Attorney's
Testimony Page4
Despite
this rule, however, we could take cognizance of the contention that the
evidence was insufficient if the submission of the case to the jury
constituted plain error under Rule 52(b), FED. R. CRIM. P.
In
this regard, appellant points out that if the cash receipts from scrap
sales were included in D. & W.'s recorded cash receipts or were,
even though unrecorded, deposited in D. & W.'s bank account, they
were properly reported for tax purposes. He contends that there was
insufficient evidence to allow the jury to find that the amounts in
question were not accounted for in this manner. We determine, after
careful review of the record, that this contention is without merit.
There is testimony from which the jury could have found that these
receipts were not included in D. & W.'s records of cash receipts and
that only amounts which were so included were deposited in the company's
bank account. The record also contains ample evidence to support the
jury verdict as to the other elements of the offenses charged in the
indictment.
We
determine, finally, that the District Court's charge to the jury fairly
stated the law of the case. Taxpayer failed to make a timely objection
to the charge and his contention that it constituted plain error under
Rule 52(b), FED. R. CRIM. P., is without merit.
The
conviction is affirmed.
1
"The taxpayer's objection is that the government related in
testimony to the jury in a planned, subtle, adroit, skillful, effective,
offensive, and running manner a dialogue between the prosecutor and the
government witness Mr. Morgan to inform the Court and the jury that the
taxpayer, on advice of his counsel, elected to exercise his right to
remain silent. . . ." Appellant's Reply Brief at 2.
2
Morgan testified as follows:
Q.
All right, Now, did you meet them on or about October 18th, 1957?
A.
Yes. At that time Agent McLellan, Special Agent McLellan, was with me
and we met Mr. Dolleris and Mr. Jones in Mr. Dolleris' office at D &
W.
Q.
And what was the purpose of meeting with them?
A.
To discuss the examination.
Q.
Did you talk to Mr. Dolleris?
A.
Yes. And Mr. Jones advised Mr. Dolleris not to answer questions because
they might be used against him. And at that time Agent McLellan stated
that under the Constitution Mr. Dolleris had the right to refuse to
answer any questions that he thought might incriminate him.
Q.
Was anything said about these scrap sales to Brodey & Brodey?
A.
Yes. We discussed this--Jones said that scrap sold to Brodey was weighed
at D & W and picked up there by a Brodey truck. He said that
Dolleris might have helped weigh the scrap and he said that he had the
list of transactions which I had given him on March 17th, but he had not
determined the cause of the discrepancies. Record at 249-50.
3
This power was admitted into evidence as "Government Exhibit No.
31" and is set forth in Appendix B to Appellee's Brief at 28.
4
Taxpayer moved to exclude all statements made by his attorney during
conferences at which he was not present. The District Court, after
taking this motion under submission, denied it in chambers. Appendix to
Appellant's Brief at 294a. Since we are given no reason for this denial,
we must assume that it was also for this reason.
5
Record at 173-74.
6
Record at 164-232.
[77-2
USTC ¶9568]
United States of America
, Plaintiff-Appellee v. George V. H. Kleifgen, Defendant-Appellant
(CA-9),
U. S. Court of Appeals, 9th Circuit, No. 76-3231, 557 F2d 1293, 7/20/77,
Aff'g in part and rev'g in part unreported District Court
[Code Sec. 7201--result unchanged by '76 Tax Reform Act]
Crimes: Wilful attempt to evade and defeat income tax: Miscellaneous
defenses.--Taxpayer's conviction of attempting to evade and defeat
income taxes for the years 1969 through 1972 was upheld in part and
reversed in part. There was no merit in the taxpayer's contentions that:
(1) the lower court erred in refusing to dismiss the indictment because
the grand jury was improperly empaneled; (2) he was entitled to a
judgment of acquittal; (3) exclusion of evidence indicative of a decline
in his net worth was error; and (4) the jury instruction concerning
certain embezzlement losses was prejudicial. However, the case was
remanded for an evidentiary hearing to determine whether the taxpayer's
attorney-client privilege was breached by a purported unauthorized
interview by the prosecution of his former counsel, and, if so, whether
the breach deprived the taxpayer of his Fifth or Sixth Amendment right.
Phillip
M. Pro, Assistant United States Attorney,
Las Vegas
,
Nev.
, for plaintiff-appellee. Kermitt L. Waters,
323 Las Vegas Blvd., S.
,
Las Vegas
,
Nev.
, for defendant-appellant.
Before
GOODWIN and SNEED, Circuit Judges, and HILL, * District
Judge.
Opinion
SNEED,
Circuit Judge:
Appellant
George V. H. Kleifgen, who is no stranger to this court, 1 was in this
case convicted of four counts of wilful attempt to evade and defeat
income tax due for the four-year period commencing January 1, 1969, and
ending December 31, 1972, in violation of 26 U. S. C. §7201. To obtain
a reversal of this conviction he relies on five contentions. These are
that (1) the trial court erred in refusing to dismiss the indictment
because the grand jury was unlawfully empaneled; (2) the unauthorized
interview by the prosecution of his former counsel violated his Fifth
and Sixth Amendment rights; (3) he was entitled to a judgment of
acquittal; (4) exclusion of evidence indicative of a decline in his net
worth was error; and (5) the jury instruction concerning certain
embezzlement losses was prejudicial. We will address these contentions
in order; when necessary our discussion of each will be supplemented by
the relevant facts.
1.
Challenge to the Grand Jury.
Understanding
of the appellant's first contention begins with the Jury Selection Act
of 1968, 28 U. S. C. §1861 et seq. (Act), which declares that
"[i]t is the policy of the United States that all litigants in
Federal courts entitled to trial by jury shall have the right to grant
and petit juries selected at random from a fair cross section of the
community in the district or division wherein the court convenes."
28 U. S. C. §1861. To further the objectives of this provision, 28
U. S.
C. §1863 directs the district court to formulate a plan for random jury
selection. 2 The plan may
provide for selection of prospective jurors on the basis of voter
registration lists; these lists are to be supplemented, however, if
necessary to foster the policy of section 1861. 28 U. S. C. §1863(b)(2).
A substantial failure to comply with the provisions of the Act enables a
defendant to seek in a timely fashion a dismissal of the indictment or a
stay of the proceedings against him. 28 U. S. C. §1867(a).
In
accordance with the grand jury selection plan promulgated pursuant to 28
U. S. C. §1863, the United States District Court for the District of
Nevada (Southern Division) used names randomly selected from voter
registration lists as the exclusive source of potential jurors. 3 Appellant
contends that his indictment by a grand jury so selected should have
been dismissed under section 1867(a) because this method violated both
the Fifth Amendment and 28 U. S. C. §1861 by not insuring that the
grand jury would be chosen from a fair cross section of the community. 4 Voter
registration lists, he insists, should have been supplemented under
section 1863(b)(2) to remedy this defect. In support of this position,
appellant cites a demographic study which shows varying degrees of
underrepresentation in the voter registration lists of five
groups--blacks, males, non-high school graduates, non-working people and
the young.
As
this circuit recently made clear, appellant in order to prevail must
prove that the exclusive use of voter registration lists resulted in a
substantial underrepresentation in the jury pool of a cognizable group
in the community.
United States
v. Potter, 552 F. 2d 901 (9th Cir. 1977). See also
United States
v. DiTommaso, 405 F. 2d
385 (4th Cir. 1968), cert.
denied, 394
U. S.
934, 89
S. Ct.
1209, 22 L. Ed. 2d 465 (1969). He has failed in this task. 5 Of the five
groups which appellant argues are underrepresented, Potter
instructs us that only two of these groups--blacks and males--are
cognizable groups. Neither of these, moreover, was substantially
underrepresented. Under Potter
neither young people nor less educated people comprise a cognizable
group. Neither "in some objectively discernible and significant
way, is distinct from the rest of society."
United States
v. Potter, 552 F. 2d at 904. These groups have no internal
cohesion nor are they viewed as an identifiable class by the general
populace. Moreover, their members have diverse attitudes and
characteristics which defy classification. The same can be said for the
unemployed. Therefore, we hold that neither non-high school graduates,
nonworking people, nor the young are cognizable classes. 6
Blacks
and males, however, are cognizable classes within the community. See Ballard
v.
United States
, 329
U. S.
187, 67 S. Ct. 261, 91 L. Ed. 181 (1946);
United States
v. Potter, supra.
Appellant's demographic evidence 7 indicated
that for the years studied blacks comprised 7% of the total population
but only 5.1% of the jury list and that males comprised 50.9% of the
total population but only 46.5% of the jury list. It is this
underrepresentation which is at the heart of appellant's contention that
he was deprived of the right to a grand jury chosen from a fair cross
section of the community.
Neither
the Constitution nor the Act, however, requires the grand jury to
duplicate precisely the statistical complexion of the community. Hoyt v.
Florida
, 368
U. S.
57, 82 S. Ct. 159, 7 L. Ed. 2d 118 (1961);
United States
v. Potter, supra. Some
deviation from the statistical structure of the community is to be
expected. Only when this deviation becomes substantial is a defendant
deprived of his right to be judged by a grand jury chosen from a fair
cross section of the community. In the absence of substantial
underrepresentation there is no necessity to supplement voter
registration lists. 8
Appellant,
employing the same technique as did appellant in Potter, interprets his statistical data to show blacks and males
to be underrepresented by 27% and 9% respectively. This interpretation,
as pointed out in Potter,
552 F. 2d at 906, exaggerates the effect of any deviation. To avoid this
exaggeration, we adopted a test for substantiality which judges the
effect of any deviation not in terms of percentages but in terms of its
impact on the absolute numerical composition of the grand jury.
United States
v. Potter, supra;
United States
v. Armsbury, 408 F. Supp. 1130 (D. Or. 1976). Cf. Castaneda v. Partida,
-- U. S. --, --, 97 S. Ct. 1272, 1280, 52 L. Ed. 2d -- (1977). That
is, to determine substantiality we look to people not percentages.
Blacks
and males, it is true, are underrepresented in an absolute sense by 2.9%
and 4.4% respectively. Looking only at people, however, it is also true
that in an array of 100 jurors, the absolute numerical effect of the
underrepresentation of blacks and males would be that the array would
include 2.9 fewer blacks and 4.4 fewer males. A grand jury of 23 drawn
from this array on the average would underrepresent blacks by less than
one juror and males by approximately one juror. This is not substantial
underrepresentation. The district court, therefore, did not err in
denying appellant's motion to dismiss the indictment.
II.
Interview with Former Counsel.
Appellant's
second contention presents a somewhat more difficult issue. Prior to the
trial of the case, the United States Attorney interviewed Henry Gordon,
appellant's former counsel. Gordon had represented appellant in a
prosecution for inflated medicare claims and in previous settlement
proceedings with the Internal Revenue Service. Appellant argues that by
interviewing his former counsel without the presence of his current
counsel the government violated his rights to counsel and a fair trial
under the Sixth Amendment and his right to due process under the Fifth
Amendment.
Confidential
communications had between appellant and his former counsel retain the
protection of the attorney-client privilege beyond the termination of
the attorney-client relationship. 8 J. Wigmore, Evidence §2323
(McNaughton rev. 1961.) EC 4-6,
ABA
Code of Professional Responsibility (1975). Governmental intrusion into
this protected area can deprive a defendant of Fifth and Sixth Amendment
rights.
United States
v. Zarzour, 432 F. 2d 1
(5th Cir. 1970);
Caldwell
v.
United States,
92
U. S.
App. D. C. 355, 205 F. 2d 879
(1953). Our difficulty springs from the fact that the record before us
discloses neither the circumstances leading up to the interview nor what
transpired therein. Absent this factual foundation, we cannot determine
if privileged communications were disclosed and, if so, what harm
ensued. We must, therefore, remand these questions to the district court
for an evidentiary hearing thereon.
III.
Sufficiency of the Evidence.
Appellant
next contends that the evidence conclusively established that no taxes
were due and that consequently his motion for acquittal should have been
granted. Although appellant employed the cash method of accounting in
preparing his returns prior to 1969, he disagrees with the government's
use of the cash method and insists that the accrual method, which
according to his calculations demonstrates that there was no tax
liability, better reflects his income for the four-year period.
There
are two difficulties with the appellant's argument. The first is that
the taxpayer cannot abandon the cash method without obtaining the
consent of the Commissioner. I. R. C. §446(e). 9 This he has
not done. The second is that even if the accrual method were available,
its use would eliminate all taxes due only if certain deductions, which
in the main consisted of embezzlement losses and reserves for contingent
liabilities, 10 are valid.
These deductions, however, are not proper. As we shall point out, the
embezzlement losses under the facts of this case were not allowable for
the year in which they were discovered, see
Part V, infra. Moreover,
sums set aside to cover contingent liabilities were not deductible
because all the events which fix the amount and the fact of appellant's
liability did not occur in the year for which the deductions were
claimed. Dixie Pine Products
Co. v. Commissioner [44-1 USTC ¶9127], 320
U. S.
516, 519, 64 S. Ct. 364, 88 L. Ed 270 (1944); cf.
Lutz v. Commissioner [68-1 USTC ¶9423], 396 F. 2d 412 (9th Cir.
1968). In addition, the evidence revealed other significant shortcomings
in appellant's proof with respect to tax liability, for example, the
failure to include appellant's cash receipts in his gross income. We
conclude that the jury justifiably rejected appellant's calculations
showing the absence of any tax liability.
Assertions
of deductions improper under any method of accounting and other
deficiencies in appellant's proof of tax liability do not demonstrate
that the cash method of accounting does not clearly reflect income.
Quite the contrary is the case. It strengthens the government's
contention that the cash method does clearly reflect income. We so hold.
In
addition, in its case in chief, the government presented strong evidence
indicating that appellant had incurred substantial tax liability for
each year in the period of 1969-1972. Viewing this evidence in the light
most favorable to the government,
United States
v. Nelson, 419 F. 2d
1237 (9th Cir. 1969), we find that the verdict has sufficient
evidentiary support.
IV.
Exclusion of Proof of Net Worth.
Appellant,
to buttress his contention that he had no taxable income for this
period, attempted to introduce evidence of a decline in his net worth
over the four-year period. Proof of a change in net worth is relevant to
the determination of taxable income only if there is an accurate opening
net worth against which to measure any change. See
Holland
v.
United States
[54-2 USTC ¶9714], 348
U. S.
121, 132, 75 S. Ct. 127, 99 L. Ed. 150 (1954). The trial court found
that the evidence here did not establish a sufficiently accurate
starting point. We agree.
Appellant's
proof of a change in net worth was inadequate for a second reason. In
calculating the change in net worth, the taxpayer's nondeductible
expenditures must be added to his closing net worth.
Holland
v.
United States
, 348
U. S.
at 125, 75
S. Ct.
127. No evidence of the amount of appellant's non-deductible
expenditures was offered; thus any estimation of a change in his net
worth was pure conjecture. Exclusion of the evidence which was offered
by the appellant was not error.
V.
Embezzlement Loss Instruction.
