7203 - Bank Records and Net Worth Increases 1 Page 6

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Articles by Alvin Brown
Tax Preparation
Offer In Compromise
State Offers in Compromise
Levy
IRS Tax Liens
IRS Tax Liens - continued
IRS Tax Liens - continued 2
Levy - continued
IRS Audits
Audit Techniques Guide
Congressional Contacts
Criminal Investigation
D.O.J Criminal Tax Manual
Tax Litigation
Penalty
Installment Agreements
Statute of Limitations
Frivolous Tax Argument
Interest Abatement
IRS Misconduct
IRS Abuses
Tax Fraud
Fraud Statutes
Bankruptcy
Tax Reform Legislation
Tax Shelters
Tax Court
Trust Fund Penalty
Legislation
Innocent Spouse Relief
Important Links


Fraud Statutes 

Additional Information:

 

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

 

Bank Records and Net Worth Increases 1 Page6

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1 The Federal Rules of Evidence became effective on July 1, 1975; the jury returned its verdict on June 26, 1975, so Federal Rule 404(b) was not controlling. Nonetheless, even in its proposed form, Rule 404(b) was in accord with the rulings of this circuit. See also 2 J. Weinstein & M. Berger, Evidence ¶404[08] (1975) (Rule 404(b) merely codifies prior federal doctrine concerning evidence of post bad acts).

2 Appellants also argue that the existence of an opportunity or method by which Goichman could avoid reporting his taxable income "speaks for itself," Brief for Appellant at 43, and that the government was creating a "non-issue" in order to get this evidence in. We find no merit in that argument. On the contrary, evidence concerning a direct endorsement of insurance (settlement) checks was especially relevant here, as the government later introduced evidence that during a prosecution year some $90,000 in bank loans were repaid by checks endorsed by Goichman. The weight of the evidence was properly for the jury.

3 Because the style and references in the document bear on its admissibility, we reprint the document in its entirety. It reads:

History of Children's Assets

1966

In June, 1966, I purchased three savings certificates at PNB in my name for my three children in the total sum of $15,000.00.

In November, 1966, I purchased two earnings certificates at the PNB in my wife's name for Gail and Jeff in the total sum of $10,000.00.

1967

In January, 1967, I purchased two savings certificates at the 2nd Fed. S&L Assn. in the name of my wife for Gail and Daniel amounting to $15,000.00.

In March, 1967, I purchased a savings certificate at Colonial Fed. S&L in the sum of $10,000.00 in my name or my wife's name for Daniel.

In July 1967, the $15,000.00 in PNB was renewed for another year.

In November, 1967, the other $10,000.00 savings certificates in PNB were closed.

In November 1967, a $16,000 savings at First Fed. S&L Assn. in wife's name for children was opened up. This still remains.

1968

In April, 1968, the $10,000.00 savings certificate at Colonial was closed.

In April, 1968, a $15,000 savings certificate at First Federal S&L Assn. was opened in my name for my children and closed in July, 1968.

In July, 1968, the $15,000.00 in savings certificates at 2nd Fed. S&L were closed.

In July, 1968, the $15,000.00 in savings certificates at PNB were closed.

In July, 1968, $35,000.00 in savings certificates were opened in my wife's name for the three children at West Phila . Fed. S&L Assn. This still remains.

Summary
  1966          $25,000.00 PNB
  1967          $15,000.00 2nd Federal
                $10,000.00 Colonial
                $16,000.00 First Fed. S&L remains.
                The $50,000.00 at PNB, 2nd Fed.
  1968          & Colonial were closed.
                $35,000.00 was opened at West
                Phila. Fed. S&L--remains.


Mutual Funds--They all remain

Oppenheimer            9-29-67         $ 5,000.00
Invest                 9-29-67         $ 5,000.00
Revere                10-31-67         $10,000.00
Revere                 5-31-68         $10,000.00

 

 

 

[76-1 USTC ¶9470] United States of America v. William Goichman

U. S. District Court, East. Dist. Pa., Criminal No. 74-515, 407 FSupp 980, 1/20/76

[Code Sec. 7201]

Tax evasion: Criminal prosecutions: Proof: Net worth method: Source and application of funds.--Taxpayer's conviction by a jury of attempted tax evasion for taxable years 1968 and 1969 and upheld based on increase in net worth. Holland v. United States, 54-2 USTC ¶9714, 348 U. S. 121 (1954), followed. The jury determined that the taxpayer, an attorney, wilfully intended to evade taxes by his consistent and substantial understatement of income, filing returns with knowledge more income should be reported, failure to include all sources of income in his records, understatement of income in prior years and overstatement of business expenses.

