7203 - Admissibility 3 Page 4

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Fraud Statutes 

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

 

Admissibility 3 Page4

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Appellee argues that the evidence is sufficient to support Glynn's conviction as an aider and abettor of an attempt to evade Legatos' income tax. That may have been the theory on which Glynn's case was submitted to the jury as the trial court gave an instruction to the effect that, persons who knowingly and with criminal intent aid and abet in the commission of an act constituting an offense, or who advise and encourage its commission, are regarded in law as principals and are equally guilty with those who directly and actively commit the offense. The evidence was not sufficient, however, to support conviction of Glynn as an aider and abettor. To justify conviction on that basis, it must appear that the offense charged was committed by someone other than Glynn. If no crime has been committed, no one can be convicted as an aider and abettor. 13

There is no evidence admitted against Glynn that Legatos attempted to evade payment of his income tax.

Affirmed as to Legatos and reversed as to Glynn.

1 The record on appeal consists of 8 volumes, aggregating 3580 printed pages.

2 Fed. Rules Cr. Proc. rule 7(c), 18 U. S. C. A.

3 Wong Tai v. United States , 273 U. S. 77; United States v. Skidmore, 7 Cir., 123 Fed. (2d) 604 [41-2 USTC ¶9716]; Maxfield v. United States, 9 Cir., 152 Fed. (2d) 593 [46-1 USTC ¶9115]; Himmelfarb v. United States, 9 Cir., 175 Fed. (2d) 924 [49-1 USTC ¶9313].

4 The voluntary disclosure policy relied upon was stated by then Secretary of the Treasury, Fred Vinson in the Washington Post, August 21, 19 45, as follows: "The Commissioner of Internal Revenue does not recommend criminal prosecution in the case of any taxpayer who makes a voluntary disclosure of omission or other misstatement in his tax return. Monetary penalties may be imposed for delinquency, for negligence, and for fraud, but the man who makes a disclosure before an investigation is under way protects himself and his family from the stigma of a felony conviction. And there is nothing complicated about going to a Collector or other revenue officer and simply saying 'there is something wrong with my return and I want to straighten it out.'"

5 United States v. Lustig, 2 Cir., 163 Fed. (2d) 85 [47-2 USTC ¶9325]; Bateman v. United States, 9 Cir., 212 Fed. (2d) 61 [54-1 USTC ¶9341]; Lapides v. United States, 2 Cir., 215 Fed. (2d) 253 [54-2 USTC ¶9497]; United States v. Weisman, 78 Fed. Supp. 979 [49-2 USTC ¶9404]; In re White, 98 Fed. Supp. 895 [51-2 USTC ¶9382]; United States v. Levy, 99 Fed. Supp. 529 [51-2 USTC ¶9388].

6 Wharton's Criminal Evidence (11th ed.), Vol. 1, p. 486, §343; United States v. Sebo, 7 Cir., 101 Fed. (2d) 889; Weiss v. United States , 5 Cir., 122 Fed. (2d) 675; Bracey v. United States , D. C. Cir., 142 Fed. (2d) 85.

7 The Court's instruction was as follows: "It may be difficult for you, when considering the case for or against any one certain defendant, to disregard completely any evidence that was admitted only as to another, but that is your plain duty with respect to evidence not admitted by the Court as against a certain defendant, you must try conscientiously to so treat such a situation."

8 26 U. S. C. A. §41; Remmer v. United States , 9 Cir., 205 Fed. (2d) 277, 286 [53-1 USTC ¶9421].

9 The instruction was as follows: "Willfully in the statute, which makes a willful attempt to evade taxes a crime, refers to the state of mind in which the act of evasion was done. It includes several states of mind, any one of which may be the willfulness to make up the crime.

"Willfulness includes doing an act with a bad purpose. It includes doing an act without a justifiable excuse. It includes doing an act without ground for believing that the act is lawful. It also includes doing an act with a careless disregard for whether or not one has the right so to act."

10 As to intent and knowledge, and the meaning of "wilful", the trial court instructed:

"Intent is an essential element in the perpetration of the offenses charged against the defendants in the indictment. Intent may be shown by proof of facts and circumstances from which it may be reasonably and satisfactorily inferred. In determining whether a defendant had such intent, you should take into consideration all the facts and circumstances in evidence, the acts and conduct of such defendant, and his motives, if any, disclosed by the testimony, for doing or not doing the act or acts charged in the indictment as shown by the evidence; and if from all the facts and circumstances in the evidence there is no other reasonable conclusion than that he is guilty, you should so find.

"One of the essential elements of the proof of attempt to evade income tax or the payment thereof is knowledge on the part of the taxpayer of the existence of the obligation; that is, of the tax due and a specific wrongful intent to evade the payment thereof. If you find from all the evidence that the defendant Legatos did not have actual knowledge of the existence of an obligation on his part to pay any income tax in addition to the income tax reported by him in his original income tax returns, and that said defendant did not have a specific wrongful intent to evade such obligation, then you should find the defendant Legatos not guilty.

"Fraud is an actual intentional wrong-doing and the intent required is a specific mental determination or purpose to evade a tax known or believed to be owing. Before you can convict the defendant Legatos, you must find from the evidence beyond a reasonable doubt that any income tax return involved in this indictment was not only false and fraudulent, but that by such false and fraudulent return said defendant committed an actual, intentional wrong-doing and that the filing of said return was with the intent on his part to evade a tax owing or believed to be owing to the United States.

"The word 'wilful' when used in a criminal statute generally means an act done with a bad purpose, but the word is also employed to characterize a thing done without ground for believing it is lawful, or conduct marked by disregard whether one has the right so to act.

"The word 'wilfully,' as used in this Statute, means more then [sic] intentionally or voluntarily, and includes an evil motive or bad purpose, so that evidence of an actual bona fide misconception of the law, such as would negative knowledge of the existence of the obligation would, if believed by the jury, justify a verdict for a defendant. It is for the jury to say whether a defendant had the requisite criminal intent, that is whether he wilfully and knowingly attempted to defeat and evade the income tax."

11 The Bateman case was not mentioned nor cited in Bloch v. United States .

12 Gleckman v. United States , 8 Cir., 80 Fed. (2d) 394, 399 [35-2 USTC ¶9645]; United States v. Schenck, 2 Cir., 126 Fed. (2d) 702, 704 [42-1 USTC ¶9363]; Rose v. United States , 10 Cir., 128 Fed. (2d) 622, 626 [42-2 USTC ¶9500]; United States v. Rosenblum, 7 Cir., 176 Fed. (2d) 321, 329 [49-1 USTC ¶9314].

13 14 Am. Jur. 832, §93; 22 C. J. S. Criminal Law, §100, p. 171; Yenkichi Ito v. United States , 9 Cir., 64 Fed. (2d) 73; Morgan v. United States , 10 Cir., 159 Fed. (2d) 85; United States v. Horton, 7 Cir., 180 Fed. (2d) 427; United States v. Zerbst, 111 Fed. Supp. 807.

 

 

 

[57-2 USTC ¶9743] United States of America , Appellant v. Bert G. Ashby, Appellee

(CA-5), U. S. Court of Appeals, 5th Circuit, No. 16345, 245 F2d 684, 6/14/57, Rev'g unreported Dist. Ct

[1939 Code Sec. 145(a)--similar to 1954 Code Sec. 7201]

Appeal from dismissal of indictment: Suppression of evidence: Appellate Court's jurisdiction.--While their divorce suit was pending, taxpayer's wife voluntarily turned over to a revenue agent the taxpayer's business records, without his knowledge or consent. On the basis of these records, taxpayer was indicted for failure to file returns for 1952 and 1953. Taxpayer moved for suppression of the records and dismissal of the indictment on the grounds that the records were furnished by the wife out of anger and a desire to injure rather than ascertainment of her own tax status. The District Court granted the motions and dismissed the indictment. The Appellate Court assumes jurisdiction of the Government's appeal, finding without merit the taxpayer's argument that the District Court's order of dismissal was not appealable because it was merely incidental to the ruling on the motion to suppress. The court also upholds the right of the Government to retain and use the records furnished by the wife, and reverses the District Court's order of dismissal and of suppression of the evidence.

William N. Hamilton, Assistant United States Attorney, Heard L. Floore, United States Attorney, Fort Worth , Texas , Charles K. Rice, Assistant Attorney General. Joseph M. Howard, Department of Justice, Washington , D. C., for appellant. Lester L. May, Dallas , Texas , for appellee.

Before HUTCHESON, Chief Judge, and TUTTLE and JONES, Circuit Judges.

[Wife's Surrender of Husband's Books]

JONES, Circuit Judge:

The appellee, Bert G. Ashby, had practiced law in Dallas , Texas . His wife was Mabel Ashby whom he married in 1949. After a rather hectic marital career they separated in April of 1954. She sued for divorce. In July of 1954, while the divorce suit was pending, Mrs. Ashby voluntarily turned over to an agent of the Internal Revenue Service of the United States the business records of her husband, without his knowledge or consent. A divorce was subsequently granted. On April 13, 19 56, an indictment was returned by the Federal grand jury of the United States District Court for the Northern District of Texas for failing to make income tax returns for the years 1952 and 1953. 26 U. S. C. A., I. R. C. 1939, §145(a). Ashby moved for the suppression of the records and papers as evidence, for the return of these records and papers to him, and for a dismissal of the indictment. A hearing was had and testimony was offered by both Ashby and the Government. The Government contended that Mrs. Ashby's motive in bringing the records to the Internal Revenue Agents was to ascertain her own tax status. Ashby claimed that her conduct was prompted by a desire to injure him.

At the conclusion of the hearing, the Court made an oral finding that in delivering the books and records, Mrs. Ashby was motivated by anger and a desire to injure, and not to obtain any information about her own liability. The district court entered a formal order finding that as a result of the conduct of Mrs. Ashby the Internal Revenue Service determined that Ashby should have made income tax returns, that the evidence obtained from Mrs. Ashby was illegal and inadmissible and should be suppressed, and the indictment based thereon should be quashed and dismissed. By the court's order Ashby's motion was in all things sustained and the indictment dismissed. From this order the United States has appealed.

[This Court's Jurisdiction]

If we are to consider the question as to the correctness of the order of the district court, there must be a determination that this Court has jurisdiction. The United States asserts jurisdiction under 18 U. S. C. A., §3731 which, so far as here pertinent, provides:

"An appeal may be taken by and on behalf of the United States from the district courts to a court of appeals in all criminal cases in the following instances:

"From a decision or judgment setting aside, or dismissing any indictment or information, or any count thereof except where a direct appeal to the Supreme Court of the United States is provided by this section."

The appellee, Ashby, takes the position that an order upon his motion to suppress is not appealable. He urges that as he made no attack upon the indictment and the dismissal was merely incidental to the ruling on the motion to suppress, the order dismissing was not of the kind within the purview of §3731.

The appellee, in support of his position that the court's order is not appealable, cites and relies upon United States v. Janitz, 3 Cir. 1947, 161 Fed. (2d) 19. Janitz and others, including Conklin, were indicted for violating the Federal liquor laws. Conklin successfully moved for suppression of the evidence seized on his premises and the indictment was dismissed as to him. The case was brought on for trial against the other defendants and they moved for a suppression as to them of the seized evidence. The motion was granted. The district court denied a motion for acquittal but entered an order dismissing the indictment. An appeal by the Government was dismissed for want of jurisdiction. In the Janitz case, however, the trial had commenced and the defendants had been placed in jeopardy. The dismissal of the indictment was the equivalent of an acquittal. In the case before us there was a dismissal of the indictment and under §3731 the order was subject to appeal. Any other conclusion would, as shown by the Court of Appeals of the Fourth Circuit, "forever and irremediably condemn the prosecution's case before trial." United States v. Ponder, 4 Cir. 1956, 238 Fed. (2d) 825, 829.

Having reached the conclusion that an appeal is authorized under 28 U. S. C. A. §3731, we need not consider whether a review might be had under 28 U. S. C. A., §1291. See Cogen v. United States, 278 U. S. 221, 49 S. Ct. 118, 73 L. Ed. 275; United States v. Ponder, supra.

[Wife's Testifying Against Her Husband]

Having determined that the order is one from which an appeal can be taken to this Court, we turn to the question of whether the district court erred in the entry of its order. The motion assigned as grounds for the suppression the disqualification of one spouse to testify against the other existing at common law and under the Texas statutes, a violation of the search and seizure provisions of the Fourth Amendment, and a violation of the self-incrimination provisions of the Fifth Amendment. At the time the records were taken by Mabel Ashby and turned over to the Internal Revenue agents she was Ashby's wife. At the time Ashby sought the suppression and return of the records, he and Mabel Ashby were divorced. A divorce terminates the incompetency of a wife to testify against her husband in a criminal case, except as to confidential matters, even though her knowledge was acquired during the period of the marriage. Curd v. State, Tex. Crim. App. 217 S. W. 1043. But it does not appear that she has testified or will testify against him. He attempted, without success, to procure her testimony for the hearing in the proceeding which we here review. All she did was to make available to the agents records showing or indicating the possibility of a community tax liability of her husband and herself. The records were in no sense a communication between husband and wife and in no sense confidential as between them.

The doctrines announced by the Supreme Court in Burdeau v. McDowell, 256 U. S. 465, 41 S. Ct. 574, 65 L. Ed. 1048, have put at rest the contentions of the appellant. The representatives of a former employer of McDowell purloined documents from his office and office safe and placed them in the hands of the United States Attorney. McDowell petitioned for their suppression and return, stating that it was the intention of the Department of Justice to submit the documents to a grand jury and use them as the basis for an indictment against him. McDowell asserted, as does Ashby, that the use of the instruments would deprive him of rights secured by the Fourth and Fifth Amendments to the United States Constitution. The court upheld the right of the Government to retain and use the papers and, among other things, said:

"The exact question to be decided here is: May the government retain incriminating papers, coming to it in the manner described, with a view to their use in a subsequent investigation by a grand jury, where such papers will be part of the evidence against the accused, and may be used against him upon trial should an indictment be returned?

"We know of no cnstitutional principle which requires the government to surrender the papers under such circumstances. Had it learned that such incriminatory papers, tending to show a violation of Federal law, were in the hands of a person other than the accused, it having had no part in wrongfully obtaining them, we know of no reason why a subpoena might not issue for the production of the papers as evidence. Such production would require no unreasonable search or seizure, nor would it amount to compelling the accused to testify against himself.

"The papers having come into the possession of the government without a violation of petitioner's rights by governmental authority, we see no reason why the fact that individuals, unconnected with the government, may have wrongfully taken them, should prevent them from being held for use in prosecuting an offense where the documents are of an incriminatory character." Burdeau v. McDowell, 256 U. S. 465, 475.

Other authorities might be but need not be cited. It follows that the judgment of the district court is erroneous and it is REVERSED.

 

 

[55-1 USTC ¶9489]I. C. Turner and E. V. Turner, Appellants v. United States of America , Appellee

(CA-4), In the United States Court of Appeals for the Fourth Circuit, No. 6954, 222 F2d 926, May 23, 19 55

Appeals from the United States District Court for the Middle District of North Carolina, at Greensboro.

[1939 Code Sec. 145(b)--similar to 1954 Code Sec. 7201]

Tax evasion: Criminal prosecution: Unauthorized examination: Admissibility and exclusion of evidence: Right to consolidate cases: Jury contacts.--Taxpayers, brothers and partners in a business, were convicted of wilful attempts to evade and defeat a large part of their income tax by filing partnership, information and individual returns in which the income was fraudulently understated in violation of 1939 Code Sec. 145(b). The Appeals Court ruled against them on all of the following assignments of error: (1) That substantially all of the Government's evidence was inadmissible because it was obtained illegally from taxpayers by Government agents under the pretense that only a routine investigation of their tax liability was being made, whereas in fact the agents were seeking leads and evidence on which to base a prosecution for crime, (2) that the trial court improperly consolidated the cases, (3) that certain evidence of the Government was improperly admitted, including that of a qualified expert in tax matters, and (4) that one of the Government attorneys who participated in the prosecution had some personal friendly contacts with one of the jurors.

Arthur O. Cooke and H. F. Seawell, Jr. (C. C. Frazier, Sr.; Frazier & Frazier, and Cooke & Cooke on brief), for appellants. Dickinson Thatcher, Special Assistant to the Attorney General, H. Brian Holland, Assistant Attorney General, Ellis N. Slack, John H. Mitchell, Joseph M. Howard and Kinsey T. James, Special Assistants to the Attorney General, and Edwin M. Stanley, United States Attorney, on brief), for appellee.

Before PARKER, Chief Judge, and SOPER and DOBIE, Circuit Judges.

SOPER, Circuit Judge:

During the years 1946 to 1950, E. V. Turner and I. C. Turner, who were brothers and equal partners, carried on the business of designing, fabricating and erecting outdoor advertising signs at Greensboro , North Carolina , under the name of Turner Sign Company. Their operations extended to North and South Carolina , Georgia , Virginia and the District of Columbia . In 1953 each of the partners was separately indicted for wilful attempts to evade and defeat a large part of his own and his wife's federal income tax for the years 1946 to 1950 inclusive, by filing returns in which the amount of their income was fraudulently understated, in violation of §145(b) of the Internal Revenue Code of 1939. The cases were consolidated and after an extended trial at which 129 witnesses were examined and numerous exhibits were presented to the jury, a verdict of guilty was returned as to each defendant on each of the five counts in his indictment. E. V. Turner was sentenced to two years in a reformatory and ordered to pay one-half of the court costs, and I. C. Turner, as to whom the jury recommended mercy, was sentenced to one year in a reformatory and ordered to pay one-half of the court costs.

