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withdrawn, and the only ones submitted to the jury were one, two, three,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 persons were asked to take seats 13 to 16 in the
order they were called. This group as a jury of twelve and four
alternates were then sworn to try the appellant. Before the trial got
underway, by agreement of counsel for both sides, with the approval of
the trial judge, the person sitting in the No. 2 seat was replaced by
the first alternate juror, No. 13, leaving three alternates. 1
On
the ninth day of the trial, a deputy clerk of court discovered No. 10
juror's true name and informed the trial judge of this fact. When he, in
turn, notified counsel for both sides, appellant moved for a mistrial on
the ground that juror No. 10 had not been properly qualified to take the
oath and serve as a juror. The Government opposed the motion but left it
to the trial judge whether to let Ida serve as a juror or replace her
with an alternate. The trial judge denied the motion and directed that
Ida be withdrawn and replaced by the then first alternate, No. 14.
Appellant objected to the replacement. The trial then continued for
another fourteen days. Immediately prior to the jury's withdrawal for
deliberation after a twenty-three day trial, the two remaining
alternates were excused from further duty in the case.
Under
Article III, Section 2, and the Sixth Amendment of the Constitution, a
defendant is entitled to be tried by a jury of twelve. Patton v.
United States, 281 U. S. 276, 288-290; Capitol Traction Co. v.
Hof, 174 U. S. 1, 13-16. Had Ida not responded to the calling of the
name of Lottie, and since Lottie had been excused, juror No. 11 would
have been juror No. 10 and No. 12 would have been No. 11. The first
alternate, who became juror No. 2, would have been the 12th juror, and
the second alternate, who became juror No. 10, would have been juror No.
2 instead. Thus the appellant was tried by the same combinations of
twelve people as he would have been had Ida not answered to the name of
Lottie. All of them were present during the testimonial portion of the
trial and also when the trial judge delivered his instructions. And, as
the trial judge pointed out: "The jurors who passed upon his plea
were all properly qualified to serve as jurors, had been carefully
examined on voir dire and found acceptable." 2 The only
difference being that the appellant was deprived of the services of an
additional alternate for which he does not complain. Nevertheless, he
argues that the jury was illegally sworn from the beginning because of
the presence of Ida, and by reason thereof, there was in legal
contemplation no jury in which a substitution could be made. The
Government concedes that Ida, since she was never called to sit in the
first or second group, was subject to being withdrawn from the jury box
at the time of the trial judge's action. Did the Court's action require
that appellant be awarded a new trial? We do not think so.
Until
the passage of the Act of
June 29, 19
32, c. 309, 47 Stat. 380, 28 U. S. C. (1940 Ed.) §417a, 3 there was no
specific provision in the federal law for the selection of alternate
jurors in criminal cases. Since
September 1, 19
48, authority for selecting them is derived from Rule 24(c) of the
Federal Rules of Criminal Procedure. This Rule provides as follows:
"(c)
alternate Jurors. The court may direct that not more than 4 jurors in
addition to the regular jury be called and impanelled to sit as
alternate jurors. Alternate jurors in the order in which they are called
shall replace jurors who, prior to the time the jury retires to consider
its verdict, become unable or disqualified to perform their duties.
Alternate jurors shall be drawn in the same manner, shall have the same
qualifications, shall be subject to the same examination and challenges,
shall take the same oath and shall have the same functions, powers,
facilities and privileges as the regular jurors. An alternate juror who
does not replace a regular juror shall be discharged after the jury
retires to consider its verdict . . .."
Appellant maintains that the
reference in this subsection of the Rule to "the regular jury"
indicates that the alternates are in addition to a jury of twelve which
has been properly selected. The jury need not be twelve in number, but
may be of a lesser number. Patton v. United States, supra, at p.
299. This is apparently the reason why the subsection uses the
expression "the regular jury" as a convenient reference to a
group that is selected according to some prescribed rule or established
usage.
Appellant
also insists that, according to the subsection of the Rule, alternates
may only replace jurors "who, prior to the time the jury retires to
consider its verdict, become unable or disqualified to perform their
duties." This language, appellant argues, clearly means that a
regular juror may be replaced only when the reason for his disability or
disqualification arises after his selection and before his retirement to
deliberate. Had the framers of the subsection, the argument runs, been
of the view that a juror could be replaced where the reason for his
disqualification existed at the time of his selection, and went
undiscovered, until after the jury was sworn and the trial commenced,
they would not have used the words, "became unable or
disqualified." Appellant appears to lose sight of the fact that the
challenge of a juror for cause may be waived by the accused and the
prosecutor. Here the appellant, after he learned of the real identity of
Ida, could have consented to her serving on the jury. 4 Instead he
objected to her doing so by asking for a mistrial. It was at this
juncture that Ida became "unable or disqualified" to serve on
the jury. This could not have been known until appellant raised his
objection. That Ida was subject to being withdrawn upon being challenged
from the time she responded to the name of Lottie cannot obliterate that
fact. At least two Courts of Appeals have decided that Criminal Rule
24(c) does not prevent the replacement of a juror by an alternate after
the jury has been sworn. In one, the existence of the disqualifying
factor was discovered before testimony was taken. Gillars v.
United States
, 182 F. 2d 962. In the other, midway during the trial.
United States
v. Zambito, 315 F. 2d 266, 269, cert. den. 373
U. S.
924. Also see United States v. Gottfried, 165 F. 2d 360, 365,
cert. den. 333
U. S.
860. Except for some provisions not material here, Rule 47(b) of the
Federal Rules of Civil Procedure is identical to Criminal Rule 24(c).
The latter Rule embodies the practice prescribed for civil cases by
Civil Rule 47(b). See Note of the Advisory Committee on Rules to
subdivision (c) to Criminal Rule 24. In Larson v. General Motors
Corporation, 148 F. 2d 319, 322, cert. den. 326 U. S. 745, a case in
which the construction of Civil Rule 47(b) was involved, the Court of
Appeals for the Second Circuit could see no reason why the words
"jurors who . . . become unable or disqualified to perform their
duty" should not be construed so as to cover "an ineligibility
on the part of a juror that is first discovered after the trial has
begun." Accordingly, there was no error in the trial court's denial
of the motion for mistrial.
Another
alleged error was the admission of certain summaries into evidence,
prepared by Government agents and taken largely from the records
produced by Rudy, Ferrari and Dombkiewicz. Since we here hold these
records admissible, there can be no objection to the summaries prepared
from them and, therefore, there was no error in their admission.
[Jurisdiction]
An
additional alleged error, although not presented at argument, asserts
that the court had no jurisdiction to try the appellant on counts eight
and nine, as his returns were filed in
Camden
,
New Jersey
. However, these two counts of the indictment are different from counts
four, five, six and seven, in that they charge appellant with
"causing to be prepared" and "causing to be filed with
the Director of Internal Revenue at Camden, New Jersey." However,
the record discloses ample testimony on which the jury could and did
find that the appellant caused them to be prepared at
Philadelphia
in the Eastern District of Pennsylvania.
[Judgment of Court]
Accordingly,
the judgment of conviction and sentence will be affirmed.
1
The reason for the replacement does not appear in the record.
2
206 F. Supp. 394, at p. 399 [(E. D. Pa. 1962)].
3
Repealed by Act of
June 25, 19
48, c. 645, §21, 62 Stat. 862, effective
September 1, 19
48.
4
When he learned of the mix-up, counsel for the appellant stated: "I
do not and cannot state now that had we been confronted with [Mrs.]
Lottie Robinson we would have challenged her . . .." (N. T. p.
984).
[57-2
USTC ¶10,058]R. H. W. Leathers, Appellant v.
United States of America
, Appellee
(CA-9), U. S. Court of Appeals,
9th Circuit, No. 15,428, 250 F2d 159, 11/22/57, Affirming unreported
District Court decision
[1939 Code Sec. 145(b)--similar to 1954 Code Sec. 7201]
Crimes: Knowingly filing a false return for another: Admission of
evidence.--The appellant had been convicted of knowingly filing a
false return for a taxpayer. In affirming, the Court of Appeals held
that the evidence sustained the finding of a wilful, guilty intent, and
that the lower court had not erred in admitting into evidence the books
and records of the taxpayer and in restricting the cross-examination of
the taxpayer by the appellant's counsel. Nor did the court err in
refusing the appellant's motion for a mistrial, since the United States
Attorney could properly call attention in his closing argument to the
fact that the testimony of the government's witnesses had not been
contradicted in a case like this where the appellant was not the only
one who could contradict the testimony.
Raymond
M. Kell, Clifford B. Alterman,
Portland
,
Ore.
, for appellant. C. E. Luckey, United States Attorney,
Portland
,
Ore.
, for appellee.
Before
HEALY, POPE and CHAMBERS, Circuit Judges.
POPE,
Circuit Judge:
Leathers
was convicted upon a charge of violating §145(b) of the 1939 Internal
Revenue Code by knowingly filing a false return for one Russell A.
Peterson for the year 1946. Leathers was an accountant and his client,
Peterson, was the proprietor of a fish and crab processing plant near
North Bend, Oregon, operated under the name of "Peterson's Sea
Foods". They had been acquaintances and friends for a number of
years and Leathers had on several earlier occasions made out Peterson's
income tax returns.
[Statement of Facts]
In
the Spring of 1947, Leathers at Peterson's request, made out the tax
return here in question and Leathers attended to the filing of the
return. He also paid the tax shown thereon from funds which he had
received from Peterson in the manner hereafter described. Upon the
return Leathers signed his own name as the person who prepared the
return and he also signed Peterson's name on the line provided for the
signature of the taxpayer. The return showed net income of $15,910.05,
and a total tax of $4010.25. The indictment charges that this was a
false and fraudulent income tax return in that Peterson's net income for
the year 1946 was $56,910.05 upon which Peterson owed the
United States
a tax of $28,977.41, all as the defendant Leathers then and there very
well knew.
The
evidence showed that the return was false and understated Peterson's
income to the extent alleged in the indictment. The respect in which it
was false was that in the year in question Peterson's total receipts
from sales of merchandise were $277,555.64, while the return understated
these receipts by exactly $41,000, and showed total receipts of only
$236,555.64.
Peterson's
bookkeeper, Barrow, who had acted in that capacity for several years,
testified that at the end of 1946, he made a recapitulation of the
figures making up the receipts and expenses in a form sufficient to
supply the necessary information for the making of a tax return. This
recap, he testified, was prepared for the expected use of the accountant
and a carbon copy was retained in the office. The carbon copy was
introduced as a Government exhibit. It disclosed the gross sales figure
mentioned above, and listed in detail the business expenses including
wages, taxes, insurance, rent, etc. Its substantial accuracy as a
transcript of what was shown on the books is not questioned as the books
also were produced at the trial and the Government witnesses verified
the accuracy of the recapitulation.
[Fraudulent Scheme]
The
Government's evidence designed to disclose a wilful falsification of
this tax return by Leathers tended to show that he, Leathers, undertook
to make this false return as a part of an elaborate scheme to defraud
Peterson. Leathers had the complete confidence of Peterson, who was an
unlettered man and unfamiliar with the figures of his own books. He told
Peterson that his computation of the income and deductions showed that
Peterson's income tax for the year 1946 came to "a little over
$16,000 Federal and around $4,000 State." Peterson stated that he
was short of funds to provide payment of a tax of that amount and
Leathers offered to loan him a portion of the required amount.
Accordingly Peterson gave Leathers his check for $10,000 and signed
notes to Leathers for approximately $10,000 more. However, the federal
return made up by Leathers, and not shown to Peterson, stated a total
income of $16,410.05, and a total tax of $4,010.25, upon which $600 had
been previously paid on declaration of estimated tax. What Leathers then
paid on filing this return was only the balance, or $3410.25.
These
deceptions thus resulted in Leathers being able to pocket the difference
between the amount paid by him on the taxes (which included something
under $1000 paid on State taxes) and the $10,000. In addition to that,
Leathers had the notes which Peterson gave him for the supposed loan,
and it appears from the testimony elicited on cross-examination of
Peterson that because he held these notes, Leathers soon wound up in
possession of deeds both to Peterson's business and to his home as well.
Peterson had to recover his property through litigation in the
Oregon
courts. 1 It was not
until some time in 1948, when Government agents began interviewing him
about the tax return, that Peterson discovered that the $16,410.25 was
entered on the return as the net earnings and not as the tax, and that
the signature was not his own.
[Defenses]
Appellant
asserts that his conviction cannot be sustained because of a lack of
proof that he wilfully evaded Peterson's taxes. The argument in support
of this contention is based upon an assertion that there was no proof
that when Leathers made out the Peterson tax return he had possession of
the recapitulation of the book accounts for 1946 which the bookkeeper
had prepared, or that he had made up the figures in the return from the
books themselves.
Barrow,
the bookkeeper, testified that he did not personally deliver the
recapitulation sheet, (Government Exhibit 17 at the trial), to Leathers,
although he had prepared it for the use of whoever made up the tax
return. Peterson's testimony was that he did not give Leathers
information relating to his tax return but that he told Leathers he
could procure the necessary information from Mr. Barrow. The argument on
behalf of appellant amounts to saying that Leathers could not be charged
with knowingly or intentionally understating Peterson's income in the
return because it was not specifically proven that the recapitulation
sheet was ever given or shown to Leathers.
[Evidence Supports Findings]
We
are of the opinion that the evidence of a wilful and intentional evasion
of a tax was sufficient. In the first place, there is substantial
evidence from which the jury could properly infer that Leathers did in
fact have the recapitulation sheet, Exhibit 17, when he made up the
return. The witness Amos, an intelligence agent in the internal revenue
service, testified that when he went to interview Leathers at the office
of the latter's attorney, Leathers told him that Peterson had given him
some sheets containing data from which to prepare the return, and that
he had copied the data on a work sheet. He showed the work sheet to the
witness.
An
examination of the items of deductions listed by Leathers on the return,
show that some 16 of them corresponded precisely with similar items on
Exhibit 17, the recapitulation sheet made by Barrow. The jury was
warranted in finding that although Peterson testified that he did not
hand the recapitulation sheet prepared by the bookkeeper to Leathers,
yet Leathers must have come in possession of it before he made the
return. If we were to accept appellant's version of the record we would
have to assume that the evidence tended to show no more than that
Leathers pulled the figures for the return out of the air or drew upon
his own imagination. The jury were not required to view the evidence in
that light. As previously indicated, the return understated the gross
receipts by exactly $41,000 showing $236,555.64, instead of the true
amount of $277,555.64. It would tax one's credulity to assert that the
figure in the return was arrived at simply by chance.
