Bank Records and Net Worth Increases
1 Page1
7203: Willful
Failure to File Return, Supply Information, or Pay Tax: Evidence: Bank
Records and Net Worth Increases
Part 1
[2005-1 USTC ¶50,166]
United States of America
, Plaintiff-Appellee v. Wade Vincent Shang, Defendant-Appellant.
U.S.
Court of Appeals, 9th Circuit; 04-10063, November 22, 2004.
Unpublished opinion affirming in part, reversing in part and remanding
an unreported DC-Calif. decision.
[ Code
Sec. 7203]
Willful failure to file return or pay tax: Evidence: Net worth
method. --
In
a criminal tax evasion case, the government proved a reasonably certain
opening net worth and a sufficiently thorough investigation for two tax
years. However, for a subsequent tax year, the government's efforts
resulted in a net worth calculation that was in error by at least 40
percent and, thus, lacked the required thoroughness and particularity.
The government admitted that its net-worth calculation for that
subsequent tax year was in error by a substantial amount. It failed to
discover a credit line and missed seven checks that did not clear before
the end of the tax year but should have been counted to adjust the
year-end bank balance.
Before: Canby, Rymer and Hawkins, Circuit Judges.
¬ Caution: The
court has designated this opinion as NOT FOR PUBLICATION. Consult the
Rules of the Court before citing this case.®
MEMORANDUM
*
In this tax evasion case, the government chose to employ the net worth
method, a circumstantial method of proof requiring "the exercise of
great care and restraint," Holland v. United States [ 54-2
USTC ¶9714], 348 U.S. 121, 129 (1954), and as to which the
government "assumes a special responsibility of thoroughness and
particularity" in its investigation. United States v. Hall [
81-1
USTC ¶9209], 650 F.2d 994, 999 (9th Cir. 1981).
Because the government proved a reasonably certain opening net worth and
a sufficiently thorough investigation for tax years 1996 and 1998, we
affirm the denial of Shang's motion for acquittal as to these two
counts.
However, we reverse the conviction on the 1999 count because the
government's efforts resulted in a net worth calculation lacking the
required "thoroughness and particularity." Hall [ 81-1
USTC ¶9209], 650 F.2d at 999. The government admitted that
its net-worth calculation for tax year 1999 was off by some $47,000 in
two respects: (1) making a "substantial understatement" of
Shang's 1999 tax liabilities by failing to discover a $34,000 credit
line; and (2) missing seven checks totaling approximately $13,000 that
did not clear before the end of 1999, even though they should have been
counted to adjust the year-end bank balance. Compare United States v.
Keller [ 75-2
USTC ¶9729], 523 F.2d 1009, 1012 (9th Cir. 1975), where we
affirmed a conviction with a 10% computational error. Here, the
computational error is 75% or 40%, depending on whether Shang's client
trust accounts are included. While the government need not prove its
calculation to a "mathematical certainty," these errors stray
far from that level of accuracy into the realm of downright inaccuracy.
AFFIRMED IN PART, REVERSED IN PART, AND REMANDED FOR RESENTENCING.
[Concurring
and Dissenting Opinion]
RYMER, Circuit Judge: concurring in part and dissenting in part: I agree
that Shang's motion for acquittal was properly denied for tax years 1996
and 1998, but disagree that the government's efforts resulted in a net
worth calculation lacking the required "thoroughness and
particularity" for 1999 under United States v. Hall [ 81-1
USTC ¶9209], 650 F.2d 994, 999 (9th Cir. 1981) (per curiam).
Shang offered no leads and no reasonable explanation that the government
failed to pursue which would establish his innocence. See Holland v.
United States [ 54-2
USTC ¶9714], 348 U.S. 121, 135-36 (observing that evidence
may be insufficient to go to the jury when "the Government does not
track down relevant leads furnished by the taxpayer --leads reasonably
susceptible of being checked, which, if true, would establish the
taxpayer's innocence."); United States v. Greene [ 83-1
USTC ¶9175], 698 F.2d 1364, 1371 (9th Cir. 1983) (same).