The Government's case was based largely on evidence which showed a failure by the partners to record the gross receipts of the business on the partnership books, a failure on their part to report correctly the amount of the gross sales on their partnership information return, and a failure to disclose the correct amount of their taxable income and the taxes due by them in their individual tax returns. Thus, for the year 1946 the partners failed to report sales in the amount of $4,685.84, and claimed as a deduction purchases which were overstated in the sum of $24,285.15; and for the years 1947, 1948, 1949 and 1950 the sales reported in the partnership return fell short by the sums of $44,932.71, $35,075.52, $38,773.47 and $21,896.49 respectively. The additional partnership income and the income tax deficiencies of the partners for these years are shown in the following table:

                                             Income Tax Deficiencies
                    Additional
                     Partnership
Year                      Income       E. V. Turner            
I.
 C. Turner
1946 .......         $ 24,967.87           $ 3,672.43              $ 4,030.09
1947 .......           44,016.01             8,255.94                8,519.29
1948 .......           32,478.01             4,860.40                4,741.58
1949 .......           38,620.41             5,158.50                5,071.14
1950 .......           23,287.62             2,800.50                2,381.26
                     $163,369.92           $24,747.77              $24,743.36


[Evidence Illegally Obtained]

The probative force of the evidence obtained from the taxpayers' records, by which these figures were established, is not challenged. It is conceded in effect that the evidence was sufficient to warrant the submission of the cases to the jury. This appeal is based in large measure on the contention that substantially all of the Government's evidence was inadmissible because it was obtained illegally from the defendants by Government agents under the pretense that only a routine investigation of their tax liability was being made, whereas in fact the agents were seeking evidence on which to base a prosecution for crime.

The salient facts in respect to the investigation are not disputed. It began on July 9, 19 51 when Daniel S. Forbes, a special agent of the Intelligence Division of the Internal Revenue Department, went to the main office of the business and identified himself to the two partners and told them that their partnership and individual tax returns had been assigned to him for examination. Investigation by a special agent may or may not lead to a criminal prosecution, and in this case it was Forbes' duty and doubtless his intention to report any delinquencies which he might find to his superiors. He did not give any information on this point to the partners and on cross examination was unable to say whether or not he had told them that he was making a routine "check-up."

After obtaining general information as to the background of the men, Forbes questioned them as to their books and records and was told that they were kept by H. B. Elliott, their bookkeeper; and Elliott was called in and introduced. He was told the nature of the agent's visits and was directed to produce all books and records of the business for the agent to examine. Elliott produced and showed to the agent the books of the business and the sales invoices for the years 1948, 1949 and 1950, which were kept in his office. The sales invoices for the two previous years were kept in a room upstairs. He then took the agent on a tour of the plant and the agent noticed in the plant office in another building a filing cabinet and was told by Elliott upon inquiry that it contained work orders, that is, rough sketches of signs usually showing in each instance the date, the purchaser and the cost. They were filed in alphabetical order and covered the five tax years involved.

Facilities were provided to enable the agent to work in Elliott's office and Elliott departed leaving the agent alone. The agent studied the books and records for some time and then returned to the plant office where the work orders were kept and secured 35 to 40 of them for the year 1950. He listed and checked them against the accounts receivable on the books and discovered that many orders were not shown on the books. He then listed all of the orders for 1950, checked them against the books and found numerous additional unrecorded jobs or work orders. He also discovered numerous sales invoices which were not shown on the books and records. In some instances the unrecorded sales invoices corresponded with the unrecorded work orders, but there were some unrecorded sales invoices for which there were no work orders and some work orders for which there were no sales invoices.

Two weeks later Elliott produced another set of sales invoices for the years 1948, 1949 and 1950, grouped by months, and explained to the agent that these were the invoices he should be using and that the others were the wrong invoices. The agent found that the new lot of invoices corresponded with the books, but they did not account for any of the unrecorded work orders.

Subsequently Forbes was joined in the investigation by Acting Special Agent Ray V. Williams. He was introduced as such to the partners and they were told that he was there to assist in the investigation. Together the agents listed all the work orders for the entire period and checked them against the books and discovered both unrecorded work orders and unrecorded sale invoices for each year. On one occasion Williams discovered Elliott putting old correspondence in the wastepaper basket and upon examination found that it referred to sales for which no work orders or sales invoices had been found.

During the month of October, 1951, after compiling the information obtained in this way, one or the other of the agents spent three or four weeks in visiting persons who had bought signs from the company so as to ascertain whether the unreported sales had actually been made. At the end of the month the two agents conferred with both partners and presented some of the evidence which they had discovered and told them that a substantial number of unreported sales had been found and asked for an explanation. The partners were told that they need not answer the questions but they were not told that their answers might be used against them in a criminal prosecution. Some items were discussed but the partners did not explain the deficiencies in the records above described. They expressed a desire to cooperate with the agents and permitted them to search their private offices, but no additional information was secured.

[Leads Followed by Agent]

After the conference Williams traveled over 8,000 miles between October 1, 19 51 and February 1, 19 52, in visiting 50 towns in North and South Carolina, and in Virginia and Georgia, and making contact with 160 persons in following up leads from correspondence sales invoices and the work orders in order to ascertain whether the sales had been made. In this way additional sales were found as to which no data had been discovered amongst the papers of the partnership.

Significant evidence of faulty accounting was introduced with respect to specific years. For 1947 the record showed 168 entries of transactions in a certain book of which a large number were omitted from the partnership return. For 1948 the partnership return listed as a deductible expense two items for a heating plant installed in the home of the father of the partners. In 1949 the partners accepted certain electrical household appliances in exchange for signs and, except for small sums of cash used in the transactions, made no record of them on the books of the business; and in the same year a check for $4985.50 was received in payment for a sign but at no time was the amount recorded or reported as a sale. During 1950 the partnership traded signs for automobile passenger cars but the entries were not completely recorded. In 1950 a check for $3400 was received for the installation of a sign, but the check was exchanged for a cashier's check which was delivered to a motor company for an automobile which was listed in the name of Helen C. Turner. The sale was not recorded upon the books or reported in the partnership tax return.

The defendants objected to the admission of the evidence secured from the books of the business and moved to suppress it on the ground that their consent to the examination was fraudulently obtained under the pretext of a routine investigation for civil purposes when, in fact, a criminal prosecution was contemplated. It is said that from the beginning Agent Forbes had a criminal prosecution in mind and by concealing this fact, the Government obtained the information by a false pretense. Appeal is made to the prohibition of the Fourth Amendment against unreasonable searches and seizures and the prohibition of the Fifth Amendment against compelling a defendant in a criminal case to be a witness against himself.

[Constitutionality Questioned]

The contention seems to be that revenue agents who secure the consent of a taxpayer to an examination of his books with intent to obtain evidence and use it in a criminal prosecution, are guilty of deceit unless they divulge their purpose, and that the obtaining of information in such a manner violates the Fourth Amendment and its introduction in evidence violates the Fifth Amendment; and even if the examination is begun solely to ascertain the civil liability of the taxpayer and evidence of crime is unearthed, the taxpayer must be warned and given an opportunity to withdraw his consent, or all information subsequently obtained is inadmissible in a criminal prosecution.

See Redlich, Searches, Seizures and Self Incrimination, 10 Tax Law Review 191. (January, 1955). United States v. Guerrina, D. C. E. D. Pa., 112 Fed. Supp. 126 [53-1 USTC ¶9369], 126 Fed. Supp. 609 [55-1 USTC ¶9143].

In our view the facts in the pending case and the applicable rule of law do not justify the appellants' position. The agents made no investigation to which the defendants did not consent. The bookkeeper was ordered by the defendants to show the books and records of the business to the agent; he told the agent in answer to an inquiry that the contents of the filing cabinet in the plant office consisted of work orders, and he then left the agent in possession of the material in the bookkeeper's office. Certainly the bounds of the defendants' consent were not exceeded when the agent took the work orders from the filing cabinet in the other building and examined them. They were in fact the only records of certain transactions which had been retained, and they were subsequently examined at great length by both agents in the bookkeeper's office without any objection on the part of the defendants. They themselves took the stand in their own behalf and made no complaint that they had been surprised or deceived by the agent, and one of them testified that they had never refused to cooperate with the agent with respect to any of the records in the office of the company but had given them access to the whole place.

At no time did the agents bring pressure to bear upon the defendants or conceal their indentity or practice any deceit. The evidence is silent as to whether agent Forbes began the investigation as a routine examination to ascertain the civil liability of the defendants or intended from the beginning to search for evidence of crime. But even if the latter assumption be made, there was no violation of the taxpayer's constitutional rights. The relevant inquiry is always whether the taxpayer freely gave his consent, and as to that there is no dispute in this instance.

It has been expressly held time and again in tax evasion and other criminal cases that it is not essential to the admissibility of statements secured by officers of the law from a defendant that he should be first warned that the information might be used against him in a criminal case, provided that it was voluntarily and understandingly given. United States v. Burdick, 3 Cir., 214 Fed. (2d) 768, 773 [54-2 USTC ¶9475]; Montgomery v. United States, 5 Cir., 203 Fed. (2d) 887, 892 [53-1 USTC ¶9336]; Lisansky v. United States, 4 Cir., 31 Fed. (2d) 846, 851 [1929 CCH D-9277]; Hanson v. United States , 8 Cir., 186 Fed. (2d) 61, 64 [51-1 USTC ¶9118]; Powers v. United States, 223 U. S. 303; Wilson v. United States, 162 U. S. 613. We are in accord with the comment of the court in United States v. Wolrich, D. C. S. D. N. Y., 119 Fed. Supp. 538 [54-1 USTC ¶9276], where a similar situation was presented. The court said: (p. 540)

"On the issue of fraud, defendant relies heavily on cases in which law enforcement officials gained entry by masquerading as private citizens. See Gouled v. United States , 255 U. S. 298, 41 S. Ct. 261, 65 L. Ed. 647; Fraternal Order of Eagles v. United States , 3 Cir., 57 Fed. (2d) 93; United States v. Mitchneck, D. C. M. D. Pa., 2 Fed. Supp. 225. Here, the revenue agent made no attempt to hide his official identity or the official purpose of his business. Surely defendant was aware that if a 'routine audit' revealed evidence of criminal liability, the agent would not ignore it merely because he was primarily concerned with civil liability. Defendant was apprised of the fact that his books were sought for investigation by an official of the Internal Revenue Bureau. On that understanding, he authorized his accountant to make his books available. I cannot accept defendant's reasoning or that of the court in United States v. Guerrina, D. C. E. D. Pa., 112 Fed. Supp. 129 [53-1 USTC ¶9369]. A statement that the purpose of an investigation is a 'routine audit' is not the equivalent of a promise that only civil liability will be considered regardless of what the examination reveals. Nor would any accountant or businessman so understand it."

[Cases Properly Consolidated]

There was no error in consolidating the two cases for trial over the objection of the defendants. It was stipulated by counsel that the defendants were equal partners and owners of the business. The evidence as to additional unrecorded and unreported partnership income applied to both of them, and the amount was divided equally between them in order to arrive at their individual tax deficiencies. Questions of consolidation are within the sound discretion of the court, and in this case it was exercised wisely. Gaudio v. United States , 4 Cir., 179 Fed. (2d) 300; Dowdy v. United States , 4 Cir., 46 Fed. (2d) 417, 421; Tincher v. United States , 4 Cir., 11 Fed. (2d) 18, 21. One might almost say that it would have been an abuse of discretion to require separate trials as to the two defendants since it would have required unnecessary repetition of substantially the same evidence. See Federal Rules of Criminal Procedure, 8, 13.

The defendants raise other questions of evidence. They complain of the action of the trial judge in admitting evidence that they failed, during some of the years between 1946 and 1950, to file intangible tax returns under the law of North Carolina. They objected when the evidence was offered and the court ruled that it should be received, but was relevant only on the question of intent. On cross examination it was brought out that the witness had no knowledge as to whether the defendants were required to file the returns under the state law. No further attention was paid to the point during the subsequent days of the trial. The Government's attorney did not press the matter any further and the attorneys for the defendants did not move to strike the evidence from the record or request any special instruction as to its effect, and none was given. Obviously the incident was insignificant and it cannot be said that the jury was prejudiced against the defendants by the knowledge that they did not file certain tax returns under the state law, when there was nothing to show that the statute required the returns to be made.

[Other Objections to Admissibility]

During the trial the judge admitted in evidence the testimony of Merrill Wyatt, Group Supervisor in the Intelligence Division in Greensboro . He was shown to be a qualified expert in tax matters. He prepared a computation of the tax liability of the defendants for each of the years in question, based on the testimony of Government witnesses and Government exhibits. The computation was offered in the form of schedules for each of the tax years showing the additional income of the partnership to be accounted for and the additional taxes due by each partner. It is contended that the ruling was wrong because the evidence was offered in such a manner as to lead the jury to conclude that they were required to accept as true the evidence on which the computation was based instead of allowing the jury to find the facts for themselves.

The record does not support the contention. On the contrary the court warned the jury before the computation was submitted to them that the calculations were based on evidence that had been previously adduced and that if the jury did not believe the evidence and did not find that the income indicated had been realized by the defendants, then the computations would have no relevancy. Again in the charge to the jury the court pointed out that the computation was based in part on the evidence of sales admitted to have been made by the defendants, in part of the testimony of a number of witnesses from various parts of the country who testified that they had bought signs from the company, and in part on the admission by the defendants that if certain additional witnesses were present they would testify that they had paid various sums to the defendants for signs which they bought. After enumerating these three sources of proof the Judge told the jury in effect that the experts' calculations were admitted on the assumption that the jury should find that the assumed facts were actually true, otherwise they would have to dismiss such of the calculations for which there was no supporting evidence. The defendants contend that the jury could have been misled by the use of the word "admission" in referring to the testimony of witnesses not produced in court; but the jury was [not] told that the facts were admitted to be true but only that the witnesses if present would so testify. The preparation and submission to the jury of such summaries as were made in this instance by the witness Wyatt is well nigh indispensable to the understanding of a long and complicated set of facts, and the practice has the sanction of the courts. United States v. Johnson, 319 U. S. 503, 519 [43-1 USTC ¶9470]; Beaty v. United States, 4 Cir., 213 Fed. (2d) 712, 719-721 [54-2 USTC ¶9466]; United States v. Gaserta, 3 Cir., 199 Fed. (2d) 905, 908.

The appellants complain that the court erroneously excluded evidence which would have shown that the Government had collected a part of the taxes claimed to be due by the defendants. The witness Wyatt was asked on cross examination whether the Government had not sold all the lands and all of the personal property of the partners and collected approximately $50,000 in taxes. On objection of the Government the evidence was excluded for the reasons stated in the following pronouncement of the District Judge: "It is not material whether the Government has succeeded in getting all the taxes or part of it. The question is whether or not the defendants in filing a return filed a false and fraudulent return. It is not necessary that the defendant should succeed in his efforts to defraud the Government out of taxes. It is not material whether the Government ultimately collects it or not, the question is whether the defendant in filing his return filed one that he knew to be false when he did it, and did it with the intent to evade the payment or attempt to evade the payment of his taxes in that year, and so if an offense is committed it is committed when that happened, when he filed his return." This ruling was correct. It is true that events subsequent to the filing of tax returns charged to be fraudulent may be relevant if the evidence in regard thereto throws any light upon the intent with which the returns were filed; Berkovitz v. United States, 5 Cir., 213 Fed. (2d) 468 [54-1 USTC ¶9425]; United States v. Matot, 2 Cir., 146 Fed. (2d) 197; Heindel v. United States , 6 Cir., 150 Fed. (2d) 493 [45-2 USTC ¶9372]; but in this instance there is nothing to show that the forced collection of the taxes by the Government after the discovery of the crime throws any light upon the intent of the defendants when they filed their returns.

[Jury Contacts]

Finally it is urged that the District Judge erred in refusing defendants' motion for a new trial. The motion was based on evidence of certain contacts between Assistant United States Attorney E. L. Gavin, Jr., who participated in the prosecution, and Lonnie Buchanan, one of the jurors in the case. Buchanan had served as a juror during the criminal term of court in June and was called back in October of the same year as a member of the panel from which the jury in the pending case was chosen. Both of the men lived in Sanford , which is 58 miles from Greensboro where the court was held. Buchanan, an elderly man, had delivered ice to Gavin's family when Gavin was a child, and Gavin had gone to school with Buchanan's daughter. During the June Term Gavin gave Buchanan a ride in his car on one or two occasions in going to or from court. Just before the Turner trial began Buchanan's daughter-in-law requested Gavin to take Buchanan to court on the opening day and Gavin did so. During the ride Buchanan asked what sort of cases were going to be tried and Gavin replied "income tax and other cases." During the selection of the jury Buchanan was called to the jury box and asked the judge to excuse him because he was 72 years of age, had served in June and had a sick brother. Gavin thereupon in open court joined in the request, but the judge refused, and Buchanan was sworn as a member of the jury. In the afternoon of the same day Buchanan asked Gavin to drive him home but Gavin replied that he was not going home. This conversation was reported to the court by Gavin who asked the judge to instruct the jury not to talk to anybody about the case and the judge gave the instruction. Gavin had come to court prepared to stay in Greensboro during the trial and did not go home during the trial except for one night for a change of clothing. There was no further conversation or contact between the men during the trial.

It is urged that a new trial should have been granted because these friendly contacts between the juror and the prosecutor, unknown to the defendants' attorneys, were of such a character as to prejudice the juror in favor of the prosecution and deprive the defendants of a fair trial by twelve impartial jurors. We do not agree. The incidents complained of sprang naturally from the casual and friendly relationship between the two men which had existed for many years. The relationship between them could have been readily ascertained by the defendants' attorneys if they had seen fit to question the juror before he was sworn; and if they remained ignorant of the fact they had only themselves to blame. Doubtless the prosecuting attorney would have been wiser and more discreet, if out of abundance of caution he had refrained from any kindness or manifestation of friendship towards a member of the jury; * but the whole matter was carefully gone into at a hearing before the experienced judge who tried the case, and he came to the conclusion that there was no evidence of misconduct or impropriety which in any way affected the decision of the case. The facts were far different in the contrary decisions on which the defendants rely. See Remmer v. United States, 347 U. S. 227 [54-1 USTC ¶9274]; United States v. Rakes, E. D. Va., 74 Fed. Supp. 645. It would have been a miscarriage of justice to grant a new trial in the pending case in which the evidence disclosed no reasonable doubt as to the defendants' guilt.

Affirmed.

* In Remmer v. United States, 347 U. S. 227, 229 [54-1 USTC ¶9274], the court said: "In a criminal case, any private communication, contact, or tampering, directly or indirectly, with a juror during a trial about the matter pending before the jury is, for obvious reasons, deemed presumptively prejudicial, if not made in pursuance of known rules of the court and the instructions and directions of the court made during the trial, with full knowledge of the parties. The presumption is not conclusive, but the burden rests heavily upon the Government to establish, after notice to and hearing of the defendant, that such contact with the juror was harmless to the defendant. Mattox v. United States , 146 U. S. 140, 148-150; Wheaton v. United States , 133 Fed. (2d) 522, 527."