Turning
finally to appellant's complaint regarding the embezzlement loss
instruction we see that the trial court gave the following instruction:
Business
losses due to embezzlement of funds by defendant's employees are
deductible from gross income in the year in which the embezzlement is
discovered. If, however, the evidence shows to your satisfaction that
the funds, if any, so embezzled were taken from the defendant's income
receipts which should have been reported as part of defendant's gross
income for Federal Income Tax computations in the year received, and
that they were not so reported, then no deduction for an embezzlement
loss is allowable.
Appellant
argues that this instruction was erroneous in that (1) it misstated the
law to require that the income embezzled must have been reported as
income, (2) even assuming the instruction correctly stated the law, it
improperly placed the burden on appellant to show that the income had
been reported, and (3) it required the jury to make a legal conclusion
as to whether receipts should have been reported as part of gross
income. We find these arguments to be without merit.
Appellant
sustained the embezzlement losses in the years 1965 through 1968. His
secretaries accomplished the embezzlement by keeping for themselves cash
payments to the appellant for medical services rendered. He never
actually received these payments nor did he ever report them as income.
Appellant did not discover these embezzlement losses until 1969 and
1971.
Because
of the secretive nature of embezzlement, embezzlement losses generally
may be deducted in the year in which they are discovered. Alison v.
United States
[52-2 USTC ¶9571], 344
U. S.
167, 73 S. Ct. 191, 97 L. Ed. 186 (1952). The taxpayer may not deduct,
however, the loss of income which is embezzled before the taxpayer
actually receives the income and which is never reported as income. Alsop v. Commissioner [61-1 USTC ¶9472], 290 F. 2d 726 (2d Cir.
1961). To permit such a deduction would give appellant a double tax
benefit. He would be relieved from paying tax on the amount when it was
abortedly given to him and would also be excused from paying tax on that
amount of income which is offset by the loss in the year the loss is
discovered. The statement of law concerning the timeliness of a
deduction for embezzlement loss was correct. The fee that is filched
before the doctor reports it for tax purposes no more generates a loss
deduction than does a stillborn calf for a cash basis rancher.
Contrary
to appellant's second argument, the instruction does place the burden on
the government to show that the receipts were not reported. It requires
the government to prove satisfactorily that the funds embezzled should
have been and were not reported as income.
We
need not reach the merits of appellant's third contention that the
instruction calls for a legal judgment on the part of the jury. By
failing to state this ground for his objection to the instruction,
appellant has waived this point on appeal. Fed. R. Civ. P. 51. In
reviewing jury instructions we are confined to the errors raised below
in the trial court. Lienemann
v. State Farm Mutual Auto Fire and Casualty Co., 540 F. 2d 333
(8th Cir. 1976); cf. Bock v.
United States
, 375 F. 2d 479 (9th Cir. 1967).
We
remand for an evidentiary hearing on the question of whether appellant's
attorney-client privilege was breached and if so, whether the breach
deprived appellant of any Fifth or Sixth Amendment right. In all other
respects the judgment of the trial court is affirmed.
Affirmed
in part and reversed in part.
*
Honorable Irving Hill, United States District Judge for the Central
District of California, sitting by designation.
1
We affirmed appellant's conviction for making false statements to the
Social Security Administration in requesting payment for medical
services rendered to Medicare recipients in violation of 18 U. S. C. §1001.
United States
v. Kleifgen, No. 73-3179 (9th Cir. July 17, 1975).
2
Section 1863 also requires the jury selection plan to foster the
objectives of section 1862, which prohibits exclusion from the grand or
petit jury on account of "race, color, religion, sex, national
origin, or economic status."
3
This case was transferred for trial from the Southern Division to the
Northern Division of the District of Nevada on motion of defendant.
4
In denying appellant's motion to dismiss the indictment, the district
court held that such a motion under section 1867 is appropriate only if
the grand jury was not drawn in conformity with an approved selection
plan. Under the district court's reasoning, a challenge to the plan
itself must be presented in a proceeding to amend the plan. In light of
our decision with respect to the merits of appellant's challenge to the
plan, we need not and do not offer any opinion as to the propriety of
this holding of the district court.
5
Our holding with respect to the questions of cognizability and
substantiality of any deviation makes it unnecessary to decide whether a
defendant, in attacking on statutory grounds a grand jury which was
drawn solely from voter registration lists, must show that certain
groups have been inhibited from registering to vote or that the district
court purposefully discriminated against certain groups in creating the
jury pool. Cf.
United States
v. Ross, 468 F. 2d 1213 (9th Cir. 1972). Nor is it necessary that
we decide whether such a showing is necessary to support a
constitutional attack based on the Fifth Amendment right to a grand
jury.
6
Appellant also asserts that the undereducated and the unemployed are
likely to be in lower economic groups than the rest of the population
and that therefore they comprise cognizable classes based on economic
status. We disagree. Lack of education or employment is by no means
synonymous with lack of wealth.
7
The government does not challenge the numerical accuracy of this study.
8
The Legislative History of the Jury Selection Act indicates that
The
voting list need not perfectly mirror the percentage structure of the
community. But any substantial percentage deviations must be corrected
by the use of supplemental sources.
H.
R. #1076 1968 U. S. Code Cong. & Admin. News, Vol. 2, pp. 1792,
1794.
9
The Commissioner's consent to a change in accounting methods is required
regardless of whether the change is from one proper method to another
proper method or from an improper method to a proper one. Witte v. Commissioner [75-1 USTC ¶9477], 168 U. S. App. D. C.
133, 513 F. 2d 391 (1975). See Treas. Reg. §1.446-1(e)(2).
10
In 1973 appellant allegedly set aside in trust $200,000 to cover
malpractice claims incurred in 1969-1972, $50,000 for the defense of a
criminal charge for certain activity in 1971, and $140,000 for legal
fees to be incurred in the defense of this case.
[69-2
USTC ¶9669]The
United States of America
, Plaintiff-Appellee v. Martin Lemlich, Defendant-Appellant
(CA-5),
U. S. Court of Appeals, 5th Circuit, No. 27822, 418 F2d 212, 10/14/69,
Affirming an unreported District Court decision
[Code Sec. 7203]
Crimes: Failure to file employer's quarterly tax returns: Intent:
Privilege: Hearsay.--The taxpayer's conviction for willful failure
to file employer's quarterly tax returns (Form 941) was upheld. A
judgment of acquittal was not required simply because he furnished W-2
forms to employees, which action, he argued, revealed to the government
his tax liability as an employer. The furnishing of W-2 forms is
evidentiary of an intent not to conceal tax liability, but it does not
reach the status of requiring acquittal for failure to file the
employer's return. Nor was there merit to the taxpayer's contention that
the hearsay rule and the attorney-client privilege were violated because
he was asked whether his attorney, who held a power of attorney to
represent the taxpayer before the Internal Revenue Service, had asserted
in conference the defense that the taxpayer had no knowledge that he
could file a return without a remittance.
William
A. Meadows, Jr., United States Attorney, Donald I. Bierman, Assistant
United States Attorney, Miami, Fla., for plaintiff-appellee. Sidney A.
Soltz,
19 W. Flagler St.
,
Miami
,
Fla.
, for defendant-appellant.
Before
BELL
, AINSWORTH and GODBOLD, Circuit Judges.
[Conviction]
PER
CURIAM:
Appellant
was convicted on twenty counts of failure to file Employer's Quarterly
Tax Returns (Form 941) for most of the period 1962 through 1964 for his
law practice and for various corporations of which he was president.
Pursuant
to Rule 18 of the Rules of this court, we have concluded on the merits
that this case is of such character as not to justify oral argument and
have directed the clerk to place the case on the Summary Calendar and to
notify the parties in writing. See Murphy
v.
Houma
Well Service, 409 F. 2d 804 (5th Cir. 1969).
[Argument
for Acquittal]
Appellant
urges that he was entitled to a judgment of acquittal because he lacked
the necessary intent. This argument springs from several factual
matters. He says that he furnished W-2 forms to employees of the
taxpayer, which arguably revealed to the government the employer's tax
liability. There was also evidence that he lacked the ability to pay the
tax and that he was unaware that he could file the returns without a
remittance. Wilfulness in failing to file the quarterly returns was for
the jury.
United States
v. Johnson, [67-2 USTC ¶9750] 386 F. 2d 630 (3rd Cir. 1967); Barrett
v.
United States
, [61-2 USTC ¶9772]; 296 F. 2d 309 (5th Cir. 1961); Contreras
v.
United States
, [54-1 USTC ¶49,039] 213 F. 2d 96 (5th Cir. 1954). 1
In
argument defense counsel referred to various acts of appellant regarding
preparation and filing of returns. The court then advised counsel he
proposed to charge the jury on the effect of these acts as evidence of
intent, and subsequently the court did give a correct and limiting
charge on that subject. Appellant asserts that reversal is required by
Rule 30, Fed. R. Crim. P., providing that "[t]he Court shall inform
counsel of its proposed action upon the requests prior to their
arguments to the jury," and Loveless v.
United States
, 260 F. 2d 487 (D. C. Cir. 1958). Defense counsel did not offer
any proposed instructions at the charge conference and did not object to
any proposed charges. The charge given did not limit or restrict the
argument of defendant but, to the contrary, limited the probative effect
of the prior acts to which defense counsel had referred in his argument,
which was to the advantage of defendant. In Loveless the court had indicated it would not give certain
instructions, and relying thereon the defense did not argue the lesser
offense of manslaughter, then after argument the court notified counsel
he had changed his mind and considered a charge on manslaughter
essential.
[Hearsay
and Attorney-Client Privilege]
There
is no merit to the contention that the hearsay rule and attorney-client
privilege were violated by asking defendant whether his attorney,
holding a power of attorney to represent appellant before the
governmental agency, had asserted in conference with the government the
defense that appellant had no knowledge that he could file a return
without a remittance.
AFFIRMED.
1
Appellant relies upon
United States
v. Power, [68-2 USTC ¶9443] (S. D.
Wis.
, not officially reported). That case contains language which implies
that inability to pay tax, coupled with a "full disclosure" of
tax liability by sending W-2 forms to employees, so negated intent as to
entitle the defendant to a judgment of acquittal. If Power
means there can be no wilful failure to file a return merely because a
taxpayer puts in the hands of employees W-2 forms which, if all reach
the government, will disclose the fact and the extent of taxpayer's
liability, then we do not agree with it. In any event the evidence does
not show a uniform pattern of appellant putting W-2's into the hands of
employees. Some were returned for wrong addresses, and in at least one
instance a former employee was able to obtain a W-2 only by telephonic
insistence that it be sent. The sending of W-2's is evidentiary of an
intent not to conceal tax liability, but it does not reach the status of
requiring acquittal for failure to file the employer's return.
[68-1
USTC ¶9166]
United States of America
, Appellee v. Graziano J. Mancuso, Appellant
(CA-4),
U. S. Court of Appeals, 4th Circuit, No. 10,822, 387 F2d 376, 12/8/67,
Affirming, on rehearing, which affirmed unreported District Court
decision, (CA-4) 67-2 USTC ¶9487, 378 F. 2d 612
[1954 Code Secs. 7201 and 7602]
Crimes: Tax evasion: Violation of client-attorney relationship.--Upon
rehearing of a decision affirming a conviction of the defendant for tax
evasion, it was held that the record did not disclose such substantial
prejudice to the defendant's Fourth, Fifth and Sixth Amendment rights
that he should be discharged as a matter of constitutional right. The
government, while interviewing his CPA, had looked at the accountant's
entire file, including communications with counsel and work papers
concerning the preparation of a defense. Except for the fact that there
was found to be an absence of wrongful intent on the government's part
and a lack of substantial prejudice, the Court said it would have
dismissed the prosecution and discharged the defendant.
Stephen
H. Sachs, United States Attorney, Ronald T. Osborn, Clarence E. Goetz,
Assistant United States Attorneys, Baltimore, Md., for appellee. Norman
P. Ramsey, Thomas Waxter, Jr., H. Thomas Howell,
10 Light St.
,
Baltimore
,
Md.
, for appellant.
Before
HAYNSWORTH, Chief Judge, SOBELOFF, BOREMAN,
BRYAN
, WINTER, CRAVEN and BUTZNER, Circuit Judges.
PER
CURIAM:
Upon
rehearing en banc the opinion of the panel as reported in [67-2 USTC ¶9487]
378 F. 2d 612 is adopted as that of the court. To that opinion we append
the following:
After
the remedial action taken by the district judge, we are satisfied that
the record does not disclose, under the rules laid down in United States v. Blue [66-1 USTC ¶9425], 384 U. S. 251 (1966),
and Hoffa v. United States,
385 U. S. 293, rehearing denied
386 U. S. 951 (1967), such substantial prejudice to the defendant's
Fourth, Fifth, and Sixth Amendment rights that it is appropriate to
quash the prosecution and discharge the defendant as a matter of
constitutional right. But that is not necessarily the end of the matter.
The
government sent for and interviewed defendant's accountant, itself a
proper procedure, and made legitimate inquiry concerning his knowledge
of defendant's tax returns for the prosecution years. But the government
did more. Whether at its instance, or by the voluntary act of the
accountant, the government availed itself of the accountant's entire
file, including the
accountant's communications with counsel and work papers concerning the
preparation of a defense. The government gave notice to
defendant's counsel of what was done, but only after it was done.
In
argument, the government expressly disclaimed wrongful intent in what it
did, and candidly admitted an extreme, even stupid, error of judgment.
The government's deficiencies in the proper conduct of this prosecution
were not erased by notice to counsel of what was done, after it was
done. Nevertheless, we are persuaded that in this case wrongful intent
was absent. Except for such absence and the lack of substantial
prejudice, we would dismiss the prosecution and discharge the defendant
under our supervisory power over the district courts of this circuit.
[67-2
USTC ¶9487]
United States of America
, Appellee v. Graziano J. Mancuso, Appellant
(CA-4),
U. S. Court of Appeals, 4th Circuit, No. 10,822, 378 F2d 612, 5/19/67,
Aff'g unreported District Court decision
[1954 Code Secs. 7201 and 7602]
Crimes: Tax evasion: Sufficiency of evidence: Client-attorney
relationship: Right to counsel: Self-incrimination.--There was
sufficient independent evidence, including that net worth method
analysis of the government, in addition to the defendant's own
statements, for the jury to find him guilty of willful income tax
evasion. Any violation of the defendant's rights under the 4th or 5th
Amendments because his CPA voluntarily disclosed to the government net
worth schedules prepared for the defendant was remedied by the District
Court's orders suppressing from evidence these net worth schedules (and
any evidence that might have been revealed by them), granting a motion
for production of the government's net worth schedules, and permitting a
continuance of 60 days for the defendant's counsel to obtain a new
accountant. Interviews that the government had with the CPA did not
result in an infringement of the 6th Amendment right to counsel. An IRS
agent's advice at conferences with the defendant "that under the
Constitution of the
United States
he may refuse to answer any question the answer to which will tend to
incriminate him" is sufficient to warn the defendant of his rights
under the 5th Amendment.
