. 391 U. S. 928. Assuming that the question
would be prejudicial if allowed to stand without proper limiting
instruction to the jury, there is ample evidence here that defendant
wilfully failed to report substantial income for the year 1960, the
trial court did promptly instruct the jury to disregard the question
objected to, which was not answered, defendant made no motion for a
mistrial at the time, and there appears less basis here than in Becera-Soto
to assume that the unanswered question could have affected the jury
verdict sufficiently to justify reversal.
The
cases cited by defendant on this point are inapposite in that they all
involve actual testimony or other evidence which was not stricken.
We
have found no error in this record in any wise sufficient to justify
reversal of the judgment of conviction.
It
is accordingly AFFIRMED.
1
Judge Morgan is sitting by designation from the Southern District of
Illinois.
2
The trial court required the Government to elect one of four counts for
trial.
3
Five checks paid to defendant in 1960 for services as a saxophonist in
an orchestra, but not shown on his return, were also received into
evidence.
4
Pursuant to court order, this was done on the day before the Government
witness testified, which goes beyond the requirements of §3500 for
defendant's convenience (Tr. p. 96).
[69-2 USTC
¶9547]United States of America, Plaintiff-Appellee v. Harry Brook,
Defendant-Appellant
(CA-5), U. S. Court of Appeals,
5th Circuit, No. 26981, 414 F2d 804, 7/23/69, Affirming an unreported
District Court decision
[Code Secs. 7201 and 7203]
Crimes: Failure to file return: Filing false return: Hearsay
evidence: Evidence of prior failures to file returns.--Taxpayer's
conviction of willful failure to file an income tax return in 1959 and
of attempted evasion by filing a false income tax return in 1960 was
upheld. The admission of certain hearsay testimony, although held to
have been error, did not so affect the jury's verdict as to require
reversal. Further, the evidence reflecting taxpayer's failure to file
returns in 1944 through 1959 was limited by the trial court's
instructions to the jury that this evidence related only to the count
alleging the failure to file a return and, therefore, it did not
prejudice the jury's consideration of his intent in 1960.
William
M. Meadows, Jr., United States Attorney, William G. Earle J. V.
Eskenazi, Assistant United States Attorney, Miami, Fla., for
plaintiff-appellee. E. David Rosen, 310 Biscayne Bldg., 19 W. Flagler
St. Miami, Fla., Richard M. Gale, 420 Biscayne Bldg., 19 W. Flagler St.,
Miami, Fla, for defendant-appellant.
Before
BELL and GOLDBERG, Circuit Judges and ATKINS, District Judge.
PER
CURIAM:
Brook
was convicted on one count of willful failure to file an income tax
return in 1959 and one count of attempted evasion by filing a false
income tax return in 1960 under Title 26 U. S. C. §7203 and §7201
respectively. We affirm these convictions.
Brook's
primary complaint on this appeal is the action of the trial judge in
admitting certain hearsay testimony. The testimony concerned appellant's
failure to file income tax returns in the years 1944-1950 and his living
expenses during that period. As conceded by the appellee, the admission
of this testimony was clearly erroneous. However, in view of Kotteakos
v. United States, 328 U. S. 750, 90 L. Ed. 1557 (1945) we find that
this error did not so affect the jury's verdict as to require reversal.
There was competent evidence of Brook's failure to file returns in the
years 1950-1958. Further, a certified public accountant testified that
Brook told him in 1960 that he had income in 1951 thru 1958 and wanted
returns prepared for those years. It is obvious that there was ample
evidence, other than that concerning 1944-1950 from which the jury could
infer that Brook willfully failed to file in 1959.
Relying
on Spies v. United States [43-1 USTC ¶9243], 317 U. S. 492, 87
L. Ed. 418 (1943) and United States v. Long [58-2 USTC ¶9621],
257 F. 2d 340 (3rd Cir. 1958), Brook attacks his conviction for evasion.
He argues that the admission of the evidence reflecting his failure to
file in 1944-1959 prejudiced the jury's consideration of his intent in
1960. We reject this contention. The trial judge clearly instructed the
jury that this evidence related only to Count I (failure to file
returns) and we hold that his actions in this regard are sufficient to
withstand the scrutiny of Bruton v. United States, -- U. S. --,
20 L. Ed. 2d 476.
Affirmed.
[69-2 USTC
¶9503]United States of America, Plaintiff-Appellee v. Archie L.
Wainwright, Defendant-Appellant
(CA-10), U. S. Court of Appeals,
10th Circuit, No. 88-68, 413 F2d 796, 6/30/69, Affirming unreported
district court decision
[Code Sec. 7201]
Crimes: Willful attempt to evade tax: Understatement of cash rebates:
Defenses: Evidence: Trial.--The taxpayer's conviction for willfully
failing to report income was affirmed. The unreported income consisted
of suppliers' cash discounts. Although discounts are normally considered
as reductions of expenses, rather than additions to gross income, the
government was not required to prove the correct expense figure for the
purchases, where it built its case around proving the correct amount of
the discount receipts. The trial court properly excluded the testimony
of an expert witness that involved (1) an opinion concerning the issue
before the jury; (2) the effect of alleged omissions of deductions,
where the witness had no personal knowledge of the deductions; and (3)
the character and sufficiency of the taxpayer's accounting records in a
general way. The trial court also properly limited cross-examination of
an Internal Revenue agent that pertained to the agent's involvement in
the separate potential civil aspect of the case. Nor did the trial court
err when it instructed the jury that the taxpayer could be assumed to
have knowledge of the contents of the returns that he filed if the jury
found he signed them. Taken as a whole, the Tenth Circuit found that
instructions were accurate and contained no errors. The Tenth Circuit
also sustained the trial court's denial of admission of lie detector
tests offered by the taxpayer as evidence. The taxpayer laid no
predicate for the admissibility of this evidence, in that there was no
testimony by an expert witness as to the probative value of the test nor
its reliability. The taxpayer's right against self-incrimination was not
violated when the trial court allowed the government to introduce
schedule C's prepared by the taxpayer and given to his accountant. The
schedules were obtained from the accountant by subpoena.
Lawrence
M. Henry, United States Attorney, Denver, Colo., Joseph M. Howard,
Richard M.
Rob
erts, Acting Assistant Attorney General, Richard B. Buhrman, Attorney
for Department of Justice, Washington, D. C. 20530, for
plaintiff-appellee.
