Admissibility
3 Page5
[64-1 USTC
¶9316]United States of America v. Morris C. Goldberg, also known as Moe
Goldberg and M. C. Goldberg, Appellant
(CA-3), U. S. Court of Appeals,
3rd Circuit, No. 14,148, 330 F2d 30, 3/17/64, Affirming District Court,
62-2 USTC ¶9638, 206 F. Supp. 394
[1954 Code Sec. 7201]
Criminal evasion: Admission of evidence: Books and records improperly
taken by employees.--It was not error to admit in evidence books and
records of the taxpayer which had been taken by two of his employees and
later turned over to the government.
[1954 Code Sec. 7201]
Criminal evasion: Instructions to jury: Corporate distributions.--There
was no error in the trial judge's failure to instruct the jury on the
limitations on taxability of corporate distributions. It was not
necessary to label the funds the taxpayer took from his corporation.
[1954 Code Sec. 7201]
Criminal evasion: Consistency of verdicts.--Verdicts on counts
alleging individual liability of the taxpayer were not repugnant to
verdicts on counts involving his corporations.
[1954 Code Sec. 7201]
Criminal evasion: Improperly qualified juror.--Motion for
mistrial was properly denied where one unqualified juror was replaced by
an alternate, since all jurors who passed upon the case were qualified.
[1954 Code Sec. 7201]
Criminal evasion: Jurisdiction: Situs of preparing return v. situs of
filing.--Evidence indicated that returns were prepared in
Pennsylvania
, thus giving Pennsylvania District Court jurisdiction.
J.
Shane Creamer, Assistant United States Attorney, 4042 U. S. Courthouse,
Philadelphia
,
Pa.
19107
, for appellee. Thomas D. McBride, Wolf, Block, Schorr &
Solis-Cohen, 12th Floor, Packard Bldg., Philadelphia, Pa. 19102, for
appellant.
Before
BIGGS, Chief Judge, MCLAUGHLIN and GANEY, Circuit Judges.
Opinion of the Court
GANEY,
Circuit Judge:
The
appellant here, Morris C. Goldberg, was convicted after a trial by a
jury in the District Court [62-2 USTC ¶9638] for the Eastern District
of Pennsylvania, under an indictment wherein he was jointly charged with
Rudolph Csicsek (hereinafter known as "Rudy") with several
offenses concerning income taxes, due from him personally, as well as
from some corporations, thirteen in number, which he allegedly
controlled. The indictment contained fifty-one counts and covered the
years 1955 and 1956, pursuant to 26 U. S. C. Sec. 7201 (1954).
Rudy
subsequently plead nolo contendere, later numerous counts were
withdrawn, and the only ones submitted to the jury were one, two, three,
four, five, seven, eight and nine. A verdict of guilty on all counts was
rendered by the jury and later the court granted the appellant's motion
in arrest of judgment as to count one. Accordingly, on this appeal we
are concerned only with counts two, three, four, five, seven, eight and
nine.
The
respective counts are as follows: Count two charged the appellant,
Goldberg, with wilfully and knowingly attempting to evade a large part
of his individual taxes owing to the Government by filing and causing to
be filed a false and fraudulent individual income tax return for the
year 1955. Count three charged the appellant with the same offense for
the year 1956. Count four charged the appellant, as President of the
Pennsylvania Coat and Apron Supply Co. of New Jersey, with wilfully and
knowingly attempting to evade a large part of the taxes owing by that
corporation for the period January 1, to
September 1, 19
55, by filing and causing to be filed a fraudulent tax return for that
corporation. Count five charged the appellant, as President of the
Pennsylvania Laundry Co., with the same offense for the calendar year
1955. Count seven charged the appellant, as President of the
Pennsylvania Coat and Apron Supply Co., a
Pennsylvania
corporation, with the same offense for the calendar year 1956. Count
eight charged the appellant, as President of Anderson's Empire Coat,
Apron and Towel Supply, Inc., with knowingly and wilfully evading a
large part of the taxes due and owing to the Government by that
corporation, by causing to be prepared and causing to be filed in the
District of Camden, Camden, New Jersey, a false and fraudulent return
for that corporation for the calendar year 1955. Count nine charged the
appellant, as President of Anderson's Empire Coat, Apron and Towel
Supply, Inc., with the same offense for the calendar year 1956.
The
record discloses that the appellant, as President of some thirteen
corporations which were engaged largely in the linen supply business,
directly or indirectly owned all of the stock in these corporations. In
addition to the corporations here above mentioned, there must be
included also the Keystone Coat and Apron Manufacturing Corp., the
Keystone Mercantile Corp. and Gold Tex Fabrics Corp.