Gilbert J. Scutti United States Attorney, Philadelphia , Pa. for plaintiff. Rob ert F. Simone, Rob inson, Bldg., 8th Floor, Phildelphia , Pa. , for defendant.

Opinion

CLARY, District Judge:

This is a net worth prosecution under 26 U. S. C. §7201 for willful attempt to evade or defeat payment of income tax. The defendant, William A. Goichman, a cash basis taxpayer, is an attorney who formerly practiced law in Philadelphia . He now resides in Beverly Hills , California .

On September 10, 1974, the grand jury handed up a two-count indictment charging the defendant with attempting to evade payment of income taxes in the taxable years 1968 and 1969. The case was transferred to my calendar by the Honorable Clifford Scott Green of this District on May 14, 1975. The case was specially listed for trial on June 16, 1975. On June 26, 1975, the jury returned a verdict of guilty on both counts. The defendant filed post-trial motions for judgment of acquittal and for a new trial. On October 29, 1975, I heard oral argument on the motions. For the reasons which follow, the motions are denied.

I. To sustain a conviction under §7201, the Government must prove three elements: the existence of a tax deficiency, willfulness, and some affirmative act constituting an evasion or an attempted evasion of income taxes. Sansone v. United States [65-1 USTC ¶9307], 380 U. S. 343 (1965), Lawn v. United States [58-1 USTC ¶9189], 355 U. S. 339 (1958), Holland v. United States [54-2 USTC ¶9714], 348 U. S. 121 (1954).

In this case, the Government used the "net worth method" to prove the existence of a tax deficiency. This procedure was approved by the Supreme Court in Holland v. United States , supra.

In a new worth case, the Government first attempts to establish an "opening net worth"--the total value of all the taxpayer's assets for the last year preceding the years under prosecution. In this that year was 1967. The government then proves increases in the taxpayer's net worth at the end of each of the prosecution years. Here, those years were 1968 and 1969. The Government then adds nondeductible living expenditures. If the resulting figure is substantially greater than the taxable income reported by the taxpayer for any one of the prosecution years, the Government claims the excess is taxable income which was not reported. Holland, supra, 348 U. S. at 125, United States v. Massei [58-1 USTC ¶9326], 355 U. S. 595 (1958).

The Government has the burden of proving the opening net worth figure with "reasonable certainty." Holland, supra, 348 U. S. at 132. In this case, the Government used a source and application of funds analysis to show the amount of money available to the defendant from 1956, the year he graduated from law school, to 1967. The Government next computed the defendant's net worth by adding the total value of all assets owned by him on December 31, 1967. Because of the great disparity between the defendant's actual net worth on that date, and the total funds available to him as calculated by the Government agent he was credited with no cash on hand for the net worth computation.

The Government next showed increases in net worth in the years 1968 and 1969. These increases were primarily in three classes of assets: stocks, bank accounts, and real estate investments. According to the Government, the defendant's net worth increased about $50,000 in 1968 and about $75,000 in 1969. These increases exceeded by a substantial margin the taxable income the defendant reported in those years.

Having shown net worth increases in excess of reported taxable income, the Government must either negate all possible non-taxable sources of income to explain the increases, or it must prove a likely source of taxable income which was not reported. The Government need not prove both. United States v. Massei [58-1 USTC ¶9326], 355 U. S. 595 (1958), United States v. Calles, 482 F. 2d 1155, 1159 (5th Cir. 1973). In this case, the Government showed a likely source, the defendant's law practice, but it also introduced extensive evidence tending to negate the possibility of nontaxable sources.