Rob
ert D. Inman and Melvin A. Coffee of Inman, Flynn & Coffee, 690
Capitol Life Center, Denver, Colo., for defendant-appellant.
Before
MURRAH, Chief Judge, PHILLIPS, Senior Circuit Judge, and SETH, Circuit
Judge.
MURRAH,
Chief Judge:
The
appellant, Archie L. Wainwright, was indicted on four counts for
willfully attempting to evade federal income taxes for the years 1960,
1961, 1962, and 1963 in violation of Section 7201 of Title 26 United
States Code. 1 On motion
for acquittal on all counts, the trial judge struck the count relating
to 1960. He was convicted by a jury on the remaining counts and appeals
from the sentencing judgment, alleging numerous errors which we shall
consider as developed by the facts.
During
the period involved, Wainwright and his wife operated the Park Oil
Company as individual proprietors. The company owned and operated
several gasoline service stations. Each station was run by a mannager
who received a commission on gasoline sales. Wainwright had several
large gasoline suppliers. He paid the full purchase price of the
gasoline monthly and received back from the supplier a discount or
rebate check. The amount of this purchase discount depended on the
individual supplier and the volume of gasoline purchases.
When
the Internal Revenue Service agent checked the taxpayer's books he found
that the gross income per the return exceeded the gross income per the
accounting records. Wainwright explained this discrepancy to the agent
by producing a "black book" he had not earlier shown the
agent. This record contained lists of purchase discount checks for the
years in question and for each year corresponded to the difference noted
in gross income. Except for minor adjustments, all other items on the
returns corresponded with the accounting records. But when the agent
checked the purchase discounts with Wainwright's suppliers discrepancies
developed. The crux of the government's case, therefore, was that
Wainwright willfully understated his purchase discounts with consequent
understatement of taxable income for each of the prosecution years.
[Burden of Proof]
This
method of proof is attacked for failure to prove the "corpus
delecti" of the crime, i.e. overstatement of the amount of
gasoline purchased with consequent understatement in taxable income. The
specific error urged in this regard is that since purchase discounts are
properly deductions from merchandise expense rather than additions to
gross income, the burden was on the government to prove the correct
amount of the gasoline purchases. Admittedly, the government made no
attempt to verify purchases from suppliers other than on a spot check
basis since this item agreed with Wainwright's books and the I. R. S.
apparently had no reason to question its correctness. The government
refers us to that line of cases holding that the I. R. S. has no burden
to show that an accused tax evader had no offsetting expenses. See United
States v. Bender [55-1 USTC ¶9142], 218 F. 2d 869 (7th Cir. 1955)
cert. den. 349 U. S. 920 (1955); United States v. Stayback [54-1
USTC ¶9345], 212 F. 2d 313 (3rd Cir. 1954) cert. den. 348 U. S. 911
(1955); and Dillon v. United States [55-1 USTC ¶9131], 218 F. 2d
97 (8th Cir. 1955) cert. dismissed 350 U. S. 906 (1955). The taxpayer's
response is that since I. R. S. regulations, 26 C. F. R. §1.471-3(b),
and proper accounting practices consider rebates a reduction in an
expense item it was thereby incumbent on the government to show the
correct expense figure.
We
think appellant's argument puts too great an emphasis on accounting
factors. By comparing Wainwright's books with his suppliers' records,
the I. R. S. agent was able to show that the rebate account, as included
in gross income, was substantially less than the figures reflected in
the suppliers' records. The government's case was built around proving
the true rebate receipts. Having proved this, the factum of a
substantially understated return was established. It was not incumbent
on the government to defense its own case by negating the existence of
additional unreported gasoline purchases. We think the government may
safely rely on the statements in the taxpayer's return and determine its
correctness by reference to the books and records upon which the return
was made and any other data which may affect the integrity of the
reported taxable income. The taxpayer's thesis would require the
government to prove not only that some figure was incorrect but that all
the others were correct--clearly an intolerable burden.
[Testimony of Witness]
The
next allegation of error refers to the exclusion of certain testimony of
Wainwright's expert witness, Mr. Marvin Stone. Mr. Stone was called and
qualified as an expert witness in the field of accounting but was
prevented from answering several questions directed by Wainwright's
counsel, the first of which occurred in this way: Mr. Glenn Smith, a
special revenue agent for the I. R. S., was called and qualified as an
expert witness for the government. He testified that he compared the
taxpayer's records against his books for the years in question and found
the discrepancies here involved. In relation to the rebate figure, Smith
testified that while it should be treated as a reduction in expenses, it
made no difference in the taxable income whether reported properly or as
an item of gross income. The taxpayer's expert agreed with this
conclusion.
On
direct examination, Wainwright's counsel asked Mr. Stone: "If an
accountant were to indicate that purchase discounts could be reported
[either as part of gross income or as part of expenses] would you have
any opinion regarding the qualifications of that particular
[accountant]". On the government's objection, the trial court
rightly prevented counsel from finishing the questions and the witness
from answering. While it is perfectly proper to impeach an adverse
expert witness by contrary testimony of another expert, it is improper
to seek an opinion on the very matter which the jury alone must judge, i.e.
which expert they wish to believe. Moreover, in reviewing these alleged
errors we are guided by the principle that the admission of evidence
lies largely in the trial court's discretion and will not be set aside
on appeal except for a clear prejudicial abuse of this discretion. Leavitt
v. Scott, 338 F. 2d 749 (10th Cir. 1964).
The
taxpayer also attempted to prove that he had unreported expenses which
would offset the alleged understatement of income. He testified
generally that he had not reported all expenses and specified that
dependent deductions relating to his children by a former marriage,
entertainment expenses, and parking expenses had not been reported.
Outside a few minor examples, however, he was unable to testify as to
exact amounts or occasions. He then attempted to have Mr. Stone testify
as to what effect the omission of these deductions would have had on his
taxable income. The trial judge refused to permit this, saying,
"This expert cannot testify to matters of which he does not have
knowledge, either that he obtained through some documents or that has
been established." We agree with the trial judge that the taxpayer
failed to lay a proper foundation for this type of questioning.
