7203 - Admissibility 3 Page 3

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Fraud Statutes 

Additional Information:

 

7203 - Accountant-Client Privilege
7203 - Accrual Basis
7203 - Admissibility 1 p1
7203 - Admissibility 1 p2
7203 - Admissibility 1 p3
7203 - Admissibility 1 p4
7203 - Admissibility 1 p5
7203 - Admissibility 1 p6
7203 - Admissibility 2 p1
7203 - Admissibility 2 p2
7203 - Admissibility 2 p3
7203 - Admissibility 2 p4
7203 - Admissibility 2 p5
7203 - Admissibility 3 p1
7203 - Admissibility 3 p2
7203 - Admissibility 3 p3
7203 - Admissibility 3 p4
7203 - Admissibility 3 p5
7203 - Admissibility 4 p1
7203 - Admissibility 4 p2
7203 - Admissions p1
7203 - Admissions p2
7203 - Advice of Counsel p1
7203 - Advice of Counsel p2
7203 - Amendment
7203 - Appeal Right to
7203 - Appeal Timeliness
7203 - Appeal Waiver
7203 - Appeal without merit
7203 - Arrest
7203 - Fraudulent Return
7203 - Defeat & Evade Income Taxes p1
7203 - Defeat & Evade Income Taxes p2
7203 - Defeat & Evade Income Taxes p3
7203 - Defeat &  Evade Income Taxes p4
7203 - Attorney Disqualified
7203 - Attorney's Testimony p1
7203 - Attorney's Testimony p2
7203 - Attorney's Testimony p3
7203 - Attorney's Testimony p4
7203 - Bail
7203 - Bank Records &  Net Worth Increases 1 p1
7203 - Bank Records &  Net Worth Increases 1 p2
7203 - Bank Records &  Net Worth Increases 1 p3
7203 - Bank Records &  Net Worth Increases 1 p4
7203 - Bank Records &  Net Worth Increases 1 p5
7203 - Bank Records &  Net Worth Increases 1 p6
7203 - Bank Records &  Net Worth Increases 2 p1
7203 - Bank Records &  Net Worth Increases 2 p2
7203 - Bank Records &  Net Worth Increases 2 p3
7203 - Bank Records &  Net Worth Increases 2 p4
7203 - Bank Records &  Net Worth Increases 2 p5
7203 - Bank Records &  Net Worth Increases 3 p1
7203 - Bank Records &  Net Worth Increases 3 p2
7203 - Bank Records &  Net Worth Increases 3 p3
7203 - Bank Records &  Net Worth Increases 3 p4
7203 - Bank Records &  Net Worth Increases 3 p5
7203 - Bank Records &  Net Worth Increases 4 p1
7203 - Bank Records &  Net Worth Increases 4 p2
7203 - Bank Records &  Net Worth Increases 4 p3
7203 - Bank Records &  Net Worth Increases 4 p4
7203 - Bank Records &  Net Worth Increases 4 p5
7203 - Bank Records &  Net Worth Increases 5 p1
7203 - Bank Records & Net Worth Increases 5 p2
7203 - Bank Records & Net Worth Increases 5 p3
7203 - Bank Records & Net Worth Increases 5 p4
7203 - Bank Records & Net Worth Increases 5 p5
7203 - Base Sentence p1
7203 - Base Sentence p2
7203 - Base Sentence p3
7203 - Base Sentence p4
I7203 - Bill of Particluar Conspiracy
7203 - Bill of Particulars
7203 - Books and Records
7203 - Burden of going forward with evidence
7203 - Burden of Proof
7203 - Carryback Offset
7203 - Changing Plea
7203 - Character witness p1
7203 - Character witness p2
7203 - Circumstanial Evidence p1
7203 - Circumstanial Evidence p2
7203 - Circumstanial Evidence p3
7203 - Circumstanial Evidence p4
7203 - Collateral Estoppel
7203 - Collection
7203 - Commitment by U.S. Commissioner
7203 - Communication to Jury
7203 - Compromise
7203 - Consolidation
7203 - Conspiracy p1
7203 - Conspiracy p2
7203 - Conspiracy 1 p1
7203 - Conspiracy 1 p2
7203 - Conspiracy 1 p3
7203 - Conspiracy 1 p4
7203 - Conspiracy 1 p5
7203 - Conspiracy 1 p6
7203 - Conspiracy 1 p7
7203 - Conspiracy 1 p8
7203 - Conspiracy 2 p1
7203 - Conspiracy 2 p2
7203 - Conspiracy 2 p3
7203 - Constitutional Grounds 1 p1
7203 - Constitutional Grounds 1 p2
7203 - Constitutional Grounds 1 p3
7203 - Constitutional Grounds 1 p4
7203 - Constitutional Grounds 1 p5
7203 - Constitutional Grounds 2 p1
7203 - Constitutional Grounds 2 p2
7203 - Constitutional Grounds 2 p3
7203 - Constitutional Grounds 2 p4
7203 - Constitutional Grounds 2 p5
7203 - Constitutional Grounds 3 p1
7203 - Constitutional Grounds 3 p2
7203 - Constitutional Grounds 3 p3
7203 - Constitutional Grounds 3 p4
7203 - Constitutional Grounds 3 p5
7203 - Constitutional Grounds 4 p1
7203 - Constitutional Grounds 4 p2
7203 - Constitutional Grounds 4 p3
7203 - Constitutional Grounds 4 p4
7203 - Constitutional Grounds 5 p1
7203 - Constitutional Grounds 5 p2
7203 - Constitutional Grounds 5 p3
7203 - Constitutional Grounds 5 p4
7203 - Constitutional Grounds 5 p5
7203 - Constitutional Grounds 6
7203 - Contempt Finding Ag. Defendant's Counsel
7203 - Continuance p1
7203 - Continuance p2
7203 - Continuance p3
7203 - Conviction Required
7203 - Copies of Records p1
7203 - Copies of Records p2
7203 - Corporation Officer
7203 - Costs
7203 - Credit for Time Served
7203 - Criminal Contempt
7203 - Cross-Examination PART 1 p1
7203 - Cross-Examination PART 1 p2
7203 - Cross-Examination PART 1 p3
7203 - Cross-Examination PART 1 p4
7203 - Cross-Examination PART 1 p5
7203 - Cross-Examination PART 2
7203 - DefendantHaving Facts Available p1
7203 - DefendantHaving Facts Available p2
7203 - DefendantHaving Facts Available p3
7203 - Degree of Proof p1
7203 - Degree of Proof p2
7203 - Depositions
7203 - Different Statute Cited
7203 - Discovery, Scope Of
7203 - Documentary Evidence in Jury Room
7203 - Double Jeopardy 1 p1
7203 - Double Jeopardy 1 p2
7203 - Double Jeopardy 1 p3
7203 - Double Jeopardy 1 p4
7203 - Double Jeopardy 1 p5
7203 - Double Jeopardy 2 p1
7203 - Double Jeopardy 2 p2
7203 - Double Jeopardy 2 p3
7203 - Double Jeopardy 2 p4
7203 - Enhanced Sentence Sophisticated Means p1
7203 - Enhanced Sentence Sophisticated Means p2
7203 - Enhanced Sentence p1
7203 - Enhanced Sentence p2
7203 - Entrapment
7203 - Erroneous calculation of tax
7203 - Exclusion of Oral Testimony
7203 - Exercise Privilege-Exclusion from Courtroom
7203 - Expert Witness p1
7203 - Expert Witness p2
7203 - Expert Witness p3
7203 - Expert Witness p4
7203 - Extenuating Circumstances
7203 - Fact Finding p1
7203 - Fact Finding p2
7203 - Fact Finding p3
7203 - Fact Finding p4
7203 - Fact Finding p5
7203 - Failure of IRS to File Return
7203 - Failure to Assess Tax
7203 - Failure to Prosecute p1
7203 - Failure to Prosecute p2
7203 - Failure to Prosecute p3
7203 - Failure to Prosecute p4
7203 - Failure to Prosecute p5
7203 - Failure to Report Income 1 p1
7203 - Failure to Report Income 1 p2
7203 - Failure to Report Income 1 p3
7203 - Failure to Report Income 1 p4
7203 - Failure to Report Income 1 p5
7203 - Failure to Report Income 1 p6
7203 - Failure to Report Income 2 p1
7203 - Failure to Report Income 2 p2
7203 - Failure to Supply Information
7203 - False Return
7203 - Fictitious names
7203 - Fraud Case Procedures p1
7203 - Fraud Case Procedures p2
7203 - Fraud Case Procedures p3
7203 - Fraud Case Procedures p4
7203 - General Exception
7203 - Good Faith p1
7203 - Good Faith p2
7203 - Good Faith p3
7203 - Good Faith p4
7203 - Government Agent Prosecuting Claim
7203 - Grand Jury 1 p1
7203 - Grand Jury 1 p2
7203 - Grand Jury 1 p3
7203 - Grand Jury 1 p4
7203 - Grand Jury 1 p5
7203 - Grand Jury 2 p1
7203 - Grand Jury 2 p2
7203 - Hearsay Evidence p1
7203 - Hearsay Evidence p2
7203 - Hearsay Evidence p3
7203 - Hearsay Evidence p4
7203 - Hearsay Evidence p5
7203 - Hostility of the Court p1
7203 - Hostility of the Court p2
7203 - Hostility of the Court p3
7203 - Hypnosis
7203 - Identification
7203 - Ignorance of Law
7203 - Immunity p1
7203 - Immunity p2
7203 - Immunity p3
7203 - Impeachment p1
7203 - Impeachment p2
7203 - Improper Comment PART 1 p1
7203 - Improper Comment PART 1 p2
7203 - Improper Comment PART 1 p3
7203 - Improper Comment PART 1 p4
7203 - Improper Comment PART 1 p5
7203 - Improper Comment PART 2 p1
7203 - Improper Comment PART 2 p2
7203 - Improper Comment PART 2 p3
7203 - Improper Comment PART 2 p4
7203 - Improper Comment PART 2 p5
7203 - Improper Comment PART 3
7203 - Improper Question
7203 - Incrimination 1 p1
7203 - Incrimination 1 p2
7203 - Incrimination 1 p3
7203 - Incrimination 1 p4
7203 - Incrimination 1 p5
7203 - Incrimination 2 p1
7203 - Incrimination 2 p2
7203 - Incrimination 2 p3
7203 - Incrimination 2 p4
7203 - Incrimination 2 p5
7203 - Incriminaton Before Grand Jury p1
7203 - Incriminaton Before Grand Jury p2
7203 - Instructions to Jury 1 p1
7203 - Instructions to Jury 1 p2
7203 - Instructions to Jury 1 p3
7203 - Instructions to Jury 1 p4
7203 - Instructions to Jury 1 p5
7203 - Instructions to Jury 2 p1
7203 - Instructions to Jury 2 p2
7203 - Instructions to Jury 2 p3
7203 - Instructions to Jury 2 p4
7203 - Instructions to Jury 2 p5
7203 - Instructions to Jury 3 p1
7203 - Instructions to Jury 3 p2
7203 - Instructions to Jury 3 p3
7203 - Instructions to Jury 3 p4
7203 - Instructions to Jury 3 p5
7203 - Instructions to Jury 4 p1
7203 - Instructions to Jury 4 p2
7203 - Instructions to Jury 4 p3
7203 - Instructions to Jury 4 p4
7203 - Instructions to Jury 4 p5
7203 - Instructions to Jury 5 p1
7203 - Instructions to Jury 5 p2
7203 - Instructions to Jury 5 p3
7203 - Instructions to Jury 5 p4
7203 - Instructions to Jury 5 p5
7203 - Instructions to Jury 6 p1
7203 - Instructions to Jury 6 p2
7203 - Instructions to Jury 6 p3
7203 - Instructions to Jury 6 p4
7203 - Instructions to Jury 6 p5
7203 - Instructions to Jury 7 p1
7203 - Instructions to Jury 7 p2
7203 - Instructions to Jury 7 p3
7203 - Instructions to Jury 7 p4
7203 - Instructions to Jury 7 p5
7205 Convictions p1
7205 Convictions p2
7205 Convictions p3
7205 Convictions p4
7205 Convictions p5
7205 Double Jeopardy
7205 Exemption Certificates
7205 Hostility of the Court
7205 Indictment
7205 Information
7205 Intent to Deceive Lacking
7205 Right to Counsel
7205 Trial, Timeliness
7205 Variance
7205 Venue
7205 Willfulness
7206 False Returns 1 p1
7206 False Returns 1 p2
7206 False Returns 1 p3
7206 False Returns 1 p4
7206 False Returns 1 p5
7206 False Returns 2 p1
7206 False Returns 2 p2
7206 False Returns 2 p3
7206 False Returns 2 p4
7206 False Returns 2 p5
7206 False Returns 3 p1
7206 False Returns 3 p2
7206 False Returns 3 p3
7206 False Returns 3 p4
7206 Basis for Allegation of Fraud
7206 Concealment of Assets p1
7206 Concealment of Assets p2
7206 Conspiracy 1 p1
7206 Conspiracy 1 p2
7206 Conspiracy 1 p3
7206 Conspiracy 1 p4
7206 Conspiracy 2 p1
7206 Conspiracy 2 p2
7206 Constitutionality p1
7206 Constitutionality p2
7206 Constitutionality p3
7206 Costs
7206 Disclosure of Returns
7206 Estoppel p1
7206 Estoppel p2
7206 Estoppel p3
7206 Evidence 1 p1
7206 Evidence 1 p2
7206 Evidence 1 p3
7206 Evidence 1 p4
7206 Evidence 1 p5
7206 Evidence 2 p1
7206 Evidence 2 p2
7206 Evidence 2 p3
7206 Evidence 2 p4
7206 Evidence 2 p5
7206 Evidence 3 p1
7206 Evidence 3 p2
7206 Evidence 3 p3
7206 Evidence 3 p4
7206 Evidence 3 p5
7206 Evidence 4 p1
7206 Evidence 4 p2
7206 Evidence 4 p3
7206 False Claims Against U.S.
7206 False Documents p1
7206 False Documents p2
7206 False Statements in Return 1 p1
7206 False Statements in Return 1 p2
7206 False Statements in Return 1 p3
7206 False Statements in Return 1 p4
7206 False Statements in Return 1 p5
7206 False Statements in Return 2 p1
7206 False Statements in Return 2 p2
7206 False Statements in Return 2 p3
7206 False Statements in Return 2 p4
7206 False Statements in Return 3 p1
7206 False Statements in Return 3 p2
7206 False Statements in Return 3 p3
7206 False Statements in Return 3 p4
7206 False Statements in Return 3 p5
7206 False Statements in Return 4 p1
7206 False Statements in Return 4 p2
7206 False Statements in Return 4 p3
7206 False Statements in Return 4 p4
7206 False Statements in Return 4 p5
7206 False Statements in Return 5 p1
7206 False Statements in Return 5 p2
7206 False Statements in Return 5 p3
7206 False Statements in Return 5 p4
7206 False Statements to IRS Agents p1
7206 False Statements to IRS Agents p2
7206 False Statements to IRS Agents p3
7206 Forgery
7206 Grand Jury
7206 Guilty Plea p1
7206 Guilty Plea p2
7206 Immunity
7206 Indictment 1 p1
7206 Indictment 1 p2
7206 Indictment 1 p3
7206 Indictment 1 p4
7206 Indictment 1 p5
7206 Indictment 2 p1
7206 Indictment 2 p2
7206 Instructions to Jury 1 p1
7206 Instructions to Jury 1 p2
7206 Instructions to Jury 1 p3
7206 Instructions to Jury 1 p4
7206 Instructions to Jury 1 p5
7206 Instructions to Jury 2 p1
7206 Instructions to Jury 2 p2
7206 Instructions to Jury 2 p3
7206 Instructions to Jury 2 p4
7206 Instructions to Jury 2 p5
7206 Instructions to Jury 3 p1
7206 Instructions to Jury 3 p2
7206 Instructions to Jury 3 p3
7206 Instructions to Jury 3 p4
7206 Instructions to Jury 3 p5
7206 Jury Verdict Disregarded
7206 Jury p1
7206 Jury p2
7206 Jury p3
7206 Lesser Included Offense p1
7206 Lesser Included Offense p2
7206 Motion For Continuance
7206 Motion to Sever
7206 Motion to Transfer
7206 Motion to Vacate Sentence
7206 Net Worth Statement
7206 Offer in Compromise
7206 Perjury
7206 False or Fraudulent Returns p1
7206 False or Fraudulent Returns p2
7206 False or Fraudulent Returns p3
7206 False or Fraudulent Returns p4
7206 False or Fraudulent Returns p5
7206 Prior Convictions
7206 Prior Law
7206 Probation
7206 Prosecutor's Comment p1
7206 Prosecutor's Comment p2
7206 Restitution
7206 Right to Counsel p1
7206 Right to Counsel p2
7206 Sentence p1
7206 Sentence p2
7206 Sentence p3
7206 Sentence p4
7206 Sentencing Guidelines 1 p1
7206 Sentencing Guidelines 1 p2
7206 Sentencing Guidelines 1 p3
7206 Sentencing Guidelines 1 p4
7206 Sentencing Guidelines 1 p5
7206 Sentencing Guidelines 2 p1
7206 Sentencing Guidelines 2 p2
7206 Sentencing Guidelines 2 p3
7206 Statute of Limitations p1
7206 Statute of Limitations p2
7206 Venue
7206 Willfulness Defined p1
7206 Willfulness Defined p2
7206 Willfulness Defined p3
7206 Willfulness Defined p4
7207 Conviction
7207 Defenses
7207 Motion to Dismiss
7207 Sentencing
7207 Willfully Defined
7210 Willful Failure to Obey Summons
7212 Assault
7212 Bribery
7212 Constiutionality
7212 Indictment
7212 Interference p1
7212 Interference p2
7212 Interference p3
7212 Interference p4
7212 Jury Instructions
7212 Rescue of Seized, Levied Property p1
7212 Rescue of Seized, Levied Property p2
7212 Sentence p1
7212 Sentence p2
7212 Statute of Limitations
7212 Suppresion of Evidence
7215 Constitutionality
7215 Conviction
7215 Corporation
7215 Defenses
7215 Evidence
7215 Intent
7215 Speedy Trial
7216 Consent
7216 Preparer Defined
7216 Scope of Statute
7217 IRS Employees

 

Admissibility 3 Page3

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In proof of criminal tax evasion the defendant's intent is a necessary element. Evidence which is relevant and otherwise admissible to determine willfulness is not made inadmissible merely because the act or omission offered occurred shortly after the returns in question were filed. United States v. Northern, 329 F. 2d 794 (6th Cir. 1964), cert. den., 377 U. S. 991 (1964). On the issue of willfulness the prompt correction of errors by filing amended returns and by making tax payments is relevant. See Berkovitz v. United States [54-1 USTC ¶9425], 213 F. 2d 468, 472 (5th Cir. 1954) and Heindel v. United States [45-2 USTC ¶9372], 150 F. 2d 493, 497 (5th Cir. 1945). Conversely, where a defendant has an opportunity to correct his return, and is put on notice that such correction is necessary, his failure to take steps to file an amended return is a proper matter for a jury to consider in determining intent or lack of intent. In United States v. Alker [58-2 USTC ¶9829], 260 F. 2d 135, 157 (3rd Cir. 1958), it was said:

The law is well settled that prior and subsequent acts whether they portray criminality or not when substantially similar to the subject matter forming the basis of the indictment are probative to negate the inference that the crucial conduct was unintentional, innocent, inadvertent or the product of a mistake.

We reject this assigned error for a second and entirely different reason. When Hill testified in his own behalf, he substantially repeated the accountant's testimony which is complained about in this assignment. If there was any error in the admission of the accountant's testimony, it was cured by Hill's testimony to the same facts. See Barshop v. United States [51-2 USTC ¶9504], 192 F. 2d 699 (5th Cir. 1951), cert. den. 342 U. S. 920 (1952). Thus we find no prejudicial error in the admission of the accountant's testimony, or the trial court's refusal to withdraw it from the jury's consideration.