 

[53-2 USTC ¶9549]Austin F. McFee, Appellant v. United States of America , Appellee.

(CA-9), In the United States Court of Appeals for the Ninth Circuit., No. 13,482., 206 F2d 872, 08/24/53

Appeal from the United States District Court for the District of Idaho, Northern Division.

Penalties: Trial: Continuance.--Taxpayer was convicted for wilful attempts to evade income taxes. On appeal he urged that the trial court erred in denying him a continuance. Since he was represented by a firm of certified accountants and by counsel for some months prior to indictment, no prejudice resulted to him from the denial of a continuance.

Penalties: Trial: Sufficiency of evidence.--Taxpayer asserted that the Government failed to establish a firm starting point for its determination of his net worth and did not establish the exact source of the unreported income. The Court of Appeals pointed out that the establishment of his net worth as of the beginning of 1945 was thorough. The Government had examined his records and books, bank accounts, court and county records to determine if there were any possible sources of funds. The proof of the exact amount or precise source of unreported income is not required.

Privileged communications: Attorney and client relationship.--Two lawyers who had on different occasions represented taxpayer testified, under objection, that taxpayer had given them cash with which to purchase cashier's checks. The Court of Appeals saw no confidential relationship of an attorney and client in such transactions.

Penalties: Trial: Failure of court to give requested instructions.--Taxpayer assigned as error the failure of the trial court to give a requested instruction on circumstantial evidence. The Court of Appeals found that the instructions given by the court on circumstantial evidence stated the law with much more clarity than did the proffered instruction which was rejected.

Penalties: Trial: Comment of court.--Taxpayer assigned as error certain statements of the trial court. The Court of Appeals felt that, viewing the instructions of the court as a whole, the jury was clearly informed that it was free to perform its fact-finding functions.

Penalties: Trial: Admissibility of evidence: Admissions.--Error was claimed in the admission of the testimony of revenue agents as to statements made to them by taxpayer. The Court of Appeals found that independent evidence not only substantially corroborated the admissions but established the corpus delicti.

Harold S. Purdy, Coeur d'Alene, Ida., J.F. Emigh, Butte, Mont., Elden McFarland, Washington, D.C., James P. Keane, Wallace, Ida., for appellant. H. Brian Holland, Assistant Attorney General, Ellis N. Slack, Meyer Rothwacks, John Lockley, Special Assistants to the Attorney General, Washington, D.C., John A. Carver, United States Attorney, Boise, Ida., Dudley L. Wilson, Special Assistant to United States Attorney, Spokane, Wash., W.W. Patten, Special Assistant to United States Attorney, Seattle, Wash., John Lockley, Attorney, Department of Justice, Washington, D.C., for appellee.

Before: MATHEWS, HEALY and ORR, Circuit Judges.

ORR, Circuit Judge:

Appellant was tried and convicted by a jury on two counts of an indictment for wilful attempts to defeat and evade income taxes due and owing by him for the years 1945 and 1946 in violation of §145(b) of the Internal Revenue Code, 26 U.S.C.A. §145(b). He was sentenced to imprisonment for one year and six months and a fine of $7,500 on each count, the terms of imprisonment to run concurrently; the imprisonment on count two to be suspended and appellant placed on probation for two years commencing after service of sentence on count one on the condition that appellant pay the amounts due the government on income tax.

The judgment is challenged upon numerous grounds and we consider each contention in the order set forth in appellant's brief. The pertinent facts are set out in our consideration of each assignment of error.

[Continuance Denied]

 

I. Denial of Continuance. Appellant urges that the trial court erred in denying him a continuance. The indictment was returned November 8, 19 51. Appellant was arrested November 17, 19 51. He was arraigned April 1, 19 52 and on that date the case was set for trial for April 22, 19 52. On April 1, 19 52 appellant asked for a bill of particulars. The bill of particulars was furnished April 2, 19 52. Appellant asserts that it was not until then that he and his attorneys were advised that the Government had adopted the expenditure method of computing his income and tax. On April 4th he moved for a continuance and supported his motion with affidavits made by each of his two attorneys wherein they detailed certain investigations which they desired to make and to cause to be made in preparation for trial, which investigations, they averred, could not be accomplished within the time remaining before trial. "It is elementary that a matter of continuance rests in the sound discretion of the trial court, and its action in that respect is not ordinarily reviewable. It would take an extreme case to make the action of the trial court in such a case a denial of due process of law." Franklin v. State of South Carolina , 218 U.S. 161, 168.

This is by no means an extreme case. The affidavits filed by counsel in support of the motion present no facts from which a reasonable inference could have been drawn that substantial evidence supporting a defense would have been discovered. The showing, at most, was a request for time in which to make a search for new evidence. For some months prior to indictment appellant was represented by a firm of certified public accountants and by counsel. Surely, if a reasonable probability existed that a continuance would have enabled appellant to procure evidence not then known to him, a better showing would be expected in view of the expert assistance he had at hand and because of their presumed familiarity with his affairs. We see no prejudice resulting to appellant from the denial of a continuance. As a matter of fact the trial court exercised its discretion wisely by furthering an expeditious trial of the case. Such action is to be encouraged where, as here, the rights of a defendant are not jeopardized.

[Evidence Was Substantial]

 

II. Sufficiency of the Evidence. In determining appellant's income the Government used both the expenditure and net worth methods. The two computations are merely accounting variations of the same basic method, the expenditure theory being an outgrowth of the net worth method. U.S. v. Caserta , 3 Cir. 1952, 199 Fed. (2d) 905 [52-2 USTC ¶9540]. Both involve a determination of the taxpayer's net worth at the beginning and end of a period in order to foreclose the possibility that the expenditures were made or the net worth increases were derived from prior accumulated funds. The underlying theory of the expenditure method is that if expenditures exceed reported income for the period and net worth has remained constant or changes otherwise accounted for, an inference may be drawn that total income was not properly reported. The theory of the net worth method is that if a taxpayer's net worth at the end of a particular period is greater than his net worth at the beginning of the period, and such increment is not attributed to gifts, devises, loans, or other non-income sources, the conclusion may be drawn that the increase in net worth represents income to the taxpayer. The net worth and expenditure computations of the Government both tended to show that appellant had failed to report taxable income of $79,911.23 in 1945 and $70,769.76 in 1946.

Appellant does not deny that his expenditures for the two years in question greatly exceeded his reported gross incomes. He asserts, however, that the Government's case must fall because it failed to establish a firm starting point for its determination of his net worth. He challenges the accuracy of the prosecution's computations first on the ground that the Government failed to exclude the hypothesis of funds other than income from which the substantial expenditures could have been made, and second, on the ground that certain known assets were omitted from the net worth statements.

Appellant contends, and we agree, that in a net worth case the Government must establish with a reasonable degree of accuracy the taxpayer's net worth at the beginning and end of the period in question. We think this requirement was fully and adequately met in this case. There is no exclusive set of circumstances to foreclose the prior accumulation hypothesis. How much evidence must be offered by the prosecution before the trial court can properly submit the case to the jury depends upon the facts of the particular case. Remmer v. United States , 9 Cir., May 28, 19 53, 205 Fed. (2d) 277 [53-1 USTC ¶9421]. The Government is not required to refute all possible speculations as to the sources of funds from which the expenditures might have been made. Gariepy v. United States , 6 Cir. 1951, 189 Fed. (2d) 459 [51-1 USTC ¶9318]. We view the evidence in the light most favorable to the Government and affirm if the evidence is sufficient to justify the jury in finding therefrom, beyond a reasonable doubt, that there has been a wilful attempt to evade taxes. Gendelman v. United States , 9 Cir. 1951, 191 Fed. (2d) 993 [51-2 USTC ¶9474].

In the instant case the establishment of appellant's net worth as of the beginning of the year 1945 was thorough and in detail. The revenue agents began their inquiry with the year 1935 and traced appellant's financial history through 1946. There was evidence that in 1934 and 1935 appellant moved from a $1.50 a day hotel room to the back room of a cinderblock building where he cooked his own meals to save expenses, that he was employed in a meat market at $50 to $60 a week, that he began the operation of North Idaho Sales Company about 1936 in partnership with his daughter with a maximum capital investment of $2,000, that the bank account was not always sufficient to cover a $12 a week check paid to an employee, that he filed no income tax returns in Idaho prior to 1936. From these facts the jury was entitled to infer that appellant was not in the possession of substantial assets as of the year 1935. The Government produced appellant's income tax returns and established the amount of income reported for the years 1936 to 1945 to negative the likelihood of his having accumulated a large surplus in those years. The agents examined appellant's records and books, bank accounts, court and county records to determine if there were any other possible sources of funds. He was given credit for all known borrowings and such amounts were eliminated from the income computations. The investigation was as full and complete as the Government could be reasonably required to make.

This evidence is substantial. The net worth computation was necessarily an estimate but, as such, was competent for the consideration of the jury. The Government's case is not destroyed by argumentative speculation, unsupported by evidence, that he might have had other substantial assets not taken into account by the Government. Appellant's voluntary admissions to the revenue agents that he had received no inheritances, that he had no other source of income than the known assets, and that $50,000 was all he had on hand as of January 1, 19 42, serve only to corroborate the accuracy of the net worth statements.

[Exact Source of Unreported Income]

 

Another argument of appellant in which we find no substance is that there was fatal variance because the Government did not establish the exact source of the unreported income. The law is clear that proof of the exact amount or precise source of unreported income is not required. Jelaza v. United States , 4 Cir. 1950, 179 Fed. (2d) 202 [50-1 USTC ¶9149]; Gariepy v. United States, 6 Cir. 1951, 189 Fed. (2d) 459 [51-1 USTC ¶9318]. The jury was entitled to infer from the evidence that the unreported income came from one or all of the sources specified in the bill of particulars.

Appellant further attempts to attack the accuracy of the net worth statements by showing that certain known assets were omitted. There was testimony that the revenue agents were advised that appellant in 1943 personally had on hand approximately $114,000 in cash which he spent for liquor and which was not recorded on his business books. Substantial evidence appearing in the record justifies the inference that no such asset existed. The revenue agent testified that he did not give appellant credit for this item because it represented numerous purchases of whiskey and not a single transaction. Any whiskey on hand in 1945 was included in the net worth statement as inventory. He further testified that appellant informed him that this item would be accounted for on the Foresters Club books and that it related to whiskey inventory turnover. The contradictory and highly questionable testimony of R.E. McDonnell was the only affirmative evidence concerning this transaction. At one point during his testimony the trial court found it necessary to caution the witness against testifying falsely. The jury no doubt disbelieved McDonnell.

Two other items allegedly improperly omitted need no extended treatment since, even if we were to assume that appellant's contention is correct, the total amount involved could not affect the result. The challenged items amount to approximately $23,000 whereas the Government computations disclose a failure to report approximately $80,000 in 1945 and $70,000 in 1946. The Government is not required to prove the defendant's guilt to a mathematical certainty. Schuermann v. United States , 8 Cir. 1949, 174 Fed. (2d) 397 [49-1 USTC ¶9281].

Appellant also claims that the two net worth statements were highly prejudicial to him because they both contain entries showing that he paid no income tax in 1945 or 1946 when in fact he did pay taxes for these two years. It is true that appellant overpaid his income taxes in 1944 and received a credit of $25,879.94 which was applied to his 1945 and 1946 taxes. The record does not disclose the year in which he received the income tax credit. Appellant concedes, however, that the treatment given this item by Government accounts had no affect [sic] whatever on the net worth computation. His complaint is that it was prejudicial to send to the jury statements which showed that he had paid no federal income tax during the two years in issue. We find no merit in this contention. It is clear that the jury had before it abundant evidence that appellant had paid taxes in these years. Appellant himself introduced a letter from the Treasury Department crediting him with the overpayment of his taxes. His income tax returns were in evidence and there was testimony by a revenue agent that appellant had applied the tax refund to his 1945 and 1946 taxes.

III. Confidential Communications. Two lawyers, Messrs. Keane and Stern, who had on different occasions represented appellant, were called as witnesses by the Government and requested to testify. They made objection on the ground that the matters concerning which they were questioned were privileged because at that time the relationship of attorney and client existed between them and appellant. Their objections were overruled and answers were then given. Lawyer Keane testified to the effect that he had obtained $12,500 in currency from appellant on January 28, 19 46, with instructions to purchase a cashier's check; that he had his secretary do so, and that another $3,000 check was handled the same way. On March 21, 19 46, he received another $9,000, mostly in currency, of which he paid $7,500 for a cashier's check and gave $1,500 to Stern. He also testified about a $5,500 note receivable and a $4,700 check payable to McDonald, for which appellant advanced funds.

Lawyer Stern testified to the effect that he deposited $12,500 in the Dakota National Bank at Fargo , North Dakota , which was used partially to make payments to the District Court of the United States . He testified that he cashed a $3,000 check and gave the funds to appellant.

The Government's purpose in eliciting the evidence from the lawyers was to show as a part of the expenditures that the sum of $16,500 was used by appellant in payment of fines in 1946.

We see no confidential relationship between attorney and client in the above transaction. The attorneys acted in the capacity of a transmitter, not as lawyers giving legal advice. The lawyers stand in the same relation as would a banker had one been commissioned by appellant to carry out what appears to be no more than clerical and messenger service. Pollock v. United States , 5 Cir. 1953, 202 Fed. (2d) 281 [53-1 USTC ¶9229]; cf. United States v. De Vasto, 2 Cir. 1931, 52 Fed. (2d) 26.

[Requested Instructions Not Given]

 

IV. Failure of Court to give requested instructions on circumstantial evidence. Appellant assigns as error the failure of the Court to give a requested instruction on circumstantial evidence.

Appellant makes a statement on page 21 of his brief that he excepted to the instructions given by the Court on circumstantial evidence. After setting out the instructions given by the Court it is stated:

"Counsel for defendant excepted to the above instructions as follows:

"Mr. Emigh. We would like an exception to the failure of the Court to give the requested instruction that not only must the evidence prove guilt but that it must prove the hypothesis of guilt to the exclusion of all other hypothesis.

"The Court. You may have your exception."

It is apparent that the exception was directed to a requested instruction not given by the Court and not to the instructions given. The instructions given by the Court on circumstantial evidence, to which no exception was taken, states the law with much more clarity and force than does the alleged proffered instruction which the Court rejected. The jury was adequately instructed on this point.

V. Comment of the Court. During the course of its instructions to the jury the Court stated:

"You are instructed that if you find substantial evidence outside of the defendant's own statements consisting of increase of net worth during the taxable years or any absence of personal records or books of account or the failure of books and records to show fully its transactions or those of the defendant then this body of testimony derives support from the defendant's failure to offset or explain the discrepancy through whatever means he might do so.

"I don't want to comment on the evidence but there is one outstanding matter that you are left in the dark about, I don't intend to make any inference about it, as the evidence here is solely for you. But where are the tickets that should show the receipts and division of the money taken from the slot machines for the years 1945 and 1946. There was only one of these books of tickets introduced in evidence by the defense. None of the witnesses, bookkeeper, manager or other witnesses for the defense produced these tickets and all said they had no knowledge of these tickets. The tickets were traced to the possession of defendant McFee. It seems to the Court that if the tickets balanced with the bank account that it would have been an easy matter for the defense to produce the tickets if they have not been destroyed. Why were they not produced to show the receipts of the slot machines for these years?"

Appellant objected to the statements of the Court concerning the "tickets" and has assigned it as error.

The Court further charged the jury as follows:

"Ladies and Gentlemen of the Jury; when I instructed you I made some comment concerning the failure of the defendant to produce these sales slips or tickets, check on the slot machines, or receipts from the slot machines. You understand that you are not to draw any inference from the Court's remarks, these are questions of fact for the jury, and you are not to be influenced by any remarks by the Court as to what the Court thinks about the testimony."

And the Court gave the further cautionary instruction:

"If the Court has inferred, or if you should have gathered during the trial of the case that the Court has some opinion as to the facts in this case you will disregard that entirely. The matter of the guilt or innocence of the defendant as based on the facts presented to you here is a matter for your determination and yours alone and the Court has not intended to infer at any time that he had any feeling on the matter."

Other instructions were given where the function of the jury to pass upon the facts of the case was stressed.

Viewing the instructions of the Court as a whole, the statements complained of were not beyond the bounds of judicial propriety. United States v. Aaron, 2 Cir. 1951, 190 Fed. (2d) 144, cert. denied, sub nomine Freidus v. United States, 342 U.S. 827; Todorow v. United States, 9 Cir. 1949, 173 Fed. (2d) 439, cert. denied, 337 U.S. 925; Simon v. United States, 4 Cir. 1941, 123 Fed. (2d) 80, cert. denied 314 U.S. 694. It is obvious that the jury was clearly informed that it was left free to perform its fact-finding functions.

[Admissions to Revenue Agents]

 

VI. Admissibility of evidence of admissions. Error is claimed in the admission of the testimony of agents of the Bureau of Internal Revenue as to statements made to them by appellant. This testimony, asserts appellant, was inadmissible because there is in the record no substantial independent proof of the corpus delicti. A reading of the record convinces us that not only does the independent evidence substantially corroborate the admissions, (which in this circuit is sufficient, Davena v. United States, 9 Cir. 1952, 198 Fed. (2d) 230 [52-2 USTC ¶9392]) but, contrary to appellant's contention, goes further and establishes the corpus delicti by competent independent evidence.

Judgment affirmed.

 

 

[61-1 USTC ¶9327]Charles A. Watkins, d/b/a C. A. Watkins Company, Defendant, Appellant v. United States of America, Plaintiff, Appellee

(CA-1), U. S. Court of Appeals, 1st Circuit, No. 5671, 287 F2d 932, 3/28/61, Rev'g and rem'g unreported District Court decision

[1954 Code Sec. 7201 and 1939 Code Sec. 145(b)]

Criminal procedure: Wilful evasion: Evidence: Instructions.--Prejudicial error was found in the trial court proceedings as follows: (1) the District Court was unduly restrictive in ruling as immaterial evidence of the defendant-taxpayer as to the extent of his business with a particular customer and the extent of his business with his supplier where the offer of evidence tended to lessen the probability that defendant-taxpayer intentionally omitted income or knowingly used incorrect memoranda to prepare his returns; (2) the admission into evidence of a summary of travel expenses was prejudicial; and (3) the District Court misstated the law, regarding prepayments for goods to be delivered in the future, in ruling upon the admission of evidence and in its charge.

