7203 - Admissibility 3 p2

7203 - Admissibility 3 Page 2

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Admissibility 3 Page2

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Wilfred C. Varn, Robert M. Ervin, 305 S. Gadsden St., P. O. Box 1567 , Tallahassee , Fla. , for appellant. Mitchell Rogovin, Assistant Attorney General, Joseph M. Howard, Burton Berkley, Department of Justice, Washington, D. C. 20530, Clinton Ashmore, United States Attorney, Steward J. Carrouth, Assistant United States Attorney, Tallahassee, Fla., for appellee.

Before JONES and GODBOLD, Circuit Judges, and SCOTT, District Judge.

JONES, Circuit Judge:

The appellant, Robert Gordon Hayes, and his wife, Ruth, were indicted on January 11, 19 65, in the Southern District of Florida for wilfully attempting to evade and defeat income taxes due the United States for the years 1958, 1959 and 1960 in violation of 26 U. S. C. A. Sec. 7201. Pursuant to a motion filed by the defendants, the cause was transferred to the Northern District of Florida. At a jury trial, appellant Hayes was convicted and his wife acquitted on each of the three counts contained in the indictment. Subsequently, a fine of $2,000 was levied and concurrent sentences of fifteen months imprisonment on each count were imposed. From this judgment and sentence, Hayes has appealed.

[Indictment Challenged]

Appellant's first specification of error challenges the jurisdiction of the Southern District of Florida to return the indictment. Hayes filed his income tax returns for the years 1958, 1959 and 1960 with the District Director in Jacksonville , Florida , which, when the returns were filed, was within the Southern District of Florida. On July 30, 19 62, an area including Jacksonville was transferred into the simultaneously created Middle District of Florida. 28 U. S. C. A. Sec. 89(b). It is asserted that, because the indictment was returned after Jacksonville became a part of the Middle District, a grand jury of the Southern District had no jurisdiction to return the indictment.

In answering appellant's jurisdictional challenge, reference to 18 U. S. C. A. Sec. 3240 is particularly appropriate. This section provides:

"Whenever any new district or division is established, or any county or territory is transferred from one district or division to another district or division, prosecutions for offenses committed within such district, division, county, or territory prior to such transfer, shall be commenced and proceeded with the same as if such new district or division had not been created, or such county or territory had not been transferred, unless the court, upon the application of the defendant, shall order the case to be removed to the new district or division for trial."

Because there is no question but that the Southern District could have indicted Hayes had the Middle District not been created, Holbrook v. United States, 5th Cir. 1954, [54-2 USTC ¶9640] 216 F. 2d 238, it seems clear that the above statute permits the Southern District to do so, although the place of the alleged offenses had been transferred to a new district after the time alleged for the commission of the offenses.

Appellant asserts that Quinlan v. United States, 5th Cir. 1927, 22 F. 2d 95, requires a contrary interpretation of Section 3240. In that case, this Court expressed the view that 28 U. S. C. A. Sec. 121, which is the statutory predecessor of 28 U. S. C. A. Sec. 3240, had no effect on cases begun after the creation of a new district, and that the statute merely enabled the court in the old district "to retain jurisdiction of pending criminal cases which properly could not be begun in that court after the creation of the new district." Quinlan v. United States, supra at 98. If this interpretation of 28 U. S. C. A. Sec. 3240 is followed, appellant's contention would be upheld. However, both the plain meaning of the statute and a subsequent Supreme Court decision convince us that the above statement is not declaratory of the controlling principle.

In Lewis v. United States, 279 U. S. 63, 49 S. Ct. 257, 73 L. Ed. 615, the Supreme Court determined that the Eastern District of Oklahoma had jurisdiction to indict and try an offense committed in a county which had been transferred out of the Eastern District into the newly created Northern District after the commission of the offense but before the return of the indictment. While it is true, as is pointed out by the appellant, that this decision rested in part upon the language of the jurisdictional provisions of the act creating the new Northern District, the Supreme Court clearly stated that the result reached was also in accord with 28 U. S. C. A. Sec. 101. See Lewis v. United States , supra at 791. This interpretation of the statute is consistent with the clear import of the language used therein. Section 3240 empowers an altered district to commence prosecutions after the change by indicting for offenses committed within its prior boundaries before alteration "the same as if such new district or division had not been created . . ." Mizell v. Vickrey, 10th Cir. 1929, 36 F. 2d 327. The district court here was correct in refusing to dismiss the indictment for lack of jurisdiction.

[Sufficiency of Indictment]

Appellant contends that the indictment was defective in that it failed to state an offense. The indictment alleged that Hayes did:

"Wilfully and knowingly attempt to evade and defeat . . . income tax due . . . by filing . . . with the district director . . . a false and fraudulent income tax return . . . in violation of section 7201 . . ."

The indictment is sufficient. It discloses the means by which Hayes attempted to defeat the tax even though tax evasion indictments need not contain such an allegation. Lott v. United States, 5th Cir. 1962, [62-2 USTC ¶9731] 309 F. 2d 115; Reynolds v. United States, 5th Cir. 1955, [55-2 USTC ¶49,146] 225 F. 2d 123. Both the statutory language and a reference to the specific section alleged to have been violated are incorporated within the charge. This in itself is sufficient if all the essential elements of the offense are contained in the statute. Worthy v. United States , 5th Cir. 1964, 328 F. 2d 386. Hayes was sufficiently apprised of the nature of the offense charged so as to permit him to prepare a defense and successfully plead former jeopardy if brought to trial in the future for the same offense. No more is required. United States v. Strauss, 5th Cir. 1960, 283 F. 2d 155. Appellant's attack on the indictment must fail.

[Opening Net Worth]

At the trial the Government relied upon the net worth method to establish its case. As stated in Merritt v. United States, 5th Cir. 1964, [64-1 USTC ¶9226] 327 F. 2d 820, 821, this method of proving income tax evasion

"Proceeds on the assumption that, if in a particular year the increase (not accounted for by nontaxable items) in a taxpayer's net worth plus his nondeductible expenditures exceeds his reported net income to a substantial extent, the excess represents unreported income and permits an inference of wilfulness on the part of the taxpayer."

An essential element of the prosecution's proof in this type of case is the establishment of an opening net worth. Hayes contends that this figure was not established "with reasonable certainty" as is required. Holland v. United States [54-2 USTC ¶9714], 348 U. S. 121, 75 S. Ct. 127, 99 L. Ed. 150. In support of this contention, Hayes asserts that the Government's calculation was inaccurate with respect to three particular items used in computing appellant's opening net worth.

[Cash on Hand]

The Government allowed $10,000 as a reasonable figure for cash on hand in 1951. This amount was based upon information offered by an accountant of the appellant who had been given a power of attorney to represent him in tax matters. A Government agent testified as to the accountant's calculations. Appellant objects to the use of this figure on the ground that it was established by hearsay testimony and because the Government failed to investigate Hayes' assertion that he placed $64,000 in a safety deposit box in a Tallahassee bank in 1951. Neither objection has merit.

It is clear that appellant's accountant was acting within the scope of his employment and authority when he indicated his estimate of the extent of Hayes' cash reserves to the Government agent. Thus the accountant's statement is admissible against Hayes as an admission by an authorized agent. The hearsay objection is not tenable. Laird v. Air Carrier Engine Service, 5th Cir. 1959, 263 F. 2d 948; Cox v. Esso Shipping Co., 5th Cir. 1957, 247 F. 2d 629. It seems appropriate to note here that the accountantclient privilege under Florida Statute Sec. 473.15 (1967) is not applicable in a Federal criminal proceeding. Falsone v. United States, 5th Cir. 1953, [53-2 USTC ¶9467] 205 F. 2d 734.

[Cash Hoard]

As to appellant's claim of a $64,000 cash hoard, we agree that the Government should investigate leads furnished by the taxpayer in arriving at an opening net worth. Merritt v. United States, supra. The record here shows that the Government did all that was required of it. During the investigation of this case, the Revenue agents repeatedly requested information concerning the amount of Hayes' cash on hand, yet no indication of $64,000 cash on hand in 1951 was made. Moreover, the Government agent did not learn of the Tallahassee safety deposit box until some time in 1962 at which time the funds, according to Hayes' testimony, had been depleted. Hayes had previously told a Government agent that he generally kept no more than $1,000 to $4,000 cash on hand at any one time. Under these circumstances, sufficient investigation by the Government is apparent, and the issue raised by Hayes' cash hoard claim was properly submitted to the jury.

[Cost Basis of Land]

The appellant makes an attack upon the $2,000 cost basis allowed by the Government for five and one-half acres of land sold by Hayes in 1959. Use of this basis, which was supplied by Hayes' accountant, resulted in a higher capital gain for the tax year involved. Appellant contends that use of this $2,000 basis was improper because the Government had previously allowed him and his wife a $5,000 cost basis on their joint tax return when the property was sold in 1959. Apparently it is believed that the Government is somehow estopped by this allowance. No authority is cited in support of this position. The record fails to show that the Government entered into a statutory agreement assigning $5,000 as the basis for the land. Under these circumstances, no estoppel can be found. See Sherwin v. United States, 9th Cir. 1963, [63-2 USTC ¶9550] 320 F. 2d 137; United States v. Hardy, 4th Cir. 1962, [62-1 USTC ¶9286] 299 F. 2d 600.

[Cost Basis of Apartments]

The last net worth item challenged by Hayes is the cost value of partially constructed apartments as of January 1, 19 58. Appellant testified that the apartments were seventy-five percent completed on that date, and that a value of $9,000 should have been assigned to the cost of the apartments. Instead, the Government credited the apartments with a cost value of $3,500. This figure was taken from appellant's 1957 income tax return. Apparently, no other record of construction costs had been kept. These facts presented an issue which the jury resolved with sufficient evidence to support its determination. No error was committed. It seems appropriate to say here that use of the cost value asserted by appellant would have no effect on appellant's opening net worth for the years 1959 and 1960.

[Prior Convictions]

Hayes' next specification of error states that the district court committed error by admitting into evidence testimony relating to appellant's prior convictions. It is argued that these convictions are so remote in time that they have no bearing on appellant's present credibility.

It can not be doubted that a defendant who takes the stand in his own defense may be cross-examined concerning his prior convictions. Reese v. United States , 5th Cir. 1965, 353 F. 2d 732. Such inquiry is permitted for the purpose of impeachment as to credibility. Taylor v. United States , 5th Cir. 1960, 279 F. 2d 10. However, as stated in Fire Association of Philadelphia v. Weathered, 5th Cir. 1932, 62 F. 2d 78, 79:

"The length of time that should elapse before a conviction for felony ceased to have any probative value cannot be fixed by the law, but must be left to the sound discretion of the trial court."

The record indicates that, before ruling on the admissibility of evidence of the prior convictions, the trial judge carefully considered both the nature of the prior offenses and the length of time that had elapsed since their commission. Considering these same factors, we find no abuse of discretion. If error were committed, the lack of prejudice caused thereby would prevent a reversal on this ground. See Steele v. United States, 5th Cir. 1957, [57-1 USTC ¶9607] 243 F. 2d 712.

[Cross-Examination]

Further attacking the Government's conduct during the cross-examination of Hayes, it is asserted that error was committed when the United States Attorney asked the following question: "Did you escape from prison?" To this, appellant respondent: "I did not. Yes, yes."

The question is improper and prejudicial, Hayes argues, because it sought to establish, not whether Hayes had been convicted of a crime, but whether Hayes had escaped. As noted by appellant, evidence of prior conviction is admissible; evidence of previous misconduct is not. Roberson v. United States , 5th Cir. 1957, 249 F. 2d 737.

Hayes, unfortunately, cannot receive the benefit of the rule upon which he relies. In response to a question asked by defense counsel during direct examination, the appellant stated:

"One day I left [prison] and went back about three or four months later and they marked up an escape against me, and they still turned me outside even then. I was never locked up."

In the face of this statement, Government counsel's inquiry was not without the scope of permissive cross-examination.

[Self-Incrimination]

Appellant urges that error was committed when Government agents and Government counsel commented on appellant's failure to make any explanation for his substantial increase in net worth. A reversal of appellant's conviction would generally be required on this ground. Griffin v. California , 380 U. S. 609, 85 S. Ct. 1229, 14 L. Ed. 2d 106. Here, however, peculiar circumstances may demand a different result.

After a preliminary investigation of appellant's books and records, the Government agents, at the request of appellant, obtained all further information from appellant's accountants. One of these accountants testified at the trial that after he indicated to Mr. and Mrs. Hayes the substantial increase in their net worth, he asked them: "Do you know where it came from, or are these figures correct?" The accountant then testified that no explanation of the increase in net worth was offered. Significantly, no objection to this testimony was raised.

After this accountant's testimony, one of the Government's tax investigators was called to the stand. On cross-examination, defense counsel attempted several times to establish that the agent had made unfounded and unnecessary assumptions as to Hayes' net worth. In response to such questions, the agent stated that no one would furnish him with different figures. An example of such an exchange is the following:

"Defense counsel: Haven't I repeatedly asked you if you would let me know specifically, what specific items you wanted so we could get them for you?

"Govt Agent: Repeatedly I asked. We did that repeatedly. We told you we wanted to know how much cash he had. Repeatedly we failed to hear it. This was done on numerous occasions."

Again, no objection was raised.

Later in the trial, another Government agent testified that no explanations as to the increased net worth had been made by anyone. At this time, defense counsel objected. This objection was overruled, but during the testimony of this agent the trial judge advised the jury that Hayes had the right to remain silent. On cross-examination, testimony concerning the lack of explanation was intentionally elicited by defense counsel through the following questions:

"Do you remember indicating to us at that conference . . . that if a satisfactory explanation could be made of any unexplained increases in net worth . . . you did not feel criminal liability existed?

"Did I understand your testimony earlier today, to say that if a satisfactory explanation had been forthcoming you would have settled the case?

"The fact that Mr. and Mrs. Hayes and I remained silent and did not come forward with an explanation, that is why we are here today?"

Appellant further asserts that Government counsel improperty commented to the jury on his failure to make explanations. The United States Attorney attempted in closing argument to discredit Hayes' claim to a $64,000 cash hoard by stating that Hayes had never made such a claim prior to the trial. No objection was raised at this time. Defense counsel thereafter twice alluded to the fact that Hayes had been advised to remain silent by his attorneys. In the latter part of the Government's closing argument, the Government attorney replied to these statements by suggesting the unlikelihood of Hayes remaining silent if the cash hoard claim were true. At this time, the following objection was raised:

"Your Honor, we respectfully object to his referring to what the court may do with respect to his explanation."

This objection was overruled.

Following these arguments, the trial judge again instructed the jury that the defendant was entitled to refuse to make any statements during the investigation and that the jury should draw no inference from the fact that the defendant elected to exercise this privilege.

It does not appear that any prejudicial error resulted from the comments which the appellant contends were improper. Much of the relevant testimony and argument was either not objected to, or was directly invited by the conduct of defense counsel. Furthermore, if there were any prejudicial impact from the statements, it was erased by the trial judge's several admonitions to the jury.

[Miscellancous Defenses]

The appellant makes three additional contentions. These also are without merit. First, what this Court stated in Myers v. United States, 5th Cir. 1966 [66-1 USTC ¶9371] 356 F. 2d 469, convinces us that the trial court committed no error in admitting into evidence and submitting to the jury two net worth summaries prepared by the Government. Second, no error can be found in the following charge to the jury:

"The attempt to evade or defeat a tax must be a wilful attempt: that is, it must be done knowingly, made with the specific intent to defeat the Government, from the Government a tax, imposed by the income tax laws which was the duty of the defendant to pay the Government. In other words, attempt must be knowingly made with the specific purpose of defrauding the Government of some substantial amount of income tax wilfully due from the defendants, or one of them.

"A fraudulent tax return is one that is false and known to be false by the person making it or causing it to be made and filed with the intent to deceive."

This language adequately defines "willfulness," and no prejudicial error resulted from the trial judge's failure to include the phrase "bad purpose" within the charge. Third, whether or not Hayes' attempt to defeat income taxes due the United States was wilful constituted an issue which was properly submitted to the jury. That body's resolution of the issue is supported by substantial evidence.

The judgment and sentence of the district court should be and are hereby

AFFIRMED.

[Dissenting Opinion]

GODBOLD, Circuit Judge, Dissenting:

During the investigative stages of this case, appellant "failed to explain" to the satisfaction of the government agents his substantial increase in net worth, and at times he specifically invoked his constitutional privilege to remain silent. In his closing arguments to the jury the government counsel commented on this failure to explain and on the invocation of the privilege. The majority concedes that these remarks normally would require a reveral of the case under the rationale of Griffin v. California, 380 U. S. 609, 85 Sup. Ct. 1229, 14 L. Ed. 2d 106 (1965). But my brothers find that "peculiar circumstances" require a different result in this case. ¹

The comments of the government counsel could hardly have been more prejudicial. ² Repeated reference was made to the failure to explain an increase in net worth as shown by the government's calculations. Comment was made on the fact that Hayes "stood on his constitutional rights." The members of the jury were asked whether they would have done the same. In the first volley of the prosecution barrange, during the initial closing argument by the prosecutor, the jury was told:

This would have been a way if they had disclosed that vast amount of money they had hoarded, this would have been a way that you gentlemen would not have been sitting here four and a half days. ³ This trial would never have come up; these people would never have been indicted; nothing would have happened. All they had to do was make a truthful explanation of this increase and that would have ended the matter. That would have ended the matter.