Admission of Minutes of Corporate Meetings

(Assignments No. 5 and 6)

Hill has assigned as separate errors the admission into evidence of the minutes of two meetings of the corporate Board of Directors, which meetings were held after the returns in question had been filed. The first meeting was held on January 22, 19 59. The second meeting took place on March 24, 19 59. The minutes show that Hill was present and participated in both meetings.

At the first meeting the corporation voted to redeem White's stock. White thereupon resigned as president. The Board then elected Hill to succeed White. At the second meeting the corporation entered into an agreement with White, whereby White was to receive a percentage of the gross amount on all future contracts entered into by the corporation until January 31, 19 62. The consideration from White therefor was his prior and future service to the corporation as a management counsellor.

We agree with Hill's contention that the minutes of both meetings were irrelevant to the charges against him. However no prejudicial error has been made to appear by the reception of these minutes.

No reversible error has been made to appear as to any of the assignments. The judgment of the district court is therefore.

AFFIRMED.

1 The Court:

"Just a moment.

"Members of the jury, the Court has been thinking about this witness' answer to the question, what did Mr. White tell him on the telephone that he answered and testified to, doesn't have any bearing whatever on the Government's case against this defendant Hill, he didn't mention Hill's name, and that is absolutely immaterial, and therefore I am going to sustain the objection made to it and instruct you to completely put it out of your mind, disregard it." (R. 198.)

 

 

[66-1 USTC ¶9265] United States of America , Appellee v. Pearl V. Williams, Appellant

(CA-4), U. S. Court of Appeals, 4th Circuit, No. 10,080, 355 F2d 516, 1/26/66

[1954 Code Sec. 7201]

Crimes: Evidence: Admissibility upheld.--The taxpayer contended that certain evidence should have been excluded because it tended to show that she had committed an offense in addition to the tax evasion of which she was convicted. Held: Since the evidence in question was highly relevant, it was not made inadmissible by its tendency to show that the taxpayer had committed an offense other than tax evasion.

Ronald T. Osborn, Assistant United States Attorney, Thomas Kenney, United States Attorney, Baltimore, Md., for appellee. R. Carleton Sharretts, Jr., Munsey Bldg., Baltimore , Md. , for appellant.

Before HAYNSWORTH, Chief Judge, and BOREMAN and BRYAN, Circuit Judges.

PER CURIAM:

Convicted of evasion of income taxes, the defendant complains of the admission of testimony tending to prove that she was the proprietress of a brothel. She had reported income from rentals and from race horses which she owned, and the testimony about her endeavors in aid of the professional activities of the young ladies who resided in her apartment house was offered to show an independent source of income in support of the net worth computations which had been introduced. As such, it was highly relevant, and it was not made inadmissible because of its tendency to prove her guilty of crimes other than tax evasion.

It is complained that the testimony does not show that patrons of the establishment remitted their fees directly to the defendant. An undercover agent testified that he was instructed by the defendant to pay the girl, who, by the defendant's prearrangement, was about to become his temporary partner. It may be inferred, however, that financial gain did attend her performance of her role as mistress of the place. Moreover, there was testimony that she had sought to explain her failure to report such income by fear that it would involve her in collateral difficulties.

We conclude that receipt of this testimony was unexceptionable. Affirmed.

 

 

[65-2 USTC ¶9532] United States of America , Plaintiff-Appellee v. Fritz M. Cox, Defendant-Appellant

(CA-6), U. S. Court of Appeals, 6th Circuit, No. 16153, 348 F2d 294, 7/6/65, Affirming and vacating unreported District Court

[1954 Code Sec. 7201]

Criminal evasion: Evidence: Instructions to jury.--In a trial for criminal evasion, it was not error for the Court to admit testimony of the taxpayer's accountant, who prepared his returns. Nor was it error for the Court to charge the jury in connection with the taxpayer's claim that he acted on advice of his accountant to make full disclosure of all pertinent facts. The Court did not err in failing to give the jury a special instruction on negligence.

[1954 Code Sec. 6531]

Statute of limitations: Criminal evasion.--Since the statute of limitations on the criminal evasion charge for 1956 in count 1 became effective on April 15, 19 63 and was not tolled by a complaint filed January 8, 19 63, the charge was barred by the limitations period. Judgment of conviction on count 1 vacated.

[1954 Code Sec. 7206]

False statements: Intent to evade tax: Understatement of income.--On counts 4 and 5, charging the taxpayer with filing false statements, the taxpayer argued that it was error for the court to instruct that intent to evade payment of taxes ws not necessary to convict. Since convictions on counts 2 and 3 were affirmed, the court deemed it unnecessary to pass on this issue.

Clyde W. Key, Key & Lee, Bank of Knoxville Bldg., Knoxville , Tenn. , for appellant. Louis F. Oberdorfer, Assistant Attorney General, Lee A. Jackson, Joseph M. Howard, John M. Brant, Department of Justice, Washington, D. C. 20530, John H. Reddy, United States Attorney, G. Wilson Horde, Assistant United States Attorney, Federal Bldg., Knoxville, Tenn., for appellee.

Before CECIL and PHILLIPS, Circuit Judges, and MATHES, Senior District Judge. *

CECIL, Circuit Judge.

This is an appeal from a judgment of conviction in the United States District Court for the Eastern District of Tennessee, Northern Division, on a five-count indictment involving income tax evasion. The first three counts charge the defendant-appellant with evading income taxes for the years 1956, 1957 and 1958, respectively, in violation of Section 7201, Title 26, U. S. C. The fourth count charges the defendant-appellant with subscribing to his tax return for the year 1957 when he did not believe it to be true as to every material matter, in violation of Section 7206 (1), Title 26, U. S. C. The fifth count charges the same offense for the year 1958. These last two counts allege an understatement of gross receipts as distinguished from an alleged understatement of taxable income in the first three counts.

Fritz M. Cox, the defendant-appellant herein, to whom we will refer as defendant, had for many years operated a wholesale distributorship for the products of Tom Huston Peanut Company. This business was started as a partnership in 1936 but after about a year the defendant bought the interest of his partner. E. C. Wynegar, a public accountant, had prepared the defendant's tax returns since the inception of the business. Mr. Wynegar prepared the returns now in question in the criminal proceeding before us. He instructed the defendant to deposit all of his gross receipts in a bank account and to pay all expenses by check. This would constitute a simple bookkeeping system from which the accountant could prepare the defendant's tax returns. This system was continued until some time in 1947. At this time, the defendant began to record his gross receipts in a sales account ledger. He testified that this was on the advice of Mr. Wynegar and that he would no longer have to deposit all of his receipts. With the use of this ledger, he could pay bills and living expenses out of the cash drawer. On his direct-examination, he claimed that he used the sales recorded in this ledger for making out his tax returns. The defendant continued to disclose his income to Mr. Wynegar through the bank-deposit-check-stub method.

[Admissibility]

One of the assignments of error is that the court erred in denying the defendant's motion for judgment at the close of all of the evidence and in denying his motion for judgment notwithstanding the verdict after the trial. In support of this assignment of error, it is claimed that the testimony of Mr. Wynegar should be disregarded as having no evidentiary value.

When the defendant first learned that his tax returns were under suspicion by the revenue agents, he employed Mr. Severance, a certified public accountant, to examine his income tax returns and ascertain whether he owed any additional tax. Amended returns were prepared by Mr. Severance and the additional taxes represented thereby were paid by the defendant. Mr. Severance went to see Mr. Wynegar and secured from him an affidavit. It is claimed that if the facts alleged in this affidavit were true, the defendant would be completely exonerated.

Upon the trial, Mr. Wynegar repudiated the facts of this affidavit and explained that he was willing to help a friend and signed it for that purpose. After signing this affidavit, Mr. Wynegar was called to the office of Special Agent Leibowitz. There Agent Leibowitz learned of the affidavit. The agent called Mr. Wynegar to his office a second time and warned him of his constitutional right to have a lawyer. He further warned him that anything he said could be used against him and that he could decline to answer any questions. With this warning, Mr. Wynegar attended a third conference with Agent Leibowitz accompanied by a lawyer. He attended a fourth conference without his lawyer, at which time he signed an affidavit which had been prepared for him by Leibowitz. Mr. Leibowitz told him then "You no longer need a lawyer." At the trial Mr. Wynegar testified that he knew nothing about the sales account ledger and that he had never changed his instructions concerning the deposit of all receipts and the payment of bills by checks. He further testified that he had continued to make the tax returns from the bank deposits and check stubs given to him by the defendant.

Counsel for the defendant concedes that if this testimony was believable the case was properly submitted to the jury. Counsel claims that without this testimony there is insufficient evidence to support a conviction. We cannot agree with this contention. There is ample evidence in the admissions of the defendant to Agent Leibowitz and in his own direct and cross-examination to warrant the submission of the case to the jury. Furthermore, much of the testimony of the defendant corroborates the testimony of Mr. Wynegar given at the trial. There is sufficient support for Mr. Wynegar's testimony that it cannot be said to be without probative value.

[Jury Instructions]

The appellant objects to the instructions of the trial judge in connection with the claim that he acted on advice of his accountant. The objection is addressed in particular to the language: ". . . but also that the taxpayer make a full disclosure to that person of all pertinent facts, . . ." It is argued that the taxpayer should only be required to disclose such facts as he believes to be pertinent or material. The full statement to which counsel for the appellant objects is taken out of the full context of the trial judge's instruction on this point. Taken as a whole, the charge on the subject is correct and not misleading. In part on this subject the court said:

"However, effectiveness of this defense requires not only that the advice be sought from a person honestly believed to be competent to give advice, but also that the taxpayer make full disclosure to that person of all pertinent facts, in order that the advice given may be in response to the true situation and not to one from which material facts have been withheld."

The pertinent part of this instruction is the withholding of material facts. There is strong evidence in this case to the effect that material facts were withheld from the accountant and it is doubtful that it was necessary to give the instruction at all. There is evidence that the appellant had bank accounts which were not disclosed to the accountant. Into one of these accounts he made weekly deposits of receipts of the business. Another one was called a reserve account into which he deposited "kick backs" on invoices from the Tom Huston Peanut Company. The appellant could not have honestly believed that this information was not pertinent and material for disclosure to one making out an income tax return.

Finally, we conclude that it is essential for one to disclose all of the facts concerning his income in order to rely on advice of his counsel or accountant. United States v. Baldwin [62-2 USTC ¶9644], 307 F. 2d 577, 579, C. A. 7, cert. den. 371 U. S. 947; Bisno v. United States , 299 F. 2d 711, 720, C. A. 9, cert. den. 370 U. S. 952, rehear. den. 371 U. S. 855; United States v. McCormick [3 USTC ¶1187], 67 F. 2d 867, 870, C. A. 2.

Another objection made by counsel for the defendant is that the court declined to give to the jury his special request concerning negligence. Willfulness and intent were very adequately defined. In defining willfulness and intent, the court said, in part:

"The attempt to evade or defeat the tax must be a willful attempt. That is to say, it must be an attempt knowingly made with the specific intent to keep from the government a tax imposed by the income tax laws which it was the duty of the taxpayers to pay to the government.

"In other words, the attempt must be knowingly made with the bad purpose of seeking to defraud the government of some substantial amount of income tax lawfully due from the taxpayers.

"Specific intent must be proved by independent evidence and cannot be inferred from the mere understatement of income. Willfulness must include an evil motive and want of justification in view of all the circumstances."

Willfulness is the very opposite of negligence and since the court charged that the act of evasion must be intentional and willful, negligence was necessarily excluded.

In connection with the instructions on counts four and five, the court made a distinction between willfulness and negligence:

"The word 'willfully' as used in this statute means deliberately and with knowledge, as distinguished from something which is merely careless, inadvertent or negligent."

This distinction would apply equally to the statute involved in counts one, two and three.

The defendants' explanation was that he did not know that he did not report all of his income to Mr. Wynegar. He did not claim that there was a failure to report income as a result of negligence. The evidence would tend to show a studied plan of evasion of income tax rather than a failure as a result of negligence of either the defendant or Mr. Wynegar.

We find no error in the assignments hereinabove discussed. The judgment of conviction on counts two and three is affirmed.

[Statute of Limitations]

It is claimed on behalf of the defendant that the charge of income tax evasion for the year 1956, as alleged in the first count of the indictment, is barred by the six-year statute of limitations. (Section 6531, Title 26, U. S. C.) The statutory bar became effective on April 15, 19 63, unless the statute was tolled by a complaint filed before the United States Commissioner, on January 8, 19 63.

The complaint reads, in part: ". . . that on or about the 15th day of January, 1956, . . . Fritz M. Cox did unlawfully and willfully attempt to evade and defeat the income taxes due and owing by him to the United States of America for the calendar year 1956, . . ." This does not clearly state the offense charged in the first count of the indictment. The judgment of conviction is vacated and the District Court is instructed to enter judgment for the defendant on this count.

[False Statements]

Counsel for the defendant objects to the instruction of the court that intent to evade the payment of tax was not necessary for a conviction under counts four and five of the indictment. Section 7206(1), Title 26, U. S. C., upon which the charges are based, provides in part: "Any person who . . . (w)illfully makes and subscribes any return . . . which he does not believe to be true and correct as to every material matter . . . shall be guilty of a felony. . . ."

Counsel argues that since the false statement charged in these counts is an understatement of gross income, in order to convict, the government must prove that the defendant willfully and knowingly made a false statement in his income tax return which defrauded the government of income tax revenue.

No clear authority decisive of this question has been cited to us nor have we found any. The sentence of one year and one day is concurrent on all counts. Since the convictions on counts two and three are affirmed, we find it unnecessary to pass on the validity of the convictions on counts four and five. United States v. Cardillo, 316 F. 2d 606, C. A. 2, cert. den. 375 U. S. 822, rehear. den. 375 U. S. 926; Moore v. United States , 330 F. 2d 842, C. A. D. C.; Carroll v. United States , 326 F. 2d 72, C. A. 9; United States v. Thomas, 303 F. 2d 561, C. A. 6. The sentence being short, it is apparent that no prejudice will result to the defendant in his consideration for parole as may result in some cases. See United States v. Leather, 271 F. 2d 80, C. A. 7, cert. den. 363 U. S. 831; Audett v. United States , 265 F. 2d 837, 848, C. A. 9, cert. den. 361 U. S. 815, rehear. den. 361 U. S. 926; and Hibdon v. United States , 204 F. 2d 834, 839, C. A. 6.

[Judgment of Court]

Judgment will be entered in conformity with this opinion.

* Sitting by designation from the Southern District of California.

 

 

[64-1 USTC ¶9261]Herbert F. Lessmann and Mildred Lessmann, Petitioners v. Commissioner of Internal Revenue, Respondent Herbert F. Lessmann, Petitioner v. Commissioner of Internal Revenue Respondent

(CA-8), U. S. Court of Appeals, 8th Circuit, Nos. 17,384, 17,385, 327 F2d 990, 2/19/64, Affirming Tax Court, 21 TCM 1339, CCH Dec. 25,727(M)

[1939 Code Secs. 41 and 293(b)--similar to 1954 Code Secs. 441, 446(b) and 6653(b)]

Reconstruction of income: Bank deposits and expenditures method: Inadequate records: Substantial understatements of income: Fraud.--In a case where the taxpayer underestimated large amounts of income, kept wholly inadequate books, and gave false information to his bookkeeper, the Court of Appeals upheld the Tax Court's holding assessing penalties for fraud against the taxpayer for the taxable years 1945-1949 and 1952-1953, based on the Commissioner's reconstruction of the taxpayer's income under the bank deposits and expenditures method. In addition, there was substantial evidence to support the determination of a deficiency in income tax for the year 1954.

[Tax Court Rule 27]

Tax Court Rules: Rule 27: Denial of a motion for a continuance: No abuse of discretion.--The Court of Appeals held that there was no abuse of discretion where the Tax Court denied the taxpayer's motion for another continuance since the case had been pending for more than two years and the taxpayer already had been granted two previous continuances.

[1954 Code Sec. 7605(b)]

Examination of books: Time and place: Failure to raise objections in Tax Court.--Where the taxpayer failed to object at his trial in the Tax Court that the Commissioner had inspected his books a second time without first giving notice as required by Code Sec. 7605(b), the court held that the taxpayer could not raise this issue for the first time on appeal.

[1954 Code Sec. 7203]

Admissibility of evidence: Nonprejudicial error.--The admission of evidence was not prejudicial to the taxpayer where the Court of Appeal found that none of the evidence objected to had any decisive bearing on the Tax Court's ultimate findings.

Ennis McCall, Newton Home Savings & Loan Bldg., Newton, Iowa (Brierly, McCall & Girdner, Newton Home Savings & Loan Bldg., Newton, Iowa, on brief) for petitioners. Norman H. Wolfe, Department of Justice, Washington, D. C. 20530 (Louis F. Oberdorfer, Assistant Attorney General, Lee A. Jackson, Harry Baum, J. Edward Shillingburg, Tax Division, Department of Justice, Washington, D. C. 20530, on brief) for respondent.

Before VAN OOSTERHOUT, MATTHES and MEHAFFY, Circuit Judges.

VAN OOSTERHOUT, Circuit Judge:

In the two cases here before us upon timely petitions for review, the Tax Court [CCH Dec. 25,727(M)] (opinion not reported) upheld the Commissioner's determination of income tax deficiencies, fraud penalties and certain other penalties. Case No. 17385 relates to individual tax returns filed by Herbert F. Lessmann for the fiscal years ending January 31, 19 45, 1946, 1947, and 1948. Case No. 17384 covers joint returns filed by Herbert F. Lessmann and his wife Mildred covering the fiscal years ending January 31, 19 49, 1952, 1953 and 1954. 1

Herbert F. Lessmann, whom we shall refer to as taxpayer, conducted a business as sole proprietor under the name of Lessmann Manufacturing Company in Des Moines , Iowa . He invented, developed, manufactured and sold power loaders and has been so engaged for many years. He assembled the loader on an Oliver tractor, but since 1947 he has assembled the complete unit--tractor and loader. The employees in the business numbered from 16 to 30. Some of the loader units were sold direct to customers by the taxpayer and in such instances the list price was usually charged and collected. Other units were sold through distributors who were usually allowed a 22% commission which ordinarily was deducted from the purchase price. The taxpayer sold his business in December, 1952, for $259,200.

It would serve little purpose to set out in detail the vast volume of conflicting evidene contained in this record. Much of the pertinent evidence is set forth in the Tax Court's opinion. We have carefully examined and considered the record and will refer to some of the evidence during the course of this opinion.

The Tax Court determined deficiencies in income and additions 2 to tax as follows:

"Deficiency Additions to tax.

                                            Section
Fiscal                  Income             293(b)
Year                       Tax          1939 Code
1945 ......         $26,051.91         $13,025.96
1946 ......          30,254.51          15,127.26
1947 ......           9,030.56           4,515.28
1948 ......           3,780.26           4,694.61
1949 ......           1,942.88             971.44
1952 ......           6,873.85           3,436.93
1953 ......          18,776.96           8,988.48
1954 ......           2,882.10             None"

 

Taxpayer relies upon the following points for reversal:

I. The Government failed to meet its burden of proving by clear and convincing evidence that part of the deficiencies in each of the fiscal years 1945, 1946, 1947, 1948, 1949, 1952 and 1953, was due to fraud with intent to evade tax.

II. There is no substantial evidence to support the determination of a deficiency in income tax for the fiscal year 1954.

III. The Tax Court absued its discretion in denying taxpayer's motion for a continuance.

IV. The Tax Court erred in permitting the Government to audit the 1949 return which had been previously audited.

V. The Tax Court erred in ruling upon the admissibility of certain evidence.

I. Taxpayer insists the Government has failed to establish fraud by clear and convincing evidence. The issue of fraud on the part of the taxpayer is of importance in this case in two respects: 1. The returns for the fiscal years 1945 through 1949 and 1951 are barred by §275 I. R. C. 1939 unless fraud is shown as provided by §276(A). 2. Under §293(b) I. R. C. 1939, the 50% fraud penalty is imposed "If any part of any deficiency is due to fraud with intent to evade tax. . . ."