The
last and most serious challenge to the limitation placed on the
examination of the taxpayer's expert concerns the character and
sufficiency of Wainwright's accounting records. He offered to prove, by
his expert witness, that "The kinds of records which would have
been necessary to accurately reflect income for one reason or another
were not kept, . . . what types of ledgers, what types of cost control,
would have been necessary to accurately reflect and present summary and
cost analyses for him so that accurate income figures could have been
kept," and "That it was an accounting impossibility for him to
accurately keep the records which would enable him . . . to accurately
and completely reflect all of his income." On objection by the
government, the trial judge excluded this testimony, stating, "I
don't think that's a defense."
On
appeal, Wainwright argues that the lack of accounting records sufficient
to properly and accurately reflect his income was evidence for the jury
on the issue of willfulness and actually negated any intent on his part
to evade the income taxes. The government's answer, without the benefit
of any citation of authority, is that the "black book" method
of recording rebate checks was sufficiently accurate for tax purposes
and, if properly maintained, would have reflected the true amounts of
purchase discounts. Thus, they argue, the failure to accurately maintain
this record was evidence for the jury of willfulness and evidence as to
what he should have done in a general way is irrelevant.
In
Haigler v. United States [49-1 USTC ¶9171], 172 F. 2d 986, 987
(10th Cir. 1949) we noted that whenever willfulness or bad intent is an
essential element of the crime, as it is here, "the accused may not
only directly testify that he had no such motive or purpose, but he may,
within rational rights, 'buttress such statement with testimony of
relevant circumstances.' Miller v. United States, 120 F. 2d 968,
970 (10th Cir. 1941)." See also McDonald v. United States
[57-2 USTC ¶9802], 246 F. 2d 727 (10th Cir. 1957) cert. den. 355 U. S.
863 (1957) and Petersen v. United States [59-2 USTC ¶9538], 268
F. 2d 87 (10th Cir. 1959). And cf. McCarty v. United States [69-1
USTC ¶9322], -- F. 2d -- (10th Cir. 1969). But none of these cases
dealt with the issue of whether an accountant may comment on the
deficiencies of a taxpayer's books to show the lack of intent, and no
such cases were cited to us.
Our
own research has disclosed a paucity of cases, none directly in point.
In Fischer v. United States [54-1 USTC ¶9370], 212 F. 2d 441
(10th Cir. 1954) we held that a booklet on taxation written by an
attorney-taxpayer was admissible against him to show willfulness. But
the closest case to ours is the Ninth Circuit case of Kohatsu v.
United States [65-2 USTC ¶9715], 351 F. 2d 898 (9th Cir. 1965). In
this case, the taxpayer sought to prove by an accountant that in
maintaining his accounting records the taxpayer had made many mistakes.
The taxpayer himself had already testified that these mistakes had been
made and the court held that no expert testimony was needed to show the
"fact" of the mistakes and that "The accountant's opinion
or conclusion that the errors resulted from appellant's carelessness,
without intent to evade his income tax, would have been improper as
going beyond the scope of his expert competence." [footnotes
omitted]. Cf. Bostwick v. United States [55-1 USTC ¶9170], 218
F. 2d 790 (5th Cir. 1955) and Blumberg v. United States [55-1
USTC ¶9437], 222 F. 2d 496 (5th Cir. 1955).
In
our case, however, the taxpayer did not attempt to elicit an expert
opinion on his subjective good faith, but rather that his deficient
accounting practices were objective evidence that he did not willfully
evade the income taxes. But the gravamen of this alleged offense was the
failure to report all purchase discounts. As the court said in Bostwick
v. United States, supra p. 793, "The most adequate method of
accounting will not clearly or truly reflect income unless the items of
receipt and expenditure are truthfully entered." And here the
character of his general accounting system is too remote from his
failure to accurately maintain the "black book", to be
relevant to the issue of willfulness. Surely if Wainwright had recorded
all such rebates in his "black book" no understatement would
have occurred and whether or not his failure to do so was willful is for
the jury to decide in light of all the circumstances.
Appellant
next argues that the trial judge unduly limited his cross-examination of
the government's expert witness. Specifically, he complains that he was
not permitted to probe the revenue agent's familiarity and
"understanding of the relationship between the civil and criminal
investigatory arms of the Internal Revenue Service." Apparently the
purpose of this attempted probe was to ascertain the witness'
credibility as an expert. The trial court expressed a lack of
comprehension as to exactly what Wainwright was attempting to attack
with his offer of proof and asked Wainwright's counsel specifically what
he wanted to ask. After a lengthy list of questions, the court ruled
that most of what he wanted to ask would be permitted but that the
agent's involvement with the separate potential civil aspect of the case
would be excluded.
Neither
the record nor appellant's brief give us any hint as to the relevancy of
probing the expert's familiarity with the possible civil action to
collect back taxes and penalties. Certainly, counsel is permitted broad
discretion in cross-examining an expert witness, but the trial court
also has broad discretion in the conduct of the trial and we will not
upset its evidentiary rulings relating to a witness' credibility without
a clear showing of prejudice. See Leavitt v. United States, supra.
We can find no error in this regard.
[Jury Instruction]
Wainwright
also complains of an instruction given by the trial judge. 2 He argues
the instruction that if the jury found that he signed the returns they
could infer that he had knowledge of the contents of the returns,
erroneously shifted the burden to him on the issue of willfulness. 3 Again the
government answers without authority.
All
instructions must be read as a whole and exceptions to a part can only
be considered as it related to the whole. Haskell v. United States
[57-1 USTC ¶9553], 241 F. 2d 790, 794 (10th Cir. 1957) and Devine v.
United States, 403 F. 2d 93 (10th Cir. 1968). In viewing the
challenged instruction in this light we find nothing more than proper
comments made to guide the jury in their deliberations. See Elbel v.
United States, 364 F. 2d 127, 136 (10th Cir. 1966). Advising a jury
they may infer a logical consequence from a demonstrated fact in no way
shifts the burden to the accused. The jury was told the taxpayer must
have a specific intent to evade the tax, that per 26 U. S. C. §6064
they could accept the return as being signed by the taxpayer unless
evidence showed the contrary, that they could believe from his signing
of the return that he knew its contents, but that to convict him they
must find "a fraudulent return was filed with a specific
intent" to evade taxes lawfully due. We find no error in the
instruction given.