Thomas
J. Kenney, United States Attorney, Ronald T. Osborn, Arthur K. Crocker,
Clarence E. Goetz, Assistant United States Attorneys, Baltimore, Md.,
for appellee. Norman P. Ramsey, Thomas Waxter, Jr., H. Thomas Howell,
10 Light St.
(17th Floor),
Baltimore
,
Md.
, for appellant.
Before
BOREMAN, BRYAN and CRAVEN, Circuit Judges.
CRAVEN,
Circuit Judge:
Graziano
Mancuso was convicted by a jury of attempting to evade income taxes for
the years 1956 through 1960. 1 In this
appeal he attacks his conviction on two broad grounds: (1) insufficiency
of the Government's case based on the net worth method of proof, and (2)
misconduct of Government agents amounting to a denial of his Sixth
Amendment right to the effective assistance of counsel, his Fifth
Amendment right not to incriminate himself, and his Fourth Amendment
right to be secure from unreasonable search and seizure.
I.
The evidence was amply sufficient for the jury to have found that the
defendant had been since 1945 the dominant member of a family
partnership, V. Mancuso & Sons, a barber supply business in
Baltimore; that the defendant's brother, Nicholas, was also a partner,
and his son, Vincent, Jr., became a partner in 1958; and that the
defendant's father, Vincent, Sr., who was described as a "limited
partner" from 1945 until 1958, when he retired from the business,
was salaried during this time and did not share in the profits. The
defendant testified that ninety-eight percent of all partnership
receipts were in cash.
The
Government's comparative net worth analysis of the defendant showed an
increase in personal net worth over the five years for which prosecution
was undertaken of approximately $63,000, of which some $52,000 was shown
as derived from unreported taxable income. 2 The
consistent increases in the defendant's personal net worth were
attributed by the Government almost exclusively to income from the
family partnership.
The
Government ascribed $19,000 of the growth in the defendant's net worth
over the five-year period to increases in the value of his share of the
partnership capital. The Government's personal net worth analysis on the
defendant included in each year as one asset an apportioned share of the
then current partnership capital. 3
The
defendant maintains that there was a complete lack of evidence to
support the Government net worth schedules which were therefore
improperly admitted in evidence, and thus his case was erroneously
permitted to go to the jury. The challenge to the Government's proof
relates specifically to determination of his interest in the partnership
capital and its use in calculating his personal net worth. Other assets
(and expenditures) in the Government personal net worth schedule were
based on direct evidence introduced at trial.
The
defendant concedes that amounts assigned by the Government to business
assets, liabilities, and depreciation reserve in constructing a
comparative net worth statement for the family partnership were proved
by competent evidence at his trial. 4 He contends,
however, that key "assumptions" made by the Government in
establishing his share in the partnership capital are unsupported by
direct evidence.
The
Government's theory allocated to the defendant and Nicholas Mancuso each
one-half of the partnership capital on December 31, 1953, the starting
point in its net worth schedules. Thereafter they were credited with an
even one-half of the increments in partnership capital until the
addition of Vincent, Jr. in 1958, after which one-third was allotted to
each. However, the Government analysis did not assign to Vincent, Jr.
any part of the accumulated firm capital. Although the family business
began as Vincent, Sr.'s proprietorship, the Government theory does not
allow him an interest in the firm capital during the prosecution period.
The
jury accepted the Government's theory and, we think, was entitled to do
so. It is true that there was a scarcity of direct evidence relating to
the ownership interests in the partnership capital. All the evidence was
to the effect that there was no capital account as such, and the
partnership tax returns did not include a capital account
reconciliation. 5 However,
circumstantial evidence was plainly sufficient to support the
Government's inferences.
The
Government's position that Vincent, Sr. was without a capital interest
in the prosecution years is strongly supported by evidence at trial. The
partnership tax returns for the years under examination show that he was
salaried and did not receive a part of the partnership profits.
Furthermore, Internal Revenue Agent Gordon testified that he had an
"absolute disclaimer" from the defendant of any interest of
his father, Vincent, Sr., in the partnership. Agent Gordon further
testified that the defendant had told him that beginning in 1945
Vincent, Sr. had "gradually relinquished and he turned [the
partnership over] to the two . . ." sons and that Vincent, Sr.
remained a "limited partner" and received a salary for little
things he did about the place.
The
inference that Vincent, Jr. did not acquire any part of the accumulated
firm capital on acceptance as a partner in 1958 rests on testimony of
Agent Gordon that Vincent, Jr. had told him that he brought nothing into
the partnership. This was not denied by the defendant.
There
was more than sufficient evidence at trial showing the defendant's
dominance of the business for the jury to infer that he had at least an
even one-half interest in the partnership capital in 1953 and that he
owned an equal part of annual increments in firm capital. So
comprehensive was the defendant's control over affairs of the family
business, especially the financial ones, a reasonable inference would
have been that the partnership-in-name was in fact his sole
proprietorship. The defendant was proved to be the only active partner
who could and did write checks on the business checking account and who
could draw on the partership savings account. 6 The
defendant testified that he alone maintained the partnership books and
records. He did not account to other members of the firm. 7
Granting
to defendant the benefit of any doubt, the Government attributed to him
on its net worth theory only an equal part of the initial partnership
capital and increases in net worth. The apportionment made by the
Government followed the distribution of profits as reported on the
partnership tax returns which were in evidence, and as stated in
testimony by Agent Gordon, conformed to the ordinary legal presumption
that in absence of evidence of an agreement to the contrary the
partners' interests are equal. 8
The
defendant's principal defense was the familiar cash hoard and gift
explanation. He admitted on the witness stand that the immediate source
of the funds which inflated his personal bank accounts and paid for
physical assets appearing on the Government net worth schedule during
the years 1953 through 1960 was the partnership checking account.
However, he maintained that the money withdrawn for these purposes did
not represent partnership profits but were funds placed in the business
accounts for convenience and actually derived from funds acquired before
the prosecution period or received as gifts from members of his family. 9
Inconsistently
and in contrast to the position taken by his client, the defendant's
counsel advanced the theory at trial and before this court that the
Government had not refuted the possibility that the personal assets of
his client could have been acquired with partnership capital which had
accumulated to his credit before the starting point in the net worth
analysis, December 31, 1953. The Government in fact concedes 10 that the
defendant would not be
delinquent in reporting income if it is presumed that in 1953 he owned
the entire partnership capital and thereafter when taking funds from the
partnership account to enhance his personal asset position drew only on
his accumulated capital and took no partnership profits in excess of
those reported on his tax return. This was the theoretical possibility
illustrated by a hypothetical net worth schedule used by counsel for the
defense at trial. Such a possibility appears to be controverted,
however, by the defendant's own explanation of asset accumulation.
Suffice it to say that the jury--within its competence--accepted neither
defense theory.
Because
of the omission of the defendant to maintain adequate records the
Government was forced to proceed in its prosecution with the net worth
method of proof. Its case, therefore, was necessarily grounded in
circumstantial evidence. The jury considered the evidence bearing upon
the defendant's partnership interest along with the evidence of other
assets and purchases, and weighing the defense theories, made the
ultimate inference, with which it was satisfied beyond a reasonable
doubt that during the years covered by the indictment the defendant had
received substantially greater income than he reported on his tax
returns.
What
this court said in
Moore
v.
United States
is pertinent:
"If
[circumstantial evidence] be sufficient to support an inference of guilt
and the defendant fails to offer a reasonable explanation consistent
with innocence, such failure may be considered by the trier of fact. It
is not necessary, in appraising the sufficiency of the evidence, that
this court be convinced beyond a reasonable doubt of the guilt of the
defendant. The question is whether the evidence, construed most
favorably for the prosecution, is such that a jury (or trial judge)
might find the defendant guilty beyond a reasonable doubt." 271 F.
2d 564, at 568 (4th Cir. 1959) (case citations omitted).
We
stated in Bell v. United States
that [a]n estimate of the taxpayer's net worth as the means of
determining his income is resorted to in the absence of accurate records
which it is his duty under statute to make and to preserve, and by its
very nature it is an approximation; . . . the absence of proof of the
exact amounts of unreported income is not fatal if there is substantial evidence tending to prove the defendant's guilt beyond
a reasonable doubt [50-2 USTC ¶9499] 185 F. 2d 302, 308-09 (4th Cir.
1950) (emphasis added).
We
have in our review of this case heeded the Supreme Court's admonition
that courts should closely scrutinize use of the net worth method of
proof because "it is so fraught with danger for the innocent."
Holland
v.
United States
[54-2 USTC ¶9714], 348
U. S.
121, 125 (1955). We have examined the district court's charge and find
it especially clear and inclusive of all the elements set out in
Holland
. 348
U. S.
at 129. We conclude that the Government established with sufficient
certainty the defendant's opening net worth. See
Holland
v.
United States
, 348
U. S.
at 132.
In
addition, the Government in the present case tracked "down relevant
leads furnished by [the defendant]--leads reasonably susceptible of
being checked, which if true would establish his innocence."
Holland
v.
United States
, 348
U. S.
at 135-136. There was plentiful evidence supporting the inference that
the defendant's net worth increases were "attributable to currently
taxable income."
Holland
v.
United States
, 348
U. S.
at 137.
There
was sufficient independent evidence, in addition to the defendant's own
statements, for the jury to find that the Government had established the
elements of its case beyond a reasonable doubt, including the element of
willfulness which was the compelling inference from the consistent
pattern of underreporting. See Smith
v.
United States
[54-2 USTC ¶9715], 348
U. S.
147 (1954).
II.
The defendant's contention that he was denied Fourth, Fifth, and Sixth
Amendment rights is based in large part on the conduct of an Assistant
United States Attorney in examining and copying certain defense files.
Contemplating using as a witness Milton Duke, C. P. A., who had prepared
defendant's tax returns for many years, Government counsel interviewed
him on more than one occasion. On September 7 or 8, 1965, Duke came
alone and willingly to the United States Attorney's office and brought
his file on defendant. He voluntarily disclosed it to the Assistant
United States Attorney and Internal Revenue agents. Included were net
worth schedules prepared at the request of defendant's counsel. The file
also contained letters to Duke from defendant's counsel which Agent
Gordon said the Government "studiously avoided looking at. . .
."
The
Government agents made copies of the defense net worth schedules and
compared them with their projected ones. The matter was not kept secret.
Defense counsel was promptly and fully advised of the occurrence, and as
promptly responded with a motion to suppress. At a two-day hearing on
the motion, the district court heard evidence and sensibly considered
alternative remedies:
(a)
evening things up by requiring the Government to produce its
net worth statement;
(b)
suppressing the physical evidence obtained from Duke and any of its
fruits;
(c)
dismissal of the indictment--urged by defense counsel to be the only
adequate remedy.
The
district judge rightly concluded that sufficient protection would be
afforded defendant short of a dismissal that would end the cause and
exculpate the defendant. He ordered that "the net worth statements
and all related papers, whether incriminatory or not, prepared by Mr.
Duke at the direction of [defendant's counsel] and for [his] use in the
defense of [the defendant], are ordered suppressed as is any evidence
that might have been revealed by those papers." The defense was
given the right to object during the trial to any evidence it felt the
Government obtained from the documents. The district court, in addition,
granted the motion for production of the Government
net worth schedules. Moreover, the court ordered a continuance for at
least sixty days to give defendant's counsel an opportunity to acquire a
new account. 11
We
need not consider the underlying questions of whether the schedules
copied were in fact counsel's work product, and if so, privileged, or
whether there was a waiver. Clearly, any prejudice resulting from an
assumed violation of the Fourth or Fifth Amendments was cured by the
extraordinary remedial order of the district court. "[N]umerous
precedents ordering the exclusion of . . . illegally obtained evidence
assume implicitly that the remedy does not extend to barring the
prosecution altogether. So drastic a step might advance marginally some
of the ends served by exclusionary rules, but it would also increase to
an intolerable degree interference with the public interest in having
the guilty brought to book."
United States
v. Blue, 16 L. Ed. 2d
510, 515 (1966). Moreover, the Supreme Court has never "expressed
the view that the Fourth Amendment protects a wrongdoer's misplaced
belief that a person to whom he voluntarily confides his wrongdoing 12 will not
reveal it." Hoffa v.
United States
, 17 L. Ed. 2d 374, 382 (1966).
The
defendant next complains that he was denied his Sixth Amendment right to
the effective representation of counsel by Government use of information
gathered in several interviews with Milton Duke in the investigative
stage of the proceedings and as a prospective Government witness during
preparation for trial. Since an accountant is indispensable to defending
a net worth case, it is argued that getting the cooperation of the
accountant is the same as penetrating the constitutionally protected
relationship of attorney-client. We think not. There was here no
"surreptitious invasion by a government agent into the legal camp
of the defense", nor indeed any "government
intrusion"--gross or otherwise--upon the confidential relationship
between defendant and his counsel. Hoffa
v.
United States
, 17 L. Ed. 2d 374, 384 (1966). The Government engaged in no
electronic surveillance, wire tapping, or deception. Compare Massiah v.
United States
, 377
U. S.
201 (1964);
Caldwell
v.
United States
, 205 F. 2d 879 (D. C. Cir. 1953); Coplon
v.
United States
, 191 F. 2d 749 (D. C. Cir. 1951). Certainly on the facts of this
case there was no infringement of the Sixth Amendment right to counsel.
Defendant
was indicted on April 9, 1963. The district court refused to suppress
evidence gathered and statements made to Internal Revenue Service agents
at two conferences with the defendant in June and December 1961.
Defendant asserts that his right not to be compelled to be a witness
against himself was abridged because he was insufficiently warned. The
defendant was accompanied by an attorney and his accountant (the same
Milton Duke) when he first met with Internal Revenue agents. The
uncontroverted testimony by Agent Gordon was that at this meeting he
advised the defendant "that under the Constitution of the
United States
he may refuse to answer any question the answer to which will tend to
incriminate him. . . ." We think this more than sufficient.
The
defendant was not in custody. He attended the meetings under no
compulsion save his own or counsel's judgment that it was in his best
interest to do so.
The
hearing on the motion for suppression of evidence and the trial in the
present case were conducted after the decision of the Supreme Court in Escobedo v. Illinois, 378 U. S. 478 (1964), but prior to the
decision in Miranda v. Arizona,
384 U. S. 436 (1966). Because of the time sequence, Escobedo is more pertinent than Miranda. Johnson v.
New Jersey
, 384
U. S.
719 (1966). Though these cases involved state prosecutions and were
decided under the Fourteenth Amendment, the principles may apply in
federal tax cases. See S. Duke, Prosecutions
for Attempts to Evade Income Tax: A Discordant View of a Procedural
Hybrid, 76 Yale L. J. 1, 37 (1967).
But
Escobedo and Miranda do not apply to a tax audit, i.e., an investigation by revenue agents of a taxpayer's tax
returns and records for the purpose of determining whether or not
additional taxes are due and whether or not a crime has in fact been
committed. See Kohatsu v.
United States
[65-2 USTC ¶9715], 351 F. 2d 898 (9th Cir. 1965). Neither
suggest a duty to warn one who, like the defendant, is not
under arrest and whose freedom of action is not curtailed.