Other
evidence strongly points to the guilty intent. At the time in question
Peterson had been drinking heavily and was in no condition to look after
his own affairs. Leathers had Peterson's full confidence and in
consequence there was an easy opportunity for him to take advantage of
that confidence to defraud Peterson through the use of a scheme to
understate the income and the tax due and to over-collect from Peterson
for the taxes. The circumstances all indicate that he took advantage of
this opportunity in carrying out his motive for gain by defrauding both
Peterson and the Government. Also significant is the fact that after the
Government began investigating the 1946 tax return, Leathers went to
Peterson and talked to him at length about the income tax and tried to
persuade Peterson to destroy his records. 2 This is
strong evidence of guilt. "It is today universally conceded that
the fact of an accused's flight, escape from custody, resistance to
arrest, concealment, assumption of a false name, and related conduct,
are admissible as evidence of consciousness of guilt, and thus of guilt
itself." Wigmore on Evidence, 3d Ed., §276.
Appellant
further argues that Peterson's books were improperly received in
evidence and should not have been used against him. There is no
substance in this contention. Obviously the books were appropriate for
the purpose of showing the true amount of the 1946 income. We have
heretofore noted that Leathers was connected with the books because of
the circumstance that he must have had access to the recapitulation of
the books made by Barrow.
[Cross-examination of Taxpayer]
Appellant
also says that the court erred in unduly restricting him in
cross-examination of the witness Peterson when he was attempting to show
bias, prejudice and interest of such witness, and the latter's prior
inconsistent conduct. During this cross-examination of Peterson, it was
developed that the witness and Leathers had a civil lawsuit which had
gone to the Supreme Court in Oregon, (see footnote 1, supra), and that
following the decision of the Oregon Supreme Court, the litigation was
settled by an agreement under which Peterson's business and home were
returned to Peterson. It was further developed that the effect of the
Oregon
court's judgment was that Leathers must account to Peterson. It was also
brought out that as a part of the settlement between the two, Peterson
paid Leathers approximately $3000 in cash. The defense then sought to
procure from Peterson an admission that in the course of settlement or
negotiation for a settlement Peterson made no demand on Leathers for the
approximately $16,000 excess amount, in cash and notes, that Leathers
was charged with obtaining from Peterson for the supposed purpose of
paying taxes. To this Peterson replied: "He took it from the
Federal Government; he didn't take it from me." Defense counsel
then asked "Isn't it also true, Mr. Peterson, that in the course of
that settlement and as a part of the settlement you did not make any
demand and did not require Mr. Leathers to make good any sum to the
Federal Government?" This question was objected to on the ground
that it would be impossible for Peterson to require Leathers to pay a
sum to the Federal Government. The objection was sustained.
We
note that during this cross-examination the defense was permitted to
show (a) that Peterson had had a lawsuit with Leathers; (b) that the
litigation was terminated by a settlement; and (c) that in the
settlement, Peterson got back his business and home, and paid Leathers
$3000 in cash. Of course the object of this examination was to show bias
and hostility on the part of Peterson toward Leathers and to show that
the settlement was inconsistent with the present claim of Peterson that
Leathers had wrongfully procured some $16,000 from him for taxes which
Leathers did not pay. It is difficult to perceive what prejudice the
defendant suffered by being prevented from pursuing the inquiry as to
whether Peterson required Leathers to make good any sum to the Federal
Government.
Appellant
further objects that his cross-examination of the witness Peterson was
improperly curtailed when the court sustained objections to questions as
to whether the Government had indicated to Peterson that he would not be
liable for the unpaid taxes for 1946 or as to whether the Government had
ever made any demand upon him for payment of those taxes. The
appellant's argument is that he had the right to make extended inquiry
along this line for the purpose of developing that Peterson had some
understanding, or at least a hope, that he would be excused from paying
those taxes, and that this would tend to give Peterson a motive to give
testimony favorable to the Government.
The
record shows that defendant was permitted to elicit from Peterson on
cross-examination what in substance amounted to evidence that no demand
had been made upon him for the payment of taxes. The question and answer
were as follows: "Well, then, let me ask you, what has the Federal
Government and the officials told you concerning your liability for
these taxes? A. They haven't told me anything as yet." 3 The
particular point here made relates to the court's ruling sustaining an
objection to the question next following which was "Have they ever
indicated to you that you would not be liable for the taxes?" At
the time the ruling was made, defense counsel stated the basis for his
inquiry, and the following ensued: "Mr. Darling: The basis of that
inquiry, it is our understanding that we are at all times entitled to
inquire of any witness concerning any interest, any promise of immunity,
anything else that he may have obtained from the prosecution in a case
like this. The Court: He said the Government has said nothing to him
about it. Mr. Darling: Well, I was merely addressing a further question
on that same line. Mr. Luckey: If he wants to ask him if he has been
promised any immunity or anything, that would be fine. The Court: It is
entirely different from whether or not the Government is pressing any
claim against him, I will abide with my ruling." Later on in the
course of the cross-examination, counsel for the defense again asked:
"Well now, since that time has the Government ever made any demand
upon you for the payment?" The same objection was again sustained.
It
seems clear that in making these rulings the court considered that it
was cutting off repetition of an inquiry that the witness had previously
answered when he said: "They have not told me anything as
yet." It is also apparent that counsel for the Government indicated
that no objection would be made to inquiries as to whether Peterson had
been "promised any immunity or anything". It would seem that
Government counsel was thereby indicating that there would be no
objection to an inquiry as to whether the Government had promised either
immunity or a release. Defendant was thus able to bring out that
Peterson had not been called upon to pay the balance of the taxes and to
argue to the jury that Peterson gave his testimony in the hope that he
would not be asked to pay the taxes. For reasons satisfactory to the
defense counsel he refrained from an inquiry as to whether the
Government had promised any release or immunity. In these rulings the
trial court did not abuse its discretion.
In
respect to the conduct and extent of cross-examination, it has long been
the rule that these are matters specially subject to the discretionary
control of the trial judge. McCormick on Evidence, §24, p. 47; Wigmore
on Evidence, 3d Ed., §944. Blough v. Baltimore & O. R. Co.,
2d cir., 164 Fed. (2d) 254, 255. 4 The reason
for this traditional deference to the discretion of the trial judge in
putting a limit to cross-examination is illustrated by what happened
here in respect to the attempted continuation of inquiries as to what
demands Peterson made on Leathers in connection with the settlement of
the civil litigation. Defense counsel were able to elicit that instead
of collecting cash from Leathers, Peterson paid Leathers some $3000. It
was within the discretion of the trial court to rule that further
inquiry was improper for it is plain that if inquiry were extended
indefinitely into the terms of that settlement, the court might well
find itself trying the collateral issue as to the reasonableness of the
settlement. Thus in Meeks v. United States, 9 cir., 179 Fed. (2d)
319, this court held that a defendant might properly elicit testimony on
cross-examination of a government witness that the witness and defendant
had engaged in a battle in which the witness had been beaten by the
defendant. But we ruled that defendant was properly prevented from
inquiring into the circumstances of the alleged assault saying, "It
is apparent that had appellant been permitted to make the offered proof
the court and jury would have been called upon to try a collaterial
issue. The ill will and unfriendly feeling of the witness was shown. The
details were property [properly] excluded." In so ruling this court
followed Lau Fook Kau v. United States, 9 cir., 34 Fed. (2d) 86,
91, where we said in respect to similar rulings: "Both these
matters are so largely in the discretion of the trial judge that they
can only be reviewed where there has been a manifest abuse of
discretion." We hold that there was no abuse of discretion here. It
is indeed difficult to perceive how the defendant could have been
prejudiced by these rulings.
[Government's Closing Argument]
Finally
appellant assigns error on account of the court's refusal of his motion
for a mistrial based upon an alleged improper closing argument made by
the United States Attorney to the jury. The portions of the argument to
which appellant objects were remarks designed to answer arguments which
had been made to the jury by counsel for the defense. The
United States
attorney referred to the defense counsel's argument as to the inferences
to be drawn from the terms of the settlement of the civil litigation
between Peterson and Leathers. In referring to this Government counsel
said: "Where is the settlement if the settlement is so important
that the defendant entered into with Mr. Peterson?" Again referring
to an argument that had been made that Leathers must have worked from a
work sheet other than Exhibit 17 when he made the tax return, counsel
said: "Where is such a work sheet? Where is whatever it was that
Mr. Leathers showed to Mr. Amos at the office of Vonderheit? If there is
another one, where is it, ladies and gentlemen?"
It
is the argument of the appellant that only the defendant himself could
have testified about the settlement or about the other work sheet and
hence that the United States Attorney in commenting upon the defendant's
not producing these documents was in effect and substance demanding to
know why the defendant did not take the stand and testify. This, it is
said, deprived the defendant of due process and of his privilege against
self-incrimination and impinged upon his right not to testify.
The
premise upon which this argument is based cannot be supported. The
record shows that in making the settlement referred to Peterson and
Leathers were both represented by counsel and of course Leathers'
counsel might have produced the settlement agreement or testified with
respect to it. As for the work sheet in question, Amos, the Government
agent, testified that the work sheet which Leathers told him he had
procured from Peterson was shown to Amos and another agent on an
occasion when they visited Leathers and his attorney, Mr. Vonderheit at
the latter's office. At that time Amos testified he and the other agent
were permitted to examine the work sheet for a brief period. This is the
substance of the testimony relating to the work sheet. Certainly there
is no basis for saying that Leathers was the only person who could
testify with respect to that work sheet for both Leathers and his
attorney were present on that occasion. Whatever was said and done then
was plainly intended for the ears and understanding of the two
Government agents. There was no element of a confidential communication
then taking place between Leathers and his attorney, and the knowledge
obtained by the attorney on that occasion was in no sense confidential,
and his testimony would not be subject to any privilege. 5 Cf. Himmelfarb
v.
United States
, 9 cir., 175 Fed. (2d) 924, 929 [49-1 USTC ¶9313]; McCormick on
Evidence, §95, pp. 190 to 191.
Since
it is apparent that Leathers was not the only person who knew about
these matters or could testify to them, the remarks of the United States
Attorney did not amount to a comment upon the failure of Leathers to
take the stand. As we said in Langford v. United States, 178 Fed.
(2d) 48, 55 [56-2 USTC ¶10,079], aside from those special cases where
it appears that the accused himself is the only one who could possibly
contradict the Government's testimony, the prosecutor may properly call
attention to the fact that the testimony of the Government witnesses has
not been contradicted. In like manner we think it was not improper here
to comment on the failure of defense to produce the settlement or the
work sheet.
The
judgment is affirmed.
1
See Leathers v. Peterson, 195
Ore.
62, 244 P. 2d 619.
2
"He said, 'Russ,' he said, 'I can turn that property back to you
like your home on that Charleston property; but if I do, you owe the
Federal money, so much in taxation they will only come in and take it
away from you anyway. It will go a lot better if you got any of those
record,' he said, 'throw them in the crapper. I haven't got the cash
now, but,' he said, 'I will take care of it eventually.'"
3
Defense counsel led up to this inquiry following his prior inquiry,
mentioned above, relating to the terms of the civil litigation. The
examination proceeded as follows: "Q. (By Mr. Darling): Mr.
Peterson, isn't it true that you have taken the position and do now take
the position that when you gave the ten thousand dollar check to Mr.
Peterson--I mean Mr. Leathers, that when you gave the ten thousand
dollar check to Mr. Leathers in March of 1947 or sometime in 1947 and
when you gave him notes in the amount of some ten thousand dollars that
you gave him that money and notes on the representation made by Mr.
Leathers that he was going to use that money in the payment of Federal
taxes and State taxes? A. Yeath; the combination of State and Federal
tax. Q. Well, then, isn't it true that your position as of this time is
that when that happened that he only paid some four thousand dollars on
taxes and pocketed the some sixteen thousand dollars? A. That's what it
looks to me like. Q. That is the position that you took in the trial of
the case between you and Mr. Leathers in the Circuit Court of the State
of
Oregon
, is it not? A. But, really, that money didn't belong to me; it belonged
to the Federal Government. It is money that I gave them. Q. That is the
position that you took, was it not, that--all during that time? A. Well,
now, if he didn't pay the one thing, I don't know as the Federal
Government is going to come back after me for collection. If they do,
then I owe it. Q. Well, then, let me ask you, what has the Federal
Government and the officials told you concerning your liability for
these taxes? A. They haven't told me anything as yet."
4
"Federal courts have adopted a liberal attitude toward the
admission of evidence, otherwise irrelevant and prejudicial, to show
bias on the part of a witness. . . . The matter rests largely within the
sound discretion of the trial judge."
5
"One of the circumstances, by which it is commonly apparent that
the communication is not confidential, is the presence of a third
person, not being the agent of either client or attorney. Here, even if
we might predicate a desire for confidence by the client, the policy of
the privilege would still not protect him, because it goes no further
than is necessary to secure the client's subjective freedom of
consultation . . . and the presence of a third person (other than the
agent of either) is obviously unnecessary for communications to the
attorney as such,--however useful it may be for communications in
negotiation with the third person." Wigmore on Evidence, 3d Ed.,
Vol. 8, p. 602, §2311.
[54-1
USTC ¶9370]George Fischer, Appellant v.
United States of America
, Appellee
(CA-10), In the United States
Court of Appeals for the Tenth Circuit, No. 4747--November Term, 1953,
212 F2d 441,
April 29, 19
54
Appeal from the United States District Court for the District of
Colorado.
Criminal prosecution: Tax evasion: Sufficiency of evidence: Jury
instructions: Motion for bill of particulars.--The Government's
evidence was sufficient to prove that taxpayer had substantial
unreported income from his law practice and from illegal sources in 1949
and 1950. The exact amount of unreported income was unimportant to
support a finding of guilty for tax evasion under Sec. 145(b). The
appellate courts will not consider jury instructions to which no
objections were taken at the time of trial. The trial court did not err
in admitting as evidence certain records of a slot machine business from
which taxpayer allegedly derived income and a booklet taxpayer wrote in
1943 on keeping records for income tax purposes. The court did not err
in directing an attorney to pursue a line of questioning concerning an
incident relevant to the trial issue. Nor did the trial court err in
denying taxpayer's motion for a bill of particulars where the only
purpose that would have been served by granting the motion was that of
disclosing in detail the evidence upon which the Government's expected
to rely.