* * *

If Mr. Hayes had that money prior to 1950, he could not have been indicted. All he had to do was to come forward and tell Mr. Snyder that he had these funds.

* * *

[T]hese were conferences set up with appointments, to find out where the difference was between the government's figures and their figures, give a reasonable explanation of it--make an explanation of it, [the governmental agents] said, give us a reasonable explanation and we will cease this investigation and that will be the end of it, Mr. and Mrs. Hayes will not have to go through this endurance of being indicted and coming to trial and taking a chance of whether or not they will have to go to jail or not, this eliminates every bit of it. Why didn't they tell it? Why didn't they disclose it? They disclosed it the first time on this witness stand here the other day. You heard it the same time I did. ⁴

To the above line of argument by the prosecution the first defense counsel to argue responded:

The evidence shows that I told him and her that they would make no statements, at first, and Members of the Jury, that is their right under our Constitution and government. And if they choose not to explain to an enforcement officer of any government, then they have that right and can reserve the right to explain to the Members of the Jury and the Court under the rules of evidence as to what their explanation might be.

Then in the middle of his argument the second defense counsel said:

First of all, I remind you again, that the defendants, and his Honor will instruct you, that the defendants have no duty to prove themselves innocent. Furthermore, they have no duty to make any disclosures to the government and, furthermore, both Mr. Varn and I follow the practice when a lawyer is employed he tries to take care of his client and his business.

In his final closing argument the prosecutor delivered the coup de grace:

[Defense counsel Varn] also knows that if he had Mr. Ervin [also defense counsel] had come forth with any explanation as to the increase in his income he is charged with in 1958, 1959 and 1960, and come up here and said, "we have $64,000 in 1950" and been able to substantiate that, there would never have been a case. And yet they have a right to stand on their Constitutional Rights and not to say anything. But would you do it? Would you do it, and wait and be indicted and come up here and go through this trial, and wonder if you were going to prison, and say nothing.

It is to these last remarks that the defense made the objection quoted by the majority. The court's response to the objection was, "The jury will be appropriately instructed as to the matter in the full Charges of the Court. Let's move on." Government counsel resumed, saying:

Mr. Varn is the one that brought that up and I think I have a right to reply to it. ⁵ I don't think that any of you would sit back and wait and be indicted before coming forth and giving a reasonable explanation. You will have to decide that. That is one of the things for you to decide. . . .

No "peculiar circumstances," no curative instructions, ⁶ no theories of waiver, invitation, or failure to object with precision (or to object at all), can make a silk purse of this sow's ear.

It is essential to distinguish between a defendant's Fifth Amendment privilege and the elements of the government's prima facie case set out in Holland v. United States [54-2 USTC ¶9714], 348 U. S. 121, 75 Sup. Ct. 127, 99 L. Ed. 150 (1954). In Holland the Supreme Court said that "once the government has established its case the defendant [in a net worth prosecution] remains quiet at his peril." Id. at 138-39, 75 Sup. Ct. at --, 99 L. Ed. at 166. This "failure to explain" relates to the proof the defendant may--or may not--adduce at the trial. It does not shrink the scope of the Fifth Amendment as it applies to pretrial investigation.

My reading of the record impels me to conclude that throughout the trial government counsel misconceived the interplay of the Holland principle and the Fifth Amendment. The government's position was not that Hayes, either personally or through his accountants or attorneys, waived his privilege against self-incrimination during the investigation. Nor was it that Hayes' testimony from the stand was so inconsistent with his prior exercise of the privilege as to permit the admission of evidence concerning that prior exercise for impeachment purposes. Compare Grunewald v. United States [57-1 USTC ¶9693], 353 U. S. 391, 77 Sup. Ct. 963, 1 L. Ed. 2d 931 (1957); United States v. Marcus [68-2 USTC ¶9599], 401 F. 2d 563 (2d Cir. 1968); petition for cert. filed, 4 Crim. Law Rep. 4140 (Jan. 8, 1969). ⁷ Rather, the government's position was that the taxpayer had a right during the investigation to stand on his privilege and not produce evidence or otherwise explain his increase in net worth, but that his exercise of the privilege coupled with his offering of an explanation for the first time at the trial was a substantive indication of guilt. ⁸ In short, the government used appellant's exercise of his Fifth Amendment privilege as an affirmative weapon to convict.

An accused cannot be penalized for exercising his constitutional privilege against self-incrimination either through comment on his failure to take the stand, Griffin v. California, 380 U. S. 609, 85 Sup. Ct. 1229, 14 L. Ed. 2d 106 (1965); Anderson v. Nelson, -- U. S. --, -- Sup. Ct. --, 20 L. Ed. 2d 81 (1968), or by testimony at trial of a pretrial exercise of the privilege, Grunewald v. United States [57-1 USTC ¶9693], 353 U. S. 391, 77 Sup. Ct. 963, 1 L. Ed. 2d 931 (1957); Walker v. United States , 5 Cir. 1968, -- F. 2d -- [No. 25572, Dec. 11, 19 68]; Helton v. United States , 221 F. 2d 338 (5th Cir. 1955). In like manner he is protected from prosecutorial comment at trial on his pretrial exercise of the privilege.

Only a few weeks ago in Walker v. United States , supra, this court said:

We would be naive if we failed to recognize that most laymen view an assertion of the Fifth Amendment privilege as a badge of guilt. As said by Mr. Justice Frankfurter, speaking for the Court:

"This constitutional protection must not be interpreted in a hostile or niggardly spirit. Too many, even those who should be better advised, view this privilege as a shelter for wrongdoers. They too readily assume that those who invoke it are either guilty of crime or commit perjury in claiming the privilege. Such a view does scant honor to the patriots who sponsored the Bill of Rights as a condition to acceptance of the Constitution by the ratifying States."

Ullmann v. United States , 1956, 350 U. S. 422, 426, 427. -- F. 2d at --. In Walker the government was allowed to elicit from one of its witnesses, the owner of credit cards used by the accused in a Dyer Act case, that in a pretrial conversation he asked the accused, "Just how did you get my credit cards?" and the defendant responded, "I refuse to answer on the ground it might incriminate me." This was held error. Prosecutorial comment on this matter in argument to the jury, though without objection, was held so improper and prejudicial as to constitute plain error.

Nearly 15 years ago this court said in Helton v. United States , supra:

The constitutional protection against self-incrimination does not begin with a trial of a defendant on the charges against him. History tells us that it was the preliminary inquisition, prior to trial on the merits, which gave rise to the abuses, which resulted in the recognition of the privilege against self-incrimination. Under our law it is not the function of police officers to determine for the benefit of the jury whether or not a person under arrest on suspicion of crime has given a sufficient explanation, or any explanation at all, and the fact that the accused here remained silent rather than risk unwitting distortion of his statement by a police officer at a later date does not give in law, and should not give in fact, rise to an inference of guilt.

221 F. 2d at 341-42.

The language of Mr. Justice Black in his concurring opinion in Grunewald also is pertinent:

I can think of no special circumstances that would justify use of a constitutional privilege to discredit or convict a person who asserts it. The value of constitutional privileges is largely destroyed if persons can be penalized for relying on them. It seems peculiarly incongruous and indefensible for courts which exist and act only under the Constitution to draw inferences of lack of honesty from invocation of a privilege deemed worthy of enshrinement in the Constitution.

353 U. S. at 425-26, 1 L. Ed. 2d at 955.

For these egregious errors of constitutional dimensions, this case should be reversed and appellant granted a new trial.

¹ Implied in the majority discussion is the view that the Fifth Amendment privilege against self-incrimination extended to the Internal Revenue investigation of the income tax affairs of the appellant and his wife. I am in accord with that view; therefore, I do not discuss the availability of the privilege. See generally, McKay, Self-Incrimination and the New Privacy, 1967 Supreme Court Review 193.

² As to whether a prosecutor's comment on a defendant's pretrial assertion of the Fifth Amendment is, in the words of the majority, "prejudicial error." cf. Anderson v. Nelson, -- U. S. --, -- Sup. Ct. --, 20 L. Ed. 2d 81, 83 (1968): "[C]omment on a defendant's failure to testify cannot be labeled harmless error in a case where such comment is extensive, where an inference of guilt from silence is stressed to the jury as a basis of conviction, and where there is evidence that would have supported acquittal." In Chapman v. California , 386 U. S. 18, 87 Sup. Ct. 824, 17 L. Ed 2d 705 (1967), the Supreme Court held that before a comment on an assertion of the Fifth Amendment can be found harmless the court must be able to declare its belief that it is harmless beyond a reasonable doubt.

³ This remark, standing alone and not objected to, is so fraught with prejudice and appeal to improper motives that it should reverse this case.

⁴ These comments establish that, contrary to the majority's contention, the further prejudicial remarks made by the government counsel in his final argument were not "invited" by defense counsel.

⁵ This not only added to the prejudice but was factually incorrect as well. The initial comment on the pretrial failure to explain was made by the prosecutor. See text at note 4, supra.

⁶ The court's charge was not as all-curative as the majority say. The judge charged that under the Fifth Amendment one is not required to speak against himself or give a statement and that no inference was to be drawn from the fact tnat during the investigation the accused refused to make any statement. However, immediately prior to that the trial judge had instructed that if the defendant offered an explanation as to the source of funds the government could not disregard it and the jury could consider failure of the government to check out an explanation if made, and then the judge said: "And if the defendants failed to supply information in that regard you may consider such failure, . . ."

⁷ Marcus presented a different question than is before us. The agent there testified to admissions made to him by the defendant during the investigation. Defense counsel argued to the jury that on other and later occasions the defendant had refused to answer the agent's questions, and that from this fact the jury should conclude that the agent's testimony of earlier admissions actually made was not to be believed. The court held it was not ground for mistrial that in response to this defense attack on the credibility of a key government witness the prosecutor argued that the accused, once it became clear to him he was under investigation, was unwilling to submit to question and answer under oath.

⁸ Professor Steven Duke points out the practical effects of the taxpayer's pretrial claim of privilege, one of which is the consequence here occurring of the exercise being treated as evidence of guilt. See Duke, Prosecutions for Attempts to Evade Income Tax: A Discordant View of a Procedural Hybrid, 76 Yale L. J. 1 (1966). In the instant case the prosecution's approach is exemplified by the fact that in response to appellant's motion for a bill of particulars seeking details of the government's calculations, the government stated, and reiterated, that the defendants had been afforded opportunities to explain their tax deficiencies but "no explanation has been forthcoming."

[68-1 USTC ¶9241] United States of America , Appellee v. Louis Leighton, Appellant

(CA-2), U. S. Court of Appeals, 2nd Circuit, Docket No. 31476, 386 F2d 822, 12/15/67, Aff'g unreported District Court opinion

[18 U. S. C. 201(b)]

Criminal procedure: Bribery of IRS agent: Evidence: Concealed recordings: Entrapment: Right to counsel.--In upholding the defendant's conviction of bribing an Internal Revenue agent, the Court of Appeals ruled: (1) the district court did not err in ordering the defendant not to consult with his attorney during an eighty-five minute luncheon recess at the trial, since this did not impair the defendant's right to the effective assistance of counsel. At no time did either the defendant or his attorney indicate that they had something to discuss which might have affected the conduct of the defendant's defense; (2) a recording of a conversation between the defendant and the Internal Revenue agent made on a minifon concealed on the agent's person was admissible; and (3) the defendant did not establish the defense of entrapment as a matter of law.

Robert M. Morgenthau, United States Attorney, Elkan Abramowitz, Michael S. Fawer, Assistant United States Attorneys, New York, N. Y., for appellee. Gilbert S. Rosenthal, 401 Broadway, New York , N. Y., for appellant.

Before WATERMAN, FRIENDLY and SMITH, Circuit Judges.

SMITH, Circuit Judge:

Appellant Louis Leighton was convicted on trial to the jury in the Southern District of New York, Dudley B. Bonsal, Judge, of bribing an Internal Revenue Agent in violation of 18 U. S. C. §201(b), and he appeals. We find no error and affirm the judgment.

The alleged bribe was made during the second of two meetings with Field Agent Tiffany at Leighton's place of business. Both parties agree that a bribery suggestion was made at the first meeting of the agent and the taxpayer. The litigants, of course, hotly dispute the authorship of the bribery suggestion. Tiffany appeared at the second meeting armed with both a concealed miniature wire recorder and a concealed miniature radio transmitter. The transmitter failed to function well, but the recorder produced a reproduction of a portion of the conversation between Leighton and Tiffany which was later admitted into evidence at the trial. Leighton now relies on three rulings of the trial court as bases for reversal of his conviction: (1) that Leighton was ordered not to consult with his attorney during a luncheon recess which occurred in the interim between the direct and cross examination of Leighton; (2) that the minifon recording of the conversation between Leighton and Tiffany was admissible; and (3) that entrapment was not established as a matter of law. Since Leighton made timely objections to these rulings they are properly before us on appeal.

Leighton's objection to the ruling of the trial court that he could not consult with his attorney during the luncheon recess is framed in terms of the violation of his right to counsel. But Leighton was represented by retained counsel during the entire trial. What is actually at issue is the question of the effective assistance of counsel. At no time during, before, or after the recess, did either Leighton or his attorney indicate that they did in fact have something to discuss which might have affected Leighton's testimony or course of action. Leighton's attorney did object to the judge's ruling, but the objection appears to us an attempt to sow reversible error into the record, rather than an effort to indicate to the trial judge that the attorney and client had something to discuss. Compare United States v. Krull, 240 F. 2d 122 (5 Cir.), cert. denied 353 U. S. 915 (1957). We conclude that the government has established beyond a reasonable doubt that the appellant's right to the effective assistance of counsel was not impaired by the ruling of the trial court. See Chapman v. California , 386 U. S. 18, 87 S. Ct. 824 (1967).

Leighton's reliance upon United States v. Venuto [50-1 USTC ¶9333], 182 F. 2d 519 (3 Cir. 1950), is misplaced. That case involved a series of rulings barring communication between a defendant and his attorney in a four-day bank deposit reconstruction income tax trial involving voluminous records. The harm done by the ruling in those circumstances is self-evident. In the case before us, only one eighty-five minute luncheon recess is involved. The ruling in the instant case barring communication between the defendant and his counsel during the recess between direct and cross examination was also applied to every other witness who testified at the trial. The application of this ruling to others than the defendant is not in issue. Its application to the defendant was quite plainly uncalled for, and we are unable to understand why it was sought or made as to him. We will not, however, reverse the conviction solely on this ground when we can discern no actual harm to the right to effective assistance of counsel, and are convinced that there was none.

Leighton also objected to the admission into evidence of the wire recording made by Agent Tiffany of their conversation. A sound recording made by or with the permission of a government agent who is a party to the recorded conversation is admissible. Lopez v. United States , 373 U. S. 427 (1963). The Supreme Court has twice during the last year reaffirmed the position that it had previously enunciated in Lopez, Osborn v. United States, 385 U. S. 323, 87 S. Ct. 429 (1966); Berger v. New York , 388 U. S. 41, 87 S. Ct. 1873, 1880 (1967), even though some commentators appear to have doubts as to the soundness of the rule. See discussion on the basis of the Lopez rule in Westin, Privacy and Freedom (1967) 356-359.

Lastly, Leighton contends that the district judge erred when he refused to enter a judgment of acquittal since Leighton had established the defense of entrapment as a matter of law. The entrapment defense hinged on which of two conflicting versions of the first conversation between Leighton and Agent Tiffany was to be believed. The entrapment defense rested upon a question of credibility, properly put to the jury. Osborn v. United States , 385 U. S. 323, 331, 87 S. Ct. 429, 434 (1966). Since Leighton does not even allege any errors in the charge to the jury, no grounds for reversal in connection with the question of entrapment are shown.

The judgment of conviction is affirmed.

[68-1 USTC ¶9241] United States of America , Appellee v. Louis Leighton, Appellant

Before WATERMAN, FRIENDLY and SMITH, Circuit Judges.

SMITH, Circuit Judge:

The judgment of conviction is affirmed.

[68-1 USTC ¶9241] United States of America , Appellee v. Louis Leighton, Appellant

Before WATERMAN, FRIENDLY and SMITH, Circuit Judges.

SMITH, Circuit Judge:

The judgment of conviction is affirmed.

[68-1 USTC ¶9180] United States of America , Plaintiff-Appellee v. William J. Donoho, Defendant-Appellant

(CA-6), U. S. Court of Appeals, 6th Circuit, No. 17671, 388 F2d 181, 1/24/68, Aff'g an unreported District Court decision

[1954 Code Sec. 7206(1)]

Criminal prosecutions: Evidence: Admissibility.--In a criminal prosecution for wilfully subscribing to false income tax returns, the trial court did not commit error in its (1) refusal to admit into evidence taxpayer's computation of his net worth and expenditures, (2) refusal to permit taxpayer's counsel to comment in argument to the jury on the government's changing its bill of particulars from the expenditures method of computation to specific items, and (3) admission into evidence of the testimony of a law violator that he made payments to a third party which were to be divided with taxpayer.