Where the case rests on circumstantial evidence, as this one does, the Government must also investigate any leads furnished by the defendant, but in the absence of leads it need not negate every hypothetical explanation for the bulge in net worth. Holland v. United States, supra, 348 U. S. at 138; United States v. Procario [66-1 USTC ¶9263], 356 F. 2d 614, 617 (2d Cir. 1966), cert. denied, 384 U. S. 1002 (1966).

"Willfulness" in the tax offenses set forth in 26 U. S. C. §§ 7201-7207 refers to a bad purpose or evil motive to do the thing which the law forbids. Negligence, even gross negligence, is not sufficient to establish willfulness for purposes of these statutes. This bad purpose of evading payment of income tax can be shown by the deliberate filing of false returns which the defendant knew did not accurately reflect his taxable income. United States v. Bishop [73-1 USTC ¶9459], 412 U. S. 346, 359-61 (1973); Holland v. United States, supra, 348 U. S. at 139; Spies v. United States [43-1 USTC ¶9243], 317 U. S. 492, 498-99 (1943); United States v. Vitiello [66-2 USTC ¶9480], 363 F. 2d 240, 242 (3rd Cir. 1966); United States v. Greenlee [75-1 USTC ¶9488], 517 F. 2d 899, 904 (3rd Cir. 1975). Here, the evidence showed a pattern of diverting settlement checks the defendant received in his law practice in such a way that they did not come to the attention of the accountant who prepared the defendant's tax returns. There was other circumstantial evidence including, of course, the defendant's background and education. See , United States v. Rischard [73-1 USTC ¶9151], 471 F. 2d 105, 108 (8th Cir. 1973).

The Government has the burden of proving every element of the offense, though not to a mathematical certainty. However, once the Government shows that the defendant's net worth increased substantially more than the taxable income he reported and that the defendant's way of doing business permitted the non-disclosure of income, and where the defendant supplied the Government with no leads to a source of non-taxable funds to explain these increases, and where the increases themselves had every appearance of coming from taxable income, the defendant remains quite at his peril. Holland v. United States, supra, 348 U. S. at 138-39, United States v. Slutsky [73-2 USTC ¶9733], 487 F. 2d 832, 842 (2d Cir. 1973), cert. denied, 416 U. S. 937, reh. denied, 416 U. S. 1000 (1974).

With these considerations in mind, I now pass to the evidence adduced at trial.

II. The evidence upon which the jury could have based a verdict of guilty was as follows:

The Government credited the defendant with an opening net worth on December 31, 1967, of $173,643.52. The net worth figure represented the total of cash in banks, business assets, stocks on hand, and the purchase price of his residence which was fully paid for, less liabilities. This figure, when added to accumulated depreciation, exceeded the actual funds available as of December 31, 1967 by more than $15,000.00. The actual funds figure was based on an exhaustive analysis of the defendant's financial history from 1956, the year he graduated from law school, to the end of 1967, the last pre-prosecution year.

To arrive at the actual funds figure, the defendant was credited with having $10,000 in 1956, the starting point of the Government's calculations. This was based on sworn testimony by the defendant in a support proceeding in Common Pleas Court in Montgomery County in 1970, in which he stated that he did not think his assets exceeded $10,000 at that time. The $10,000 starting point figure was corroborated by the fact that the defendant graduated from law school in 1955, that he and his wife lived in an apartment for a year after their marriage in 1957 and by the fact that when they first purchased a home in 1958, they paid $11,400 and placed about $1,000 down.

It was further corroborated by defendant's testimony in Montgomery County that he received no gifts exceeding $1,000 in wedding gifts, that he inherited no money, and that he does not gamble.

He was next credited with a total adjusted gross income for the years 1956 to 1959 of $30,746.60. This figure represents four times $7,687.40, which was the adjusted gross reported by the defendant in 1960. No tax returns were available for the years preceding 1960. The figure was based on the defendant's testimony in Montgomery County that his income gradually rose over the years with no significant jumps. This was corroborated by certificates of assessment containing code numbers which indicated joint returns were filed by the Goichmans showing an adjusted gross income of less than $10,000, by an application for employment with the Pennsylvania Public Utilities Commission dated October 24, 1957, showing a salary of $4,500 a year as a law clerk, P. U. C. pay records showing defendant's salary was $7,173.50 in 1958 and $7,168.00 in 1959, by Pennsylvania mercantile license tax records for defendant's law firm dated May 26, 1959, indicating gross receipts of $2,603.00 and Philadelphia net profits tax records showing that no return was filed for the firm in 1958 and that on June 1, 1960, a return was filed which indicated a net profit of $7,788.00.