On
December 31, 19
54, the Loans and Exchange Accounts in appellant's corporations showed
that he was personally indebted to them in the sum of $387,390.14,
largely carried on the books of the Keystone Coat and Apron
Manufacturing Corp. and the Keystone Mercantile Corp., and as of
June 22, 19
55, this amount had been reduced to the sum of $280,000.00. These Loans
and Exchange Accounts were made up of checks issued by the corporations
to the appellant for his personal use and deposited in banks to his
personal account and, additionally, amongst other things, in connection
with oil gas leases, race track betting, as well as checks made payable
to other individuals or corporations at appellant's direction and
included the years 1955 and 1956.
In
order to meet expansion programs and to have a more efficient operation
of his business, the appellant sought a long-term loan of $2,000,000
from the Jefferson Life Insurance Company early in 1955. The insurance
company advised him, after making a survey of his various corporations,
including visits to his plants, that they would grant the loan if his
personal indebtedness to the corporations was reduced by $120,000, as of
September 1, 19
55, and if the Pennsylvania Coat and Apron Supply Co. became merged with
the Pennsylvania Laundry Co., as of that date. This seemed like an
impossible requirement and the appellant attempted to borrow $280,000 in
June of 1955 from a certain bank in Philadelphia, but being unable so to
do, he undertook to meet the insurance company's requirement by
proposing to it in a letter dated June 18th, that he reduce his
indebtedness, as evidenced by his Loans and Exchange Accounts in 1955,
by paying off $70,000 in July, $90,000 in August, and $10,000 a month as
a minimum thereafter. As of
September 1, 19
55, the merger of the Pennsylvania Coat and Apron Supply Co. with the
Pennsylvania Laundry Co. was completed and the appellant's personal
loans to his various corporations were reduced so that the loan from the
Jefferson Life Insurance Company of $2,000,000 was granted, although his
income was $50,000 from Keystone Coat and Apron Supply Co. and $9,766
additional income, making an adjusted income of $59,766 for the year
1955, and he made no resort to outside borrowing.
Through
a series of financial operations tedious in nature, the lengthy record
discloses a complex accounting practice, yet simple in the results
sought to be achieved--the filing of fraudulent tax returns--which we
shall briefly review. Rudy was employed by the appellant for the period
from October, 1946, to June of 1956, and then from September or October
of 1956, to June of 1958. He started as a bookkeeper with the appellant,
later became an accountant, then became controller of all his
corporations and finally administrative assistant to him, in which
capacity he had supervision and control of all the books and records of
the corporations covering the years set forth in the indictment, to wit,
1955 and 1956.
The
record discloses that in January of 1955, Rudy was called into the
appellant's private office and there appellant told him he should take
the cash and sales journals of the Pennsylvania Coat and Apron Supply
Co., beginning with January, 1955, and rewrite them by reducing the cash
sales, as shown from the cashier reports, which reflected the cash
collected by drivers of the appellant, in an amount that would be around
$3,500 per week, not in the same amount, each and every week, but on an
over-all period which would average out to $3,500 per week. After
re-writing the original sheets, the amounts so reduced were to be
credited to appellant's Loan and Exchange Accounts in his corporations
showing, in effect, a repayment in the same amount by the appellant.
Pursuant to these instructions, Rudy worked up the payment sheets which
were rewritten on a weekly basis, whereas they had been written on a
daily basis, and showed them to the appellant who told him that was the
way he wanted the matter done. However, since it required a great deal
of time to so do, the appellant suggested that it be turned over to
someone else, and Rudy mentioned Dan Ferrari, who handled the books of
the Pennsylvania Coat and Apron Supply Co., and appellant approved
thereof and advised Rudy to instruct Ferrari as to how the cash and
sales journals were to be written and the same amounts credited to his
Loan and Exchange Accounts. The appellant gave specific instructions
that after the cash and sales journals had been rewritten, the original
records should be destroyed by both Rudy and Ferrari, who did all the
rewriting of the sheets, which, as stated, showed reduced cash income
and a corresponding credit to appellant's Loan and Exchange Accounts in
the various corporations. However, they did not destroy them, but placed
the originals in files in their offices under their custody and control,
never advising the appellant of their so doing, the larger part of which
Rudy gave to the Government.