[Lie Detector Test]
Wainwright
further complains of the exclusion of evidence that he had taken a
polygraph or "lie detector" test, furnished the government
with the results and offered to take another
admin
istered by a government expert. 4 The primary
purpose for this proffer was not as direct proof of his innocence but to
reflect his subjective intent--an essential element of the crime
charged. Counsel for Wainwright, with admirable candor, admits no
federal cases support him and notes specifically a case from this
circuit holding contrary to his position. Marks v. United States,
260 F. 2d 377 (10th Cir. 1958) cert. den. 358 U. S. 929 (1959).
Nevertheless, we are strongly urged to reconsider and at least modify
the ruling in Marks.
The
thrust of Wainwright's argument is that in the 10 years since Marks,
the "state of the art" of polygraph testing has improved to
the point that the accuracy of such tests equals that of such commonly
admissible evidence as results of handwriting tests, psychiatric opinion
evidence, and alcohol blood tests. But leaving to one side the numerous
reasons advanced for rejecting polygraph results, 5 the argument
has no force in our case.
Despite
the periodical literature cited relating to the reliability of polygraph
testing, Wainwright laid no predicate for the admissibility of this
evidence. Without doubt, matters of factual proof must keep pace with
developing scientific standards. And rules of evidence exist to assist
the jury in arriving at factual conclusions. But no judgment can be made
without relevant expert testimony relating to the probative value of
such evidence. Wainwright totally failed to supply the condition noted
by Wigmore that before such evidence be admitted an expert testify
"that the proposed test is an accepted one in his profession and
that it has a reasonable measure of precision in its indications."
3 Wigmore on Evidence (3rd Ed. 1940) §990. The trial court properly
excluded it even though in a proper case it may be admissible.
The
final error urged by Appellant is that evidence was admitted by the
trial court which violated his right against self-incrimination
preserved by the Fifth Amendment. The government called Mr. John Larrow
who had prepared the challenged returns for the years 1961 and 1962. Mr.
Larrow testified that he prepared the returns partially from a
"schedule C" 6 prepared by
Mr. Wainwright. Apparently under subpoena duces tecum, Mr. Larrow had
furnished the government with the originals of these schedule C's as
penciled in by Mr. Wainwright. These two items were properly identified
and introduced into evidence the morning of the first day of trial
without objection. Mr. Larrow transferred these penciled figures to the
actual return as filed with the result that the filed returns include a
schedule C identical with the challenged exhibits. That afternoon,
counsel for Wainwright orally moved that the exhibits be stricken on
Fifth Amendment grounds. The motion was denied.
The
essence of the argument is that the schedule C's as prepared by
Wainwright were compulsively obtained from Larrow by subpoena and
Wainwright was thus compelled to give evidence against himself. Without
saying so, he seems to invoke the rationale of Leary v. United
States, 395 U. S. 6 (1969) and United States v. Covington, --
U. S. -- (1969). See also United States v. Freeman, -- F. 2d --
(10th Cir. 1969). Before discussing this argument it should be
understood that Wainwright does not claim an accountant-client privilege
as to confidential communications. He realizes that such a privilege is
not recognized in federal court. Rule 26 Fed. R. Crim. P., 18 U. S. C.; F.
T. C. v. St. Regis Paper Co., 304 F. 2d 731 (7th Cir. 1962); United
States v. Bowman, 358 F. 2d 421 (3rd Cir. 1966); United States v.
Balistrieri [68-2 USTC ¶9641], 403 F. 2d 472 (7th Cir. 1968)
vacated on other grounds 395 U. S. 710 (1969); and cf.
Preliminary Draft of Proposed Rules of Evidence for the United States
District Court.
No
in depth discussion of the relevant case law is necessary to dispose of
this alleged error. Mr. Larrow testified that Mr. Wainwright had given
him the information on the return and that he had supplied this
information on a penciled-in schedule C. No error is asserted as to this
testimony and none can be found. Thus the alleged self-incrimination
must proceed from the prejudicial effect of the jury's actually seeing
the penciled-in schedule C's to which the accountant had already
testified. But such evidence is merely cumulative of matters already in
evidence and could not affect the substantial rights of the accused. The
purpose of the testimony was to show that Mr. Wainwright furnished the
erroneous information as to trade discounts or rebates. There was no
compulsory self-incrimination as in Leary, Covington and their
progenitors.
The
remaining theories advanced by Appellant have been examined and found to
be without merit.
THE
JUDGMENT IS AFFIRMED.
1
§7201 reads: "Any person who willfully attempts in any manner to
evade or defeat any tax imposed by this title or the payment thereof
shall, in addition to other penalties provided by law, be guilty of a
felony and, upon conviction thereof, shall be fined not more than
$10,000, or imprisoned not more than 5 years, or both, together with the
cost of prosecution."
2
It does not appear in our record whether Wainwright properly objected to
the challenged instruction. Rule 30, Fed. R. Crim. P., 18 U. S. C. But
since the government does not raise the question, we shall treat the
issue as properly preserved.
3
The challenged instruction appeared in context as follows:
"Now,
if a person in good faith believes that he has paid all the taxes that
he owes, he cannot be guilty of criminal intent to evade the tax, but if
a person acts without reasonable grounds for belief that his conduct is
lawful, it is for the jury to decide whether or not he acted in good
faith or whether he wilfully intended to evade the tax. This issue of
intent as to whether the defendant wilfully attempted to evade or defeat
the tax is one which the jury must determine from consideration of all
of the evidence in the case bearing upon the defendant's state of mind.
"Now,
the pertinent section of the Internal Revenue Code does provide the fact
that an individual's name as signed to a return shall be prima facie
evidence for all purposes that the return was actually signed by him,
which is to say unless and until out weighed by evidence in the case
which leads the jury to a different or contrary conclusion, the
presumption is that a filed tax return was in fact signed by the person
whose name appears to be signed thereto.
"Now,
wherever the facts appear beyond a reasonable doubt from the evidence in
the case that the accused had signed his tax return, a jury may draw the
inference and find that the accused had knowledge of the contents of the
return.
"If
you find beyond a reasonable doubt from the evidence in the case that a
fraudulent return was filed with a specific intent on the part of the
defendant here to evade or defeat a substantial portion of the tax
lawfully due from him and that this was done wilfully, the offense was
complete as soon as the fraudulent return was wilfully filed."
4
Wainwright's proffer to the trial court outside the presence of the jury
was:
"Your
honor, we wish to make two offers of proof. The first one is that the
defendant would testify, if allowed, that he took a polygraph test to
the Intelligence Division [of the I. R. S.] and that he offered to take
another test and have the FBI or federal officials
admin
ister said polygraph test."