(The defendant's first legal position was law clerk to Judge Sporkon of the Common Pleas Court . While serving in this capacity, he was also an associate of Max Deroff. In 1958, he went into partnership with Martin Krimsky. The Philadelphia tax records relate to the firm of Krimsky and Goichman. The City was unable to locate any records relating to this firm other than the ones introduced into evidence. In November 1957, the defendant was hired as an Assistant Attorney General assigned to the Public Utilities Commission. In 1963, the defendant dissolved his partnership and he became a sole practitioner from that date forward.)

Finally, the adjusted gross income as reported on the defendant's Form 1040 joint tax returns for the years 1960, to 1967, totalled $183,681.25. The 1964 joint return showed that Beverly Goichman realized $883.50 in income from a business partnership.

To these figures were added depreciation, dividend exclusions, and 50% excess capital gain, as reported on the 1960 to 1967 returns. From the gross figure were deducted itemized deductions, Federal taxes paid and other expenditures per the 1960 to 1967 returns. The actual funds available were calculated to be $157,149.52 as of December 31, 1967. As we have seen, this figure was exceeded by the defendant's net worth as of that date by more than $15,000. Accordingly, for the defendant to have $1.00 cash in hand not accounted for by the Government's analysis, he would have to have at least $15,000 as well.

An alternative actual funds analysis used 1963 as a starting point. This was based on a mortgage application for purchase of a property located in Abington Township , Montgomery County which listed assets including $15,000 in cash and $4,500 in stocks and other investments. This computation yielded an actual net funds available figure as of December 31, 1967, of $145,128.67. The negative cash position of the defendant using this analysis is, therefore, even larger.

In making the net worth calculation, the Government included numerous bank accounts maintained by the defendant, and his wife either in their own names or in trust for their children. The total figure at the end of 1967 was $72,863.01. The full amount was charged to the defendant, based on testimony in the Montgomery County support proceeding that he supplied all the funds for such accounts and that his wife never worked, on a complaint in equity also filed in Montgomery County in 1969, in which the defendant again claimed that he supplied all funds for such accounts, and on a "history of children's assets" in which the defendant in the support proceeding claimed to have purchased a number of certificates in the children's name. This "history" was a certified and exemplified exhibit from the support proceeding.

The Government also charged the defendant with the full cost value of stocks on hand on $50,357.36. A number of these accounts were in the name of Beverly Goichman. The basis for charging the full value of these holdings to the defendant was his testimony in the support proceeding, the complaint in equity in which he claimed to have provided funds for numerous specific stocks and mutual funds in his wife's name, and a series of letters to Goodbody & Co. on the defendant's stationary transferring funds and stock to two accounts in Beverly Goichman's name.

The next step in the Government's case was to show an increase in net worth in the prosecution years. In 1968, the defendant's net worth (assets less liabilities) increased to $219,208.37. In 1969, it increased to $294,047.20. The cash in banks total increased from $72,863.01 in 1967 to $85,257.07 in 1968 and to $99,659.73 in 1969. The cash in banks figure included $18,869.85 in a Western Savings Fund Society account opened in 1969. There was testimony that this account may have been, at least in part, an escrow account for holding client's funds at interest.

The stock holdings increased from $50,357.36 in 1967 to $64,012.72 in 1968 to $68,504.39 in 1969.

Although many of these stock holdings were in Beverly Goichman's name, the defendant repeatedly claimed in Montgomery County proceedings to have supplied all the funds for these assets.

There was a small increase in non-cash business assets.