An
instance typical of the operation which was carried on by Rudy is that
of the Pennsylvania Coat and Apron Supply Co. of New Jersey. Here, the
original cash receipts and sales journals for this corporation showed a
total income through sales for the month of January, 1955, of
$147,599.50. When rewritten by him, pursuant to the appellant's
instruction, the cash receipts and sales totaled sales of $133,599.50,
or a reduction in cash sales of $14,000.00, and then this exact sum was
shown as a repayment to the appellant's Loan and Exchange Account. For
the same corporation for the month of February, 1955, the original
receipts and sales journals showed total cash sales of $143,504.82,
which cash sales were rewritten by Rudy, at the appellant's instruction,
to show a total cash sales of $128,504.82, or a reduction in cash sales
of $15,000.00, which was carried over to the appellant's Loan and
Exchange Account as an alleged repayment by the appellant.
Ferrari
carried on the operation, as directed by Rudy, by rewriting sales
journals and crediting the amount to the Loan and Exchange Accounts and
during an interim period when Rudy had left appellant's employ, out of
an abundance of caution, he questioned appellant in June of 1956, and
appellant told him to carry on as Rudy had previously told him, which he
did, until he left appellant's employ in April of 1958. Typical of the
operation carried on by Ferrari was
Anderson
's Empire of Atlantic City for July, 1955. Here the original record
showed total sales in the cash receipts and sales journal of that
corporation for that month of $119,173.68 and the rewritten record by
Ferrari showed total sales for that corporation of $79,173.68, or a
difference of $40,000.00. On the front of the rewritten sheet was a
notation in quotation marks, "A July 1955 M", which indicated
to Ferrari that $40,000.00 was to be the amount of the sales reduction,
as directed by Rudy, as the notation was in his, Rudy's, handwriting.
Here, again, the $40,000.00 was credited to appellant's Loan and
Exchange Account.
It
would serve no useful purpose to recite the exceedingly numerous
rewritten sheets during 1955 and 1956, showing reductions in cash sales
and an identical credit to appellant's Loan and Exchange Account
covering the years laid in the indictment. Suffice it to say the
Government's contention is that the appellant by causing the repayments
to his Loan and Exchange Accounts in the amounts of the falsely reduced
sales were income to him in those years, if when he withdrew the funds,
his intention was to repay them, and the trial court specifically so
charged. The jury found an intent to repay these personal funds and thus
was created income to him in those years.
[Admissibility of Records]
The
admission into evidence of the rewritten sales sheets, on which the
Government predicated the allegations in the indictment, that the
appellant had defrauded the Government in the filing of his personal
returns as well as those of the corporations--since both the personal
and corporate returns were based on these sheets--while vigorously
fought on other grounds, during the trial of the case, neither in
argument nor in their briefs, did counsel deny that the comparison of
the original sales records with them and on which the returns were made
in Pennsylvania Coat and Apron Supply Co. of New Jersey for 1955,
Pennsylvania Laundry Co. for 1955, Pennsylvania Coat and Apron Supply
Co. for 1956, as well as Anderson's Empire for 1955 and 1956, had been
substantially understated.
Ferrari
was in the employ of the appellant, as an accountant from April, 1953,
until April of 1958, and rewrote most of the records hereinabove
adverted to, from March of 1955, until the end of December, 1956, the
years in question. When he left in 1958, he took with him, without the
permission of the appellant, records pertaining to the sales of
Pennsylvania Coat and Apron Supply Co. of New Jersey, and
Anderson
's Empire and turned them over to the Government on August 5th, 1958. He
was the first person to contact the Government agents, which he did by
telephoning the Internal Revenue Service on August 2nd, 1958, making an
appointment with the Government agents for August 4th, 1958.
Raymond
Dombkiewicz was an accountant and office manager for the appellant from
October, 1954, until August, 1958, and during the year 1955, he was an
accountant for Keystone Coat and Apron Manufacturing Corp. and for Gold
Tex Fabrics Corp. In August, 1958, he left the appellant's employ, at
which time he took with him records pertaining to the appellant's Loan
and Exchange Accounts with Pennsylvania Coat and Apron Supply Co. of New
Jersey, as well as the same corporation of
Pennsylvania
, and cashier reports concerning the sales of these corporations and
those of Pennsylvania Laundry. These records covered the years 1955 and
1956. Dombkiewicz and Ferrari discussed the case with the agents on
August 4th, 1958, and on August 5th, they both filed applications for
informer's fees and after so doing, they turned over the records they
had taken from the appellant to the Government agents. In the instance
of Rudy, however, he had been indicted on
February 16, 19
61, had changed his plea from guilty to nolo contendere on
April 14, 19
61, and turned the records he had taken over to the Government agents on
April 18, 19
61. However, previous to their being turned over, he had received
definite assurance from the United States Attorney and, by a simile,
from the court, that if he cooperated with the Government he would not
go to jail. This cooperation envisaged, among other things, the turning
over of any documentary evidence he might have, though it is clear that
neither the United States Attorney nor the Government agents knew what
the documents were, which he had in his possession and which he turned
over, until they examined them.