Gilbert S. Merritt, Jr., United States Attorney, Rollie L. Woodall and Alfred H. Knight, III, Assistant United States Attorneys, 879 U. S. Courthouse, Nashville, Tenn., for plaintiff-appellee. John J. Hooker, Ira E. Parker, III, Hooker, Keeble, Dodson & Harris, 1106 Nashville Trust Bldg., Nashville, Tenn., Quentin Housholder, Stahlman Bldg., Nashville, Tenn., for defendant-appellant.

Before WEICK, Chief Judge, EDWARDS, Circuit Judge, and CECIL, Senior Circuit Judge.

WEICK, Chief Judge:

Appellant was convicted by a jury on all five counts of an indictment charging him with wilfully subscribing to false income tax returns for the calendar years 1957, 1958, 1960, 1961 and 1962, in violation of 28 U. S. C. §7206(1). He was sentenced to fifteen months' imprisonment on each count, to run concurrently, and to a fine of five hundred dollars on each count.

Appellant had been previously tried for the same offenses, but that trial resulted in a mistrial.

Donoho was a high-ranking officer on the Nashville police force. The Government proved its case by the specific item method. It offered evidence tending to prove that payoffs were made by law violators to Donoho, for police protection, during the indictment years. It was stipulated that none of the income reported in his tax returns was derived from such sources and his returns do not reflect the receipt of any such income. The law violators were engaged in the operation of houses of prostitution, professional gambling, and the illegal sale of intoxicating beverages.

Donoho took the witness stand and denied that he had ever taken payoffs or protection money. He then offered to introduce in evidence a computation of his net worth and expenditures for the years 1960 and 1961, and evidence to support these figures, but the Court refused to admit them into evidence. This is the principal error relied upon in the appeal.

Had this occurrence taken place at the first trial, we think there might have been some substance to the contention. The Government had filed bills of particular stating that its method of proof would be by specific items of income not reported on Donoho's income tax returns for the years in question, and by the expenditures method for the years 1960 and 1961. Since the Government then planned to use the expenditures method, it might have been competent for Donoho to offer his net worth computation as part of his defense to counts 3 and 4. United States v. Moody [64-2 USTC ¶9873] 339 F. 2d 161 (6th Cir. 1964).

After the first trial, however, the posture of the case changed. A stipulation was entered into as follows:

"The parties hereby stipulate that the attached Exhibits 'A', 'B', 'C', 'D', and 'E', are accurate copies of income tax returns filed by William J. Donoho and wife for the years 1957, 1958, 1960, 1961 and 1962, respectively and that the attached Exhibit 'F' is a Certificate of Assessments and Payments for the same years accurately reflecting the tax assessed to and paid by William J. Donoho and wife. The taxpayers reported Adjusted Gross Income on their tax returns for these years, as follows:

  1957           $10,557.98

1958            11,295.31

1960            18,434.08

1961            18,962.94

1962            20,262.44

"The parties further stipulate that none of the income reported on these tax returns by the defendant William J. Donoho and wife came from law violators in the form of protection payments and the tax returns do not reflect receipt of any such income by the defendant."

The Government filed an amended bill of particulars, stating that its method of proof would be by specific items of income on all of the counts of the indictment.

It will be observed that the parties stipulated that the Certificate of Assessments and Payments "accurately" reflected the tax assessed to and paid by Donoho for the years in question and that none of the income reported on his tax returns "came from law violators in the form of protection payments and the tax returns do not reflect receipt of any such income by the defendant."

The stipulation thus narrowed the issues and left it to the jury to decide whether to believe the testimony of the law violators that they paid substantial sums to Donoho for police protection, which sums admittedly were not reported in the tax returns, or to believe Donoho's denials. By its verdict it is apparent that the jury credited the testimony of the law violators and disbelieved the testimony of Donoho.

To have permitted Donoho to offer net worth computations for the two years in question would have been inconsistent with the stipulation that his returns accurately reflected the tax assessed by and paid by him, except for protection money. At most, it would constitute an attempt by Donoho to corroborate his denials by his own self-serving testimony regarding his assets and expenditures. It would introduce extraneous matters in evidence and might confuse the jury.

Donoho relies on Moody, but this case did not involve a stipulation as to the accuracy of the tax assessments and payments. In Moody the Government did not prove its case by specific items, but by a bank deposits computation. In our case no tax would be owing unless the jury found that the defendant received and accepted the graft money.

Donoho further contends that the court erred in not permitting his counsel to comment in his argument to the jury on the Government's changing its bill of particulars from expenditures method of computation to specific items in connection with two counts of the indictment. His theory is that the jury would be entitled to draw an unfavorable inference against the Government for "failure to produce a witness whose testimony would shed light on a particular transaction." The trouble with this contention is that the Government did not withhold any evidence. It merely changed its method of proof to conform to the stipulation. Furthermore, the Government would have difficulty in proving defendant's expenditures without his cooperation.

Finally, appellant contends it was error to admit the testimony of Albert "Mickey" Kreitner, a law violator, that he made protection payments to Sergeant Morgan Smith of the Nashville police force, in the amount of six hundred dollars, in 1957 and 1958, and that Smith told him [Kreitner] that Donoho would receive one-half of the money. It is appellant's position that this was hearsay evidence.

There was testimony of Lula Gray, the owner of a Nashville house of prostitution, that she paid Donoho one hundred fifty dollars per month, beginning in August, 1957, and continuing through August, 1958, to prevent the police from raiding her place, and that some of the payments were made personally to Donoho and some were collected for Donoho by Sergeant Smith. William Frazier, a numbers operator, testified that he paid Donoho one hundred dollars per month during the years 1957, 1958, 1959, 1960 and 1961, and that Smith on occasions would pick up these payments for Donoho, including one hundred dollars for himself. We think the testimony of Gray and Frazier was sufficient to justify the District Judge's ruling that Kreitner's testimony was admissible on the ground of vicarious responsibility.

The Government contends that we should affirm in any event, since the errors charged do not relate to all of the counts of the indictment and the prison sentences imposed were concurrent. Hirabayshi v. United States, 320 U. S. 81 (1943); United States v. Jett [65-2 USTC ¶9706], 352 F. 2d 179 (6th Cir. 1965). The fines imposed, however, were cumulative. Since we have found no prejudicial error in the conviction, it is unnecessary for us to rule on this point.

Affirmed.

[68-1 USTC ¶9136]Bernard G. McGarry, Defendant, Appellant v. United States of America , Appellee

(CA-1), U. S. Court of Appeals, 1st Circuit, No. 6925, 388 F2d 862, 12/27/67, Aff'g an unreported District Court decision

[1954 Code Sec. 7201]

Criminal prosecution: Evidence: Admissibility.--In a criminal prosecution for tax evasion, the trial court did not commit error in its refusal to (1) admit into evidence a net worth chart and supporting testimony prepared by taxpayer's expert witness, (2) suppress certain evidence obtained through allegedly wrongful seizure, and (3) hold hearings on motions to suppress and dismiss based upon wiretapping and other alleged invasions of privacy. Nor was there error in the admission into evidence of certain statements allegedly made by taxpayer to revenue agents.

Edward Bennett Williams, Peter R. Taft, 1000 Hill Bldg., 839 Seventeenth St., N. W., Washington, D. C., John Warren McGarry, 114 State St., Boston, Mass., for appellant. Paul F. Markham, United States Attorney, Edward F. Harrington, Assistant United States Attorney, Boston, Mass., for appellee.

Before ALDRICH, Chief Judge, MCENTEE and COFFIN, Circuit Judges.

COFFIN, Circuit Judge:

Appellant appeals from his conviction for income tax evasion, in violation of 26 U. S. C. §7201, for the calendar years 1959, 1960, and 1961. Error is alleged in the district court's refusal to admit into evidence a net worth chart and supporting testimony prepared by appellant's expert witness; in the admission into evidence of certain statements allegedly made by appellant to revenue agents; in the court's refusal to suppress certain evidence obtained through allegedly wrongful seizure; and in the court's refusal to hold hearings on motions to suppress and dismiss based on wiretapping and other alleged invasions of privacy.

Appellant's Net Worth Chart

The first question is whether, this being a case in which the government utilized the net worth method of proving unreported taxable income, the court erred in excluding a net worth statement submitted by an expert witness of appellant. The net worth method seeks to derive taxable income in any given year by determining from all available evidence of assets and liabilities the increase (or decrease) in taxpayer's net worth over a twelve-month period, adding to it his non-deductible expenses for that year, and subtracting from that sum any amount attributable to non-taxable sources. For example, if a taxpayer begins the year with a net worth (cost of property less liabilities) of $40,000, ends it with $50,000, and has spent $7,500 during the year on living expenses, his receipts must have been at least $17,500. And if there is no likely non-taxable source of funds, such as gifts or inheritance, this set of facts constitutes strong circumstantial evidence that the receipts were taxable income.

The critical foundation for the computation is the starting net worth position. The government, to derive its point of beginning in 1959, the first taxable year, used net worth statements given by appellant some years before to revenue agents who were then investigating him. They covered the years ending December 31, 19 45 through December 31, 19 54. For part of this period appellant made a civil settlement for additional tax, fraud and other penalties, and interest. Appellant's net worth reported by him, as of December 31, 19 54, was $36,377.75.

This the government took as its starting point making several adjustments, mostly in appellant's favor (such as adding loans receivable), resulting in a beginning net worth figure of $55,346.07. The government then proceeded to analyze appellant's net worth each year thereafter through the tax years in issue, making detailed studies of his investment in or loans due from five or six corporations, together with his interest in other property, and liabilities. Drawing upon the testimonial and documentary evidence given at trial, an expert prepared and testified from a chart showing taxable income for each of the years in question considerably above that shown in the returns. ¹

The defense was based principally on appellant's contention that in 1950 he had received a cash gift from his father in the amount of $300,000. This cash hoard, he argued, not only accounted for increases in his assets but was available for and should have been credited to his non-deductible living expenses. Since both his increases in assets and his personal expenditures were explainable by a non-taxable source, there existed no basis for concluding that he failed to report any taxable income.

The existence of this alleged cash hoard was not only appellant's case on the merits below, but exclusion from evidence of a net worth chart assuming its existence, is a major basis for this appeal. We review, therefore, the evidence on this point.

The initial evidence of the alleged gift came from appellant's brother who testified that he witnessed the transfer of $300,000 by his father to appellant in the basement of McGarry's Tavern one day in 1950. As to the subsequent history of the cash hoard, he further testified as follows:

"Q. Now, whether or not, sir, as a result of that gift you know whether or not your brother spent any of it? A. Yes, he has.

"Q. Right up to the present time? A. Through the years."

A government witness, Nasif, had testified that in September of 1952, during the course of the investigation for the years 1946-1951, appellant was asked if he had ever received any inheritances and answered that he may have although he was not certain at the time. It was after this conversation that appellant's accountant, who had been present at the interview, prepared the first series of net worth statements. The accountant testified that he knew of the $300,000 gift, that he told the investigators about it, but that he did not include it in the net worth statements because he considered the gift non-taxable. ² Nasif denied being told of any gift and said that had such a gift been reported there would have been no additional tax assessed against appellant. A civil settlement was entered into for the years 1949-1951, in the amount of $5,204, covering additional tax and a 50 per cent fraud penalty.

The government, attempting to negate the existence of the cash hoard, introduced evidence that in 1940 appellant's father, the alleged source of the $300,000 gift, lost his home by foreclosure, the outstanding mortgage then being $1,600; that from 1943 to 1945 his annual wage as an employee of Bethlehem Steel Company was $3,000; that from 1946 to 1951 his sole reported source of income was his salary from his own establishment, McGarry's, Inc., the highest amount being $2,600 in 1947; that at the time of his death he was living in a Veterans Housing Project apartment leased to a son, appellant's brother; and that on his death he left no estate and that no inheritance tax, gift tax, or estate tax return was filed on his behalf. Appellant himself had a mortgage on his own home from 1947 until he sold it in 1960 and obtained a mortgage on his summer home in 1953 which remained in effect until he sold it in 1963.

Committed to the cash hoard theory as the only explanation of his true wealth, appellant sought to introduce into evidence a net worth chart prepared by his own expert witness. This chart commenced with an "equity" or net worth figure for December 31, 19 54 of $357,283.72, compared to the government's figure of $55,346.07. It showed a steady diminution of net worth to a figure in 1961 of $299,336.95, compared to the government's showing of increases to a 1961 figure of $244,490.17. The end result was a showing of no unreported income between 1955 and 1961, compared to the government's showing of unreported income in each year, aggregating $190,885.15. The critical difference between the appellant's exhibit and that of the government lay in the figures for cash on hand as of December 31, 19 54--$288,000 in appellant's exhibit and $6,000 in the government's exhibit.

While the government took its figure from appellant's own 1954 net worth statement to which we referred earlier, appellant's expert testified that he began his computations as of December 31, 19 51 by adding the $300,000 cash gift to appellant's cash figure of $18,000, reported on his net worth statement for that date. He then worked forward from that starting point of $318,000 in 1951 and arrived at a cash figure of $288,000 at the end of 1954 by doing a net worth analysis on the basis of appellant's tax returns and net worth statements. ³

The district court excluded this chart. In a post-trial memorandum and order addressing appellant's motion for a new trial, the court cited as the most important reason for the rejection of the summary exhibit the fact that it was not based on the evidence. ⁴ This had also been the chief thrust of the argument of government counsel. ⁵

Appellant charges that this ruling, excluding his expert's net worth chart and testimony, was error because the court applied standards to this chart which were more strict than those applied to the government's chart or those required by law. He argues that his expert's cash figure of $288,000 as of the critical starting point, December 31, 19 54 (and, for that matter, the cash figure for each successive year), was supported by the evidence. Starting with $318,000 of cash as of December 31, 19 51 (the cash gift of 1950 plus the $18,000 reported in appellant's net woth statement for 1951), which was "spent through the years", appellant reasons that the evidence of outflow from this reservoir between 1951 and the starting point was supplied by the same expenditure data used by the government. He contends that the court misunderstood the law when it declared (see n. 4) that there had been no evidence showing to what extent, if at all, the cash hoard remained unspent in any particular year. Appellant urges that he is entitled to the benefit of what he calls "the single paramount rule . . . that cash-on-hald must be applied against expenditures unless there is affirmative evidence of some other disposition."

Our difficulty is not with this principle but with its application to the facts of this case. What is lacking here is the predicate for its invocation, i.e., proven cash on hand. To put it another way, appellant seeks to use a method for attributing expenditures to known available resources to prove the existence of those resources. To view his argument starkly, he asserts that, as a matter of law, the district court had to assume (1) that nothing was spent from the cash hoard in 1950, the year of receipt; (2) that nothing was spent in 1951; (3) that, from 1952 through 1954, nothing more nor nothing less was spent from the reserve than an amount equalling appellant's non-deductible expenses; (4) that, from 1955 through 1958, up to the prosecution period, nothing more nor less than the amount of such expenditures was spent; and (5) that sufficient cash remained during the prosecution years, 1959-1961, to cover all increases in net worth.

We cannot accept as a legal imperative the substitution of such a chain of assumptions for direct evidence of cash on hand available during a given year. A close reading of all the authorities cited by appellant on this point confirms our view. In United States v. Caserta [52-2 USTC ¶9540], 199 F. 2d 905 (3d Cir. 1952), the court properly held that the government could not double count a taxpayer's known cash withdrawals from his bank and purchases made from cash in a given year without proof that the purchases had no connection with the withdrawals. In Marcella v. Commissioner [55-1 USTC ¶9482], 222 F. 2d 878 (8th Cir. 1955), the court reversed the Tax Court for failing to credit a $17,490.71 increase in bank loans, the proceeds of which were available to taxpayer, against his expenditures. The precision of the figure underscores the absence of speculation about the existence of "cash on hand" at the beginning of the tax period. In United States v. Altruda [55-2 USTC ¶9592], 224 F. 2d 935 (2d Cir. 1955), the government had failed to credit against expenditures certain realty income received in two tax years. Not only was the amount of this income during the tax years not in dispute, but the court, in assuming that it was spent, was influenced by the fact that defendant had reported a cash-on-hand figure at the end of the tax period of only $100. We confess our inability to read anything into such cases which requires the kind of leap appellant would have us take.

The remaining case cited by appellant on this point. United States v. Costello [55-1 USTC ¶9342], 221 F. 2d 668 (2d Cir. 1955), aff'd, [56-1 USTC ¶9321] 350 U. S. 359 (1956), is, to our mind, positive support for our view. Appellant seeks comfort from the action of the court in ruling that it was unreasonable for a jury to assume that the defendant had a smaller cash reserve at the beginning of the tax period than $40,000. But the court noted that defendant's "situation was far from ordinary", that defendant was a large-scale gambler and "had always kept such reserves in large amounts". 221 F. 2d at 673. More pertinent to the issue now before us is the reasoning of the court in upholding the trial judge's refusal to admit in evidence on defendant's behalf earlier deficiency assessments against him. These were sought to be used to prove that defendant had much more unreported income in pre-indictment years than appeared in the prosecution's computation and that therefore he began the indictment years with a cash reserve large enough to cover all purchases.