Robert A. Raulerson, Manchester , N. H. (McLane, Carleton, Graf, Greene & Brown, Manchester , N. H., on brief), for defendant-appellant. Alexander J. Kalinski, Assistant United States Attorney, Concord, N. H. (Maurice P. Bois, United States Attorney, Manchester, N. H., on brief), for plaintiff-appellee.

Before HARTIGAN and ALDRICH, Circuit Judges.

Opinion of the Court

HARTIGAN, Circuit Judge:

Defendant-appellant, Charles A. Watkins, was found guilty on three counts of an indictment charging him with wilfully and knowingly attempting to evade and defeat a large part of the income tax due and owing by him and his wife to the United States of America by filing false and fraudulent joint returns. 1 The district court entered judgment on January 5, 19 60 and imposed a fine of $7,000 on Count I, a fine of $6,000 plus costs on Count II and a term of imprisonment of three months on Count III.

Defendant is an independent distributor of industrial rubber goods. During part of the three year period he maintained an inventory of his own but by the end of 1954 he had completely disposed of it. In general, he would obtain an order for goods from a customer and, in turn, order them from his supplier to be shipped directly to defendant's customer. After receipt of an invoice from his supplier, defendant would bill his customer. The customer generally would deduct a cash discount, if applicable, and also freight, and remit the balance to the defendant. Defendant testified that he was not always able to pair off the receipts with the bills, since one receipt might cover a number of bills. He also testified that in keeping his records he would ordinarily record a receipt of payment from a customer in three places, if he followed his system, i.e., (1) in the ledger of the particular customer's account, (2) on his bank deposit slip and (3) in a memorandum list of sales receipts. The total receipts recorded on his income tax returns coincided approximately with the total of the checks in the memorandum list for each year, however, there were twenty alleged omissions from this memorandum list, which was used by defendant in making out the returns. These checks were all entered somewhere in his records, but did not appear in the memorandum list. Defendant conceded that eighteen of these items had been omitted from the returns but contended their omission was not wilful.

Defendant contends that the district court erred prejudicially, inter alia, (1) by restricting him in the scope of his presentation of evidence tending to show lack of willfullness, (2) by failing to strike certain schedules and summaries which were inaccurate, misleading and prejudicial, and (3) by restricting the defense in regard to evidence that a prepaid item was not taxable income and erroneously charging the jury in regard to this item.

After examining the record in regard to the first contention, i.e., that the defendant was prejudicially restricted in his presentation of evidence tending to show that the omission of the sales receipts from his income tax returns was not wilful, we believe that the district court was unduly restrictive. The trial judge allowed the government to put in evidence (1) of unreported receipts from prior years, (2) of double deductions, and overstated deductions taken by the defendant on his returns both for the years within the indictment and for prior years; (3) of computations which in a government expert's opinion must have been made by defendant to make the book entries he did in regard to certain unreported items; and (4) of stock purchases and other large expenditures made when defendant's income tax returns indicated limited amounts of net income and limited amounts of cash available for such expenditures. The district court ruled as immaterial defendant's evidence of (1) the extent of defendant's business with Harold Haines, from whom had come about six of the omitted sales receipts; (2) the testimony of George P. Fleming concerning defendant's manner, method and extent of business with Quaker Rubber Corp., defendant's principal supplier.

We believe that these offers of evidence were relevant to defendant's contentions that his omission of sales receipts was not wilful. See 1 Wigmore, §§ 34-36 (3d ed. 1940). Each of these offers tended to lessen the probability that defendant intentionally omitted these receipts from his income tax returns, or knowingly used an incomplete memorandum list in the preparation of his returns and also tended to strengthen the probability that defendant, allegedly an imprecise bookkeeper, had unintentionally omitted these sales receipts from his returns. Particularly in view of the wide scope given the government we believe that defendant was prejudiced in the exclusions of these items of evidence.

Defendant also contends that the district court erred by allowing the admission into evidence of a summary (Ex. 49) comparing the amounts listed by defendant in his tax returns as deductible travel expenses with the amounts recorded by defendant in a memorandum book. The testimony of defendant was that the memo book was a record of his cash payments in regard to travel expenses. He testified that there were also some checks which related to the amounts claimed in the returns and which were not included in the memorandum book. The special agent, a witness for the government, testified that he had not gone through the checks which might have been taken on the returns under traveling, etc. because the total amount of such checks was not sufficient. We believe that, in view of this testimony, the summary which listed the various expense items shown in the returns, totalled the figures in the notebook and labelled the difference "overstated" was a prejudicial exhibit and should have been stricken. There may have been a gap between the amount able to be supstantiated by either memoranda of cash expenditures or checks but a summary exhibit which misleadingly magnifies that gap is certainly prejudicial. 2

Defendant also claims error in the admission of (1) a summary of defendant's income data over a six year span as reflected by his income tax returns, and (2) a summary of "total cash available per returns" for the same six year period. The picture as portrayed by either of these summaries compared with the evidence of substantial expenditures during that same period is relevant as tending to show that the defendant was put on notice that there was a discrepancy, and that he should have made investigation of the figures used in making his returns. Of course, there might have been other explanations for not having noticed the discrepancy, e.g., that the various expenditures originated from funds already available to defendant. This does not, however, make the exhibits irrelevant. See Wigmore §32 (3d ed. 1940). 3

In regard to the third contention of defendant, the evidence and offer of proof indicate that Harold Haines, near the end of 1952, knew that he would require certain belting and potato cleaner strips and in order to guarantee delivery at the existing price placed an order with defendant for certain goods and prepaid the sales price. Haines' check involved in defendant's last claim of error was received by defendant in early January 1953. Defendant contends that the exclusion of evidence that the prepaid transaction with Harold Haines had never been completed, and the court's charge that receipts of the money without restriction by defendant made the amount taxable income constituted prejudicial error. We shall examine first the law regarding prepayment for goods to be acquired and delivered in the future. Defendant has cited Veenstra & DeHaan Coal Co. [CCH Dec. 16,715], 11 T. C. 964 (1948) and Woodlawn Park Cemetery Co. [CCH Dec. 18,281], 16 T. C. 1067 (1951) to support his contention that gross receipts are not equivalent to gross income and that in the case of prepayments for goods to be obtained and delivered in the future there is no taxable income until there is a completed sale. These two cases involve accrualmethod taxpayers. However, that distinction does not seem to us to be material. See 2 Mertens, Federal Income Taxation, §12.125 (1955). As in the Veenstra and Woodlawn Park cases, defendant at the time of the receipt of Haines' prepayment did not know the cost of the goods which were to be delivered as part of the order. If there was never any goods delivered as part of the order, and consequently never any possibility of setting a cost of goods sold, there could be no gain constituting income subject to taxation. In addition, in the instant case there was evidence that Haines customarily cancelled orders when his unpredictable season ended. This is further evidence of the contingent nature of the transaction between defendant and Haines. The government has cited to us no cases which overcome the persuasive force of the Veenstra and Woodlawn Park cases. Consequently, we believe the district court misstated the law in regard to this transaction in its ruling and charge.

It should be noted, however, that the defendant in his request for instructions regarding the Haines transaction asked for too much. The record indicates that defendant's offer of proof was that at least part of the Haines order involving prepayment was filled by defendant. We think that the reasoning of the Veenstra and Woodlawn Park cases requires that the amount of gain in regard to the completed sale of that portion of the order be reported as income in the year that the sale of the items is completed. Therefore, the rejection of defendant's request for instructions on this matter was not prejudicial error.

The district court excluded testimony that the order was never completed. Since defendant testified that he did not learn about the asserted incompleteness until preparing for trial, his omission of this item from his return for 1953 could not be due to his belief that it was not yet income. Therefore, this theory of the transaction has no bearing on defendant's intent at the time of filing his return for 1953.

According to defendant's offer of proof only $2500 of the order was not filled. Proof that a certain part of the asserted deficiency was not due, contrary to defendant's impression, would not defeat the count for 1953 provided that there still was a substantial understatement of income in the return for that year and such understatement was made wilfully. According to defendant's offer of proof there was still a substantial amount of unreported income from the portion of the Haines order that was completed. Therefore, the offer of proof laid an insufficient foundation for the only other basis for the relevancy of any testimony in regard to the incompleteness of the prepaid order. Consequently the district court's exclusion of this testimony was not error. See Holt v. U. S. [59-2 USTC ¶9771], 272 F. 2d 272 (9 Cir. 1959).

Defendant also maintains that the district court made improper and prejudicial comments during the course of the trial. We have reviewed the record in this regard and believe that many of these instances stemmed from remarks and actions of defendant's counsel. In several instances the court corrected its comments. We do not believe that the district court committed error by its remarks during the trial. 4 We find no merit in defendant's other arguments.

Judgment will be entered vacating the judgment of the district court and remanding the case for a new trial.

1 Counts I, II and III alleged wilful evasion of taxes owing for the calendar years 1953, 1954 and 1955 respectively. The statutes alleged to be violated were I. R. C. 1939 §145(b), 26 U. S. C. §145(b) (1952) as to Count I, and I. R. C. 1954 §7201, 26 U. S. C. §7201 (1958) as to Counts II and III.

2 The district judge did not permit the defendant to introduce a schedule (Ex. S-4) summarizing the calculations made by an accountant testifying for defendant of expenses incurred in traveling during periods for which no data was kept, although the accountant's testimony was admitted. The exclusion of this schedule accentuates the prejudicial effect of admitting Exhibit 49, which emphasized the differences between the memo books and returns as "overstatements."

3 It might be better in the circumstances of such use of each summary to have a cautionary instruction on the proper limits of the summary's relevancy. But the record does not indicate that such a cautionary instruction was requested.

4 The defendant argues particularly that the district court erred by stating on several occasions that the only issue was whether defendant received money that he did not report. The court's charge to the jury correctly emphasized defendant's theory that although the checks were unreported, the omission was not wilful. The court's comments earlier in the trial were generally related to the Haines prepaid transaction, although they might conceivably have confused the issues in the jurors' minds. We have considered previously the court's statements of law in regard to this transaction. In any case, the matter is not likely to arise at a new trial.

 

 

[53-1 USTC ¶9421]Elmer F. Remmer, Appellant v. United States of America , Appellee.

(CA-9), In the United States Court of Appeals for the Ninth Circuit., No. 13,281., 205 F2d 277, 05/28/53

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

Tax evasion trial: Refusal of bill of particulars.--It was proper to deny a bill of particulars where the offense was stated in the indictment, and to deny particulars as to the method by which the Government computed net income, where application of the networth theory was made known in the course of argument.

Tax evasion trial: Accessibility of records.--Motions for production of records in the possession of the Government, and acquired voluntarily from third parties, were properly denied. Several of taxpayer's accountants had surveyed them, and one accountant was allowed to take all records necessary for the computation of taxpayer's tax liability, so that taxpayer was able to prepare an adequate defense. Also, an order for taxpayer's counsel to return records to the Government was not invalid, even though they had been obtained by the Government from third parties, who in turn had obtained them illegally.

Tax evasion trial: Sufficiency of evidence.--Proof of the exact amount of unreported income is not required, and a willful intent to evade income taxes can be inferred from failure to report a substantial amount of income, failure to keep adequate books to reflect income, and concealment of property. There was substantial evidence to support the Government's nonrecognition of certain partnerships, and there was no error in the inclusion of certain IOU's as cash, or in the submission to the jury of a question of fact as to the significance of certain journal entries.

Tax evasion trial: Admissibility of evidence.--Testimony of one of the witnesses could not have been prejudicial, since items of income mentioned in testimony were not included in the Government's final computation of taxpayer's net worth.

Tax evasion trial: Instructions to jury.--Taxpayer was not entitled to an instruction as to a possible inference to be drawn from the Government's failure to introduce in evidence all of taxpayer's business records in its possession, since the records were originally prepared by taxpayer's business associates, were accessible to taxpayer prior to trial, and were at least surveyed by his accountants subsequent to the commencement of the Government's investigation of taxpayer's income tax liability.

Gillen & Golden, San Francisco, Calif., Lohse & Fry, Reno, Nevada, and Spurgeon Avakian, Oakland, Calif., for appellant. Charles S. Lyon, Assistant Attorney General, and Ellis N. Slack, Meyer Rothwacks, Joseph F. Goetten, Joseph A. Sommer, and Alonzo W. Watson, Jr., Special Assistants to Attorney General, all of Washington, D.C., and Miles N. Pike, United States Attorney, Reno, Nevada, for appellee.

Before MATHEWS, STEPHENS and ORR, Circuit Judges.

ORR, Circuit Judge:

Appellant stands convicted on four counts of an indictment charging wilful attempts to defeat and evade taxes due and owing from him and his wife for the years 1944 and 1945 in violation of §145(b) of the Internal Revenue Code, 26 U.S.C.A. §145(b). 1 He was sentenced to imprisonment for five years and a fine of $5,000 on each of the four counts, the sentences of imprisonment to run concurrently and the fines to be cumulative. The judgment is challenged upon numerous grounds.

I. Bill of Particulars.

Appellant first contends that the trial court erred in denying his motion for a bill of particulars made pursuant to the provisions of Rule 7(f), Federal Rules of Criminal Procedure. 2 Particular stress is placed upon the fact that the indictment did not inform him as to the source or sources of his alleged net income, the item or items making up his alleged net income, and the method or methods by which the Government computed his alleged net income. An application for a bill of particulars is one addressed to the sound discretion of the court. Our inquiry: Was that discretion abused? Wong Tai v. United States , 273 U.S. 77 (1927); Himmelfarb v. United States , 175 Fed. (2d) 924 (9th Cir. 1949) [49-1 USTC ¶9313], cert. denied, 338 U.S. 860; Maxfield v. United States, 152 Fed. (2d) 593 (9th Cir. 1945) [46-1 USTC ¶9115], cert. denied, 327 U.S. 794. A bill of particulars should be granted where it is thought necessary (1) to protect the defendant against a second prosecution for the same offense, or (2) to enable the defendant to adequately prepare his defense and avoid surprise at the trial. In the instant case the indictment charged that appellant filed tax returns disclosing a certain net income and tax due, whereas, in fact the net income and tax due were of a specified greater amount. It is apparent that the offense charged is sufficiently defined to protect appellant from double jeopardy. We deem it significant that appellant has not contended that he was subjected to surprise during the trial by the nature of the Government's case and thus unprepared to meet the charges against him. See Himmelfarb v. United States , supra; Maxfield v. United States , supra. The situation is quite different from that in Singer v. United States, 58 Fed. (2d) 74 (3d Cir. 1932) [1932 CCH ¶9188], upon which appellant relies, since there emphasis was placed upon the frequent interruptions of the trial that were necessary so that the prosecution could give the defendant information which would have been contained in a requested bill of particulars. Thus, the defendant in that case was in fact unable adequately to prepare his defense because of the failure to grant the bill. Moreover, the indictment in the Singer case failed to distinguish certain partnership gross income from partnership net income, an item upon which the defendant should have been advised and which could have been ascertained only from a bill of particulars. No such prejudice to appellant is evident in the instant case. The offense charged was specifically stated in the indictment. Appellant was in a position to know whether the facts alleged were true. The most to which appellant was entitled prior to trial was disclosure of the theory of the Government's case. United States v. Caserta , 199 Fed. (2d) 905 (3d Cir. 1952) [52-2 USTC ¶9540]. That the Government was proceeding upon a net worth theory was made known to appellant during the course of argument on the motion for a bill of particulars. 3 The District Court in the exercise of its discretion determined that granting the requested bill of particulars would merely apprise appellant of information in the hands of the prosecution to which he was not entitled. Under the circumstances, no abuse of discretion appears. A bill of particulars has been denied in prosecutions under similar tax evasion indictments. See United States v. Rainey, 10 F.R.D. 431 (W.D. Mo. 1950); United States v. Mangiaracina, 10 F.R.D. 415 (W.D. Mo. 1950) [50-2 USTC ¶9467]; but see United States v. Kelly, 10 F.R.D. 191 (W.D. Mo. 1950).

II. Accessibility of Records.

Appellant asserts that the trial court erred in denying the defense access to certain books, papers and documents in the possession of the Government. The following facts are pertinent to consideration of this contention.

Long prior to the filing of the criminal indictment in April of 1951, appellant knew that the Government was investigating his income tax liability. The Bureau of Internal Revenue issued 90-day letters in 1949 and prior to February of 1950 a federal income tax lien in excess of $800,000 was placed against his property. Numerous conferences were had subsequent to January 11, 19 50, with various attorneys and accountants representing appellant in tax matters. Power of attorney was executed by appellant to counsel of record in the present litigation as early as March 10, 19 50, for the purpose of representing appellant in tax conferences with the Government. Other attorneys and accountants have represented appellant with the Treasury Department since early in 1949, powers of attorney filed with that department disclose.

During the course of its investigation, the Government acquired voluntarily from third parties certain books, papers and documents pertaining to businesses in which it was alleged that appellant had an interest. 4 Being advised, in the course of conferences, that an audit of appellant's affairs was being conducted, the Government gave appellant's accountants complete access to the aforementioned records in its possession. An affidavit executed by one of these accountants stated that the material consisted of a "mass of original documents" and that "this material filled a packing box of approximately fifty cubic feet in volume plus several other smaller cartons." Although the accountants surveyed the material at this time, spring of 1950, no complete analysis of the records is said to have taken place since appellant did not make sufficient funds available for the task. At another time prior to the filing of the indictment in this case, accountant Lawrence Semenza sought permission to examine these records in connection with work he was doing for appellant in computing his civil tax liability subsequent to issue of the 90-day letters. Semenza was not only allowed to examine the business records in the possession of the Government, but was allowed to select any records he desired for use in his own office.

After the filing of the indictment, no request was made by appellant's counsel for examination of the records not previously selected by Semenza until October 22, 19 51, more than six months after the filing of the indictment. The Government agreed to allow inspection of these records only on the compliance with certain conditions: a sufficient showing of appellant's interest and consent of the third parties who had originally given the records to the Government.