It
is clear beyond contradiction that in the instances of the three main
Government witnesses, Rudy, Dombkiewicz and Ferrari, the Government had
no part or knowledge that they were going to take the records they
turned over. Rudy's own counsel or the United States Attorney knew
nothing thereof, until after Rudy's plea was changed and, with respect
to Ferrari and Dombkiewicz, the uncontradicted evidence discloses the
taking of the records prior to any communication with any Government
officials. The most that can be said for the appellant's case is that in
the case of Rudy, he had the assurance that, by cooperating, he would
not go to prison and, in the instances of Dombkiewicz and Ferrari, they
were to receive an informer's reward. At best this went to the
credibility of these witnesses whom the jury saw and heard and, by their
verdict, finally believed, and, as the lower court phrased it, the
Government was "the unwitting beneficiary" of their wrongful
taking. Was their admission error?
We
think the documents and records were clearly admissible under Burdeau
v. McDowell, 254
U. S.
465. Here, certain of McDowell's business associates had taken from his
safe, without his knowledge, certain documents and had turned them over
to Government officials. McDowell then filed a petition seeking their
return, as they were about to be presented to a Grand Jury. Here, the
evidence established that no Government official had participated in or
had been connected with the taking and that since the documents came
into their possession without a violation of McDowell's rights by any
Government authority, the Government could retain them and use them as
evidence. In our instance, additionally, the records were not personal
records of the appellant, but belonged to the various corporations
concerned and since they were, the appellant had no basis on which to
object to their admission.
United States
v. Guterma, 272 F. 2d 344; Lagow v.
United States
, 159 F. 2d 245.
The
appellant contends the force and effect of Burdeau v. McDowell,
supra, has been greatly weakened, if not changed, by Elkins v.
United States, 364
U. S.
206. Here, state officers had seized certain tape recording and a
recording machine as the result of an unlawful search and seizure which
had, in no wise, been participated in by any federal officer and the
court held that the evidence so seized could not be used in the trial of
the case and set aside the defendant's conviction. This case reversed
the trend of previous federal decisions by refusing to admit evidence
offered as the result of an illegal search and seizure by state
officials even where no participation was had by federal officers.
However, here again the court was only concerned with state action and
its ruling, in no wise, impaired Burdeau v. McDowell, supra.
While the appellant contends that "The imperative of judicial
integrity", coined in this case, would be violated in principle,
just as much by a private individual, it is paradoxical that the
appellant here should invoke that doctrine when the material offered in
evidence against him was the true and actual records of his
corporation's sales, which were to be destroyed at his specific
direction, and in the face of this fraudulent scheme, to give him the
cloak of its protection would be most unseemly.
The
next error the appellant complains of was the admission by the court of
Exhibit D7. D7 was first brought out on the cross-examination of Rudy by
the appellant and consisted of a summary made in his handwriting, which
the appellant contends was the actual closing inventories of the
corporations here involved. The amount of the inventories shown thereon
was substantially less than the closing inventories stated in the tax
returns filed by the respective corporations and the contention of the
appellant is that the difference shown on the inventories on D7 and the
inventories reported in the tax returns were equal to the amounts by
which the sales were understated. However, it was not brought out and
the record does not disclose where Rudy got the figures, whether they
were accurate or imaginary, whether he got them from the books of the
corporations or from the firm which audited the books. In contained
certain erasures, overwriting, marks crossed through, and additional
figures written above the same. As has been stated, the summary was
brought out during Rudy's cross-examination and yet counsel for
appellant made no attempt to question him about it, and the physical
condition of Rudy made it impossible for the Government to later recall
him in rebuttal and make explanation in connection therewith.
It
is submitted that there was no error in the admission of D7, inasmuch as
the court charged that if the jury believed that D7 correctly stated the
actual closing inventories and, as a result, the expenses of
Pennsylvania Coat and Apron Supply Co. of New Jersey for 1955,
Pennsylvania Coat and Apron Supply Co. of Pennsylvania for 1956,
Pennsylvania Laundry Co. for 1955, and Anderson's Empire for 1955 and
1956, were understated in the returns to an amount equal to any
understatement of sales, there would be no taxable income due the
Government, in which event they should find the appellant not guilty on
counts four, five, seven, eight and nine. It is submitted that his
instruction is correct and that appellant was, in no wise, prejudiced.