Isaac
Mellman (Gerald N. Mellman was with him on the brief), for appellant.
Clifford C. Chittim, Assistant United States Attorney for the District
of Colorado, (Donald E. Kelley, United States Attorney for the District
of Colorado, was with him on the brief), for appellee.
Before
PHILLIPS, Chief Judge, and BRATTON and PICKETT, Circuit Judges.
PICKETT,
Circuit Judge:
The
appellant, George Fischer, was convicted on two counts of an indictment
which charged him with a willful attempt to defeat and evade a large
part of income tax due and owing by him and his wife for the years 1949
and 1950, by filing false and fraudulent joint income tax returns in
violation of 26 U. S. C. A. Sec. 145(b). 1 He appeals
from a two-year sentence of imprisonment on the first count, and five
years' probation on the second count.
The
first count of the indictment charges that Fischer filed a joint return
for the year 1949, showing a net income of $6,315.64, upon which there
was due a tax of $650.00, when he knew that the joint net income for
that year was $9,159.94, upon which there was due a tax of $1,198.32. In
the second count it was charged that for the year 1950 a joint return
was filed showing a net income of $9,104.20, upon which there was due a
tax of $1,237.38, when he knew that the joint net income for that year
was $21,203.75, upon which there was due a tax of $4,402.68.
Fischer
had been a practicing attorney in
Brighton
,
Colorado
, for almost twenty years. He had served as
County
Attorney
for
Adams
County
, and as a State District Judge for two years. During the years in
question, in addition to practicing law, he acted as Assistant District
Attorney for the First Judicial District of Colorado which was comprised
of Adams, Arapahoe, Jefferson, Clear Creek and
Gilpin
Counties
. Most of his work, both in the practice of law and as Assistant
District Attorney, was in
Adams
County
.
The
basis of the government case is that Fischer failed to report items of
income from his law practice and understated others, and that he failed
to report income received by him from operators of slot machines in
Adams County
,
Colorado
. For the year 1949, Fischer admitted the failure to return fifty-four
separate items of income from his law practice which totaled $1,365.85.
Most of these items were small, but they included amounts of $50.00,
$60.00, $75.00, $100.00, $110.00 and $250.00. In addition, there were
fourteen understatements of amounts received which totaled $612.65. An
operator of slot machines testified that he entered into an agreement
with Fischer whereby one-third of the income from slot machines was to
be delivered to Fischer in return for certain protection from
prosecution for the operation of the machines. He stated that each week
Fischer's share of this income was placed in an envelope by a bookkeeper
and that he delivered the envelope and contents to Fischer personally.
The bookkeeper testified that one-third of the income from the slot
machines was carried on the books as "legal fees" or
"legal expenses" and cash representing that amount was placed
in separate envelopes. There was evidence that in 1949 Fischer received
from this source the sum of $1,022.73. For the year 1950, Fischer
admitted receiving from his law practice seventy-seven items of
unreported income, which totaled $7,097.93. One of these items was a
$4,000.00 fee paid to him on
April 3, 19
50, and deposited in his savings account with a Denver bank. In the same
year there were also twelve understated items which totaled $663.18. The
evidence shows that for the year 1950 Fischer received $3,790.93 as
protection money. Fischer denied receiving any of the slot machine
payments, and testified that his failure to report the other items of
income was the result of oversight, neglect and sloppy bookkeeping, and
was not done willfully.
The
evidence in this case establishes that Fischer was experienced in the
law; that he had substantial unreported income from illegal sources; and
that unreported and understated items of income during the taxable
periods were continuous and constituted a large portion of his income.
These were circumstances from which the jury could properly conclude
that Fischer willfully attempted to evade a large part of his income
taxes for the periods in question. Graves v.
United States
, 10 Cir., 191 Fed. (2d) 579, 582 [51-2 USTC ¶9431];United
States v. Venuto, 3 Cir., 182 Fed. (2d) 519, 521[50-1 USTC ¶9333]; United
States v. Hornstein, 7 Cir., 176 Fed. (2d) 217, 220 [49-2 USTC ¶9326];Halle
v. C. I. R., 2 Cir., 175 Fed. (2d) 500, 503 [49-1USTC ¶9295], cert.
den. 338
U. S.
949; Stinnett v.
United States
, 4 Cir., 173 Fed. (2d) 129, 130 [49-1USTC ¶9217], cert. den. 337
U. S.
957; Gleckman v.
United States
, 8 Cir., 80 Fed. (2d) 394, 401 [35-2 USTC ¶9645], cert. den. 297
U. S.
709; Cf. United States v. Murdock, 290
U. S.
389, 394 [3 USTC ¶1194]. It is not necessary for the government to
prove the exact amount of unreported income in cases of this kind. It is
sufficient if the evidence shows that the unreported amounts were
substantial, and that the failure to report was willful.Holland v.
United States
, 10 Cir., 209 Fed. (2d) 516, 522[54-1 USTC ¶9177], and the cases
there cited.
It
is urged that the court committed error in its instructions to the jury
by failing to properly define the term "willfully" as used in
the statute, and in its instructions relating to reasonable doubt and
circumstantial evidence. The court gave a rather extensive and careful
definition of the word "willful". It did not state in so many
words that to constitute a violation of the statute, the attempt to
evade income taxes must be done "with a bad purpose". The
instruction on reasonable doubt was in the language usually approved by
the courts. After stating what constituted reasonable doubt, the court
told the jury that if it did not believe the defendant to be guilty
beyond a reasonable doubt, "it is your duty to acquit" him.
The objection to the instruction is that it did not say that the jury
"must" acquit the defendant if there was a reasonable doubt of
his guilt. In determining whether Fischer acted willfully, the jury was
told that it is difficult to determine what goes on in the mind of a
man, and that this can be determined only from inferences fairly and
reasonably to be drawn from proven facts and circumstances including
"the kind of evasion, if any, you find the defendant
committed". It is contended that this instruction was an attempt to
instruct on circumstantial evidence and that it was insufficient.
No
objection was taken to any part of the instructions and the defendant
did not suggest or offer any additional instructions. 2 It is
settled law that appellate courts will not consider instructions to
which no objections were taken at the time of trial. Fed. Rules Cr.
Proc. rule 30, 18 U. S. C. A.; Apodaca v.
United States
, 10 Cir., 188 Fed. (2d) 932; Ryles v.
United States
, 10 Cir., 172 Fed. (2d) 72, rev'd. on other grounds, 336
U. S.
949; Thayer v.
United States
, 10 Cir., 168 Fed. (2d) 247; Berenbeim v.
United States
, 10 Cir., 164 Fed. (2d) 679, cert. den. 333
U. S.
827. The foregoing rule is subject, however, to the exception that an
appellate court has inherent power, upon its own motion, to inquire into
the adequacy of a charge in cases where there is grave error which
amounts to the denial of a fundamental right of the accused. Fed. Rules
of Cr. Proc. rule 52(b), 18 U. S. C. A.; Apodaca v.
United States
, supra; Ryles v.
United States
, supra; Madsen v.
United States
, 10 Cir., 165 Fed. (2d) 507. We have carefully examined the record
and find no error in the court's instructions which amount to a denial
of any fundamental right of the appellant.
Appellant
next assigns as error the admission in evidence of two exhibits and
certain testimony. The slot machine operators who testified that Fischer
received income, used the firm name of "American Amusement
Company". The persons collecting money from the different machines
prepared tickets as the collections were made showing the machines from
which the money came. These tickets, together with the cash, were
brought to the company office and the bookkeeper compiled summary shcets
from the tickets which showed the total receipts from the various
machines. These sheets were made in the regular course of business and
constituted a part of the books of the company relating to its income
and were the basis upon which the division was made with Fischer. They
were admissible for this purpose. 28 U. S. C. A. Sec. 1732.
The
second exhibit was a printed booklet written and published by Fischer in
1943, entitled "Mind Your Own Business". One section of the
book was captioned "Income Tax, Keeping Records". In this
section the reader is cautioned to "Be sure to keep all dates,
amounts and items with some degree of accuracy". It suggested a
simple and practical method of keeping records to avoid difficulty in
income tax matters. The author points out the pitfalls which he now
asserts as a defense and upon which he relies to negative any
willfulness on his part when he failed to return all of his income. The
booklet was admissible upon the issue of willfulness.
During
the direct examination of one of the partners in the American Amusement
Company, the court directed the District Attorney to pursue a line of
questioning to "find out where, and when, and under what
circumstances" an incident occurred. It is contended that this
direction transcended the bounds of an impartial presiding judge and
tended to convey to the jury that special weight should be given to such
testimony. There is no merit to the contention. The trial court is not a
mere umpire in the trial of a case. One of its functions is to see that
all relevant facts are brought intelligibly to the attention of the jury
and it may intervene in the conduct of the trial for this purpose. The
court has the power, within reasonable bounds, to question a witness for
the purpose of eliciting the truth and there is no reason why it may not
direct an attorney to pursue a line of questioning if it is relevant to
the case. Glasser v. United States, 315 U. S. 60, 82; Quercia
v. United States, 289 U. S. 466, 469;Griffin v. United States,
App. D. C., 164 Fed. (2d) 903, cert. den. 333
U. S.
857, new trial granted on other grounds, 183 Fed. (2d) 990; National
-- Casualty Co. v. Eisenhower, -- Cir., 116 Fed. (2d) 891;
United States
v. Gross, 7 Cir., 103 Fed. (2d) 11, 13;
United States
v. Breen, 2 Cir., 96 Fed. (2d) 782, cert. den. 304
U. S.
585.
Lastly,
it is contended that the trial court erroneously denied defendant's
motion for a bill of particulars. The motion requested that the
defendant be furnished with (1) the nature, source and amount of each
item of gross income which the government claimed the defendant
received; (2) the type and amount of each item of deduction allowed or
disallowed by the government in computing his net income; (3) the source
of the government's information as to each item of income, and (4) the
nature and amount of each item of gross income not taken from the books
of the company. The purpose of a bill of particulars is to define more
specifically the offense charged. It is not for the purpose of
disclosing in detail the evidence upon which the government expects to
rely. Norris v.
United States
, 5 Cir., 152 Fed. (2d) 808, 811, cert. den. 328
U. S.
850;Kempe v.
United States
, 8 Cir., 151 Fed. (2d) 680, cert. den. 331
U. S.
843; Rose v.
United States
, 9 Cir., 149 Fed. (2d) 755;
United States
v. Wexler, S. D. N. Y., 6 Fed. Supp. 258, aff'd, 2 Cir., 79 Fed.
(2d) 526 [35-2 USTC ¶9606], cert. den. 297
U. S.
703. Generally, in criminal cases the granting of a motion for a bill of
particulars is addressed to the sound judicial discretion of the trial
court and its action will not be disturbed on appeal in the absence of
an abuse of discretion. Wong Tai v.
United States
, 273
U. S.
77; Rose v.
United States
, 10 Cir., 128 Fed. (2d) 622 [42-2 USTC ¶9500], cert. den. 317
U. S.
651; Gates v.
United States
, 10 Cir., 122 Fed. (2d) 571, cert. den. 314
U. S.
698; Frederick v.
United States
, 9 Cir., 163 Fed. (2d) 536, cert. den. 332
U. S.
775; Lett v.
United States
, 8 Cir., 15 Fed. (2d) 686. 3 The evidence
does not disclose that there was any abuse of discretion in the denial
of the motion. Fischer knew all of the unreported items of income
received from his law practice which would be shown at the trial. Early
in the investigation, he advised agents of the Bureau of Internal
Revenue that he had not received any payments as protection money to
permit illegal operation of slot machines. He stated that he had no
other income than that received from his law business and reiterated
such denials at the trial. It does not appear that the proof of payments
as protection money came as a surprise and no objection was made to its
introduction on that ground. It may well be that the motion should have
been granted as to the source of the payments received from the slot
machines, but the record as a whole does not disclose that the refusal
of the court to require this information to be furnished was an abuse of
discretion or prejudiced the defendant to such an extent as to warrant a
reversal. Rose v.
United States
, 10 Cir., 128 Fed. (2d) 622.
Judgment
affirmed.
1
This section provides:
"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 cost of prosecution."
2
At the conclusion of the instructions the following colloquy occurred:
"The
Court: Do you have any exceptions?
"Mr.
Mellman: None that I think of right now.
"The
Court: This is your last chance if you have any. If you have any, I want
to know.
"Mr.
Mellman: I don't know of any, Judge."
3
InWong Tai v.
United States
, supra, the Supreme Court said:
"The
defendant also made a motion, supported by affidavit, for a detailed
bill of particulars, setting forth with particularity the specific facts
in reference to the several overt acts alleged in the indictment, with
various specifications as to times, places, names of persons,
quantities, prices, containers, buildings, agencies, instrumentalities,
etc., and the manner in which and the specific circumstances under which
they were committed. This motion--which in effect sought a complete
discovery of the Government's case in reference to the overt acts--was
denied on the ground that the indictment was sufficiently definite in
view of the unknown matters involved and the motion called 'for too much
details of evidence.'
"The
application for the bill of particulars was one addressed to the sound
discretion of the court, and, there being no abuse of this discretion,
its action thereon should not be disturbed. See Rosen v. United
States, 161 U. S. 29, 40; Dunlop v. United States, 165 U. S.
486, 491;Knauer v. United States (C. C. A.), 237 Fed. 8, 13;Horowitz
v.
United States
(C. C. A.), 262 Fed. 48, 49;Savage v.
United States
(C. C. A.), 270 Fed. 14, 18. And there is nothing in the record
indicating that the defendant was taken by surprise in the progress of
the trial, or that his substantial rights were prejudiced in any way by
the refusal to require the bill of particulars. See Connors v. United
States, 158 U. S. 408, 411; Armour Packing Co. v. United States,
209 U. S. 56, 84; New York Central R. R. v. United States, 212 U.
S. 481, 497."
[54-1
USTC ¶9291]Joseph W. Clark, Appellant v.