It is clear that the burden is upon the Government to establish fraud both for the purpose of avoiding the bar of the statute of limitations and for justifying the imposition of fraud penalty with respect to each taxable year. §1112 I. R. C. 1939; §7454(a) I. R. C. 1954; Kisting v. Commissioner, 8 Cir., [62-1 USTC ¶9209] 298 F. 2d 264, 269; Klassie v. United States, 8 Cir., [61-1 USTC ¶9389] 289 F. 2d 96, 99.

Courts have often stated that the Government must establish fraud by clear and convincing evidence. Klassie v. United States, supra; Gunn v. Commissioner, 8 Cir., [57-2 USTC ¶9888] 24 F. 2d 359, 365; 10 Mertens, Law of Federal Income Taxation, §55.16.

The question of whether a substantial understatement of income is due to fraud ordinarily presents an issue of fact. Fraud is never presumed. Fraud may be established by direct or circumstantial evidence. Taxpayer's failure to overcome the presumption of correctness of the Commissioner's determination of a tax deficiency will not, standing alone, support a finding of fraud. However, a consistent pattern of underreporting large amounts of income over a period of years is substantial evidence bearing upon an intent to defraud, particularly in situations where no satisfactory explanation for such understatement is forthcoming. Holland v. United States [54-2 USTC ¶9714], 348 U. S. 121, 139; Klassie v. United States , supra; Schwarzkopf v. Commissioner, 3 Cir., [57-2 USTC ¶9816] 246 F. 2d 731, 734; Owens v. United States, 8 Cir., [52-2 USTC ¶9376] 197 F. 2d 450, 451.

The clearly erroneous standard applies to findings made by the Tax Court. Findings supported by substantial evidence on the record as a whole which are not against the clear weight of the evidence or induced by an erroneous view of the law will not be disturbed upon appeal. Probative evidence, direct as well as circumstantial, shall be considered in applying the clearly erroneous standard. Banks v. Commissioner, 8 Cir., 322 F. 2d 530, 537, and cases there cited.

When the foregoing standards are applied to the fact in his case, it is apparent that the record contains clear and convincing evidence supporting the Tax Court's fraud findings. With respect to the unreported income, the Tax Court states:

"We have included in our findings of fact the schedule showing the increases in receipts as computed under the bank deposit and cash expenditures method. Petitioner's witness, a certified public accountant, expressed general agreement at the trial with the various items which appear in the respondent's computation and could find no fault with them. Nor does petitioner make any serious effort on brief to challenge the items that appear in the schedule. We find correct the additions to petitioner's gross income determined by respondent, with the concessions made at the trial and other adjustments as noted in our findings of fact."

Taxpayer was allowed the deductions claimed in his return except for some personal expenses such as wages for domestic help and personal utility bills which were disallowed. The court specifically found that taxpayer had offered insufficient evidence to support the claimed deductions disallowed and also found that the taxpayer had failed to prove that he was entitled to any deductions beyond those claimed in his return and those conceded by the Government.

Taxpayer has failed to overcome the presumption of correctness of the deficiency determination arising out of the substantial understatements of income for the tax years. This standing alone would not establish fraud. Taxpayer admits that some substantial items of income were omitted in his tax returns but attempts to excuse himself upon the basis that he relied upon his bookkeeper, Mrs. Swindler, and the accountants who prepared his returns.

The resolution of the fraud issue depends largely upon credibility determinations. Taxpayer takes the position that Mrs. Swindler's testimony, which supports the fraud claim, is not worthy of belief. He also challenges some of his accountants' testimony. The taxpayer as a witness disclaimed any fraudulent intent. The court was not compelled to accept such statement at face value. Banks v. Commissioner, supra; Heil Beauty Supplies, Inc. v. Commissioner, 8 Cir., [52-2 USTC ¶9496] 199 F. 2d 193, 195.

There is evidence that the taxpayer enjoyed a good reputation and that he was in no sense a gangster. While, as taxpayer states, quite a number of tax fraud cases involve gangsters, taxpayer's prior good reputation does not in and of itself conclusively negative fraud in this case. The fraud issue must be resolved upon the basis of the record as a whole.

There is evidence of failure by the taxpayer to report substantial specific items of income. His explanation of such omissions falls for short of being convincing.

The taxpayer's books for years prior to fiscal year 1952 were wholly inadequate. They consisted largely of a check register which was used for determining deductible expenses. A file of sales invoices was maintained but some of these were withdrawn by the taxpayer. A number of machine unit sales were not reported as income. Commissions were deducted or units sold direct upon which no commission was allowed or paid. Substantial sales of repair parts were omitted from income in 1945, 1946 and 1947.

Mrs. Swindler's testimony, which is controverted by the taxpayer, is that the taxpayer told her which checks representing the proceeds of sales were to be deposited. Cashier's checks and bank drafts aggregating some $175,000 were purchased during the various years involved with unreported business receipts. Such checks are listed by year in the Tax Court's opinion.

Taxpayer's attempt to shift the responsibility for omissions to the accountants preparing his returns is not persuasive. The only information as to receipts given the accountants was summaries and other information furnished by the taxpayer. The accountants did not audit the receipts and so stated in the tax returns. They frequently complained about the inadequacy of the taxpayer's records.

Taxpayer makes some contention that his records were destroyed by flood and by mice. The premises were flooded in 1946. Mrs. Swindler's testimony is that there was no substantial loss of material records. The taxpayer at the trial produced some records not previously disclosed. In any event, inadequacy of taxpayer"s records cannot be attributed to the flood damage, as taxpayer at no time had adequate records for the earlier tax years.

No deficiency was claimed or found for the fiscal years 1950 or 1951 because of substantial losses in such years. The Commissioner and the Tax Court found that during such years taxpayer followed the same pattern as in other years and that while no tax resulted in 1950 or 1951, the taxpayer used inflated losses claimed in such years as a basis for deductions for 1952 and 1953. The Commissioner and the Tax Court redetermined net losses for such years and thus adjusted the loss carry-over. Among other things, the Tax Court in its opinion observes:

"Petitioner impressed the Court as an intelligent businessman who was well aware of the extent of his machinery sales and that he was not reporting all of his sales by a wide margin. There was testimony from his bookkeeper to the effect that petitioner would select which checks from customers to deposit and which to hold back, and there was further evidence that petitioner instructed his bookkeeper to falsely show purported commissions paid on certain sales. This and other evidence is highly convincing that petitioner knew of his unreported sales. . . ."

Our examination of the record satisfies us that the Tax Court has by its opinion satisfactorily demonstrated that clear and convincing evidence supports its determination that part of the deficiency in tax is due to fraud with intent to avoid tax with respect to each of the years in which the court upheld the fraud penalty.

II. For the fiscal year 1954 the Tax Court found a deficiency in income but found no fraud. The taxpayer's claim is that he has not been given the credit to which he is entitled for a loss carry-over from prior years and that the Government in making recomputations for the loss years failed to give him credit for deductible expenses for such years. As previously pointed out, the Tax Court found that deductions were allowed with respect to all taxable years as claimed by taxpayer except some relating to personal expenses and that taxpayer failed to prove that he was entitled to any deductions in excess of those claimed in his return and those conceded by the Commissioner.

Upon the issue of the tax deficiency for 1954, the presumption of correctness which attaches to the Commissioner's deficiency determination operates. Banks v. Commissioner, supra.

Taxpayer has no demonstrated that the Tax Court's resolution of this issue is clearly erroneous.

III. The Tax Court did not abuse its discretion in denying taxpayer's motion for a continuance. The motion is based upon newly acquired counsel without adequate time for preparation and upon the unavailability of the witness Harrigan. The petitions conferring jurisdiction upon the Tax Court in these cases were filed on April 20, 19 59. The cases were set for trial on March 21, 19 60. Upon taxpayer's motion, a continuance was granted. The cases were then set for trial on October 24, 19 60. On that date, after the Government appeared with witnesses ready for trial, a continuance was granted upon taxpayer's motion over the Government's objection. On November 22, 19 61, notice of trial on February 26, 19 62, was given the taxpayer. On December 8, 19 61, taxpayer's then attorneys, James M. Stewart and Alex M. Miller, filed motion to withdraw, which motion shows that such withdrawal was with the approval of the taxpayer, and that the taxpayer had stand-by counsel. The motion was granted and the taxpayer was advised of the withdrawal of his attorneys' appearance. At the call of the calendar on February 26, 19 62, taxpayer appeared in person and orally requested a continuance upon the ground that his attorney Williams needed time to study the case. The motion was overruled. On March 5, 19 62, taxpayer's present attorney, McCall, who had just been retained as counsel, filed a motion for a continuance to obtain time to prepare for trial. The Government resisted the motion upon the basis of the prior continuances; further urging that it again had witnesses present from a distance ready for trial. The motion for continuance was overruled.

Motions for continuances are addressed to the sound discretion of the court and rulings upon such motions are reversible only upon showing abuse of discretion. Janousek v. French, 8 Cir., 287 F. 2d 616, 623; Glawe v. Rulon, 8 Cir., 284 F. 2d 495, 498.

Inasmuch as this case had been pending for more than two years and two continuances had been previously granted at taxpayer's request, and it affirmatively appears that taxpayer had ample notice of trial and that he at least acquiesced in the withdrawal of his former counsel, we cannot say that the court abused its discretion in refusing the continuance. The denial of a continuance under somewhat similar circumstances was upheld in Woodbury v. Commissioner, 3 Cir. [56-1 USTC ¶9386], 231 F. 2d 121.

Parenthetically, we observe that we are aware of the great difficulty encountered by present counsel in going into the trial of this complicated case without time for preparation. However, upon the record, the responsibility for this predicament lies with the taxpayer.

The absence of the witness Harrigan does not compel a continuance. The statement of Harrigan's doctor, which is not disputed, shows that Harrigan was suffering from an advanced case of lung cancer, that he was unable to appear in court, and that there is no likelihood that he would be able to testify later. Harrigan subsequently died. Moreover, Harrigan's deposition had been taken previously by stipulation in the presence of counsel for both parties with full opportunity to question him.

IV. Some tax audit of the taxpayer's records had been made previously for the year 1949 which resulted in a minor adjustment. Taxpayer urges that by reason thereof the Government is barred by §7605(b) I. R. C. 1954 from again inspecting the taxpayer's books for such year. Said statute does provide "only one inspection of a taxpayer's books of account shall be made for each taxable year unless the taxpayer requests otherwise or unless the Secretary or his delegate, after investigation, notifies the taxpayer in writing that an additional inspection is necessary." The short answer to this contention is that the issue now reised was not urged in the Tax Court. Thus the Government was not given an opportunity to meet this issue and the Tax Court was not given an opportunity to pass on it. The provisions of this section may be waived by the taxpayer's failure to object to the second examination. United States v. O'Connor, 2 Cir. [56-2 USTC ¶9956], 237 F. 2d 466, 476. Moreover, Agent Lodden testified that he received permission from the Commissioner to make the re-audit for 1949, and that notice was given to taxpayer.

V. Taxpayer complains that the Tax Court improperly received certain evidence over his objection. We have frequently held that in a case tried to a judge, "it is virtually impossible for a trial judge to commit reversible error by receiving incompetent evidence." Builders Steel Co. v. Commissioner, 8 Cir. [50-1 USTC ¶9147], 179 F. 2d 377, 379; Pritchard v. Downie, 8 Cir., . . . F. 2d . . .; American Universal Ins. Co. v. Dykhouse, 8 Cir., . . . F. 2d . . . In Builders Steel Co., we said:

"An appellate court will not reverse a judgment in a nonjury case because of the admission of incompetent evidence, unless all of the competent evidence is insufficient to support the judgment or unless it affirmatively appears that the incompetent evidence induced the court to make an essential finding which would not otherwise have been made." 170 F. Supp. 377, 379.

Upon the basis of the standards just stated, taxpayer has failed to demonstrate that prejudicial error was committed in admitting the evidence. None of the evidence against which complaint is lodged appears to have had any decisive bearing upon the Tax Court's findings.

Taxpayer also urges that the court erred in rejecting his profert of the audit report made with respect to a previous examination of taxpayer's 1949 return. The Government's objection to such offer, upon the ground that the exhibit is immaterial, was sustained. Taxpayer's counsel stated that the exhibit was offered to show that the Government at an earlier time had examined and approved the 1949 return. The record shows the following colloquy:

"Mr. McCall: It would show at one time, Your Honor, at a time much earlier than this, and much earlier than this audit, the Government did approve of the tax return of the taxpayer.

The Court: Is the Government estopped by that?

Mr. McCall: I think that it has weight as evidence that at one time, at least, some member of the Government at a time when perhaps records were much more available--

The Court: Oh, we are not going to try that case. The objection is sustained."

It is noted that the offer was not for the purpose of establishing that a prior audit of the taxpayer's 1949 return had been made. The prior audit does not preclude additional claims for deficiency against the taxpayer. The prior audit did not cover the unreported income filed covered by the later audit. It is obvious from the Tax Court's remarks that it would not have been impressed by the prior audit if it had been received in evidence.

We have carefully examined the entire record and have given full consideration to all errors asserted by the taxpayer. We conclude that the taxpayer has had a fair trial and that no prejudical errors were committed by the Tax Court.

The judgment is affirmed.

1 The Tax Court and the Government counsel refer to the taxable years involved according to the year in which the taxable year ends. Thus the taxable year ending January 31, 19 45, is called "fiscal year 1945" or "1945." The taxpayer classifies the year according to the bulk of the calendar year encompassed and thus refers to the taxable year ending January 31, 19 45, as "1944". We shall in this opinion follow the plan adopted by the Tax Court for describing the years in controversy.

2 The Tax Court as to certain years in addition to the fraud penalty found penalties due under one or more of the following sections of I. R. C. 1939, to wit, 294(d)(1)(A), 294(d)(1)(B), and 294(d)(2). No attack is made upon such penalties except to the extent they are affected by the attack on the tax deficiencies and the fraud penalties.

 

[63-1 USTC ¶9376]Paul J. Richard, Defendant, Appellant v. United States of America , Appellee

(CA-1), U. S. Court of Appeals, 1st Cir., No. 6061, 315 F2d 331, 3/29/63, Affirming District Court, 63-1 USTC ¶9243

[1954 Code Sec. 7201]

Tax evasion: Transcript of taxpayer's deposition: Newspaper publicity.--A stenographic transcript of a deposition voluntarily given by the taxpayer to the Internal Revenue Service was properly admitted at his trial for tax evasion, although notations indicated that something had been said off the record, where there was no showing that any material part of the deposition had not been transcribed and the Government had initially offered to black out all off-the-record comments. A newspaper comment on the cost to the Government of summoning one of twenty-nine witnesses did not prejudice the jury, in view of the overwhelming substantive evidence.

Frederick Bernays Wiener, Suite 851 Stoneleigh Court, 1025 Connecticut Ave., N. W., Washington, D. C. (Archie Smith, 134 Brown St., Providence, Edward M. Botelle, 414 Washington Trust Bldg., Westerly, R. I., on brief), for appellant. Norman Sepenuk, Department of Justice, Washington 25, D. C. (Louis F. Oberorfer, Assistant Attorney General, Lee A. Jackson, Joseph M. Howard, Department of Justice, Washington 25, D. C., Raymond J. Pettine, United States Attorney, Providence, R. I., on brief), for appellee.

Before HARTIGAN and ALDRICH, Circuit Judges, and GIGNOUX, District Judge.

Opinion of the Court

ALDRICH Circuit Judge:

The defendant was convicted by a jury of falsifying his income tax returns. Apart from one matter not pressed at the argument his complaints on this appeal are to the admission of a stenographic transcript of what might be loosely termed a deposition, voluntarily given by him to the Internal Revenue Service, described by counsel as bob-tailed, and to the denial of motions for a mistrial and for a new trial because of the publication, during trial, of certain newspaper articles.

The case was tried upon the net worth theory. The defendant makes no claim that the evidence did not warrant a conviction if his deposition was properly admitted. 1 The transcript was duly authenticated, and there is no suggestion of duress or overreaching so far as the merits are concerned. In fact the defendant was represented by counsel throughout the taking. The sole objection pressed is that in a number of places there are notations indicating that something was said off the record, and in some instances there is a purported short summary, authorship not shown, of the subject matter of the off-the-record discussion, which had apparently included statements by the defendant. The government intially offered to black these matters out, but the defendant replied that this would not "help the situation. . .. [T]he document on its face . . . is not admissible." He explained his objection to be that the deposition was undeniably incomplete. The court having overruled that objection, nothing more was said by the defendant about the government's offer to black out "all off-the-record comments" and the document was introduced unmarred.

[Off-the-Record Discussions]

It is, of course, normally true that, upon objection, a party must offer the entire material portions of a statement. It would be a misconstruction to apply that principle here. There was no showing that any material part of the deposition had not been transcribed. The implication "on its face" is just the opposite. The natural assumption is that the parties went off the record for something considered to be immaterial. And, indeed, when, at the end of the deposition, defendant was asked if he had anything he wanted to add for the record, he replied he had not. If this is a "bob-tailed" transcript, the defendant is seeking to use a properly severed tail to wag the dog.

It may further be noted that at the outset of his deposition the defendant acknowledged that he understood that the answers "may be used . . . against you should the investigation result in a trial." He made no objection to the off-the-record procedure at the time. We find it surprising that under these circumstances he should think he could do so now.

The interpolations or interpretations of the off-the-record discussions present a different situation. If, however, the defendant had a separate objection to these insertions, he should have accepted the government's offer of excission. Again, the defendant is patently too late.

[Newspaper Publicity]

The facts with relation to the requested mistrial are these. The trial lasted six days, the government producing, as part of its case, some twenty-nine witnesses. One of these, a Mr. Wynhoff, having identified himself as a resident of Florida , testified that the defendant had paid him $3,000 for a certain horse. This figure entered into the government's net worth calculations. Wynhoff's direct testimony was not protracted. There was no cross. That evening a local newspaper published an item to the effect that bringing Wynhoff from Florida had cost the government $315.52 for thirteen words, or $24.27 per word." 2 Although the article placed no special emphasis on it, it stated that the government was "compelled to summon Mr. Wynhoff when the defense refused to stipulate the $3,000 figure." The following morning the defendant moved for a mistrial. In denying the motion the court stated it assumed that the jurors had seen the article. The court did not suggest examining the jurors, individually or collectively, as to whether, if they had seen it, they had been influenced. Nor did the defendant at any time request such an examination.

Thereafter, in its charge, the court instructed the jury that the case should be decided "solely on the evidence that has been presented here in this courtroom," and that if any jurors had read any newspaper articles they should "disregard them completely." 13 In addition, the court gave the customary charge that the burden was on the government to prove its case beyond a reasonable doubt, and that no inferences should be drawn against the defendant for failure to take the stand.

Following the verdict the defendant moved for a new trial. Accompanying the motion was an affidavit to the effect that two jurors, although they had not seen the article in question, had seen another of like tenor the following morning, and that one recalled (nine days after trial) that it dealt with the cost to the government of summoning a witness from Florida. There was no indication that either juror remembered the defendant's refusal to stipulate. In denying this motion the court stated that the evidence to support the verdict was "overwhelming," and that no "conscientious and intelligent" jury could have reached any other result. Before us defendant does not challenge this characterization; nor is there anything contradictory thereto in his record appendix.

The daily newspaper is one of the facts of life. We do not, of course, disagree with the defendant that some publications may be so prejudicial that the court should at least volunteer to interrogate the jury, or should even grant a mistrial out of hand. Colorful judicial observations quoted by the defendant about the impossibility of eradicating skunks, or of obliterating elephants, however, do not become apposite until it is determined that such zoological phenomena have been introduced. The jury, knowing that the witness came from Florida , already appreciated that his testimony involved expense. 4 There was nothing startling about the particular amount. The only new fact brought to the jury's attention was the defendant's refusal to stipulate.

The defendant, of course, was not obliged to stipulate. Even though disclosure or comment 5 was improper, viewing this case as a whole we cannot quarrel with the district court's decision that these publications, relating to one of twenty-nine witnesses, did not prejudice the jury so as materially to increase the likelihood of a finding of guilt. Particularly is this so where the substantive evidence of guilt is "overwhelming." United States v. Tramaglino, 2 Cir., 1952, 197 F. 2d 928, cert. den. 344 U. S. 864; Williams v. United States , 4 Cir., 1954, 218 F. 2d 276; United States v. Lee, 7 Cir., 1939, 107 F. 2d 522, cert. den. 309 U. S. 659; McFarland v. United States , D. C. Cir., 1945, 150 F. 2d 593; cert. den. 326 U. S. 788.