The appellant's contention is that it should have been accepted as
accurate forthwith since the Government had the burden of investigating
the truth or falsity of the closing inventories, citing Holland v.
United States [54-2 USTC ¶9714], 348 U. S. 121. However, this case
is, in no wise, apposite, since that was a tax evasion case in which the
Government relied on certain net worth computations by it and the court
held it was requisite, where certain leads were used to prove the
defendant's guilt, that the Government had the burden of investigating
them and, failing to so do, the Government's case was insufficient to go
to the jury. Here, the appellant requested that the court charge that
the Government had the burden of investigating the truth or falsity of
the closing inventories in D7 and since they did not, the jury could
conclude that the Exhibit D7 showed the actual closing inventories
without proof of its correctness by the appellant. Here, however, as the
court points out, the inventory figures on the tax returns filed were
the corporate taxpayer's own figures, not the Government's, and it could
not require of the Government the duty of determining which figures were
correct, that of appellant's corporate returns or an entirely different
set of figures compiled by the corporation's own accountant brought on
the record by the appellant. Additionally, the record discloses that the
Government agents made every attempt to check into the inventories and
the condition of every one of the corporations here involved, by making
repeated requests for inventory information, but they were unable to
secure the same and they had nothing else to do but assume that the
inventory returns were correct.
The
next alleged error on the part of the court is its refusal to instruct
the jury, as requested in appellant's Point for Charge 4, which reads as
follows:
"Even
if you are convinced beyond a reasonable doubt that there was a
conspiracy between Goldberg and Csicsek which, as alleged in the
indictment, began on or before
January 1, 19
54, then such a finding would be inconsistent with the theory upon which
the prosecution rests on the charges contained in Counts 2 and 3 of the
indictment, and you must then find Goldberg Not Guilty on Counts 2 and
3."
It is the contention of the
appellant under this proposed Point of Charge that the conspiracy count
of the indictment charging Rudy and the appellant with conspiring,
beginning on or before January, 1954, to evade and defeat appellant's
income tax for the years 1955 and 1956, by making false and fictitious
entries in the books and records of the corporations controlled by the
appellant, was tantamount to averring that there never was any real
indebtedness owed by the appellant to his corporations and if there ever
was any realizable income, it was from the withdrawals of funds from
them. The contention, more particularly set forth on page 33 of the
appellant's brief, states, with reference to count one, "Thus, if
this charge is correct, there never was any real indebtedness incurred
by Goldberg, and if he had any income, it was realized when he withdrew
funds from the corporations and not when credits were made to his Loan
and Exchange Accounts. The inconsistency which the appellant asserts is
that a finding of guilty on count one precludes the finding of guilty on
counts two and three, the substantive counts. With this we disagree. All
of the overt acts in the first count were withdrawn before the case was
submitted to the jury, with the exception of overt acts Nos. 25 and 26,
which charged the filings of fraudulent returns for the years 1955 and
1956. However, appellant here takes the position that since the
conspiracy as alleged, began on or before 1954, when there was owing by
the appellant more than $300,000, as of December 31, 1954, the
withdrawals it represented were income to him at the time, which was for
a taxable period previous to the years 1955 and 1956, as laid in counts
two and three, and, accordingly, there is a contradiction therein.
However, the false entries by which the conspiracy was to be
accomplished, as alleged in count one, were not the withdrawals in 1954,
nor at any later date, but the false entries on the sales sheets in 1955
and 1956, and there crediting to his Loans and Exchange Accounts.
As
the case went to the jury, there was then no necessity for the trial
court to give Point for Charge No. 4, since it did charge the jury with
respect to Point No. 3.
"If
you find that at the time defendant withdrew funds from any of the
corporations involved in this case, he had no intent to repay the funds
withdrawn, then such withdrawals constitute income to him in the year
they were withdrawn, and the credits which he may have received
subsequently do not constitute taxable income to him and are
insufficient to justify a guilty verdict on Counts 1, 2 and 3 of the
indictment."
Again
the conspiracy in count one recites the receipt of income during 1955
and 1956, from Pennsylvania Coat and Apron Supply Co., a New Jersey
corporation, Anderson's Empire Coat, Apron and Towel Supply Co., a New
Jersey corporation, and Pennsylvania Laundry Co., a Pennsylvania
corporation, which he failed to report in his returns for those years,
by causing to make false and fictitious entries in the books of these
corporations. These were the entries made by the rewritten sales sheets.