5
See Tyler v. United States, 193 F. 2d 24 (D. C. Cir. 1952) cert.
den. 343 U. S. 908 (1952); Sheppard v. Maxwell, 346 F. 2d 707
(6th Cir. 1965); Aetna Insurance Co. v. Barnett Brothers, Inc.,
289 F. 2d 30 (8th Cir. 1961); United States v. Tremont, 351 F. 2d
144 (6th Cir. 1965); United States ex rel. Sadowy v. Fay, 189 F.
Supp. 150 (D. C. N. Y. 1960); United States v. Stromberg, 179 F.
Supp. 278 (D. C. N. Y. 1960); and United States ex rel. Szocki v.
Cavell, 156 F. Supp. 79 (D. C. Pa. 1957).
And
for numerous state cases dealing with the topic see 3 Wigmore on
Evidence (3rd Ed. 1940) §999 footnote 2, 1964 Supplement.
6
A schedule C is a form for the reporting of income and expenses by an
individual in the conduct of a business or profession.
[69-2 USTC
¶9487]United States of America, Plaintiff-Appellee v. Guido Fidanzi,
Defendant-Appellant
(CA-7), U. S. Court of Appeals,
7th Circuit, No. 16984, 411 F2d 1361, 6/23/69, Aff'g unreported District
Court decision
[Code Sec. 7203]
Crimes: Failure to file returns: Admissibility of evidence: Trial:
Constitutional questions.--The taxpayer's convictions for filing a
fraudulent income tax return and for wilful failure to file returns were
affirmed. Improper statements made by the prosecutor were not grounds
for reversal where the evidence conclusively proved his guilt. Testimony
by a witness was not rendered inadmissible because it tended to show
that the taxpayer was guilty of extortion. A special agent was not
required to warn the taxpayer of his constitutional right against
self-incrimination where (1) the agent truthfully told the taxpayer that
his investigation involved another taxpayer, (2) he was not in custody
at the interview in the IRS office, and (3) the taxpayer had counsel
with him at the interview. The court rejected the taxpayer's argument
that the dismissal of indictments against persons who have been victims
of eavesdropping is the only remedy to prevent this "evil."
Thomas
A. Foran, United States Attorney, Chicago, Ill., for plaintiff-appellee.
Gerald M. Werksman, 30 N. LaSalle St., Chicago, Ill., for
defendant-appellant.
Before
CASTLE, Chief Judge, KILEY and FAIRCHILD, Circuit Judges.
FAIRCHILD,
Circuit Judge:
Guido
Fidanzi was found guilty by a jury of filing a fraudulent income tax
return for 1961 and of wilful failure to file returns for 1963, 1964,
and 1965.
Fidanzi
does not challenge the sufficiency of the evidence, but claims improper
argument of counsel, improper admission of certain evidence, refusal to
suppress a statement made to a special agent, and wiretapping which
requires dismissal.
1.
Improper argument. The government proved receipt by Fidanzi in
the years in question of substantial amounts of cash, and showed the
nature of the transaction giving rise to each payment. The only receipt
not obtained by deception was $1,300 won at a race track in 1963. The
other fourteen transactions were swindles of one sort or another.
Typically the victim paid cash in advance for a promised quantity of
merchandise which was never delivered or for commissions for obtaining
loans or investment funds which were never brought forward. Or a victim
with standing at a bank was persuaded to cash a check which turned out
to be worthless. The amounts involved in each transaction varied, but
ranged up to $8,000.
In
order to prove the charges, it was appropriate to prove not only the
receipt of funds, but also the character of the transaction to the
extent necessary to establish that the money received was income. In
addition the circumstances of the transaction may have some bearing on
the question of intent involved in the failure to report the income. The
prosecutor could properly outline the anticipated evidence in his
opening statement, and, in his closing argument, remind the jury of the
evidence which had been produced and attempt to persuade them to draw
legitimate, relevant inferences.
The
income which Fidanzi had received was not of the character ordinarily
earned in employment or derived in the ordinary course of business
activity. It resulted from swindling and confidence games carried on as
a means of livelihood. In one instance the evidence could legitimately
be said to show extortion. It was not out of bounds for the prosecutor
to point out in argument to the jury that the receipts from this type of
activity, though extraordinary, was income nonetheless for the purpose
of the case on trial.
We
find little if anything to criticize in the prosecutor's opening
statement. We think he did succumb, to a decree, in his closing
argument, to the obvious temptation to arouse sympathy for Fidanzi's
victims and to play upon the unsavory character of the activities. Some
of his remarks, by reason of repetition and emphasis of the fact that
Fidanzi had cheated his victims, and practiced extortion, exceeded in
degree, at least, what would be deemed legitimate for the purpose of
arguing the existence of fraudulently unreported income in 1961 and
sufficient income in the other years so that the duty to file and
wilfulness of the failure were established.
Fidanzi
was entitled to a fair trial and a verdict which was not induced by
appeals to sympathy, passion, and prejudice. If this were a close case
in terms of the appropriate issues, Fidanzi's claim of improper argument
could not be overlooked. The case, however, is a very strong one. None
of the material evidence is in dispute, and in many of the transactions
there is documentary or other corroboration for the critical testimony.
Our reading of the record has convinced us that the jury could not have
conscientiously decided to acquit, and that there is no reasonable
possibility that the verdict resulted from an appeal for sympathy for
the victims or disapproval of Fidanzi's way of life.
2.
Claim that evidence was improperly admitted. One witness
testified that Fidanzi told the witness that one Cioffi had made a deal
for 40 television sets for a total of $8,000. The witness said he did
not have the money. Fidanzi said the deal had already been made and the
witness "would have to come up with the $8,000." Later they
talked by telephone. When asked to relate the conversation, the witness
quoted Fidanzi as saying "a deal was a deal, and if I didn't want
to find myself in a ditch alongside of Cioffi, that I would go along
with the deal that Cioffi had made."
A
motion to strike was made and overruled. The witness continued and
testified that he told Fidanzi he would come up with $4,000 and take
half the sets. After the $4,000 was paid, Fidanzi called again,
threatening the loss of the first $4,000 if the second was not paid. The
witness paid again, but never got the sets.