The heart of the government's case, however, was a series of real estate partnership investments in 1968 and 1969. The value of these investments grew from zero in 1967 to $24,192.00 in 1968 and to $84,313.00 in 1969. These figures represented capital account balances from a total initial investment in four partnerships of $100,000 in the prosecution years. These investments are shown on four Form 1065 Partnership returns filed in 1968 and 1969 on which the defendant is listed as a partner. The first was Peoria Towers Associates, formed on October 4, 1968. The second was Allegheny Industrial Associates, formed on January 31, 1969. The third was Triester Riviera Oaks Associates, formed on July 17, 1969. The last was Triester Coach and Four Associates, formed on September 4, 1969. The defendant invested $25,000 in each of these partnerships. These investments are in the defendant's name alone, and in the support proceeding, he testified that his wife had nothing to do with them.

The total increase in the defendant's net worth in 1968 was $53,743.82. In 1969 it increased again by $74,838.83. In 1968, the defendant reported taxable income of $27,791.17. In 1969, he reported taxable income of $17,895.70.

The Government's expert next attempted to show what his true income must have been and what the tax liability would be. To the increases in net worth for each prosecution year were added adjustments to reflect itemized deductions claimed in those years, federal tax payments, gifts to the children, and, for 1969 only, a list of other personal living expenses enumerated in a list of family expenditures for that year in an exhibit from the Montgomery County proceedings. Deductions were made for capital gain and dividend exclusions and for cash available shown on the children's returns. The adjustments totalled $32,356.75 for 1968 and $30,120.58 for 1969.

The adjustments to net worth did not attempt to reflect other evidence in the case, again from the defendant's testimony in the support proceeding, regarding the defendant's life-style during this period. This evidence indicated that he owned several cars, including a Cadillac, that he and his wife made several trips to places like Acapulco , Jamaica , London and Aruba , that he employed a full-time maid for several years, and that he purchased a number of expensive gifts for his wife.

These figures yield an adjusted gross income of $86,100.57 in 1968 and $104,956.41 in 1969. After allowing for itemized deductions and personal exemptions, the taxable income that emerges is $77,300.51 in 1968 and $95,573.81 in 1969. The tax liability on these taxable incomes was $33,971.72 in 1968 (instead of $7,504.95 reported by the defendant) and $46,595.81 in 1969 (instead of $4,169.87 as reported). The tax liability was calculated from the tax tables for joint returns and includes the tax surcharge applicable in the years 1968 and 1969. The alternate tax computation yields slightly different results.

The Government next showed that the defendant had a source of income which could have provided funds for these investments without being reported on his tax returns. That source was his law practice.

The witness Michaels, a C. P. A. who prepared the defendant's tax returns in the years 1966 to 1970, described the method used by the defendant and himself to compute the defendant's taxable income. He said the defendant maintained two accounts at Philadelphia National Bank. One was an escrow account; one was a personal account. The defendant was supposed to deposit all funds received in his law practice into the escrow account. When any item became income to the defendant, the fee would be transferred from the escrow account to the personal account. Michaels would then compute the defendant's income by comparing the two bank statements at the end of the year.

If an item of income did not reach these accounts, it would escape Michaels' attention and would not be included as income on the tax return. Michaels testified he did include the defendant's salary from the Pennsylvania Utilities Commission, but he stated the defendant never gave him any indication he received income from his private practice other than the items listed in the bank statements. He stated he was not aware of the existence of the WSFS "escrow" account.

The defendant's testimony in the support proceeding corroborated this method of accounting, but he stated there that he sometimes received cash fees and he sometimes cashed settlement checks for clients. He maintained, however, that he supplied his accountant with these cash figures orally.

The government produced three former clients of the defendant, the witnesses Flaxman, Keilman and Schleinkofer. Each identified settlement checks from insurance companies dated in 1967. The witness Tanitsky, a claims manager with American Mutual Liability Insurance Company, identified two additional settlement checks payable to a Helen Gladfelter in 1967. Flaxman, Keilman and Schleinkofer testified that after endorsing their checks, the defendant paid them their share of the settlement in cash or by issuing another check. All five of these checks have the statement on the back "pay to the order of Goodbody and Company."

The government also produced two letters on the defendant's stationary addressed to Goodbody and Company. These letters, dated September 28, 1967, and January 2, 1969, list a number of checks which were enclosed in payment of bills for the purchase of securities. The letters state that the Flaxman, Keilman, Schleinkofer and Gladfelter checks are enclosed.

