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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 o