Furthermore, the appellant's repeated contention that the withdrawals
were income in spite of the charge in Point No. 3, and in the face of
the appellant's own testimony that the withdrawals constituted an
indebtedness, cannot be sustained and impels the definite conclusion
that there was no error in failing to charge Point No. 4. It is to be
remembered, however, that while the court granted the appellant's motion
for arrest of judgment as to count one, it was after the verdict and has
no bearing on the merits here discussed.
[Instructions to Jury]
The
next error alleged by the appellant is that the trial judge failed to
instruct the jury as to the limitations on the taxability of corporate
distributions. The trial judge, during the course of his charge, had
adverted to the inclusion of dividends in gross income, but later
withdrew what had been said concerning it and told the jury to totally
disregard it and that, in determining the ultimate taxable income, there
was no necessity for the jury to consider the definition of dividends or
the exceptions thereto. Here again, counsel repetitively urged that the
credits received by the appellant when his Loan and Exchange Accounts
were credited came to him as a corporate distribution in the nature of a
dividend and that something necessarily had to be said with respect to
the limitations of these distributions imposed under the Internal
Revenue Code, 26 U. S. C. Sec. 316. It can only be repeated again that
the Government's case, the indictment and the evidence introduced in
proof of the charges had nothing to do with dividends, but that the
income was only realizable to appellant when his indebtedness to the
corporations, as shown in his Loans and Exchange Accounts, were repaid.
It
is contended by the appellant that some authorities, in civil cases,
denominate withdrawals as loans, and treat them in fact as dividends
which constitute taxable income to the recipient at the time of the
withdrawal, strongly relying on Spheeries v. Commissioner [61-1
USTC ¶9143], 284 F. 2d 928 and Roschuni v. Commissioner [59-2
USTC ¶9748], 271 F. 2d 267. The appellant can find no support in these
cases, for his contention merely buttresses the position of the
Government. In these there were findings of fact that the withdrawals
were not borrowings, but dividends. However, in Spheeries v.
Commissioner, supra, at p. 931, the court specifically stated that
it used as a guide, in its determination thereof, the subjective
intention of the parties which was exactly the same instruction which
the lower court gave to the jury and they determined, by their verdict,
that they were borrowings.
This
view is pointed up in Davis v. United States [55-2 USTC ¶9685],
226 F. 2d 331, 335, where it is stated: It is not necessary to go into
the legality of the so-called distribution by appellant's wholly owned
corporation to himself, or his extraction of the cash from the
corporation, as it clearly appears that through the fraudulent
transactions in which he was engaged, he received the cash over which he
had complete control, which he took as his own, treated as his own,
which resulted in economic value to him, and for which he probably never
would have been required to account, had it not been for the discovery
of the fraud on the revenue which he was perpetrating. Briggs v.
United States, 4 Cir., [55-2 USTC ¶9551] 214 F. 2d 699. . . .
Appellant makes much of the fact that the government has not fixed a
label of some kind on the funds that he took from his corporation. It is
not necessary to describe them as additional salary, illicit bonuses, or
commissions, or anything more than wrongful diversions, since, as above
mentioned, substance controls over form, and taxation is concerned with
the actual command over the property taxed. To the same effect is Cohen
v. United States [62-1 USTC ¶9202], 297 F. 2d 760, 768.
Accordingly, we see no error in the court's failure to instruct the jury
concerning limitations on the taxability of corporate distributions.
[Consistency of Verdicts]
The
next ground alleged as error is that the verdict on counts two and three
and on counts four, five, seven, eight and nine are repugnant to one
another and the evidence could not support the verdicts on the former
and the latter. The contention of the appellant is that ". . . the
money coming from the suppressed sales was either income to the
corporation or to Goldberg, but could not be income to both." The
argument runs that what appellant did constituted embezzlement and under
the law as it existed at that time, embezzled funds were not income in
that the appellant had no corporate authority for any of the
withdrawals. Here, the appellant, in support of his view, cites Commissioner
v. Wilcox [46-1 USTC ¶9188], 327
U. S.
404. If we examine the facts in that case, it shows that Wilcox was
merely a salaried bookkeeper employed by a Transfer and Warehouse
company and that various sums of money which he had collected from
customers, which were owing to his own company, he took and converted to
his own use making no record of the sums he had so taken on the books of
the company. Here, the court held under 26
U. S.
C. Sec. 22(a) that embezzled funds were not taxable.
In
order to thoroughly appraise Wilcox, supra, we must consider Rutkin
v. United States [52-1 USTC ¶9260], 343
U. S.
130, wherein it was held that extorted funds were taxable income. Here,
the facts showed that Rutkin had failed to report in his income tax
return $250,000 which the jury found he had extorted by threats from one
Reinfeld. The court, referring to Wilcox, supra, stated
specifically that it had confined its decision solely to the facts of
that case. Accordingly, as stated in Marienfeld v. United States
[54-2 USTC ¶9489], 214 F. 2d 632, 637, the line of demarcation between
the two cases must be determined by the facts in the individual case and
it is submitted the facts in this case more clearly favor Rutkin v.