Judgment will be entered affirming the judgment of the District Court.

1 The government argues, persuasively, that there was ample evidence without the deposition, but for the purposes of this appeal we will accept defendant's position that it was an essential part of the government's case.

2 The total figure was right, but the division was wrong, as Wyhoff used seventeen words.

3 The government, quite properly, says that such an instruction should not identify an offending article. However, we might suggest that it is often desirable to instruct a jury of the unfairness of considering newspaper articles because, by the very circumstance that they are not in evidence, there is no opportunity of contradicting their accuracy or otherwise explaining them away.

4 Comment about the cost of prosecution is not irremedial error. Windisch v. United States, 5 Cir., 1961, [61-2 USTC ¶9720], 295 F. 2d 531; Calico v. Commonwealth, 1911, 145 Ky. 641; McDonald v. State, 1927, 193 Wis. 204.

5 The articles not only revealed the defendant's refusal to stipulate, but gave the source as the United States Attorney. The defendant accordingly argues that we should view them in a more serious light. Without passing upon such a principle, we point out that at the trial defendant's counsel expressly disclaimed "blaming [the United States Attorney] for this appearing in here. Of course, he has no control over these things." The motion for new trial, likewise, placed no blame on the United States Attorney. The defendant now argues that he must have been responsible. We will not consider on appeal what was disclaimed below. We may add that it seems quite apparent from the record that the United States Attorney was perturbed by, rather than the instigator of, the publications.

 

 

[63-2 USTC ¶9684]Mario Sanseverino, Appellant v. United States of America , Appellee

(CA-10), U. S. Court of Appeals, 10th Circuit, No. 7265, 321 F2d 714, 8/22/63, Affirming unreported District Court decision

[1954 Code Sec. 6531]

Statute of limitations: Sufficiency of complaint: Prosecution for tax evasion.--The filing of a complaint within the six-year period of limitations effectively tolled the statute of limitations under Code Sec. 6531. It was not necessary for the government to introduce formal proof that the statute had been tolled.

[1954 Code Sec. 7201]

Evidence: Admissibility: Character witnesses: Transactions in prior years.--Admission of evidence of the defendant's transactions in prior years was not prejudicial and the trial court's limitation of the number of character witnesses was not erroneous. Miscellaneous assignments of error in the trial court's instructions were overruled.

Gus Rinehart, Suite 2320, First National Bldg., Oklahoma City, Okla. (S. Morton Rutherford, Thompson Bldg., Tulsa, Okla., on brief), for appellant. John M. Imel, United States Attorney, Tulsa , Okla. , for appellee.

Before PHILLIPS, PICKETT and LEWIS, Circuit Judges.

LEWIS, Circuit Judge:

Appellant was found guilty by a jury of wilfully and knowingly attempting to evade payment of income tax in violation of 26 U. S. C. A. 7201. 1 The two-count indictment charged the taxpayer with having concealed income and assets in the years 1955 and 1956 and with having understated his income returns for those years by $26,586.95 and $22,912.56. He appeals the judgments of conviction asserting numerous errors in the admission of evidence and the instructions of the court and specifically contending that the statute of limitations had run as to Count I of the indictment.

[Statute of Limitations]

The indictment was filed May 17, 19 62, and charged in Count I the filing of a false return upon April 9, 19 56, for the taxable year 1955. The government offered no affirmative proof that the normal six-year period of limitation set by 26 U. S. C. A. 6531(2) had been tolled but the files and records of the District Court show that a complaint was filed in that court on March 30, 19 62. The filing of such complaint, when made by the examining agent and affirmatively stating that the complaint is based upon his personal investigation, effectively tolls the statute under the proviso of Sec. 6531 which provides in part:

". . . Where a complaint is instituted before a commissioner of the United States within the period above limited, the time shall be extended until a date which is 9 months after the date of the making of the complaint before the commissioner of the United States ."

The government had no burden to offer formal proof of that which appears in the case record of the court for such is the cornerstone of judicial notice. Appellant's reference to White v. United States, 5 Cir., [54-2 USTC ¶9575] 216 F. 2d 1, and Flemister v. United States, 5 Cir., [58-2 USTC ¶9904] 260 F. 2d 513, is guideless for in each of those cases the trial court relied, through judicial notice, upon something that did not appear in its record.

[Evidence of Transactions in Prior Years]

Appellant urges that the admission of irrelevant evidence of transactions in years prior to the years under investigation was error and prejudiced his defense. The trial court instructed the jury as to the reasons for the admission of such evidence:

"You are instructed that although the defendant is herein charged with attempting to evade his income taxes for the years 1955 and '56, the Court nevertheless permitted evidence of like or similar transactions by the defendant in prior years. Such evidence is to be considered by you only insofar as you may find it bears upon or relates to the intent of the defendant, if you find that he failed to pay all of his taxes for a year or years involved in this indictment. In other words, such evidence was admitted for the purpose of throwing light upon the state of mind or intent of the defendant when he filed tax returns for the years 1955 and '56 and to show that the charged attempts to evade were part of the pattern or course of conduct which had been followed in former years."

Appellant protests that the transactions which were shown, i.e. a stock sale in 1953, large cash transactions and bank deposits, were not similar to his activities in the years under investigation, United States v. Accardo, 7 Cir., [62-1 USTC ¶9170] 298 F. 2d 133, and indeed, implied to the jury that defendant had not paid proper taxes in prior years. We see no error in nor prejudicial effect to the admission of such testimony for it was consonant with the defense that his failure to pay the full tax required of him was a misconception of the law and a laxity in his business habits. The appellant was afforded ample opportunity to refute the implications which he now finds in the evidence and in fact offered evidence showing his entire life in this country and Italy , including its financial aspects. Whether or not the evidence to which he now objects demonstrated a pattern of tax evasion or a pattern of excusable negligence in money matters became a matter for the jury to decide. It was not, at any rate, inadmissible as irrelevant. Continuity of motive and intent may be shown by evidence of the conduct of a defendant at times proximate to that charged in the indictment. Morlan v. United States , 10 Cir., 230 F. 2d 30; Jones v. United States , 10 Cir., 251 F. 2d 288; Doty v. United States , 10 Cir., 261 F. 2d 10; Tandberg-Hanssen v. United States , 10 Cir., 284 F. 2d 331. And such evidence may still be proper though capable of arousing suspicion of the commission of a different crime than the one specifically charged if motivated by the same intent pertinent to the then present inquiry. Morlan v. United States, supra.

Appellant also objects to the use of a government summary showing an accounting of his income and tax liability for the years 1955 and 1956 and again to the permitted enlargement of that summary. The trial court was explicit in its instructions that the exhibit was not evidence as such but merely constituted an argumentative tool which the prosecution contended supported its case. Thus, the errors found in such an exhibit in Flemister v. United States, 5 Cir., [58-2 USTC ¶9904] 260 F. 2d 513, were avoided. The jury was informed by all the evidence of the government's method of investigation and of the use of bank deposits as demonstrating taxable income and of the defendant's explanations and denials of the various items and was instructed to make its own determinations as to the validity of the various charges to income. No error appears in the use of the exhibits.

[Character Witnesses]

Appellant was allowed to present seven witnesses who testified as to his good character. He complains that the testimony of two more character witnesses was stricken after it appeared that their testimony was more in the nature of a personal endorsement than based upon a familiarity with appellant's reputation. Knowledge of reputation is, of course, the basis of materiality for such testimony, Michelson v. United States, 335 U. S. 469, 69 S. Ct. 213, 93 L. Ed. 168, and, in any event, it lies within the trial court's discretion to limit the number of character witnesses. Petersen v. United States, 10 Cir., [59-2 USTC ¶9538] 268 F. 2d 87. No error or abuse of discretion here appears.

[Judgment of the Court]

Appellant's remaining assignments of error pertain to the court's instructions upon a number of subjects and the failure of the court to give appellant's requested instructions upon such subjects. We are satisfied that the instructions adequately, in fact, artfully, informed the jury fo the complications of the applicable law. The trial court is under no obligation to use the words of a submitted instruction even though the proposed instruction may be both a correct statement of the law and (as here) artfully expressed. United States v. Alker, 3 Cir., [58-2 USTC ¶9829] 260 F. 2d 135, 152. We find no error in the instructions.

The judgment is affirmed.

1 26 U. S. C. A. 7201: "Any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $10,000, or imprisoned not more than 5 years, or both, together with the costs of prosecution."

 

 

[63-2 USTC ¶9517] United States of America , Appellee v. Gerald A. Guidarelli, a/k/a Gerardo A. Quindarelli, Defendant-Appellant

(CA-2), U. S. Court of Appeals 2nd Circuit, Docket No. 28038, 318 F2d 523, 6/4/63, Affirming an unreported District Court decision

[1954 Code Sec. 7201]

Tax evasion: Criminal conviction: Evidence: Prejudice.--Conviction of a newsstand and gift shop operator for willful evasion of income tax is upheld. In the lower court the Government used the net worth method of proof and contended that the taxpayer had unreported income from gambling and bookmaking activities. On appeal the taxpayer attacked the net worth amount on the ground that the lower court erred in permitting an IRS agent's testimony regarding statements made to him by the taxpayer's wife. He also claimed that his cause was prejudiced by the Court's admission of evidence of his prior convictions for bookmaking and by the prosecutor's summation remarks (such as calling the taxpayer a "leech"). The Court of Appeals found that the taxpayer could not challenge the net worth amount because his counsel had stipulated to it after the lower court ordered the items in the net worth account based upon the wife's statements stricken from the record. As to the evidence of the taxpayer's prior convictions, his gambling activities were part of the case story, and any prejudice was dispelled by the judge's jury instructions. Also, although the prosecutor did overstep the bounds of summation, his comments were not sufficiently prejudicial to warrant reversal.

Louis Lombardi, Schenectady , N. Y., for defendant-appellant. Dante M. Scaccia, Assistant United States Attorney, Syracuse, N. Y. (Justin J. Mahoney, United States Attorney, Albany, N. Y., Louis F. Oberdorfer, Assistant Attorney General, Lee A. Jackson, Joseph M. Howard, Norman Sepenuk, Department of Justice, Washington 25, D. C., on brief), for appellee.

Before CLARK , SMITH, and HAYS, Circuit Judges.

[Basis of Conviction]

CLARK, Circuit Judge:

Defendant was convicted of willfully attempting to evade and defeat his income taxes for the years 1956 and 1957 by filing false and fraudulent returns, in violation of I. R. C. 1954, §7201. During the prosecution years he claimed as his only source of income the newsstand and gift shop which he operated, known as "Lee's News." Using the net worth method of proof, the prosecution introduced evidence of cash on hand, various automobiles of which the purchase price was attributable to the defendant, legal fees, life insurance premiums, and miscellaneous personal living expenses--all of which tended to show funds at his disposal indicating that a substantial tax was due and owing from him for the years involved. The government contended that the indicated deficiencies in the income reported arose from gambling and bookmaking activites--a taxable source of income--and pointed to defendant's failure to keep books, his excessive use of currency, and the concealment of assets by placing several of the automobiles purchased by defendant in the name of relatives as proof of the necessary element of willfulness. The primary theory of defense below was that the net worth increases which the government had shown were due to the receipt of cash loans from defendant's parents.

[No Grounds to Challenge Net Worth Amount]

On appeal the defendant argues that the district court erred in permitting Special Agent O'Sullivan to testify regarding statements made to him by defendant's wife. Defendant contends that admission of this testimony was in violation of spousal privilege. While we agree that the testimony in question presents some interesting questions as to the application of both the spousal privilege rule and the hearsay rule, we need not concern ourselves with them here. For Judge Brennan had second thoughts about this aspect of Special Agent O'Sullivan's testimony and, on his own motion, ordered the items in the net worth account based upon the wife's statements stricken from the record. Defendant now seems to claim that Judge Brennan failed to strike all the items on which the wife's statements had bearing. But the effect on the net worth statement of striking the testimony was determined by a stipulation to which the defense counsel agreed; and he then made no claim that other items should also have been stricken. Thus he has no ground to challenge the failure to include such other items in the exclusion.

[Evidence of Prior Convictions Allowed]

Defendant also complains of the use in evidence of his arrests for bookmaking in 1955 and 1958, his conviction for those offenses, and the payment by him in 1955 of a $1,000 fine. The government may have made generous use of defendant's vulnerability from his gambling activities, but this was part of the story and the case. Any prejudice here was dispelled by Judge Brennan's instructions to the jury.

[Summation Remarks Not Sufficiently Prejudicial]

While we believe the prosecutor did overstep the bounds in summation--calling defendant a leech and accusing him of ruining a young law student relative's career by having the boy hold cash for him--we do not feel that these comments were sufficiently prejudicial to warrant reversal.

Affirmed.

 

 

[63-2 USTC ¶9600]Abraham M. Katz, Defendant-Appellant v. United States of America, Appellee Harry A. Katz, Defendant-Appellant v. Same Samuel Katz, Defendant-Appellant v. Same Max Katz, Defendant-Appellant v. Same

(CA-1), U. S. Court of Appeals, 1st Circuit, Nos. 6082, 6083, 6084, 6085, 321 F2d 7, 7/12/63

[1954 Code Sec. 316]

Corporate distributions: Payment of personal expenses of stockholders: Knowledge of distributions.--Where corporate officers, directors and stockholders gave one individual single-handed authority with respect to all corporate distributions, and his individual used corporate funds to pay their personal expenses and to make deposits into savings banks accounts in their names, the distributions were found to constitute personal income to them. The jury was warranted in finding that the defendants had knowledge of the distributions where they were frequently given at least record title or control of the savings accounts.

[1954 Code Sec. 7203]

Wilful filing of false and fraudulent returns: Criminal penalties: Ignorance.--Corporate officers, directors and stockholders were found guilty of wilfully falsifying their income tax returns by not declaring all of their income. They chose to keep themselves uninformed as to the full extent of their income and left it to one director to inform them and their accountant of the correct amount of distributions they received from the corporation.

[1954 Code Sec. 7203]

False and fraudulent returns: Corporate books and records: Admissibility as evidence.--Corporate books and records were admissible against officers, directors and stockholders of a corporation where they had delegated singular, absolute authority to one individual to manage all their affairs, and could not have failed to have made him their agent with respect to keeping the corporate books, at least to the extent that the books were open to their inspection.

Manuel Katz, 209 Washington St. , Boston , Mass. (Paul T. Smith, 209 Washington St. , Boston , Mass. , on brief), for appellants. Paul J. Redmond, Assistant United States Attorney, Boston, Mass. (W. Arthur Garrity, Jr., United States Attorney, Daniel B. Bickford, 294 Washington St., Boston, Mass., William F. Looney, Jr., 84 State St., Boston Mass., John J. Curtin, Jr., Assistant United States Attorneys, on brief), for appellee.

Before WOODBURY, Chief Judge, and HARTIGAN and ALDRICH, Circuit Judges.

Opinion of the Court

[Nature of Appeal]

ALDRICH, Circuit Judge:

These are appeals by four defendants, convicted at a joint trial on a total of twelve counts for attempting to evade income taxes by filing false and fraudulent personal returns for one or more of the years 1955 to 1958. The defendants, three brothers and a brother-in-law, were the officers, directors and stockholders of State Line Potato Chip Company, Inc. Defendant Max Katz, the principal and managing officer of the company, will hereinafter be referred to as Max, and the rest, collectively, as the other defendants. The other defendants sought trial separately from Max, alleging that their cases were essentially different, and, further, that they would be prejudiced by certain extrajudicial admissions allegedly made by Max and concededly not binding upon them. On the government's representation that "basically the evidence would be the same" against all four (it did not deny individual differences, or that Max had made personal admissions) the court refused to sever. It added, "[I]f at the end I find there has been prejudice, I won't hestitate to act." Thereafter the court did, in fact, act. Initially there had been included four counts against Max for causing falsification of the corporate returns. After the trial began, apparently feeling that in that matter the basic evidence was different, with Max's permission the court granted a mistrial on those counts and postponed them to a later date. It took no subsequent action with respect to separating the other counts, nor was it asked to. The mere fact that all the evidence is not admissible against all defendants does not necessitate separate trials. Opper v. United States , 1954, 348 U. S. 84; Malatkofski v. United States , 1 Cir., 1950, 179 F. 2d 905. Having read the full record we are well satisfied that it was appropriate to try the remaining cases together.

[Selection of Jury Questioned]

The defendants moved to quash the indictment, and to strike the perit jury panel, because of the manner of drawing the grand and petit juries. One of their grounds we have since disposed of in Gorin v. United States, 1 Cir., 1963 [63-1 USTC ¶9295], 313 F. 2d 641, cert. den., -- U. S. --. The other is an alleged discrimination in that no jurors were drawn from that part of the district which lies west of Worcester County . 28 U. S. C. A. §1865(a) provides,

"(a) Grand and petit jurors shall from time to time be selected from such parts of the district as the court directs so as to be most favorable to an impartial trial, and not to incur unnecessary expense or unduly burden the citizen of any part of the district with jury service. To this end the court may direct the maintenance of separate jury boxes for some or all of the places for holding court in the district and may appoint a jury commissioner for each such place."

The clerk stated in open court that when the court was sitting in Boston it was standard procedure not to call jurors from west of Worcester County . We take judicial notice that this has been so for many years. In the light of this statute there can certainly be no abuse is not calling jurors who live over 60 miles from the courthouse. The defendants' point is groundless. United States v. Gottfried, 2 Cir., 1948, 165 F. 2d 360, cert den., 333 U. S. 860. 1

["Black Book" as Corporate Record]

Prior to trial the defendants moved for suppression of a certain "black book" and the "fruits thereof." 2 The court properly found, on adequate testimony, that this book was a corporate record, and had been taken by the government after it had been tendered to the agent by Max (albeit that Max had misrepresented its content, causing the tender to be initially refused) and that no constitutional rights had been infringed. The point pressed on this appeal, except for arguments based upon testimony properly discredited by the district court, is that subsequently, at the trial, the revenue agent testified that he had not stated his exact purpose when asking for the book. We will assume, without deciding, that this testimony may be related back to the motion. Even so, the present contention is both late and specious. It is too late because even when the motion was reargued to the district court the point was not made. It is specious because even if it be assumed that to request a document by stating that it is wanted for one reason when another reason is the one primarily in mind may be a misrepresentation, there is no evidence that Max was misled. Analysis, not necessary to articulate, indicates that he could not have been.

[Real Issues]

Coming to the merits, there are only two substantial questions; 3 the court's permitting the jury to find that certain corporate distributions constituted income wilfully concealed by individual defendants, and the marking of the corporate books as exhibits. These questions require a brief summary of the evidence.

On the testimony of Max and the two other defendants who took the stand, which we may largely accept in this particular, the general management and all of the fiscal affairs, including making all entries in the books of the company, were, with the acquiescence of the other defendants, handled by Max alone. The other defendants took no action in their several capacities of officers and directors, attended no meetings, and signed "minutes" and other papers without reading. Max's authority extended even to a single-handed "big-brother" decision as to all corporate distributions to all defendants, whether by way of salary, bonus, or otherwise.

The evidence warranted a finding that payments pursuant to Max's determination were made continually, not only by the common device of having the company satisfy personal bills, in some instances under the guise of having them appear to be corporate expenses, but also by deposits into over two hundred savings bank accounts, and into a war savings bond account from which bonds were bought which were subsequently redeemed by individual defendants. Many of these savings accounts were in joint names, to include a child of the defendant, but in most instances the children testified that they had no knowledge that the accounts existed. This warranted an inference that the individual defendants retained full ownership, and that not merely the deposits, but accrued interest, constituted personal income. Testimony was introduced, also, as to the payment of bills and the purchase of property, tangible and intangible, for defendants' children. On the government's evidence the resulting direct and attributable income greately exceeded that stated on the returns.