Judge Learned Hand, writing for the court, said:

"Costello did not suggest that he meant to supplement the assessments by showing how much of the alleged unreported net income had been spent for consumable purchases, or how much remained, or might have remained, as a concealed cash reserve on January 1, 19 46. He stood upon their admissibility as they read.

"If they were competent, they were relevant to show that Costello had received $90,000 of unreported net income more than the prosecution had succeeded in proving that he had received of unreported gross income during the eight years before January 1, 19 46. That could, indeed, have been one link in a chain of reasoning to prove that he might have had a cash reserve in his hands on January 1, 19 46; but it would be only a link, and it proved nothing, unless accompanied by evidence as to what had been done with the income so received. So far as Costello or his wife might have spent it for consumable goods, or have otherwise disposed of it, it could not be part of a cash reserve; and there was no presumption that they had not so spent it." 221 F. 2d at 674.

Counsel in the case before us urged in argument that were appellant obliged to show how the cash reserve was spent, the Fifth Amendment would be violated. The Supreme Court has weighed this argument, saying in Holland v. United States [54-2 USTC ¶9714], 348 U. S. 121, 138-39 (1954):

"Once the Government has established its case, the defendant remains quiet at his peril. Cf. Yee Hem v. United States , 268 U. S. 178, 185. The practical disadvantages to the taxpayer are lessened by the pressures on the Government to check and negate relevant leads."

Had the linkage between dates and amount been supplied, as in Pestein v. United States [57-2 USTC ¶9797], 246 F. 2d 563 (6th Cir.), cert. denied, 355 U. S. 868 (1957); and Kampmeyer v. United States [55-2 USTC ¶9779], 227 F. 2d 313 (8th Cir. 1955), cert. denied, 351 U. S. 904 (1956), appellant's chart would have been entitled to admission. Without such evidentiary linkage, it may well be that such a chart is inadmissible as a matter of law. See Oertle v. United States [66-2 USTC ¶15,722], 370 F. 2d 719, 727-28 (10th Cir. 1966), cert. denied, 6/5/67; United States v. Moody [64-2 USTC ¶9873], 339 F. 2d 161, 162 (6th Cir. 1964), cert. denied, 386 U. S. 1003 (1967); United States v. Kiamie [58-2 USTC ¶9817], 258 F. 2d 924, 932-33 (2d Cir.), cert. denied, 358 U. S. 909 (1958). But we need go no farther here than to say that the district court acted within permissible bounds of discretion.

Wholly apart from the soundness of the district court's ruling on admissibility of the net worth exhibit, we see no prejudice to appellant. Admittedly the rejection of appellant's exhibit gave the prosecution an opening for argument which it vigorously seized and its exhibit had no competition for the jury's attention in the jury room. Nevertheless it is perfectly clear from the evidence, the argument, and the charge that the key issue in the case was the existence of the cash hoard. Appellant's expert testified to the effect, in eliminating tax liability, of a much higher starting net worth figure in 1955. ⁶ Counsel's argument to the jury centered on the issue of the existence of the cash gift. A substantial part of the court's instructions was devoted to this issue. And counsel in his brief on appeal states, "In the case at bar, the appellant went to the jury primarily on the accuracy of the opening net worth, contending that he had $300,000 which the government did not include."

The jury therefore had the issue of the cash gift before them to the extent that their finding against appellant necessarily determined its nonexistence. The excluded chart was not, and could not have been, affirmative evidence of the receipt of the gift. Its relevance, so far as it had any, was simply that it was a graphic means of illustrating how, if appellant had received and retained the gift for the appropriate period, his income would not have been understated. Since, however, the jury, as the case was ultimately presented to it, necessarily rejected the basis upon which the chart was prepared, we state, as an alternative holding herein, that any error in the exclusion of the chart could not have been prejudicial.

Admissions to Revenue Agents

A second error is alleged, in the admission into evidence of a 1958 memorandum of an internal revenue agent, Pastore, that appellant had told him that his 1957 income tax return included income of $4,000 from parimutuel winnings. ⁷ Pastore, no longer in government service, had no memory of the conversation which led to the memorandum. Nor was his memory refreshed by reading it. And while he at first stated that he did not know whether the contents were true and correct and conceded that he had sometimes signed papers without reading them, he subsequently, on four occasions during the trial, testified that the memorandum was true and correct as of the date of its making.

Appellant, citing 3 Wigmore, Evidence §747 (3d ed. 1940), argues that the memorandum was inadmissible as past recollection recorded for the reason that Pastore's testimony indicates he could not vouch for its accuracy from habit or course of business. We think the memorandum properly admitted. A document is not rendered incompetent solely because an attesting witness may acknowledge that he sometimes signs papers without reading them, where the record is replete with references to testimony by the same witness that a specific document was true and correct at the time of its making. ⁸

Appellant also assigns as error the reception of testimony from another internal revenue agent, Nasif, that, in the course of a tax investigation in 1952, appellant stated that part of his income from 1946 to 1951 came from gambling and bookmaking. Appellant was said also to have stated that he operated alone, did not lay off any bets, and stopped these operations as of November 1, 19 51. This testimony is attacked as introducing evidence of early offenses, independent of those charged, unnecessary to the proof of wilfulness in view of the admitted payment of a fraud penalty for the years 1949 through 1951, and uncorroborated by other evidence.

Admission of Nasif's statements was not prejudicial. Appellant's brother testified, as part of the case for the defense, that appellant had been associated with his father in gambling operations until the time of his father's death in December 1951 and that these operations constituted the principal source of his father's cash. This evidence of source was essential to appellant's case in order to explain how an elderly man, living in modest circumstances, on low wages, and having had financial difficulties, could accumulate such a large cash hoard. The evidence of appellant's association in gambling with his father may not have been helpful to appellant, but it was given by a defense witness and was not made tactically necessary by prosecution testimony. It is clear that appellant cannot successfully claim prejudice from the fact that both defense and prosecution daubed him with tar from the same brush.

What we have just said applies even if the admission of the Nasif testimony were error. But we do not think it error. Appellant's accountant had submitted a net worth statement showing appellant's cash on hand as of December 31, 19 51 as $18,000. Appellant's compensation as an officer and employee of McGarry's, Incorporated was supplemented in his tax returns by an entry under the caption of commission salesman, which proved to represent gambling and bookmaking receipts. That appellant should have included in his explanation of his financial position such activities as subject to opprobrium as bookmaking is some evidence that there had been no large inheritance. If a legitimate source of wealth had existed, so a jury might justifiably reason, there would be little sense in basing the explanation on a less respectable source. Moreover, appellant's statement that he operated alone could have led the jury to find that his father was not in the gambling business, that he therefore did not accumulate a large cash reserve to give to his son, and that the gambling operation at McGarry's, not stemming from the father's operations, was continued as a likely source of income for appellant.

The very facts that in 1951 appellant hid this income under a misleading caption, that in 1952 he was warned of his inadequate records, that in 1957 he was found to have reported gambling winnings under the rubric, "various sources--$4000", and that another such caption appeared in 1958 tend to show a pattern of looseness in reporting and record-keeping congenial to those engaged in gambling pursuits. We cannot say that the earlier as well as the later evidence is irrelevant on the issue of wilfulness. See Holland v. United States , supra, 348 U. S. at 139.

Appellant seeks to equate the facts here with those in Massei v. United States [57-1 USTC ¶9434], 241 F. 2d 895 (1st Cir. 1957), aff'd, [58-1 USTC ¶9326] 355 U. S. 595 (1958), in which we held that it was error to receive testimony of an admission of graft long antedating the indictment years where the admission was uncorroborated, and there was no evidence of continuity of or even opportunity to engaged in such activity. Here the admissions, as we have noted, were corroborated by defense testimony, were relevant to the issue of credibility of the cash hoard theory, and were tied in with a pattern of misleading reporting and continuity of involvement in gambling, a possible source of unreported income. Finally, we note that both at the time of the Nasif testimony and during the charge, the judge gave the jury appropriate instructions.

Motions to Suppress

The prosecution introduced many business records concerning enterprises with which appellant was associated. These documents, necessary to the government's net worth analysis, were subjected to repeated motions to suppress. Error is charged in the court's denial of these motions. The litigation history of these particular records is already almost uniquely protracted.

In Lord v. Kelley [64-1 USTC ¶9378], 223 F. Supp. 684 (D. Mass. 1963), the district court held that although an administrative subpoena had been prepared for service on appellant's accountant, one Donald Lord, a turn-over of records of appellant and his companies was accomplished without resort to the subpoena, by measures found to be coercive, so that the records were wrongfully seized. The records were ordered returned but not permanently embargoed, the court nothing that the agent who prepared the subpoena had previously known of the records. We dismissed an appeal from that part of the order which refused a permanent injunction infuture criminal proceedings on the ground that the government had not yet sought production of the records. Lord v. Kelley [64-2 USTC ¶9622], 334 F. 2d 742 (1st Cir. 1964), cert. denied, 379 U. S. 961 (1965). The government soon issued summonses for many of the same records, the district court ordered them enforced, and we affirmed the judgment in McGarry's, Inc. v. Rose [65-1 USTC ¶9391], 344 F. 2d 416 (1st Cir. 1965), holding that the government could reacquire the records by legal process for use in a future criminal proceeding.

While we might simply say that the issue of the production through legal process of these records had been foreclosed, we note that the initial order of the district court in Lord v. Kelley, supra, proscribed use of otherwise unknown information gleaned only from the illicit custody of the seized records. Appellant has claimed that subsequent summonses were fatally infected by scrutiny of the illegally seized records. We have reviewed all of the evidence on this issue and must reject the claim.

To begin with, as appellant's witness, a former revenue agent, testified, the first subpoena had listed all possible categories of business records. To know that records relevant to the status of a business include ledgers, journals, cancelled checks, bank statements, vouchers, corporate minute books, cash receipts and disbursement recors, deposit slips, ending inventory reports, and corporate correspondence is hardly today an occult art. An apprentice investigator would ask for such records. This is no more than the government did in this case.

It operated, however, from a great deal more information than an apprentice would have. Long before the illegal seizure, government agents had studied a large volume of records, had had the advantage of interviews with appellant's accountant and many man hours of analytical work. So far as we can tell from the record, all that the illegal seizure contributed was a basis for comparing what had been received with what had been requested in order to avoid duplication when a later summons was issued for additional records. Close analysis reveals that so-called "clues", mentioned by appellant's witness, led only to such boilerplate items as check book stubs, bank statements, and inventory records. It is clear to us that this is not a case where an illegal search has revealed unsuspected data which is sought to be blanketed under a later "legal" subpoena. Cf. Agnello v. United States , 269 U. S. 20 (1925).

Appellant argues that the ruling in McGarry's, Inc. v. Rose, supra, will permit wholesale violations of the Fourth Amendment. We do not share this apprehension. We suspect that the government would ordinarily seek to avoid both the inconvenience of delay when records are required to be returned and the risk of a judicial finding that valuable leads were obtained while records were in wrongful custody. To impose the greater sanction of permanent immunization whenever a seizure of ordinary business and corporate records has been invalidated would place an incommensurate burden on the government, unnecessary for the protection of commercial privacy. Indeed, such a sanction could lead taxpayers to play a game, inviting seizure on the chance that it could arguably be converted into an effective vaccination against any future use of such routine records.

Motions for Hearings

Appellant urges two points related to invasion of privacy in the nature of wiretapping. The first challenges the adequacy of hearing on an admitted wiretap and the second challenges the failure of the district court to hold a voir dire hearing on the issue whether a "pen register" device had been attached to appellant's telephone to record numbers called.

On the first day of trial the prosecution disclosed that a wiretap had been placed on the telephone of a Miami , Florida resident from August 1962 through August 1963 and that in July or August of 1963 two incoming calls of appellant were recorded, in which appellant expressed interest in gambling operations, i.e., laying off bets. The court then held a voir dire in which the agent in charge of the tap, Yung, testified that a government employee or "informant" in Miami had the responsibility of changing the tapes and sending them to Washington , that no record of the conversation was kept, and that the tapes were erased after Yung had listened to them. Yung transmitted no information regarding these calls during the investigation of appellant and had occasion to recall the conversations only two months before the trial when he was given a long list of names (including that of appellant) by the General Counsel of the Internal Revenue Service.

The government filed an affidavit that no evidence illegally obtained or "tainted" or any leads therefrom had been submitted to the Grand Jury or would be used in trial. There was no evidence as to gambling other than that stemming from appellant or his witnesses (which we have above discussed). There was no evidence involving individuals in Miami . Appellant, indeed, does not assert any basis for concluding that the wiretap resulted, directly or indirectly, in any evidence adduced at trial.

Appellant was given the opportunity to resubpoena Yung to the stand for a second voir dire but did not do so. His chief ground for asserting error is that he was not allowed time, before trial resumed, to produce other witnesses and particularly to examine the government employee who had custody of the tapes at the site of the wiretap. While it would have been better practice for the government to have made its confession of wiretapping well in advance of trial, we cannot say that the court gave an inadequate opportunity to appellant to explore the implications of the tap. The remoteness in time of the two conversations, the remoteness of the subject matter from that of willful tax evasion, the lack of any apparent connection--even after vigorous cross-examination--between the tapes and any evidence of event, place, or person presented at trial, and the predominantly custodial responsibilities of the employee at the tap site are adequate grounds for the court's exercise of its discretion. It fully discharged its responsibility to "give opportunity, however closely confined, to the accused to prove that a substantial portion of the case against him was a fruit of the poisonous tree." Nardone v. United States , 308 U. S. 338, 341 (1939).

As to the claim that it was error for the court not to have held a voir dire hearing on the possible use of a pen register, the appellant first filed a motion alleging the use of such a device and seeking the suppression of any resulting leads or information. It was signed by counsel, but contained no oath or averment as to the truth of the allegation. It and eleven other motions for suppression were denied for lack of "solidity", being unsworn. Subsequently, appellant filed a similar motion alleging use of a pen register, enclosing a memorandum requesting identification of the subscribers to some 58 telephone numbers, and also seeking the unpublished numbers for appellant and McGarry's, Incorporated. ⁹ The memorandum closed with a notation that the information was "for" a special agent of the Internal Revenue Service. The motion was signed by appellant and his attorneys as "true to the best of my knowledge and belief".

There was no indication that the list of numbers affixed to the supplementary motion had been obtained by a pen register. The motion was no more "solid" than that in United States v. Flynn, 103 F. Supp. 925, 930 (S. D. N. Y. 1951), aff'd, 216 F. 2d 354 (2d Cir. 1954), cert. denied, 348 U. S. 909 (1955). Moreover, the government had filed an unreserved denial, on affidavits, of use of any illegally obtained evidence. See United States v. Casanova, 213 F. Supp. 654, 657 (S. D. N. Y. 1963). The district court was warranted in refusing hearing on the use of such a device. We note, finally, that appellant, prevented at trial from pursuing inquiry before the jury as to use of a pen register, did not request to examine telephone company and internal revenue officials on a voir dire.

Other motions to suppress were filed on the basis of testimony given by a former revenue officer before a Senate Subcommittee that he and others had observed appellant's premises with spy-glasses and had even broken into appellant's home. The extracts of such testimony annexed to the motions reveal that the former agent observed a jacket bearing the label "Leighton's Clothing Store". The prosecution, however, introduced no expenditure evidence relating to this item or his store, doubting the reliability of the agent who had been suspended and indicted at the time of his Senate testimony, and was convicted before the trial of this case. Again, appellant failed to make a showing that any tainted evidence had been used.

This was a vigorously contested twenty-one day trial, preceded and accompanied by many oral and written motions. We think that the rights of appellant were zealously urged and fairly protected.

Affirmed.

¹ The following figures from the government's net worth chart indicate the extent of appellant's alleged unreported income:

                                   1959               1960               1961

Taxable income .....         $63,342.44         $34,008.37         $54,933.82

Reported income ....          24,445.16          27,042.38          24,065.19

Unreported

income .............         $38,897.28         $ 6,965.99         $30,868.63

² According to Nasif's notes, however, appellant answered questions directed to receipt of gifts exceeding $100 or inheritances by indicating that such data would be included in the net worth statement which he agreed would be forthcoming.

³ The record is far from clear how appellant's expert proceeded. At one point he testified that his cash-on-hand figure in 1951 was $300,000; at another point the figure is $318,000. As to method, he testified: "I took the $300,000 that was in evidence, took the tax returns and the net worths that were introduced in evidence and made a calculation, and I also took into consideration [revenue agent] Roberson's schedule that he made of monies available from 1946 through 1954." While we try to follow the explanation of appellant's witness as to how he derived a 1952 cash-on-hald figure from his 1951 starting point, we are unable to follow his arithmetic. We assume, however, that his data and technique in bridging the gap from 1951 through 1954, and thereafter, were identical or similar to those the government used, except for the additive factor of the cash hoard.