At the support proceeding, the defendant also outlined the method by which he raised money for the $100,000 in real estate partnership investments. He said he would pledge savings certificates and then pay off the loans out of income when it was earned. He said "to some extent" he paid off the loans the same way he paid for the stocks--with endorsed settlement checks. (N. T. 4-76)

Finally, the government produced notes representing loans totalling $90,000 made to the defendant by First Federal Savings and Loan Association in the prosecution years.

The first of these notes for $25,000 is dated September 11, 1968, less than one month before the formation of Peoria Towers Associates in which the defendant invested $25,000. This note was paid off by November 20, 1968. The payment slips show it was paid in part by checks in the amounts of $325.00, $2,500.00, $1,000.00, $10,382.80, $600.00, $1,500.00, $1,700.00, and $1,800.00.

The second of these notes, in the amount of $15,000 is dated January 6, 1969, less than one month before the formation of Allegheny Industrial Associates in which the defendant invested $25,000. This note was paid off by January 28, 1969, with payments of $15,000 and $5.69.

The third note, for $25,000, is dated June 2, 1969, about a month-and-a-half before the formation of Triester Riviera Oaks Associates in which the defendant invested $25,000. This note was paid off by August 15, 1969. The payment slips indicate payment by checks in the amounts of $3,900.00, $1,989.00, $400.00, $1,200.00, $500.00, $500.00, $13,000.05 and $10,000. The amounts credited as payments on three occasions are $10,000, $8,000 and 7,127.03. The total amount of the checks exceeded the amount of the payment made by $5,873.02 on one occasion and by $489.00 on another occasion.

The last note, for $25,000, is dated August 14, 1969, less than one month before the formation of Triester Coach and Four Associates in which the defendant invested $25,000. This note was paid off by September 8, 1969. The payment slips indicate payments by checks of $10,124.15, $9,002.83, $35.17 and $5,873.02. The government also introduced a copy of a check for $10,124.15 dated September 2, 1969, drawn on the Western Savings Fund account the defendant claimed was an escrow account. It was made payable to First Federal Savings and Loan. The $10,124.15 payment on this last note was made on September 5, 1969.

As an alternative theory for the source of the $100,000 invested in 1968 and 1969, defense counsel read in a portion of the transcript from the support proceeding in which the defendant stated his tax returns for those years did not accurately reflect the amount of cash he had available because the business expenses he deducted "may have been exaggerated." (N. T. 4-65).

In response, the prosecutor had the following question and answer from the same transcript read to the jury:

Q. But either they are exaggerated, in which case you had a lot more cash, or if they are not exaggerated, then it's a fair question as to where you got the hundred thousand dollars from. Isn't it?

A. That's a possible theory. It could have been exaggerated. There might have been more money there. Maybe there was cash I didn't report. Maybe there was transactions that I haven't presented to the Court which grew out of other transactions. There may be--yes, there are maybes. (N. T. 4-71).

The defendant put on no evidence at all, except that which came in as a result of cross-examination.

The evidence at this state must be viewed in the light most favorable to the Government. Glasser v. United States 315 U. S. 60, 80 (1942). Moreover, questions of the weight of the evidence or the credibility of any of the witnesses are foreclosed by the verdict of the jury. United States v. Greenlee, supra, 517 F. 2d at 903. Viewed in this light, there was substantial evidence from which the jury could have found beyond a reasonable doubt that the defendant willfully attempted to evade payment of the tax that was due on his true taxable income in 1968 and 1969, and that the amount of tax deficiency was substantial. The jury could have found that he did this by failing to report substantial amounts of income in the form of settlement checks which he used to pay for his investments. The jury could also have inferred, from the admission by the defendant that his business deduction "may have been exaggerated," that he attempted to evade his taxes by falsifying both ends of his returns--by overstating his business expenses and understating his gross income.

III. The defendant has submitted a lengthy, incoherent brief raising almost a score of points and citing numerous inapposite cases in support of his post-trial motions. Some of these arguments are repeated at several different places. However, at no point does he directly confront the core of the Government's case--the source of the $100,000 he invested in real estate partnerships in the prosecution years.