Appellant first sought a court order on November 14, 19 51, when a motion was made to inspect and take copies pursuant to the provisions of Rule 16, Federal Rules of Criminal Procedure. 5 In conjunction with this motion, appellant also sought a continuance of his trial until April 1, 19 52, to enable sufficient time for examination of the requested records. In this regard it should be noted that trial was set for November 28, 19 51. The motions to inspect and take copies and for a continuance were denied by the trial court after a hearing.

The District Court properly exercised its discretion in denying these motions. As has been observed, at no time prior to the filing of the indictment was the freedom of appellant to examine the records in the possession of the Government in any way limited. At least three accountants representing appellant did in fact survey the material in question and one accountant was allowed to take all records he thought necessary for the computation of appellant's tax liability. 6 Although it is true that accounting analysis of these records was at that time only for the purpose of settling appellant's civil tax liability, based on net income alleged by the Government in its 90-day letters to be $136,718.94 for 1944 and $265,661.78 for 1945, analysis of the materials for that purpose would of necessity cover the same ground and consider the same sources of income as would analysis for the purpose of the present criminal proceedings where the Government alleges lesser sums as income: $67,469.21 for 1944 and $75,865.19 for 1945. The opportunity afforded appellant to examine the records in question was sufficient to enable him to prepare an adequate defense. Furthermore, there is no adequate explanation as to why appellant waited more than six months after filing of the indictment to request permission of the Government to examine the records and first made his motion under Rule 16 two weeks before the trial was due to commence. The affidavits supporting the motion to produce and take copies conceded that accounting analysis of the records would probably take two or three months. One of appellant's counsel averred in his supporting affidavit that he first learned in October of 1951 that the Government had possession of various books and records of some of the business in which appellant had an interest. 7 But the facts to which we have already referred show that other representatives of appellant knew of the existence of the records and, at the very least, had surveyed the material many months earlier. The motion to produce and take copies therefore was not timely. To refuse to continue the trial until April 1, 1952, as requested, was not an abuse of the court's discretion in view of appellant's tardiness in bringing his motion.

Subsequent to denial of his motion to inspect and take copies under Rule 16, appellant on November 23, 19 51 filed a motion for production and inspection under the provisions of Rule 17(c), Federal Rules of Criminal Procedure. 8 A subpoena duces tecum was served on Government counsel, which they thereupon moved to quash. After a hearing on the day before the trial was to commence, the trial court granted the Government's motion and denied appellant's motion. Because of the circumstances already discussed, the court did not err in determining that compliance with the subpoena would be unreasonable and oppressive.

The case of Bowman Dairy Co. v. United States, 341 U.S. 214 (1951), is not authority for the proposition that the trial court's denial of the motion under Rule 17(c) was an abuse of discretion, as appellant has argued. The Supreme Court in that case held that the trial court had the power to order the Government to produce certain documents. It did not hold that a refusal to grant the motion to produce would have been an abuse of discretion.

We think it important to stress, in considering whether denial of appellant's motions should be upheld, that the purpose of motions of this type is to expedite the proceedings and enable a defendant adequately to prepare his defense. No specific showing has been amde by appellant as to how the denial of these sweeping motions calling generally for production of all records in the possession of the Government pertaining to businesses in which it was alleged appellant had an interest prejudiced the defense during the course of the trial. The court stated that appellant's counsel would be given ample opportunity during the trial to examine any document offered by the Government. Only once during the trial appellant sought the production of particular papers, certain daily poker sheets from the 186 Club, and the request was granted.

We have referred to certain books, papers and documents given voluntarily by third parties to the Government, which were selected by appellant's accountant Semenza prior to the indictment and taken by him to his own office for use in computing appellant's tax liability. These records were given to Semenza upon the condition that he return them to the Bureau of Internal Revenue. Semenza later gave the records to Friedman, another accountant employed by appellant, who in turn gave the records to appellant's counsel. When subpoenaed before the grand jury, and later during the trial, Semenza said he was unable to produce the records because appellant's counsel would not return them to him. The District Court then ordered appellant's counsel to deliver these records to the clerk of the court, the records to be available to both Government and defense counsel during the trial. Appellant thereupon made a motion under Rule 41(e), Federal Rules of Criminal Procedure, 9 for return of these records and suppression of their use as evidence. The motion was denied.

Appellant contends that the trial court's order violated the Fourth and Fifth Amendments to the Constitution of the United States . We do not agree. The records given to Semenza were obtained by the Government from third parties rather than from appellant. Use of such records by the prosecution would not violate appellant's constitutional rights, even were it true that the third parties originally obtained the records from appellant illegally. 10 See Lustig v. United States , 338 U.S. 74, 78-79 (1949); Feldman v. United States , 322 U.S. 487, 492 (1944); Symons v. United States , 178 Fed. (2d) 615 (9th Cir. 1949). Since the Government's possession was such as properly to entitle it to use of the records as evidence, the condition that the records be returned was lawfully imposed when Semenza's request to select certain records for accounting analysis was granted. Such a promise to return the records was enforceable. Cf. Greenbaum v. United States , 280 Fed. 474, 478 (6th Cir. 1922). Appellant's counsel took the records subject to the imposed condition and therefore could not retain them by asserting so-called constitutional rights of appellant. As the Supreme Court said in Hale v. Henkel, 201 U.S. 43 (1906) at 69-70: "The right of a person under the Fifth Amendment to refuse to incriminate himself is purely a personal privilege of the witness. It was never intended to permit him to plead the fact that some third person might be incriminated by his testimony, even though he were the agent of such person." (Italics supplied) Nor was appellant in a position to assert constitutional rights, because appellant never acquired personal possession of the records after they were given by the Government to Semenza. "A party is privileged from producing the evidence but not from its production." Johnson v. United States , 228 U.S. 457, 458 (1913).

The case of People v. Minkowitz, 220 N.Y. 399, 115 N.E. 987 (1917), referred to for the first time by appellant during oral argument, is distinguishable. That case involved papers originally in the possession of the defendant which had been given to his attorney in the course of an attorney-client relationship. The court held that under those circumstances the possession of the attorney was the possession of the defendant, and the attorney therefore could not be compelled to produce the papers. In the present case, however, the records were not acquired by appellant's counsel from appellant in the course of an attorney-client relationship, but were instead received from the Government subject to the condition that they be returned.

III. Sufficiency of the Evidence.

The Government's case is based upon the net worth method, the underlying theory of which is that where a person's net worth at the end of a particular year is greater than his net worth at the beginning of that year, and such increment is not attributable to gifts, devises, loans, or other non-income sources, an inference may be drawn that the increase in net worth represents income to the taxpayer. The net worth computations of the Government tended to show that appellant had failed to report taxable income of $31,747.91 in 1944 and $11,747.04 in 1945. No attempt was made by the Government in this case to increase this sum by the amount of appellant's non-deductible expenses during the years in question. The Government not only relied upon numerous documents and the testimony of more than fifty witnesses to establish the increment in appellant's net worth during the years 1944 and 1945, but also extensively investigated possible non-income sources of net worth in order to exclude their effect. The question of the sufficiency was raised by appellant's motion for judgment of acquittal made at the close of the case.

The net worth method of computing income may be used only where a taxpayer does not keep books or such books are inadequate in that they do not clearly reflect income. See 26 U.S.C.A. §41. The jury was so instructed in the present case, and the evidence is sufficient to sustain a finding that appellant's records were inadequate. Ray Weaver, the special agent in charge of the Bureau of Internal Revenue investigation, testified, as an expert, that in his opinion the records of the enterprises in question were not adequately kept. Specific illustrations of such inadequacy were given by Weaver and other witnesses. 11 As hereinbefore stated, appellant's accountants had made a survey of the records pertaining to appellant's business enterprises in the Government's possession prior to trial. Therefore, the alleged failure of the Government to introduce in evidence all such records in its possession is not significant since if any records adequately reflecting income were in existence appellant could have specifically requested their production during the trial.

Appellant attacks the accuracy of the Government's computation of his starting point net worth, that is, his net worth on December 31, 19 43. It was necessary for the Government to establish appellant's net worth at the beginning of the period during which the alleged evasion occurred in order to compare his increment in net worth with the income actually reported by appellant on his and his wife's tax returns. The fundamental question presented is what quantum of evidence must be offered by the Government before a trial court can properly submit the case to the jury. Whether sufficient evidence has been introduced in a given case will of course depend upon the facts of that particular case. In deciding whether the trial court properly denied appellant's motion for judgment of acquittal, the evidence must be taken in the light most favorable to the Government. Gendelman v. United States , 191 Fed. (2d) 993 (9th Cir. 1951) [51-2 USTC ¶9474]. Proof of the exact amounts of unreported income is not required. The evidence is sufficient if the jury is justified in finding therefrom, beyond a reasonable doubt, that there has been a wilful attempt to evade taxes. United States v. Johnson, 319 U.S. 503 (1943) [43-1 USTC ¶9470]; Goldbaum v. United States, --Fed. (2d) -- (9th Cir. April 13, 19 53) [53-1 USTC ¶9342].

In the instant case the Government thoroughly investigated appellant's potential sources of net worth. It was not incumbent upon the prosecution to prove appellant's net worth to a mathematical certainty before the case could be submitted to the jury. As the Fourth Circuit said in Bell v. United States, 185 Fed. (2d) 302 (4th Cir. 1950) [50-2 USTC ¶9499], cert. denied, 340 U.S. 930: "An estimate of the taxpayer's net worth as the means of determining his income is resorted to in the absence of accurate records which it is his duty under the statute to make and to preserve, and by its very nature it is an approximation; but it has been held in this and other jurisdictions to be an appropriate method to support a criminal prosecution under the statute * * *." (Italics supplied) 185 Fed. (2d) at 308. See also Gariepy v. United States, 189 Fed. (2d) 459 (6th Cir. 1951) [51-1 USTC ¶9318]; Schuermann v. United States, 174 Fed. (2d) 397 (8th Cir. 1949) [49-1 USTC ¶9281], cert. denied, 338 U.S. 831.

Reference was made during the trial to a certain safe deposit box in which appellant purported to keep money. Appellant contends that the possibility that substantial funds were kept in the box destroys the validity of the Government's net worth computations, yet appellant did not attempt in any way at the trial to prove that substantial funds were in fact kept in the box. Other evidence introduced at the trial, such as the fact that a judgment of $1,800 obtained against appellant in 1938 was not paid until 1945, tended to show that appellant did not have substantial cash at the beginning of 1944. Requests by the Government to examine the contents of the safe deposit box were refused. If a defendant could prevent a case of this type from being submitted to the jury merely by stating he had further assets not taken into consideration by the Government, yet refusing to disclose them, enforcement of the tax evasion provisions of the Internal Revenue Code would be completely frustrated. Skillful concealment cannot be made an invincible barrier to proof. United States v. Johnson, supra, at 518. More than mere speculation is required to support a motion for judgment of acquittal. The only affirmative evidence concerning the safe deposit box in question was the testimony of one witness that on December 3, 19 43 he placed $17,000 in the box. Were we to assume that this money remained in the box on December 31, 19 43, the Government's case would not fall since the net worth computations, including the additional $17,000 as part of opening net worth for 1944, would still show unreported income of $14,747.91 for the year 1944.

Reliance is placed by appellant upon the cases of Bryan v. United States, 175 Fed. (2d) 223 (5th Cir. 1949) [49-1 USTC ¶9322] 12 and United States v. Fenwick, 177 Fed. (2d) 488 (7th Cir. 1949) [49-2 USTC ¶9448], where judgments of conviction were reversed because of the insufficiency of the evidence. This court, in Davena v. United States, 198 Fed. (2d) 230, 231 (9th Cir. 1952) [52-2 USTC ¶9392], questioned the "vitality" of the Fenwick case, and the majority opinion in the Bryan case was accompanied by a strong dissent. Although these decisions may well have been appropriate because of the particular facts there involved, we believe the general language of the opinions too narrowly limited the function of the jury as the triers of fact.

It is true, as appellant contends, that proof of increased net worth is only circumstantial evidence of taxable income. 13 The test to be applied on motion for judgment of acquittal in such a case, however, is not whether in the trial court's opinion the evidence fails to exclude every hypothesis but that of guilt, but rather whether as a matter of law reasonable minds, as triers of the fact, must be in agreement that reasonable hypotheses other than guilt could be drawn from the evidence. 14 Stoppelli v. United States , 183 Fed. (2d) 391 (9th Cir. 1950), cert. denied, 340 U.S. 864. If reasonable minds could find that the evidence excludes every reasonable hypothesis but that of guilt, the question is one of fact and must be submitted to the jury. Curley v. United States , 160 Fed. (2d) 229 (D.C. Cir. 1947), cert. denied, 331 U.S. 837; Stoppelli v. United States , supra. Judged by this standard, the motion for judgment of acquittal was properly denied in the present case.

Appellant argues in his reply brief that even if there was sufficient evidence to show a tax deficiency there was no evidence of fraud. A state of mind can seldom be proved by direct evidence but must be inferred from all the circumstances. A wilful intent to evade income taxes may be inferred from such factors as appellant's failure to include a substantial amount of income on his and his wife's tax returns, the failure to keep adequate books which would clearly reflect income, and the concealment of the ownership of property such as a safe deposit box, real estate interests, and business licenses. These factors, all present in the instant case, are but part of a general pattern of conduct engaged in by appellant from which the jury could infer the requisite intent. See Norwitt v. United States , 195 Fed. (2d) 127, 132 (9th Cir. 1952) [52-1 USTC ¶9252].

The Government contended during the trial that certain unincorporated business enterprises of the appellant were to be treated as sole proprietorships for tax purposes, while appellant contended that they were partnerships. 15 The test for determining recognition of a partnership for federal income tax purposes is whether "the parties in good faith and acting with a business purpose intended to join together in the present conduct of the enterprise." Commissioner v. Culbertson, 337 U.S. 733, 742 (1949) [49-1 USTC ¶9323]. This question is one of fact. Toor v. Westover, 200 Fed. (2d) 713 (9th Cir. 1952) [53-1 USTC ¶9141]; Harkness v. Commissioner, 193 Fed. (2d) 655 (9th Cir. 1951) [52-1 USTC ¶9141], cert. denied, 343 U.S. 945. There is substantial evidence to support the Government's contention that the alleged partnerships should not be recognized for tax purposes. The record discloses among other things, that the enterprises were financed by a single fund belonging to appellant, that appellant made the policy decisions, that the purported partners were not to acquire an interest in the assets of the business until appellant had withdrawn an amount equal to his original capital investment, that no profits were actually distributed during the years in question to persons other than appellant, and that in at least one instance a new partner entered the business without another partner knowing the terms.

Two further contentions are made by appellant which pertain only to Counts Three and Four, the counts based upon the year 1945.

(1) Appellant asserts that in computing closing net worth for the year 1945 the Government improperly included $15,000 in markers or IOU's as cash of the B-R Smoke Shoppe, one of appellant's enterprises. Regardless of whether such markers should technically be treated as cash or accounts receivable, they were properly included as part of the assets of the business. Appellant can hardly rely upon the fact that the enterprise was engaged in the illegal business of bookmaking, and that therefore, under California law, the markers were unenforceable. It is obvious that appellant accepted markers as a substitute for cash from his customers because he thought he could find certain effective if not legal means of enforcing them. He considered the markers to be assets of his business, capable of being reduced to cash. We do not believe as a practical matter he was mistaken.

(2) In computing closing net worth for the year 1945 the Government recognized a debt of $100,000 owed by appellant to Gene Schriber as part of the $175,000 purchase price of the Menlo Club. Appellant argues that actually a sum of $125,000 was owing at the end of 1945. His position is supported by the testimony of Schriber and what purports to be a page of the 1947 Menlo Club ledger, this ledger being part of the records given to appellant's accountant Semenza prior to the trial and subsequently impounded with the court clerk by order of the Court during the trial. The Government relies upon a photostat of a page of the 1945 ledger of the Menlo Club, stating that the original was part of the records given to Semenza, that this page was never returned, and that the alleged page of the 1947 ledger upon which appellant relies first made its appearance upon return of the records to the clerk of the court. Appellant seeks to explain the inconsistency in the ledgers by stating that the first payment of $25,000 was returned to appellant so that a check for the same amount could be substituted in order to enable appellant to keep a record of the transaction. It is said that the 1945 ledger is in error in that it treats this transaction as two separate payments. This was a question of fact for the jury; it was resolved against appellant.

IV. Admissibility of Evidence.

Complaint is made to a number of rulings by the trial court in regard to the admission and exclusion of evidence during the course of the trial. Appellant's contentions must be considered in conjunction with the salutary rule that the discretion of the trial court should not be disturbed in such matters unless the accused has been deprived of substantial rights. See Fed. R. Crim. P. 52(a). Upon reviewing the alleged errors in the light of the aforesaid principle of law, we cannot say that the District Court erred. See United States v. Johnson, 319 U.S. 503, 519-520 (1943) [43-1 USTC ¶9470].

Witness Agnes Badobinatz was allowed to testify over appellant's objection, that in February of 1947 her husband, now deceased, told her that he was going to repay $5,000 he had borrowed from appellant. Appellant argues that since there was no testimony as to when the obligation was incurred the Government failed to lay a proper foundation for Badobinatz's testimony. Admission of this testimony, however, could not have been in any way prejudicial to appellant since the Government's final computation of appellant's net worth did not include this $5,000 for any of the years in question.

Witness A.V. Brady, an agent of the Bureau of Internal Revenue, testified concerning the investigation of appellant's tax liability and the preparation of the net worth statement upon which the Government's case was based. Appellant objects to Exhibit No. 183, the financial statement prepared by Brady to reflect changes in appellant's net worth during the years 1944-1946, which was admitted in evidence during the witness's testimony. It is urged that there was insufficient evidence to support admission of the statement. We have already held that the Government's evidence was sufficient to take the case itself to the jury. The net worth statement in question was constructed from all the evidence in the case. There was, therefore, sufficient evidentiary basis in the record for admission of the statement. Brady's estimate of appellant's federal income tax liability based upon the net worth computation was also admissible, since he was testifying as an expert witness.