United States v. Keller [ 75-2
USTC ¶9729], 523 F.3d [F.2d] 1009 (9th Cir. 1975), is
inapposite because there (as in Hall), the taxpayer did offer
leads that the government did fail to pursue. Certainly here, the
$34,000 line of credit problem cannot be laid at the government's
doorstep; the government "failed to discover" the increase
because Shang's mortgage company failed to provide complete records in
response to a subpoena. Even if the government should not have
"missed" the seven checks that didn't clear before year end,
that error neither undermines the thoroughness of its overall
investigation nor casts any doubt on Shang's innocence. In total the
checks amounted to only $13,052, well within the margin of error
approved in Keller [ 75-2
USTC ¶9729], 523 F.2d at 1012 (affirming conviction with ten
percent computational error). In any event, at the end of the day there
was still a substantial under-reporting of income, by anywhere from
$20,000 (construing possible errors entirely in Shang's favor) to
$47,000 (construing errors in the light most favorable to the
government). As Hall itself states, when "it is shown
arithmetically that even under the [taxpayers'] version there would be a
substantial amount of unreported income, the error would be
inconsequential and the Government relieved of the need to pursue the
matter." [ 81-1
USTC ¶9209], 650 F.2d at 1000. I would, therefore, affirm
across the board.
* This
disposition is not appropriate for publication and may not be cited to
or by the courts of this circuit except as provided by Ninth Circuit
Rule 36-3.
[2000-1
USTC ¶50,256]
United States of America
, Plaintiff-Appellee v. William L. Mounkes and Correen Kay Mounkes,
Defendants-Appellants
(CA-10),
U.S.
Court of Appeals, 10th Circuit, 99-3096, 99-3098, 2/22/2000, 204 F3d
1024. Affirming an unreported District Court decision
[Code
Sec. 7203 ]
Crimes: Tax evasion: Failure to report income: Reconstruction of
income: Bank deposits and expenditures method: Pre-reconstruction income
cash-on-hand.--Married owners of an educational materials
corporation were properly convicted of willfully attempting to evade
personal and corporate income taxes after the IRS used the bank deposits
and cash expenditures to reconstruct their unreported income. Evidence
establishing the amount of their pre-reconstruction cash on hand was
sufficient to support the verdict; the figures were provided in a
written statement by the taxpayers and corroborated by corporate balance
sheets and tax returns.
[Code
Sec. 7203 ]
Crimes: Tax evasion: U.S. Sentencing Commission Guidelines: Enhanced
sentence: Obstruction of justice: Perjury: Testimony: Materiality:
Willfulness: Constitutional safeguards: Right to testify.--A
corporate owner convicted of tax evasion properly received an enhanced
sentence under the 1992 U.S. Sentencing Commission Guidelines for
obstruction of justice predicated on his perjury at trial. The trial
court expressly concluded that his testimony was false, material, and
intended to affect the outcome of the trial. His contention that the
trial court failed to evaluate his testimony in a light most favorable
to him was meritless. Moreover, his constitutional right to testify on
his own behalf did not include the right to commit perjury; thus,
enhancement of his sentence for perjury did not impinge on
constitutional safeguards.
[Code
Sec. 7203 ]
Crimes: Tax evasion: U.S. Sentencing Commission Guidelines: Enhanced
sentence: Downward departure: Jurisdiction, lacking: Court of Appeals.--Jurisdiction
was lacking over the trial court's decision not to grant a downward
departure of a corporate owner's sentence for tax evasion on the basis
of circumstances not contemplated by the 1992 U.S. Sentencing Commission
Guidelines. While the trial court took the taxpayer's circumstances into
consideration for sentencing purposes, it did not indicate that it
lacked authority to depart from the sentencing guideline range.