If
it be assumed that defendant and his lawyer were unaware of his legal
right to resist the investigation, the result is the same. That
defendant subjective may not have known of his rights does not vitiate
his voluntary disclosures made with advice of counsel.
United States
v. Spomar [65-1 USTC ¶9141], 339 F. 2d 941 (7th Cir. 1965), cert.
denied, 380
U. S.
975 (1965).
The
courts uniformly hold that a taxpayer's ignorance of the nature of an
investigation by the Internal Revenue Service and of his legal right to
resist "is insufficient ground for suppression of evidence
voluntarily given." S. Duke, Prosecutions
for Attempts to Evade Income Tax: A Discordant View of a Procedural
Hybrid, 76 Yale L. J. 1, 36-37 (1966); see, e.g.,
Turner v. United States [55-1 USTC ¶9489], 222 F. 2d 926 (4th
Cir. 1955).
At
the time of these conferences no decision had been made to prosecute.
"Explicit warnings need not be given concerning possibilities that
may never come to pass." Greene
v.
United States
[62-1 USTC ¶9110], 296 F. 2d 841, 842 (2d Cir. 1961).
Revenue
agents, during the course of an investigation of a taxpayer's returns,
and prior to determining upon criminal prosecution, "have no duty
to apprise a taxpayer that he need not furnish requested information and
that if he does furnish such information it may be used against him in
criminal proceedings."
United States
v. Spomar [65-1 USTC ¶9141], 339 F. 2d 941, 942 (7th Cir.
1964), and cases cited therein.
Affirmed.
1
He was indicted and convicted on five separate counts under §7201 of
the Internal Revenue Code of 1954, 26
U. S.
C. A. §7201, and was sentenced to one hundred and eighty-three days
imprisonment.
2
The Government's comparative net worth schedule for the defendant showed
the following:
Defendant's Total Personal Increase
Share of Partnership Net Worth (Assets in Personal Understated
Net less liabilities Net Worth Taxable
Date Worth (capital) and depreciation) During Year Income
12/31/53 .... $26,130 $ 83,655
12/31/54 .... 30,371 90,922 $ 7,267 $ 6,535
12/31/55 .... 32,581 101,578 10,657 10,298
12/31/56 .... 38,393 113,141 11,563 9,735
12/31/57 .... 42,759 144,531 31,390 26,108
12/31/58 .... 47,393 153,743 9,212 10,036
12/31/59 .... 48,342 157,132 3,389 4,177
12/31/60 .... 50,511 164,437 7,305 2,022
Note:
Figures have been rounded off to the nearest whole number.
In
calculating the defendant's taxable income in a given year, the
Government in its net worth schedule adjusted the increase in his
personal net worth by adding expenditures which do not result in asset
accumulation (e.g., daily living expenses and purchases of gifts for other
persons) and subtracting, inter
alia, the defendant's personal exemptions and the standard
deduction.
3
See note 2 supra.
4
The Government prepared a comparative net worth statement on the
partnership from which was determined the figure listed as
"Partner's Share in V. Mancuso & Sons" (termed
"Defendant's Share of Partnership Net Worth" in note 2 supra)
among the assets in the Government's personal net worth schedule on the
defendant. The Government's partnership statement, however, computed
partnership capital solely from assets and liabilities at the end of the
tax years in question and did not include an examination of capital
contributions and withdrawals, if any.
5
The defendant himself testified at trial that there was no capital
account. He also testified that he told Government agents that there was
"just a family arrangement". Internal Revenue Agent Gordon
testified that "[a]ll we were able to learn from the whole
partnership, all the members, was that they maintained no capital
account."
6
Both business accounts, records of which were introduced in evidence by
the Government, are in the joint names of Vincent, Sr. and the
defendant. However, the defendant testified that he was the only one who
wrote checks and Agent Gordon testified that the defendant told him that
Vincent, Sr.'s name had been placed on the savings account,
"although he was no longer truly a partner, and it was not the
father's money, . . . out of respect, so that in the event anything
happened to . . . Graziano Mancuso, the father could be expected to see
that everyone was taken care of."
7
Agent Gordon testified that the defendant told him that "he
maintained the books and records, he was the only one who could write
checks and he generally ran the business, in his words. He prepared all
returns for the business, except the state and federal income tax
returns and the partnership return, which were prepared by . . ." a
CPA from his records.
8
See Uniform Partnership Act §18; 68 C. J. S. Partnership §85(b), at 526-27 (1950).
9
The defendant, for example, testified that he received from his father
during the prosecution years some $9,000, which was placed in the
partnership checking account. He also testified that his wife had
received a large sum of money--around $20,000--from her mother which was
turned over to him from time to time and eventually found its way to the
business checking account, and from there into the purchase price of a
home.
The
following dialogue occurred at the close of the defendant's testimony:
The District Judge: "And you
say that most of the money that we are concerned with here came either
from your father or your in-laws, is that right?"
The Defendant: "Yes, Your
Honor."
10
The concession was made in oral argument before this court.
11
The court also forbade the Government to consult further with Milton
Duke. We have no occasion to review the property of this unusual
sanction since the Government took no exception to it.
12
The defendant entrusted Duke only with his tax records. He confessed no
wrongdoing to Duke, or if he did, his confidence was not breached.
[67-2
USTC ¶9588]Jacob J. Forhmann, Appellant v.
United States of America
, Appellee
(CA-8),
U. S. Court of Appeals, 8th Circuit, No. 18,576, 380 F2d 832, 7/27/67,
Affirming unreported District Court
[1954 Code Sec. 7203]
Willful failure to file return: Admission of evidence: Right to
counsel: Comments by court.--The taxpayer's conviction by a jury for
failure to file income tax returns was upheld were the record failed to
disclose any prejudicial error. There was no prejudice in the trial
court's failure to exclude testimony by an attorney which the defense
claimed indicated advice to the taxpayer that he must report profit on a
real estate transaction. The taxpayer himself testified that he knew
that a return had to be filed for the year in question. Neither was the
testimony of a revenue agent improperly excluded for failure to warn the
taxpayer of his right to counsel. The taxpayer was not in custody at the
time of questioning by the agent and there was an attorney present who,
the agent testified, told him that he was the taxpayer's attorney. The
defense claimed that there was no positive demonstration in the record
that the taxpayer had retained the attorney but neither did the record
demonstrate that he was retained in any other capacity. Comments by the
trial court were not indicative of prejudice; the court's examination of
a witness did not elicit anything which did not come in later and the
court's action in limiting testimony was properly within his descretion.
Neither was the exclusion of various items of evidence offered by the
taxpayer prejudicial; the items offered were also within the court's
discretion as to materiality or relevancy.
James
Q. Brown, 7751 Carondelet Ave., Clayton, Mo.,
Rob
ert E. Johnson, Krieg, DeVault, Alexander & Capehart, Suite 1200,
111 Monument Circle, Indianapolis, Ind., for appellant. Richard D.
FitzGibbon, Jr., United States Attorney, John A. Newton, Assistant
United States Attorney,
St. Louis
,
Mo.
, for appellee.
Before
VOGEL, Chief Judge, and BLACKMUN and HEANEY, Circuit Judges.
BLACKMUN,
Circuit Judge:
Jacob
J. Frohmann, after a plea of not guilty, was tried in July 1966 and
convicted by a jury on both counts of a two-count information charging
him with violating 26 U. S. C. §7203 in willfully failing to make
federal income tax returns for the calendar years 1959 and 1960. Judge
Meredith imposed a sentence of one year on each count and directed that
the sentences be served concurrently. The defendant appeals.
Reversible
error is alleged with respect to the admission of evidence, comment by
the trial judge, and the rejection of evidence proffered by the defense.
There is no claim that the evidence which was admitted was not
sufficient to support the verdict.
In
the years in question Frohmann was engaged in the business of developing
and dealing in commercial real estate in the
Saint Louis
area. His federal income tax returns for the calendar years 1958-64,
inclusive, were all delinquently filed. The 1958 return was filed in
July 1962 after a revenue agent appeared on the scene. An amended return
for that year and the returns for 1959-64, inclusive, were filed on
December 11, 1965.
Frohmann
does not deny that he had income sufficient to require him to file
returns for 1959 and 1960 or that he failed to file those returns when
they were due. He admitted this on direct examination. 1 He does deny
that his failure to file was willful or with any intent to deprive the
government of that to which it was entitled.
The
defendant's tax difficulties center in the development and sale of a
shopping center in Saint Charles, Missouri, dealings in options, the
sale of an apartment, and rental from a bank building.
The
government produced witnesses who testified as to the defendant's
business activities and the amounts he received in various transactions.
Some of these involved substantial figures. The government's evidence
tended to show that the defendant's 1959 gross income was $55,502.41 and
his 1960 gross income was $36,522.50. The latter figure contrasts with a
gross of over $24,000.00 but a net loss of $50,362.63 asserted by the
defendant on his 1960 return as delinquently filed. This difference is
due to variance in treatment of the apartment sale, and to a rental loss
asserted by the defendant on the bank building but claimed by the
government to be a corporate and not an individual transaction.
Some
emphasis is placed on the defendant's background. He testified: He was
born in
Saint Louis
in 1910. His parents were European immigrants who were uneducated and
spoke little English. He attended school in this country through the
fourth grade and then was taken to
Europe
and apprenticed in a dry goods store there for about five years. He
returned to
Saint Louis
and finished the fifth grade when he was 16 years old. His elementary
education was then discontinued and he went to barber school. After
barbering for a time he became interested in real estate and, although
he was never licensed, went to work as a salesman for real estate
companies. In 1942 he started to work for himself. He operated out of
his home until 1955 and then took desk space at a real estate office.
There
is testimony that the defendant has been substantially blind in one eye
since childhood, has been deaf in one ear since 1940, and has had
cardiac disease since 1959.
Mr.
Forhmann kept no books. His only records are papers relating to his real
estate transactions.
A.
The testimony of the witness Schneider and the court's refusal to grant
a mistrial.
Edward
C. Schneider, an attorney, was a witness called by the government. He
testified that in the summer of 1959 he was retained by the defendant to
represent him in connection with the acquisition of an apartment house
corporation. There were negotiations with the attorney for the seller as
to the contents of the sale contract. The transaction was closed in a
title insurance company office. On direct examination of Mr. Schneider,
the following took place:
Q.
Now subsequent to the exchange did you have a conversation with Mr.
Frohmann relative to the property, the profits on it? Would that be
correct?
A.
No. I might say this, well, I will clarify it. My duty was at an end
after I assigned the contract over to Mr. James and Effie James.
Q.
To Mr. James and Effie James.
A.
Then the closing end of the
Jennings
and West Pine took place after we had consummated. Now as far as the
profit was concerned in dollars and cents, I would have no knowledge of
that.
Q.
Did you have any conversation with him relative to reporting that?
A.
Well, I told him this: I was very certain--
Mr.
Brown: Wait a minute. I am going to object to any statement he may have
made. In the first place, there is no showing he was authorized to act
in that capacity, and if he was, he was his attorney. I think counsel
knows better than to ask a question like that.
At
this point the jury was excused. At the bench the government offered to
prove that, after the witness had completed his legal services for the
defendant, he conversed with him and told him that, if he had gains from
these transactions, they should be reported and "that he had better
get himself an accountant and find out what had transpired". After
the noon recess the government informed the court that it would not
further pursue this line of questioning. The defense repeated its claim
of provilege and moved for a mistrial. This motion was overruled but the
court stated, "If you desire any special instruction at this time
to the jury or later, I will give it". No request for an
instruction was made and no further question was asked of Mr. Schneider.
The
defense claims that the quoted questions and answers show that the
defendant could only have received advice from this attorney to report
his profit and that this was particularly prejudicial because it was the
only direct evidence of advice to the defendant as to the necessity of
filing a return and thus seriously affected his defense of
nonwillfulness.
We
decide this issue against the defendant and do so because we perceive no
prejudice. As we have noted, Frohmann himself testified on his direct
examination, and thus told the jury, that he knew that a return had to
be filed for 1959. Although this came later in the trial than the
Schneider testimony, no claim is made that it was occasioned by that
testimony or that Frohmann would not have so testified if Schneider had
not said what he did. With the duty to file thus conceded, we fail to
see how advice from Schneider as to the necessity for filing--if
Schneider's answer can be regarded as stating that much--adds anything
at all. Furthermore, our decision is fortified by the failure of the
defense to proffer a curative instruction when the court offered to give
one if it were desired, and by our awareness that the allowance of a
mistrial motion is a matter for the trial court's discretion. Evenson
v.
United States
, 316 F. 2d 94, 95-96 (8 Cir. 1963); Dolan
v.
United States
, 218 F. 2d 454, 460 (8 Cir. 1955), cert. den., 349
U. S.
923. Certainly we do not find here the "clear and obvious abuse of
a trial court's discretion" which alone justifies reversal. Schaefer
v.
United States
, 265 F. 2d 750, 753 (8 Cir. 1959), cert, den. 361
U. S.
844.
B.
The testimony of Revenue Agent Parker and the application of the Escobedo and Miranda
rules.
Agent
Parker testified that, in connection with his examination of the returns
of a person with whom the defendant had real estate transactions, he
requisitioned the defendant's 1959 return; that this request was not
productive; that he communicated with Frohmann and asked him to present
the check with which he had paid his 1959 tax; that the defendant said
he would do this but the check was not forthcoming; that shortly
thereafter a man named Kuehn came to Parker's office and said he was an
attorney representing Frohmann; that on many occasions in 1961 and in
the first part of 1962 he asked the defendant for records to determine
his income; that no records were produced; that in June or July of 1962
he went to Mr. Kuehn's residence and reviewed papers which the defendant
had there; that this was done with the defendant's permission given to
Mr. Kuehn; that in July Kuehn filed the 1958 delinquent return for the
defendant; that on August 16, 1962, there was a conference in the
Internal Revenue Service office attended by Kuehn, Frohmann, Parker and
Special Agent Stieferman; that Stieferman there advised the defendant
that he had a right not to answer any question; that Frohmann replied
that he "did not intend to use that privilege, he would give us
anything we wanted"; and, over objection, that the defendant stated
that his returns were not filed "because he didn't have the money
to pay the tax".
It
is the admission of this last response which the defense now challenges.
It is suggested that this is not entirely consistent with the
defendant's own testimonial statement, set forth in the footnote, supra, as to he reasons for his delinquency.
Although
conceding that the defendant was not in custody at the time this
statement was made, the defense advances the principles of Escobedo
v. Illinois, 378 U. S. 478 (1964), and of Miranda v. Arizona, 384 U. S. 436 (1966), and claims that these
have application to this 1962 internal revenue service conference at
which a special agent was present and whose presence implied a criminal
aspect to the investigation.
The
government asserts that the defendant concededly was advised that he
need not speak; that, however, he waived his right to remain silent;
that, although he was not warned of his right to counsel, this fact is
of no consequence because his own counsel, Kuehn, was present; and that,
in any event, internal revenue agents in the investigatory phase of a
case, and prior to custody, have the right to make inquiry of a taxpayer
without the formalities which Escobedo and Miranda
may now require for custody situations.