It
is argued that the testimony of the threat about the ditch was
inadmissible because it was evidence of the crime of extortion. The
conversation, however, was an integral part of the transaction giving
rise to the payment of money to Fidanzi, and clearly relevant to the
issues in the case. It was not rendered inadmissible because it tended
to show Fidanzi guilty of some other crime. 1
3.
The statement to an IRS special agent. A special agent
interviewed Fidanzi on
June 14, 19
65 and was permitted to testify to statements by Fidanzi at that time.
The agent did not warn him concerning the possible use of his statements
to incriminate him.
Fidanzi's
position is "that a taxpayer is entitled to a warning against
self-incrimination regardless of who the principal target of a criminal
investigation is when he is invited to give answers at an interview with
a Special Agent of the Internal Revenue Service."
If
there be any merit to the stated proposition in this area of the law,
there can be none where the combination of facts is true, as in this
case, as follows: (1) the special agent truthfully told defendant that
the investigation related to the tax liability of another taxpayer, (2)
defendant was not in custody, though present at an IRS office, and (3)
defendant had counsel with him at the time of the interview.
4.
Trespassory eavesdropping. Before trial the government turned
over to defense counsel five logs containing eavesdropping material
pertaining in varying degrees to Fidanzi. In presenting its case the
government put on evidence in each instance to show that its evidence
was not obtained as a result of the eavesdropping. Although trial
counsel indicated the absence of taint had not been adequately proved,
the proof was deemed sufficient by the judge, and on appeal that
contention seems to have been abandoned. His position on appeal is that
dismissal of indictments against persons who have been the victims of
eavesdropping is the only way in which the evils of eavesdropping can be
curbed; that the government may not have turned over all the logs
affecting a defendant; and that dismissal should be ordered without
regard to whether convictions can be traced directly to the wiretapping
results which are made available.
We
are not persuaded that so drastic a rule is required.
The
judgment is affirmed.
1
See U. S. v. Skidmore (7th Cir., 1941), [41-2 USTC ¶9716] 123 F.
2d 604, cert. den. 315 U. S. 800; U. S. v. Williams (4th Cir.,
1966), [66-1 USTC ¶9265] 355 F. 2d 516, 517.
[69-1 USTC
¶9423]United States of America, Plaintiff-Appellee v.
Rob
ert E. Rath, Defendant-Appellant
(CA-6), U. S. Court of Appeals,
6th Circuit, No. 18,545, 1/8/69, Aff'g unreported District Court
decision
[Code Sec. 7201]
Crimes: Tax evasion: Grand jury indictment: Evidence.--A tax
evasion indictment rendered by a grand jury was not invalidated by the
presence of an unauthorized person in the courtroom where the
interruption was unintentional and the proceedings were suspended during
the short interruption. Also, there was no prejudicial error at the
trial due to the receipt in evidence of a summary exhibit offered by an
expert whose qualifications were not challenged and who was available
for cross-examination. The exhibit was based upon evidence previously
received and the trial judge properly instructed the jury concerning it.
Bernard
J. Stuplinski, United States Attorney, John G. Mattimoe, Assistant
United States Attorney, 212 U. S. Courthouse, Toledo, Ohio, for
plaintiff-appellee. William J. MacDaniels, 819 Spitzer Bldg., Toledo,
Ohio, for defendant-appellant.
Before
WEICK, Chief Judge, and PECK and MCCREE, Circuit Judges.
Order
Appellant
contends primarily in this appeal that the presence of an unauthorized
person in the grand jury room rendered the indictment returned by it
invalid and that receipt in evidence of a summary statement prepared by
an expert constituted prejudicial error. A technical violation of Rule
6(d), Federal Rules of Criminal Procedure, occurred when an attorney who
was a stranger to this action unintentionally interrupted the grand jury
proceedings by entering the courtroom in which they were being
conducted. The record establishes that the proceedings were halted at
the moment of his entrance, and were not resumed during the fifteen to
twenty second period of his presence. We hold that the interruption did
not invalidate the proceedings or the indictment.
The
eight-count indictment charged violations of 26 U. S. C. 7201. The
Government offered extended testimony and several hundred exhibits in
support of the charges of violations of the Internal Revenue Code, and
the summary exhibit was offered by an expert whose qualifications were
not (and are not) challenged, and who was available for
cross-examination. The exhibit was based upon evidence previously
received and the trial judge properly instructed the jury concerning it.
Under such circumstances the exhibit was properly received in evidence (Epstein
v. United States [57-2 USTC ¶9797], 246 F. 2d 563 (6th Cir. 1957), cert.
denied, 355 U. S. 868; Barber v. United States [59-2 USTC ¶9784],
271 F. 2d 265 (6th Cir. 1959), and the record discloses no impropriety
in its use. The remaining contentions of the appellant are determined to
be without merit, and accordingly,
IT
IS ORDERED that the judgment of the District Court be and it hereby is affirmed.
[69-1
USTC ¶9248]Jack C. Ping, Appellant v. United States of America,
Appellee
(CA-8), U. S. Court of Appeals,
8th Circuit, No. 19,339, 407 F2d 157, 2/28/69, Aff'g unreported District
Court decision
[Code Sec. 7206]
Crimes: False and fraudulent statements: Evidence.--Taxpayer's
conviction for willfully filing false returns was upheld. The lower
court did not err in (1) refusing to exclude from evidence an
incriminating statement made by the taxpayer to an IRS agent, and (2)
admitting summaries of the defendant's checking accounts. The taxpayer's
statements were voluntarily given and since he was not in custody it was
unnecessary to give him a Miranda type warning. The inclusion of
the summaries was not error since they were prepared in pencil on
ordinary ledger paper and were not likely to have imparted an impression
of authenticity to the jury. Also, the Court carefully instructed the
jury as to the use of the summaries.
John
A. McClintock, Hansen, Wheatcraft & McClintock, 803 Fleming Bldg.,
Des Moines, Iowa, for appellant. James P. Rielly, United States
Attorney, Jerry E. Williams, Claude H. Freeman, Assistant United States
Attorneys, 113 U. S. Courthouse, Des Moines, Iowa, for appellee.
Before
BLACKMUN, MEHAFFY and HEANEY, Circuit Judges.