Thomas
D. Haney, Fairchild, Haney & Buck, P.A.,
Topeka
,
Kansas
, for Defendants-Appellants. Meghan S. Skelton (Alan Hechtkopf, with her
on the brief), Department of Justice,
Washington
,
D.C.
20530
, for Plaintiff-Appellee.
Before:
TACHA, MCWILLIAMS and KELLY, Circuit Judges.
TACHA,
Circuit Judge:
Defendants
William L. and Correen Kay Mounkes appeal from the district court's
order denying their motions for judgment of acquittal and for a new
trial. Defendants also appeal the district court's two point enhancement
of Mr. Mounkes's sentence and the district court's failure to rule upon
their motion for a one point reduction of Mrs. Mounkes's sentence. We
exercise jurisdiction pursuant to 28 U.S.C. §1291 and 18 U.S.C. §3742,
and affirm.
I.
Mr.
and Mrs. Mounkes owned and operated Bill Mounkes, Inc. (BMI). BMI
purchased used educational materials from professors and colleges and at
government auctions, then sold the materials to distributors. One
distributor, Amtext, sometimes sent defendants multiple checks to pay
for a single shipment. Mr. Mounkes testified that somebody at Amtext
advised him to request payment by multiple checks for sums over $10,000
in order to avoid IRS paperwork. Amtext's financial officer, Paula
Blanche, testified that Amtext would break up payments only upon a
payee's request. Ms. Blanche did not recall having spoken personally to
Mr. Mounkes about multiple check payments.
On
at least one occasion, Mr. Mounkes cashed multiple payment checks for a
single shipment of BMI materials at different bank branches on the same
day. On at least one other occasion, Mr. Mounkes cashed multiple checks
at the same bank branch on different days. Mr. Mounkes testified that he
knew about the IRS's $10,000 transaction reporting requirement but did
not comply because he was concerned that filling out the reports would
lengthen his already lengthy workdays.
Mr.
and Mrs. Mounkes maintained both business and personal bank accounts.
Stanley Buss, the Mounkeses' accountant, testified that he instructed
the Mounkeses to keep their business and personal accounts separate. Mr.
Mounkes testified that he did not recall being so advised.
The
IRS audited the Mounkeses' personal income tax returns for 1989 and
their personal and corporate income tax returns for 1991 and 1992. In
the 1989 audit, IRS Agent
Rob
ert Tice found that the Mounkeses had deducted $10,000 in corporate
expenses on their personal return. Tice testified that he explained to
Mr. Mounkes that personal and corporate expenses must be kept separate
and that the Mounkeses could properly receive payments from the
corporation only in the form of wages or dividends. Mr. Mounkes
testified that he had never heard of a dividend until trial.
In
the 1991 and 1992 audits, IRS Agent Maria Espinoza employed the
"bank deposits" method of determining unreported income. This
method required that she compare the Mounkeses' bank deposits and
nondeductible personal expenditures to the income reported on their tax
returns for each audited year. Espinoza therefore had to establish a
"cash on hand balance" for the beginning of each of those
years. In BMI's 1991 corporate tax return, Mr. Mounkes reported that
BMI's cash on hand was $1000 at the beginning and $296 at the end of the
year. Mr. Mounkes also gave Espinoza a handwritten statement of personal
cash on hand repeating what he had reported for BMI. He further
testified that he did not keep any additional cash at home or in his
desk.
Espinoza
ultimately found that the Mounkeses' bank deposits and personal
expenditures significantly exceeded the amount of income they reported
on their personal returns for 1991 and 1992. She testified that Mr.
Mounkes blamed the discrepancies on Buss. Mr. Mounkes testified that he
had told Buss that certain land and jewelry he purchased were corporate
assets. Evidence at trial indicated otherwise, and Buss testified that
he believed the assets to be personal on the basis of information that
Mr. Mounkes had provided him.
