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 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.