[Alleged Lack of Knowledge]

A primary defense of the other defendants to this showing was that they were unaware that Max had made many of these distributions. In support thereof Max testified that he did not disclose the bank accounts to the others and that he made the deposits, and various other payments, surreptiously for his own private purposes, planning their subsequent recapture; in short, that this was a concealed embezzlement. The jury could find it inherently improbable that if Max intended these to be secret, improper transfers of corporate assets against the interests of his brothers he would have made them in this elaborate manner in which his brothers and their children were so frequently given at least record title or control. In addition, there was testimony of a handwriting expert warranting the jury in finding that the other defendants had substantial notice, and in many instances specific knowledge from Max that this distribution procedure was in process. The defense presented, at best, an issue of fact which the court fully put to the jury.

The government's first witness testified that all defendants executed their returns in blank, and that the witness, as the accountant, thereafter prepared the returns of all four on the basis of information given him by Max, and filed them without further verification. Two of the other defendants acknowledged this, but testified that they supplied Max with personal data. However, they admitted that with respect to the substantial matter of corporate distributions and withholding they never knew the correct amounts and relied upon Max to ascertain them as well as to inform the accountant. A return is not short of wilful falsity because the taxpayer chooses to keep himself uninformed as to the full extent that it is insufficient, or as to what exact figures should have been inserted. Innocence can not outdistance ignorance. The jury was warranted in finding that all defendants knew Max was not revealing their full income. This was enough.

[Admission of Corporate Records]

The other principal issues relates to the admission of the corporate records. Although it was open to the jury to find that the records were authentic, United States v. Tellier, 2 Cir., 1958, 255 F. 2d 441, cert. den., 358 U. S. 821, the government made no attempt to prove that they were made in the regular course of business, and hence admissible under 28 U. S. C. A. §1732. 4 We may agree with the defendants, other than Max who prepared and was personally responsible for them and cannot make the point, that corporate records not so kept are normally inadmissible against officers and directors who are not shown to have been responsible for them, or to have had actual knowledge of their content, in cases involving personal (as distinguished from corporate, cf. Cooper v. United States, 8 Cir., 1925 [1 USTC ¶149], 9 F. 2d 216) matters. Worden v. United States , 6 Cir., 1913, 204 Fed. 1; Osborne v. United States , 9 Cir., 1927, 17 F. 2d 246, cert. den. 274 U. S. 751. But cf. United States v. Tellier, supra. The court admitted the records generally, but charged the jury that they should be considered against a particular defendant only if it found that they had been kept in the regular course of business and that the defendant had had opportunity of access thereto. This was a peculiar ruling, not only because if the records had been made in the regular course of business they would appear admissible under Section 1732 even if the defendant did not have access, but, more important, because it was never shown and seemingly never even claimed, that they were so kept. The jury was not instructed as to the meaning of "kept in the regular course of business," and must have assumed that the evidence warranted such a finding. Such it did not, this condition could not be effective, and whatever the jury did because of it can be of no legal consequence.

We must accordingly interpret the court's instruction as merely requiring the jury to find tht the records were accessible. Under the unusual circumstances of this case, however, we think this was a sufficient limitation. Where the defendants were all the officers, directors and stockholders of the company, the singular, absolute authority delegated to Max by the others to manage all their affairs could not fail to make him their agent with respect to keeping the corporate books, at least to the extent that the books were open to their inspection. Cf. United States v. Feinberg, 2 Cir., 1944, 140 F. 2d 592, cert. den., 322 U. S. 726. Any other result would put a premium on the defendants' voluntary anopsia.

[Allegation as to Overpayment of Taxes]

One final matter. The other defendants contend that a substantial number of payments attributed to them by the government were shown (conclusively, they say, and for present purposes we will so assume) to have been beneficially received by Max, instead, or to have represented repayments of amounts loaned to the corporation on open account. These defendants claim the totals are so large that, with the possible exception of one or two counts as to one of them, they did not in fact underpay their taxes, and that, accordingly, their motions for acquittal should have been granted. Examination of the evidence as a whole, however, discloses that in order for each defendant to have overpaid his tax certain additional items of income must be eliminated as to which, once the corporate records are admitted, there was a clear issue of fact. 5 This, of course, was enough; the extent of the underpayment was not vital. United States v. Johnson, 1943 [43-1 USTC ¶9470], 319 U. S. 503, 517. There was no error in denying the motions.

Judgment will be entered affirming the judgments of the District Court.

1 One matter perhaps necessary to mention is the trial court's observation, when the clerk stated that for Boston sittings jurors were never drawn from west of Worcester County, that it was ". . . a lucky thing I am not a witness in this case. I know better." Defendants seek to make something of this. We have currently inspected a number of jury requisitions in the files of the district court signed by this judge, including the requisition preceding the drawing of this particular petit jury, and they all, in accordance with the regular practice, provide for calling "persons residing in cities and towns in Worcester County and Counties to the east thereof . . ." and none other. The court's contrary "knowledge" can only be regarded as a hasty remark, quite out of keeping, it may be added, with its meticulous conduct of the trial.

2 This book did not go to the jury, and the only suggested "fruit" was an extrajudicial admission by Max, when confronted by the book, that he had falsified certain other records. Since this admission was not permitted to be considered against the other defendants, strictly Max alone is presently interested in this question.

3 Several small matters are raised which do not warrant discussion. The defendants press two evidentiary exceptions with respect to which, if there were error, the issues were so minuscule that there could be no possible prejudice. Defendants also complain of the court's alleged refusal to grant four requests for instructions. To the extent these instructions were not clearly given in substance, in some instances repetitiously by explicit qualifying instructions when the evidence referred to was introduced, the requests were erroneous.

4 Indeed, in a brief distinguished by its brevity, the government has, except as to Max, failed to offer any authority or reason why the records should have been admitted at all.

5 As to one defendant the issue was over what inferences should be drawn as to certain checks.

 

 

[55-2 USTC ¶9727]Herbert V. Imholte, Appellant v. United States of America , Appellee

(CA-8), In the United States Court of Appeals for the Eighth Circuit, No. 15,249, 226 F2d 585, November 1, 1955

Appeal from the United States District Court for the District of Minnesota.

[All issues: 1939 Code Secs. 145(b) and 3748--substantially unchanged in 1954 Code Secs. 7201 and 6531]

Criminal prosecution: Statute of limitations.--On February 20, 1954, Hayden was indicted for willfully and knowingly attempting to defeat and evade the payment of tax by the filing and causing to be filed a false and fraudulent corporate tax return for the year 1947. Defendant was charged with willfully and knowingly aiding and abetting the willful and knowing attempt of Hayden to defeat the payment of the corporate taxes. Hayden entered a plea of guilty and testified for the government. Defendant was tried and convicted by a jury. On appeal, the defendant claimed the offense charged was the filing of a false return on March 15, 1948, that the applicable six-year statute of limitations barred the prosecution of defendant for any acts committed by him prior to February 20, 1948, and that defendant had nothing to do with the filing of the corporate return on March 15, 1948 (which the government conceded). Court decided that the offense charged was the attempt to evade or defeat the corporation's taxes which culminated and became complete with the filing of the false return, and that since defendant aided and abetted that act of attempted evasion, he is guilty of aiding the attempted evasion on March 15, 1948, within the period of limitations.

Criminal prosecution: Admissibility of evidence.--Defendant contended that the evidence of what he did in aiding Hayden in the latter's attempt to evade the corporation's tax was inadmissible because those acts were committed during 1947, beyond the period of the statute of limitations. Court held this evidence was admissible to show defendant's intent and to show the assistance he gave Hayden in the latter's attempt to evade the corporate tax; consequently, it was not barred by the statute of limitations.

Criminal prosecution: Instructions to the jury.--Defendant criticized an instruction to the jury where on the question of intent the jury was instructed that every person is presumed to intend the "natural consequences of his acts knowingly committed." Court held where proof of intent is an ingredient of the offense if must be proved and not eliminated by a presumption, but that the charge considered as a whole correctly stated the law with sufficient clarity as not to be misleading. Defendant also claimed the trial court was inconsistent in instructing the jury that if it found defendant aided and abetted Hayden in willfully filing a false return for the purpose of defeating and evading taxes this would warrant the jury finding the defendant guilty of willfully aiding and abetting Hayden in an attempt to evade corporate taxes. Court held the charge as a whole left no possible room for misunderstanding or conflict.

Joseph A. Maun (William R. Busch, Douglas F. Thornsjo and Bundlie, Kelley and Maun were with him on the brief), for appellant. Alex Dim, Assistant United States Attorney (George E. MacKinnon, United States Attorney, was with him on the brief), for appellee.

Before SANBORN, COLLET and VAN OOSTERHOUT, Circuit Judges.

COLLET, Circuit Judge:

David H. Hayden was indicted February 20, 19 54, for willfully and knowingly attempting to defeat and evade a large part of the taxes due and owing by Hayden Motor Sales, Inc., a corporation, for the year 1947, "by the filing and causing to be filed * * * a false and fraudulent return * * *." It was further charged that Herbert V. Imholte "did wilfully and knowingly aid, abet, counsel, command, induce and procure the willful and knowing attempt of the said David H. Hayden to defeat and evade a large part of the taxes due and owing by the said Hayden Motor Sales, Inc., * * * for the calendar year 1947, * * *." Hayden entered a plea of guilty and testified for the Government. Imholte was tried and convicted by a jury. From the judgment of conviction he appeals.

There is no substantial dispute concerning the facts. As defendant realizes, they must now be viewed in the light most favorable to the jury's conclusion. Defendant contends that "there is no evidence whatsoever to support the jury's verdict." That position is based upon the premise that the offense charged was the filing of a false return on March 15, 19 48, that the applicable six-year statute of limitations barred the prosecution of Imholte for any acts committed by him prior to February 20, 19 48, that Imholte had nothing to do with the filing of the corporate return on March 15, 19 48 (which the Government concedes) and that all evidence of Imholte's acts and conduct during the year 1947 was inadmissible, hence the above-stated contention that there was no evidence to support the conviction. If, as we shall presently discuss, the substantive charge was, as defendant asserts, that he aided and abetted in the filing of the false return (which was clearly false), there is no evidence to support the charge because it was not shown that Imholte had anything to do with the actual filing of the return except that as a notary he acknowledged Hayden's signature to it, which is not deemed of material importance. Thanks to the ability and forth-rightness of counsel, there is no quibbling about facts which the jury was warranted in finding, or the inferences which could properly be drawn from facts in evidence. And the issues of law are fairly and ably presented in the briefs. The facts upon which the conviction was based will be briefly stated, leaving for determination thereafter the admissibility of the evidence establishing those facts, and the other questions of law presented.

Hayden was the principal stockholder and president of the Hayden Motor Sales, Inc. 1 Imholte was general sales manager of the Corporation. Commencing early in 1947, Hayden and Imholte had several conversations about how a portion of the proceeds of sales of automobiles could be held back by them and not shown on the corporate records for tax purposes. As a result it was agreed that a substantial portion of the sale price would be collected in cash out of which the three per cent commission of the salesmen would be deducted and the balance divided between Hayden and Imholte, the former taking 75 per cent and Imholte 25 per cent. This arrangement was carried out. Imholte would give to Hayden his 75 per cent with a slip of paper showing the actual sale price and the deductions. The amount of the sale, after the deductions, was given the Corporation's bookkeeper for the corporate records. An illustration given was the sale of a 1941 Chevrolet for $1125.00. The sale was billed by Imholte at $700.00, and that amount reported by him for the corporate records. Three per cent or $12.75 was paid the salesman as his commission, $103.05, or 25 per cent was retained by Imholte, and $309.00, or 75% was turned over to Hayden by Imholte with the slip of paper on which was shown the complete figures. Imholte did not report his 25 per cent upon his personal income tax return. When the Corporation's tax return was made up by accountants from the corporate records, the income of the corporation did not show these holdbacks. Nor would a comparison of Imholte's personal return with the corporate return disclose the holdback. The Corporation's return was filed and sworn to by Hayden. All of the holdbacks by Imholte and Hayden, which resulted in the Corporation's 1947 return being false, occurred in the year 1947, more than six years prior to the return of the indictment. Thus the first question of law arises.

[Defendant's Contention]

Defendant asserts and the Government concedes that the act of filing a false and fraudulent return is not a continuing one in the sense that it may be said that Imholte's acts and conduct in 1947 continued over into the actual filing of the return on March 15, 19 48. It was the trial court's theory that the offense charged was the attempt to evade or defeat the Corporation's taxes which culminated and became complete with the filing of the false return on March 15, 19 48, and that since Imholte aided and abetted that act of attempted evasion, he is guilty of aiding the attempted evasion on March 15, 19 48, within the period of limitations. We agree with the trial court.

The applicable portion of the statute upon which the indictment was based (26 U. S. C. A. §145(b)) is:

"Any person * * * who wilfully attempts in any manner to evade or defeat any tax imposed by this chapter or the payment thereof, shall * * * be guilty of a felony * * *."

The statute is drawn in broad general terms. The willful attempt to evade or defeat any tax in any manner is the offense defined. The offense may be committed in any manner so long as there is a willful attempt to evade the tax. It may or may not be committed by the filing of a false or fraudulent return coupled with conduct which brings it within §145(b). See United States v. Johnson, 319 U. S. 503 [43-1 USTC ¶9470]. Hence that part of the indictment which refers to the filing of a false and fraudulent return is merely a specification of definiteness and certainly for the defendant's information, incorporated in the indictment originally rather than upon the subsequent order of the court in response to a motion for bill of particulars or to make more definite and certain. The fact that the great majority of such unlawful attempts to evade taxes include the act of filing a false return and that it has become customary to state such fact in the indictment does not change the offense under §145(b), 26 U. S. C. A., from an attempt to evade, to the offense of filing a false return. In United States v. Johnson, 319 U. S. 503 [43-1 USTC ¶9470], the Supreme Court points out that the offense defined by §145(b) is the willful attempt to evade taxes and not the filing of a false return. The court there said (loc. cit. 514):

"In short, the Circuit Court of Appeals read the substantive counts as though they charged Johnson merely with the filing of false returns on March 15th. That may only be a misdemeanor under §145(a) of the Internal Revenue Code, but that is not the offense with which Johnson was charged. He was charged with a felony made so by §145(b), the much more comprehensive violation of attempting 'in any manner to defeat and evade' the payment of an income tax."

With the nature of the offense charged in mind, such cases as Vloutis v. United States, 219 Fed. (2d) 782 [55-1 USTC ¶9262]; United States v. Lombardo, 241 U. S. 73; United States v. Valenti, 207 Fed. (2d) 242; Reass v. United States , 99 Fed. (2d) 752; Ledbetter v. United States , 170 U. S. 606; Nigro v. United States , 7 Fed. (2d) 553; United States v. Krepper, 159 Fed. (2d) 958, are readily distinguished.

The substantive offense being the attempt to evade the payment of the tax, and Imholte being charged with aiding and abetting Hayden in the commission of that offense, Imholte's offense was consummated when the false return was filed. 2 Hence the offense of aiding and abetting the attempted evasion was committed on March 15, 19 48. Cave v. United States , 159 Fed. (2d) 464 [47-1 USTC ¶9171]; Wampler v. Snyder, 66 Fed. (2d) 195 [3 USTC ¶1117]; Bowles v. United States, 73 Fed. (2d) 772 [1934 CCH ¶9546].

[Admissibility of Evidence]

Imholte contends that the evidence of what he did in aiding Hayden in the latter's attempt to evade the Corporation's tax was inadmissible because those acts were committed during 1947, beyond the period of the statute of limitations.

Subject to possible exceptions, not now of importance, evidence is not admissible to establish a substantive offense which has been barred by limitations, while evidence of similar offenses to that charged is, under proper circumstances, admitted to show intent, although prosecution for the similar offenses may be barred. Leeby v. United States , 192 Fed. (2d) 331 [51-2 USTC ¶9497]. In conspiracy cases where the conspiracy is a continuing one, evidence of the beginning of the conspiracy relating in point of time to events which transpired beyond the period of limitations is admitted to show the conspiracy if overt acts carried the conspiracy forward into the period within which the prosecution was not barred. Shaw v. United States , 41 Fed. (2d) 26; Culp. v. United States , 131 Fed. (2d) 93.

In the present case it is conceded that the act of filing the false return is not a continuing one in the sense that it began in 1947 and continued up to and including the date of actual filing, March 15, 19 48. But that concession was effective merely for the purpose of clarifying the issue as to what constituted the offense charged, i.e., whether the offense was the filing of a false return or an attempt to evade the payment of taxes. The concession stopped the argument about whether Imholte could be convicted if he was only charged with aiding and abetting the filing of a false return. Further than that, the concession is without effect for present purposes. The question of whether evidence showing that Imholte aided and abetted Hayden in attempting to evade the payment of taxes on March 15, 19 48, is admissible when that evidence relates to matters occurring beyond the period of limitations is not clearly unanswered by the authorities cited.

We are of the opinion that the evidence was clearly admissible. It showed beyond doubt that Imholte did aid and abet Hayden in the latter's unlawful attempt. Imholte knew that the actual consummation of Hayden's attempt need not and probably would not occur until March 15, 19 48, when the return had to be filed. His acts and conduct, shown by this evidence, necessarily, therefore, amounted to aiding Hayden in the commission of the offense on March 15, 19 48. Evidence of the commission of an offense, the prosecution for which is not barred by the statute of limitations, is not inadmissible merely because that evidence relates to acts and conduct committed at a time when, if the offense had then been committed, prosecution therefor would have been barred by the statute. Cf. Hartman v. United States , 215 Fed. (2d) 386 [54-2 USTC ¶9522].

It is argued that there was a fatal variance between the charge and the evidence in that, as defendant states in his brief, "The proof in no way relates to or tends to establish the crime of aiding and abetting the filing of a false corporate tax return for which defendant was indicted." The argument is based upon the fallacious premise that the substantive charge was the filing of a false return.

Defendant assigns as error the admission of evidence that he did not report the holdbacks he received in his personal tax return and evidence of his participation in the keeping of false corporate records. This evidence was admissible to show defendant's intent and to show the assistance he gave Hayden in the latter's attempt to evade the corporate tax.

The charge is criticized because the court failed to instruct the jury (1) that it could not consider any evidence of acts of Imholte which took place prior to February 20, 19 48; (2) that any facts or circumstances relating to defendant's own personal income tax return could not be considered; (3) that unless the jury found that holdbacks received by Imholte were not in fact additional compensation to him, he should be found not guilty; (4) because the charge authorized defendant's conviction upon a finding that he aided and abetted Hayden in attempting to evade the corporate income tax, when the offense charged was aiding and abetting Hayden in filing a false corporate return; (5) because on the question of intent the jury was instructed that every person is presumed to intend "the natural consequences of his acts knowingly committed"; (6) defining the term "person" in the language of the statute, which includes officers and others having a duty to file corporate returns, without telling the jury that defendant was not such an officer and could not be convicted because of a breach of such duty; (7) because the trial court was inconsistent in referring to the charge as aiding and abetting Hayden in willfully filing a false return for the purpose of defeating and evading taxes, and at another point in the charge instructing the jury that a finding that defendant willfully aided and abetted Hayden in an attempt to evade corporate taxes would warrant a verdict of guilty.

(1), (2), (4) are determined by what has heretofore been said, and (3) was adequately covered in the charge.

As to (5), Morissette v. United States , 342 U. S. 246, Bloch v. United States , 221 Fed. (2d) 786 [55-1 USTC ¶9364], and Legatos v. United States, 222 Fed. (2d) 678 [55-1 USTC ¶9443], are cited in support of the criticism of that part of the charge which told the jury that every person is presumed to intend the natural consequences of his act knowingly committed. The Bloch and Legatos cases both involved charges of willful attempt to evade taxes under §145(b). The Bloch case condemned an instruction as reversible error which told the jury that "the presumption is that a person intends the natural consequences of his acts, and the natural inference would be if a person consciously, knowingly and intentionally did not set up his income, and thereby the government was cheated or defrauded of taxes, that he intended to defeat the tax." To the same effect is Wardlaw v. United States, 203 Fed. (2d) 884 [53-1 USTC ¶9335]. In the Legatos case the court recognized the vice of such an instruction but found that it was so qualified as not to be prejudicial. The Morissette case was a larceny case in which larcenous intent had erroneously not been treated as a necessary element of the offense. These cases establish the proposition that where intent is a necessary element of the offense, is not inherent in the act itself, but is a specific intent involving bad purpose and evil motive, that that specific intent must be proved by or clearly inferred from the evidence. Wardlaw v. United States, supra, and the proof of such intent as an ingredient of the offense may not be eliminated by a presumption. Morissette v. United States, supra.