A
grand jury indicted the Mounkeses on four counts of attempting to evade
personal and corporate income taxes in violation of 26 U.S.C. §7201. A
jury convicted both defendants on all four counts. The Mounkeses moved
for a judgment of acquittal and a new trial, and the district court
denied both motions. In sentencing the defendants, the trial court
applied a two point enhancement to Mr. Mounkes's sentence for
obstruction of justice pursuant to U.S. Sentencing Guidelines Manual §3C1.1
(1998). Under 18 U.S.C. §3553(b), the court did not rule upon the
Mounkeses' motion for a one point reduction of Mrs. Mounkes's sentence
on the basis of circumstances not contemplated by the sentencing
guidelines.
II.
The
Mounkeses challenge the denial of their motions for judgment of
acquittal and for a new trial, arguing that the evidence of beginning
on-hand cash balances was insufficient to support a guilty verdict. In
determining the sufficiency of evidence, we review the record de
novo. United States v. Urena, 27 F.3d. 1487, 1489 (10th Cir. 1994).
We review the evidence to determine whether, if taken in the light most
favorable to the prosecution, it is sufficient for a reasonable jury to
find the defendants guilty beyond a reasonable doubt. United States
v. Jenkins, 175 F.3d 1208, 1215 (10th Cir.), cert. denied,
120 S.Ct. 263 (1999). "The evidence supporting the conviction must
be substantial and do more than raise a suspicion of guilt." United
States v. Anderson, 189 F.3d 1201, 1205 (10th Cir. 1999) (internal
quotation marks and citation omitted).
We
review the district court's refusal to grant a new trial for abuse of
discretion. United States v. Quintanilla, 193 F.3d 1139, 1146
(10th Cir. 1999). The trial court may grant a new trial if the interests
of justice so require. Fed.R.Crim.P. 33. Motions for new trial are
disfavored, however, and granted only with great caution. Quintanilla,
193 F.3d at 1146.
A
jury convicted the Mounkeses of willfully attempting to evade personal
and corporate income taxes in violation of 26 U.S.C. §7201. To
establish that offense, the government must prove 1) the existence of a
substantial tax liability, 2) willfulness, and 3) an affirmative act
constituting evasion or attempted evasion. United States v. Meek
[93-2 USTC ¶50,409], 998 F.2d 776, 779 (10th Cir. 1993) (citing Sansone
v. United States [65-1 USTC ¶9307], 380 U.S. 343 (1965)). The
Mounkeses argue that there was insufficient evidence to prove the first
element.
To
establish the first element, the government employed the bank deposit
method of proof. The government's evidence showed that the Mounkeses'
bank deposits and cash expenditures exceeded their reported income after
adjustments for applicable exemptions and deductions. Such evidence
supports an inference that defendants had unreported income. See
United States v. Conaway [94-1 USTC ¶50,009], 11 F.3d 40, 43 (5th
Cir. 1993); United States v. Ludwig [90-1 USTC ¶50,152], 897
F.2d 875, 878 (7th Cir. 1990); United States v. Abodeely [86-2
USTC ¶9713], 801 F.2d 1020, 1023 (8th Cir. 1986). This
"indirect" method of proof is permitted because "direct
methods of proof . . . depend on the taxpayer's voluntary retention of
records," rendering "[p]roof of unreported taxable income by
direct means . . . extremely difficult and often impossible." Abodeely
[86-2 USTC ¶9713], 801 F.2d at 1023. However, to distinguish between
unreported, taxable income and those deposits and expenditures not
derived from taxable income, the government still must establish the
defendants' pre-income "cash on hand" with reasonable
certainty, while negating other sources of nontaxable income during the
same period. Conaway [94-1 USTC ¶50,009], 11 F.3d at 44. On the
other hand, the government need not establish the "cash on
hand" figure with mathematical exactitude. Id.; see also
Ludwig, 897 F.2d at 880-81; United States v. Boulet [78-2
USTC ¶9628], 577 F.2d 1165, 1170 (5th Cir. 1978).