United States of America
, Appellee
(CA-8), In the United States Court
of Appeals for the Eighth Circuit, No. 14,652, 211 F2d 100,
March 19, 19
54
Appeal from the United States District Court for the Eastern District of
Missouri.
Criminal prosecution: Admissibility of evidence.--Appellant,
convicted of attempted tax evasion through the filing of false returns,
contended, on appeal, that the trial court erred in overruling his
motion for acquittal. The appellate court dismissed his arguments as
having no merit. It was proper for the Government to include in
appellant's income the repayments of the outlays for cemetery lots,
clergyman's and organist's fees, etc. which were deducted as business
expenses. The inference of willfulness was warranted by the evidence
that appellant submitted figures, unaccompanied by records, to the
accountant for preparation of his returns and that only one of the four
books or records was shown to the revenue agents. The statements of
gross receipts filed by appellant with the Office of the License
Collector for the purpose of obtaining his undertaker's license were
properly admitted, while the exhibits prepared by expert accountants
purporting to show that a return of appellant's income on an accrual
instead of a cash basis would not leave any such great amount of
unreported income as the Government claimed, were properly excluded. The
erroneous admission of the waivers executed by appellant furnished no
ground for a reversal since the conviction did not rely upon the
waivers.
Don
O. Russell for appellant. H. Brian Holland, Assistant Attorney General,
Meyer Rothwacks and Joseph M. Howard, Special Assistants to the Attorney
General, Harry Richards, United States Attorney, and William J.
Costello, Assistant United States Attorney, for appellee.
Before
JOHNSEN and COLLET, Circuit Judges, and NORDBYE, District Judge.
JOHNSEN,
Circuit Judge:
Appellant,
an undertaker in
St. Louis
,
Missouri
, was convicted of attempted income-tax evasion, 26
U. S.
C. A. §145(b), for the years 1945 to 1949 inclusive, through the filing
of false and fraudulent returns. The trial was to the court, without a
jury.
The
indictment alleged that he had knowingly misstated his net income for
1945, as being $3,437.92, whereas it was $46,808.98; for 1946, as being
$5,423.24, whereas it was $30,267.19; for 1947, as being $6,998.34,
whereas it was $12,822.31; for 1948, as being $6,178.14, whereas it was
$23,239.96; and for 1949, as being $9,381.67, whereas it was $25,236.69.
The amount of the tax which he had paid and the amount which it was
claimed that he should have paid were also set out for each year. All of
appellant's income was admittedly derived from his funeral business.
Each
count of the indictment further undertook to show, equivalently as a
bill of particulars, how the Government had arrived at its determination
of net income for the year. The method employed was the same for all of
the years. The computation first took the "Gross Receipts" of
the business. From this was subtracted the "Cost of Goods
Sold", that is, the merchandise purchased for sale. Next was
subtracted "Other Business Deductions", consisting of
salaries, interest, taxes, depreciation, rent, and all the other items
which appellant had claimed as business expenditures in his returns. The
amount remaining was treated as appellant's "Adjusted Gross
Income". From this, subtraction was made of the amount of the
standard deduction for nonbusiness expenses, which the Internal Revenue
Code allowed, and which appellant had used in his returns, to arrive at
appellant's "Net Income".
[Gross Receipts Not Taken As
Basis]
Appellant's
principal contention here is that the trial court erred in overruling
his motion for acquittal, because the Government's method of computation
did not legally establish that any understatement of income had been
made in his returns. The gist of his argument is that the Government had
improperly taken appellant's Gross Receipts as the foundation of its
computation; that Gross Receipts are not the basis of income-tax
liability, Southern Pacific Co. v. Lowe, 247 U. S. 330, 335, 38
S. Ct. 540, 62 L. Ed. 1142 [1 USTC ¶19], because they may include
return of capital as well as income; that here they had admittedly
included reimbursements of "outlays" made by appellant on
behalf of customers, for cemetery lots, clergyman's and organist's fees,
extra limousines hired from outside sources, newspaper notices, etc.,
which were not part of the services covered by his general funeral
prices; and that, in any event, while the Government claimed that all
such returns of capital had been subtracted from the Gross Receipts in
arriving at appellant's Adjusted Gross Income--appellant's returns
having showed that he had included such "outlays" as operating
expenses in his business deductions, and the Government having accepted
all of the deductions so claimed by him, for purposes of its result of
Adjusted Gross Income--the Revenue Agents had failed to engage in any
audit to establish that appellant had in fact included all of such
"outlay" expenditures in his business deductions, and that it
therefore had not legally established that its computation of Adjusted
Gross Income did not consist of returns of capital.
This
argument is without any legal substance on the realities of the
situation. Of course, gross income and not gross receipts is the
foundation of income-tax liability, for it is only earnings, profits and
gains which the statute subjects to tax. And manifestly, gross receipts
cannot be called gross income, insofar as they consist of borrowings of
capital, returns of capital, or any of the other items which section 22
of the Internal Revenue Code, 26 U. S. C. A. §22, has excluded from
gross income. But when all of these things have duly been taken into
account, no matter by what process it has been done, the amount
remaining of Gross Receipts necessarily may, in its character as a
result, properly reflect the taxpayer's Gross Income, which it is his
duty to report.
On
the Government's evidence, that is what the result of its computation
amounted to in the present situation. The fact that the computation
started with appellant's Gross Receipts would not prevent the result
reached, no matter by what other term in accounting nomenclature it
might be possible to designate it, from legally being reflective of
appellant's Gross Income for purposes of proving income-tax evasion by
him.
[Taxpayer's Duty to Show
Unclaimed Deductions]
The
Government is not required to establish income-tax evasion by the same
processes and formalities which a taxpayer is required to observe in
making his return. The existence of unreported income may be
demonstrated by any practical method of proof that is available on the
circumstances of the particular situation. Cf. Burka v. Commissioner,
4 Cir., 179 Fed. (2d) 483, 485 [50-1 USTC ¶9167]. And it is not
necessary, in order to make a case of tax evasion, that the exact amount
of such income should be established. United States v. Johnson,
319
U. S.
503, 517, 63
S. Ct.
1233, 87 L. Ed. 1546 [43-1 USTC ¶9470]. Nor is it incumbent upon the
Government, in making a prima facie case of evasion to prove the
non-existence of any other deductions than those which the taxpayer has
claimed in his return.
United States
v. Link, 3 Cir., 202 Fed. (2d) 592, 593, 594 [53-1 USTC ¶9230].
If the taxpayer legally has other deductions than those which he has so
claimed, it is his privilege to show them and explain them as part of
his defense. Sometimes the failure to claim deductions in a return may
well be a part of the taxpayer's scheme to cover up his unreported
income as a matter of not creating suspicion on the face of his return.
It does not therefore destroy the Government's prima facie case as a
matter of law that the defendant is able to develop on cross-examination
of the Government's witnesses that a right to other deductions may
exist, or to establish by his own evidence that such deductions do in
fact exist, and especially is this true where the unreported income
pointed to by the Government's evidence is reasonably capable of being
found to have exceeded the amount of the unclaimed deductions. In any
event, the attempt to establish unclaimed deductions as a defense
against fraud in misstating income will ordinarily of itself present
merely a question of fact, first as to the existence and amount of such
deductions, and further, as suggested above, as a possible ingredient in
the taxpayer's intent to conceal his unreported income by partially
neutralizing the face of his returns.
[Repayments Not Included in
Income]
What
has been said is controlling of the present situation. The Government's
computation, as has been indicated, did not use appellant's Gross
Receipts as his Gross Income but simply took the Gross Receipts as the
starting point of its method of arriving at his Adjusted Gross Income,
in convenient approach and correlation to his manner of doing business,
of keeping records, and of making his returns. The Revenue Agents
subtracted the cost of all the merchandise which he had bought for sale,
such as caskets, etc., and thus took account of any returns of capital
from this source which were involved in his Gross Receipts. As to the
"outlays" which appellant had made for cemetery lots,
clergyman's and organist's fees, extra limousines hired from outside
sources, newspaper notices, etc., which were not covered by the general
funeral price, appellant's tax returns showed that he had made
deductions of such items as costs of operation or business expenses,
without correspondingly, however, having treated the repayment of them
by the customer as being equivalent on this basis to income resulting to
him.
The
Government chose, for purposes of its computation, to allow the
"outlays" to stand as business expenses, and to treat the
repayment of them as income, instead of eliminating them from the
deductions claimed by appellant and from the Gross Receipts as
technically constituting outlays and returns of capital, for the reason
primarily that appellant admitted to the Revenue Agents during their
investigation that on some of these items he had made a profit, in that
he had received a "kick-back" or had collected more from the
customer than the amount of his actual outlay, and further appellant was
not able to produce any bills, check-stubs, or other record of his
expenditures, except for 1949 and part of 1948, from which it would have
been possible for the Revenue Agents to determine how much the
"outlay" receipts had in fact exceeded the "outlay"
expenditures.
The
result obtained by the Revenue Agents necessarily would be in the
circumstances reflective of the amount of appellant's Adjusted Gross
Income, assuming the correctness of the amount of the deductions
allowed. And as we have said, the Government was entitled, for purposes
of its prima facie case, to treat the amount of the deductions, with
their inclusion of such "outlays", as being correct, if it
chose to do so, because they had been so shown and declared in
appellant's returns. Also, there was here no such establishment of
omitted proper deductions, through cross-examination of the Government's
witnesses or on the evidence of appellant, as legally destroyed the
Government's prima facie case of existence of unreported taxable income
and of willfulness in connection therewith.
[Inference of Willfulness
Warranted]
Appellant
further argues, however, that the evidence was legally insufficient to
establish that such understatement of income as may have occurred was
willful. The evidence showed that appellant's returns purported to have
been prepared by an accountant, but that the fact was that appellant did
not give the accountant access to his records but merely submitted
figures to him, for preparation of the returns, which appellant compiled
himself; that, both during the investigation and on the trial, appellant
had never been able to explain or demonstrate from his records or
otherwise how he had gotten the receipts figures which he gave the
accountant; that, while appellant maintained four books or records in
the operation of his business (a funeral record book; a cash receipts
book; a journal showing receipts from ambulance and limousine rentals
and stillborn burials; and a loose-leaf book of receipts from hearse
loans to other undertakers) he gave the Revenue Agents, when they began
their investigation, in response to their request for his books and
records, only his funeral record book, told them that he had no other
record of his receipts, and declared that the book correctly and
completely showed all the receipts of his business, which it did not;
that similarly when the Revenue Agents inquired about his bank account,
he gave them the name of only one bank, and failed to give them the
names of three other banks, in which he had an account; that his
standard of living indicated an expenditure of money far beyond the
amount of the net income which he showed in his returns; and that he was
throughout the investigation and on the witness stand evasive or
equivocal in much of what he said. All of these items of evidence were
clearly relevant and sufficient to warrant the jury in making an
inference of willfulness. Cf. Spies v. United States, 317
U. S.
492, 499, 500, 63 S. Ct. 364, 87 L. Ed. 418 [43-1 USTC ¶9243].
[Statements to City License
Collector Admitted]
It
is next contended that the court erred in admitting in evidence Exhibit
Nos. 18 and 19, which were conflicting statements of gross receipts
purporting to have been filed by appellant with the Office of the
License Collector of the City of St. Louis, Missouri, as a basis for
obtaining his undertaker's license. The ordinances of the City of
St. Louis
required an undertaker to file a statement of the gross receipts of his
business for the previous fiscal year, in order to obtain his annual
license. Both exhibits constituted statements of purported gross
receipts, typed on appellant's business stationery. Neither of them was
signed, but the ordinance does not appear to so require. Exhibit 18
purported to show appellant's gross receipts for the fiscal year
July 1, 19
48 to
June 30, 19
49. Exhibit 19 purported to show appellant's gross receipts for the
calendar year 1949. The monthly receipts shown in Exhibit 19 were
identical with the figures which appellant had given his accountant as
the basis for preparing his 1949 tax return. The receipts shown in
Exhibit 18, however, were substantially larger and corresponded closely
to those appearing in his cash receipts book.
The
only argument that merits consideration in relation to the Exhibits is
that no sufficient foundation was laid for their admission. The
Government offered them as being admissions on the part of appellant.
The sufficiency of the foundation on this basis, to establish their
identification or authenticity as having been prepared by appellant, was
a matter for the discretion of the trial court. Metropolitan Life
Ins. Co. v. Armstrong, 8 Cir., 85 Fed. (2d) 187, 194. And that
discretion was not here abused.
The
Exhibits were produced in court by the Assistant Chief Clerk in the
License Collector's Office as part of the files of that Office. They did
not bear any filing stamp, but the witness testified that no stamping or
other official indication of filing was made as to any such licensing
statements. The Revenue Agents testified that they had obtained the
Exhibits from the License Collector's Office during the course of their
investigation and had later returned them, but that, while they were in
their possession, they had shown them to appellant in an effort to have
him explain the discrepancy between them and he had admitted that the
statements had been prepared and submitted by him as a basis for
obtaining his license. He was interrogated under oath by the Revenue
Agents and the sworn statement which he gave was introduced in evidence.
In it he had said, among other things, as to the Exhibits: "I do
not know how I arrived at these figures. I do not know why they are
different * * * I don't know why I did not get the same figure * * * I
will be frank with you, just as frank as I can. I have no explanation
for anything."
On
all of this, there is no basis to argue that the Exhibits were not
legally entitled to be received in evidence. The question was not as to
the admissibility of their contents as official statements or records,
as appellant argues, but simply as to the sufficiency of their
identification or authenticity as being statements of appellant. The
elements as to their official character were merely incidents in the
identification of them as personal statements.
[Exhibits Prepared by Expert
Accountants Excluded]
The
contention also is made that the court erred in sustaining the
Government's objection to various exhibits prepared by expert
accountants for appellant and to the testimony of such accountants in
relation to the exhibits. The object and effect of this proffered
evidence was to demonstrate that a return of appellant's income for each
of the years on an accrual instead of a cash basis would not leave any
such great amount of unreported income as the Government claimed. The
court excluded the evidence on the ground that, on the face of the
returns, the testimony of appellant himself, and the other circumstances
appearing in the situation, it was indisputably clear that appellant had
been reporting his income on a cash basis and not on an accrual basis,
and that any hypothesizing of facts which had no probative basis was
therefore wholly irrelevant and incompetent as a defense to the charge.