In
response the defense argues that, although Mr. Kuehn was a lawyer, he
was over 80 years of age and the record does not show that he was
representing the defendant in a legal capacity as contrasted with acting
as an accountant who prepared tax returns for him.
Whenever
the question has been presented to a court of appeals, the court has
refused to extend the Escobedo
and Miranda requirement
for the rendition of advice as to the right to counsel to the situation
of a precustody internal revenue service inquiry. Morgan
v. United States [67-1 USTC ¶9449], 377 F. 2d 507, (1 Cir.
1967); Schlinsky v. United
States [67-2 USTC ¶9493], 379 F. 2d 735 (1 Cir. 1967); Mathis
v. United States [67-1 USTC ¶9408], 376 F. 2d 595 (5 Cir. 1967);
United States v. Maius
[67-2 USTC ¶9521], 378 F. 2d 716, (6 Cir. 1967); Kohatsu
v. United States [65-2 USTC ¶9715], 351 F. 2d 898 (9 Cir. 1965),
cert, den. 384
U. S.
1011; Rickey v.
United States
[66-1 USTC ¶9395], 360 F. 2d 32 (9 Cir. 1966), cert. den. 385
U. S.
835; Selinger v. Bigler [67-1 USTC ¶9420], 377 F. 2d 542, (9 Cir.
1967), cert. applied for June 30, 1967. See
United States
v. Spomar [65-1 USTC ¶9141],
339 F. 2d 941 (7 Cir. 1964), cert. den. 380
U. S.
975. The great majority of unappealed district court cases in which the
question has arisen are to the same effect. Bohrod
v. United States, 248 F. Supp. 559, 564-66 (W. D. Wis. 1965); Smith v. United States [66-1 USTC ¶9406], 250 F. Supp. 803 (D.
N. J. 1966); United States v.
Fiore [66-2 USTC ¶9680], 258 F. Supp. 435 (W. D. Pa. 1966); United States v. Hill [67-1 USTC ¶9173], 260 F. Supp. 139 (S. D.
Cal. 1966); United States v.
Carlson [66-2 USTC ¶9633], 260 F. Supp. 423 (E. D. N. Y. 1966); United States v. Spinney [67-1 USTC ¶9193], 264 F. Supp. 774,
(D. Mass. 1966); Stern v.
Rob
inson [67-1 USTC ¶9295], (W. D. Tenn. 1966); United
States v. Gleason [67-1 USTC ¶9297], 265 F. Supp. 880, 883 (S.
D. N. Y. 1967); United States
v. Neves [67-1 USTC ¶9412], (S. D. N. Y. 1967); United
States v. Rabin [67-1 USTC ¶9465], (S. D. N. Y. 1967).
To
the contrary, seemingly, are only
United States
v. Turzynski [67-2 USTC ¶9489], (N. D. Ill. 1967);
United States
v. Kingry [67-1 USTC ¶9262],
19 AFTR 2d 762 (N. D. Fla. 1967); and
United States
v. Schoenburg [67-1
USTC ¶9393], (D. Ariz. 1965). See
United States
v.
Harrison
[67-1 USTC ¶9222], (S. D. N. Y. 1967). But Mr. Justice Douglas
dissented from the denial of certiorari in Thomas
v. United States, 386 U. S. 975 (1967), with the observation
that, "This is not an in-custody case, but it is a coercive
examination of a taxpayer at a critical preliminary hearing, so to
speak, and the question presented apparently is a recurring one".
All
these cited cases have been decided since Escobedo
and many of them since Miranda.
Their facts, of course, vary. It is clear, however, in a number of them,
that the internal revenue service review had reached the stage where a
special or intelligence agent was in the case and was present at the
conference.
For
us, the majority authorities comprise an impressive list and we would be
loathe to oppose them.
The
present case, however, is not without its other features and we may
therefore regard the Escobedo-Miranda
issue the question of the extension of the "custodial
interrogation" language, p. 444 of 384
U. S.
, to noncustodial internal revenue service conferences, as one not
squarely presented to us here.
It
is not disputed that Mr. Kuehn was a lawyer. Although the record may not
positively demonstrate that the defendant retained him as an attorney,
neither does it positively demonstrate that the defendant retained him
only in a capacity other than legal. Agent Parker testified that Mr.
Kuehn told him that he was the defendant's lawyer. And he did prepare
the first 1958 return for the defendant filed in July 1962 (as well as
his returns for earlier years). He thus performed services which, in the
delinquency atmosphere of this case, certainly had legal overtones. We
feel that the court could properly conclude that Mr. Kuehn was acting in
the capacity of attorney for Mr. Frohmann at the time of the conference
on August 16, 1962, when the challenged statement was made. Any basis
for a claim of deprival of advice as to the right to counsel thus
evaporates. We are not satisfied, either, that this record shows that
the investigation had attained what is to be described as the accusatory
stage or that there is any significantly apparent inconsistency in the
defendant's testimony.
In
summary, the factual situation here falls far short of what has been
determined to be of constitutional magnitude in Escobedo
and Miranda and which
was persuasive upon the Supreme Court in those cases.
C.
Comments by the court.
The
comments by the court, which the defense claims were influential upon
the jury and prejudicial, were made during the examination of witness
Lewis A. Mueller, a certified public accountant employed by the
defendant to prepare his delinquent returns. Mr. Mueller was hired, at
the suggestion of counsel, in late 1963 to set up the records for a
shopping center. He became aware of the defendant's personal income tax
problems in early 1965. On direct examination Mr. Mueller was questioned
about the difficulties he incurred in getting detailed information for
the preparation of the returns and about the incomplete and uniformative
nature of the initial 1958 return prepared by Mr. Kuehn and filed in
1962. The court indicated general agreement with government objections
that what happened in 1965 or in 1962 was not material to the issue and
that the year 1958 was not the subject of charges against the defendant
and, on occasion, itself asked questions of the witness.
The
defense complaint here is that the trial court demonstrated impatience
to get Mr. Mueller off the stand, indicated that it thought his
testimony to be of little importance, and, by its own questions, showed
that it considered the defendant's failure to obtain assistance or an
extension of time for filing as indicative of willfulness.
No
objection based on the court's demeanor or alleged influence was made
during the trial. In its instructions the court told the jury that it
meant to express no opinion and that it was for the jury and not the
court to determine facts.
We
have carefully read witness Mueller's entire examination and we do not
at all agree with the defense's characterization of the trial court's
actions. For the most part, the information elicited from the witness
eventually came in anyway. It may be that one engaged in the defense of
the suit might find himself inclined to believe that the court is
becoming impatient. We find nothing here, however, which is any
different from what takes place in any lawsuit where the trial judge has
ruled as to the limits of testimony and is consistently confining
counsel to those limits. The court, it seems to us, was doing no more
than maintaining a normal and fairly tight rein on a tax case in order
to keep it moving along and to prevent its being bogged down in
statistical detail of questionable pertinency upon the real issue,
namely, the defendant's state of mind as to the filing of returns for
1959 and 1960 when they were due.
There
is nothing here which can be characterized as abusive or unfair or which
approaches plain error as contemplated by Rule 52(b), Fed. R. Crim. P.
D.
The exclusion of evidence offered by the defense.
This
was of three types: (1) the files of three state court cases (in one of
which defendant had counsel of record) in which default judgments were
obtained against the defendant in 1962, 1963 and 1964 in amounts
exceeding $65,000.00 in the aggregate; (2) income tax computations made
by Mr. Mueller for the defendant for 1959 and 1960 which would show a
loss for 1960 entitling the defendant to the benefit of a net loss
carryback, under §172 of the Internal Revenue Code of 1954, as amended,
26 USC §172, to prior tax years, a benefit which the defendant by his
failure to file did not claim, and (3) the delay of the Internal Revenue
Service for more than a year in furnishing a duly requested Form 899 for
the defendant. This form is a record of a taxpayer's returns,
assessments and payments. It was eventually produced here only 11 days
prior to trial. The defense asserts that the evidence in the first two
categories tended to show the defendant's incapacity and an absence of
willfulness on his part, and that the evidence in the third category
demonstrated that the government does not adhere to its own standards,
and tended to impeach the testimony of revenue agents who said they had
no bias against the defendant.
We
perceive no prejudicial error. The delay in the furnishing of Form 899
has no bearing, apparent to us, upon the issue of willfulness and we see
no prejudice, nor is any claimed, in the delay. The defense had the form
and the information it disclosed for several days prior to trial. The
state court files and the Mueller computations perhaps could have been
admitted, but there are limits to what may be considered as reasonably
connected. This type of material, in our view, clearly falls within the
broad area of the trial court's discretion as to materiality or
relevancy. See Cotton v.
United States
, 361 F. 2d 673, 676 (8 Cir. 1966); Clark
v.
United States
[54-1 USTC ¶9291], 211 F. 2d 100, 105 (8 Cir. 1954), cert. den.
348
U. S.
911; Wilson v.
United States
[57-2 USTC ¶10,040], 250 F. 2d 312, 325-26 (9 Cir. 1957). We
find no abuse in the court's rejection of the evidence on the ground of
remoteness and irrelevancy and, indeed, we agree with the court's
rulings.
We
do not hesitate to say in conclusion that this case strikes us as a weak
one for the defense. It is easy to understand why a jury, itself
composed of taxpayers, would not be persuaded by the explanation for
nonfiling which Mr. Frohmann offered. The case is remainiscent of Sansone
v.
United States
[64-2 USTC ¶9640], 334 F. 2d 287 (8 Cir. 1964), aff'd 380
U. S.
343 (1965). It has, of course, its tragic aspects, as most income tax
criminal cases do, but we are not prepared to say that this record
discloses or even intimates that it was tainted with prejudicial error.
Affirmed.
1
Q. Let's go to the year 1959 and concerning the income tax for that
year, or take them both together, 1959 and '60, can you tell the jury,
and I want you to consider your answer to this question as best you
recall, why you did not file the returns at the time that they were due
for those years?
A.
Well, I knew that they must be filed, that they had to be filed, but I
didn't couldn't do it in time. I just could not do it in time. But then
I did not know that I might be charged criminally because of it. To me
it was just something like a deed of trust or note that you owe. I mean
if you are past due, well you owe additional interest and so on, but I
didn't know that I would be charged as a criminal; no.
[88-1
USTC ¶9368] In re Grand Jury Investigation, Glen J. Schroeder, Jr.,
Appellant
(CA-11),
U.S. Court of Appeals, 11th Circuit, 86-3664, 5/20/87, Affirming an
unreported District Court decision
[Code Secs. 7201 and 7602 --Results unchanged by
the Tax Reform Act of 1986 ]
Tax evasion: Grand jury: Compelling testimony: Attorney-client
privilege.--A taxpayer could not challenge an order, on the basis of
attorney-client privilege, to compel grand jury testimony of the
attorney who prepared his tax return regarding the sources of the
taxpayer's income. Although the relationship of attorney-client existed,
the privilege did not attach to communications made in furtherance of a
crime or fraud. This exception is determined by application of a
two-prong test: (1) a prima facie showing of criminal conduct when
advice is sought and (2) the advice was obtained to further the criminal
conduct. The fact that disclosure may also reveal past criminal activity
does not make the communications privileged.
Elizabeth
L. White, William J. Sheppard, Sheppard & White, P.A., 215
Washington St., Jacksonville, Fla. 32202, for appellant. Paul J.
Moriarty, Assistant United States Attorney,
Tampa
,
Fla.
33602
, for appellee.
Before
JOHNSON and CLARK, Circuit Judges, and MORGAN, Senior Circuit Judge.
JOHNSON,
Circuit Judge:
This
case concerns an appeal from an order by the district court compelling
testimony pursuant to a grand jury subpoena. We affirm.
Glen
Schroeder is the target of a grand jury investigation into charges of
tax evasion. Todd Kliston, an accountant and an attorney, prepared
Schroeder's income tax returns for several of the years under
investigation. Consequently, the grand jury subpoenaed Kliston to
testify and produce documents relating to the preparation of Schroeder's
income tax returns for those years. Schroeder intervened and moved for a
protective order on the grounds of attorney-client privilege and the
attorney work product doctrine. Kliston moved for a protective order on
the same grounds or, in the alternative, for a motion to compel
testimony. The government opposed both motions on the grounds of the
crime-fraud exception to both the attorney-client privilege and the
attorney work product doctrine. The court, after hearing argument,
ordered that Kliston:
(1)
answer questions regarding preparation of tax returns as set forth in
the subpoena;
(2)
respond to any questions regarding disclosure of source of income told
to him by Glen Schroeder;
(3)
is not required to answer questions as to advice provided to Glen
Schroeder or any other matter within the attorney-client privilege
except the source of income; and
(4)
to [sic] submit to the Court for in
camera review any documents as to which witness Kliston is
uncertain must be disclosed pursuant to this Order.
Schroeder
now appeals that order.
We
observe initially that Schroeder does not challenge the district court's
order insofar as it compels Kliston to answer questions regarding the
preparation of his tax returns. Nor can he. The attorney-client
privilege attaches only to communications made in confidence to an
attorney by that attorney's client for the purposes of securing legal
advice or assistance.
United States
v. White, 617 F.2d
1131, 1135 (5th Cir. 1980);
United States
v. Kelly, 569 F.2d 928,
938 (5th Cir.), cert. denied,
439 U.S. 829 (1978). Courts generally have held that the preparation of
tax returns does not constitute legal advice within the scope of that
privilege. United States v.
Lawless [83-1
USTC ¶13,527 ], 709 F.2d 485, 487-88 (7th Cir. 1983); United
States v. El Paso [82-2 USTC ¶9534 ],
682 F.2d 530, 539 (5th Cir. 1982), cert.
denied, 466 U.S. 944 (1984); United
States v. Davis [81-1 USTC ¶9193 ],
636 F.2d 1028, 1043-44 (5th Cir. Unit A), cert. denied, 454 U.S. 862 (1981); United States v. Gurtner [73-1 USTC ¶9228 ],
474 F.2d 297, 298-99 (9th Cir. 1973); Canaday
v. United States [66-1 USTC ¶9192 ],
354 F.2d 849, 857 (8th Cir. 1966). But see Colton v. United States [62-2 USTC ¶9658 ],
306 F.2d 633, 637 (2d Cir. 1962), cert.
denied, 371 U.S. 951 (1963) ("There can, of course, be no
question that the giving of tax advice and the preparation of tax
returns . . . are basically matters sufficiently within the professional
competence of an attorney to make them prima facie subject to the
attorney-client privilege."). We agree with the majority rule.
Admittedly, the preparation of a tax return requires some knowledge of
the law, and the manner in which a tax return is prepared can be viewed
as an implicit interpretation of that law. Nevertheless, the preparation
of a tax return should not be viewed as legal advice. If a professional
accountant prepares a tax return, his client cannot invoke any
privilege, for there is no accountant-client privilege under federal
law. Couch v.