Agent
Espinoza testified at trial that she defined "cash on hand"
for Mr. Mounkes when she sought his beginning cash balances. The record
indicates that Mr. Mounkes then gave Espinoza a written statement of his
cash on hand, and that statement was admitted into evidence. Mr. Mounkes
testified at trial that he did not keep unreported cash at home or in
his desk. Finally, BMI's corporate balance sheets and tax returns, which
were admitted into evidence, precisely corroborated the figures that Mr.
Mounkes gave to Espinoza. Under these circumstances, the jury could
quantify the Mounkeses' beginning cash on hand with reasonable certainty
for 1991 and 1992. Thus the evidence, when taken in the light most
favorable to the prosecution, was sufficient for a reasonable jury to
find the Mounkeses guilty beyond a reasonable doubt. We therefore affirm
the district court's denial of the Mounkes's motion for judgment of
acquittal.
Because
the Mounkeses based their motion for a new trial on the same claim as
their motion for judgment of acquittal, we also conclude that the trial
court did not abuse its discretion in denying their motion for a new
trial. Nothing in the record indicates that the interests of justice
required a new trial be granted.
III.
The
Mounkeses also claim that the trial court erred in enhancing Mr.
Mounkes's sentence by two points for obstruction of justice pursuant to
U.S. Sentencing Guidelines Manual §3C1.1 (1998). The district court
must enhance the defendant's base offense by two levels if it finds that
the
defendant willfully obstructed or impeded, or attempted to obstruct or
impede, the
admin
istration of justice during the course of the investigation,
prosecution, or sentencing of the instant offense.
Id.
The obstruction of justice enhancement may be predicated upon a
defendant's "committing, suborning, or attempting to suborn
perjury." Id. cmt. 4(b). The court sentenced the Mounkeses
under the 1992 version of the sentencing guidelines and thus was
required to evaluate Mr. Mounkes's statements "in a light most
favorable to the defendant" in making its perjury determination.
U.S. Sentencing Guidelines Manual §3C1.1 cmt. 1 (1992), amended by
U.S. Sentencing Guidelines Manual App. C. amend. 566 (1997).
Because
the trial judge observed defendant's testimony, we give deference in
reviewing the trial court's finding of perjury. United States v. Yost,
24 F.3d 99, 106 (10th Cir. 1995). However, "[w]hile we review the
factual findings of the district court under the clearly erroneous
standard, and while we give due deference to the district court's
application of the guidelines to the facts, when that application
involves contested issues of law, we review de novo." United
States v. Medina-Estrada, 81 F.3d 981, 986 (10th Cir. 1996)
(internal quotation marks and citation omitted).
A
§3C1.1 enhancement predicated upon perjury is appropriate when the
sentencing court finds that the defendant has given "[i] false
testimony [ii] concerning a material matter [iii] with the willful
intent to provide false testimony, rather than as a result of confusion,
mistake, or faulty memory." United States v. Dunnigan, 507
U.S. 87, 94 (1993) (citing 18 U.S.C. §1621, the federal criminal
perjury statute); accord Anderson, 189 F.3d at 1213. The
sentencing court must "review the evidence and make independent
findings necessary to establish [the elements of perjury]." Dunnigan,
507 U.S. at 95; see also Anderson, 189 F.3d at 1213 ("[I]n
order to apply the §3C1.1 enhancement, it is well-settled that a
sentencing court must make a specific finding--that is, one which is
independent of the jury verdict--that the defendant perjured
herself." (internal quotation marks and citation omitted)). The
court need not recite the perjured testimony verbatim, however. Medina-Estrada,
81 F.3d at 987. Rather, "[t]he district court may generally
identify the testimony at issue . . . so that when we review the
transcript we can evaluate the Dunnigan findings of the elements
of perjury . . . without having simply to speculate on what the district
court might have believed was the perjurious testimony." United
States v. Massey, 48 F.3d 1560, 1574 (10th Cir. 1995).
A.