United States, supra, in conformity with a similar comparison in
this court by Kahn v. Commissioner [54-1 USTC ¶9144], 210 F. 2d
247. Finally, in James v. United States [61-1 USTC ¶9449], 366
U. S. 213, 217, Wilcox, supra, was specifically overruled and in
so doing the court stated: "Examination of the relevant cases in
the courts of appeals lends credence to our conclusion that the Wilcox
rationale was effectively vitiated by this Court's decision in Rutkin."
Accordingly, since Rutkin was decided in 1952, we must now hold
that even if appellant's conduct was embezzlement, the income was
taxable, since Wilcox was decided in 1946.
The
rule is well established that unlawful, as well as lawful gains,
comprise taxable income whenever the person receiving it, as a practical
matter, has such control over it that he derives realizable economic
value from it, Burned v. Wells [3 USTC ¶1108], 289
U. S.
670, 678; Corliss v. Bowers [2 USTC ¶525], 281
U. S.
376, 378.
It
is submitted the issue here concerns itself with whether money
fraudulently taken by a person who owns and controls certain
corporations and treats the same as an indebtedness intending to repay
it, is an embezzler in the sense that he was so determined, under the
facts in the Wilcox case. Appellant was not, in any sense, an
employee, as Wilcox was, for in fact he was the real owner and an
employer himself. Here, there was no such taking, as in the Wilcox
case, where actual cash was taken by Wilcox and put in his own pocket
without making any record thereof on the books of the company. Here was
a scheme, fraudulent, deliberate and devious, persisted in for years, of
taking from his corporations unreported income in excess of $300,000, as
of
December 31, 19
54, as well as large sums during 1955 and 1956.
Here,
we must remember money actually came into the business of these
corporations in the form of cash; it was under their custody and control
and recorded on their books and this money so recorded was fraudulently
diverted or taken from the corporations at the direction of the
appellant by rewriting the records and showing their corporate income
reduced by large amounts and authorizing the original corporate records
to be destroyed, facts which no case cited by the appellant is
comparable to. Further, it is not this Court's province to differentiate
legal issues between the appellant and his corporations, yet even so, it
has been held that a defendant cannot be guilty of embezzlement of funds
from his wholly owned corporations as here, United States v.
Augustine [51-1 USTC ¶9247], 188 F. 2d 359, Kann v.
Commissioner, supra, for as said in Corliss v. Bowers, supra,
". . . taxation is not so much concerned with the refinements of
title as it is with actual command over the property taxed--the actual
benefit for which the tax is paid."
The
appellant relies heavily upon J. J. Dix, Inc., v. Commissioner
[55-2 USTC ¶9648], 223 F. 2d 436, as a comparable civil case. In that
instance, the court upheld the taxation of the funds to the corporation
but ruled, as to the stockholder, the monies received were the proceeds
of his embezzlement and under the law existing was not taxable income.
However, in the Dix case, supra, the Tax Court found that
for the period in question $196,870.60 realized from corporate sales was
secretly deposited in two banks and the amount so received was not
recorded on their books nor included in their gross receipts on its tax
returns. The corporation was controlled by one Jacob Dix, who through
the domination of his son, fraudulently withheld the re-entry of these
receipts from the corporation books and the Tax Court found that the
gross income had been understated in the amount above described and
fixed a tax deficiency of $62,054.23. As to Jacob Dix, the president of
the corporation, he realized taxable income of some $56,000.00, which
was the amount of the corporate funds he misappropriated, by simply
drawing the money from the corporate bank account and diverting it to
his own personal use which he, likewise, did not report as income. While
the Tax Court held that diverted income from corporate sales was
taxable, it relied on Wilcox v. Commissioner, supra, and held
that mere withdrawal of the funds by the president of a one-man
corporation was more similar to the Wilcox case than to Rutkin
v. United States, supra, but, as we have pointed out above, little,
if any, vitality remains in Wilcox. The holding of the Tax Court,
with respect to the defendant, Dix, here again can be distinguished from
our case, as the misappropriation by him of drawing funds from the bank
is not, in any wise, like the devious, fraudulent scheme devised by the
appellant. Additionally, while civil tax cases may be helpful under
appropriate circumstances to draw analogies, they are to be
distinguished from criminal cases especially with respect to the nature
of the proof required. This is plainly stated in a civil tax case, Simon
v. Commissioner [57-2 USTC ¶9989], 248 F. 2d 869, 876; "In
criminal income tax evasion cases, the exact amount of the tax evaded is
not an important consideration. In criminal cases, it is necessary to
prove only that the tax on some income has been fraudulently evaded. On
the other hand, in civil proceedings for the collection of tax, an
accurate determination of the accumulated corporate earnings is
necessary to determine the amount of tax liability."