⁴ The memorandum, in salient part, is as follows:

"This exhibit was excluded for several reasons, the most important being that the defense elicited not one iota of testimony concerning the manner in which this alleged sum of money was expended. Even assuming that a gift of $300,000 did take place, there was not a scrap of admissible testimony to show whether the money was retained unspent, or was expended in one year or two, or, as the exhibit purported to show, was expended over the period 1955-1961 in amounts precisely reflecting the Government's proof of expenditures in that period. This being so, the summary exhibit was not based on evidence in the case, but upon mere suppositions and conclusions. It was, therefore, not a summary of the evidence and was properly excluded. . . . It is enough that there was no evidence of the manner in which the alleged $300,000 was spent, so that the chart in no way could be thought of as a summary of evidence in the case."

⁵ On voir dire, he urged, "That fatal error in this chart is this: Assuming that the defendant did have $300,000 in cold cash in 1951--assuming that he had that and his brother counted it, $300,000--there isn't a scintilla of evidence as to what happened to the money after that. There isn't a bit of evidence as to what happened to the $300,000 after that."

⁶ "Q. Now, insofar as the item listed here 'net worth' is concerned, following that throughout the years '55 to '61, Mr. Linnehan, what if any, what computations--would you explain the computations used in that instance? A. Well, he starts off at 12/31/55 net worth $52,327.36. He says less prior net worth $55,346.07. If that figure were $355,000, then everything '56, '57, '58, '59, '60 and '61 would fall. So the opening net worth figure of $55,346.07 is the starting point. If that was in error, everything else would be in error all the way through. Q. Now, sir, when you say 'all the way through,' that would, on the figure you gave, eliminate any taxes due throughout the years? A. Yes, sir."

⁷ Appellant feels this was prejudicial because it indicated a likely source of unreported income and might have led the jury to conclude that appellant's involvement with both gambling bookmaking had not ceased on his father's death.

⁸ We note, in addition, that the authority relied on by appellant warns against the rigid application of inflexible dogmas. "Courts should cease to treat [the "past recollection recorded" rule] as anything but provisional and [a] crude aid to truth. The Trial Court's discretion should be allowed to control. There should be liberal interpretation and liberal exemption. And no ruling of admission should ever be deemed an error worth noticing on appeal." Wigmore at §755. While we may not go so far as to adopt the quoted language above, we deem the court in this instance to have acted within its discretion.

The government also submits that the document in question was admissible as a federal business record. 28 U. S. C. §1732-33; Connolly v. United States [57-2 USTC ¶10,029], 249 F. 2d 576, 587-88 (8th Cir. 1957), cert. denied, 356 U. S. 921 (1958). Since we find it admissible as part recollection recorded, we do not reach this argument.

⁹ We note that, had the list been the result of the use of a pen register, there would be no explanation why unlisted numbers for named subscribers would be requested, i.e., a pen register converts pulses only to numbers, not names.

[67-2 USTC ¶9588]Jacob J. Forhmann, Appellant v. United States of America , Appellee

(CA-8), U. S. Court of Appeals, 8th Circuit, No. 18,576, 380 F2d 832, 7/27/67, Affirming unreported District Court

[1954 Code Sec. 7203]

Willful failure to file return: Admission of evidence: Right to counsel: Comments by court.--The taxpayer's conviction by a jury for failure to file income tax returns was upheld were the record failed to disclose any prejudicial error. There was no prejudice in the trial court's failure to exclude testimony by an attorney which the defense claimed indicated advice to the taxpayer that he must report profit on a real estate transaction. The taxpayer himself testified that he knew that a return had to be filed for the year in question. Neither was the testimony of a revenue agent improperly excluded for failure to warn the taxpayer of his right to counsel. The taxpayer was not in custody at the time of questioning by the agent and there was an attorney present who, the agent testified, told him that he was the taxpayer's attorney. The defense claimed that there was no positive demonstration in the record that the taxpayer had retained the attorney but neither did the record demonstrate that he was retained in any other capacity. Comments by the trial court were not indicative of prejudice; the court's examination of a witness did not elicit anything which did not come in later and the court's action in limiting testimony was properly within his descretion. Neither was the exclusion of various items of evidence offered by the taxpayer prejudicial; the items offered were also within the court's discretion as to materiality or relevancy.

James Q. Brown, 7751 Carondelet Ave., Clayton, Mo., Robert E. Johnson, Krieg, DeVault, Alexander & Capehart, Suite 1200, 111 Monument Circle, Indianapolis, Ind., for appellant. Richard D. FitzGibbon, Jr., United States Attorney, John A. Newton, Assistant United States Attorney, St. Louis , Mo. , for appellee.

Before VOGEL, Chief Judge, and BLACKMUN and HEANEY, Circuit Judges.

BLACKMUN, Circuit Judge:

Jacob J. Frohmann, after a plea of not guilty, was tried in July 1966 and convicted by a jury on both counts of a two-count information charging him with violating 26 U. S. C. §7203 in willfully failing to make federal income tax returns for the calendar years 1959 and 1960. Judge Meredith imposed a sentence of one year on each count and directed that the sentences be served concurrently. The defendant appeals.

Reversible error is alleged with respect to the admission of evidence, comment by the trial judge, and the rejection of evidence proffered by the defense. There is no claim that the evidence which was admitted was not sufficient to support the verdict.

In the years in question Frohmann was engaged in the business of developing and dealing in commercial real estate in the Saint Louis area. His federal income tax returns for the calendar years 1958-64, inclusive, were all delinquently filed. The 1958 return was filed in July 1962 after a revenue agent appeared on the scene. An amended return for that year and the returns for 1959-64, inclusive, were filed on December 11, 19 65.

Frohmann does not deny that he had income sufficient to require him to file returns for 1959 and 1960 or that he failed to file those returns when they were due. He admitted this on direct examination. ¹ He does deny that his failure to file was willful or with any intent to deprive the government of that to which it was entitled.

The defendant's tax difficulties center in the development and sale of a shopping center in Saint Charles, Missouri, dealings in options, the sale of an apartment, and rental from a bank building.

The government produced witnesses who testified as to the defendant's business activities and the amounts he received in various transactions. Some of these involved substantial figures. The government's evidence tended to show that the defendant's 1959 gross income was $55,502.41 and his 1960 gross income was $36,522.50. The latter figure contrasts with a gross of over $24,000.00 but a net loss of $50,362.63 asserted by the defendant on his 1960 return as delinquently filed. This difference is due to variance in treatment of the apartment sale, and to a rental loss asserted by the defendant on the bank building but claimed by the government to be a corporate and not an individual transaction.

Some emphasis is placed on the defendant's background. He testified: He was born in Saint Louis in 1910. His parents were European immigrants who were uneducated and spoke little English. He attended school in this country through the fourth grade and then was taken to Europe and apprenticed in a dry goods store there for about five years. He returned to Saint Louis and finished the fifth grade when he was 16 years old. His elementary education was then discontinued and he went to barber school. After barbering for a time he became interested in real estate and, although he was never licensed, went to work as a salesman for real estate companies. In 1942 he started to work for himself. He operated out of his home until 1955 and then took desk space at a real estate office.

There is testimony that the defendant has been substantially blind in one eye since childhood, has been deaf in one ear since 1940, and has had cardiac disease since 1959.

Mr. Forhmann kept no books. His only records are papers relating to his real estate transactions.

A. The testimony of the witness Schneider and the court's refusal to grant a mistrial.

Edward C. Schneider, an attorney, was a witness called by the government. He testified that in the summer of 1959 he was retained by the defendant to represent him in connection with the acquisition of an apartment house corporation. There were negotiations with the attorney for the seller as to the contents of the sale contract. The transaction was closed in a title insurance company office. On direct examination of Mr. Schneider, the following took place:

Q. Now subsequent to the exchange did you have a conversation with Mr. Frohmann relative to the property, the profits on it? Would that be correct?

A. No. I might say this, well, I will clarify it. My duty was at an end after I assigned the contract over to Mr. James and Effie James.

Q. To Mr. James and Effie James.

A. Then the closing end of the Jennings and West Pine took place after we had consummated. Now as far as the profit was concerned in dollars and cents, I would have no knowledge of that.

Q. Did you have any conversation with him relative to reporting that?

A. Well, I told him this: I was very certain--

Mr. Brown: Wait a minute. I am going to object to any statement he may have made. In the first place, there is no showing he was authorized to act in that capacity, and if he was, he was his attorney. I think counsel knows better than to ask a question like that.

At this point the jury was excused. At the bench the government offered to prove that, after the witness had completed his legal services for the defendant, he conversed with him and told him that, if he had gains from these transactions, they should be reported and "that he had better get himself an accountant and find out what had transpired". After the noon recess the government informed the court that it would not further pursue this line of questioning. The defense repeated its claim of provilege and moved for a mistrial. This motion was overruled but the court stated, "If you desire any special instruction at this time to the jury or later, I will give it". No request for an instruction was made and no further question was asked of Mr. Schneider.

The defense claims that the quoted questions and answers show that the defendant could only have received advice from this attorney to report his profit and that this was particularly prejudicial because it was the only direct evidence of advice to the defendant as to the necessity of filing a return and thus seriously affected his defense of nonwillfulness.

We decide this issue against the defendant and do so because we perceive no prejudice. As we have noted, Frohmann himself testified on his direct examination, and thus told the jury, that he knew that a return had to be filed for 1959. Although this came later in the trial than the Schneider testimony, no claim is made that it was occasioned by that testimony or that Frohmann would not have so testified if Schneider had not said what he did. With the duty to file thus conceded, we fail to see how advice from Schneider as to the necessity for filing--if Schneider's answer can be regarded as stating that much--adds anything at all. Furthermore, our decision is fortified by the failure of the defense to proffer a curative instruction when the court offered to give one if it were desired, and by our awareness that the allowance of a mistrial motion is a matter for the trial court's discretion. Evenson v. United States , 316 F. 2d 94, 95-96 (8 Cir. 1963); Dolan v. United States , 218 F. 2d 454, 460 (8 Cir. 1955), cert. den., 349 U. S. 923. Certainly we do not find here the "clear and obvious abuse of a trial court's discretion" which alone justifies reversal. Schaefer v. United States, 265 F. 2d 750, 753 (8 Cir. 1959), cert, den. 361 U. S. 844.

B. The testimony of Revenue Agent Parker and the application of the Escobedo and Miranda rules.

Agent Parker testified that, in connection with his examination of the returns of a person with whom the defendant had real estate transactions, he requisitioned the defendant's 1959 return; that this request was not productive; that he communicated with Frohmann and asked him to present the check with which he had paid his 1959 tax; that the defendant said he would do this but the check was not forthcoming; that shortly thereafter a man named Kuehn came to Parker's office and said he was an attorney representing Frohmann; that on many occasions in 1961 and in the first part of 1962 he asked the defendant for records to determine his income; that no records were produced; that in June or July of 1962 he went to Mr. Kuehn's residence and reviewed papers which the defendant had there; that this was done with the defendant's permission given to Mr. Kuehn; that in July Kuehn filed the 1958 delinquent return for the defendant; that on August 16, 19 62, there was a conference in the Internal Revenue Service office attended by Kuehn, Frohmann, Parker and Special Agent Stieferman; that Stieferman there advised the defendant that he had a right not to answer any question; that Frohmann replied that he "did not intend to use that privilege, he would give us anything we wanted"; and, over objection, that the defendant stated that his returns were not filed "because he didn't have the money to pay the tax".

It is the admission of this last response which the defense now challenges. It is suggested that this is not entirely consistent with the defendant's own testimonial statement, set forth in the footnote, supra, as to he reasons for his delinquency.

Although conceding that the defendant was not in custody at the time this statement was made, the defense advances the principles of Escobedo v. Illinois, 378 U. S. 478 (1964), and of Miranda v. Arizona, 384 U. S. 436 (1966), and claims that these have application to this 1962 internal revenue service conference at which a special agent was present and whose presence implied a criminal aspect to the investigation.

The government asserts that the defendant concededly was advised that he need not speak; that, however, he waived his right to remain silent; that, although he was not warned of his right to counsel, this fact is of no consequence because his own counsel, Kuehn, was present; and that, in any event, internal revenue agents in the investigatory phase of a case, and prior to custody, have the right to make inquiry of a taxpayer without the formalities which Escobedo and Miranda may now require for custody situations.

In response the defense argues that, although Mr. Kuehn was a lawyer, he was over 80 years of age and the record does not show that he was representing the defendant in a legal capacity as contrasted with acting as an accountant who prepared tax returns for him.

Whenever the question has been presented to a court of appeals, the court has refused to extend the Escobedo and Miranda requirement for the rendition of advice as to the right to counsel to the situation of a precustody internal revenue service inquiry. Morgan v. United States [67-1 USTC ¶9449], 377 F. 2d 507, (1 Cir. 1967); Schlinsky v. United States [67-2 USTC ¶9493], 379 F. 2d 735 (1 Cir. 1967); Mathis v. United States [67-1 USTC ¶9408], 376 F. 2d 595 (5 Cir. 1967); United States v. Maius [67-2 USTC ¶9521], 378 F. 2d 716, (6 Cir. 1967); Kohatsu v. United States [65-2 USTC ¶9715], 351 F. 2d 898 (9 Cir. 1965), cert, den. 384 U. S. 1011; Rickey v. United States [66-1 USTC ¶9395], 360 F. 2d 32 (9 Cir. 1966), cert. den. 385 U. S. 835; Selinger v. Bigler [67-1 USTC ¶9420], 377 F. 2d 542, (9 Cir. 1967), cert. applied for June 30, 19 67. See United States v. Spomar [65-1 USTC ¶9141], 339 F. 2d 941 (7 Cir. 1964), cert. den. 380 U. S. 975. The great majority of unappealed district court cases in which the question has arisen are to the same effect. Bohrod v. United States, 248 F. Supp. 559, 564-66 (W. D. Wis. 1965); Smith v. United States [66-1 USTC ¶9406], 250 F. Supp. 803 (D. N. J. 1966); United States v. Fiore [66-2 USTC ¶9680], 258 F. Supp. 435 (W. D. Pa. 1966); United States v. Hill [67-1 USTC ¶9173], 260 F. Supp. 139 (S. D. Cal. 1966); United States v. Carlson [66-2 USTC ¶9633], 260 F. Supp. 423 (E. D. N. Y. 1966); United States v. Spinney [67-1 USTC ¶9193], 264 F. Supp. 774, (D. Mass. 1966); Stern v. Robinson [67-1 USTC ¶9295], (W. D. Tenn. 1966); United States v. Gleason [67-1 USTC ¶9297], 265 F. Supp. 880, 883 (S. D. N. Y. 1967); United States v. Neves [67-1 USTC ¶9412], (S. D. N. Y. 1967); United States v. Rabin [67-1 USTC ¶9465], (S. D. N. Y. 1967).

To the contrary, seemingly, are only United States v. Turzynski [67-2 USTC ¶9489], (N. D. Ill. 1967); United States v. Kingry [67-1 USTC ¶9262], 19 AFTR 2d 762 (N. D. Fla. 1967); and United States v. Schoenburg [67-1 USTC ¶9393], (D. Ariz. 1965). See United States v. Harrison [67-1 USTC ¶9222], (S. D. N. Y. 1967). But Mr. Justice Douglas dissented from the denial of certiorari in Thomas v. United States, 386 U. S. 975 (1967), with the observation that, "This is not an in-custody case, but it is a coercive examination of a taxpayer at a critical preliminary hearing, so to speak, and the question presented apparently is a recurring one".

All these cited cases have been decided since Escobedo and many of them since Miranda. Their facts, of course, vary. It is clear, however, in a number of them, that the internal revenue service review had reached the stage where a special or intelligence agent was in the case and was present at the conference.

For us, the majority authorities comprise an impressive list and we would be loathe to oppose them.

The present case, however, is not without its other features and we may therefore regard the Escobedo-Miranda issue the question of the extension of the "custodial interrogation" language, p. 444 of 384 U. S. , to noncustodial internal revenue service conferences, as one not squarely presented to us here.

It is not disputed that Mr. Kuehn was a lawyer. Although the record may not positively demonstrate that the defendant retained him as an attorney, neither does it positively demonstrate that the defendant retained him only in a capacity other than legal. Agent Parker testified that Mr. Kuehn told him that he was the defendant's lawyer. And he did prepare the first 1958 return for the defendant filed in July 1962 (as well as his returns for earlier years). He thus performed services which, in the delinquency atmosphere of this case, certainly had legal overtones. We feel that the court could properly conclude that Mr. Kuehn was acting in the capacity of attorney for Mr. Frohmann at the time of the conference on August 16, 19 62, when the challenged statement was made. Any basis for a claim of deprival of advice as to the right to counsel thus evaporates. We are not satisfied, either, that this record shows that the investigation had attained what is to be described as the accusatory stage or that there is any significantly apparent inconsistency in the defendant's testimony.

In summary, the factual situation here falls far short of what has been determined to be of constitutional magnitude in Escobedo and Miranda and which was persuasive upon the Supreme Court in those cases.