The
Mounkeses raise two objections to the district court's perjury
enhancement. First, they contend that the district court did not follow
the 1992 Sentencing Guidelines' requirement that testimony be evaluated
in a light most favorable to the defendant. Rather, defendants imply
that the district court followed the 1997 revision to this requirement,
under which "the court should be cognizant that inaccurate
testimony or statements sometimes may result from confusion, mistake, or
faulty memory." See U.S. Sentencing Guidelines Manual App.
C. amend. 566 (1997). We find no merit in this contention. The district
court specifically noted that in enhancing Mr. Mounkes's sentence it had
viewed his statements "in the most favorable light."
(Appellants' Supp. App. Vol. 5 at 13.) Nothing in the record casts doubt
upon this statement.
B.
The
Mounkeses' second claim is that the sentencing court did not make
independent Dunnigan findings. We disagree. Under Dunnigan,
the sentencing court must find defendant's testimony false, material,
and intended to affect the outcome of trial rather than a product of
confusion, mistake or faulty memory. See Dunnigan, 507 U.S. at
94. The district court specifically cited two examples of Mr. Mounkes's
testimony which in its judgment contradicted other persuasive trial
testimony: (1) Mr. Mounkes's statements regarding personal use of
corporate funds, which contradicted the testimony of Buss, the
Mounkeses' accountant, and (2) Mr. Mounkes's testimony regarding why
Amtext broke payments into increments smaller than $10,000, which the
court found to contradict the testimony of Blanche, Amtext's financial
officer. Contradictions in testimony support findings of falsehood. See
Anderson, 189 F.3d at 1213-14; United States v. Lowder, 5
F.3d 467, 47172 (10th Cir. 1993). While Mr. Mounkes's testimony does not
appear to contradict Blanche's testimony directly, 1 his
testimony does directly contradict Buss's testimony. The district court
therefore could conclude that Mr. Mounkes testified falsely.
The
district court also expressly found that Mr. Mounkes's testimony was
material and willful. Both the diversion of corporate funds to personal
use and the structuring of payments to avoid IRS reporting requirements
are "affirmative act[s] constituting evasion or attempted
evasion" of income taxes. See Meek [93-2 USTC ¶50,409], 998
F.2d at 779. False testimony about such acts therefore would be material
to the Mounkeses' prosecution for tax evasion. Finally, while there
appear to be some indications of confusion as opposed to willfulness on
Mr. Mounkes's part, these do not displace the deference we give to the
trial judge, who was able to observe the defendant at trial and was best
situated to determine whether Mr. Mounkes was merely confused or was
being willfully evasive in order to avoid conviction. See Yost,
24 F.3d at 106.
In
sum, we find that the sentencing court identified Mr. Mounkes's
perjurious testimony and expressly evaluated this testimony in light of
the three Dunnigan elements. Our de novo review of the
district court's application of these elements reveals no
misunderstanding of the law of perjury. Thus, we find no error in the
sentencing court's enhancement decision under §3C1.1. 2
IV.
Finally,
the Mounkeses claim that the district court erred in failing to rule
upon their motion for a one point reduction of Mrs. Mounkes's sentence
on the basis of circumstances not contemplated by the Sentencing
Guidelines. Under 18 U.S.C. §3553(b), a sentencing court may depart
from the Guidelines if it "finds that there exists an aggravating
or mitigating circumstance of a kind, or to a degree, not adequately
taken into consideration by the Sentencing Commission in formulating the
guidelines that should result in a sentence different from that
described." The Mounkeses argued below that there were mitigating
circumstances which warranted a downward departure in Mrs. Mounkes's
sentence. The district court stated that it took Mrs. Mounkes's
circumstances into consideration when it sentenced her, but did not
explicitly rule on the motion for downward departure.