United States
[73-1
USTC ¶9159 ], 409 U.S. 322, 335 (1973). A taxpayer should
not be able to invoke a privilege simply because he hires an attorney to
prepare his tax returns.
Davis
, 636 F.2d at 1043. Thus, any information Schroeder transmitted
to Kliston for the purpose of preparing his tax returns, including the
sources of his income, is not privileged information.
However,
Schroeder does challenge the district court's order insofar as it
compels Kliston to testify as to any source of income disclosed by
Schroeder in the course of his providing legal advice to Schroeder. He
contends that those disclosures are protected by the attorney-client
privilege. 1 Obviously a
lawyer who prepares a tax return can provide legal advice to tax matters
unrelated to the preparation of that return. Such advice falls within
the scope of the attorney-client privilege. Also the lawyer might
provide legal advice on non-tax matters. Such advice falls within the
scope of the attorney-client privilege as well.
The
government argues that Schroeder failed to prove the existence of such a
relationship by failing to put on any evidence that he consulted with
Kliston for any purpose other than the preparation of his income tax
returns. The person invoking the privilege does bear the burden of
proving its existence. In re
Grand Jury Subpoena, 788 F.2d 1511, 1511-12 (11th Cir. 1986); In
re Grand Jury Proceedings in Matter of Freeman, 708 F.2d 1571,
1575 (11th Cir. 1983). However, during the hearing on Schroeder's and
Kliston's motions, the government conceded the existence of an
attorney-client relationship between Schroeder and Kliston. 2 Having
conceded that such a relationship existed, the government cannot argue
now that Schroeder failed to prove the existence of that relationship. Aetna Life Insurance Co. v. Carrillo, 164 F.2d 883, (5th Cir.
1947).
The
government also suggests that Schroeder waived any privilege that
attached to his disclosures. In support of its position, the government
argues that the disclosure of information in a tax return waives the
privilege not only to the disclosed data but also as to the details
underlying that information.
Davis
, 636 F.2d at 1043 n.
18; United States v.
Cote
[72-1
USTC ¶9268 ], 456 F.2d 142, 144-45 (8th Cir. 1972). See also
Lawless, 709 F.2d at 487
(no expectation of confidentiality in information transmitted for use on
tax return, regardless of whether information actually disclosed on
return). The rule to which the government refers, however, concerns only
disclosures made in connection with the preparation of tax returns.
Consequently, that rule is inapplicable to any disclosures Schroeder
made to Kliston in the course of obtaining legal advice unrelated to the
preparation of his tax returns.
Nevertheless,
any such disclosures may not be privileged because Schroeder possibly
used Kliston's legal advice to effectuate tax evasion. The
attorney-client privilege does not protect communications made in
furtherance of a crime or fraud. See, e.g.,
In re Sealed Case, 754 F.2d 395, 399 (D.C. Cir. 1985) (Sealed
Case II);
United States
v. Dyer, 722 F.2d 174, 177 (5th Cir. 1983); In
re Grand Jury Proceedings (Pavlick), 680 F.2d 1026, 1028 (5th
Cir. Unit A 1982) (en banc);
United States
v. Hodge and Zweig [77-1 USTC ¶9263 ],
548 F.2d 1347, 1354 (9th Cir. 1977). In deciding whether the crime-fraud
exception applies to a communication between a lawyer and his client,
courts apply a two part test. First, there must be a prima facie showing
that the client was engaged in criminal or fraudulent conduct when he
sought the advice of counsel, that he was planning such conduct when he
sought the advice of counsel, or that he committed a crime or fraud
subsequent to receiving the benefit of counsel's advice. Second, there
must be a showing that the attorney's assistance was obtained in
furtherance of the criminal or fraudulent activity or was closely
related to it. See, e.g., In re International Systems and Controls Corporation Securities
Litigation, 693 F.2d 1235, 1242 (5th Cir. 1982); In re Sealed Case [82-1 USTC ¶9335 ],
676 F.2d 793, 814-15 (D.C. Cir. 1982) (Sealed
Case I); In re Murphy,
560 F.2d 326, 338 (8th Cir. 1977).
The
first prong is satisfied by a showing of evidence that, if believed by a
trier of fact, would establish the elements of some violation that was
ongoing or about to be committed. 3 Sealed Case II, 754 F.2d at 399; In re International Systems, 693 F.2d at 1242; Sealed
Case I, 676 F.2d at 815; In
re Grand Jury Proceedings in Matter of Fine, 641 F.2d 199, 203
(5th Cir. Unit A 1981); In re Murphy, 560 F.2d at 337. That showing must have some
foundation in fact, for mere allegations of criminality are insufficient
to warrant application of the exception. Clark
v. United States, 289 U.S. 1, 15 (1933); In re International Systems, 693 F.2d at 1242; In
re Grand Jury Proceedings, Vargas, 723 F.2d 1461, 1467 (10th Cir.
1983), cert. denied, 469
U.S. 819 (1984). That is not to say, however, that motions in opposition
to grand jury subpoenas should turn into mini-trials. If courts always
had to hear testimony and conflicting evidence on such matters, the
rationale behind the prima facie standard--the promotion of speed and
simplicity at the grand jury stage--would be lost. Thus, a prima facie
showing can be established by a good faith statement by the prosecutor
as to what evidence is before the grand jury. In
re Grand Jury Proceedings Vargas, 723 F.2d at 1467. See also In
re Grand Jury Proceedings (Twist), 689 F.2d 1351, 1352-53 (11th
Cir. 1982) (denial of stay pending appeal of grand jury subpoena where
government's showing based on affidavit of information possessed by
grand jury). Furthermore, the district court's determination that the
facts set forth by the government establish a prima facie showing of
criminal or fraudulent conduct can be reversed only for an abuse of
discretion. See, e.g., In re
Grand Jury Subpoenas Duces Tecum, 773 F.2d 204, 206 (8th Cir.
1985); Sealed Case II, 754 F.2d at 399-400; Pritchard-Keang Nam Corp. v. Jaworski, 751 F.2d 277, 280 (8th
Cir. 1984), cert. dismissed,
472 U.S. 1022 (1985); United
States v. Horvath [84-1
USTC ¶9482 ], 731 F.2d 557, 562 (8th Cir. 1984); In re Grand Jury Proceedings Vargas, 723 F.2d at 1467; Sealed
Case I, 676 F.2d at 813; In
re Berkley & Co., 629 F.2d 548, 553 (8th Cir. 1980).
The
second prong is satisfied by a showing that the communication is related
to the criminal or fraudulent activity established under the first
prong. Courts have enunciated slightly different formulations for the
degree of relatedness necessary to meet that standard. See, e.g.,
In re International Systems, 693 F.2d at 1243 ("reasonably
relate"); In re Murphy,
560 F.2d at 338 ("close relationship"); In
re September 1975 Grand Jury Term, 532 F.2d 734, 738 (10th Cir.
1976) ("potential relationship"). Nonetheless, the different
formulations share a common purpose--identifying communications that
should not be privileged because they were used to further a crime or a
fraud. Furthermore, the determination whether the requested material is
sufficiently related to the investigation must take into account that
the government does not know precisely what the material will reveal or
how useful it will be. See Sealed
Case I, 676 F.2d at 814 n. 83.
Here
there is no doubt that the first prong of the test is satisfied. The
government submitted a summary of the evidence as well as an I.R.S.
Special Agent's summary of the testimony Schroeder provided in an
interrogation by that agent. Those submissions reveal that Schroeder
reported a moderate income from 1978 to 1984, that he possessed cash in
amounts grossly disproportionate to his reported income, and that he
purchased assets with values grossly exceeding his reported income. For
example, during one of the years under investigation, Schroeder
purchased a house with a value approximately ten times his reported
income for that year. He paid the entire purchase price of the house
with a cashier's check that he had purchased with cash. On the basis of
those facts, the district court did not abuse its discretion in finding
that the government had established a prima facie showing that Schroeder
willfully made false statements on his income tax returns by failing to
report all of his income. 4
Whether
Kliston's advice was related to Schroeder's failure to report income is
less certain because, although the government conceded that an
attorney-client relationship existed, the record does not specify the
matters on which Kliston provided Schroeder legal assistance. 5 However, the
requirement that legal advice must be related to the client's criminal
or fraudulent conduct should not be interpreted restrictively. Thus, any
legal assistance Schroeder received in generating income he did not
intend to report must be treated as related to his tax evasion. Likewise
any assistance Schroeder received in disposing of income he did not
report is related to his tax evasion. There is no suggestion that
Kliston provided any legal assistance outside of those categories. We
observe further that Kliston need not have been aware that he was
assisting Schroeder in evading taxes in order for the crime-fraud
exception to apply. See, e.g.,
In re Grand Jury Proceedings (Pavlick), 680 F.2d at 1028-29; In re Grand Jury Proceedings in Matter of Fine, 641 F.2d at 203.
Therefore, we hold that any legal assistance Kliston may have provided
Schroeder in generating income or in disposing of income was related to
Schroeder's failure to report income.
Schroeder
complains, however, that the disclosure of his sources of income may
reveal past criminal activity unrelated to his failure to report income.
That complaint misconceives the nature of the crime-fraud exception.
Communications made in connection with legal assistance related to
ongoing or intended criminal or fraudulent activity are not privileged
regardless of their content. Thus any of Schroeder's disclosures that
fall within the crime-fraud exception are not privileged even though
they might reveal past criminal conduct.
Schroeder's
other objections to the application of the crime-fraud exception are
equally unavailing. He argues that the government's prima facie case
rests on mere allegation and not on actual evidence. However, the
government did not present mere allegation. Instead, it presented a
summary of the evidence before the grand jury and the Special Agent's
summary of Schroeder's statements. As indicated, such submissions are an
accepted means for establishing a prima facie violation under the
crime-fraud exception. Therefore, the prima facie showing that Schroeder
was engaged in tax evasion was based on proper grounds.
Schroeder
argues also that the material requested--the source of his income--is
unrelated to the matter being investigated--his failure to report
income. He argues that only the amount of his income, not its source, is
relevant to showing the failure to report income. To the extent
Schroeder places this argument under the relatedness prong of the
crime-fraud exception, he is mistaken. That prong requires only that the
communication be related to the crime or fraud the client seeks to
perpetrate. It has nothing to do with the communication being related to
the matter being investigated. Nonetheless, in Alexander
v.
United States
, 138
U.S.
353, 357-60 (1891), the Supreme Court arguably held that the crime-fraud
exception overcomes the attorney-client privilege only for the
prosecution of the specific crime in furtherance of which the allegedly
privileged communication was made. At least two courts have
characterized that suggestion as dictum and explicitly have rejected it.
See In re
Berkley
, 629 F.2d at 554-55; In
re Sawyer's Petition, 229 F.2d 805, 808-09 (7th Cir.), cert.
denied sub nom. Sawyer v. Barczak, 351 U.S. 966 (1956).
Furthermore, Alexander
apparently has never been used to deny application of the crime-fraud
exception. See In re
Berkley
, 629 F.2d at 555 n. 12. However, even if Alexander
did state a valid rule, it would be inapplicable here. Schroeder is
being investigated for tax evasion. Thus any communications Schroeder
made in connection with legal advice Kliston may have provided that was
related to Schroeder's tax evasion would not remain privileged under Alexander.
Furthermore,
to the extent Schroeder suggests that a grand jury investigating the
willful failure to report income cannot inquire into the target's
sources of income, he is mistaken as well. The grand jury possesses
broad investigatory powers and, to best exercise those powers, the grand
jury should extensively investigate every possible lead.
United States
v. Echols, 542 F.2d 948, 951-52 (5th Cir. 1976), cert.
denied, 431 U.S. 904 (1977);
United States
v. Doe, 541 F.2d 490, 493 (5th Cir. 1976). The sources of one's
income are valuable clues in determining whether one's reported total
income is correct. At any rate, in this Circuit at least, the government
need not make a preliminary showing of relevance and need prior to the
enforcement of a grand jury subpoena. In
re Grand Jury Investigation, 769 F.2d 1485, 1487 (11th Cir.
1985); In re Grand Jury
Proceedings the Bank of Nova Scotia [84-2
USTC ¶9802 ], 740 F.2d 817, 825 (11th Cir. 1984), cert. denied sub nom. Nova Scotia v. United States, 469 U.S. 1106
(1985); In re Grand Jury
Proceedings in Matter of Freeman, 708 F.2d at 1575.
Finally,
Schroeder complains that the subpoena requests documents that were not
used to prepare his tax returns and supposedly that remain protected by
the attorney-client privilege because they do not contain disclosures as
to Schroeder's sources of income. However, the district court's order
permits Kliston to submit to the court for an in
camera review any documents he believes remain privileged.
Therefore,
to the extent the district court's order compels Kliston to testify as
to any source of income disclosed by Schroeder in the course of his
providing legal advice that was related to Schroeder's tax evasion, that
order is AFFIRMED. If Kliston believes that a particular disclosure
remains protected because it was made in connection with legal advice
unrelated to Schroeder's tax evasion, he can submit that disclosure to
the district court for an in camera review.
1
Schroeder does not argue on appeal that any of the disclosures are
protected by the attorney work product doctrine.
2
In presenting the government's case at that hearing, Mr. Moriarty,
Assistant U.S. Attorney, stated:
Mr.
Kliston wears dual hats as a CPA and as an attorney. Part of the
information we seek is tax preparation information. That is not
protected under the attorney client privilege. However, Mr. Kliston also
provided some tax advice that would be protected and it would invoke the
attorney client privilege.
Given
that the government failed to challenge the subsequent statement by
Schroeder's counsel that the government had conceded that such a
relationship existed, we view the above statement as a concession by the
government that such a relationship did exist. Furthermore, we note that
the government prepared the district court's order. That order assumes
the existence of an attorney-client relationship between Schroeder and
Kliston.
3
A few cases indicate that the crime or fraud must be sufficiently serous
to justify overriding the attorney-client privilege. See, e.g., Sealed Case I, 676 F.2d at 814 n. 84. Most cases, however,
do not mention such a requirement, and we have found no case in which
application of the crime-fraud exception was denied on that ground.
Without deciding whether such a requirement exists and what its contours
might be, we note that tax evasion undoubtedly qualifies as a crime
sufficiently serious to justify overriding the attorney-client
privilege.
4
The district court's cursory written order, prepared by the government,
did not explicitly mention the crime-fraud exception much less the two
part test that determines its applicability. However, as the transcript
of the hearing indicates, in ruling from the bench the court was relying
on the crime-fraud exception and the fact that the government had
established a prima facie showing of tax evasion.
5
At oral argument, however, Schroeder's attorney indicated that Kliston
assisted Schroeder in establishing several off-shore companies.
[66-1
USTC ¶9137]Lee W. Hunydee, Appellant v.
United States of America
, Appellee
(CA-9),
U. S. Court of Appeals, 9th Circuit, No. 19,904, 355 F2d 183, 12/20/65,
Reversing and remanding an unreported District Court decision
[1954 Code Sec. 7201]
Criminal conviction: Attorney-client privilege: Two defendants.--A
conviction for attempting to evade payment of income taxes was reversed
because the trial court had admitted testimony concerning a meeting
between the defendant and his attorney and another party who was later
named in the same indictment and her attorney. This meeting, though
between two defendants and their attorneys, was privileged.