Accordingly,
the individual liability of the appellant, as alleged in counts two and
three, is, in no wise, repugnant to counts four, five, seven, eight and
nine, which taxed the corporate income, for the reduction of his Loan
and Exchange Account was an economic benefit to him, income, since his
indebtedness to his corporations was reduced, and the rewriting of sales
sheets diminished corporate income, each being separate and distinct
schemes, and the ends of justice require them to be treated as such.
The
next ground for error alleged by the appellant concerns itself with the
admission of several letters handed to appellant, addressed to the
respective corporations which he owned and controlled. There were two
letters, one addressed to the Pennsylvania Coat and Apron Supply Co. and
the other addressed to the Pennsylvania Laundry Co., both dated
November 19, 19
58, requesting permission to examine the books and records of the
companies for the years 1954 and 1955. The trial court admitted the
letters. Appellant's complaint is that they might possibly have been
harmful to him since his cooperation in the investigation might have
incriminated him under the Fifth Amendment. Here, again, the letters
were addressed to the corporations and not to the appellant and,
accordingly, as adverted to heretofore, he had no right to claim the
Fifth Amendment with respect to the examination of the corporations'
books and records. Furthermore, the trial court admitted the letters for
the limited purpose of showing a request by the Government, addressed to
both corporations, for the purpose of examining their books. This was
the first occasion the Government agents had ever met appellant and they
apprised him, orally, of the Government's desire to investigate both
corporations, which was the sole content of the letters. We see no error
in their admission.
[Unqualified Juror]
The
next ground alleged as error is the denial of the appellant's motion by
the trial court for a mistrial because one of the twelve jurors, Ida B.
Robinson, had not been properly qualified to serve as a juror.
Among
those summoned for possible jury duty was one Ida B. Robinson, who was
No. 85 on the Petit Jury List, and one Lottie P. Robinson, No. 86 on
that List. After reporting for duty, Lottie Robinson had been duly
excused from possible service by the judge, then in charge of the
criminal list, but by inadvertence her tag No. 86 remained in the box
containing tags, bearing a number, each of which corresponded to a
number before the name of a person on the Petit Jury List. When the
first group from which twelve jurors would be chosen was in the process
of being selected, the deputy clerk, on the twenty-third draw, drew tag
No. 86 from the box, referred to the List and called No. 86 and the name
of Mrs. Lottie Robinson. Mrs. Ida B. Robinson, No. 85 on the List,
responded and seated herself in seat No. 20 of the first group. She
occupied that seat because three of the previous twenty-two persons
whose tabs were drawn had been excused for cause because their service
on the jury at the time would have been a serious inconvenience to them.
When twenty-eight out of thirty-five persons of the first group had been
seated in succession, the presiding judge suggested that the persons
whose tabs were thereafter drawn be seated in a second group from which
the four alternates would be selected. Defendant made no objection to
this suggestion. Omitting one that was excused for serious
inconvenience, the tags of eight persons were then drawn from the box
and the eight persons were directed to sit, in the order that they were
called, in consecutively numbered seats.
After
the voir dire examination of both groups had been completed, the
remaining persons who had been summoned but whose tags had not been
drawn were released for duty in another courtroom. Tag No. 85 was never
drawn in this case. Thereafter, sixteen members of the first group were
withdrawn as a result of their being challenged. This left exactly
twelve persons seated in the first group occupying the following
numbered seats: Nos. 2, 3, 4, 5, 8, 9, 11, 14, 15, 17, 20 and 23. At the
request of the deputy clerk the person seated in No. 14 seat was asked
to sit in No. 1, 15 in 6, 17 in 7, 20 (Mrs. Ida B. Robinson) in 10, and
23 in 12. In so doing, the deputy clerk directed Ida, calling her Mrs.
Lottie Robinson, to take seat No. 10. Thereafter, the persons sitting in
the 2nd, 4th, 5th and 7th seats of the second group were challenged and
the remaining four per
