Admissibility
3 Page3
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 standa