Plainly, on the record, the court's ruling was proper.
One
other contention is entitled to notice and mention. It is argued that it
was error for the court to admit Exhibits Nos. 6 and 7, which consisted
of two "Waiver of Restrictions on Assessment and Collection of
Deficiency in Tax" forms (Form 270, U. S. Treasury Department)
which appellant had executed and given the Revenue Agents during the
course of their investigation, in accordance with section 272(d) of the
Internal Revenue Code, 26 U. S. C. A. §272(d). The signing of such a
waiver by a taxpayer is without any effect to preclude him from
maintaining a civil suit for refund of the taxes assessed by the
Commissioner on the basis of it. Payson v. Commissioner, 2 Cir.,
166 Fed. (2d) 1008, 1009 [48-1 USTC ¶9196]; Herber v. Jones, D.
C. W. D. Okla., 103 Fed. Supp. 210, 214 [51-2 USTC ¶9439], aff'd 10
Cir., 198 Fed. (2d) 544 [52-2 USTC ¶9397]. Much less then is such a
waiver entitled to have any effect to convict a taxpayer on a criminal
charge of evasion. See also Annotation. 11 A. L. R. 2d pp. 903, 907,
912, 915.
The
Exhibits therefore should not have been received in evidence as having
legal probative quality. But appellant is not entitled to a reversal for
this error. The case is not one that was tried to a jury. The evidence
is overwhelmingly convincing of appellant's guilt to anyone reading the
record. The court did not refer to the waivers in its detailed findings
of fact. And there is nothing else in the proceedings to suggest that
the court in any way relied upon or attached weight to the waivers as a
factor in its convicting of appellant. On these circumstances, we do not
think that it can reasonably be said that any substantial right of
appellant has been affected as a matter of either process or result.
Rule 52(a), Federal Rules of Criminal Procedure, 18
U. S.
C. A.
Affirmed.
[53-1
USTC ¶9336]James Ralph Montgomery, Appellant v.
United States of America
, Appellee
(CA-5), In the United States Court
of Appeals for the Fifth Circuit, No. 14115, 203 F2d 887,
April 17, 19
53
Appeal from the United States District Court for the Northern District
of Texas.
Evasion of taxes: Evidence: Charges to jury.--There was
reversible error in not permitting defendant's counsel to examine notes
used by a Government witness. Also the jury should have been cautioned
on the consideration to be given to evidence about offenses not being
tried, and there was undue restriction on cross-examination by
defendant's counsel of a witness as to certain payments to defendant.
There was no error in admitting in evidence a joint return not signed by
either defendant or his wife, but otherwise adequately identified.
Howard
Dailey and Clyde G. Hood, Dallas, Texas, and Clyde W. Mays and Dave
Miller, Fort Worth, Texas, for appellant. R. Daniel Settle, Special
Assistant to the United States Attorney, Frank B. Potter, United States
Attorney and Cavett S. Binion, Assistant United States Attorney,
Fort Worth
,
Texas
, for appellee.
Before
HUTCHESON, Chief Judge, and HOLMES and RIVES, Circuit Judges.
RIVES,
Circuit Judge:
Appellant,
defendant below, was convicted of willfully and knowingly attempting to
defeat and evade a large part of the income tax due and owing by him and
his wife for the years 1948, 1949 and 1950 [26 U. S. C. A. 145(b)]. 1 Defendant
was the sheriff of
Tarrant County
,
Texas
, and his trial and conviction followed close upon the heels of the
trial and conviction of A. L. Wardlaw, Assistant District Attorney for
that County. (See Wardlaw v. United States, No. 14,105 [53-1 USTC
¶9335], decided this day.) The court sentenced the defendant to serve a
three-year term of imprisonment on Count III, four years on Count IV,
which sentences were directed to run consecutively, and two years on
Count I to run concurrently with the sentences imposed on Counts II and
III, making a total of seven years to serve. Appellant has appealed from
the judgment of conviction assigning thirty-two specifications of error,
only a few of which we find it necessary to consider.
There
was no error in admitting in evidence the income tax return of the
defendant and his wife for the year 1948 notwithstanding the return was
not signed by either of them. It was sufficiently identified as their
return. It bore the stamp of the Collector's office:
"Rec'd
With Remittance
Mar. 14, 19
49
75
Coll. Int. Rev. 2nd Dist.
Tex.
"
The accompanying payment was by
check, a photographic copy of which was admitted in evidence, dated
March 12, 19
49, payable to the Collector of Internal Revenue and signed by the
defendant. One of the witnesses testified that he could tell the check
was received with the return, because a serial number was stamped on
both the check and the return when they were received by the Collector
and the serial number on the two instruments as the same; and, further,
that the balance due was shown on the return was the same amount as that
for which the check was drawn. In fact, the defendant himself on
cross-examination stated that he presumed it was his original return,
"It corresponds with everything". Though not signed, the
return was filed by defendant as his return, and intended to be received
as such by the Collector, and was properly admitted in evidence. Emmich
v.
United States
, 298 Fed. 5 [1924 CCH ¶3481].
At
the end of the direct testimony of the witness W. H. Getzendaner, the
district judge summarized the result of a lengthy examination as
follows:
"It
seems that the witness has a recollection of having paid fifty dollars
in '48, that he has no definite recollection of making more than one
payment. That he made two payments in 1949, he has no definite
recollection of paying more. That he made one payment of seventy-five
dollars in 1950, but that he is unable to say if he made more, or, when.
"That
seems to be the limit of his positive knowledge on the subject."
Defendant's
counsel then proceeded vigorously to cross-examine this witness. Among
other things, he asked the witness to name other officers to whom he had
paid bribe money during the years in question, and upon objection by the
Government explained his theory to the court as follows:
"Mr. Hood:
"It
affects his credibility in this way, Your Honor, he is testifying in
1948 he paid this defendant fifty dollars to operate a place there in
the city limits, with the police department, the investigators of the
District Attorney's Office, there are eight constable precincts over
there, had jurisdiction over the matter, and Texas Rangers, and State
Highway Patrol, and he said he paid fifty dollars to the sheriff. We
want to show how the sheriff protected him from all the others; it goes
to affect his credibility."
The court permitted the
questioning to proceed, but in a short time interrupted as follows:
"The
Court:
"We
have grave doubt about the correctness of the Court's ruling in
compelling this man to testify in the first instance, that testimony had
reference to the matter under inquiry. And now, to go into a field that
was not under inquiry is, I believe, one in which he could further claim
his right of self-incrimination, against self-incrimination. I think I
will advise the witness that the order that we entered requiring him to
testify in the other case does not further extend, and at the noon hour
I am going to examine the authorities, and I may strike his entire
testimony."
Defendant's counsel was then
permitted to ask some further questions, but not the names of the
persons to whom the witness claimed he had paid bribe money. When the
session was resumed after the noon recess, the court announced:
"The
Court:
"I
have studied the law on the subject we had under consideration, and I
adhere to my ruling and leave everything stand as it is."
[Cross-Examination of
Government Witness Unduly Restricted]
The
Government insists that the effect of that ruling was that the testimony
sought to be elicited by defendant's counsel might be considered by the
jury. Defendant's counsel evidently understood otherwise, as evidenced
by his statement, "note our exception", and his failure
further to cross-examine the witness.
If
this witness' claim of constitutional immunity was to be denied, and we
think that was proper, it had to be denied in toto so as to
accord the defendant the benefit of cross-examination however searching.
"Cross-examination of a witness is a matter of right", Alford
v. United States of America, 282
U. S.
687, 691. See J. E. Hanger, Inc., et al. v.
United States
, 160 Fed. (2d) 8; Jianole v.
United States
, 299 Fed. 496. Indeed, cross-examination, as has been often
observed, is the surest test yet devised of the truthfulness of a
witness' testimony, and its allowance is especially important in the
case of a witness who is himself an admitted violator of the law. We
think that the action of the court was an undue restriction on the
defendants' right to cross-examine this witness.
Getzendaner
was the only witness who testified to outright bribery of the defendant.
Another witness, Clarence Cleere, was permitted to testify over the
defendant's objection that the defendant called him to his office where
the following conversation ensued:
"A.
He said, 'You haven't been to see me.' I said, 'I didn't know I had
anything to come to see you--'
"The
Court:
"What
is that?
"A.
I said, 'I didn't know that I had any reason to come to see you.'
"He
said, 'Did you know that operating these pinball games was illegal?'
"I
told him that I didn't interpret the law that anything of that device
was illegal.
"He
said, 'These other boys have come to see me and you never.' He said, 'I
want you to bring me fifty dollars a month, to this office, and I am not
coming after it.'
"Mr.
Dailey:
"We
object to that as irrevelant and immaterial and inflammatory, and highly
prejudicial, and of no probative force, for the reason this witness will
testify, as I understand, that he never paid the sheriff a nickel in his
life. If he didn't, what he is saying is highly irrelevant and
immaterial and prejudicial and inflammatory.
* * *
"Mr. Hood:
"May
I ask the witness a question?
"The
Court:
"Yes.
"Mr. Hood:
"Did
you ever, in the years 1948, 1949 or 1950, pay the sheriff one dime?
"A.
No, sir.
"Mr. Hood:
"We
renew our objection as being highly irrelevant and immaterial and
inflammatory and prejudicial."
[Jury Should Have Been
Cautioned as to Use of Evidence of Offenses Not on Trial]
The
district judge could exercise a broad discretion in admitting this type
of testimony to show that defendant's "motive in not reporting his
illegal gains was to keep as secret as possible the fact that he was
receiving income which it was a criminal offense to accept", Chadick
v. United States, 77 Fed. (2d) 964 [35-2 USTC ¶9416], as well as
"to establish the possible source of the funds used for the
expenditures which so substantially exceeded appellant's declared
available resources", United States v. Chapman, 168 Fed.
(2d) 997, 1000 [48-1 USTC ¶9312]. The fact that the evidence objected
to tended to establish that the accused committed offenses other than
those charged in the indictment would be no justification for excluding
it if it tended also to establish the commission of the crime charged in
the indictment, Capone v. United States, 51 Fed. (2d) 609, 619 [2
USTC ¶786]. We think, however, that the jury should have been cautioned
that the evidence was admitted only for the light that it might throw on
the federal offenses on trial, and that no inference of guilt could be
drawn merely from the commission of other offenses different in
character. In short, the jury should not convict the defendant of income
tax evasion because they concluded that he was a grafter. See Railton
v.
United States
, 127 Fed. (2d) 691; Lurding v.
United States
, 179 Fed. (2d) 419 [50-1 USTC ¶9159].
Mr.
Justice Frankfurter in his concurring opinion in Johnson v. United
States, 318 U. S. 189, 202 [43-1 USTC ¶9288], stated: "In
reviewing criminal cases, it as particularly important for appellate
courts to re-live the whole trial imaginatively and not to extract from
episodes in isolation abstract questions of evidence and
procedure." When the testimony and the parts of the arguments
copied in the record are read in an effort to "re-live the whole
trial", we can see the difficulty of the task faced by court and
jury in confining their consideration to the federal offenses on trial.
That difficulty but emphasizes the precautions that should be observed
by the court and the district attorney to insure the defendant a fair
trial on the offense alone with which he was charged.
The
third and last witness, who was placed on the stand by the Government to
testify along the same line as Getzendaner and Cleere, was Ernest
Cavitt, a colored man who operated a small tavern where beer was served
and where a dice game was sometimes played. He testified that the
defendant never asked him to pay anything for "running crap
games" and that he did not pay him any bribes, but that he had paid
about $25.00 every two or three months just as a gift up to a total
which would not exceed $300.00.
There
was evidence from the defendant and from his wife of large gifts from a
friend, Paul Suggs. The defendant claimed that at a period of his life
when he was engaged in professional boxing, he was making considerable
money and loaned Suggs $3,000.00 with which to go in business; that
Suggs had made a financial success, and was thereafter generous in his
gifts to the defendant. Suggs was not offered as a witness, and in
explanation the defendant introduced a clipping from a
Los Angeles
,
California
, paper regarding the violent death of Suggs and his family. The
defendant excepted to the court's charge "because the court has not
instructed the jury that it may consider, take into consideration, this
defendant may have acquired some moneys from the source of gifts, as
testified to in this record." We would not be willing to hold the
overruling of this exception to be reversible error in view of the fact
that the court in the course of its oral instructions did charge the
jury as follows:
"You
are also instructed that true, bona fide gifts to a taxpayer are not
subject to the payment of income tax. Whether or not a gift or the
passing of money or valuables is a true and bona fide gift may be a
matter for the jury to consider in the determination of any case
involving tax returns."
[In Criminal Case Net Worth
Evidence Is Merely Circumstantial]
Under
the "net worth-expenditures" method by which the Government
undertook to prove the charges contained in the indictment, it was
necessary that the increase in net worth or the expenditures, or both
added together, justify the finding that the defendant had some
substantial unreported income, the exact amount of which need not be
proved. United States v. Johnson, 319
U. S.
503, 517 [43-1 USTC ¶9470]. Any gifts or other non-taxable receipts
explaining part of the increase in net worth or expenditures must, of
course, be deducted, and care must be taken not to include expenditures
more than once.
United States
v.
Caserta
, 199 Fed. (2d) 905 [52-2 USTC ¶9540]. According to an article in
the American Bar Association Journal (March, 1953, Vol. 39, p. 251)
describing the method, it is now attempted in almost all fraud cases. In
our recent case of Pollock v. United States, No. 14,126, decided
February 27, 1953 [53-1 USTC ¶9229], we noted that in a criminal case
this kind of evidence "being circumstantial, must exclude in the
minds of the jury every reasonable hypothesis other than the guilt of
the defendant". In that case, the Government connected up its
necessary proof by statements of the taxpayer and of his wife, but we
noted that those statements were obtained "after due warning of
their constitutional rights". In the present case, Special Agent
Baskett testified that the defendant was never so warned, and that he
never at any time told the defendant that any document that was
surrendered to him or his fellow agents would be used in either a civil
or criminal prosecution against him. The defendant testified that, when
Baskett and Government Agent Wilson first came to see him about his
income tax matters, they told him that it was a routine check up, and
that on each occasion he conferred with them, they told him it was
purely a civil matter, that they would soon let him know how much taxes
he owed, if any, and allow him to pay them, and that at no time was it
intimated to him that there might be a criminal prosecution. 2
At
the conclusion of the testimony, the Government introduced into evidence
over the defendant's objection its Exhibit No. 20, including all figures
of claimed expenditures for the years in question, both those taken from
the record, testimony from witnesses to whom money had been paid, as
well as those testified to by Baskett that he had gained from statements
and admissions of defendant and his wife, cancelled checks, receipts and
documents which appellant had surrendered to him.