There may be a distinction between a case like this, where the question is whether the defendant intended to aid and abet another in the latter's intent and attempt to violate the law, and cases like those above referred to wherein the intent involved is that of the transgressor himself, which intent is a necessary ingredient of the latter's offense. But we draw no such distinction. The instruction had better not have been given. We are convinced, however, that as given in this case it was so qualified that, as in the Legatos case, and in Banks v. United States, 223 Fed. (2d) 884, 889 [55-2 USTC ¶9532], the charge considered as a whole correctly stated the law with sufficient clarity as not to be misleading. See also Bateman v. United States, 212 Fed. (2d) 61 [54-1 USTC ¶9341].

The definition of the word "person" in the language of the statute, when read with the remainder of the charge, could not have been misleading.

As to (7), the language used by the court, when lifted out of context, may be indicative that the court momentarily considered the substantive charge as the filing of a false return rather than aiding and abetting the attempted evasion of taxes--a state of mind which, we might observe, was ably promoted by defendant's counsel. But this particular language is, as stated, lifted out of the context of the charge. The charge as a whole leaves no possible room for misunderstanding or conflict.

It was discovered after the trial that the juror who acted as foreman of the jury had a brother who was an Internal Revenue Agent employed at St. Paul , Minnesota , in the investigation of income tax returns. The jurors were not examined on this subject. This juror was asked by the court in the course of the routine voir dire examination whether he knew of any reason why he could not act as a fair and impartial juror. He answered that he did not. At the conclusion of the Court's examination, counsel were asked for their suggestions as to any further questions. Only one unrelated question was suggested by defendant's counsel. The situation presented does not warrant the conclusion that defendant was prejudiced or deprived of a fair trial. The judgment is affirmed.

1 Hereinafter referred to as the Corporation.

2 Under 18 U. S. C. A. §2, an aider and abettor is a principal and may be indicted, tried and convicted as such. Russell v. United States , 5 Cir., 222 Fed. (2d) 197, 198 and cases cited.

 

 

[56-1 USTC ¶9108]Edwin H. Eggleton, Jr., Appellant v. United States of America , Appellee

(CA-6), In the United States Court of Appeals for the Sixth Circuit, No. 12366, 227 F2d 493, December 3, 19 55

Appeal from the District Court of the United States for the Western District of Kentucky, Louisville Division.

[1939 Code Sec. 145(b)--substantially unchanged in 1954 Code Sec. 7201]

Criminal prosecution: Admissibility of evidence.--In the conviction of taxpayer for violation of the income tax law, on appeal it was found that taxpayer's business records were not obtained from him by the government in violation of his constitutional rights, and that the trial court did not err in denying his motion for a bill of particulars, and in permitting the introduction in evidence of certain government exhibits. The exhibits showed he overstated his costs paid for used cars by $19,892.42 which overstatement of costs resulted in understating the profit on the automobiles sold.

Louis E. Ackerson, Louisville , Ky. (Fred J. Karem, Louisville , Ky. , was with him on brief), for appellant. Charles M. Allen, Assistant United States Attorney, Louisville, Ky. (J. Leonard Walker, United States Attorney, Rhodes Bratcher, Assistant United States Attorney, Louisville, Ky., on brief), for appellee.

Before ALLEN, MCALLISTER, and STEWART, Circuit Judges.

MCALLISTER, Circuit Judge:

Appellant was convicted of violation of the income tax law and seeks review, claiming, first, that his business records were obtained from him by the government in violation of his constitutional rights; that the trial court erred in denying his motion for a bill of particulars, and in permitting the introduction in evidence of certain exhibits; and that the trial court further erred in denying his motion for judgment of acquittal and in the instructions to the jury.

A review of the testimony of appellant and other witnesses discloses that he voluntarily, and repeatedly, turned over his records to the government agent and thereby waived any right to complain of illegality. Nicola v. United States , 72 Fed. (2d) 780 (C. C. A. 3) [4 USTC ¶1331]; Hanson v. United States, 186 Fed. (2d) 61 (C. A. 8) [51-1 USTC ¶9118]. On the issue whether the trial court erred in declining to grant appellant's motion for a bill of particulars, this is a matter within the discretion of the court and its determination is only to be set aside for an abuse of discretion. Appellant was asking, in his demand for a bill of particulars, for information based upon his own books and for matters peculiarly within his personal knowledge. The evidence shows that numerous conferences were held prior to the commencement of the present case which were attended by appellant, his counsel, and Internal Revenue agents, at which many matters relating to the case were discussed and analyzed over a long period of time. In the light of the testimony and under these circumstances, we cannot say that appellant was so surprised or misled that the trial court abused its discretion in denying his motion for a bill of particulars. United States v. Skidmore, 123 Fed. (2d) 604 (C. C. A. 7) [42-2 USTC ¶9716]; Maxfield v. United States, 152 Fed. (2d) 593 (C. C. A. 9) [46-1 USTC ¶9115]; Stumbo, et al. v. United State , 90 Fed. (2d) 828 (C. C. A. 6).

[Facts]

Appellant was engaged in the purchase and sale of secondhand automobiles. When a dealer purchases secondhand cars for resale, it is necessary, in many cases, to expend money for labor and parts to repair, paint, and place them in salable condition. The dealer's costs attributable to a car that is resold, therefore, include the price paid for it--or allowed for it in exchange--and the costs of repairing, painting, and placing it in a suitable condition for resale. These costs can either be allocated, on the books, to each car sold for which such costs are incurred, or totaled for the year as the aggregate costs and expenses incurred in selling such cars. Such costs are, of course, deductible in income tax returns as expenses.

In this case, appellant, in his income tax return for 1947, had claimed as a deduction for the aggregate costs of repairs and automobile parts, the sum of $9,677.67. The government, however, found, in an examination of his books, that in numerous cases, appellant had set forth as the cost to him of secondhand cars which he had purchased, sums largely in excess of what he had actually paid for such cars. Sums set forth as the cost of cars by secondhand dealers could, as above mentioned, represent expenses in repairing and reconditioning them for resale. But such expenses obviously cannot be claimed for each car sold and also claimed in the aggregate of expenses totaled for the year. The government proofs show that the amounts set forth by appellant as costs of secondhand cars, in excess of what he actually paid, aggregated $19,892.42, and, consequently, that, in this regard, he had understated his income by that amount.

Evidence introduced on behalf of appellant was to the effect that from 1945 through 1947, automobiles were still scarce because of the prior curtailment of production for civilian use during the war; that during that period, it was a common practice for dealers in secondhand cars to pay a "locator's fee" to anyone who would report to a dealer where a car could be obtained; and that such a fee would be between $25.00 and $50.00 a car. Such fees were also called bird dog fees; and one of the witnesses testified that during the years he had worked for appellant in 1946, 1947, and 1948, he had seen him pay numerous bird dog fees both for buying and for selling cars. Appellant's bookkeeper testified that in 1947, appellant carried a large amount of cash with him at all times and was himself solely in charge of the purchasing of cars; that it was an established custom to pay out locator's fees; that often appellant, after exhausting his cash for various expenses in the business, would ask the bookkeeper for additional cash; that no one other than appellant paid any of the expenses or bills or locator's fees; that the bookkeeper knew what the initial cost of a car was but had no way of knowing its ultimate cost except as he would learn it from appellant; that the returns were submitted to appellant who told the bookkeeper what additional cost was involved, which appellant had theretofore paid in cash; and that the ultimate cost of the car, as it appeared on the books, included the initial cost and the "extra cost that went on that car," consisting, among other items--not itemized on the books--of locator's fees and similar commissions. In sum, appellant's bookkeeper stated that, upon consultation with appellant, he added to the initial cost of the individual automobiles, on records which he prepared, the additional costs for commissions, locator's fees, and repair parts, that resulted in bringing the total set forth as the cost of the automobile on the books, above the amount of the initial cost of obtaining it. An accountant testifying on behalf of appellant stated that an analysis of appellant's books and his net worth, disclosed $19,732.46 "cash available" in the business; that if this amount of cash had not been used for expenses in the business, "it would show up," but that it did not appear in either a net worth statement prepared by the government, or a net worth statement submitted by appellant. From this, the accountant insisted that such sum of $19,732.46 must have been expended by appellant in cash for costs of the vehicles in addition to the initial cost of the cars and the total costs deducted on the income tax return for repairs and parts. It is to be said, however, that such cash could have been diverted to appellant's own purposes and secretly retained by him.

[Appellant's Argument]

Appellant argues that he paid cash in the amount of such claimed excess costs to repairmen and dealers in automobile parts and supplies and painting establishments in order to place such cars in salable condition, as well as locator's fees and commissions, and that the amount of $9,677.67 claimed by him as a deduction for such costs should be increased an additional amount of $19,892.42 which it is claimed he disbursed for such purposes. There is, however, no substantial or valid proof to sustain this claim. There are in existence no checks, receipts, invoices, records, or book entries, either of appellant himself or of repair or supply men to whom, as he claims, he made such payments, or of anyone to whom he claims he paid such fees. Several dealers in parts and supplies were called as witnesses by appellant. None was able to testify as to any such payments from him for the period in question.

It is contended that since the evidence showed that appellant's average deductions of $60.11 on each automobile resold by him in 1948 were not questioned by the government, it should follow, without question, that he spent at least that much on each car sold by him in 1947, the year here in question, instead of $21.50, which would be the amount per car on the aggregate expense of $9,677.67, which appellant had claimed that year as a deduction in his income tax return. Appellant's accountant insisted that if the additional amount of $19,732.46 claimed to have been expended, in 1947, as costs by appellant had been represented by canceled checks, the government would have found no complaint with such an item of expense, presumably for the reason that this would have amounted to the same proportionate cost per car that was conceded to be the cost per car to appellant in 1948. But this was a matter for argument before the jury, as the district judge several times observed during the course of the trial, especially when counsel for appellant repeatedly sought to introduce an exhibit in evidence on the basis of the assumption that what had happened in 1948 with respect to appellant's costs of cars for resale must also have happened in 1947.

The jury certainly understood and considered appellant's contention in this regard. However, it also had before it appellant's income tax return in which $9,677.67 was expressly set forth and claimed as the deduction for costs of repairs and parts in 1947, as well as proof that, on his books, appellant showed as costs for each of the cars in question sums in excess of what he had paid for them. This could indicate that he was claiming as a deduction such costs on the sale of each car, and also the aggregate costs for all cars sold during the year, or that he was concealing income in the form of profits on each car. Also, many cars were resold by appellant on the same day on which they were purchased by him, at an increase in price. But the increase of price did not show on his books. The jury could conclude that these were items of profit omitted from reported income in the tax return. Moreover, the fact that no witness testified that he had received any locator's commissions or bird dog fees during the year 1947, and that neither appellant nor his bookkeeper could testify as to any persons receiving such fees during that year--or any cash for costs in addition to the amount claimed in his income tax return as a deduction by appellant for that year--may have had weight with the jury. Whether appellant overstated his expenses and thereby understated his income was a question of fact for the jury.

Many claims of error are advanced by able and assiduous counsel for appellant in their copious briefs of approximately 180 pages, including, in the principal brief, a statement of eleven questions involved in the appeal, subdivided in argument into twenty-one separate headings, and eleven counter-statements in the reply brief. It would be difficult, within a reasonable space, to discuss these seriatim and it is not, in any event, necessary to a determination of this appeal, inasmuch as many of these points become irrelevant in view of our disposition of the principal issues.

[Government's Schedule]

In proving its case, the government prepared a schedule which was introduced in evidence over appellant's objection, showing the names and addresses of persons or firms from whom the cars were purchased, the dates thereof, the descriptions of the cars--year, make, motor number--, cost or trade-in allowance, and purchase date. The items in this schedule were based upon the testimony of witnesses and on the books and records of appellant. The schedule disclosed the sale number, the person from whom the car was obtained, the cost of the vehicle--and the excess cost claimed by the government--for 202 cars, aggregating the sum of $19,892.42 more than the actual cost to appellant.

Appellant claims error in the admission of the above mentioned schedule in evidence, one of his objections being that certain of the items taken from the books disclosed mistakes in the schedule. These errors, however, were rectified in the course of the trial; and, since it was based on records and testimony, we find no error in the admission of the schedule in evidence.

[Net Worth Statement]

Appellant also claims error in the introduction in evidence on behalf of the government of a net worth statement which the trial court admitted for the purpose of corroborating the proof as to the specific items upon which the government relied. This was not a so-called net worth case and there was not on the part of the appellant the usual objection to the use of a net worth statement--that it failed to show an "opening net worth" with sufficient proof and certainty. Here, the principal objection was that the net worth statement did not take into consideration and reflect certain errors in the records that negatived willfulness on the part of appellant in understating his income. Appellant, however, could controvert the evidence of net income as disclosed by the net worth statement by testimony and proof in showing errors on the part of his bookkeeper or himself that would negative his guilt. It appears, however, that even though the jury believed appellant or his witnesses as to various erroneous items, there would still remain substantial income that the jury could find was unreported. As to appellant's additional contention that the net worth statement was erroneously admitted since his books were adequate to reflect his income, this did not appear to be the case. The books did not reflect the amount of overstated costs of the vehicles purchased for resale in the amount of $19,892.42 for they did not show what appellant paid for them. Furthermore, the testimony of appellant's accountant disclosed many unreported sales of cars that never appeared on his books aggregating a profit of $4,252.55, as well as a substantial amount of income from financing cars.

As mentioned above, this was not a so-called "net worth case." The government relied upon proof of specific items of unreported income. It ascertained and proved from sources outside appellant's books and records what he had actually paid for a large number of automobiles for resale in 1947. It then showed from his books what he had entered as the costs of these cars, and it further showed, from such computations, that he had overstated these costs by $19,892.42. From these figures, the government claimed that appellant's overstatement of the costs to himself resulted in understating the sales price of the automobiles sold, which, when reflected on his income tax returns, showed an omission of income.

The net worth statement, indicating unreported income of $29,268.86, was introduced to corroborate the government's proofs on the trial of specific items of unreported income--and, in fact, a large amount of unreported income is admitted by appellant. Of course, he claims that, in this regard, the evidence negatives his willfulness in failing to report such income. This contention, however, presented a question for the jury; and it cannot be said that the admission of the net worth statement, under the foregoing circumstances, resulted in prejudicial error.

[Conclusion]

In sum, the government relied principally on the claim that appellant showed on his books costs of cars for resale in excess of what such expense actually was, to a total of $19,892.42. Appellant maintained and testified that he actually paid out that amount for parts and repairs to place the cars in salable condition. He had nothing to show, however, to prove such payment and could not establish it by the testimony of anyone receiving any such amount or any part thereof. To emphasize this absence of proof, the government pointed out that appellant had specifically made a lump sum claim for such costs of repairs and parts as a business expense deduction in his income tax return in the amount of $9,677.67; that he could not claim such costs for each car as well as claim them in a lump sum; that, since he had made a lump sum deduction for such costs in his income tax return, it was incredible that during the same year, he had also paid out cash for the same costs in such a large amount for the same purpose, especially as there was no evidence whatever of such cash expenditures in his records or from any other source than his own testimony.

On the other hand, in brief, the substance of appellant's claim is that the evidence, taken as a whole, proves that he actually disbursed $19,892.42 in cash for parts and repairs to place the cars in salable condition and for necessary locator's fees and commissions, regardless of the fact that this claim rests solely upon his own testimony. He submits that since his conceded costs for repairs and parts and fees in the year 1948 amounted to an average cost of $60.11 per car, it is unbelievable that his similar costs for 1947 amounted to only $21.50 per car; and that if he were allowed as a proper deduction the amount of $19,892.42 which he claimed he disbursed in cash in 1947, in addition to the sum of $9,677.67 which he claimed as a deduction for such costs in his income tax return for that year, his total costs for parts and repairs of $29,570.09 would amount to an average of $63.94 per car in 1947, as compared with $60.11 per car in 1948. This argument, taken by itself, is persuasive; but is not conclusive. We cannot say that a verdict based on appellant's overstatement of such costs, and consequent understatement of income for the year 1947, is not sustained by the evidence.

Other matters argued in the briefs have been considered but, in our opinion, are, in view of our determination, without substance or unnecessary to decision.

The judgment of the district court is affirmed.

 

 

[56-1 USTC ¶9405]Thomas F. Daley, Defendant, Appellant v. United States of America , Appellee Arthur F. Dunnett, Jr. v. Same Louis Frongello, Alias v. Same James J. Palmisano v. Same Edward Lavalle v. Same Angelo Rossetti v. Same Francis J. Judd v. Same

(CA-1), In the United States Court of Appeals for the First Circuit, Nos. 4973, 4974, 4975, 4976, 4977, 4978, 4979, 231 F2d 123, March 30, 19 56

Appeals from the United States District Court for the District of Massachusetts.

[1939 Code Sec. 2707(b)--similar to 1954 Code Secs. 7201, 7203; 1939 Code Sec. 3294--similar to 1954 Code Secs. 7262, 7273(b)]

Criminal prosecution: Wagering tax: Registration: Appeal from conviction.--A jury found that the seven defendants failed to pay the $50 occupational stamp tax and to register before beginning their gambling business in 1953. Finding no grounds for reversal, the appellate court held that the trial court did not err in consolidating the seven informations against the defendants for the purpose of trial and in admitting into evidence material gathered in a gambling raid, as well as the testimony of the officers conducting the raid. There was no reversible error in the alleged "forensic misconduct" of the trial judge, even though must of his comments and questioning of witnesses was superfluous.

Alfred Sigel, Edward F. McLaughlin, Jr., Boston , Mass. , for appellants. David E. Place, Special Assistant to the United States Attorney, Boston, Mass. (Anthony Julian, United States Attorney, Boston, Mass., was with him on brief), for appellee.

Before MAGRUDER, Chief Judge, and WOODBURY and HARTIGAN, Circuit Judges.

Opinion of the Court

MAGRUDER, Chief Judge:

A separate information was filed in the court below against each of the seven appellants herein. The informations, which were identical except for the names of the respective defendants, were each in two counts. Count 1 charged that the accused, on or about May 29, 19 53, at Revere, in the District of Massachusetts, "did engage in the business of accepting wagers and of conducting a lottery and of conducting a wagering pool, as defined in 26 U. S. C. 3285, and did wilfully fail prior to the commencement of said business engagements to pay the special occupational tax as required by 28 U. S. C. 3290, . . . in violation of 26 U. S. C. 3294 and 2707(b)." Count 2 charged that the accused, on or about May 29, 19 53, at Revere, Mass., "did engage in the business of accepting wagers and of conducting a lottery and of conducting a wagering pool, as defined in 26 U. S. C. 3285, and did wilfully fail prior to the commencement of said business engagements to register as required by 26 U. S. C. 3291, in violation of 26 U. S. C. 3294 and 2707(b)."

Upon motion of the government, allowed by the district court, the seven informations were consolidated for trial. After a lengthy trial the jury reported verdicts of guilty on all counts, and these appeals were taken from the ensuing judgments of conviction.

The district judge repeatedly explained to the jury that the act of Congress in question did not denounce gambling as such, or the participation in a gambling business, as a federal offense; that if the evidence might indicate some gambling offenses against state law, this was wholly irrelevant to the offenses for which the defendants were being tried; that the federal offense was participating in a gambling "business," without having previously paid the special occupational tax or without having previously registered as required by federal law.

The defendants were not charged with a conspiracy to commit an offense against the United States , but each was charged with technically separate but similar offenses of participating in a gambling "business" without having individually paid the required occupational tax to the United States or without having individually registered with the appropriate federal collector of internal revenue.