Carl
A. Stutsman, Jr., Kyle D. Brown, Hill, Farrer & Burrill, 10th Floor,
Equitable Life Bldg., 411 W. 5th St., Los Angeles, Calif., for
appellant. Manuel L. Real, United States Attorney, John K. Van DeKamp,
J. Brin Schulman, Phillip W. Johnson, Assistant United States Attorneys,
Los Angeles, Calif., for appellee.
Before
BARNES, HAMLEY and ELY, Circuit Judges.
HAMLEY,
Circuit Judge:
Lee
W. Hunydee was tried and convicted on four counts of an indictment
charging attempts to evade payment of income taxes, in violation of
section 7201 of the Internal Revenue Code of 1954 (Code). Appealing to
this court Hunydee contends, among other things, that the admission of
certain testimony over his objection violated the attorney-client
communication privilege.
In
the same indictment in which appellant was charged, Audrey Jean Stewart
Hunydee was charged with the related offense of aiding in the
preparation and presentation of false income tax returns, in violation
of section 7206(2) of the Code. Because of a possible conflict of
interest, Mr. and Mrs. Hunydee employed separate counsel.
On
June 4, 1963, a pre-indictment meeting was held between the
co-defendants and their respective attorneys. This meeting was called by
Harry D. Steward, counsel for Mrs. Hunydee (then Mrs. Stewart). Steward
there stated that he had advised his client to cooperate with the
Government but that she was reluctant to do so for fear of hurting
Hunydee. Steward expressed his opinion that if his client would
cooperate with the Government, she would not be prosecuted; and if
Hunydee would plead guilty, Mrs. Hunydee undoubtedly would not be
prosecuted.
At
this point, Hunydee and his attorney, Carl A. Stutsman, Jr., conferred
privately for fifteen or twenty minutes. When the four persons
re-assembled, Stutsman stated that his client would enter a guilty plea.
Stutsman then turned to Hunydee and asked, "Is that correct? Are
you going to plead guilty and clear Jean?" Hunydee responded,
"Yes, I will plead guilty and take the blame." The meeting was
then brought to a close.
At
the trial, Steward and Mrs. Hunydee were permitted, over objection, to
testify to the facts related above. The objection made to the
admissibility of this testimony was that it revealed a confidential
communication between a client and his attorney. The objection was
resisted on the ground that, under the indicated circumstances, the
communication was not between a client and his attorney, and was not
confidential in character.
The
principles invoked by the prosecution are that this privilege is
inapplicable where the communication was not between attorney and client
(Himmelfarb v. United States, 9 Cir., [49-1 USTC ¶9313] 175 F. 2d
924, 939), or where the client impliedly authorizes his attorney to make
disclosure to a third person (Himmelfarb
v. United States, at 939), or where, by reason of any other
circumstance, the communication was not intended to be confidential. Leathers
v.
United States
, 9 Cir., [57-2 USTC ¶10,058] 250 F. 2d 159, 166.
At
the trial, and here, Hunydee relies on Continental
Oil Co. v. United States, 9 Cir., 330 F. 2d 347, to establish an
exception to the principles just stated, where actual or prospective
co-defendants in a criminal case, and their attorneys, confer on matters
of mutual interest concerning the case. The
United States
, however, argues that Continental
applies only where the conference is concerned with trial strategy or
defenses. As the district court found and concluded, the conference here
in question was not for these specific purposes, but rather to allow
Mrs. Hunydee's attorney to present Hunydee with the alternative of
either pleading guilty or having Mrs. Hunydee cooperate with the
Government.
In
Continental, employees
and executives of Standard Oil Company of
California
and Continental Oil Company were summoned to testify before a federal
Grand Jury. Before and after their appearances, these witnesses were
interviewed by their respective attorneys who prepared memoranda
concerning information received from the witnesses relative to their
Grand Jury appearances. These memoranda were subsequently exchanged by
counsel representing Continental Oil and its employees and counsel
representing Standard Oil and its employees. The exchange of memoranda
was made ". . . in confidence in order to apprise each other as to
the nature and scope of the inquiry proceeding before the Grand
Jury." This was done by the attorneys ". . . in order to make
their representation of their clients in connection with the Grand Jury
investigation and any resulting litigation, more effective." 330 F.
2d at 348-49.
Subpoenas
duces tecum were served by the Grand Jury to obtain the memoranda. On
appeal, this court ordered that the subpoenas be quashed holding that
the memoranda were confidential and within the attorney-client
communication privilege. This privilege was not waived by the exchange
of memoranda; nor was the privilege found to be any less applicable
prior to the filing of an indictment.
The
pooled information in the Continental
Oil Co. case thus did not deal with trial strategy or defenses.
It was general information which was needed to apprise the parties of
the nature and scope of the Grand Jury proceedings, in order to
facilitate representation in those proceedings and in any future
proceedings. The rule announced in that case is that where two or more
persons who are subject to possible indictment in connection with the
same transactions make confidential statements to their attorneys, these
statements, even though they are exchanged between attorneys, should be
privileged to the extent that they concern common issues and are
intended to facilitate representation in possible subsequent
proceedings.
Applying
this principle to the facts of our case, we hold that Hunydee's
admissions to case, we hold that Hunydee's admissions to his attorney
were within the attorney-client communication privilege. These
statements apprised the respective attorneys of Hunydee's position at
that time and influenced the course of their representation. The
admission of testimony concerning the statements made at the
pre-indictment conference of the co-defendants and their attorneys was
therefore error.
Our
disposition of this attorney-client privilege issue makes it unnecessary
to consider other questions raised by appellant on this appeal.
Reversed
and remanded for a new trial.
[68-2
USTC ¶9564]
United States of America
, Plaintiff-Appellee v. Dominick
E. Bartone
, Defendant-Appellant
(CA-6),
U. S. Court of Appeals, 6th Circuit, No. 18132, 400 F2d 459, 9/6/68,
Aff'g unreported District Court opinion
[1954 Code Sec. 7201]
Crimes: Willful evasion of tax: Evidence: Admissibility:
Attorney-client privilege: Summaries of financial dealings:
Miscellaneous assertions of error.--Evidence as to the taxpayer's
financial dealings with his wholly owned corporation and others
supported the government's charge that he wilfully evaded reporting
certain items of income. The taxpayer's contention that certain
testimony offered by three attorneys should not have been admitted as
being within the attorney-client privilege was rejected; the testimony
neither disclosed any confidence within the privilege nor concerned
legal advice given to the taxpayer or his corporation. Nor was the
taxpayer correct in arguing that the use of a summary by the government
in analyzing his financial dealings was improper; the summary was
carefully examined by the trial judge, out of the jury's hearing, and
the jury was repeatedly cautioned to accept the summary as significant
only if the underlying evidence was believed. Other assertions of error,
to wit: the taxpayer's alleged reliance on advice of counsel; a claimed
business deduction on an investment loss; and a claim that the
corporation was a foreign corporation not subject to tax, were dismissed
by the appeals court as without merit. Finally, the trial court's
instructions to the jury as to willful intent, while not technically
accurate, were sufficient to properly present the issue. Accordingly,
the taxpayer's conviction for willful evasion was affirmed.
Fred
M. Vinson, Jr., Assistant Attorney General, William Lynch, Philip R.
Michael,
Rob
ert D. Gray, Department of Justice, Washington, D. C. 20530, for
plaintiff-appellee. Arlene B. Steuer, Cozza and Steuer, 345 Leader
Bldg.,
Cleveland
,
Ohio
, for defendant-appellant.
Before
PHILLIPS, CELEBREZZE, and COMBS, Circuit Judges.
COMBS,
Circuit Judge:
Appellant
Dominick E. Bartone, was found guilty by a jury on two counts of willful
evasion of federal income taxes in violation of 26 U. S. C. §7201. It
was charged in Count I that he should have reported $202,693.25 taxable
income in 1959, but reported only $7,167. It was charged in Count II
that he should have reported $19,190.63 in 1961, but reported $10,400.
He was sentenced to three years on Count I and to eighteen months on
Count II, the sentences to run concurrently. Several grounds of error
are assigned.
The
facts relating to Bartone's 1959 income are not susceptible to easy
summarization. The evidence reveals a complicated web of financial
dealings between Bartone, representatives of the
Dominican Republic
, and other individuals who were partners with or agents of Bartone in
various enterprises. The general pattern of the evidence reveals that
Bartone was engaged in selling munitions and airplane parts to the
Dominican Republic
. Involved in these transactions was a Panamanian corporation, Servicios
Internacionales, S. A. There is considerable evidence that Servicios was
a corporate shell, engaged in no business and wholly owned by Bartone.
Much of the money Bartone received and expended in 1959 went into or
came out of bank accounts in the name of Servicios.
We
will not attempt a chronological recital of receipts and disbursements.
Two specific instances will serve as examples. On July 23, 1959, Barton
purchased, with cash, a $150,000 cashier's check in
Miami
. In late August, this check was used to open a checking account in
Servicios' name in the Royal Bank of
Canada
. In July, 1959, Bartone, through agents, purchased arms in
North Carolina
for $12,000. The individual who obtained these arms for him testified
that Bartone said they were worth $307,000. On July 24, 1959, Bartone
accompanied a member of the Dominican consulate in
Miami
, Emanuel Perez Sosa, to a Miami bank. There, $300,000 was obtained on a
check to Sosa from the Dominican Consul in
Miami
. The money was counted and apparently turned over to Bartone. The
evidence supports the conclusion that Bartone received from these and
other transactions in 1959 income in at least the amount charged in
Count I of the indictment.
The
principal item of 1961 income was $25,000 Bartone borrowed from
Rob
ert Meissner. The money was loaned to him for use as a deposit on a bid
for the purchase of a bankrupt Canadian corporation. Niagra Crushed
Stone. Meissner was told that the money was to be used only in making
the bid and that it would be returned to him after it had served that
purpose. However, after the bid was unsuccessful and the money returned
to Bartone, he used it for his own purposes without Meissner's
knowledge. There was evidence of other financial deals in 1961 from
which Bartone received income in the amount claimed by the Government.
No evidence was offered by appellant.
Much
of the Government's evidence as to Bartone's financial deals and his
connection with Internacionales Servicios is based on the testimony of
three attorneys. This testimony was admitted over the strenuous
objections of appellant who contends it falls within the attorney-client
privilege since the attorneys represented him and the corporations
involved.
It
is true, as appellant contends, that the attorney-client privilege
extends to corporations. Radiant
Burners Inc. v. American Gas Association, 320 F. 2d 314 (7th Cir.
1963). But, the privilege is not all inclusive. Here, the testimony of
the attorneys was limited almost entirely to tracing the transfer of
funds to and from Bartone and various corporations. One of the
attorneys, who was also Secretary-Treasurer and a Director of Servicios,
testified as to the nature and organization of that corporation. There
is no indication that any of this testimony concerned legal advice given
to Bartone or to the corporations, nor was any confidence disclosed
which came to the witnesses through an attorney-client relationship.
The
mere fact that a person is an attorney does not render as privileged
everything he does for and with a client. Ministerial or clerical
services such as those testified to here are not within the privilege. McFee
v.
United States
[53-2 USTC ¶9549], 206 F. 2d 872 (9th Cir. 1953); Pollock v.
United States
[53-1 USTC ¶9229], 202 F. 2d 281 (5th Cir. 1953). We find no
error in regard to admission of the attorney's testimony.
By
the use of charts and general explanation, a Government agent was
permitted to summarize Bartone's financial dealings in 1959 and 1961.
Appellant contends that admission of the summary was error since it
included as income to Bartone money which had gone to Servicios and
other corporations, as well as the Meissner loan.
The
use of summaries is not without danger, as the Supreme Court said in Holland
v. United States [54-2 USTC ¶9714], 348 U. S. 121, 128 (1954):
"[B]are figures have a way of acquiring an existence of their own,
independent of the evidence which gave rise to them." Thus, it is
necessary that the trial judge carefully examine this type of evidence
and supporting exhibits, out of hearing of the jury, in order to
determine that everything contained in the summary is supported by the
proof. Moreover, the jury should be carefully admonished that a summary
is not evidence and has no significance if the underlying evidence is
not believed.
The
trial court in this case scrupulously examined the proposed summary and
charts prior to admission, and thereafter painstakingly and repeatedly
cautioned the jury as to their purpose. Thus, there was no error in
admission of this testimony and the exhibits. Barber
v.
United States
[59-2 USTC ¶9784], 271 F. 2d 265 (6th Cir. 1959); Epstein
v.
United States
[57-2 USTC ¶9797], 246 F. 2d 563 (6th Cir. 1957), cert. denied,
355
U. S.
868 (1957).
Other
assignments of error relate to the District Court's failure to give
instructions on certain factors bearing on the appellant's intent to
evade taxes. These concern his alleged belief that he had the right to
rely on advice of counsel; that he was entitled to a business deduction
for a lost investment; and that as a foreign corporation Servicios, was
not subject to tax. We have considered these contentions and find them
to be without merit.
Complaint
is also made of the court's definition of willful intent. While the
instructions could have been more technically accurate on this point, we
are of the opinion that when considered as a whole they properly
presented this issue to the jury. We note, too, that there was no
objection to the court's instructions.
Other
contentions are similarly without merit.
Judgment
affirmed.
[53-1
USTC ¶9229]Louis Pollock, Appellant v.
United States of America
, Appellee
(CA-5),
In the United States Court of Appeals for the Fifth Circuit, No. 14126,
202 F2d 281, February 27, 1953
Appeal from the United States District Court for the Northern District
of Alabama.
Accounting periods and methods: Change in accounting period.--Net
income of taxpayer was properly computed by the Commissioner on the
calendar-year basis where taxpayer had changed accounting period from a
calendar year to a fiscal year without the approval of the Commissioner.
Hence, there was no inaccuracy in an indictment under Code Sec. 145(b)
for willfully attempting to evade and defeat income taxes by filing
false and fraudulent returns for the calendar years (1944 and 1945).
Evidence: Jury trial.--A determination of taxpayer's taxable
income by the net worth and gross expenditures method was entitled to
consideration by the jury since it was established by competent evidence
that such determination reflected only actual receipt of taxable income
during the taxable period. The testimony of a lawyer who had acted as
taxpayer's attorney during the period in question and documentary
evidence supporting it relative to taxpayer's net worth was not
privileged and inadmissible. There was included no confidential
communication, but simply evidence of the acts of depositing money.
Furthermore, where the party is being tried for a crime in furtherance
of which a communication to the attorney was made and evidence has been
introduced giving color to the charge, the communication is no longer
privileged. There was no reversible error in the record.
Llewellyn
A. Luce, Walter H. Maloney, Washington, D. C., for appellant. John D.
Hill,
United States
Attorney, L. Drew Redden, Assistant
United States
Attorney,
Birmingham
,
Alabama
.