HEANEY,
Circuit Judge:
The
defendant was convicted on a two-count indictment for willfully filing
false individual income tax returns for 1962 and 1963 in violation of §7206(1)
of the Internal Revenue Code of 1954. The indictments alleged that the
defendant had understated his gross income by $13,757 in 1962, and
$9,000 in 1963. He received a sentence of imprisonment of one year on
each count--the sentences to run concurrently. Two questions are raised
on this appeal: (1) whether the District Court erred in refusing to
exclude from evidence an incriminating statement obtained from the
defendant by a Special Agent of the Internal Revenue Service; and (2)
whether the District Court erred in admitting summaries of the
defendant's checking accounts for 1962 prepared by the same Special
Agent. We answer both questions in the negative.
A
brief summary of the evidence relating to the alleged understatement of
gross income will be helpful in understanding the defendant's
contentions.
The
evidence established that the defendant reported only $14,987 out of a
gross income of $28,744 in 1962. The unreported income consisted of
$3,750 received as wages from the Hales and Hunter Company and $10,000
received as a commission from Todd & Sargent, Inc., for assisting in
locating financing for the construction of a feed mill. The evidence
also established that the defendant reported $12,224 out of a gross
income of $21,224 in 1963. The unreported income consisted of a $9,000
commission received from Todd & Sargent, Inc.
The
defendant testified that he failed to report the $3,750 because he did
not receive his W-2 form from the Hales and Hunter Company. He claimed
that he failed to report the commissions because they had been used by
him to defray necessary and proper business expenses incurred in
securing the financing.
The Admissibility of the
Defendant's Statement
The
defendant was first advised that his income tax returns were being
investigated in a letter written
May 27, 19
65, by Special Agent Dale T.
Rob
inson.
Rob
inson correctly identified himself, but did not advise the defendant
that the investigation was criminal in nature. On
August 23, 19
65,
Rob
inson interviewed the defendant in
Rob
inson's office. The entire interview was transcribed. At the outset,
Rob
inson informed the defendant that he was not required to answer any
questions or furnish information that might tend to incriminate him.
During the course of the interview, the defendant inquired about his
right of having an attorney present.
Rob
inson informed him that he had such a right and asked him if he desired
to exercise it. The defendant indicated that he did not desire to have
counsel present. The defendant conceded during the interview that he may
have used a portion of the commissions for personal expenses. 1
On
October 25, 19
65, a Group Supervisor in the Intelligence Division called the
defendant, advised him that the Division was considering instituting a
criminal proceeding and invited him to a conference in the Jackson,
Mississippi, office of the Intelligence Division. The Supervisor
informed the defendant that he could bring an attorney and that he could
present evidence or offer explanation with respect ot the alleged
violations. On
November 2, 19
65, the defendant his attorney kept the appointment with the Group
Supervisor. The defendant and his counsel were shown a copy of the
August 23rd transcript with the request that they review it, correct
erros, initial any corrections and sign it. After examinaing the
statement for a half hour, the defendant signed it. Before doing so, the
following paragraph was added by the defendant's counsel:
"I have
carefully read the foregoing statement consisting of thirty-seven (37)
pages, including this page, which is a transcript of questions which
were propounded to me and my answers to such questions on
August 23, 19
65, at Gulfport, Mississippi, relative to my income tax liability. I
believe that the interview is correctly transcribed but I also recognize
that many of my answers were vague and confusing, primarily because of
my efforts to answer wothout full recollection of the facts, and that
some of them should be corrected, explained or clarified. I have
initialed each page of the statement for identification."
The
defendant does not contend that his statement was obtained by
misrepresentation, fraud or coercion. He argues, rather, that the
statement was not a voluntary one because he was not fully advised of
his rights under the Fifth and Sixth Amendments to the Constitution in
accordance with Miranda v. Arizona, 384 U. S. 436 (1966), and Escobedo
v. Illinois, 378 U. S. 767 (1964).
We
are convinced here, as we were in Cohen v. United States, No.
19181, 8th Cir.
Dec. 18, 19
68, that the defendant's statement was a voluntary one as that term was
understood pre-Escobedo and Miranda; and as the defendant
was not in custody, it was unnecessary for the Special Agent to give
warnings other than those given. Cohen v. United States, supra; Muse
v. United States, No. 19259, 8th Cir.
Dec. 18, 19
68; White v. United States, 395 F. 2d 170 (8th Cir.), cert.
denied, 393 U. S. 844 (1968). In those cases, as here, the defendant
was interrogated in the Special Agent's office. We held in them that
this fact was not sufficient to establish a custodial situation. We are
not persuaded to change that opinion.
The Admissibility of the
Summaries
The
defendant contends that the trial court erred in receiving in evidence
three summaries prepared by
Rob
inson which purported to be an analysis of the defendant's two checking
accounts. The first summary was described as an analysis of the
defendant's checking account in the Farmers and Merchants Savings Bank,
Burlington, Iowa, for 1962, and the second was a similar analysis of the
defendant's account in the Farmers National Bank of Winfield, Iowa, for
the same year. Each summary was prepared from monthly bank statements
and cancelled checks which had been previously received in evidence. The
columns were captioned: statement date; date of check; amount; deposit;
balance; check number; payee; and possible business use. The
third summary was essentially a synopsis of the other two and included a
capition entitled "Possible Business Use." The summaries
purported to show that of $10,300 received by the defendant in 1962, he
had expended only $3,300 for possible business purposes and had expended
the balance for personal items.
The
defendant objected to the introduction of the summaries on the grounds
that the cancelled checks and the statements constituted the best
evidence of the defendant's financial transactions, and that it was
error to permit
Rob
inson, a non-expert, to give his opinion as to the use of the funds--an
opinion which was expressed by the inclusion of the "Possible
Business Use" column.
Monthly
bank statements and cancelled checks for 1963 were also received in
evidence but summaries similar to those for 1962 were not offered in
evidence. Thus, we might, in view of concurrent sentences, refuse to
consider the admissibility of the 1962 summaries and sustain the
defendant's conviction on the basis of the 1963 count. Wangrow v.
United States, 399 F. 2d 106 (8th Cir.), cert. denied, 393 U.
S. 933 (1968).
We
also note the possibility of sustaining the 1962 count on the basis of
the defendant's failure to report the wage payment of $3,750--a sum
which was not included in the summary. The defendant's only defense for
failing to pay a tax on this sum was that he had not received a W-2 form
from his employer--a defense the jury was free to disbelieve.