The government proved by uncontradicted evidence that no one of the seven defendants had paid the special occupational tax for the year in question, and that no one of the defendants had complied with the registration requirements of 26 U. S. C. §3291. Therefore, the only other element of the separate offenses which the government had to establish beyond a reasonable doubt was that each of the defendants had engaged in the described gambling "business." In this respect the government sought to show that all seven of the defendants had participated together, on or about May 29, 19 53, in the conduct of a single gambling enterprise or "business" at 560 Winthrop Ave. , Revere , Mass. --that was the common element of the offenses charged against all seven of the defendants.

[Consolidation for Trial]

Accordingly the United States moved for consolidation of the seven informations for the purpose of trial, under Rule 13 of the Federal Rules of Criminal Procedure, on the ground "that all of the defendants in the above-entitled actions are alleged, in informations filed in this Honorable Court, to have participated in the same act or transaction, or series of acts or transactions, constituting the same offenses. . . ." Appellants contend that the allowance of this motion by the district court was reversible error. We do not agree.

Rule 13 provides that the district court "may order two or more indictments or informations or both to be tried together if the offenses, and the defendants if there is more than one, could have been joined in a single indictment or information." This requires a reference back to Rule 8(b), which provides that two or more defendants "may be charged in the same indictment or information if they are alleged to have participated in the same act or transaction or in the same series of acts of transactions constituting an offense or offenses. Such defendants may be charged in one or more counts together or separately and all of the defendants need not be charged in each count.

Considering the participation by the defendants in the same gambling business as "the same act or transaction," is it the same act or transaction "constituting an offense or offenses," within the meaning of Rule 8(b)? In a hypercritical reading of the rule, it may be suggested that proof of a particular defendant's participation in such act or transaction does not of itself establish the offense charged, for this particular defendant might, or might not, have paid the occupational tax, or complied with the registration requirements. But Rules 13 and 8(b) are not to be read so narrowly. See Cataneo v. United States , 167 Fed. (2d) 820 (C. A. 4th, 1948); Jordan v. United States , 120 Fed. (2d) 65 (C. A. 5th, 1941). The rules are designed to promote economy and efficiency and to avoid a multiplicity of trials, where these objectives can be achieved without substantial prejudice to the right of the defendants to a fair trial. Rule 8(b) on its face contemplates the situation where some of the evidence might be admissible against one defendant and not against a codefendant at a single trial, for in its concluding clause the rule provides that "all of the defendants need not be charged in each count." Here, participation by the seven defendants in the gambling business at 560 Winthrop Avenue constituted the concluding element of the two offenses of which they were all charged, since it was undisputed that none of them had paid the occupational tax or registered. We have no doubt that the district court was empowered under the rule to entertain the motion by the United States for trial of the seven informations together. So far as the record discloses none of the defendants made any move for the relief afforded under Rule 14, which provides that if it appears "that a defendant or the government is prejudiced by a joinder of offenses or of defendants in an indictment or information or by such joinder for trial together, the court may order an election or separate trials of counts, grant a severance of defendants or provide whetever other relief justice requires." [Italics added.] In the circumstances before us, we cannot say that the district court committed an abuse of discretion in allowing the government's motion under Rule 13. It would have been absurd here to put upon the government the expense and burden of seven separate trials, especially since most of the government's evidence related to the activities at 560 Winthrop Avenue .

[Facts]

The government's case was largely the outcome of persistent efforts by Sergeant Cosgrove of the Cambridge police in discharge of his duty to detect offenses against the criminal laws of the Commonwealth of Massachusetts . For some moths prior to the raid by the local police at 560 Winthrop Avenue, Revere, on May 29, 19 53, which will be referred to hereinafter, Cosgrove had been regaged in trailing Arthur F. Dunnett, Jr. ("Sonny"), Edward Lavalle ("Eddie"), and James J. Palmisano, all defendants herein, first in Cambridge and later to points outside of Cambridge. These three suspects were seen together in a garage at 90 Broadway, Cambridge , which contained the typical paraphernalia of a gambling establishment. Later these defendants were traced to a location on Ocean Avenue , Revere . Finally the surveillance by the Cambridge police was shifted to the vicinity of 560 Winthrop Avenue , Revere , a location across the street from the Suffolk Downs race track. There, in addition to Dunnett, Lavalle, and Palmisano, the witnesses observed the presence from time to time, prior to May 29, 19 53, of Thomas Daley ("Tom"), once in the company of Angelo Rossetti ("Monge"), they being also two of the defendants in this case.

It was in evidence from the testimony of the witness Horkun that in February, 1953, Rossetti rented from Horkun a small cellar room at 560 Winthrop Avenue , ostensibly for use as a "club." Rossetti paid the first rent; the rent for April and May was paid to Horkun by Dunnett. Two telephones maintained by Horkun in his garage at the location were tapped and the wires run into the cellar room. Also, several other telephones is the neighborhood were similarly tapped, so that the occupants of the cellar room had a total of six or seven telephone lines available for calls in and out. There is not the slightest doubt of this on the evidence.

In the early afternoon of May 29, 19 53, Sergeant Cosgrove, accompanied by Detective McNeil of the Cambridge police, visited the Boston office of the District Attorney for Suffolk County . The District Attorney put in a call to the Revere police. As a result of this visit Sergeant Cosgrove and Detective McNeil proceeded to the Office of the chief of the Revere police, where certain Revere policemen where assigned to the raiding party, which then set out for 560 Winthrop Avenue. During a brief preliminary surveillance defendant Judd was observed to enter the premises with a cardboard box, later identified as a box containing sandwiches.

The raiding party burst into the cellar room shortly after 4:30 p. m. on May 29. Found in the room at the time were these seven defendants (and no one else), most of them sitting around a table litered with Armstrong racing sheets, tally sheets, wagering slips, numbers pool charts, adding machines and rools, pads and pencils, radios, etc. Several of the telephones were ringing. According to the testimony, defendant Daley, answering one of these phones, said, "Out of business, don't you understand." Defendant Dunnett, answering another phone, said, "There will be no more bets on the speed of a beast." Defendants Palmisano and Judd were also seen answering telephones when the officers arrived. Defendant Rossetti said over another phone, "No business, cops are here." George Hurley of the Revere police, one of the raiding party, testified that he picked up a ringing phone several times and received requests to put bets on horses at various tracks.

The raiding officers gathered up and carted off to the Revere police station the paraphernalia found in the room. This was later used in some state court forfeiture proceeding, after which it was turned over to the federal authorities for inspection and possible use in federal prosecutions, and at the trial below the various items seized in the raid were introduced into evidence as exhibits. Prosecution witnesses, who testified to what they had seen in the room and seized, identified specifically some of the larger objects as having been among the property taken away. As to the great number of tally sheets, wagering slips, and other papers seized, the witnesses said on direct or cross-examination that they could not swear that the papers offered as exhibits were the identical ones seized in the raid, but that the various items were similar in size, appearance and kind to what had been taken. The government traced out the custody of the seized property from the time it was taken in the raid to the time it was offered in evidence, and the jury would have been warranted in finding that the papers in the exhibits were found in the cellar room. On various of the numbers pool sheets or wagering slips, the names "Monge," "Sonny," "Lou," "Tom," and "Eddie" appeared. These were nicknames of the defendants Rossetti, Dunnett, Frongello, Daley, and Lavalle. The witness DeLuca, a special agent of the Intelligence Division of the Bureau of Internal Revenue, who examined the seized material, and who was duly qualified as an expert, testified that in his opinion the various papers seized were typical paraphernalia to be found in the headquarters office of a large-scale gambling business engaged in accepting bets on horse and dog races and numbers pools. The evidence indicated that 560 Winthrop Avenue was not a location where customers came to place bets or to collect winnings, but was a telephone center or central office of the gambling enterprise. In all the weeks of surveillance to which the officers testified, there was no testimony that anyone was seen coming to or out of the premises other than the defendants herein.

Testimony as to the hiring of the premises by Rossetti and the payment of two months' rent by Dunnett, the installation of the various tapped telephones, the statements made by various of the defendants who answered ringing telephones at the time of the raid, all this was admitted in evidence over objection, and the judge told the jury that such evidence could be applied as against each and every defendant whom they determined to have been a participant in a common gambling enterprise. Appellants insist that this ruling was in error, in the absence of a charge of conspiracy. We do not think that this is so. In United States v. Olweiss, 138 Fed. (2d) 798 (C. A. 2d, 1943), cert. denied, 321 U. S. 744 (1944), Olweiss, Schwarz and Nass appealed from a conviction for concealing a bankrupt's goods from his trustee. In an opinion by Learned Hand, C. J., the court said (at 799-800):

"Schwarz and Nass complain that although they were not indicted for conspiracy, they were convicted as accomplices of Olweiss, and upon evidence admissible only against him. It was proper to charge them as principals--which they probably were in any event--even though they were only accessories. (§550, Title 18, U. S. C. A.); and any evidence admissible against Olweiss was admissible against them, so far as it consisted of conduct in furtherance of the joint venture in which all three were engaged. The notion that the competency of the declarations of a confederate is confined to prosecutions for conspiracy has not the slightest basis; their admission does not depend upon the indictment, but is merely an incident of the general principle of agency that the acts of any agent, within the scope of the authority, are competent against his principal."

[Admission of Evidence]

More broadly, the defendants seem to have asserted that the exhibits seized in the raid, and the testimony of the officers with reference thereto, should not have been admitted into evidence for any purpose, for they moved "that all the documentary evidence consisting of papers, racing sheets (Armstrongs), race track programs, and all articles taken from the room located at 560 Winthrop Avenue, Revere, Massachusetts, and all oral evidence relating to the same be stricken from the record." This motion the court quite correctly denied. The government of course had to prove that a gambling "business" as defined in the statute was being conducted at 560 Winthrop Avenue . This was a necessary element in the required proof as against each of the seven defendants, and there is no doubt that such element was established by overwhelming proof. In addition, in order to warrant a conviction of each of the defendants of the offenses charged, the government had to satisfy the jury that each defendant, individually, was engaged in such business. The judge charged, as requested by the defense, that the "mere fact that an individual was found in a place where papers and other objects, allegedly used in accepting wagers, were also found, is not sufficient of itself to convict the defendant of the offense set forth in the Information." On the other hand, the court charged, as requested by the government, and without objection by the defense so far as appears, that to be "engaged in the business of conducting a wagering pool or a lottery, a person does not have to personally receive money or a number pool or lottery bet from a bettor; if he is an active participant knowingly in an essential part of the management structure in the processing of such wagering pool or lottery bets in an existing wagering or lottery business, whether top manager, agent solicitor on the street, or an employee or associate of a communications center or central bookkeeping agency of an organization which was engaged in accepting wagers, or conducting a wagering pool or a lottery, he is engaged in such business."

In other words, as the case was presented to the jury, the evidence pointing to the existence of a gambling "business" on the premises was in effect of no application to any individual defendant, unless the jury should determine that such defendant, individually, was engaged in the business, as defined. The defendants were entitled to no more than that.

The evidence, which we have not bothered to recite in full detail, was sufficient to warrant a finding, as to each defendant, individually, that he was engaged in the described activities.

[Trial Judge's Conduct]

Perhaps the point most insistently urged on these appeals is that "forensic misconduct" of the judge throughout the trial resulted in a denial of due process and an unfair trial to the appellants. To assess confidently the validity of this sort of attack upon the trial judge, it is necessary to read the voluminous transcript from cover to cover. This we have done, and our examination of the record has satisfied us that appellants' criticisms of the fairness of the trial judge are entirely unwarranted.

The judge had a lot to say throughout the trial; and no doubt much of his comments and questioning of witnesses was superfluous. But this, in itself, does not constitute reversible error, however much it may have resulted in undue padding of the transcript. There were many exchanges between the court and defense counsel in which the badinage back and forth was obviously friendly and good-natured. But we find nothing to indicate that the purpose or effect of the numerous interventions by the trial judge was other than to assure that the cases be fairly presented and determined by the jury, shorn of extraneous issues.

In fact, no evidence was put in on behalf of the defendants. At the conclusion of the case for the prosecution the defense rested. Counsel for the defendants concentrated on objections to the introduction of evidence and on attempts to discredit government witnesses in cross-examination.

Much in made of alleged misconduct of the judge during the direct and cross-examination of the government witness Rubin, who was one of the neighbors whose telephones were tapped. Rubin was evidently a reluctant witness, and the judge's incredulity was aroused by Rubin's bland protestations of ignorance of what was going on. The judge questioned him vigorously as to why he had not notified the telephone company or the police when he found that his wires were being tapped. To his answer that he was "afraid" the judge asked whether he meant "physical fear." Rubin replied, clearly enough, that he meant only "mental fear"--fear of being evicted by his landlord on account of being "involved" in a dubious transaction. The prosecutor having asked Rubin on direct examination whether he had been put under any undue "pressure" as a result of his pre-trial visit to the office of the United States Attorney, defense counsel picked this point up on cross-examination and sought to make something of it. But before Rubin stepped down from the witness chair, due to the combined efforts of the prosecutor and the judge Rubin made it clear that the United States Attorney had been "very nice" to him, had not threatened him, had sought to explain to him his rights under the Fifth Amendment, and finally had suggested to him that he had better go and discuss his affairs with his own lawyer. Read in its entire context, the testimony of Rubin, which in fact was of little or no importance to the prosecution, discloses on impropriety on the part of the trial judge.

In an effort on cross-examination to discredit the testimony of Sergeant Cosgrove, defense counsel sought to imply that Cosgrove was guilty of something reprehensible in extending his police activities outside the limits of the city of Cambridge . There was also a transparent effort to stir up discord between the Cambridge police and members of the Revere police for who took part in the raid and were to appear subsequently as government witnesses, by questions designed to elicit from Cosgrove the admission that he had extended his surveillance to Revere without notifying the Revere police, and had gone to the District Attorney for Suffolk County, because of a lack of trust on his part of the Revere police.

Defense counsel also made a great pother about what was at most an inconsequential variance in detail between the testimony of Sergeant Cosgrove and of government witness Galvin of the Revere police. Cosgrove had testified that when the raiding party burst into the room he had observed the defendant Lavalle sitting at the end of the table with "an Italian roll of some kind with a piece of cheese and some other stuff in it in his right hand, leaning over the table, and in his left hand he had the receiver of a telephone." He also testified that there "was some food on the center of the table." Subsequently Officer Galvin testified to what he had observed in the raid. In the course of his cross-examination he said that he observed Mr. Lavalle cating "veal cutlets." In answer to a question by defense counsel, Galvin stated that he had informed the prosecutor at an interview prior to the trial that the defendant Lavalle was eating veal cutlets. Defense counsel told the court that he was "impeaching the United States Attorney for suppressing that evidence." The trial judge reacted sharply to this suggestion of reprehensible conduct on the part of the prosecutor.

In the foregoing, and other instances that could be mentioned, there is no doubt that the intervening comments and questions by the judge took off some of the bloom from these various trial maneuvers. But defendants in a criminal case do not have a right to insist that the judge must sit on the bench, mute and inert, while defense counsel possibly confuse the jury by injecting spurious issues of the "red-herring" variety.

Several times throughout the trial, the patience of the judge was sorely tried by repeated refusals of the counsel for the defense to accept his rulings of law. Nevertheless he many times cautioned the jury that they should not hold it against the defendants if tempers had occasionally flared up during the long trial, that defense counsel were distinguished lawyers and men of integrity and that when the judge found it necessary to make a ruling against them, the jury should not take this to the prejudice of the defendants or allow themselves to be deflected from their duty to keep an open mind until all the evidence was in and then to make their determination solely on the basis of the evidence submitted, under the guidance of the instructions of law to be given by the court.

[Decision]

Numerous other minor points are urged by appellants, but they are not deserving of specific comment. The defendants were convicted after a fair trial, and we have found no ground for reversal.

The judgment of the District Court are affirmed.

 

 

[55-1 USTC ¶9443]Tony Legatos (True Name Antonio Legatos) and John Glynn, Appellants v. United States of America , Appellee

(CA-9), In the United States Court of Appeals for the Ninth Circuit, No. 14094, 222 F2d 678, May 12, 1955

Appeals from the United States District Court, for the Northern District of California, Southern Division.

[All issues: 1939 Code Sec. 145(b)--substantially unchanged in 1954 Code Sec. 7201]

Criminal prosecution: Sufficiency of indictment.--The count in the indictment sufficiently stated the essential facts constituting the crime charged, since it alleged that defendant attempted to defeat and evade a large part of his income tax for the year 1944 by understating his partnership and business receipts and by filing a false and fraudulent tax return wherein he stated his net income to be $40,449.26, and that the amount of tax due and owing thereon was the sum of $20,903.47, whereas, as he well knew, his net income for that year, computed on the community property basis, was the sum of $71,607.75, upon which net income he owed the United States an income tax of $45,150.51.

Criminal prosecution: Bill of particulars.--Since the counts adopted the figures in the amended tax returns which were based upon the recomputations made by an accountant employed by defendant after the investigation had begun, defendant could easily have learned, by making inquiry of his own accountant, the nature of the charges and the character of the evidence which the Government would use. Therefore, there was no abuse of discretion in the denial of a motion for a bill of particulars.

Criminal prosecution: Voluntary disclosure.--The voluntary disclosure was too late to afford defendant immunity from prosecution, where the letter making the disclosure was sent to the Bureau of Internal Revenue after the examination of defendant's books by a revenue agent and investigations by a special agent had begun. The fact that defendant instructed his office manager and bookkeeper to furnish the revenue agent all books and records the agent might request and that defendant's accountant fully cooperated with the agent could not bring defendant within the Treasury Department's voluntary disclosure policy (which policy has since been abandoned).

Criminal prosecution: Evidence: Constitutionality.--There was no violation of defendant's constitutional rights under the Fourth and Fifth Amendments where the documentary evidence used in the trial had been given to the Government agent during the investigation and before an effective voluntary disclosure was made.

Criminal prosecution: Admissibility of evidence.--It was proper for the Government to show that defendant Legatos personally participated in the operation of the establishment by the testimony of defendant's partner that he and defendant discussed how they could get rid of the brandy and rum and that defendant warned the witness not to refill too many bottles at a time.

Criminal prosecution: Instructions to jury.--Appellant Legatos' contention that the trial court did not make it sufficiently clear to the jury that the special agent's testimony was to be considered only against appellant Glynn was without merit, because the trial judge had on two occasions cautioned the jury that they should consider against each defendant only the evidence admitted as to that defendant.

Criminal prosecution: Use of net worth method: Evidence of books being incomplete.--There was sufficient basis for the use of the net worth method since a reasonable inference could be drawn from the testimony of defendant's accountant that defendant's books were incomplete and that substantial items of cash income were not entered in the books. The accountant had testified that it was not feasible to calculate defendant's income from his books and that it was advisable to use the net worth method. Further, the trial court did not err in refusing to give the requested instruction that, in using the net worth method the Government had the burden of proving beyond a reasonable doubt defendant's wealth at the starting point of the net worth period, since the court in its instructions explained the net worth method and stated the circumstances in which it properly could be employed and also since the beginning net worth used by the Government was in accordance with the amendment returns filed by defendant.

Criminal prosecution: Presumption of intent: Instructions to jury.--Appellant complained of the instruction given to the jury stating that "the presumption is that a person intends the natural consequences of his acts, and with respect to the defendant Legatos, the natural presumption would be that if a person consciously, knowingly, and intentionally, with evil motive or bad purpose did not set up his full income and thereby the Government was cheated or defrauded of taxes, he intended to defeat the tax." Since the jury was also told that the intent was an essential element of the crime and that it was to be determined by the jury from consideration of all the facts and circumstances in evidence, the court's instructions, considered as a whole, stated the law correctly.

Criminal prosecution: Sufficiency of evidence.--Since most of the evidence was admitted against Legatos and not against Glynn, there was not sufficient evidence to convict appellant Glynn of having wilfully attempted to defeat and evade a large part of the income tax due and owing by Legatos.

Harold C. Faulkner, Allan L. Fink, Melvin, Faulkner, Sheehan & Wiseman, San Francisco, Calif., Grant G. Galhoun, Carlson, Collins, Gordon & Bold, F. Walter French, Richmond, Calif., for appellants. Lloyd H. Burke, United States Attorney, Robert H. Schnacke, Assistant United States Attorney, Macklin Fleming, Special Assistant to Attorney General, San Francisco, Calif., for appellee.