C. Comments by the court.

The comments by the court, which the defense claims were influential upon the jury and prejudicial, were made during the examination of witness Lewis A. Mueller, a certified public accountant employed by the defendant to prepare his delinquent returns. Mr. Mueller was hired, at the suggestion of counsel, in late 1963 to set up the records for a shopping center. He became aware of the defendant's personal income tax problems in early 1965. On direct examination Mr. Mueller was questioned about the difficulties he incurred in getting detailed information for the preparation of the returns and about the incomplete and uniformative nature of the initial 1958 return prepared by Mr. Kuehn and filed in 1962. The court indicated general agreement with government objections that what happened in 1965 or in 1962 was not material to the issue and that the year 1958 was not the subject of charges against the defendant and, on occasion, itself asked questions of the witness.

The defense complaint here is that the trial court demonstrated impatience to get Mr. Mueller off the stand, indicated that it thought his testimony to be of little importance, and, by its own questions, showed that it considered the defendant's failure to obtain assistance or an extension of time for filing as indicative of willfulness.

No objection based on the court's demeanor or alleged influence was made during the trial. In its instructions the court told the jury that it meant to express no opinion and that it was for the jury and not the court to determine facts.

We have carefully read witness Mueller's entire examination and we do not at all agree with the defense's characterization of the trial court's actions. For the most part, the information elicited from the witness eventually came in anyway. It may be that one engaged in the defense of the suit might find himself inclined to believe that the court is becoming impatient. We find nothing here, however, which is any different from what takes place in any lawsuit where the trial judge has ruled as to the limits of testimony and is consistently confining counsel to those limits. The court, it seems to us, was doing no more than maintaining a normal and fairly tight rein on a tax case in order to keep it moving along and to prevent its being bogged down in statistical detail of questionable pertinency upon the real issue, namely, the defendant's state of mind as to the filing of returns for 1959 and 1960 when they were due.

There is nothing here which can be characterized as abusive or unfair or which approaches plain error as contemplated by Rule 52(b), Fed. R. Crim. P.

D. The exclusion of evidence offered by the defense.

This was of three types: (1) the files of three state court cases (in one of which defendant had counsel of record) in which default judgments were obtained against the defendant in 1962, 1963 and 1964 in amounts exceeding $65,000.00 in the aggregate; (2) income tax computations made by Mr. Mueller for the defendant for 1959 and 1960 which would show a loss for 1960 entitling the defendant to the benefit of a net loss carryback, under §172 of the Internal Revenue Code of 1954, as amended, 26 USC §172, to prior tax years, a benefit which the defendant by his failure to file did not claim, and (3) the delay of the Internal Revenue Service for more than a year in furnishing a duly requested Form 899 for the defendant. This form is a record of a taxpayer's returns, assessments and payments. It was eventually produced here only 11 days prior to trial. The defense asserts that the evidence in the first two categories tended to show the defendant's incapacity and an absence of willfulness on his part, and that the evidence in the third category demonstrated that the government does not adhere to its own standards, and tended to impeach the testimony of revenue agents who said they had no bias against the defendant.

We perceive no prejudicial error. The delay in the furnishing of Form 899 has no bearing, apparent to us, upon the issue of willfulness and we see no prejudice, nor is any claimed, in the delay. The defense had the form and the information it disclosed for several days prior to trial. The state court files and the Mueller computations perhaps could have been admitted, but there are limits to what may be considered as reasonably connected. This type of material, in our view, clearly falls within the broad area of the trial court's discretion as to materiality or relevancy. See Cotton v. United States, 361 F. 2d 673, 676 (8 Cir. 1966); Clark v. United States [54-1 USTC ¶9291], 211 F. 2d 100, 105 (8 Cir. 1954), cert. den. 348 U. S. 911; Wilson v. United States [57-2 USTC ¶10,040], 250 F. 2d 312, 325-26 (9 Cir. 1957). We find no abuse in the court's rejection of the evidence on the ground of remoteness and irrelevancy and, indeed, we agree with the court's rulings.

We do not hesitate to say in conclusion that this case strikes us as a weak one for the defense. It is easy to understand why a jury, itself composed of taxpayers, would not be persuaded by the explanation for nonfiling which Mr. Frohmann offered. The case is remainiscent of Sansone v. United States [64-2 USTC ¶9640], 334 F. 2d 287 (8 Cir. 1964), aff'd 380 U. S. 343 (1965). It has, of course, its tragic aspects, as most income tax criminal cases do, but we are not prepared to say that this record discloses or even intimates that it was tainted with prejudicial error.

Affirmed.

¹ Q. Let's go to the year 1959 and concerning the income tax for that year, or take them both together, 1959 and '60, can you tell the jury, and I want you to consider your answer to this question as best you recall, why you did not file the returns at the time that they were due for those years?

A. Well, I knew that they must be filed, that they had to be filed, but I didn't couldn't do it in time. I just could not do it in time. But then I did not know that I might be charged criminally because of it. To me it was just something like a deed of trust or note that you owe. I mean if you are past due, well you owe additional interest and so on, but I didn't know that I would be charged as a criminal; no.

[67-2 USTC ¶9750] United States of America v. William P. Johnson, Jr., Appellant

(CA-3), U. S. Court of Appeals, 3rd Circuit, No. 16530, 386 F2d 630, 11/27/67, Aff'g unreported District Court opinion

[1954 Code Sec. 7203]

Crimes: Willful failure to file: Evidence: Admissibility.--Evidence that the taxpayer failed to file personal income tax returns in 1955 and 1956 was properly admitted and was sufficient evidence to support a finding of willfulness on the taxpayer's part in failing to file returns in 1960, 1961, and 1962. One dissent.

[1954 Code Sec. 7203]

Crimes: Willful failure to file: Appeals: Newly discovered evidence: Motion for new trial.--A U. S. Circuit Court would not retain jurisdiction of an appeal from conviction for willful failure to file returns pending disposition of a motion for a new trial, based on newly discovered evidence, in the lower court.

Thomas A. Daley, Assistant United States Attorney, 633 U. S. Post Office and Court House, Pittsburgh, Pa., for appellee. Warren W. Bentz, 404 Marine Bank Bldg., Erie , Pa. , for appellant.

Before BIGGS and KALODNER, Circuit Judges, and VAN DUSEN, District Judge.

Opinion of the Court

PER CURIAM:

The defendant, Johnson, was charged with willfully failing to file personal income tax returns for the calendar years 1960, 1961, and 1962. 26 U. S. C. §7203. He pleaded not guilty and elected to be tried to the court without a jury. Johnson was a partner in an architectural engineering firm. He did not deny that returns were not filed when due but asserted that his failure to file was not willful. He contended that he did not file returns because he did not have funds available to pay the taxes and further that the filing of partnership information returns, 26 U. S. C. 6031, negatived any proof of willfulness in his failing to file personal returns. Under the circumstances the issue of Johnson's willfulness was one to be determined by the finder of facts. We cannot say there was insufficient evidence to support the finding of willfulness.

The United States introduced evidence, as we have indicated, tending to establish Johnson's willfulness. This consisted in part of an Internal Revenue Service representative's testimony that a search had been made and that Johnson's 1955 and 1956 tax returns could not be found. Although those years were not in issue, the United States contended that the evidence was relevant in establishing a pattern of conduct. Johnson asserts that this is prejudicial. We rule to the contrary. Ayash v. United States [65-2 USTC ¶9739], 352 F. 2d 1009 (10 Cir. 1965).

The appellant filed a motion in this court on June 17, 19 67 for a new trial based on alleged newly-discovered evidence. On June 20, 19 67 the appellant filed a motion to remand the case so that the court below might consider and pass on the previously filed motion, requesting us to retain jurisdiction of this appeal pending the disposition of such motion by the court below. We will retain jurisdiction and the appellant may make such motion in respect to a new trial based on newly-discovered evidence as he sees fit in the court below. We, of course, express no opinion as to the merits of his contentions.

The judgment of the court below will be affirmed.

[Dissenting Opinion]

KALODNER, Circuit Judge, dissenting:

I would reverse the Judgment of conviction and sentence and remand the cause to the District Court with directions to grant a new trial.

I would do so for the reason that the District Judge to whom the case was tried without a jury committed fundamental prejudicial error in admitting evidence and in giving consideration to that evidence in arriving at his verdict of guilty.

Critical to my stated position are these facts:

The defendant, William P. Johnson, Jr., was found guilty on a three-count Information charging him with "willful" failure to file his personal income tax returns for the years 1960, 1961 and 1962, in violation of Section 7203 of the Internal Revenue Code of 1954. ¹ At the trial, the Government, after introducing evidence that the defendant had failed to file his tax returns for 1960, 1961 and 1962, introduced evidence that while he had filed individual tax returns for the years 1957, 1958 and 1959, he had not filed his personal income tax returns for the years 1955 and 1956. In introducing its evidence of the failure to file returns in 1955 and 1956, the Government stated:

"The purpose is to show the pattern, Your Honor, that this is not a failure to file for one year or even for the three years for which an Information has been filed, but the defendant had a prior record of failure of file." ²

The District Judge, in his opinion, ³ found that the defendant had failed to file his tax returns for the years 1955 and 1956 and considered that to be a factor in arriving at his fact finding that the defendant's failure to file his tax returns for the years 1960, 1961 and 1962 "was not inadvertent or negligent, but on the contrary was deliberate, purposeful, and willful." In doing so the District Judge stated:

" On the issue of willfulness and in order to show a pattern of conduct by Johnson suggestive of willfulness, the Government also introduced evidence that the defendant failed to file returns in 1955 and 1956. The defendant testified that he had no recollection of not having filed in those years. In any event, the record establishes that he filed returns in 1957, 1958 and 1959. He filed personal returns for those years, and then failed to file not just for one year, but for three consecutive years. The delay in filing was great and persisted over three consecutive taxable years. 'Such a pattern of behavior, as distinguished from a single occurrence, itself suggests willfulness.' U. S. v. Litman [57-2 USTC ¶9820], 246 F. 2d 206, 208 (C. A. 3, 1957), cert. den., 355 U. S. 858. U. S. v. Vitielo [66-2 USTC ¶9480], 363 F. 2d 240, 243 (C. A. 3, 1966). The defendant testified that he knew he was required to file personal returns and when they were due to be filed. He stated that the fact that he was aware that he was not filing the returns each year was a source of worry to him. A series of defaults, indicating a pattern of behavior knowingly and intentionally made, may suggest the existence of the specific evil motive necessary to constitute willfulness. U. S. v. Vitielo, supra; U. S. Palermo [58-2 USTC ¶9850], 259 F. 2d 872, 882 (C. A. 3, 1958)."

* * *

". . . this Court sitting non-jury finds ample evidence of willfulness. This is a case of an intelligent man, successful in his profession. He knew the return was due. He had filed many returns. He had also skipped filing returns for a couple of years and had got away with it." (emphasis supplied)

It is evident from the foregoing the District Judge considered the defendant's failure to file in 1955 and 1956 as an element in the fashioning of "a pattern of behavior" from which "willfulness" could be found.

In my opinion the evidence of failure to file in 1955 and 1956 was inadmissible to show "a pattern of behavior" insofar as the years involved in the Information were concerned, inasmuch as the defendant had filed his tax returns for the years 1957, 1958 and 1959. The pattern of behavior of nonfiling was torn asunder and fragmented when the defendant filed his tax returns for the years which intervened between his failure to file in 1955 and 1956, and 1960, 1961 and 1962. "A pattern of behavior" cannot be fashioned like a jig saw puzzle out of disjointed elements.

In summary, the evidence of failure to file in 1955 and 1956 was inadmissible and the trial judge further erred in attributing to its probative value to establish willfulness for the years 1960, 1961 and 1962.

It must be noted that the defendant's counsel for some inexplicable reason failed to object to the admission of the evidence relating to the failure to file the 1955 and 1956 returns. The failure to object, however, does not bar this Court's consideration of the trial judge's error since that error was fundamental.

¹ 26 U. S. C. Section 7203.

² The Government's evidence of failure to file tax returns for the years 1955 and 1956 was embodied in its Exhibits 4 and 5 captioned "Certification of Lack of Record" for the years stated, certified to by the District Director of the Pittsburgh Internal Revenue District.

³ The Opinion of the District Court is unreported. It was filed in conformity with Rule 23(c) of the Federal Rules of Criminal Procedure.

[66-2 USTC ¶9587] United States of America , Appellee v. Salvatore Granello, a/k/a Sally Burns, and Hyman Levine, a/k/a George Levine, Appellants

(CA-2), U. S. Court of Appeals, 2nd Circuit, Docket Nos. 30005, 30006, 365 F2d 990, 8/3/66, Aff'g unreported District Court opinion

[1954 Code Sec. 7203]

Tax evasion: Wilful failure to file returns: Evidence.--Overruling various assignments of error, including failure of the trial court to apply the doctrine of collateral estoppel, improper denial of a motion for severance, improper rulings of the trial court, and denial of the defendants' motion for new trial, the Court of Appeals upheld the defendants' conviction for wilfully failing to file tax returns since the evidence amply showed that they had received taxable income from a sale of stock in both 1956 and 1957 which necessitated the filing of returns.

Daniel H. Greenberg, 110 E. 42nd St., New York, N. Y., for Hyman Levine; Irwin Klein, 2 Park Ave., New York, N. Y., for Salvatore Granello, appellants. Robert M. Morgenthau, United States Attorney, Michael W. Mitchell, Otto G. Obermaier, John E. Sprizzo, Douglas E. Liebhafsky, Assistant United States Attorneys, New York, N. Y., for appellee.

Before: MOORE , FRIENDLY and HAYS, Circuit Judges.

FRIENDLY, Circuit Judge:

Salvatore Granello and Hyman Levine appeal from their convictions, after a joint trial before Judge Dimock and a jury in the District Court for the Southern District of New York, for wilfully failing to file income tax returns for 1956 and 1957 in violation of 26 U. S. C. §7203. We affirm.

Charges against the defendants were first made in a five count information. Counts 1 and 2 alleged Granello's failure to file returns in 1956 and 1957 despite the receipt of gross income approximating $118,500 and $97,000 in those years. Counts 3 and 4 made the same charges against Levine, whose gross income for the two years was claimed to approximate $132,750 and $97,000. Count 5 alleged a conspiracy among Granello, Levine and Lowell M. Birrell to violate §7203 by failing to make the returns and to supply required information to the Internal Revenue Service. A later three count indictment charged both defendants with unlawfully attempting to evade taxes for 1957 in violation of 26 U. S. C. §7201 and also a conspiracy to defraud the United States by impeding the lawful functions of the Treasury Department in collecting income taxes by concealing the sources of their income and the nature of their business activities.

The information and the indictment were consolidated by consent, and were first tried before Judge Murphy and a jury. The conspiracy count in the information was dismissed on the Government's motion, and the similar count in the indictment on the defendants'. The jury hung on the substantive counts and a mistrial was declared. After the case was reassigned to Judge Dimock, Granello made a motion for a severance, which was denied. At the second trial, the jury found each defendant guilty on each of the two substantive counts in the information; it hung on the substantive counts of the indictment. Judge Dimock imposed fines and consecutive sentences of one year, the maximum term of imprisonment permitted, on each count on which defendants were convicted.

The Government's claim that Granello and Levine received large capital gains in 1956 and 1957 from their sale of stock of Pacheco Petroleum Company, a Cuban corporation, was supported by evidence which warranted the jury in finding as follows: In May 1955 Pacheco, which then had outstanding only 5,000 shares held by its founder Trueba, issued 2,000,000 shares to Levine for oil leases on properties in Cuba acquired without cost to himself. In August, at the next Pacheco stockholders' meeting, Levine was elected treasurer and Granello chairman of the executive board; ¹ the new officers adopted a resolution for the issuance of another 1,000,000 shares for leases on mining concessions. Early in September Granello entered into a leasing agreement with Maniabon Petroleum Company under which he obtained oil concessions to be operated on a 12% royalty basis; Granello deposited with Maniabon 125,000 shares of Pacheco stock, these being part of the 2,000,000 previously issued to Levine, on a stipulation that they would be returned on his furnishing a $25,000 bond. Granello immediately assigned these leases to Pacheco, which issued 1,000,000 shares to him and assumed his obligations under the contract.

Early in 1956 Granello and Levine sold 2,000,000 of their Pacheco shares to Birrell, whom they had met in connection with efforts to exploit the leases, for cash and shares in one of Birrell's companies, Lomega Gold Mines, Ltd.; Birrell guaranteed that the Lomega shares would be saleable so that defendant's total yield would be in excess of $400,000. Payments aggregating $120,000 were made in 1956, sometimes by checks to the order of Granello or Levine, sometimes by funds from checks drawn to cash. The Lomega stock, however, proved not to be saleable at the expected price, and defendants pressed Birrell for satisfaction. A signed agreement, dated December 7, 19 56, provided that Birrell would immediately give Granello and Levine $50,000 in cash, five checks dated December 7, aggregating $25,000, and undated checks for $75,000 which were not to be cashed without notice to Birrell; that commencing February 5, 19 57 and monthly thereafter Birrell would pay $30,000 to defendants jointly until satisfaction of the amount originally due and owing--an estimated maximum of $450,000 but subject to adjustments to be settled six months later; and that security for this obligation would be provided on or before February 5, 19 57. The checks promised for December 1956 were issued payable to Levine and Granello and deposited that month. Payments of $194,000 were received in 1957. With the inclusion of a sale of 30,000 shares to one James Cooper, defendants received from the sale of Pacheco stock $226,550 in 1956 and $194,000 in 1957. If this was divided equally and treated as long-term capital gain on the sale of property having a zero basis, each would have owed some $23,000 in taxes for 1956 and $17,000 to $18,000 for 1957. No returns were filed or taxes paid by either.