We
consider the propriety of receiving the 1962 summaries in evidence out
of an abundance of caution. The evidence as to the two counts was
closely interrelated. The fact that the defendant's failure to report
ran over a period of two years may also have been considered by the jury
in finding that the defendant's acts were willful. Holland v. United
States [54-2 USTC ¶9714], 348 U. S. 121, 139 (1939); Blackwell
v. United States [57-1 USTC ¶9644], 244 F. 2d 423, 429 (8th Cir.), cert.
denied, 355 U. S. 838 (1957).
If
the column captioned "Possible Business Use" had been excluded
from the summaries, their admissibility would be clear. Lumetta v.
United States [66-2 USTC ¶9492], 362 F. 2d 644, 645 (8th Cir.
1966); Blackwell v. United States, supra at 430; Hoyer v.
United States [55-1 USTC ¶9518], 223 F. 2d 134, 138 (8th Cir.
1955); Hanson v. United States [51-1 USTC ¶9118], 186 F. 2d 61,
67 (8th Cir. 1950). See, 4 Wigmore, Evidence §1230 (3d ed. 1940). The
use of such conclusionary statements has been questioned and might
better have been omitted here:
"*
* * Whenever possible, * * * charts should be confined in their
preparation to strictly mathematical computations, subject to detailed
explanation upon the trial by the testimony of expert government
witnesses, and they should not be encumbered by such impressive,
conclusionary captions as * * * 'Unreported Net Income * * *', 'Income
Tax Unreported and Unpaid * * *', such as were used on the Government
charts here in dispute.
While
a prosecution witness may testify as to such conclusions from his
mathematical computations, we think the danger in permitting the
unrestricted use of such phrases upon charts results from a jury's
natural tendency to accept such unsworn, conclusionary verbiage as
authentic, primary proof, instead of purely in summarization and
explanation of sworn testimony or authenticated documentary
evidence."
Lloyd v. United States
[55-2 USTC ¶9665], 226 F. 2d 9, 17 (5th Cir. 1955).
See also, Holland v. United States, supra at 128.
Nevertheless,
a careful review of the record convinces us that its inclusion did not
prejudice the substantial rights of the defendant. Rule 52(a), Fed. R.
Crim. P. The summaries were prepared in pencil on ordinary ledger paper
and were not likely to have imparted an impression of authenticity to
the jury. Also, the court carefully instructed the jury 2 as to the
use of the summaries. In addition, the evidence as to the defendant's
guilt was clear and convincing.
Affirmed.
1
At trial, the defendant denied using any part of the commissions for
personal expenses. He also testified that he had spent nearly $4,000
more in arranging financing that he had received. He produced a record
book which tended to support his testimony.
Both
assertions were in direct conflict with statements given during the
interview. The existence of a written record of expenditures had also
been denied during the interview.
During
the interview, he gave the following answers to questions asked by Agent
Rob
inson:
"Q.
Did you incur any expenses for which you were not reimbursed?
"A.
Oh, no, I don't think so, I think he amply--
"Q.
Would the expenses that you incurred cover also your personal living
expenses?
"A.
Yes, some of them would, yes. I'm sure that's so. However, my wife had
some money and again when you deposited money and so on and so forth and
she had some money, we sold some stock, or she sold a little stock
during that time, she had some cash before we were married, and we
commingled, I'm sorry to say, these funds and it would be awfully hard
to separate 'um.
* * *
"Q.
And again, did you keep a record of these expenditures?
"A.
I'm afraid not."
2
"Summaries prepared by the special agent have been admitted in
evidence. They are received for the purpose of explaining facts
disclosed by books, records, and other documents which are in evidence
in the case. However, such charts or summaries are not in and of
themselves evidence or proof of any facts. If such charts or summaries
do not correctly reflect facts or figures shown by the evidence in the
case, the jury should disregard them.
"In
other words, such charts or summaries are used only as a matter of
convenience; so if, and to the extent that, you find they are not in
truth summaries of facts or figures shown by the evidence in the case,
you are to disregard them entirely."
[69-1
USTC ¶9204]Robert Gordon Hayes, Appellant v. United States of America,
Appellee
(CA-5), U. S. Court of Appeals,
5th Circuit, No. 23540, 407 F2d 189, 1/29/68, Aff'g unreported District
Court decision
[Code Sec. 7201]
Crimes: Tax evasion: Sufficiency of indictment: Jurisdiction.--An
indictment was sufficient where it contained both the statutory language
and a reference to the specific section alleged to have been violated
and disclosed the means by which the defendant had allegedly attempted
to evade paying tax. In addition, the Southern District of Florida had
jurisdiction to return the indictment although the place where the
alleged criminal offenses took place (Jacksonville, Florida) was
transferred to a new federal judicial district after the alleged
criminal acts took place (1958, 1959 and 1960) but before the indictment
was returned (1965).
[Code Secs. 446(b) and 7201]
Reconstruction of income: New worth method: Opening net worth:
Evidence: Tax evasion.--In using the net worth method to reconstruct
the defendant's taxable income, the Government's opening net worth
figure was correct. The taxpayer failed to establish a claimed $64,000
cash hoard; a $10,000 figure for opening cash on hand, based on
testimony of the taxpayer's accountant, was reasonable; and the
Government's cost basis for land and partially constructed apartments
was correct.
[Code Sec. 7201]
Crimes: Tax evasion: Evidence of prior crimes.--The trial court
committed no error in admitting evidence relating to the defendant's
prior convictions. The trial court carefully considered both the nature
of the prior offenses and the length of time that had elapsed since
their commission.
[Code Sec. 7201]
Crimes: Tax evasion: Trial: Cross-examination.--A question asked
during cross-examination of the defendant concerning whether or not he
ever escaped from prison was well within the scope of cross-examination,
[Code Sec. 7201]
Crimes: Tax evasion: Defenses: Self-incrimination: Jury trial.--The
defendant's right to remain silent was not violated when Government
agents and Government counsel commented on his failure to explain his
substantial increase in net worth. Much of the relevant testimony and
argument was either not objected to or was directly invited by defense
counsel's conduct. Furthermore, any prejudicial impact from the
statements was erased by trial court warnings to the jury.
One
dissent.
[Code Sec. 7201]
Crimes: Tax evasion: Miscellaneous defenses.--The trial court
committed no error in admitting into evidence and submitting to the jury
two net worth summaries prepared by the Government; jury instructions as
to wilfulness were proper; and whether or not the defendant's attempt to
defeat paying tax was "wilful" was a question for the jury to
decide.