We
do not think the circumstances under which the statements of the
defendant and of his wife, and the cancelled checks and documents, were
obtained were sufficient of themselves to require that that evidence be
excluded on the ground of being involuntary as a matter of law, or to
require that the Government's Exhibit No. 20 based in part upon such
testimony be not admitted in evidence. All of those circumstances were
matters which went to the weight or credibility of the testimony thus
obtained. Wilson v. United States, 162 U. S. 613, 624; Powers
v. United States, 223 U. S. 303, 314; Wood v. United States,
128 Fed. (2d) 265, 269; Nicola v.
United States
, 72 Fed. (2d) 780, 784 [4 USTC ¶1331]; Shushan v. United
States, 117 Fed. (2d) 110, 117; Hanson v.
United States
, 186 Fed. (2d) 61 [51-1 USTC ¶9118]; Barshop v. United States,
192 Fed. (2d) 699 [51-2 USTC ¶9504].
Baskett
was the Special Agent for the Bureau of Internal Revenue assigned to
investigate the case. His investigation began in February, 1951, and
lasted until March, 1952, during which time he contacted the appellant
some twelve to fifteen times and upon each occasion made notes and
transscribed them later in the day. The importance of his testimony is
indicated by the fact that it occupies 233 pages of the printed record.
Shortly after his direct examination began, it became apparent that he
was reading from notes and the defendant's counsel objected unless they
could see the notes and demanded the privilege of looking at them and
reading them themselves. Their objection and demand were overruled and
they excepted. 3
When
the cross-examination of this witness was begun defendant's counsel
renewed their demand to see the notes from which he testified, but again
without success. 4
The
law is now well settled that where a witness while he is on the stand
uses any paper or memoranda to refresh his memory in giving his
testimony, the opposing side, upon proper demand, has a right to see and
examine that paper or memoranda and to use the same in cross-examination
of the witness. Morris v.
United States
, 149 Fed. 123, 126, 127; Lannon v.
United States
, 20 Fed. (2d) 490, 493; Little v.
United States
, 93 Fed. (2d) 401, 406.
Of
course, a conviction will not be reversed for denial of the right to
examine such notes and memoranda if the error does not affect
substantial rights of the party. Rule 52, Federal Rules of Criminal
Procedure;
United States
v. Socony Vacuum Oil Co., 310
U. S.
150, 234.
[Denial of Right of Opposing
Counsel to See Notes Used by Government Witness Was Reversible Error]
It
is not clear from the record how much of this witness' testimony was
based upon his references to notes, papers and memoranda, inspection of
which was refused to defendant's counsel, but apparently the witness
refreshed his recollection from such sources often. His testimony was
material and was highly damaging to the defendant. We conclude that the
court committed reversible error in denying to the defendant's counsel
the right to examine the notes, papers and memoranda which were used by
the witness for the purpose of refreshing his memory.
In
view of our opinion in Wardlaw v. United States, No. 14,105 [53-1
USTC ¶9335], decided today, and touching some questions raised also in
this case, we think that it is not necessary to pass upon the other
specifications of error. The judgment of conviction is reversed and the
cause remanded for a new trial.
REVERSED
AND REMANDED.
1
"(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
In this prosecution for felony the unusual situation exists that 26
U. S.
C. A. 3761 authorizes the compromising of any civil or criminal case
arising under the Internal Revenue laws. See Willingham v.
United States
, 208 Fed. 137; Rau v.
United States
, 260 Fed. 131.
3
"Mr. Hood:
"We
object to the witness reading from notes on these transactions, unless
we can have the notes and look them over.
"Mr.
Binion:
"This
investigation lasted over a long period of time, and we think that the
witness is allowed, under the rules, to use his notes to refresh his
memory, and those are the notes that he made for the purpose of
refreshing his memory.
"The
Court:
"That
is the way I understand the rule.
"What
is the position of counsel?
"Mr.
Hood:
"We
object to the witness reading from his notes. We think the correct rule
is, if the notes were made at the time of the happening of the
transaction, by the witness, then he can refer to them to refresh his
memory.
"Can
I ask the witness a question?
"The
Court:
"Go
ahead.
"Mr.
Hood:
"Mr.
Baskett, you are referring to some notes. Did you make those notes
immediately at the time the transaction took place?
"A.
Yes, sir, that is right.
"Mr.
Hood:
"At
the same time?
"Mr.
Hood:
"A.
After we finished the interview.
"Mr.
Hood:
"At
a later date?
"A.
No, sir, right immediately after his interview.
"Mr.
Hood:
"Did
you make them in the presence of the defendant?
"A.
No, sir.
"Mr.
Hood:
"We
object to it.
"A.
Excuse me, we took notes while we were discussing those things.
"Mr.
Hood:
"Are
those the original notes you took at the time of the discussion?
"A.
We took them, I took them in pencil and then I typed up my notes.
"Mr.
Hood:
"And
those are not the original notes you took down at the time you were
interviewing the sheriff, are they?
"A.
That is right.
"Mr.
Hood:
"They
are not?
"A.
No, sir.
"Mr.
Hood:
"Your
Honor, we object. If he will refer to his original notes, we have no
objection.
"Mr.
Binion:
"The
government's position is this:
"This
investigation lasted over a period of time. On the occasions that this
witness interviewed Mr. Montgomery, during the interview, as I
understand it, he would jot down on a piece of paper the information
that he was getting, and at a later date, or later on during the day,
whatever it was, he would transcribe those notes, he personally would
transcribe those notes in order to make them permanent for him to
testify later, if necessary, and to make a report from.
"The
Court:
"How
much time do you think intervened between the time you jotted down the
first note and the time you reduced it to the present form?
"A.
It was made the same day.
"The
Court:
"I
think I will let him look at it to refresh his memory. I think you are
really invoking a rule which might apply if it was being offered itself.
"Mr.
Hood:
"We
would like the privilege of looking at those notes and reading them
ourselves.
"Mr.
Settle:
"We
are not offering the man's notes.
"The
Court:
"I
will let him testify from his notes.
"Mr.
Hood:
"May
we look at them?
"The
Court:
"When
you cross examine him, we will get at that.
"Mr.
Hood:
"We
except."
4
"Q. What did you do during that time, from February until April,
you testified you made notes, didn't you?
"A.
That is right.
"Q.
Let me see those notes?
"Mr.
Settle:
"Now,
Your Honor, he is asking the witness to show him notes which the witness
had, which were not put in evidence, and which he used to refresh his
memory from. I don't think he is entitled to look at the notes that the
witness has to refresh his memory from, unless they are introduced in
evidence, and they were not introduced in evidence.
"The
Court:
"I
will hear the question.
"Mr.
Hood:
"The
witness said he was reading from notes.
"Mr.
Settle:
"No,
he didn't.
"(By
Mr. Hood):
"Q.
What were you doing?
"A.
I was refreshing my memory.
"Q.
How did you refresh your memory, unless you were reading them?
"A.
Why certainly
"Q.
Then you had to read them?
"A.
Yes.
"Q.
And after you read them you gave that testimony from them?
"A.
Yes, sir.
"Q.
All right, let me see the notes.
"Mr.
Binion:
"We
object to that.
"Mr.
Hood:
"All
right, if they don't want us to see what they have.
"The
Court:
"Gentlemen
of the jury, you will try the case on the facts that the Court submits
to you, and not any suggestion that counsel may make.
"Go
ahead with your case.
"Mr.
Hood:
"As
I understand, I am not allowed to see the notes that he testified from?
"The
Court:
"I
don't see that that is necessarily proper. If a man makes a memorandum
or a record of the thing, I don't think you should go into it.
"Mr.
Hood:
"All
right, note our exception."
[54-1
USTC ¶9127]C. O. Hanson, Appellant v.
United States of America
, Appellee
(CA-6), In the United States Court
of Appeals for the Sixth Circuit, No. 11731, 208 F2d 914,
December 21, 19
53
Appeal from the United States District Court for the Northern District
of Ohio, Western Division.
Criminal penalties: Evidence: Refusal to permit evidence to be
introduced.--The company of which appellant was the principal
stockholder had sold certain materials in violation of the controlled
materials law. To avoid detection of such violation, "M"
invoices were issued in these sales and the proceeds thereof were kept
by appellant. But to avoid violation of the income tax law, these sales
were recorded in the closing inventory at sales price, in such a manner
that the profit on the sales would be reflected upon the books of the
company. Appellant received the proceeds, and claimed he was holding
them for the corporation, while the Government claimed the money was his
personal income which had not been reported. The court below refused to
permit the introduction of evidence to the effect that all the items on
the "M" invoices had been posted on the books of the company
in inventory at sales prices. This was reversible error because it
deprived appellant of the explanation as to why the money belonged to
the company.
Criminal penalties: Circumstantial evidence: Refusal of requested
charge.--It was reversible error for the trial court to refuse the
charge that where guilt depends entirely upon circumstantial evidence,
the burden rests upon the Government to prove its case not only beyond a
reasonable doubt but to the exclusion of every reasonable hypothesis of
innocence.
William
A. Belt, Dan H. McCullough,
Toledo
,
Ohio
, for appellant. Gerald P. Openlander, Assistant United States Attorney
(John J. Kane, Jr., United States Attorney, was with him on brief),
Toledo
,
Ohio
, for appellee.
Before
MARTIN, MCALLISTER, and MILLER, Circuit Judges.
PER
CURIAM:
Appellant
was convicted by a jury of knowingly and willfully attempting to defeat
and evade the payment of personal income taxes. On appeal, we are
primarily concerned with two claimed errors on the trial--the refusal of
the trial court to permit certain evidence to be introduced in defense
of the charge against the accused, and refusal to instruct the jury as
requested.
Appellant
was the owner of 1,118 shares of a total of 1,247 shares of the common
stock of the Hanson Clutch and Machinery Company. His sister and two
brothers-in-law owned 125 shares, and the balance of 4 shares was owned
by two other men. Appellant was also the owner of all of the preferred
stock of the corporation. An agent of the Bureau of Internal Revenue,
Gregory Susko, in checking the books of the corporation, was informed by
appellant that in its sales, the corporation issued three types of
invoices: "E" invoices for excavators; "C" invoices
for clutches; "R" invoices for repairs; and he was further
advised that these were the only designations used for invoices on sales
by the company. Thereafter, Agent Susko, with a commendable, and
remarkable, awareness of his duties, noticed that a certain contractor,
Kranz, was using a new Hanson shovel. He thereupon checked the books of
the Hanson Company and found that there was no record of the sale of
this shovel to Kranz. He interviewed Mr. Kranz and obtained from him the
original invoices of the Hanson Clutch and Machinery Company which
covered the sale of the shovel to him. At that time, he noticed that the
invoice number on the Kranz transaction was M-93. He then called upon
the sales manager and chief bookkeeper of the Hanson Company, as well as
Mr. Hanson, and inquired whether there were any invoices of the Hanson
Clutch and Machinery Company which bore the designation "M".
He was told by each of these men that there were no such invoices.
Thereafter, the bookkeeper of the company, in response to a subpoena,
appeared before the Intelligence Unit of the Treasury Department at
Toledo and gave testimony in which he stated that there were numerous
sales on which "M" invoices were issued, and that there were
possibly several reasons for issuing them, one being to conceal the fact
that the company had sold certain materials in violation of the
Controlled Materials Plan, provided for by federal statute to conserve
materials for government use during the war period. In order to secure
such materials for private use, individuals were obliged to procure a
priority number from the government. The evidence in the case discloses
that appellant Hanson, sometime in 1945, commenced to sell metal
products to certain of his customers who had no priority number. The
company issued so-called "M" invoices in such sales, which
eventually amounted to large sums of money. If these sales showed on the
company's books, it would be obvious to anyone inspecting them that the
company or its officials were guilty of violation of the Controlled
Materials law. In order to avoid violation of the income tax laws on the
part of the corporation, it was decided not to enter these sales, as
sales, but to record them as items in inventory, not at cost, but at
sales price, inasmuch as it is admitted that by placing them in the
inventory at sales price rather than at cost price, the profits on the
sales would be reflected upon the books of the company so that, at the
end of the year when the income tax return was made up for the company,
the tax on such profits would be paid even though the transactions had
not been entered as sales; and all of the income taxes of the company
were duly paid. The checks which were received on these sales, on
"M" invoices, were endorsed for deposit only and Mr. Hanson
cashed them through some banking arrangement. If, in addition to placing
the items so sold in the inventory at sales price, Hanson had turned the
money over to the company, the corporate income would have been
overstated, and a double tax on such profits would have resulted. He
kept the cash in his possession. He testified that he had not only
discussed the transaction with his bookkeeper but with the board of
directors, consisting of his sister, his mother, and his
brothers-in-law, Mr. John Reed and Mr. Sherman White. Mr. Reed testified
that Mr. Hanson told them that the money was to be held until it could
be properly entered on the books of the company, after the danger of
prosecution for violation of the priority regulations had passed.
However, before the period of limitations had elapsed for prosecution of
the priority violations, the income tax investigation had begun, and
appellant's lawyer, Mr. Raymond, told him he should not at that time
return the funds to the company as it might indicate some "sense of
guilt" or evidence of income tax evasion.
[Refusal to Permit Evidence to
Be Introduced]
Mr.
Hanson claimed to be holding this money for the company. The government
claimed it was his personal income which he had not reported. The
crucial point in the case arose when the court refused to permit
evidence to be introduced that all the items on the "M"
invoices had been posted on the books of the company in inventory at
sales prices. We are of the opinion that this was reversible error as it
deprived appellant of the one explanation he had why the money claimed
by the government to be his unreported income was not his money, but
belonged to the company, and that he was, in a sense, only a trustee, or
holder of the funds for the benefit of the company. All of the sales on
the "M" invoices in question involved priority violations
which appellant sought to conceal. Carrying such sales on the books of
the company on closing inventory at sales prices reflected the profits
on the "M" sales, actually made, on the company books.