[Taxable Income Derived from Transactions]

Little time need be spent on defendants' contention that no taxable income was shown. One claim is that because they did not own 80% of the company's voting stock as required by §368 of the Internal Revenue Code, the 1955 transactions between them and Pacheco were not tax free reorganizations preserving their zero basis and postponing all tax consequences until the later years when the stock was actually sold, but gave rise to taxable income then and there. Insofar as this argument measures control with reference to unissued Pacheco shares, it is too frivolous to warrant discussion. That alone is enough to dispose of Levine's claim since even if he were acting separately from Granello as he contends he must be found to have been, the transfer of the leases would have made him the owner of all Pacheco's shares except the 5,000 then held by Trueba. But evidence that we have recited, and more that we have not, amply warranted a finding that Levine and Granello were equal partners in the entire Pacheco venture, a fact which, as will shortly be shown, the Government was not prevented from proving. Indeed it is immaterial whether the receipts were divided equally; the Government traced $70,900 to Granello in 1956 and $67,000 in 1957, so that even if all the balance went to Levine, each had gross income far exceeding the $600 requiring a return. 26 U. S. C. §6012. There is likewise no merit in the claim that the entire purchase price was received in 1956 so that no income was realized in 1957 with the consequence that the counts relating to the later year must fall. Birrell's promise "was not embodied in a note or other evidence of indebtedness possessing the element of negotiability and freely transferable." Ennis v. C. I. R. [CCH Dec. 18,543], 17 T. C. 465, 470 (1951), see Bedell v. C. I. R. [1 USTC ¶359], 30 F. 2d 622, 624 (2 Cir. 1929), and the deferred payments were includible in income only when received. 2 Mertens, Federal Income Taxation §11.05, at 9, 12-13; §12.124, at 376-77. Indeed, the exact price was still uncertain at the end of 1956.

[Collateral Estoppel]

Defendants argue with great earnestness that the dismissal at the first trial of the conspiracy counts charging them with having combined to conceal and not to report their income precluded the Government from showing at the second trial that they had combined to make it. Mere statement of the contention sufficiently reveals its fallacy. The doctrine of collateral estoppel "makes conclusive in subsequent proceedings only determinations of fact, and mixed fact and law, that were essential to the decision." Yates v. United States , 354 U. S. 298, 336 (1957). Even if we assume that the dismissal of the conspiracy counts was on the merits, the essential determination was simply that Granello and Levine had not unlawfully agreed to conceal their income or to default in filing returns--not at all that they had not agreed to join in the lawful activity of producing the income by obtaining the Pacheco shares and then selling them. The decision in Sealfon v. United States, 332 U. S. 575, 580 (1948), rested on the special circumstance that the Government's case at the second trial against the alleged aider and abettor of the substantive crime required it to prove the very agreement relied on to show conspiracy "which was necessarily adjudicated in the former trial to be non-existent." See also United States v. Kramer, 289 F. 2d 909, 915-20 (2 Cir. 1961).

[Motion for Severance Denied]

This brings us to the most substantial point in the case, the denial of Granello's motion for severance after the mistrial. F. R. Cr. P. 8(b) permits a joinder of defendants "if they are alleged to have participated in the same act or transaction or in the same series of acts or transactions constituting an offense or offenses." We have difficulty with the Government's argument that this permitted joinder of the two defendants even apart from the conspiracy count. Whereas Rule 8(a) allows joinder of offenses if these are of the same or similar character or "are based on the same act or transaction or on two or more transactions connected together or constituting part of a common scheme or plan," Rule 8(b) relating to joinder of defendants is more narrowly drawn. See 8 Moore (Cipes), Federal Practice §8.06 at 8-22 & 8-23 (1965); Orfield, Joinder in Federal Criminal Procedure, 26 F. R. D. 23 (1961). Under Rule 8(b) it is not enough that the defendants participated in the same act or transaction or series of them; they must have engaged in the same act or series of acts "constituting an offense or offenses." ² The very basis so clearly sustaining the Government's position against foreclosure by collateral estoppel, namely, that acts or transactions relating to the earning of income were not what was previously adjudicated to have not occurred, cuts against it here; joint participation in the "series of acts or transactions" resulting in the receipt of income for the Pacheco shares does not satisfy Rule 8(b) since they did not constitute an offense. The decision in Turner v. United States, [55-1 USTC ¶9489], 222 F. 2d 926 (4 Cir.), cert. denied, 350 U. S. 831 (1955), on which the Government heavily relies, is inapposite because the court regarded the case as one in which the indictments there consolidated had charged the defendants with jointly falsifying records and filing false returns of partnership income whence the false individual returns sprang; this likewise seems to have been the rationale of United States v. Manno [54-1 USTC ¶9379], 118 F. Supp. 511, 514 (N. D. Ill. 1954). See also Cataneo v. United States, 167 F. 2d 820 (4 Cir. 1948). And at least one court has rejected the Government's position on facts which from the meager report do not appear reasonably distinguishable from those before us. United States v. Harvick [57-2 USTC ¶10,039], 153 F. Supp. 696 (D. N. D. 1957).

The Government is thus forced to fall back on a second line of defense, namely, that joinder of the defendants initially was within Rule 8(b) because of the conspiracy counts in the information and indictment and that this relegated them to Rule 14 providing discretionary relief from prejudicial joinder. The Government is surely right on the first point, and, under the rule in Schaffer v. United States, 362 U. S. 511 (1960), would also be on the second, if the issue before us were a refusal to grant a motion to sever at the first trial after dismissal of the conspiracy counts when the case was ready for submission to the jury. Although it has been argued that Schaffer ought not to be applied to a retrial on substantive counts after the charges of joint participation have been eliminated by a prior adjudication, 8 Moore, supra at 8-39 & 8-40, ³ this court apparently has held otherwise. Application of Gottesman, 332 F. 2d 975 (2 Cir. 1964); ⁴ see 8 Moore, supra. We are unable to follow Granello's attempt to distinguish that decision on the basis that the perjury counts against the co-defendants concerned the same subject matter, namely, a meeting with Garfield and Swann at the same time and place; whether Gottesman and Cohn had or had not attended the meeting, this would not having been an offense and, with the conspiracy count out of the case, the charges were of two separate perjuries regarding its occurrence--just as here the charges are of separate wilful failures to report the jointly earned income. On the other hand, the per curiam decision in Gottesman may well have been based in some part on doubt as to how far Judge Dawson's dismissal of the conspiracy count at the close of the first trial represented a considered determination that sufficient evidence of joint action had not been produced, as distinguished from an attempt to simplify the jury's task. ⁵ When double jeopardy rather than collateral estoppel is the sole bar to submitting the conspiracy charge to a second jury, there is a stronger case under Schaffer for not granting severance as a matter of right; in such a case a court might still be able to look to the original information or indictment as characterizing the crime and affording a basis for joinder under Rule 8(b) even though the guarantee against double jeopardy prevents conviction for conspiring.

We need not debate, however, whether Gottesman should be thus limited or decide what the result would be in this case if it were. Even if we were to assume arguendo that Granello's motion to sever after the mistrial should have been granted, we perceive no prejudice from its denial. The evidence of joint action by the two defendants was sufficient to have permitted the Government to introduce at separate trials the same proof that it offered at the joint one; despite the common misconception, the admissibility of acts on a partner rests on basic principles of agency and not on the presence of a conspiracy count. See United States v. Pugliese, 153 F. 2d 497, 500 (2 Cir. 1945); United States v. Annunziato, 293 F. 2d 373, 378 (2 Cir.), cert. denied, 368 U. S. 919 (1961); United States v. Costello, 352 F. 2d 848, 854 n. 4 (2 Cir. 1965), cert. granted on another point, 383 U. S. 942 (1966). The jury here was carefully instructed that the issues as to each defendant must be determined separately.

We see no reason why the undoubted truth that an appeal claiming misjoinder under Rule 8(b) raises a question of law in the strict sense, whereas an appeal from denial of severance under Rule 14 normally raises only one of abuse of discretion, should carry exemption from the harmless error rule, F. R. Cr. P. 52(a), as a corollary. We do not consider Ingram v. United States, 272 F. 2d 567 (4 Cir. 1959), approvingly cited in 8 Moore, supra at 8-14 & 8-15, as so holding, to establish any such general principle; the joinder in that case was of two sets of defendants whose offenses were "in no way connected," and the Government's introduction against one set of proof wholly irrelevant to the other was plainly prejudicial. Similarly the decision in McElroy v. United States, 164 U. S. 76, 80-81 (1896), with respect to the defendants named in all the indictments consolidated for trial, rested upon a conclusion that they may indeed have been embarrassed and prejudiced in their defense, or the attention of the jury distracted, by the evidence of "distinct and independent transactions." See also Ward v. United States, 289 F. 2d 877 (D. C. Cir. 1961). In the Schaffer case the Court implied that the harmless error rule is applicable to questions of improper joinder when it observed that the rule was not reached there because "the joinder was proper under Rule 8(b)" and no error was shown. 362 U. S. at 517. Here, where the Government could have proved the receipt of income by both on the trial of either and the jury was appropriately instructed, no prejudice from the joinder could have occurred.

Much of the Government's evidence to show defendants' receipt of income consisted of cancelled checks, checkbooks, and other records obtained by a seizure of Birrell's books and papers in July and August of 1959. Granello and Levine sought, seasonably but unsuccessfully, to suppress this evidence against them because of the alleged illegality of the search and seizure under the Fourth Amendment. When, after the verdict, another district judge granted a motion by Birrell for suppression of the seized records, United States v. Birrell, 242 F. Supp. 191 (S. D. N. Y. 1965), Granello and Levine renewed their application before Judge Dimock as a motion in arrest of judgment; he denied it on the ground that they lacked standing to avail themselves of any illegality in the Government's seizure of Birrell's records, [66-1 USTC ¶9300] 243 F. Supp. 325 (1965).

We need not reiterate what we have recently said as to standing in United States v. Bozza, -- F. 2d --, -- (2 Cir. 1966), slip opinions, 2889, 2916-20, or repeat the citation of the authorities there assembled. Granello and Levine have not shown that any of the papers held to have been unlawfully seized from Birrell were theirs; he stood toward them not as a partner but as a buyer. If Birrell had regained the seized records before their trial, these would have been subject to subpoena for a purpose not prejudicial to him. Defendants are mistaken in their reliance on the statement in Silverthorne Lumber Co. v. United States, 251 U. S. 385, 392 (1920), "The essence of a provision forbidding the acquisition of evidence in a certain way is that not merely evidence so acquired shall not be used before the Court but that it shall not be used at all"; Mr. Justice Holmes was speaking of an effort to require owners of records illegally seized by the Government to produce them after their return pursuant to a subpoena prepared from copies made during the illegal possession. Defendants' complaint is simply that the Government's awareness of their crime and its knowledge of how to establish it were fruits of a seizure that has been found at nisi prius to be illegal as against someone else. Sustaining this position would mean that if an illegal seizure of one man's records revealed a plot by others to kill a high public official or to overthrow the Government, the Fourth Amendment would prevent use of the records against the plotters. We cannot believe the founders meant to go so far; it suffices that the seized property and its fruits should be sterilized as against the victims of the unlawful action. See Jones v. United States , 362 U. S. 257, 261 (1960).

[Trial Court's Rulings]

The defendants next challenge several rulings that they insist undermined their efforts to mount an effective defense. The judge, having ascertained by an examination outside the presence of the jury that Birrell would claim his privilege against self-incrimination with respect to any question by the prosecution or the defense, ruled that the Government could not call him, cf. Namet v. United States [63-1 USTC ¶15,502], 373 U. S. 179 (1963). He also stated that if the defendant chose to call Birrell, he would tell the jury that the Government had been precluded from calling him because of his declared refusal to testify, thereby eliminating any adverse inference the jury might otherwise draw from its failure. This in no way deprived the defendants of their right to call Birrell; it deprived them only of power to make or suggest an unfair argument if they did. The judge's instructing defense counsel that they were not to argue dismissal of the conspiracy count was likewise proper in the interest of preventing confusion. Defendant's numerous other objections to Judge Dimock's eminently fair conduct of the trial do not warrant discussion.

[Motion for New Trial]

The final complaint concerns the denial of a motion [66-1 USTC ¶9302] for a new trial on the ground of newly discovered evidence. Several months after the conviction Granello's counsel wrote Birrell, stating Granello had advised him that monies received by him and Levine from Birrell represented not the purchase price of the stock but advances to them as agents for Pacheco in connection with Lomega's acquisition of its assets. He inquired whether Birrell's examination of the suppressed files had disclosed any records "which would clarify the true nature of such transactions between the two corporations and my client and his co-defendant." The letter also asked whether Birrell had found electric logs of the Pacheco wells. Birrell promptly gave an affirmative answer as to the logs; in response to the more important question, he enclosed a copy he had made of minutes of a Lomega board meeting held September 20, 19 56. These recited that the president of Lomega had "prearranged" the acquisition of the assets of Pacheco by a subsidiary as suggested at a prior Lomega board meeting in May and, to that end, Lomega had advanced $205,000 to Birrell & Larson and $75,000 to S & C Trading Co., Inc.; it was voted that Birrell & Larson and S & C Trading Co. should reimburse Lomega for these sums and look to the subsidiary for payment. On the basis of this correspondence, defendants moved for discovery of the Birrell files and an evidentiary hearing in support of a motion for a new trial. Construing F. R. Cr. P. 16 as including a post-trial application for discovery, Judge Dimock denied the motion; defendants did not press their application for a new trial apart from discovery and an evidentiary hearing, and this was dismissed.

The locating of the electric logs among Birrell's papers clearly afforded no basis for post-trial relief. Evidence at the trial had indicated these were in the Government's possession and could have been produced on request. Moreover, the only purpose that would have been served by their production would be to show the value of the leases at the time of their transfer to Pacheco; this was irrelevant since, as we have held, the basis for defendants' Pacheco stock was the cost of the leases, namely nothing, rather than ther value at the date of transfer. The judge was likewise justified in concluding that the Lomega minutes afforded no sufficient probability of exclupation to warrant the relief sought. Acquisition of Pacheco's assets by a subsidiary of Lomega was in no way inconsistent with defendants' having earlier sold the bulk of their Pacheco stock to Birrell; indeed the free and easy tone of the minutes suggests that the company was already in his control. The agency theory, which was propounded in and rejected at trial, runs counter to the written agreement of December 7, 19 56, and fails to account for Birrell's possession of certificates for the 2,000,000 shares; and the payments recited in the minutes bear no apparent relation to those proved to have been received by defendants and to have been treated by them as their own property.

Affirmed.

¹ The records of the meeting showed Granello as holding 668,000 of the 2,000,000 shares originally issued to Levine.

² Despite the rather inept drafting, we read the "constituting" clause as applying to "the same act or transaction" as well as to "the same series of acts or transactions." But see United States v. Charnay, 211 F. Supp. 904, 905 (S. D. N. Y. 1962).

³ The argument is quite persuasive where the trier of the facts has determined the lack of joint criminal activity or the judge has clearly held the evidence insufficient to permit such a determination. What gives pause is that trial judges so often withdraw conspiracy counts from the jury without detailed analysis of the evidence and simply to avoid confusion, either with the consent of the prosecution or without serious objection.

⁴ Judge Hays though that the case was not appropriate for mandamus and that the petition should have been denied on that ground without reaching the merits. 332 F. 2d at 976.

⁵ The Government's affidavit opposing mandamus recited that "Judge Dawson stated on the record that he was dismissing the count solely as a matter of law and not on the facts, and stated that he thought the submission of the conspiracy count would confuse the jury." See note 3 supra and 8 Moore , Federal Practice at 8-40 n. 56. Acquittal of both defendants at the second trial mooted the issue as to severance.

[66-2 USTC ¶9660] United States of America , Appellee v. Percy C. Magnus, Appellant

(CA-2), U. S. Court of Appeals, 2nd Circuit, Docket No. 30087, 365 F2d 1007, 9/20/66, Aff'g unreported District Court decision

[1954 Code Sec. 7203]

Crimes: Failure to pay tax: Wilfulness: Evidence: Jury trial.--Taxpayer's conviction on three counts of a nine count indictment for wilfully failing to pay tax for the years 1955 through 1957 was upheld where: (1) years 1955 through 1957 was upheld where: (1) the testimony of his accountant and evidence of consistent underpayments of tax for the years 1948 through 1954) to support a jury finding of wilfulness, (2) the taxpayer's acquittal on the felony counts of the indictment did not require acquittal on the failure to pay counts since the felony charged required a jury finding of affirmative acts of tax evasion, (3) any error in the trial court's charge defining the wilfulness required for the failure to pay counts was at best nonprejudicial, (4) the trial court did not err in its instructions regarding the taxpayer's subsequent payment of taxes for the years 1955 through 1957, and (5) evidence showing taxpayer's failure to pay taxes, both federal and state, for eleven years prior to 1955 was properly admitted to show wilfulness.