During the trial appellant had sought to prove that at the end of 1946 he owed Robert Jeffress the sum of $50,000. The Court ruled that testimony by Jeffress's wife that in July of 1947 her now deceased husband told her of the debt and that part of it had been repaid was inadmissible. Since the jury was unable to agree in regard to the counts of the indictment pertaining to the year 1946, the propriety of this ruling is not before us. We mention it, however, because of its connection with the following: Appellant told the Court that James Jeffress, the son of Robert Jeffress, was being called as a witness "to give testimony which raises the identical issue which was presented to your Honor in the matter of the testimony of Mrs. Jeffress, with relation to conversation with her late husband." Since at that particular time in the trial the prospective witness was unable to appear, appellant merely made an offer of proof, his counsel stating that he assumed the Court would make the same ruling as in the case of Mrs. Jeffress's testimony. The offer was rejected. In the course of the rather extended offer of proof there was one statement that in 1944 Robert Jeffress had told his son that he owed appellant the sum of $10,000 for money borrowed in 1943. Appellant now urges that the testimony of James Jeffress would have been admissible to show this fact. It seems clear to us that the offer of proof was at least primarily made to establish the debt of appellant to James Jeffress at the end of 1946 rather than a debt owed by Jeffress to appellant at the beginning of 1944. Appellant had a duty to make the purpose of his offer of proof clear. Evidence excluded for the only purpose for which it was offered cannot be properly asserted on appeal to be admissible for another purpose theretofore undisclosed. Flowers v. Bush & Witherspoon Co., 254 Fed. 519 (5th Cir. 1918). It is the duty of the party making the offer of proof rather than the Court to separate the various items of evidence embraced in a single offer. Lane v. United States , 142 Fed. (2d) 249 (9th Cir. 1944).

Appellant also contends that the Court unduly restricted the cross-examination of witnesses Schriber, Weaver and Brady. The trial court may in the exercise of its sound discretion limit the extent of cross-examination. Todorow v. United States , 173 Fed. (2d) 439 (9th Cir. 1949), cert. denied, 337 U.S. 925; Chevillard v. United States, 155 Fed. (2d) 929 (9th Cir. 1946). No abuse of discretion appears.

V. Instructions to the Jury.

Appellant urges that the trial court failed adequately to instruct the jury on the law applicable to the case in that the charge did not contain certain supplementary instructions which had been proposed by appellant. 16 The instructions given by the Court in the present case are similar in substance to the instructions reviewed in Barcott v. United States, 16 Fed. (2d) 929 (9th Cir. 1948) [48-2 USTC ¶9377], cert. denied, 336 U.S. 912, where we held that the charge fully and fairly presented the law of the case. Upon examination of the instant charge in its entirety, we find that the instructions given fully protected the rights of appellant.

The instructions of the Court as to the net worth method of proving tax evasion and the instructions as to the methods of accounting to be used by a taxpayer were adequate when considered as a whole with the instructions concerning the elements of the crime, the Government's burden of proof, and other basic principles of criminal law applicable to this case.

The jury was also properly instructed as to the test for determining the validity of a partnership for federal income tax purposes. The instruction requested by appellant, requiring the jury to find a valid partnership if certain testimony was believed, unduly emphasized particular phases of the evidence and would violate the rule that the question is one of fact to be decided from all the evidence.

Appellant was not entitled to an instruction as to a possible inference to be drawn from the Government's failure to introduce in evidence all of appellant's business records in its possession. The records were originally prepared by appellant's business associates, were accessible to appellant prior to trial, and were at least surveyed by his accountants subsequent to the commencement of the Government's investigation of appellant's income tax liability. As we have previously noted, if any specific records had been thought beneficial to his case, appellant could have requested their production.

VI. Fair Trial.

After the jury had returned its verdict, appellant moved for a new trial. The only new proposition asserted was that appellant had been substantially prejudiced and deprived of a fair trial by reason of certain conduct on the part of the jury, the Court, the prosecuting attorneys, and agents of the Federal Bureau of Investigation. Appellant's counsel averred in a supporting affidavit that the following facts were learned by them subsequent to the verdict of the jury: that in the early stages of the trial one of the jurors had been told by a person unknown to appellant's counsel that the juror could profit by bringing in a verdict favorable to appellant; that the juror thereupon reported this conversation to the trial judge; that the trial judge discussed the matter with the prosecuting attorneys, but did not at any time inform appellant's counsel of the incident; and that the Federal Bureau of Investigation was notified, conducted an investigation, and made a report to the trial judge. It is appellant's contention that the juror to whom the remark had been made would be apprehensive of being suspected of taking a bribe if he voted for a verdict in favor of appellant, and would therefore be prejudiced against appellant. The motion for a new trial requested the opportunity for a hearing to adduce evidence concerning the various conversations among the juror to whom the remark had been made, the trial court, and agents of the Federal Bureau of Investigation "in order to fully investigate the same to determine to what extent it had any effect upon the jury and was prejudicial to the defendant."

The District Court in denying the motion did not abuse its broad power to grant or deny motions of this type, since there was a failure on the part of appellant to show prejudice. The very newspaper articles upon which appellant relies, and which were made a part of his motion, disclose that the juror believed the statement had been made to him in jest and only notified the trial judge because of his admonitions not to discuss the case. The judge also believed the statement had not been made seriously, but took the precaution of requesting an investigation by the Federal Bureau of Investigation, which in fact substantiated his belief that the remark had been made in jest. These circumstances do not indicate prejudice to appellant. It is obvious that if in fact an attempt had been made by persons associated with the defense to bribe a juror disclosure of the planned investigation would have greatly decreased the likelihood that such investigation would be successful. Appellant relied solely upon the affidavit of defense counsel stating what counsel had learned through the newspapers. If any jurors had received communications from the trial court or the Federal Bureau of Investigation of a nature which would tend to prejudice them against appellant, or had been subjected to other extraneous influences, such fact could have been appropriately presented by submitting affidavits of the jurors themselves. See, for example, Clyde Mattox v. United States, 146 U.S. 140 (1892).

Judgment affirmed.

1 "26 U.S.C.A. §145. Penalties.

"* * *

"(b) Failure to collect and pay over tax, or attempt to defeat or evade tax. Any person required under this chapter to collect, account for, and pay over any tax imposed by this chapter, who willfully fails to collect or truthfully account for and pay over such tax, and any person who willfully attempts in any manner to evade or defeat any tax imposed by this chapter or the payment thereof, shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, be fined not more than $10,000, or imprisoned for not more than five years, or both, together with the costs of prosecution."

2 18 U.S.C.A. Federal Rules of Criminal Procedure.

III. Indictment and Information.

"Rule 7. The Indictment and the Information.

* * *

(f) Bill of Particulars. The court for cause may direct the filing of a bill of particulars. A motion for a bill of particulars may be made only within ten days after arraignment or at such other time before or after arraignment as may be prescribed by rule or order. A bill of particulars may be amended at any time subject to such conditions as justice requires."

3 Mr. Campbell, Government counsel, made the following statement:

"Mr. Campbell: Well, we are in this position, your Honor--as Mr. Golden is aware, the Government's case here is what is termed a net worth case."

4 In computing appellant's income for the years 1944 and 1945 the Government relied in part upon the net worth of the following businesses: B-R Smoke Shoppe, Day-Nite Cigar Store, 110 Eddy Street , and Menlo Club, all in San Francisco ; 21 Club and San Diego Social Club, both in El Cerrito , California .

5 18 U.S.C.A. Federal Rules of Criminal Procedure.

IV. Arraignment and Preparation for Trial.

"Rule 16. Discovery and Inspection.

Upon motion of a defendant at any time after the filing of the indictment or information, the court may order the attorney for the government to permit the defendant to inspect and copy or photograph designated books, papers, documents or tangible objects, obtained from or belonging to the defendant or obtained from others by seizure or by process, upon a showing that the items sought may be material to the preparation of his defense and that the request is reasonable. The order shall specify the time, place and manner of making the inspection and of taking the copies or photographs and may prescribe such terms and conditions as are just."

6 Mr. Semenza testified as follows concerning his acquisition of records which were in the possession of the Government:

"Q. [By Mr. Campbell] At the time you obtained those records, isn't it a fact you were taken into a room where the records were and told you could have anything you wanted? A. That is true.

"Q. And you were the one who selected these particular records as they were the pertinent records having to do with the matter which you were then investigating, which was the liability of Mr. Remmer? A. That is right.

"Q. They were the only records you considered of any use to you in that connection? A. That's right."

7 However, another of appellant's counsel stated during oral argument of the motion that counsel learned at an "early stage in this case" that the Government had "quite an abundance of records."

8 18 U.S.C.A. Federal Rules of Criminal Procedure.

IV. Arraignment and Preparation for Trial.

"Rule 17. Subpoena.

* * *

"(c) For Production of Documentary Evidence and of Objects. A subpoena may also command the person to whom it is directed to produce the books, papers, documents or other objects designated therein. The court on motion made promptly may quash or modify the subpoena if compliance would be unreasonable or oppressive. The court may direct that books, papers, documents or objects designated in the subpoena be produced before the court at a time prior to the trial or prior to the time when they are to be offered in evidence and may upon their production permit the books, papers, documents or objects or portions thereof to be inspected by the parties and their attorneys."

9 18 U.S.C.A. Federal Rules of Criminal Procedure.

IX. Supplementary and Special Proceedings.

"Rule 41. Search and Seizure.

* * *

"(e) Motion for Return of Property and to Suppress Evidence. A person aggrieved by an unlawful search and seizure may move the district court for the district in which the property was seized for the return of the property and to suppress for use as evidence anything so obtained on the ground that (1) the property was illegally seized without warrant, or (2) the warrant is insufficient on its face, or (3) the property seized is not that described in the warrant, or (4) there was not probable cause for believing the existence of the grounds on which the warrant was issued, or (5) the warrant was illegally executed. The judge shall receive evidence on any issue of fact necessary to the decision of the motion. If the motion is granted the property shall be restored unless otherwise subject to lawful detention and it shall not be admissible in evidence at any hearing or trial. The motion to suppress evidence may also be had. The motion shall be made before trial or hearing unless opportunity therefor did not exist or the defendant was not aware of the grounds for the motion, but the court in its discretion may entertain the motion at the trial or hearing."

10 There is no indication in the record on appeal that the books and documents were ever taken from appellant's possession illegally. At the hearing on the motion for return of the books and documents and suppression of their use as evidence, appellant sought permission to adduce testimony as to the circumstances of the Government's original acquisition of the records. The District Court held that appellant's attempt to raise this question for the first time at that point in the proceedings was not timely, relying upon the last sentence of Rule 41(e), Federal Rules of Criminal Procedure.

11 For example, William E. Kyne testified that he kept the records of the B-R Smoke Shoppe: that these records consisted of a single entry each day, whether business had lost or won; that this daily entry was a net figure arrived at after all the expenses of doing business had been paid, including salaries.

12 The Supreme Court granted certiorari to examine a procedural issue not relevant to the instant case and affirmed the Fifth Circuit's holding on that issue. 338 U.S. 552 (1950) [50-1 USTC ¶9140].

13 The District Court, in its instructions to the jury, properly explained the nature and effect of circumstantial evidence.

14 We interpret Karn v. United States, 158 Fed. (2d) 568 (9th Cir. 1946), as holding in that case's factual context that no reasonable jury could have found that the evidence excluded every reasonable hypothesis but that of guilt.

15 The enterprises in question included the B-R Smoke Shoppe, Day-Nite Cigar Store, 110 Eddy Street , and the Menlo Club. The extent of appellant's interest in the 21 Club and the San Diego Social Club was not in dispute.

16 The Government cites Ziegler v. United States, 174 Fed. (2d) 439 (9th Cir. 1949), cert. denied, 338 U.S. 822, in contending that there could be no objection to any portion of the charge to the jury until the charge was given and that appellant has accordingly failed to satisfy the requirements of Rule 30, Federal Rules of Criminal Procedure. The facts in the Ziegler case were that the only objection made was at the time requested instructions were exchanged by counsel, and no objection was taken when the Court informed counsel of his proposed charge prior to final jury arguments. In the present case, on the other hand, objection was made by appellant to the instructions at the time provided by the Court, which was after the Court informed counsel of his proposed charge but prior to closing arguments to the jury. Since the record clearly discloses that the Court and counsel for both sides considered the procedure sufficient to satisfy Rule 30, and since the purpose of the rule has been served by giving the trial court opportunity to correct alleged errors in his charge, appellant's objections to the instructions have not been waived. Plain error in instructions should of course be noticed regardless of whether the matter was properly brought to the attention of the trial court. Fed. R. Crim. P. 52(b): see such earlier cases as Screws v. United States, 325 U.S. 91, 107 (1945); Morris v. United States , 156 Fed. (2d) 525, 527 (9th Cir. 1946).

 

 

[54-2 USTC ¶9449]Vaughn H. Mitchell and Dorothy Mitchell, Appellants v. United States of America , Appellee

(CA-9), In the United States Court of Appeals for the Ninth Circuit, No. 13,884, 213 F2d 951, June 7, 19 54

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

Criminal prosecution: Cross-examination: Instructions to jury: Admissibility of evidence.--The appellants, a physician and his wife, convicted of income tax evasion and conspiracy. During 1947 two receipt books were kept, one for the morning receipts and one for the afternoon receipts. The morning receipts were handed to the physician's wife and the afternoon receipts deposited in a bank. The appellate court found that there was no abuse of discretion by the trial court in limiting the cross-examination of the physician's employee, that the instructions to the jury that the prior acquittal involving the years 1942-1946 was not to be considered in determining guilt or innocence on the present charges were proper and that evidence of deficiencies for the years 1938-1941 was admissible..

Kent & Brookes, Valentine Brookes, Arthur H. Kent, Paul E. Anderson, San Francisco, Calif., for appellants. Lloyd H. Burke, United States Attorney, John Lockley, Assistant United States Attorney, Macklin Fleming, Special Assistant to United States Attorney, San Francisco, Calif., for appellee.

Before HEALY, ORR, and LEMMON, Circuit Judges.

LEMMON, Circuit Judge:

It is familiar technique for an appellant to seize upon every peccadillo committed by the lower court and magnify it until it becomes a blunder of major proportions.

The present case is no exception.

Although nine errors have been specified in this appeal, only three need be discussed.

The most serious objection is that the trial judge did not allow appellants' counsel to cross-examine one of "the prosecution's key witnesses".

The appellee replies that, on the contrary, there was full cross-examination by the defense. It is pointed out that the witness in question was friendly to the appellants, and that the lower court limited the appellants' use of leading questions addressed to her.

Properly to evaluate this asserted error, it must be considered in its factual setting.

1. Statement of The Case

The indictment was based upon 18 USCA §371 and 26 USCA §145(b). The appellant Vaughn H. Mitchell was convicted on three counts. Counts 1 and 2 charged him with attempting to defeat and evade a large part of an income tax due by him and his wife, Dorothy Mitchell. Count 5 charged that he and his wife conspired to evade and defeat a part of their income tax. Counts 3 and 4 charged Dorothy Mitchell with attempting to defeat and evade a large part of her income tax, and Count 5 charged her with conspiracy, as above stated. She likewise was convicted on the three counts in which she was accused. All five counts of the indictment related to the income tax for the calendar year 1947. In round figures, it was alleged that $26,000 of net income was concealed and $18,000 of tax was evaded. The indictment was filed on August 21, 19 52.

Named in the indictment as a conspirator but not as a defendant was Iris M. Cowart, whose testimony, which will be fully discussed hereinafter, played an important part in the case. On August 11, 19 50, she was notified by the Bureau of Internal Revenue at San Francisco that "This office has under consideration a recommendation involving the institution of criminal proceedings against you."

[Two Receipt Books Kept]

2. The Evidence

Only so much of the evidence will be summarized as will indicate the importance of the testimony as to which it is complained that full cross-examination was not permitted.

Dr. Vaughn H. Mitchell, one of the appellants herein, is a practicing physician and surgeon in San Francisco . Mrs. Cowart was his employee from 1943 to 1948. During the crucial year of 1947, she "took care of the Kardexes, . . . the billing and the banking," handling the money and making deposits, and "keeping the accounts". She said that she was "not a bookkeeper".

Mrs. Cowart testified that in 1947, probably in January, she had a conversation with Mrs. Mitchell "with respect to keeping two records of the books or giving her some money. . . . She was to get the morning receipts, and I also confirmed it with Dr. Mitchell. . . . I asked him if it was correct that I was to give Dorothy some money from the office, and he said that was correct and to keep a record of it."

Mrs. Cowart added that she and Mrs. Mitchell "discussed keeping the morning receipt as she (Mrs. Mitchell) was to have them, and then to keep a record of it in a receipt book and to put my initials on the book of the money" that she gave Mrs. Mitchell. The witness's best recollection was that Dr. Mitchell told her to keep the morning receipts in one set of books, and to change in the middle of the day, although she was not sure whether she got "that impression from the conversation with Dorothy Mitchell".

At any rate, Mrs. Cowart recalled Dr. Mitchell's saying that "he wasn't putting all the money in one account in the bank, that Dorothy Mitchell was to have some of the money".

The witness said that she kept "two receipt books", "one for the morning receipts and one for the afternoon receipts." At about 1 o'clock in the afternoon, she "switched receipt books", "from the morning book to the afternoon book". "The money from the morning book was given to Mrs. Mitchell, and the afternoon book was deposited as it always had been." Mrs. Mitchell would come to the office once a month or once every six weeks to pick up the money.

Mrs. Cowart continued to hand money to Mrs. Mitchell throughout the year 1947, during which time the witness delivered "not over $15,000" to the doctor's wife.

This unique system of "double entry bookkeeping" ended in December, 1947. In the latter part of January or February, Mrs. Cowart took the six or seven "morning receipt books" to Mrs. Mitchell at the latter's apartment. Mrs. Cowart had planned to leave Dr. Mitchell's employ at the end of December, 1947, but there was difficulty in getting a girl to replace her, and she actually quit at the end of February, 1948.

The appellee not only concedes that Mrs. Cowart was an important witness against Dr. Mitchell, but it emphasizes the damaging nature of her testimony. In its brief, the appellee says:

"At the trial the testimony of Mrs. Cowart established Dr. Mitchell's participation in every important phase of the scheme--its initiation . . ., suspension during Mrs. Cowart's vacation . . ., termination at the end of the year . . ., and delivery of the hidden set of cash receipt books to Mrs. Mitchell . . ."

[Examination of Witness]

3. The Trial Judge Did Not Unduly Restrict Defense Counsel's Cross-Examination of Mrs. Cowart

In the official transcript of record before us, defense counsel's entire questioning of Mrs. Cowart is labeled "Cross-Examination". This, of course, is not conclusive that the Court permitted an adequate cross-examination of the witness. To determine this question, a careful analysis of the queries propounded to her is necessary, as well as some examination of the factual background.