We
"cannot exercise jurisdiction to review a sentencing court's
refusal to depart from the sentencing guidelines except in the very rare
circumstance that the district court states that it does not have any
authority to depart from the sentencing guideline range for the entire
class of circumstances proffered by the defendant." United
States v. Castillo, 140 F.3d 874, 887 (10th Cir. 1998). The district
court did not indicate that it lacked authority to depart from the
sentencing guideline range in sentencing Mrs. Mounkes. We therefore lack
jurisdiction to review the district court's decision not to grant the
departure.
AFFIRMED.
1
Mr. Mounkes testified that he asked Amtext to break up checks in payment
of amounts exceeding $10,000 on the advice of an Amtext representative.
Blanche testified that Amtext generally broke up payments only upon a
payee's request. These assertions are not inconsistent. An Amtext
employee could have advised Mr. Mounkes as to why he might prefer to
have his payments broken up, and Mr. Mounkes could then have requested
that the payments be broken up. However, Mr. Mounkes could not identify
the Amtext employee who he claimed had given him the advice, and Blanche
was not aware of any Amtext employee who did.
2
The Mounkeses also object to the perjury enhancement on the ground that
there is insufficient contrary testimony in the record to warrant the
sentencing court's determination. The Mounkeses argue that such an
inadequately supported determination will have a chilling effect on
future defendants who would otherwise testify in their own defense at
trial. The Supreme Court addressed a similar argument in Dunnigan,
and concluded that a defendant's right to testify simply does not
include the right to commit perjury. See 507 U.S. at 96. While a
routine finding of untruthfulness based upon the verdict alone would
impinge upon Mr. Mounkes's constitutional right to testify on his own
behalf, Anderson, 189 F.3d at 1213, specific and independent
findings of perjury which comply with the Dunnigan safeguards do
not. See 507 U.S. at 96-97.
[87-2
USTC ¶9452] United States of America, Appellee v. John Joseph Caswell,
a/k/a Don Dawson, John J. Dawson, Jack Quinn, Richard Quinn, Bill Burns,
and "Sam," Appellant
(CA-8),
U.S. Court of Appeals, 8th Circuit, 86-2201, 7/31/87, 825 F2d 1228,
Affirming an unreported District Court decision
[Code Sec.
7201 --Result unchanged by the Tax Reform Act of 1986 ]
Criminal penalties: Evasion of tax: Evidence: Cash expenditures
method: Miscellaneous trial errors.--The court affirmed the
taxpayer's conviction of tax evasion for the 1979-1982 tax years. The
government introduced sufficient evidence to meet its burden of proof
under the cash expenditures method of proving tax evasion. The evidence
showed that the likely source of his unreported income was from gambling
activities. Also, the government introduced sufficient evidence to allow
the jury to infer that large cash expenditures by the taxpayer and his
relatives were attributable to his unreported income. The district court
did not abuse its discretion in allowing summary charts of unreported
income into evidence. Miscellaneous assertions of trial error were
without merit.
Frederick
Dana, Assistant United States Attorney, St. Louis, Mo. 63101, for
appellee. Charles M. Shaw, Shaw, Howlett, & Schartz, 255 S. Meramec
St., St. Louis, Mo. 63105, for appellant.
Before
FAGG, Circuit Judge, BRIGHT, Senior Circuit Judge, and MAGILL, Circuit
Judge.
MAGILL,
Circuit Judge:
John
Joseph Caswell appeals from a district court 1 judgment
entered upon a jury conviction of four counts of income tax evasion.
Caswell was found guilty of willfully evading income taxes during the
years 1979, 1980, 1981 and 1982, in violation of 26 U.S.C. §7201
. For reversal, Caswell contends that the government failed
to meet its burden of proof under three essential elements of the
"cash expenditures" method of proving tax evasion, that the
district court erred in admitting into evidence summary charts prepared
by a government witness, and that the court erred in other trial and
post-trial rulings. We affirm.
I.
BACKGROUND.