Before DENMAN, Chief Judge, ORR, Circuit Judge, and DRIVER, District Judge.

DRIVER, District Judge:

Tony Legatos and John Glynn were indicted April 4, 19 51. The first count of the indictment charged that defendants attempted to defeat and evade a large part of Legatos' income tax for the year 1944 by understating the partnership and business receipts of Legatos and, in the case of Legatos, by filing a false and fraudulent income tax return in which the amount of his net income was substantially understated, all in violation of Title 26, U. S. C. §145(b). The second and third counts were similar to the first count in all respects except that, they charged attempted evasion of Legatos' income taxes for the years 1945 and 1946, respectively.

The trial began May 18, 19 53, and was concluded June 27, of the same year. 1 At the close of the Government's case, Glynn moved for judgment of acquittal and rested. He offered no evidence and did not cross-examine any witness subsequently called. Legatos put on a defense. The jury by its verdicts found each defendant guilty on each count. Thereafter the Court granted Glynn's motion for judgment of acquittal as to count one and denied it as to counts two and three. From judgments and sentences on the verdicts Legatos and Glynn appealed.

During the period covered by the indictment, appellant Legatos, a resident of Sacramento , owned numerous restaurants, bars and taverns in that city and elsewhere in Northern California . In Vallejo, one of them, Hambers Cafe, was managed by Appellant Glynn, and two others--the Casa Blanca and the States Club--were operated by a partnership consisting of Legatos, Glynn, and one John Blanas, who testified in the trial as a witness for the Government. During the war, Legatos' enterprises were very profitable, the gross receipts mounting to between $1,500,000.00 and $1,750,000.00 annually for 1944, 1945, and 1946. In the Vallejo establishments substantial portions of the gross income were not rung up on the cash registers but were kept in the safe at Hambers Cafe and distributed monthly to the partners in currency in separate envelopes for each establishment. Such income consisted of monies from the juke boxes and coin machines, certain miscellaneous items, and receipts from private parties at the Casa Blanca on Wednesdays when it was closed to the general public. There was also evidence that part of the gross receipts of the Casa Blanca and States Club was concealed by "cutting" or manipulation of the tapes on the cash register machines. Tax returns of Legatos for the years 1942 through 1946 fell far short of disclosing his true income in those years. Amended returns, prepared by an accountant employed by him and filed in 1948, showed unreported income in the original returns amounting in the aggregate to approximately $244,000.00.

Appellant Legatos asserts nine specifications of error. We group and rephrase them as follows:

1) The sufficiency of the indictment;

2) Voluntary disclosure of tax liability by Legatos;

3) Admission of testimony of the witness Blanas;

4) Testimony of the witness Hubbard;

5) Sufficiency of the evidence to make a net worth case;

6) The instructions to the jury.

Appellant Glynn adopts all of Legatos' specifications of error and advances several of his own. They present, principally, the contention that the evidence is not sufficient to support the verdict as to Glynn. We shall first discuss Legatos' specifications and then consider the contention urged by Glynn.

(1) The Indictment

Prior to trial, Legatos moved to dismiss the indictment, and for a bill of particulars, and the motions were denied. He complains that he was not reasonably and fairly informed of the nature of the charges, or of the methods which the Government proposed to use to establish them. The indictment was in the form commonly used in tax prosecutions. The first count, which we take as typical, alleged that Legatos attempted to defeat and evade a large part of his income tax for the year 1944 by understating his partnership and business receipts and by filing a false and fraudulent tax return wherein he stated his net income to be $40,449.26, and that the amount of tax due and owing thereon was the sum of $20,903.47, whereas, as he well knew, his net income for that year, computed on the community property basis, was the sum of $71,607.75, upon which net income he owed the United States an income tax of $45,150.51. The count sufficiently stated the essential facts constituting the offense charged. 2 And we find no abuse of discretion in the denial of the motion for a bill of particulars. 3 After the Government started to investigate Legatos' tax returns, he employed an expert accountant who worked on his books and records for many months in cooperation and collaboration with an agent of the Bureau of Internal Revenue. The accountant recomputed his income for the years in controversy on the net worth basis, and prepared amended income tax returns which were filed in 1948. Count one adopted the figures in the amended tax return as the correct net income and income tax of Legatos for the year 1944. The same is true of counts two and three as to the years 1945 and 1946. Legatos knew, or could easily have learned by making inquiry of his own accountant, the nature of the charges against him and, in general, the character of the evidence which the Government would use.

(2) Voluntary Disclosure

Legatos contends that he was immune from prosecution because of his voluntary disclosure of the understatement of his income and tax liability in compliance with an announced policy of the United States Treasury Department, which had not at that time been withdrawn. 4 Closely allied to that contention is the additional one that, documentary evidence used in his trial was procured from him by Government agents after he had been misled into believing that no criminal action against him was contemplated, in violation of his rights under the Fourth and Fifth Amendments to the Federal Constitution. A taxpayer's rights upon a claimed acceptance of the Treasury Department's offer (considering it as such for the purpose of this discussion) can be no broader than the plain, express terms of the offer. Such terms were that the taxpayer make "a voluntary disclosure of omission or other misstatement in his tax return . . . before an investigation is under way . . ." Legatos, with the assistance of an attorney, made a formal voluntary disclosure in the form of a letter to the Bureau of Internal Revenue on July 9, 1947. Briefly and chronologically listed, the events leading up to that disclosure were as follows: November 20, 1946, the Bureau of Internal Revenue wrote to Legatos requesting an extension of time for the examination of tax returns, and consent to the extension was received November 24, 1946. On March 5, 1947, Internal Revenue Agent Bakkan, in the course of his investigation of Legatos' tax returns, called at Legatos' Sacramento office to examine his books. The examination was continued on March 7, and March 11, but on none of those days was Legatos present. On April 15, 1947, Bakkan again visited the Sacramento office and was introduced to Legatos by the latter's office manager as "the Revenue Agent that was working making the examination." Bakkan was then inspecting some books which were spread out on a desk before him and he told Legatos that he was making an examination of his income tax returns. Bakkan continued his work on the books in Legatos' office on April 16 and 17, 1947, and Legatos came in and out of the office from time to time.

On May 2, 19 47, Special Agent Hubbard of the Bureau of Internal Revenue was assigned to investigate the Legatos case. On May 6, he interviewed Blanas (partner of Legatos and Glynn in Vallejo enterprises as stated above) and took a sworn statement from him on May 14. June 5, Legatos, on advice of an attorney, employed accountant Swigard, and on June 9, Swigard called on Bakkan and offered to cooperate with him fully and to furnish him detailed information of Legatos' financial affairs. June 13, Hubbard asked Glynn for books and records of the Vallejo establishments and Glynn gave him some of them on June 16, and more within two weeks thereafter.

From the foregoing recital, it is apparent that the voluntary disclosure made by Legatos on July 9, came long after investigation was under way, and was insufficient to afford him immunity from prosecution. 5 Legatos calls attention to his directions to his office manager and bookkeeper to furnish agent Bakkan any and all books and records he might request, and the conduct of his accountant Swigard in working in full cooperation with agent Bakkan; but aiding and facilitating a government tax investigation after it has been started manifestly does not bring the taxpayer within the Treasury Department's voluntary disclosure policy. Legatos further complains that he was misled into believing that only a routine, civil liability investigation was being made of his tax returns and that he was not informed until after his voluntary disclosure that criminal prosecution was contemplated. No case has been called to our attention which holds that a taxpayer may obtain immunity by making voluntary disclosure of error or omission in his tax return at any time before a criminal investigation, as distinguished from a civil one, has been instituted. Usually, when an investigation is started, it is not possible to predict where it will lead or whether or not evidence of fraud sufficient to justify prosecution will be uncovered. In Bateman v. United States, supra, (footnote 5) this Court held that, after the collector had forwarded tax returns to a deputy collector with directions to initiate an investigation, a request by government agents that the taxpayers sign a waiver of statute of limitations upon assessment of income taxes (a civil liability), was sufficient to put them on notice that they were under investigation. It is our conclusion that Legatos' disclosure came too late. He did not go to the Government. The Government came to him. No government agent made any promise of immunity from prosecution to appellants, or gave them any good reason to believe that prosecution would not be instituted. And since appellant Glynn gave the challenged documentary evidence to a government agent before any effective voluntary disclosure had been made, no constitutional rights of appellants were violated. Bateman v. United States, United States v. Lustig, and United States v. Weisman, cited above in footnote 5.

(3) Testimony of Witness Blanas

Legatos, in partnership with Glynn and Blanas, operated the States Club in Vallejo . Blanas, a witness for the Government, testified, over objection, regarding a conversation with Legatos in that establishment sometime during the year 1945. Blanas testified they discussed how they could get rid of the brandy and rum "that wasn't moving fast"; that Blanas said he would refill the bottles a few at a time and get rid of them; and that Legatos told him to be very careful and not to fill too many. The Court admitted the testimony for the limited purpose of showing "the connection of Mr. Legatos with the Club." It is now argued that, since it was not disputed that Legatos, as one of three partners, was part owner of the club, the testimony was not material to any contested issue and was prejudicial in that it tended to show commission by Legatos of an offense not charged in the indictment. Legatos did not question his being a partner in the States Club, it is true, but he did strenuously contend that he was not criminally liable for his partners' acts in connection with its operation in the absence of a showing of personal participation or knowledge on his part. Legatos' residence and main office were in Sacramento . There was evidence that he did not take an active part in the management or operation of the States Club and that he was seldom seen there. It was material and proper for the Government to show by the challenged testimony that Legatos personally participated in the operation of the establishment to the extent of aiding in the solution of the problem of disposing of slow-moving liquor stocks. Relevant evidence is admissible even though it incidentally shows commission by the accused of another crime. 6

(4) Testimony of Witness Hubbard

Beltran C. Hubbard, an agent of the Bureau of Internal Revenue, testified at length as an expert witness for the Government concerning the books and records which Glynn had given him, and with reference to numerous tapes from the adding machines in Hambers Cafe, the Casa Blanca, and the States Club. The purport of his testimony was that the tapes had been cut and manipulated so that they did not show all of the receipts taken in through the machines. He voiced the conclusion that other receipts had been withheld from the books. It was the position of the Government that, since Legatos was a partner of Glynn and Blanas and they were shown to have been acting in concert, Hubbard's testimony was admissible against both Legatos and Glynn. The Court, however, rejected that theory and in the presence of the jury ruled that the testimony would be admitted only against Glynn, but remarked that the Government could again offer it against Legatos or move to have it apply to him later on in the trial. With some few exceptions, all of the evidence, both oral and documentary, offered by Hubbard was admitted on that basis. A considerable volume of other evidence was admitted as to Legatos only and, after both sides had rested, Government counsel moved that all of the evidence be considered admitted against both defendants. The Court heard the argument of counsel and denied the motion in the absence of the jury. Legatos now complains that the Court did not make it sufficiently clear to the jury that Hubbard's testimony for the most part was to be considered only against Glynn. In view of the large number of instances throughout the protracted trial in which evidence was admitted against one defendant and not against the others, and the number of documents and the volume of testimony involved, it would have been a Herculean, if not an impossible task, for the trial judge to give the jury detailed instructions as to just what evidence was to be considered against which defendant. During argument to the jury by Government counsel, when Legatos' attorney made the objection that testimony of Blanas admitted only as to Glynn was being improperly applied to Legatos, the Court interrupted the argument to give the jurors a cautionary instruction to the effect that they should consider against each defendant only the evidence admitted as to that defendant. 7 The same instruction was again given to the jury in the Court's final charge. In the circumstances presented, that was about all the Court could do. Perhaps too much was expected of the jury, but the same may be said of almost every protracted jury trial involving complex issues and more than one defendant.

(5) Sufficiency of Evidence on Net Worth Basis

In his brief, Legatos argues that the evidence was not sufficient to warrant submission of a net worth case to the jury for the reason that there was no showing that the taxpayer's books were incomplete or inadequate. On oral argument, Legatos' counsel announced that he was abandoning the contention. He could well do so without detriment to his client's interests. Both the Government agent, Bakkan, and Legatos' accountant, Swigard, concluded that it was not feasible to calculate Legatos' income from his books and that it was advisable to use the net worth method. Swigard testified that it would take "a matter of maybe years" to completely audit Legatos' books for income tax purposes. A reasonable inference could be drawn that the books were incomplete and that substantial items of cash income were not entered therein. There was sufficient basis for employment of the net worth method of computation of Legatos' income. 8

(6) The Court's Instructions to the Jury

Legatos specifies as error the Court's omission to give his requested instruction that, in using the net worth method the Government had the burden of proving beyond a reasonable doubt the wealth of Legatos at the starting point of the net worth period. The Court in its instructions explained the net worth method and stated the circumstances in which it properly could be employed. The Court further fully and correctly instructed the jury as to the elements constituting the crime charged and informed the jury that the Government had the burden of proving every element of the crime beyond a reasonable doubt. It was not necessary for the Court to repeat his instructions as to the Government's burden of proof in explaining the methods of proof open to the Government. Here, particularly, there was no call for such emphasis in view of the fact that the wealth of Legatos at the starting point which the Government used was in accordance with the amended tax returns filed by Legatos and sworn to be correct both by him and by his accountant.

Legatos also complains of the following instruction which the Court gave to the jury:

"The attempt to evade and defeat the tax must be a willful attempt. That is to say, it must be made with the intent to keep from the Government a tax imposed by the income tax laws which it was the duty of the defendant Legatos to pay to the Government. The attempt must be willful, that is, intentionally done with the intent that the Government should be defrauded of the income tax due from the defendant Legatos. The presumption is that a person intends the natural consequences of his acts, and with respect to the defendant Legatos, the natural presumption would be that if a person consciously, knowingly, and intentionally, with evil motive or bad purpose did not set up his full income and thereby the Government was cheated or defrauded of taxes, he intended to defeat the tax."

The contention that the instruction was prejudicially erroneous is based principally upon Morissette v. United States, 342 U. S. 246, and Wardlaw v. United States, 5 Cir., 203 Fed. (2d) 884 [53-1 USTC ¶9335]. The instruction held to be erroneous in the latter case was as follows:

"The presumption is that a person intends the natural consequences of his acts, and the natural presumption would be if a person consciously, knowingly, or intentionally did not set up his income and thereby the government was cheated or defrauded of taxes, that he intended to defeat the tax." (p. 887)

The Court reasoned that the intent, which is an element of the offense, is not inherent in the act itself but is a specific intent involving "bad purpose and evil motive." Wardlaw v. United States had been called to the District Court's attention in the course of the trial in this case, and it seems likely that in order to meet what he regarded as its requirements, he fashioned the instruction quoted above to read that, the jury might presume the intent if the accused consciously, knowingly, and intentionally, with "evil motive or bad purpose," did not set up his full income and thereby the government was cheated or defrauded of the taxes. Legatos argues that the addition of the language from the Wardlaw case did not cure the error, since the vice of the instruction is not the language with which it may be clothed, but its submission to the jury of the presumption of guilt, condemned by the Supreme Court in Morissette v. United States, supra.

In the Morissette case the defendant picked up some spent bomb casings on a government practice bombing range and was convicted of theft of government property. His defense was that he believed the casings had been abandoned and that he did not intend to steal them. The trial court in effect rejected the proffered defense and instructed the jury:

"That if this young man took this property (and he says he did), without any permission (he says he did), that was on the property of the United States Government (he says it was), that it was of the value of one cent or more (and evidently it was), that he is guilty of the offense charged here. If you believe the government, he is guilty. . . . The question on intent is whether or not he intended to take the property. He says he did. Therefore, if you believe either side, he is guilty."

Defendant's counsel contended that the taking must have been with a felonious intent, but the trial court ruled, "That is presumed by his own act". A considerable portion of the Supreme Court's opinion is taken up with a discussion of the question whether specific intent was an essential element of the offense charged. Having reached the conclusion that it was, the Court observed that the case was tried on the theory that "if criminal intent were essential its presence (a) should be decided by the court (b) as a presumption of law, apparently conclusive, (c) predicated upon the isolated act of taking rather than upon all the circumstances." The Court regarded each of the three assumptions, (a), (b), and (c), as erroneous. Where intent of the accused is an ingredient of the crime charged, it said, its existence is a question of fact which must be submitted to the jury, and the question may not be withdrawn or prejudged by instruction that the law raises a presumption of intent from an act. And a presumption which would permit but not require the jury to assume intent from an isolated fact, would prejudge a conclusion which the jury should reach of its own volition. The essence of the Morissetti case, then, is that, the existence of criminal intent is a question of fact to be determined by the jury from all the attendant circumstances, and the jury should not be instructed that such intent must or may be presumed as a matter of law from an isolated fact.

On April 11, 19 55, after the instant case was submitted, this Court decided Bloch v. United States, No. 14,266, 221 Fed. (2d) 786 [55-1 USTC ¶9364]. Based upon the authority of the Wardlaw and Morissette cases, it held that the giving of the following instruction constituted plain error which the court should notice on its own motion under Rule 52(b) of the Federal Rules of Criminal Procedure:

"The presumption is that a person intends the natural consequences of his acts, and the natural inference would be if a person consciously, knowingly and intentionally did not set up his income, and thereby the government was cheated or defrauded of taxes, that he intended to defeat the tax."

There the instruction in which the trial court defined the term "wilfully" for the jury also was held to be erroneous. 9

On the other hand, in Bateman v. United States, 212 Fed. (2d) 61 (decided April 15, 19 54) [54-1 USTC ¶9341], this Court came to the conclusion that an instruction in a tax evasion case that "the law presumes that every man intends the natural and probable consequences of his own voluntary acts" was not prejudicially erroneous for the reason that, considered as a whole the trial court's instructions on intent "correctly stated the law, were plain and understandable, and left no room for doubt in the minds of the jurors."

We think the same reasoning may be applied to the instant case. In the first place, directly contrary to the trial court's position in the Morissette case, here the judge instructed the jury that, "The question whether, under the indictment, there existed an intent to defraud the government of the United States is solely a question of fact to be determined by the jury." The jury was also told that intent was an essential element of the crime; that it was to be determined by the jury from consideration of all the facts and circumstances in evidence; and that guilty knowledge and specific wrongful intent on the part of the taxpayer to evade payment of the tax must be established. 10

It is our conclusion that, considered as a whole the Court's instructions on intent and wilfulness clearly and correctly stated the law and were not such as to mislead the jury. We conclude, therefore, that the present case is governed by Bateman v. United States , supra, and is distinguishable from Wardlaw v. United States , supra, and Bloch v. United States , supra, where the effect of the court's instructions considered as a whole was not discussed. 11

Sufficiency of the Evidence as to Glynn

No conspiracy between the defendants was charged in the indictment and the District Court consistently ruled that concert of action between them was not established by the evidence. During the protracted trial, evidence was admitted on a separate, individual basis, and only evidence with which a defendant was shown to be connected was admitted against that defendant. Glynn rested at the conclusion of the Government's case in chief and the Court ruled that all evidence thereafter introduced, including the testimony of Legatos and his other witnesses was not admitted as to Glynn. The only evidence received against Glynn was the testimony of Blanas and Hubbard, which covered the operation and disposition of the receipts of the Vallejo establishments, and the partnership tax returns. The original and amended tax returns of Legatos, the net worth evidence, and other evidence that Legatos understated his income in his income tax returns, are not in evidence at all so far as Glynn is concerned. He is accused and convicted of wilfully attempting to defeat and evade a large part of the income tax due and owing by Legatos to the United States for the calendar years 1945 (second count) and 1946 (third count), but there is no supporting evidence which properly may be considered against him that Legatos had any taxable net income in 1945 or 1946; or that Legatos in either of those years owed any Federal income tax. So far as the evidence against Glynn is concerned, Legatos may have filed returns in 1945 and 1946 in which he correctly reported his income and made timely payment of all of his tax due and owing to the United States . Glynn's conviction cannot stand without substantial evidence that he had the specific intent stressed as essential in the Wardlaw and Bloch cases, to evade or defeat the payment of income tax which Legatos was obligated to pay the United States . The Government had the burden of proving that some income tax was due from Legatos for the years involved. 12 It did not carry that burden as to Glynn.

 

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