Mrs. Cowart had testified before the grand jury that had brought in the present indictment, and at the trial was called as an adverse witness by the appellee. Dr. Mitchell was her physician, and she was a close personal friend of Mrs. Mitchell, whom she had known for fifteen years. Mrs. Mitchell herself testified regarding the relationship between the two women: "We are exceptionally good friends". It will be observed that Mrs. Mitchell here used the present tense, and was not referring merely to the feeling that existed between the two women before the income tax troubles arose.

Defense counsel examined Mrs. Cowart at great length. After the questioning had proceeded for several minutes--represented by ten pages of the printed transcript--Mrs. Cowart was excused from the stand when a message was received by the Court that her husband was in a dying condition at a local hospital.

Eight days later, the examination was resumed, continuing for 12 more transcript pages before it was interrupted by counsel for the appellee. It should be noted that from the very beginning of his questioning of the witness, up to the time of the interruption, the defense attorney himself had repeatedly referred to his queries as "cross-examination".

The interruption came when the defense attorney started to question Mrs. Cowart as to how money was being deposited (presumably by Dr. Mitchell) in 1947. The transcript shows that the following colloquy occurred:

"Q. Do you remember whether Appling (Special Agent) or Green (Internal Revenue Agent), either singly or together, any way, around the first of April of 1947 asked you anything about how money was being deposited in 1947, all the money was being deposited?

"A. No, I don't remember that.

"Q. To the best of your recollection was any such conversation ever had with you by either Green or Appling?

"A. No.

"Q. As a matter of fact, at that time, Mr. Green (sic), in the spring of 1947, they were concerned with and investigating 1947 and 1946, isn't that right?

"Mr. Fleming (counsel for the appellee). Well, I object to this.

"Mr. Dana (counsel for the appellants). I am asking if she knows.

"Mr. Fleming. Mr. Dana is testifying, not even asking the questions.

"Mr. Dana. This witness is for the purpose of cross-examination.

"Mr. Fleming. This is an adverse witness, and I will object to this as a leading question. Leading questions are normally permissible under cross-examination. However, that rule is subject to an exception where the witness proves to be in favor of the party who is the cross-examiner, and the danger of leading questions--

"The Court. Sustained.

"Mr. Dana. Let me clarify it, so I won't abridge your Honor's ruling, trespass on your Honor's ruling:

"This lady is put into the case as an alleged conspirator by the Government, called by them, and a lot of hearsay testimony admissible under that rule of conspiracy has been introduced. I don't believe I am limited to the rule of a person asking questions as a direct examiner, they bringing her here, I didn't.

"The Court. They brought her here in the capacity of an adverse witness and so announced to the Court.

"Mr. Dana. They call her a conspirator. Am I not allowed to cross-examine her? I will abide by the Court's ruling, but it seems to me I shouldn't be placed in that position.

"The Court. You will ask direct questions.

"Mr. Fleming. Mr. Dana can call the witness himself as his own witness and question fully in regard to these things.

"Mr. Dana. I will determine the defense, subject to the Court's ruling.

"The Court. I have already ruled. You shall ask direct questions.

"Mr. Dana. And treat this witness as practically--I mean, I may not cross-examine?

"The Court. That is correct.

"Mr. Dana. Very well, your Honor, I will abide by that."

Nevertheless, defense counsel did not give up trying. Fourteen times he asked Mrs. Cowart questions to which the attorney for the appellee objected as leading. Each time the Court sustained the objection.

Nor did the Court's sustaining of the objections defeat defense counsel in his attempts to ask questions that he believed might elicit the information he desired. The very first of the fourteen questions referred to above is typical. Referring to the plan to keep separate receipt books, already outlined, counsel asked:

"Q. Do you remember the substance or can you remember with any particularity your conversation with Dr. Vaughn Mitchell concerning this?

"A. Well, I believe I asked him if it was right that Dorothy was to have some money from the office, the morning receipts, and kept in a separate--and give her receipt book or something to that effect. I can't remember any exact conversation that I had, how it was worded.

"Q. Was the word 'receipt book' or the word a 'separate'--

"Mr. Fleming: The question is leading, if the Court please.

"The Court. Sustained."

Thereupon, counsel reframed the question as follows:

"Q. (By Mr. Dana): Can you tell us whether or not the word 'receipt book' was used or the word (sic) 'a separate account of it'?"

To this question, no objection was made, and the witness gave her answer.

It is well settled that the extent of cross-examination and the restriction of the use of leading questions rest in the sound discretion of the trial court. St. Clair v. United States, 1894, 154 U. S. 134, 150; Alford v. United States, 1931, 282 U. S. 687, 694; Glasser v. United States, 1942, 315 U. S. 60, 83.

The object of examination is to get the facts. Whether direct or cross questions best serve that end depends upon circumstances. The trial judge is in a better position than is this Court to determine the precise point at which the asking of leading questions should be brought to a halt. He sees the witness and hears the testimony, and thus has a better opportunity to assess the true situation existing at any given posture of the case, than can we from the cold record. The discretion of an experienced trial judge in this, as in other respects, should not be lightly disregarded.

We find that the trial court did not abuse its discretion in limiting the cross-examination of Mrs. Cowart.

[Prior Indictment]

4. Testimony Relating To Dr. Mitchell's Income Taxes For 1942-1946 Concededly Was Admissible, And The Appellants Are Not In Position To Complain Of The Instructions Thereon

On February 16, 19 49, Dr. Mitchell was indicted on five counts on the charge that he "did wilfully and knowingly attempt to defeat and evade" his income tax for the years 1942-1946, inclusive. A sixth count charged that he "attempted to defeat and evade" Mrs. Mitchell's income tax for 1946. All six counts were based on 26 USCA §145(b). Dr. Mitchell was acquitted on all counts.

Much evidence was introduced by the appellee concerning the investigation for 1942-1946. The appellants "have . . . not challenged the admissibility of the evidence, but merely the failure of the trial judge to instruct the jury properly about the inferences that could be drawn from it".

The relevancy of this evidence is clear. The record shows that on November 5, 19 46, Agent Green had the following conversation with Dr. Mitchell:

"A. I told the doctor that I had just finished adding up the bank deposits for the years 1942 through 1945 and had compared them with the gross receipts as reflected on his tax returns for those years and had found a large discrepancy.

"Q. What did he say to that?

"A. He asked me if I had any idea of what the figure was, and I told him I could only give him a very preliminary estimate and the figure I quoted to him was $100,000.

"Q. And how did you tell him you had arrived at that figure?

"A. I told him I had arrived at it by totalling the bank deposits.

* * *

"He asked--I don't remember whether it was just at that very moment or a little while later if he asked that--that he asked whether he should have an accountant.

* * *

"I told him that since the girls had mentioned and had told me that all money that was taken in by the profession was deposited and that all expenses of his practice were paid by check, that an accountant would not be necessary because they get the figures right from the bank account and right from the checking account and that if there was any problem that they ran into I was available for him as we are in all cases.

"Q. Did you say what figures could be used for gross income?

"A. I told him that the bank deposits, since I had been informed all money was put in that account or accounts, would be the basis of his gross receipts."

As has already been stated, there is evidence that the appellants, in January, 1947, evolved the scheme relating to the double sets of cash receipt books. Since that plan was hatched a month or two after the above conversation with Agent Green, it is the appellee's theory that the appellants' ingenious double-book plot was unwittingly suggested to them by Agent Green. In other words, under the new scheme, the bank deposits would no longer reflect the Doctor's gross income.

The above-quoted testimony of Green supports that theory and was properly admitted.

The appellants, however, specify as error the trial court's failure to instruct the jury that Dr. Mitchell's acquittal on similar charges for the years 1942-1946 "conclusively established that no wilful attempt to evade taxes had been made in those years".

The court charged as follows:

"You are instructed that the guilt or innocence of Dr. Vaughn H. Mitchell on charges of tax evasion for the years 1942 to 1946, inclusive, is not to be considered by you in determining his guilt or innocence on the charges which are now before you, nor are you to consider for any purpose whatsoever the result of any previous trial."

The appellants do not deny that they failed to comply with Rule 30 of the Rules of Criminal Procedure, in that they did not object to this instruction before the jury retired, "stating distinctly the matter to which" they objected and "the grounds" of their objection. They assert, however, that they "brought out this point sharply on their argument for a new trial". Such an objection, of course, is not a compliance with Rule 30. Neither is it a compliance with our Rule 18(2)(d), which provides in part:

"When the error alleged is to the charge of the court, the specification shall set out the part referred to totidem verbis, whether it be in instructions given or in instructions refused, together with the grounds of the objections urged at the trial." (Italics supplied.)

The instruction complained of dealt with a special fact-situation of the case at bar, and was not of a "stock" nature. It was therefore of a type that comes peculiarly within the sweep of Rule 30, as was pointed out at some length by us in the recent cases of Kobey v. United States, 9 Cir., 1953, 208 Fed. (2d) 583, 587-588, 597-598 [54-1 USTC ¶9106], and Benatar v. United States, 9 Cir., 1954, 209 Fed. (2d) 734, 743-745 [54-1 USTC ¶9174], certiorari denied May 24, 19 54. 1

But even if the instruction in question were to be considered on its merits, it would be found that the appellants have no substantial cause for complaint. Their own brief sets forth that the evidence "about the Doctor's understatement of income in his return (was) for the avowed purpose of establishing a pattern of wilful conduct which persisted into the year in question." The instruction thus frustrated the appellee's strategy completely, for the trial court bluntly and unqualifiedly told the jurors that they were not to consider the question of guilt or innocence under the 1942-1946 charges against Dr. Mitchell "in determining his guilt or innocence on the charges which are now before you".

Finally, a study of the record convinces us that the jury could have had no doubt of Dr. Mitchell's acquittal on the earlier charges.

[Deficiencies for 1938-1941]

5. Evidence Of Deficiencies In Income Taxes For The Years 1938-1941 Was Properly Admitted Against Dr. Mitchell

The appellants also complain that "The Court committed reversible error in permitting the prosecution to introduce evidence, over objection, of deficiencies" in Dr. Mitchell's income taxes for the years 1938-1941, inclusive.

As to Dr. Mitchell himself, the evidence was admissible, relating as it did to "other transactions or a course of fraudulent conduct . . . to establish fraudulent intent as an element of the crime charged." Michelson v. United States, 1948, 335 U. S. 469, 475-476, note 8. 2

With regard to how remote such similar acts may be in point of time, the discretion of the trial court is broad. In II Wigmore on Evidence, Third Edition, 1940, Section 316(2), Page 217, we find the doctrine thus stated:

"(2) The length of time over which we may range in search of evidential instances is obviously determinable by no fixed rule. The precedents illustrate various lengths of time. The discretion of the trial Court should here control."

As to Mrs. Mitchell, the appellants assert that "Dorothy Mitchell had no connection whatsoever with the Doctor's tax returns and tax liabilities forth years 1938-1941. She did not marry him until 1944." No objection on Mrs. Mitchell's special behalf, however, was made by the appellants to the admission of this testimony; counsel merely remarked that he didn't "believe that is material to this, to anything in this inquiry". Furthermore, the jury was in no way misled, for the questioning on this subject repeatedly specified Dr. Mitchell only: "Now, with respect to 1938, will you tell us what was the amount reported by Dr. Mitchell?", "Will you tell me how much was reported by Dr. Mitchell in 1940?", "These (figures) represent, as I understand it, the actual income that you determined in your investigation in the spring of 1947 that the Doctor made in 1938, 1939, 1940 and 1941?", etc. There was no prejudicial error here.

6. Conclusion

The appellants specify a number of other asserted errors, which need not be discussed here. We have considered them all and find that they exhibit no reversible error.

This Court is convinced that each appellant received a fair trial, and that there was abundant evidence to support their conviction. Each judgment is therefore.

Affirmed.

1 See also Boyd v. United States, 1926, 271 U. S. 104, 108, and Ziegler v. United States, 9 Cir., 1949, 174 Fed. (2d) 439, 448, certiorari denied, 1949, 338 U. S. 822.

2 See also McCoy v. United States, 9 Cir., 1948, 169 Fed. (2d) 776, 783, certiorari denied, 1948, 335 U. S. 898; Himmelfarb v. United States, 9 Cir., 1949, 175 Fed. (2d) 924, 941 [49-1 USTC ¶9313], certiorari denied, 1949, 338 U. S. 860; Norwitt v. United States, 9 Cir., 1952, 195 Fed. (2d) 127, 133 [52-1 USTC ¶9252], certiorari denied, 1952, 344 U. S. 817.

 

 

[54-1 USTC ¶9379] United States of America v. Nick Manno, Sam Manno, Fred Manno and Thomas Manno United States of America v. Samuel Pardy and Thomas Manno

In the United States District Court for the Northern District of Illinois, 53 CR 421, 422, 118 FSupp 511, January 13, 1954

Criminal prosecution: Sufficiency of indictment.--Motion to dismiss was denied on the ground that the indictment charging that defendants attempted to evade income taxes for certain years by filing false returns and understating net income sufficiently charged violation of statute against attempted income tax evasion.

Criminal prosecution: Sufficiency of indictment: Joinder of counts.--As a ground for motion to dismiss, defendants claimed that there was a misjoinder of counts in that the indictments concerned different persons, different tax years, with no allegation that the alleged offenses arose out of the same act or transactions or constituted part of a criminal scheme. There was no merit in the contention, because those defendants who were partners in the same firms for similar periods of time were joined in the indictments and the counts concerned the individual returns of the partners for the years involved in the duration of the respective firms' existence. All the partners' returns would be directly affected by any misstatement in their firm's return.

Criminal prosecution: Defenses: Reason for prosecution.--It was contended that the Internal Revenue officials discriminated against so-called "racketeers," singling their cases out for prosecution and not utilizing the statutory authority of compromise under Code Sec. 3761 and that said Code Section is unconstitutional since it contains no standard of admin istrative action. The contention was overruled on the ground that the admin istration of such matter lies in the discretion of the prosecuting attorney.

Criminal prosecution: Evidence: Defendants' signatures procured "by ruse."--Defendants argued that the Government by a ruse procured their signatures by requesting them to call in person for registered mail. The Court was of the opinion that there could be no objection to the manner in which the Government procured the signatures on registered letters.

Criminal prosecution: Evidence: Motion to suppress.--As the ground for their motion to suppress, defendants asserted that they were prevailed upon to deliver their books and records to the Government with the understanding that the purpose of the investigation was civil and not with a view to criminal prosecution. Since there was controversy as to the circumstances surrounding the examination of the books and their relinquishment to the Government, this controversy needs to be resolved by evidentiary proof and defendants are entitled to a hearing in order to determine the precise facts surrounding the investigation.


Criminal prosecution: Incrimination before Grand Jury.--Since defendants had been subpoenaed to appear before the grand jury merely as witnesses, there was no violation of their constitutional rights against self-incrimination, even though they were later indicted by the same Grand Jury.

Crawford & Healy, One North La Salle Street, Chicago 2, Ill., for defendants Nick Manno, Sam Manno and Fred Manno. George F. Callaghan, 105 West Adams Street , Chicago 3, Ill. , for defendants Samuel Pardy and Thomas Manno. Otto Kerner, Jr. , United States Attorney, 450 United States Courthouse, Chicago 4, Ill. , for plaintiff.

Memorandum and Order

HOFFMAN, District Judge:

The defendant Thomas Manno has moved to dismiss indictment 53 CR 421. The defendants Thomas Manno and Samuel Pardy, by motion and amended motion, have moved to dismiss indictment 53 CR 422.

The defendants Nick Manno, Sam Manno and Fred Manno have moved to dismiss indictment 53 CR 421 and to suppress and order the return of evidence.

The indictment in 53 CR 421 is against Nick, Sam, Fred and Thomas Manno, containing 16 counts charging violation of Section 145(b), 26 U. S. C. This indictment was returned June 22, 19 53. The indictment in general charges wilful and fraudulent evasion of income tax liability by understating net income and resultant tax. The first three counts relate to Nick Manno and cover the years 1947-1949. The second three counts relate to Sam Manno for the same period. The third three counts pertain to Fred Manno for the same period. The tenth count concerns Thomas Manno for the year 1947. The eleventh count covers all four Mannos in connection with the return of one Tremont for the year 1947. The twelfth count concerns all Mannos in connection with the return of one Manning for the year 1947. The thirteenth and fifteenth counts concern Nick, Sam and Fred Manno in connection with the returns of Tremont for the years 1948 and 1949. The fourteenth and sixteenth counts concern Nick, Sam and Fred Manno in connection with the return of Manning for the years 1948 and 1949.

The indictment in 53 CR 422, also returned on June 22, 19 53, charges a similar offense of income tax evasion in the first three counts by Sam Pardy for the years 1948-1950, and in the second three counts by Thomas Manno for the same three years.

The motion to dismiss, filed on behalf of Thomas Manno in 53 CR 421, urges (1) insufficiency of Counts 10, 11 and 12 for the following reasons: (a) uncertainty of allegation of accusation; (b) failure to state an offense; (c) insufficient averment of the elements of a crime, thereby making it impossible for the defendant to prepare a defense; and (d) vagueness of charge such as to violate the Sixth Amendment to the Constitution; (2) improper joinder and consolidation of charges against Thomas Manno in Counts 10 to 12, with charges against others in Counts 1 to 9, in that the various offenses charged are distinct and separate offenses committed by others than Thomas Manno; (3) the large number of counts containing misjoinder of parties and offenses results in the confusion of the Court and the defendant, to his prejudice; (4) the indictment violates the provisions of Rule 8 of the Federal Criminal Rules.

The motions to dismiss, on behalf of the four Mannos, and the motion to suppress concern these issues:

1. The Treasury officials have arbitrarily selected persons they deem to be of the "racketeer" type to be prosecuted, and have therefore unconstitutionally discriminated against them and refused to use the authority to compromise given by Section 3761 of the Internal Revenue Code. It is claimed also by the four Mannos that the Section itself is unconstitutional inasmuch as it contains no standard of administrative action.

2. The evidence--certain books and records of the defendants--should be suppressed and the indictments based on them quashed because they were obtained from the defendants by the trickery of the Government officials, who stated their investigation was for the determination of civil liability of the defendants. The defendants therefore contend that the evidence was obtained by unreasonable search and seizure.