Robert M. Morgenthau, United States Attorney, Neal J. Hurwitz, John E. Sprizzo, Douglas S. Liebhafsky, Assistant United States Attorneys, New York, N. Y., for appellee. Boris Kostelanetz, Kostelanetz & Ritholz, 52 Wall St., New York, N. Y., Lloyd A. Hale, Louis Bender, 170 Broadway, New York, N. Y., for appellant.

Before LUMBARD, Chief Judge, MOORE and FEINBERG, Circuit Judges.

LUMBARD, Chief Judge:

The appellant, Percy C. Magnus, stood trial in the Southern District of New York on nine counts, three charging the felony of wilfully attempting to evade and defeat his federal income taxes for the three years 1955, 1956, and 1957, in violation of 26 U. S. C. §7201, three charging the misdemeanor of wilfully failing to file federal income tax returns for the same years, in violation of 26 U. S. C. §7203, and three charging the misdemeanor of wilfully failing to pay federal income taxes for the same years, also in violation of 26 U. S. C. §7203. Magnus appeals his conviction on the three counts alleging wilful failure to pay, and his six-month sentence on each count, to run concurrently. The jury acquitted Magnus on the felony counts and on the counts charging wilful failure to file returns.

Magnus conceded his failure to pay federal income taxes due in the amounts of approximately $26,000 for 1955, $33,000 for 1956, and $27,000 for 1957. ¹ Thus the only question for the jury on the failure to pay counts was whether Magnus' failures to pay were knowing and wilful.

[Alleged Errors]

Magnus alleges five grounds for reversal of his conviction: (1) the trial court should have granted judgment of acquittal; (2) acquittal was required on the failure to pay counts under the rationale of Sansone v. United States [65-1 USTC ¶9307], 380 U. S. 343 (1965), because the jury acquitted Magnus on the felony charges; (3) the trial court erred in its charge defining the wilfulness required for the failure to pay counts; (4) the trial court erred in its instructions regarding Magnus' subsequent payment of his federal income taxes for 1955, 1956, and 1957; and (5) evidence was admitted regarding Magnus' failures to pay taxes, both federal and state, for eleven years prior to 1955. We find no errors in the rulings of the trial court, and affirm the convictions.

[Evidence]

The question whether Magnus' admitted failures to pay substantial taxes due for the years 1955, 1956, and 1957 were wilful was for the jury. Magnus argues that the testimony of Cummings, who prepared personal income tax returns for Magnus for those years, precluded a jury finding that Magnus knew of or authorized the failures to pay. Cummings testified, however, that he presented the completed returns to Magnus and told him how much was due, that Magnus had not authorized him to draw checks to pay Magnus' income taxes, and that Magnus told him in 1949 that he would not file a declaration of estimated tax. The credibility of this testimony was a question for the jury. Moreover, there was substantial testimony probative of wilfulness other than that of Cummings. There was proof, for example, that Magnus underpaid his taxes by at least $20,000 for every year between 1948 and 1954, in addition to his conceded underpayments for 1955, 1956, and 1957. Such consistent substantial underpayment itself supports a finding of wilfulness. Holland v. United States [54-2 USTC ¶9714], 348 U. S. 121, 139 (1954); United States v. Procario [66-1 USTC ¶9263], 356 F. 2d 614 (2 Cir. 1966).

[Disputed Factual Element]

Magnus argues that his acquittal on the failure to file counts required acquittal on the failure to pay counts as well, since the prosecution argued that Magnus must have known that he could expect no bills for taxes due because he must have known that he had filed no returns. It is settled that inconsistency between the verdicts of a jury on different counts is not a ground for reversal. Dunn v. United States , 284 U. S. 390, 393-94 (1932). In any event, as shown above, there was other substantial evidence that Magnus' failures to pay were wilful.

Magnus' acquittal on the felony counts did not require acquittal on the failure to pay counts under the rationale of Sansone v. United States [65-1 USTC ¶9307], 380 U. S. 343 (1965). Sansone held that a lesser-included offense instruction, on wilfully failing to pay or any other misdemeanor under 26 U. S. C. §7203, need not be given in a felony prosecution under 26 U. S. C. §7201 of the only disputed element in the felony prosecution is wilfulness. Magnus contends that where Sansone would not require a lesser-included offense instruction if the felony count stood alone, the prosecution should not be allowed to go to the jury on both felony and misdemeanor counts. We need not decide whether this contention has merit, because Sansone would have required a lesser-included offense instruction here had the felony count stood alone. The Court stated in Sansone that "a lesser-included offense instruction is only proper where the charged greater offense requires the jury to find a disputed factual element which is not required for conviction of the lesser-included offense." 380 U. S. at 350. There was such a disputed factual element in this case: the existence of affirmative acts of evasion, required for the felony under Spies v. United States [43-1 USTC ¶9243], 317 U. S. 492, 499 (1943). To establish such affirmative acts of evasion, the prosecution tried to prove that Magnus authorized Cummings to show purported file copies of his 1954, 1955, and 1956 personal income tax returns to revenue agents auditing the corporate returns of Magnus, Mabee & Reynard, Inc., of which Magnus was president and principal stockholder, and from which Magnus received a large portion of his income in salary and dividends. Magnus contends that these alleged affirmative acts of misrepresentation were undisputed, since he testified that "every member of our organization always has been instructed to be courteous and give information as required by the official requesting it, if he was an authorized official."

Magnus' defense to all the charges against him, however, was that he believed that his returns had been filed and his taxes paid. If this defense were believed, Magnus' general directions to cooperate with revenue agents could not be interpreted as an authorization to represent falsely what, by hypothesis, Magnus believed to be true. Thus, contrary to Magnus' present contention, the existence of affirmative acts of evasion were [was] clearly disputed. Indeed, the defense at trial did not concede that acts of evasion occurred. Therefore, if Magnus had been prosecuted only for the felony, he would have been entitled to a lesser-included offense instruction under the standard of Sansone. Even assuming, which we do not decide, that the prosecution must select between the felony and a misdemeanor count in any case in which Sansone would not require a lesser-included offense instruction if the felony count stood alone, the prosecution was not required to elect in this case. Moreover, although the Sansone decision was announced more than two months before the trial in this case, the defense made no motion for an election on this ground. ² Since a motion on this ground requires a concession that conviction on the misdemeanor count would establish that affirmative acts of evasion occurred, fairness to the government requires that such a motion be made before the case goes to the jury.

[Nonprejudicial Error]

Judge McLean charged that to show wilfulness under the failure to pay counts, "there must be a failure [to pay] with an evil motive, a want of justification in view of all the financial circumstances of the taxpayer." Magnus now urges that this charge was a prejudicial departure from the language of Spies v. United States [43-1 USTC ¶9243], 317 U. S. 492, 498 (1943), stating that wilfulness must "include some element of evil motive and want of justification in view of all the financial circumstances of the taxpayer" (emphasis supplied). When the defense excepted to this charge at the trial, however, the trial court replied, "That is a direct quotation from the Spies case, an evil motive, a want of justification." It was incumbent upon the defense, if it thought the departure from the Spies standard material, to inform the trial court that Spies had not been quoted exactly. Moreover, since the words "an evil motive" stood first, and since the sentence as spoken may well have conveyed to the jurors a conjunction rather than a disjunction between "an evil motive" and "a want of justification," we are not convinced that the charge as given could have harmed appellant.

[Subsequent Payment of Taxes]

Magnus argues that the trial court should have charged the jury that his payment in full of his 1955, 1956, and 1957 taxes prior to his indictment might be considered in determining his wilfulness on the failure to pay counts. The defense did not ask for such an instruction before the trial court's charge. Magnus contends that Judge McLean should nevertheless have added this charge, as he had charged at the prosecution's request that the later payment was not a defense to the failure to pay counts. We do not agree. Judge McLean had also charged the jury that it might consider all evidence before it which it believed to be material on the issue of wilfulness, and his refusal, when the defense requested this further instruction after the court's charge, to draw special attention to Magnus' later payment as evidence rebutting wilfulness was well within his discretion.

[Admissibility]

The prosecution was permitted to introduce evidence to show that Magnus had filed no federal income tax returns for the years 1948 to 1954, and that full payment of his federal taxes for these years was received only on 1959 and 1960. It was also permitted to introduce testimony that Magnus had filed New York State income tax returns, with payment, for the years 1946 to 1949, only after being notified in 1951 that the New York State tax authorities had no record of those returns. Magnus' prior taxpaying history, both federal and state, was probative of his wilfulness in failing to pay substantial amounts of federal taxes in 1955, 1956, and 1957. Cf. United States v. Klein, 340 F. 2d 547 (2 Cir.), cert. denied, 382 U. S. 850 (1965). In particular, Magnus' experience with the New York State income tax not only might be considered to "bear upon his attitude toward the reporting and payment of taxes generally," United States v. Taylor [62-2 USTC ¶9590], 305 F. 2d 183, 185-86 (4 Cir.), cert. denied, 371 U. S. 894 (1962), but it also tended to show both that his failures to file returns and to pay taxes commenced before the hiring in 1949 of Cummings, on whom the defense sought to throw the onus of the failures, and that Magnus had been apprised that his arrangements for reporting and paying his income taxes failed to assure timely payment. We hold that this evidence was properly admitted to show wilfulness.

We have examined the other items of evidence objected to by the appellant, and hold that their admission was not error.

Affirmed.

¹ It was stipulated that Magnus received gross incomes of approximately $127,000 in 1955, $126,000 in 1956, and $125,000 in 1957, and that the amounts of tax withheld from his corporate salary were about $28,000 in 1955, $18,000 in 1956, and $27,000 in 1957.

² In fact, the defense moved for an election on the ground that "the counts are wholly and completely inconsistent."

[66-2 USTC ¶9511]Carl H. Hill, Appellant v. United States of America , Appellee

(CA-5), U. S. Court of Appeals, 5th Circuit, No. 22672, 363 F2d 176, 6/29/66, Aff'g unreported District Court jury verdict

[1954 Code Sec. 7201]

Tax evasion: Trial: Evidence: Admissibility.--Various assignments of error concerning the admissibility of evidence were overruled and the defendant's conviction for tax evasion (failing to include in 1957 taxable income amounts received from cashing corporate checks and from an automobile transaction with other stockholders) was sustained.

William P. Fonville, 3420 Republic National Bank Bldg., Dallas, Tex., for appellant. Meyer Rothwacks, Joseph M. Howard, John P. Burke, Department of Justice, Washington, D. C. 20530, Robert S. Travis, Assistant United States Attorney, fort Worth, Tex., for appellee.

Before RIVES and BELL, Circuit Judges, and FULTON, District Judge.

FULTON, District Judge:

Appellant Hill was indicted on two counts of tax evasion under 26 U. S. C. A. §7201. Count one charged Hill with willfully attempting to evade the taxes of Wilmar General Contractors, Inc., for the fiscal year ending June 31, 1958. Count two charged Hill with willfully attempting to evade his personal income taxes for the calendar year 1957. A jury trial resulted in a verdict of not guilty on count one but a verdict of guilty on count two. Hill appeals from the judgment of conviction. He urges six assignments of error, each of which relates to the admissibility of evidence. Prejudicial error has not been demonstrated. We affirm.

The facts are not in dispute. Hill Hugh A. White, and Ernest J. Marcussen, owned all of the capital stock of the corporation, with each of them owning one-third thereof. Hill was vice-president and secretary of the corporation, White was president, and Marcussen was a vice-president. White was deceased at time of trial. Marcussen appeared at trial as a government witness.

During 1957 six checks payable to the corporation, aggregating several thousands of dollars, were cashed and the proceeds thereof were distributed among Hill, White and Marcussen, with each receiving one-third thereof. During the same year White purchased an automobile with corporate funds. When Marcussen complained about White's use of the automobile, White paid one-third of the amount which the corporation had paid for the automobile to Marcussen and one-third thereof to Hill.

In his income tax return for the year 1957 Hill failed to include the income which he received from the cashing of the corporate checks and from the automobile transaction. Hill's defense to the second count was that the proceeds which he received from the corporate checks and from the automobile transaction were retained by him as reimbursement for advances which he had personally made for the benefit of the business enterprise, at a time prior to its incorporation and while it was being operated as a partnership. However, Hill offered no evidence to substantiate his claim for such reimbursement. Instead he admitted that he kept no records of his claimed advances.

The assignments of error which Hill urges on appeal are the following:

(1) That the court erred by admitting into evidence Marcussen's 1957 tax return, wherein Marcussen reported as income his one-third share of the proceeds from the checks and from the automobile transaction;

(2) That the court erred by failing to adequately charge the jury and by failing to grant a motion for mistrial when the court excluded as hearsay a telephone conversation which had been received previously over objection;

(3) and (4) That the court erred by permitting the corporate accountant to testify that after Hill's tax return had been filed he advised Hill to file an amended return; and that the court erred in failing to charge the jury to disregard this testimony.

(5) That the court erred by admitting into evidence the minutes of a corporate Board meeting which was held after the filing of the tax returns in question, at which meeting the Board redeemed White's stock in the corporation and elected Hill president;

(6) That the court erred by admitting into evidence the minutes of a corporate Board meeting which was held after the filing of the tax return in question, at which meeting the Board approved a contract between White and the corporation whereby White would receive a percentage of the gross amount of the corporation's future contracts.

Admission of Marcussen's Tax Return

(Assignment No. 1)

When Marcussen was called to testify for the government the record was then replete with evidence that Marcussen had shared in the proceeds from the corporate checks. Marcussen's tax return, which included his share of the proceeds from the checks and from the automobile transaction, was relevant to show that his testimony was not motivated by a fear of prosecution for tax evasion. It was admissible upon the question of his interest or lack of interest in the outcome of the trial, and thus went to his credibility. No reversible error was committed by the admission into evidence of Marcussen's tax return.

Adequacy of Instruction Excluding Hearsay

(Assignment No. 2)

Over objection Marcussen testified that in April of 1958 White called him on the telephone to discuss White's purchase of Marcussen's stock in the corporation. Hill was not a party to this conversation. Marcussen stated that during this conversation White told him that White had called the Revenue Department, and had straightened out the corporation's tax situation. Marcussen testified that he replied that he was not worried about his own tax liability because he would report all of his earnings. At the close of Marcussen's direct examination, the trial judge perceived his error in admitting this testimony; and he directed the jury to disregard it. ¹

Appellant contends that the court's later instruction to the jury to disregard such testimony was inadequate; and that the court erred in denying his motion for a mistrial. We disagree. Hill's contention is twofold. First, he contends that the prejudicial nature of the telephone conversation could not be removed by an instruction to the jury to disregard it. The law is well settled to the contrary. Generally, evidence which is withdrawn from the jury with a direction by the court that it be disregarded may not be the basis of reversible error. United States v. Haskins, 345 F. 2d 111, 115 (6th Cir. 1965); United States v. Farber, 336 F. 2d 586, 589 (6th Cir. 1964); United States v. Fahning, 299 F. 2d 579, 581 (5th Cir. 1962). The testimony erroneously admitted here was not so prejudicial, nor of such an inflammatory nature, that its harmful effect could not be cured by a proper cautionary instruction to the jury. Cf. Helton v. United States , 221 F. 2d 338 (5th Cir. 1955). Hill next contends that the trial court's instruction was insufficient to cure the prejudicial effect of the testimony because it did not summarize for the jury the testimony that was then being excluded. However, no request was made of the trial court to include such summary in its instruction. Counsel for Hill merely stated that he believed that the evidence, having been received and heard by the jury, could not then be cured by the instruction that was given. The instruction that was given to the jury was entirely sufficient. The granting of a motion for a mistrial is a matter within the sound discretion of the trial court. No abuse of discretion has been shown in this case. See Fahning v. United States , supra.

The Admission of the Accountant's Advice to Hill

(Assignments No. 3 and 4)

The corporation's accountant prepared both the corporation's return and Hill's personal return. The corporation's return was filed on April 16, 19 58 and Hill's return was filed on March 25, 19 58. The accountant testified that in May of 1958 he met with Hill, White and Marcussen, at which time he was informed by White that Hill, White and Marcussen had cashed checks belonging to the corporation and divided the proceeds among themselves, as reimbursement for business expenses which each previously had incurred. The accountant then testified that he advised White, Hill and Marcussen to file amended personal returns to report the receipt of their respective shares of the proceeds of the cashed checks; and that he cautioned them to claim reimbursement for business expenses only by using journal entries properly supported by expense statements. Hill contends that this testimony was inadmissible because it dealt with events which occurred after the returns in question had been filed. Hill assumes that because the offense of tax evasion was complete upon the filing of his tax return, all statements, acts and omissions which occurred thereafter are inadmissible. We do not agree.