During
November and December of 1982, IRS agents used pen registers (recording
devices) to track telephone calls from an apartment rented by Caswell
located in Creve Coeur, Missouri to the Caswell farm in O'Fallon,
Missouri. The registers showed that numerous calls were forwarded to the
farm, and that during a period of flooding near the farm in early
December, calls were switched to Caswell's residence in Chesterfield,
Missouri. The registers also showed an increase in calls in late
November of 1982, when the NFL football strike ended and play resumed.
After
receiving search warrants, the IRS, on December 12, 1982, conducted
simultaneous raids on the farm and the Creve Coeur apartment. As a
result of an analysis of the pen registers and the evidence seized from
the raids, IRS agents concluded that a sports bookmaking operation was
and had been in operation on the Caswell farm, and that Caswell was
behind the operation. Further investigation revealed that Caswell had
been making sports-related bets with various persons for several years.
This
information prompted the IRS to investigate Caswell's finances to
determine whether he had evaded income taxes by underreporting his
income. After an extensive investigation of those finances, the IRS set
out to prove through use of the "cash expenditures" method 2 that Caswell
had underreported income for the years 1979, 1980, 1981, and 1982.
At
trial the government introduced into evidence Caswell's filed tax
returns for the years 1975 through 1982. In 1975 and 1976, Caswell filed
joint returns with his first wife, Joan. They were divorced in 1977, and
Caswell filed individual returns for 1977 and 1978. From 1975 through
1978, Caswell's reported taxable income never exceeded $13,000.
In
1979, Caswell filed a joint return with his second wife, Jean, reporting
taxable income of $12,801. In 1980, 1981, and 1982, Caswell filed
individual tax returns, reporting taxable income of $17,018, $18,745,
and $18,179, respectively. These figures largely represented Caswell's
W-2 income from his job as a truck driver; he did not report any
gambling income. Later at trial, the government introduced evidence
showing that Caswell's cash expenditures far exceeded his reported
income in the years 1979, 1980, 1981, and 1982.
As
part of its investigation, the government also examined the financial
records and dealings of several of Caswell's close relatives. At trial
the government introduced into evidence the tax returns of these
relatives, which showed that none of them reported significant amounts
of income during the investigative period. 3 As with
Caswell, the government later introduced evidence of the relatives' cash
expenditures during this period, which showed that like Caswell, they
made large cash expenditures far exceeding their reported incomes.
In
computing Caswell's tax deficiency under the expenditures method,
government witnesses explained that they attributed to Caswell not only
his expenditures but also the large cash expenditures of his close
relatives. The government did so based on its theory that the only
likely source of Caswell's expenditures and those of his relatives was
Caswell's income from his gambling activity and bookmaking operation. 4
After
the presentation of the above evidence, a government summary witness
testified that for the years 1979 through 1982, Caswell's expenditures
were $84,118, $143,188, $191,655, and $82,228; that under the "cash
expenditures" method, his corrected taxable income was $80,803,
$130,926, $170,963, and $80,973; and that Caswell therefore had taxes
due and owing of $17,039, $47,737, $75,100, and $24,096.
II.
DISCUSSION.
A.
Essential Elements Under the "Cash Expenditures" Method.
Caswell contends that the government failed to establish (1) a likely
source of income for the years 1979, 1980, and 1981; (2) his "cash
on hand" or "net worth" at the beginning of each year;
and (3) the "net worth" of each Caswell relative whose
expenditures were attributed to him.
1.
Likely Source of Income. Under
the "cash expenditures" method of proof, the government is
required to show either a "likely source" of the allegedly
unreported income or that it has negated all reasonably possible
nontaxable sources of income. United States v. Mastropieri [82-2 USTC ¶9484 ],
685 F.2d 776, 784-85 (2d Cir.), cert. denied, 459 U.S. 945
(1982); see United States v. Bianco [76-1 USTC ¶9351 ],
534 F.2d 501, 506-07 (2d Cir.), cert. denied, 429 U.S. 822
(1976). Caswell admits that the December 1982 gambling raids