Appellant was entitled to have such evidence submitted to the jury on
the issue whether the money represented by such items, entered in the
books as inventory at sales prices, was money belonging to the company
which he was holding for it, or whether it was his own personal income.
Appellant
requested the trial court to charge the jury that where circumstantial
evidence is relied on, the evidence must be such as to exclude every
other reasonable hypothesis except the hypothesis of guilt. Stated in
slightly changed form, "where guilt depends entirely upon
circumstantial evidence, . . . the burden rests upon the government to
prove its case not only beyond a reasonable doubt but to the exclusion
of every reasonable hypothesis of innocence."Epstein v.
United States
, 174 Fed. (2d) 754, 769 (C. A. 6). The trial court instructed the
jury on proof of guilt beyond a reasonable doubt, but not as to proof by
circumstantial evidence to the exclusion of every reasonable hypothesis
of innocence. As a result, the appellant's rights were not sufficiently
stated by the general charge. SeeHendrey v.
United States
, 233 Fed. 5, 19 (C. C. A. 6).
The
judgment is reversed and the case is remanded to the District Court for
a new trial.
[56-2
USTC ¶9830]Louis C. Smith, Appellant v.
United States of America
, Appellee
(CA-8), U. S. Court of Appeals,
8th Circuit, No. 15,360, 236 F2d 260, 8/16/56, Affirming an unreported
District Court decision
[1939 Code Secs. 41 and 145(b)--similar to 1954 Code Secs. 446(b) and
7202, respectively]
Criminal prosecution for tax evasion: Proof by net increase method:
Admissibility of evidence: Instructions to jury.--Taxpayer was
convicted on charges of tax evasion under 1939 Code Sec. 145(b) for
failure to report substantial amounts of income for 1947. The Eighth
Circuit ruled against taxpayer on all of the following assignments of
error of the trial court: (1) limitation of the cross-examination of a
revenue agent to whether or not taxpayer owned stock in an amusement
company, the taxpayer's employer; (2) admission of a net worth statement
offered by the government and conclusions of a witness, the revenue
agent, and the hypothetical question asked the latter relative to
taxpayer's tax and income where an alleged liability representing a
claimed loan to taxpayer was not included; (3) admission of certain
exhibits used to establish that taxpayer claimed to have no assets while
in the penitentiary; (4) admission of the work papers of the accountant
for the amusement company prepared in the ordinary course of business;
(5) failure to order a mistrial after government counsel improperly
asked a witness if the latter's brother, a person other than taxpayer,
had been convicted of a crime; (6) failure to enter a judgment of
acquittal where taxpayer's explanations of net worth were reasonably
susceptible of being checked; (7) failure to give an instruction as to a
lesser offense under 1939 Code Secs. 145(a) and 3616(a); (8) instruction
relating to gambling income that it made no difference whether the
income was lawfully or unlawfully received; (9) instruction that the
jury might consider the failure of taxpayer to supply information to the
revenue agents; (10) refusal to dismiss the indictment based on the
failure to present competent evidence before the grand jury; (11)
refusal to dismiss the indictment on the ground that it charged a lesser
offense under 1939 Code Sec. 3616(a), and hence the general criminal
three-year statute of limitations was applicable; (12) failure to order
a mistrial because of a newspaper article concerning the case.
Morris
A. Shenker (Sidney M. Glazer was with him on brief), for appellant.
Robert C. Tucker, Assistant United States Attorney (Harry Richards,
United States Attorney, Charles H. Rehm, Assistant United States
Attorney, were with him on brief), for appellee.
Before
SANBORN, WOODROUGH and VOGEL, Circuit Judges.
VOGEL,
Circuit Judge:
Louis
C. Smith appeals to this court from a judgment of conviction entered on
June 2, 19
55, in the United States District Court for the Eastern District of
Missouri upon a jury verdict finding him guilty under an indictment
charging a violation of former 26 U. S. C. A. 145(b) of the Internal
Revenue Code of 1939. He was sentenced to imprisonment for a period of
one year and one day and fined $2,000.00. The indictment charged that on
February 19, 19
48, the appellant did wilfully attempt to defeat and evade his income
tax for the year 1947 by filing a false and fraudulent return, wherein
he stated that his adjusted gross income for 1947 was the sum of
$3,690.04 and that his income tax was $343.00, whereas his adjusted
gross income was the sum of $39,984.49 and his tax was $17,749.58.
The
appellant's income tax return for the year in question showed wages from
an employer, the Plaza Amusement Company, as $1,300.00 and other income
as $2,390.04. The other income allegedly consisted of $2,000.00 for
miscellaneous gambling, income from the Plaza Amusement Company
partnership $211.15, and income from rents and royalties $178.89,
wherefrom appellant claimed he owed a tax of only $343.00.
The
government attempted to prove its case by the increase in net worth
method. Accordingly it had to establish a base or starting point from
which increases or decreases of net worth in following periods could be
properly figured. This particular case presented unusual difficulty. The
appellant had kept no books, records, bank accounts or any of the
ordinary media whereby one's financial operations may be traced.
Appellant was uncooperative with the revenue agents. When asked the
source of his funds, he told one agent they came from an old mail bag
and, "Let's just say I dug up an old iron pot." Reference to
an old mail bag and buried money may not have been entirely facetious.
In 1924 appellant had been convicted and sentenced in the District Court
for the Eastern District of Missouri and the Southern District of
Illinois to concurrent sentences for receiving, concealing and aiding in
concealing and receiving stolen mail and for possession of stolen mail.
As a result of those sentences, he was confined in the Federal
Penitentiary at
Leavenworth
,
Kansas
, until sometime in 1941.
The
records indicate that the appellant filed no income tax returns for 1932
to 1941, inclusive. His tax returns for 1942 and 1943 had been destroyed
by the government. Certificates of assessment and payments covering
appellant's tax accounts for the years 1932 through 1948 were introduced
into evidence over objection. Tax returns for the years beginning with
1944 were offered and received.
Appellant
did not testify and he offered no witnesses in his behalf.
Numerous
points have been raised by the appellant in this court. They will be
discussed individually as they appear in appellant's brief.
[Cross-examination Limited to
Stock Ownership]
Appellant's
first point is that:
"The
Court erred in not allowing defendant to cross-examine Revenue Agent
Robert Bell as to his investigation of the Plaza Amusement Company and
as to statements made relative to the Plaza Amusement Company and in
refusing to strike his testimony because of the undue limitation to his
cross-examination."
During
the cross examination of Bell by counsel for the appellant, the witness
was asked if he wasn't really investigating Plaza Amusement Company to
determine whether stock was actually held in the names of straw parties.
There was no testimony on direct that the witness had conducted such an
investigation of Plaza Amusement Company or that stock listed was in the
name of straw parties. The question for determination at that point in
the trial was whether or not the appellant owned 166 shares of stock in
the Plaza Amusement Company and the court limited the examination to
that issue and matters directly bearing thereon. To sustain his
contention, appellant relies upon two cases wherein the Government was
attempting to suppress confidential reports: United States v.
Andolschek, 2 Cir., 1944, 142 Fed. (2d) 503;
United States
v. Beekman, 2 Cir., 1946, 155 Fed. (2d) 580. No such motive for
restriction of cross examination was here present. The trial court was
merely exercising its discretion to keep the scope of examination with
reasonable bounds.
[Net Worth Statement]
Appellant's
second point is that:
"The
Court erred in admitting into evidence Government Exhibit 35 (net worth
statement), in admitting into evidence conclusions of witness Robert
Bell and in overruling defendant's objections to the hypothetical
question asked witness Robert Bell relative to defendant's tax and
income."
While
conceding the propriety of admitting a revenue agent's summary of his
testimony (United States v. Johnson, 1943, 319 U. S. 503, 519
[43-1 USTC ¶9470]), appellant claims that the summary herein did not
find support in the evidence. Exhibit No. 35 is the usual summary,
customary in net worth cases, which sets forth in compact form the
evidence produced by the government tending, in this case, to establish
the appellant's net worth on
December 31, 19
46, as $11,224.17 and his net worth on
December 31, 19
47, as $34,195.54, an increase during the indictment year of $22,971.37.
Adding to this his estimated living expenses and gifts of $4,565.01 and
taking into account reserve for depreciation and a non-taxable pension
of $248.04, left a total to be accounted for of $27,536.38. Balancing
this against his 1947 return left, according to the government figures,
an unreported income of $23,597.94 for the indictment year. Each item of
asset or liability is based on testimony of government agents admissible
for the jury's consideration. The accumulation may not be figure
perfect; it might be suspect if it were. It was the government agent's
best estimate of the appellant's financial growth during the year in
question.
One
of the principal objections to Exhibit 35 was that it did not include an
alleged liability of $12,000.00, representing a claimed loan in 1947 to
the appellant from one Frank Wortman. The information with reference to
the claimed loan appeared in this fashion: Edward Wortman was called as
a government witness. Because of his hostility, the government was
permitted to cross examine him. During the examination, Edward Wortman
testified that his brother Frank had made a loan of $12,000.00 to the
appellant in 1947. This was the first time the government auditors had
heard of such alleged loan. They can hardly be criticized for failure to
investigate it prior thereto and we see no error in failing to include
it in the summary. It was the bare assertion of a hostile witness made
at the trial that his brother had made a $12,000.00 loan to the
appellant some years prior thereto. The jurors heard the testimony. They
could believe it or not, and certainly the right to cross examine
remained with counsel.
With
regard to government computations such as we have in question here, the
Court of Appeals for the Sixth Circuit in Gariepy v. United States,
1951, 189 Fed. (2d) 459 [51-1 USTC ¶9318], 462, said:
"At
best it was, of course, but an estimate, but as an estimate it was
entitled to the consideration of the jury because based on substantially
the entire evidence in the record. United States v. Johnson, 319
U. S.
503, 519 [43-1 USTC ¶9470], 63
S. Ct.
1233, 87 L. Ed. 1546; Bell v. United States, 4 Cir., 185 Fed.
(2d) 302 [50-2 USTC ¶9499]."
In numerous cases this court has
approved of the use of summaries similar to Exhibit 35. See Kampmeyer
v.
United States
, 8 Cir., 1955, 227 Fed. (2d) 313, 317 [55-2 USTC ¶9779], and
ceased cited therein. We find no error in the admission of Exhibit 35.
[Hypothetical Question]
Appellant's
main objection to the hypothetical question asked Agent Bell is on the
same ground used in objecting to Exhibit 35, in that the hypothetical
question did not include any reference to the $12,000.00 item as a
liability of the appellant. We think, in view of all the circumstances,
that the question was not improper, even though it did exclude the
$12,000.00 item. As referred to heretofore, the only evidence regarding
that item came from a hostile government witness who, because of his
hostility, was cross examined with the court's permission. Edward
Wortman testified that not he but his brother Frank had made a loan of
$12,000.00 to appellant. Frank Wortman was not called and did not
testify.
Bell
, in his summary, Exhibit 35, did not include the alleged loan as a
liability of appellant. In formulating the hypothetical question,
government counsel also omitted the $12,000.00 item. We think it was not
error to overrule objection to the question on the grounds stated. The
witness was crossed examined by appellant's counsel regarding the
alleged loan. The jurors heard the testimony and they could believe or
disbelieve whom they wished. In any event, we think it makes little
practical difference. The government's evidence and the answer to the
hypothetical question tended to show an adjusted gross income of
$27,287.98 and a tax liability of $10,319.91. Even if the $12,000.00
item had been established, the amount of understated taxable income was
nevertheless substantial. The government is not required to show the
exact amount of error. If the understated taxable income be substantial,
that is sufficient because the exact amount is not the gist of the
offense. Cave v.
United States
, 8 Cir., 1947, 159 Fed. (2d) 464, 468 [47-1 USTC ¶9171].
On
this point, appellant cites several cases, including one from this
court: Kirsch v. United States, 8 Cir., 1949, 174 Fed. (2d) 592
[595], [49-1 USTC ¶9274], 600-2. In the Kirsch case, there was
no evidentiary support for a essential assumed fact and, furthermore,
the assumed fact was disproved by the government's own evidence. What
constitutes a proper foundation to establish the truth of an assumed
fact is largely up to the trial court, but in that case there was no
foundation to be found. The revenue agents made not attempt to ground
their assumption on adequate investigation; the hypothetical question
there used contained an assumption clearly unwarranted. The hypothetical
question here used is not subject to the same defect. The other cases
cited by appellant are not in point.
[Exhibits of Assets While in
Penitentiary]
Appellant's
third claim of error is:
"The
Court erred in admitting into evidence Exhibits 13, 14, 15 and 19."
These
exhibits were used to establish that appellant claimed to have no assets
while in the penitentiary. Appellant contends that the exhibits were
confidential records not open to the prosecution under Section 2.14, 28
C. F. R. As to Exhibits 13, 14 and 15, appellant is clearly mistaken
since Section 2.14 applies only to data gained through a parole hearing
before the Board of Parole. Exhibits 13, 14 and 15 are records executed
by the appellant himself and were not a part of an oral parole hearing
provided for in Section 2.14. Exhibit 19 consists of an interview before
the Board of Parole and may be classified as confidential under the
regulations. If, however, in was error to admit Exhibit 19, we think it
was not prejudicial. Exhibits 13, 14 and 15, standing alone, were
sufficient evidence of net worth to establish a starting point. Exhibit
19 was not an essential document upon which the government's case stands
or falls. Exhibits 14 and 15 and, to a lesser extent, Exhibit 13
establish the same thing that Exhibit 19 helped establish--that the
appellant had no substantial assets during a certain period. The
cumulative effect of the exhibits was to partially corroborate the
government's opening net worth estimate. We accordingly hold that the
admission of Exhibit 19 was not unduly prejudicial to the appellant so
as to constitute reversible error.
Appellant
further argues that these exhibits were inadmissible because
incorroborated. Smith v. United States, 1954, 348
U. S.
147, 155 [54-2 USTC ¶9715], clearly holds that the corroboration
requirement applies to admissions, at least where the admission is made after
the fact and the statement embraces an element vital to the government's
case. On admissions prior to the crime, it was earlier decided
that such admissions need no corroboration. Warszower v.