The defendants also argue that the Government by a ruse procured the defendants' signatures by requesting them to call in person for registered mail. The defendants also complain that they were subpoenaed before the Grand Jury and forced to appear and that their claim of privilege inevitably resulted in their testifying against themselves.

3. It is claimed further that there is a misjoinder of counts in the indictment inasmuch as the indictment concerns different persons, different tax years, with no allegation that the alleged offenses arise out of the same act or transactions or constituting part of a criminal scheme.

A separate motion to dismiss and an amendment thereto have been filed on behalf of the defendants Samuel Pardy and Thomas Manno in 53 CR 422, which raise substantially the same points above outlined.

The Government has filed answers to the motions to dismiss based on misjoinder, alleging that as to indictment 53 CR 421 the tax evasions charged were predicated upon unreported partnership income for various firms in which the several defendants or some of them were partners.

Extensive briefs have been filed by the respective defendants and by the Government in support of their positions. Inasmuch as the motions to dismiss and to suppress raise related issues, they will be considered together.

Sufficiency of Form of Allegations of Indictments

As above indicated, the defendants challenge the phraseology and form of the indictments in many respects. There can be no quarrel with the defendants' abstract statement of the rule of law that the "defendant is entitled to such facts in the indictment as will enable him to understand the accusation against him and to prepare for his defense" or with the rulings of the cases aptly cited in support thereof. However, indictments in phraseology paralleling the instant indictments have been held sufficient against such an attack. Reference is made to the case of Himmelfarb v. United States, 175 Fed. (2d) 924 [49-1 USTC ¶9313], where the Court said at page 925:

"Indictment charging that defendants attempted to defeat and evade federal income taxes for certain years by filing false tax returns and understating net income and income tax sufficiently charged violation of statute against attempted income tax evasion."

To the same effect are the holdings in Cave v. United States, 159 Fed. (2d) 464 [47-1 USTC ¶9171]; Potson v. United States, 171 Fed. (2d) 495 [49-1 USTC ¶9119]; United States v. Yeoman-Henderson, Inc., 193 Fed. (2d) 867 [52-1 USTC ¶9155]; Guzik v. United States, 54 Fed. (2d) 618 [1931 CCH ¶9681]; and United States v. Skidmore, 123 Fed. (2d) 604 [41-2 USTC ¶9716].

Misjoinder of Offenses and Misjoinder of Defendants

In answer to the defendants' assertions of misjoinder of offenses and defendants, the Government states that if relief on that ground be grantable at all it must be effected by severance of offenses or defendants under Rule 14 and that a dismissal on the ground of misjoinder is reversible error under the decision of the United States Court of Appeals for the Fifth Circuit in the case of United States v. Northeast Texas Chapter, National Electrical Contractors Association, et al, 181 Fed. (2d) 30, and the case of Finnegan v. United States, 204 Fed. (2d) 105, decided by the United States Court of Appeals for the Eighth Circuit. In the latter case the Court said at page 109:

"The motion to dismiss for misjoinder need only be given passing notice. Defendant was not in any event entitled to a dismissal of the indictment because of misjoinder. (Citing cases)" (Italics supplied)

The Government's answer sets forth the factual bases for the joinder of the defendants and offenses and makes it sufficiently clear that there is a logical reason for their joinder. These various defendants were partners in different firms for varying periods of time. Those who were partners in the same firms for similar periods of time were joined in the respective indictments. The counts, though numerous, concern the individual returns of the respective partners for the years involved in the duration of the respective firm's existence. Since the gist of the indictments is the understatements of the partners' individual returns by the amounts unreported in the respective firm's income tax returns, there is a definite and unifying core around which revolve the numerous offenses and defendants charged in the indictments. It is obvious that all the individual partners' returns will be directly affected by any misstatement in their firm's return.

Rule 8 of the Federal Rules of Criminal Procedure provides the criteria for joinder to be "whether the offenses charged are of the same or similar character or are based on the same act or transaction or on two or more acts or transactions connected together or constituting parts of a common scheme or plan" and defendants may be joined who are alleged "to have participated in the same act or transaction or in the same series of acts or transactions constituting an offense or offenses * * *." Such a connection seems evident in this case.

In the case of Morris v. United States, 12 Fed. (2d) 727 [1926 CCH ¶7126], the Court of Appeals for the Ninth Circuit sanctioned consolidation for trial of six indictments charging partners with making false partnership and individual returns. In the Skidmore case, 123 Fed. (2d) 604, an indictment covered charges of tax evasion for the years 1933 to 1937 inclusive. The Court of Appeals for the Seventh Circuit said at page 607:

"The general form of this indictment has been approved by this court many times." (Citing Capone v. United States , 56 Fed. (2d) 927 [3 USTC ¶885]; Guzik v. United States, 54 Fed. (2d) 618 [1931 CCH ¶9681]; and O'Brien v. United States, 51 Fed. (2d) 193 [1931 CCH ¶9474].)

As to joinder in one indictment of counts covering tax evasion for several years, the Court of Appeals for the Second Circuit said in the case of United States v. Sullivan, 98 Fed. (2d) 79 [38-2 USTC ¶9429], at page 80:

"Although the attempt to evade the tax for a given year is a separate offense from an attempt to evade the tax for a different year; they are clearly crimes 'of the same class.' Moreover, the evidence of intent to evade the tax in one year is competent evidence of intent to evade the tax in a later year. * * * Indeed, the crimes charged in the indictment describe one course of conduct extending over several years, which results in separate offenses simply because the duty to file a return and pay the tax is one that recurs every twelve months. Under these circumstances we think it very clear that joinder of the charges was proper."

The same evidential showing, that is to say, an understatement of partnership income for a particular year will automatically affect each partner's income for the year involved.

Constitutional Attack on Ground That Statute Relating to Compromise Is Discriminatorially Used Against "Racketeers"

It is the defendant's contention that the Internal Revenue officials have discriminated against so-called "racketeers", singling their cases out for prosecution and not utilizing the statutory power of compromise. In support of their position the defendants have cited cases outlining the proper administration of Government, but none of them touches closely to the instant case. These decisions may be summed up by saying that citizens are entitled to equal protection of the law but these decisions do not hold that citizens are entitled to equal protection from the laws. The fact that not all criminals are prosecuted is no valid defense to the one prosecuted. As the Government points out, and many cases support its position, the administration of such matter lies in the discretion of the prosecuting attorney. The Government also calls attention to the fact that the designation of "racketeer" type is unrelated to the return of indictments by grand juries who have no knowledge of the Treasury Department's characterization of the case.

Long ago the Supreme Court, in the "Confiscation Cases", 74 U. S. 454, took this position:

"Public prosecutions, until they come before the court to which they are returnable, are within the exclusive direction of the district attorney. * * *"

In a suit where the United States sought forfeiture of an automobile, Judge Sparks stated ( United States v. One 1940 Oldsmobile, 167 Fed. (2d) 404, at page 406) that:

"There is quite a large discretion vested in the District Attorney to resubmit a presentment to the Grand Jury, or to subsequent grand juries, and this is not subject to the control of the District Court."

Obtaining Signatures of Defendants in Registry Postal Office Through Trickery

Defendants complain about the postal authorities requiring defendants to pick up mail at the post office and signing therefor after identifying themselves, instead of delivering the mail to their known addresses as was customary, in order to obtain accurate signatures for use by handwriting experts. The Government's reply is that, conceding for the purpose of the motion the facts to have been as stated, they are immaterial in connection with the question of a motion to dismiss, inasmuch as it is not known whether they were introduced as evidence before the Grand Jury, or whether the indictments were procured upon other evidence legally introduced. In this connection the Government cites Shushan v. United States, 117 Fed. (2d) 110; Friscia v. United States , 63 Fed. (2d) 977. The Court can find no fault with the Government's procuring the signatures on registered letters. This is a duty performed pursuant to regulation, although the Government may have had an ulterior motive in requiring the defendants to pick up the letters in person so that they might be certain to have the signature of the defendants in person. The purpose of requiring signatures to registered letters is to make absolutely certain that the addressee receives the letter. The Government had that duty to the sender.

Motion to Suppress

The defendants assert in their argument on their motion to suppress that initially the Government agents made arrangements to have their usual investigation of the books of the firms of which the defendants were partners, as they had done in previous years, and permission was granted to make the investigation. A subsequent investigation was made some months later, and the circumstances surrounding that later investigation gave rise to the instant motion. The defendants contend that the Government agents by stealth and misrepresentation obtained permission to make further examination of the books. The defendants assert that they were "prevailed upon to deliver their records to Government officials with the understanding that the purpose of the investigation was civil and not with a view to criminal prosecution."

The Government in its brief replies in substance that the defendants voluntarily made their records available for the inspection of the revenue agents at the time the investigation commenced, and that at that time there was no evidence that criminal prosecution was contemplated; that the facts show that the defendants had been investigated in the past and that there had been no evidence uncovered by the investigating agents of criminal fraud. The Government avers that there was no occasion or necessity for warning the defendants that any statements they might make or documents they might produce would be used against them in a criminal prosecution. The Government asserts further that when the revenue agent uncovered circumstances that indicated the possibility of criminal fraud, the defendants were advised of these facts and told that the matter would be turned over to the Intelligence Division. It is evident that there is a factual controversy as to the circumstances surrounding the examination of the books and their relinquishment to the Government. In the opinion of the Court, this controversy needs to be resolved by evidentiary proof. The principles of law relative to the legality of investigations of books and the evidence procured therefrom seem well settled. Evidence obtained by stealth is subject to a motion to suppress. Gouled v. United States , 255 U. S. 298, at 305. On the other hand, evidence voluntarily furnished is admissible inasmuch as the privilege against self incrimination may be waived. Nicola v. United States , 72 Fed. (2d) 780 [4 USTC ¶1331]; Hanson v. United States, 186 Fed. (2d) 61 [51-1 USTC ¶9118].

The Court is of the opinion that the defendants are entitled to a hearing in order to determine the precise facts surrounding the investigation.

Violation of Fifth Amendment by Forcing Defendants to Appear Before Grand Jury and Claim Privilege Against Self Incrimination

The defendants assert that the law condemns the calling of defendants before the Grand Jury where they thereafter claim privilege against self incrimination to their resultant detriment, and cite in support of this position the cases of United States v. Lawn, 53-1 USTC ¶9288, and United States v. Housing Foundation of America, 176 Fed. (2d) 665. The Government distinguishes these cases on the ground that they involve persons against whom criminal proceedins had already been brought and had resulted in information or indictments, whereas the defendants here were merely witnesses when they were called before the Grand Jury, and the Government insists that the law is well settled that the appearance of a witness before a Grand Jury in response to a subpoena does not constitute a violation of his constitutional rights against self-incrimination even though the witness is later indicted by the same Grand Jury. Many cases are cited by the Government to support its contention.

The Fifth Amendment, guarantee against self incrimination, is applicable to investigations by a Grand Jury (United States v. Monia, 317 U. S. 424, 427) but as there said:

"The Amendment speaks of compulsion. It does not preclude a witness from testifying voluntarily in matters which may incriminate him. If, therefore, he desires the protection of the privilege, he must must claim it or he will not be considered to have been 'compelled' within the meaning of the Amendment."

The protection afforded by the Fifth Amendment is to permit a person to claim the privilege against self-incrimination if he wishes so to do, but the Amendment does not prevent his being called to testify where he makes his election to testify or not to testify. As was said in O'Connell v. United States, 40 Fed. (2d) 201, at page 205:

"The final contention of the appellant is that regardless of the details of his examination, it was a violation of his rights under the Fifth Amendment to require him to be sworn and examined before the grand jury, because its investigation, though ostensibly general, was in reality an attempt to secure from his own mouth evidence upon which to indict him. Some judicial support may be found for such a view. * * * But it has not prevailed generally. * * * The mere summoning of a witness before the grand jury gives no basis for the assumption that his constitutional privilege will be impaired. * * *"

The respective motions of the defendants in cases 53 CR 421 and 53 CR 422 for the dismissal of the indictments are denied.

 

 

[58-1 USTC ¶9173]George M. Mason, Appellant v. United States of America , Appellee

(CA-10), U. S. Court of Appeals, 10th Circuit, No. 5639, 250 F2d 704, 12/18/57, Affirming unreported District Court decision

[1939 Code Sec. 145(a)--similar to 1954 Code Sec. 7203]

Crimes: Due process of law: Right to waive trial by jury and demand trial by the court: Right to plead nolo contendere: Admission of evidence.--Taxpayer is appealing a conviction on either counts of wilfully and knowingly failing to make and file income and employment tax returns, on the ground that he was denied due process of law. Held, the right to waive a trial by jury and demand a trial by the court is not an absolute one, but must be with the approval of the court and consent of the government. Held further, the trial court did not abuse its discretion in refusing to accept a plea of nolo contendere. Held further, the taxpayer was not prejudiced by any admission or exclusion of evidence. Conviction affirmed.

Walter L. Budge for appellant. C. Nelson Day, Assistant United States Attorney (A. Pratt Kesler , United States Attorney, was with him on brief), for appellee.

Before HUXMAN, MURRAH and BREITENSTEIN, United States Circuit Judges.

HUXMAN, Circuit Judge:

Appellant George M. Mason, was duly tried and convicted by a jury on an eight count information in the United States District Court for the District of Utah. Count one and two charged him with wilfully and knowingly failing to make and file an income tax return for the years 1952 and 1953, respectively. Counts three through eight charged him with wilfully and knowingly failing to file employment tax returns for the periods set out in the various counts. Trial was had to a jury and it found appellant guilty on all counts. He was sentenced to serve six months and one day on each of counts one, two, three and four, the sentences being made to run concurrently. Sentence on counts five, six, seven and eight was suspended and as to those counts he was placed on probation for two years.

One general assignment of error is urged for reversal. It is that "Trial of appellant in the court below was not conducted in a manner 'fair' as guaranteed by the Constitution of the United States of America ." The gist of this is to say that the trial resulted in a denial of due process. This general assignment is broken down into three parts.

[Right to Trial by Court]

It is urged that the court violated appellant's Constitutional rights by requiring trial by jury. Appellant sought to waive trial by jury and requested a court trial. Over appellant's objection, the court submitted the case to a jury for trial. Trial by jury is guaranteed to an accused by the Sixth Amendment to the Constitution and by Article 3, Section 2 of the United States Constitution. It is argued that trial by jury is a privilege accorded to the accused which he may waive and when waived by him and a trial by the court is requested the request must be granted.

In most cases where this question has been considered the accused had waived the right to a jury trial and the question then arose whether there was a valid Constitutional waiver of such right. No cases are cited and our search has failed to reveal one in which the precise question of an accused's right to waive a jury trial and demand trial by the court was in issue. We, however, feel that the philosophy of the law is well established that the trial court is vested with a sound discretion in determining whether a jury trial should or should not be had, notwithstanding the accused's request that he be tried to the court. Such is the sense of Rule 23(a) of the Federal Rules of Criminal Procedure which provides that "Cases required to be tried by jury shall be so tried unless the defendant waives a jury trial in writing with the approval of the court and the consent of the government." Under this rule, the right to waive a jury and be tried to the court is not an absolute one; it requires the approval of the court and the consent of the government. Such we think is also the philosophy of the law as declared by the Supreme Court in Patton v. United States, 281 U. S. 276, 312, where the Court said:

"In affirming the power of the defendant in any criminal case to waive a trial by a constitutional jury and submit to trial by a jury of less than twelve persons, or by the court, we do not mean to hold that the waiver must be put into effect at all events. That perhaps sufficiently appears already. Trial by jury is the normal and, with occasional exceptions, the preferable mode of disposing of issues of fact in criminal cases above the grade of petty offenses. In such cases the value and appropriateness of jury trial have been established by long experience, and are not now to be denied. Not only must the right of the accused to a trial by a constitutional jury be jealously preserved, but the maintenance of the jury as a fact finding body in criminal cases is of such importance and has such a place in our traditions, that, before any waiver can become effective, the consent of government counsel and the sanction of the court must be had, in addition to the express and intelligent consent of the defendant. And the duty of the trial court in that regard is not to be discharged as a mere matter of rote, but with sound and advised discretion with an eye to avoid unreasonable or undue departures from that mode of trial or from any of the essential elements thereof, and with a caution increasing in degree as the offenses dealt with increase in gravity." 1

[Right to Plead Nolo Contendere]

Appellant's contention that the trial court violated due process in refusing to accept appellant's offer to plead nolo contendere is not well taken. Rule 11 of the Federal Rules of Criminal Procedure provides that "A defendant may plead not guilty, guilty or, with the consent of the court, nolo contendere * * *" It is not necessary to decide whether a refusal to accept a plea of nono contendere under certain circumstances may constitute an abuse of descretion. All the cases hold that the trial court is vested with a broad discretion in determining whether a plea of nolo contendere shall be accepted. 2 The record is devoid of any suggestion that the court abused its discretion in refusing to accept the plea.

[Admission of Evidence]

Finally, it is contended that such grave errors were committed throughout the trial in the admission and rejection of evidence as to result in the denial of due process. We have examined the lengthy record of 375 pages. It contains a great amount of detailed evidence relating to receipt of money by appellant, not only in the years in question but in other years as well, with respect to his failure to file income tax returns in a number of years other than the ones in question. There was also a great deal of detailed evidence of questionable probative value, cumulative evidence, and matters of that kind. It may be conceded that much of this evidence might well have been eliminated. It is sufficient, however, to say that there was little objection to the receipt of any evidence. The trial court gave clear, full and correct instructions on all material issues. Assuming without deciding that evidence was erroneously received and that some was also excluded, none of it was of such a nature as to be offensive to the concept of a fair and impartial trial as contemplated by what is meant by due process. In other words, the record is devoid of any suggestion showing that the trial was not carried on in a wholesome manner having due regard to the protection of every right afforded appellant by the law of the land.

Affirmed.

1 Reaffirmed in Adams v. United States ex rel. McCann, 317 U. S. 269, 275.

2 United States v. Standard Ultramarine & Color Co., 137 Fed. Supp. 167; A. B. Dick Co. v. Marr, 95 Fed. Supp. 83; United States v. Jones, 119 Fed. Supp. 288; United States v. Safeway Stores, 20 F. R. D. 451.

 

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