Before
HUTCHESON, Chief Judge, and STRUM and RIVES, Circuit Judges.
RIVES,
Circuit Judge:
The
appellant was indicted and convicted for violating 26 U. S. C. A.
145(b), willfully attempting to evade or defeat income taxes due by him
and his wife for the calendar years 1944 and 1945 by filing false and
fraudulent income tax returns. He was sentenced to pay a fine of
$1,000.00 and to eighteen months imprisonment. We note the district
judge's statement that in imposing that sentence he took into
consideration the fact that the appellant would be eligible for
consideration for parole after serving one-third of the time.
Appellant
contends that Count 1 of the indictment relating to the calendar year
1944 was barred by the statute of limitations of six years, 26 U. S. C.
A. 3748(a)(3). That sub-section provides in part, "Where a
complaint is instituted before a commissioner of the
United States
within the period above limited, the time shall be extended until the
discharge of the grand jury at its next session within the
district." The indictment was returned more than six years after
the income tax return for the year 1944 was filed with the collector.
However, within the six year period, a complaint had been instituted
before a United States Commissioner, a warrant issued thereon and the
appellant arrested. The indictment was returned before the discharge of
the grand jury at its next session within that district. It appears to
us, therefore, that Court 1 was not barred by the statute of
limitations.
If
Count 1 were so barred a reversal would not be required, because the
sentence was within the maximum punishment permitted under either count,
and the verdict under Count 2 would support the sentence imposed by the
Court. 1
Previous
to 1944, appellant and his wife had made their income tax returns on a
calendar year basis. In August of 1943, the appellant purchased the
Dothan Jewelry Company, and thereafter operated that company throughout
the years 1944 and 1945. He did not include any of the income from that
company in his 1943 tax return. Notwithstanding that company was owned
solely by the appellant, he mistakenly informed his accountants that it
was a partnership in which he owned a two-thirds interest and his son,
R. E. Pollock, a one-third interest. The government at no time has
sought to impute any fraudulent purpose to that mistake, but has treated
it as having been made in good faith. Acting upon the erroneous
assumption of a partnership, the books of the Dothan Jewelry Company
were kept upon a fiscal year basis for fiscal years ending July 31, 1944
and July 31, 1945. The income tax returns of appellant and his wife
purported to be for the calendar years 1944 and 1945 and were filed on
March 15th of the succeeding year, but exhibits attached to the returns
showed that, as to the Dothan Jewelry Company, the net profit was
calculated for a fiscal year ending July 31st. The resulting confusion
and uncertainty has given rise to several of the appellant's
contentions.
[Validity
of Indictment Questioned]
Appellant
contends that the indictment covering the calendar years 1944 and 1945
is completely invalid as a matter of law because Section 41 of the
Internal Revenue Code, 26 U. S. C. A. 41, requires his net income to be
computed upon the basis of his annual accounting period (fiscal year or
calendar year, as the case may be) in accordance with the method
regularly employed in keeping his books, citing several decisions in
civil tax cases. 2 The
contention is clearly without merit. As a pleading, each count of the
indictment is "a plain, concise and definite written statement of
the essential facts constituting the offense charged". Rule 7(c),
Federal Rules of Criminal Procedure; 26
U. S.
C. A. 145(b).
There
was no variance between the allegations and the proof. The returns were
on calendar year forms and purported to be for the calendar year. The
taxpayer did not have the approval of the Commissioner to change his
accounting period from calendar year to fiscal year, 26 U. S. C. A. 46.
Apparently all items of income, except from the Dothan Jewelry Company,
were calculated for the calendar year.
The
special agent, after examining the taxpayer's books and accounts, the
several pertinent bank accounts, and after taking sworn statements from
the appellant and his wife, undertook to recompute the net income
strictly for the calendar years 1944 and 1945, not including any income
for the preceding year but including all of the income for the calendar
year. He testified that, on a strictly calendar year basis, he found an
aggregate net income for 1944 of $20,518.55, not much more than that
shown by the return, $19,503.49, but that for 1945, on a strictly
calendar year basis, the total corrected net income was $48,709.91 as
against $15,871.83 shown by the return. The confusion and uncertainty
occasioned by appellant's own mistake in keeping the books of the Dothan
Jewelry Company on a fiscal year basis, while his and his wife's return
was made on a calendar year basis, was sufficiently explained and
clarified by the evidence so that the jury could arrive at the true
facts.
Several
of the written charges requested by the appellant and refused by the
court were rooted in the same error and sought to have the jury
instructed to acquit the appellant if the jury found that the
United States
had included in his taxable income for the calendar year monies paid
during the preceding year. The
United States
had made various computations, some following the mixed calendar
year-fiscal year system originated by the taxpayer. Those computations
and that confusion were no cause for requiring the jury to acquit the
appellant if they believed from the evidence beyond a reasonable doubt
that he was guilty as charged. We find no reversible error in the
refusal of any of the requested charges, and, other than those
requested, there was no objection to the court's oral charge.
[Basis
for Use of Net Worth Method of Income Determination]
The
books and records of the Dothan Jewelry Company for the period involved
accounted for monies deposited in the business bank account, but did not
reveal that any income of the business was diverted into any of the
personal bank accounts of the appellant or his wife. That fact was
discovered by the special agent and, upon examination before the trial,
was admitted by the appellant. According to the testimony of two
bookkeepers, who had been employed by the appellant during the period in
question, the source of information used to compute sales receipts was a
cash register tape. Any sales omitted from the cash register were not
reflected on the books and records of the Dothan Jewelry Company. Four
witnesses who were sales people employed by the appellant during this
period testified that their instructions were that the proceeds of large
sales were not to be run through the cash register, but were to be given
to appellant or his wife. A number of customers who had made large
purchases produced their receipts or cancelled checks, and the special
agent testified that these were not reflected on the Company's books. If
this kind of evidence stood alone, however, it would not be sufficient
for conviction, because the appellant and his wife did instruct their
accountants to add to the amount of sales as shown by the books for the
year 1944, $2,500.00, and for the year 1945, $4,000.00. These figures
were not supported by any record and apparently were added either
arbitrarily or from memory. The amounts did, however, exceed the sums
testified to by large customers who were produced as witnesses, and the
employee witnesses were not able to give any definite figures.
The
government was finally forced to the net worth and gross expenditures
method in its attempt to prove the appellant guilty of an attempt to
defeat or evade his income tax. Using that method to supplement the
books and accounts the special agent could be certain of only about
$1,000.00 by which the net income for 1944 was under-reported, while the
appellant's accountant, introduced as a government witness, testified
that by computing income on the net worth basis. for the calendar year
1944, the appellant actually over-reported his net income by the sum of
$8,565.01.
For
the year 1945, the results are more decisive. Both the special agent and
appellant's accountant by the net worth method calculated substantially
more net income than the amount shown on the return, $15,871.83. The
special agent computed a total corrected net income of $48,709.91 for
the calendar year 1945, while the final figure of appellant's accountant
as a government witness was $57,042.14.
The
appellant did not testify in his own behalf, and, introducing some
documentary exhibits, rested his case at the close of the government's
evidence. The court properly instructed the jury that the appellant's
failure to testify in his own behalf created no presumption against him.
18
U. S.
C. A. 3481.
[Challenge
of Sufficiency of Evidence]
The
appellant relies upon the cases of
Bryan
v.
United States
, 175 Fed. (2d) 223 [49-1 USTC ¶9322], and United
States v. Fenwick, 177 Fed. (2d) 488 [49-2 USTC ¶9448], in
insisting that the evidence was insufficient to make out a prima facie case against him, and that the case should not have
been submitted to the jury. Appellant's strongest attack regarding the
sufficiency of the evidence is directed at the year 1944. There was a
general verdict of guilty. The sentence being within the maximum limit
of punishment that could have been imposed under either count, the
judgment and conviction would be due to be affirmed if there is no other
error and if the evidence is sufficient to support a conviction on
either count of the indictment. 3
Evidence
under the net worth-expenditures method of establishing net income,
being circumstantial, must exclude in the minds of the jury every
reasonable hypothesis other than the guilt of the defendant. In
Bryan
v.
United States
, supra, there were no admissions by the defendant and the court
found that the computation of net worth at the beginning of the
questioned period could not reasonably be accepted as accurate. In the
present case, the government agents made a rather thorough, independent
investigation; and then, by repeated examination of the taxpayer under
oath, and also of his wife, after due warning of their constitutional
rights, traced their financial history back for many years, established
their net worth at the beginning of the questioned period and excluded
every source of increase of net worth other than taxable income. This
written testimony was all offered in evidence either by the government
or by the defendant, or by both. It sufficed, we think, to furnish to
the jury evidence, which, if believed, would exclude every possibility
that the net worth-expenditure evidence reflected anything other than
actual receipt of taxable income during the questioned period. Brodella v.
United States
, 184 Fed. (2d) 823 [50-2 USTC ¶9477];
Bell
v.
United States
, 185 Fed. (2d) 302 [50-2 USTC ¶9499]; Gariepy
v.
United States
, 189 Fed. (2d) 459 [51-1 USTC ¶9318]; United
States v. Yeoman-Henderson, Inc., 193 Fed. (2d) 867 [52-1 USTC ¶9155].
4
[Admissibility
of Net Worth Testimony by Taxpayer's Attorney]
A
considerable part of the increase in net worth was disclosed by the
testimony of Milton Weiss, a lawyer who had acted as the appellant's
attorney during the period in question. Over the appellant's objection
testimony was drawn from him that appellant's wife had deposited with
him $19,925.08 in 1945, and that appellant had deposited with him in
1945 an additional $41,500.00. All of this $41,500.00 was in currency
except two nine-hundred dollar checks. Most of this money was used by
Mr. Weiss to apply on the purchase price of real estate bought for the
appellant and his wife. $10,000.00 was returned to the appellant
sometime after the year 1945. Copies of receipts, deposit slips and
records in the attorney's possession substantiating these large deposits
were introduced in evidence also over the appellant's objection. The
appellant insists that this evidence was privileged and inadmissible
because Mr. Weiss was his attorney.
Congress
has not given the states the power of prescribing the rules of evidence
in trials for offenses against the
United States
. In criminal cases in the federal courts, the admissibility of evidence
and the competency and the privileges of witnesses are governed, except
when an act of Congress or the Federal Rules of Criminal Procedure
otherwise provide, by the principles of the common law as interpreted by
the courts of the United States in the light of reason and experience.
Rule 26, Federal Rules of Criminal Procedure; On
Lee v. United States, 343 U. S. 747, 754, 755; McNabb
v. United States, 318 U. S. 332, 341; Olmstead
v. United States, 277 U. S. 438, 468, 469.
Mr.
Weiss' testimony and the documentary evidence substantiating it was
clearly admissible for several reasons. The privilege accorded to
communications between attorney and client does not apply except where
the attorney acts in his professional capacity. Where the attorney is a
mere scrivener or the transaction involves a simple transfer of title to
real estate and there is no consultation for legal advice, it has been
held that communications to an attorney are not privileged.
United States
v. De Vasto, 52 Fed.
(2d) 26; 58 Am. Jur., Witnesses, Sec. 481; Chapman
v. Peebles, 84
Ala.
283, 4 So. 273, 274. The testimony required of Mr. Weiss included no
confidential communication, but simply the acts of depositing money.
There is no magic in a law license that would prevent a lawyer from
being required to testify to acts of this kind, just as the same type of
testimony might be required of a banker or of a real estate broker. More
important, where the party is being tried for a crime in furtherance of
which the communication to the attorney was made and evidence has been
introduced giving color to the charge, it is well settled that the
communication is no longer privileged. Clark
v. United States, 289 U. S. 1, 15; Alexander
v. United States, 138 U. S. 353, 360; Kaufman
v. United States, 212 Fed. 613, 618;
United States
v. De Vasto, supra; 58
Am. Jur., Witnesses, Sec. 516.
We
find no reversible error in the record and the judgment is therefore
affirmed.
1
United States
v.
Trenton
Potteries, 273
U. S.
392, 402; Whitley v.
United States
, 100 Fed. (2d) 504; Norwitt
v.
United States
, 195 Fed. (2d) 127, 135 [52-1 USTC ¶9252].
2
W. E. Easterwood, Jr. v.
Commissioner, 28 B. T. A. 1284, acquiesced in Cumulative Bulletin
1939-2, page 11 [CCH Dec. 8220]; Duriron
Company v. Commissioner, 18 B. T. A. 554 [CCH Dec. 5709]; Brooklyn City Railroad Company v. Commissioner, 27 B. T. A. 77 [4
USTC ¶1326]; Great West
Printing Company v. Commissioner, 22 B. T. A. 346 [CCH Dec.
6722], affirmed 60 Fed. (2d) 749 [1932 CCH ¶9424]; Charles
E. Hires Co. v. Commissioner, 26 B. T. A. 1351 [CCH Dec. 7783].
3
See cases cited in footnote (1), supra.
4
The district judge fully and ably instructed the jury as follows:
"Under
the authority of this statute (Sec. 41 of the Internal Revenue Code, 26
U. S.
C. A. 41), where the taxpayer's records are found to be inaccurate or
not available, there are various methods to be used. Among them are,
one, an analysis of the taxpayer's bank deposits; two, proof of
expenditures; and three, proof of increase in net worth. A combination
of these three has been employed by the Government in this case.
"In
using this method, it is incumbent upon the Government to satisfy the
jury beyond a reasonable doubt that expenditures made by the taxpayer
for the year in question were from taxable, earned income for that year,
and not from a surplus which the taxpayer had built up in previous
years. This, of course, applies to the increased net worth method.
"It
is incumbent, upon the Government to satisfy the jury beyond a
reasonable doubt that the increased net worth for the year in question
was built up out of earned, taxable income for that particular year, and
did not come from gifts or nontaxable income, nor long-term nontaxable
gains.
"The
Government must also establish beyond a reasonable doubt that the
increased net worth for the years in question did not come out of
amounts earned in prior nonprosecution years.
"In
a net worth case, attention is focused to the differences between the
taxpayer's assets and liabilities as of the beginning and as of the end
of a given prosecution year. The increase, if any, in net worth is
presumed to be net income if certain conditions obtain. They are, one,
that there is evidence of a possible source or sources of income to
account for the expenditures or the increased net worth; and, two, that
there is a fixed starting point at which the taxpayer's financial
condition can be affirmatively established.
"A
starting point net worth must be satisfactorily established in order to
foreclose the hypothesis that the expenditures or net worth increases
were derived from prior accumulated funds, which of course could not
represent income in the subsequent prosecution years.
"As
I have stated, this case is not based upon direct evidence, but indirect
or circumstantial evidence, or part direct and part circumstantial.
"I
charge you, gentlemen of the jury, that to warrant a conviction upon
circumstantial evidence alone, the facts must not only be consistent
with the guilt of the Defendant, but they must also be inconsistent with
any reasonable theory of his innocence."
The
appellant made no objection to this part of the court's charge and
requested no further written instructions on the subject. See Rule 30,
Federal Rules of Criminal Procedure.