United States
, 1940, 312
U. S.
342, 347:
"The
rule requiring corroboration of confessions protects the administration
of the criminal law against errors in convictions based upon untrue
confessions alone. Where the inconsistent statement was made prior to
the crime this danger does not exist. Therefore we are of the view that
such admissions do not need to be corroborated. They contain none of the
inherent weaknesses of confessions or admissions after the fact. Cases
in the circuits are cited by petitioner to the contrary. In Gulotta
v. United States, 1 the decision
turned on the similarity of confessions and admissions rather than upon
any differences between admissions before and after the fact. In
Duncan
v.
United States
(68 Fed. (2d) 136) and in Gordnier v. United States (261
Fed. 910) the conclusion was reached without any comment upon this
difference. Our consideration of the effect of admissions prior to the
crime leads us to the other conclusion (citing Miles v. United
States, 103
U. S.
304)."
In
addition thereto, appellant's tax returns subsequent to his release from
prison and prior to the indictment sufficiently corroborate the exhibits
in question. Smith v. United States, supra, at pages 157 and 158.
[Work Papers of Accountant]
Point
No. 4 is:
"The
Court erred in admitting into evidence Exhibits 21A to 21W, identified
as work papers of George Frank."
George
Frank was the accountant for the Plaza Amusement Company. These records
were prepared by him in the ordinary course of business and
contemporaneously with the issuance of stock to the stockholders of
Plaza Amusement Company. In support of his contention, appellant cites
the case of Hayes v. United States, 10 Cir., 1955, 227 Fed. (2d)
540, 544 [55-2 USTC ¶9761]. That case is not comparable. The exhibit
offered in the Hayes case was prepared by a tax expert long after
the events it was attempting to portray and in preparation for trial. It
was properly denied admission. The admissibility of records and entries
made in the regular course of business is today unquestioned.
United States
v. Mortimer, 2 Cir., 1941, 118 Fed. (2d) 266, cert. den. 314
U. S.
616. This is especially true in
United States
courts. 28
U. S.
C. A. §1732. Of course, other circumstances, such as "lack of
personal knowledge by the entrant or maker, may be shown to affect its
weight, but such circumstances shall not affect its admissibility".
[Question on Conviction of
Another]
Appellant's
fifth point is:
"The
Court erred in overruling defendant's motion for a mistrial after
Government counsel asked witness Edward Wortman if his brother Frank
Wortman had been convicted of a crime and sentenced to 10 years."
Edward
Wortman, the president of the Plaza Amusement Company, had testified in
behalf of the government. The government was allowed to interrogate him
as a hostile witness. A number of questions were directed to him
concerning his brother Frank Wortman. The witness testified that his
brother had been sentenced to jail by Judge Moore for refusing to tell a
grand jury where he lived. He was then asked the following question:
"Q.
For further purpose of identification, sir, I will ask you if this is
the same Frank Buster Wortman who was sentenced in 1934 to 10 years on a
charge of resisting a United States Officer?"
Objection to the question was
promptly sustained but appellant's motion for a mistrial was overruled.
Appellant claims that the statement or question of government counsel
was of such an exceptionally prejudicial character that no statement by
the court could remove the harmful effect caused by it. Of course, the
question should not have been asked and it having been asked would have
justified an instruction to the jury to disregard the question. We
think, however, that failure to grant a mistrial was not reversible
error. See and compare: Dolan v.
United States
, 8 Cir., 1955, 218 Fed. (2d) 454, 460; Davis v.
United States
, 8 Cir., 1956, 229 Fed. (2d) 181, 186-187. In the first place, the
improper question referred to a brother of the witness, not to the
appellant himself. Only by resort to a circuitous type of reasoning
could it be conceived that testimony regarding the prior conviction of a
witness' brother was tantamount to a hostile reflection upon the
character of appellant. Secondly, the trial judge was in a far better
position to determine whether prejudice had resulted than are we. He saw
the jurors, the witnesses and the appellant, and it very apparently was
his considered judgment that the improper question about a witness'
brother had not prejudiced the appellant. We will not disturb his
conclusion.
[Net Worth Explanations Insufficient]
The
sixth point raised on appeal is that:
"The
Court erred in overruling appellant's motion for judgment of acquittal
at the close of the entire case."
Appellant
herein attacks the sufficiency of the evidence to justify conviction and
claims that the government failed to establish with reasonable certainty
an opening net worth to serve as a starting point on which to calculate
any increases in the appellant's assets. The government's theory was
that Exhibits 13, 14, 15 and 19, plus certificates of assessment and
payments beginning with the year 1932 and his tax returns for the years
1944, 1945 and 1946 established that the appellant had no assets of any
substantial consequences prior to
December 31, 19
46, at which time it was claimed that his net worth totalled $11,224.17.
The establishment of a net worth starting point cannot be done with
mathematical certainty and each case presents its own peculiar
difficulties. The appellant was asked by the government investigators
during their investigation of the case if he would give them a net worth
statement. This he refused. He was then asked for his records and he
replied that he did not keep records. He was asked if he had any bank
accounts, brokerage accounts, safety deposit boxes or if he owned any
property. He replied in the negative. He was then asked for the source
of his funds and he stated that they came from an old mail bag and later
in the conversation added, "Let's just say I dug up an old iron
pot." He further stated to the investigators that he did not have
income except from salary and that he was of the opinion that he did not
have to keep records in those circumstances.
Under
Holland v. United States, 1954, 348
U. S.
121, 138 [54-2 USTC ¶9714], the government may not "disregard
explanations of the defendant reasonably susceptible of being
checked". Appellant complains here that:
"No
effort was made to check defendant's statement that his funds came from
an old mail bag. Such a statement should have been checked in view of
the nature of defendant's conviction for mail robbery as well as his
statement to the Parole Board that he had received $3000.00 from the
robbery."
Old mail bags and old iron ports
are hardly the explanations "reasonably susceptible of being
checked" referred to by the Supreme Court in the
Holland
case. We think, from a complete review of the evidence, that there was
sufficient justification for the jury's conclusion that on
December 31, 19
46, the appellant's net worth was approximately $11,224.17 and that his
net worth on
December 31, 19
47, was approximately $34,195.54. These figures were based on the
agent's testimony and the records introduced, which were sufficiently
authenticated to justify the presentation to the jury and sufficient to
justify a denial of appellant's motion for judgment of acquittal.
[Lesser Offense]
Appellant's
seventh point is that:
"The
Court erred in not instructing the jury as requested as to a lesser
offense under Section 145(a) (sic) of the Internal Revenue Code, and as
to a lesser offense under Section 3616(a) of the Internal Revenue
Code."
Since
preparation of appellant's brief, the Supreme Court affirmed this court
in Berra v. United States, (221 Fed. (2d) 590) 351
U. S.
131 [55-1 USTC ¶9382], and held, at page 135:
"The
only question before us is whether the jury should have been allowed to
decide whether it would apply §3616(a) rather than §145(b), and that
we hold was not for the jury. It was, therefore, not error to refuse the
requested instruction."
[Instruction Relating to
Gambling]
Appellant's
eighth point is that:
"The
Court erred in instructing the jury that it makes no difference whether
income was lawfully or unlawfully received and that they could find an
intent to commit the crime charged even though it is coupled with an
intent to suppress information as to acts which are criminal in other
ways."
The
giving of the challenged instruction is supported by the appellant's
admission in his income tax returns that he had some income as a gambler
and by his further statement that the source of his income might be from
a mail beg or an old iron pot. Injection into the instructions of the
possibility of the money being gained from illegal sources was fully
supportable from the evidence. Certainly, otherwise relevant evidence
does not become incompetent because it incidentally proves commission of
independent offenses. Hardy v.
United States
, 8 Cir., 1952, 199 Fed. (2d) 704; Bram v.
United States
, 8 Cir., 1955, 226 Fed. (2d) 858. The exclusionary rule that prior
offenses are not admissible against a defendant is not one of unbending
rigidity. Thus, the rule will not be given application where the
evidence is used to establish some material aspect of the prosecution's
case. With equal vigor it is true that the rule may be disregarded in
the court's instructions under proper circumstances. We have reviewed
the court's entire charge and do not find it unfair to appellant.
[Taxpayer's Failure to Supply
Information]
Appellant's
ninth point of error is that:
"The
Court erred in instructing the jury that in arriving at their verdict
they might consider the failure of defendant to supply information to
the revenue agents."
The
court herein instructed the jury:
"Any
failure on the part of the defendant to supply any information for the
purpose of the computation, assessment, or collection of his income tax,
which you find to be unjustified or inexcusable, is a circumstance which
may be considered in your determination of his guilt or innocence."
The court further instructed the
jury that if relevant leads were not furnished to the agents, the
government was not required to
"* * *
negate every conceivable source of nontaxable funds, and if the
defendant failed to supply information to the agents in that regard, you
may take such failure into account."
This
court, in Myres v. United States, 1945, 174 Fed. (2d) 329 [49-1
USTC ¶9275], cert. den. 338
U. S.
849, and Olson v.
United States
, 1951, 191 Fed. (2d) 985 [51-2 USTC ¶9468], approved similar
instructions. Appellant would distinguish the instant case on the theory
that in the Myres and Olson cases the taxpayers were not
advised that they were not compelled to furnish information. Here the
appellant, in response to his question to the agent as to whether or not
he was compelled to give a net worth statement, was told that he did not
have to. The appellant then said that he would not give a net worth
statement and further stated that he did not have records. In dealing
with a similar instruction, the Court of Appeals for the Fourth Circuit,
in Beard v. United States, 1955, 222 Fed. (2d) 84, 93 [55-1 USTC
¶9400], cert. den. 350
U. S.
846, stated:
"Moreover,
the instruction related to the duty imposed by the taxing statutes upon
the defendant to keep records of his transactions so that the extent of
his liability to income tax might be ascertained; and therefore the case
falls within the rule laid down in Shapiro v. United States, 335
U. S. 1, 68 S. Ct. 1375, 92 L. Ed. 1787, which reviewed a conviction of
violating the regulations under the Emergency Price Control Act and held
that it was proper for the jury, in determining the issue of the
defendant's guilt, to consider the business records of the defendant
produced by him under a subpoena issued by authority of the statute. It
was held that all records which Congress, in the exercise of its
constitutional powers, may require individuals to keep in the conduct of
their affairs relating to the public interest become public records in
the sense that they fall outside the constitutional protection of the
Fifth Amendment."
In
the instant case, the appellant under the law was required to keep
records. He stated that he did not do so. The fact that he did not keep
records or the fact that he did keep records and refused to disclose
them was a proper subject for comment by the court and we find no error
in the instruction given.
[Instruction Relating to Grand
Jury]
Appellant's
tenth point is that:
"The
Court erred in overruling defendant's motion to dismiss the indictment
based on the failure to present competent evidence before the Grand
Jury, and the Court erred in not allowing defendant to ask every witness
at the trial whether or not he testified before the Grand Jury in
connection with this case."
During
the pendency of this appeal, the Supreme Court, in Costello v. United
States, 1956, 350 U. S. 359 [56-1 USTC ¶9321], determined this
issue adversely to appellant's contention. After a review of the
historical basis for grand jury proceedings, the Supreme Court ruled
affirmatively on the question of whether or not a conviction could be
sustained where only hearsay evidence was presented to the grand jury.
The Fifth Amendment requires nothing more than that the grand jury be
legally constituted and unbiased.
[Not Lesser Offense Barred by
Limitations]
Appellant's
eleventh point is that:
"The
Court erred in overruling defendant's motion to dismiss the indictment
on the ground that the indictment was barred by the statute of
limitations."
It
is the appellant's contention that:
"* * * the
indictment charged an offense under Section 3616(a), and that the
general criminal statute of limitations, 18 U. S. C. 3281, then three
years, was applicable."
This issue is, then, dependent
upon whether or not Section 3616(a) is applicable to income tax
offenses. In Dillon v.
United States
, 8 Cir., 1955, 218 Fed. (2d) 97 [55-1 USTC ¶9131], 2 and Berra
v. United States, 8 Cir., 1955, 221 Fed. (2d) 590 [55-1 USTC ¶9382],
this court held that Section 3616(a) was inapplicable to income tax
cases. In affirming this court in the Berra case (351 U. S. 131),
the Supreme Court did not pass upon that issue but limited its decision
to the narrow question of whether the jury should have been allowed to
decide whether it would apply Section 3616(a) rather than Section
145(b), and stated that that was not for a jury's determination. On the
basis, then, of our decisions in the Dillon and Berra
cases, we determine this issue against the appellant.
[Newspaper Article Not Prejudicial]
Appellant's
twelfth point is that:
"The
Court erred in overruling defendant's motion for a mistrial because of a
newspaper article concerning the case and did not properly interrogate
the jurors relative to the prejudicial newspaper article."
On
the first day of trial, at the conclusion of the opening statement, the
court gave instructions to the jurors with reference to their duties and
responsibilities. They were told not to read newspaper articles as they
might tend to confuse them. The court stated:
"If
anything appears in the newspapers from now on during the trial of this
case the Court will direct you not to read the article, and I hope that
you will be responsive to that direction and will not attempt to read
it. If you read articles printed in the newspaper you will very
frequently find that they are not correct, and they do not get every
side. It is evidence of the poorest type."
On
the following day counsel for the appellant offered in evidence a
newspaper article which he claimed was "* * * so colored as to
unduly bias and prejudice the jury, and it appeared in the St. Louis
Globe Democrat, the only morning paper, appeared in the evening issue of
last night as well as this morning's issue." Appellant thereupon
moved for a mistrial because of the article.
The court stated:
"The
Court directed the jury not to read any newspaper articles that might
appear, and if any did appear the Court will assume the jurors observed
the direction of the Court. The motion is overruled."
Subsequently counsel for appellant
asked the court:
"May
I ask the Court to inquire of the jury if they read this article?"
The court replied:
"Yes.
I will ask them if any juror violated the instructions of the Court and
read the article, if they did, hold up your hands."
No hands were raised. We think the
matter came clearly within the discretion of the trial court. In
addition, it does not appear that any of the jurors saw or read the
artical complained of. No abuse of discretion is shown where the trial
court, under such circumstances, denies the motion for mistrial.
Affirmed.
1
113 Fed. (2d) 683, a case from this circuit and relied upon by the
appellant as support for his contention.
2
Certiorari granted 349
U. S.
914, later dismissed 350
U. S.
906.