At oral argument on the motions, defense counsel confined himself to a few major points aimed primarily at the Government's opening net worth figure, at the element of willfulness, and at allegedly prejudicial comments by the prosecutor and the trial judge. I will consider the defendant's contentions seriatum.

A. Admissibility of Evidence

The defendant challenges the admissibility of the complaint in equity in the case of William A. Goichman v. Beverly Goichman, Common Pleas Court, May Term, 1969, in Montgomery County (G-39); exhibits from the support proceeding, Beverly Goichman v. William A. Goichman, Common Pleas Court, November Term, 1969, in Montgomery Courty; the evidence relating to the diversion of settlement checks; the Philadelphia tax records (G-23 A, B, C,); the Goodbody records (G-34 A, B, C, D, E F), the 1963 mortgage application (G-26 A), and the proof of repayment of loans made to purchase the real estate interests (G-71 A, B; G-72 A, B, C; G-73 A, B, C; G-74 A, B, C).

1. The Complaint in Equity: The defendant argues that it was prejudicial to admit the complaint without also requiring the Government to introduce the answer. This argument is not easy to understand. The complaint is an admission sworn to under oath by the defendant. The answer was certainly as available to the defendant as to the Government, and if it contained material beneficial to his case, he could have introduced it. The Government is not required to present both the prosecution and the defense. But the whole issue is irrelevant anyway because any allegation of ownership Beverly Goichman may have made does not change the fact that the defendant claimed to have supplied the funds for the assets in controversy in that proceeding. The defendant is charged with evading income taxes, after all, not a personal property tax.

2. The Exhibits From The Support Case: The defendant complains that the tax returns for 1961 and 1962 are incomplete in that they lack a Schedule C, and that the "history of children's assets" is not shown to have been introduced by the defendant in that case. These exhibits are all certified and exemplified copies of exhibits introduced in the support proceeding. The tax returns for 1961 and 1962 show on the front page that no Schedule C was filed in those years. The history of children's assets bears a defense exhibit number, and it refers to the defendant's wife and children. Finally, the information contained in the exhibits is verified by the complaint in equity and by the bank and stock broker records.

3. Diversion of Settlement Checks: This evidence consists of copies of five checks, copies of two letters to Goodboy and Company on the defendant's stationery purporting to enclose those checks in payment of the defendant's account, and testimony by the defendant's accountant as to how the defendant's income tax returns were prepared. Since these records relate to 1967, the argument is that the defendant is prejudiced by evidence which tends to show underreporting in 1967, a year barred from prosecution by the state of limitations. He argues further that the evidence has slight probative value because there was no evidence to diversion of checks in 1967 to similar conduct in the prosecution years.

Evidence of this kind is relevant and admissible to show "motive, opportunity, intent, preparation, plan, knowledge, identity, or absence of mistake or accident." Rule 404(b), Federal Rules of Evidence. See also United States v. Stirone, 262 F. 2d 571, 576 (3rd Cir. 1958), rev'd on other grounds, 361 U. S. 212 (1960); United States v. Hines, 470 F. 2d 225, 227-28, cert. denied, 410 U. S. 968 (1973); United States v. Parenti [71-2 USTC ¶9613], 326 F. Supp. 717 (E. D. Pa. 1971), aff'd [73-1 USTC ¶9147] 470 F. 2d 1175 (3rd Cir. 1972), cert. denied, 411 U. S. 965 (1973). This evidence was admitted for the limited purpose of showing opportunity or method of generating unreported income. The jury was so cautioned. (N. T. 8-30, 31).

The evidence was connected to the prosecution years through the payment slips attached to the notes evidencing loans made to the defendant from First Federal to raise $90,000 of the $100,000 he invested in real estate in the prosecution years, and through the testimony from the support case.

4. The Philadelphia Tax Records: The defendant complains these are inconsistent in showing gross earnings of $2,000 and net profits of more than $7,000. These were actually two sets of records for two different years. In any case, they were only offered in corroboration of admissions and other evidence that the defendant's gross income in the years 1958 and 1959 and less than $10,000.

5. The Goodbody Records: The defendant objects that the custodian who presented these records is an employee of Merrill, Lynch, Pierce, Fenner and Smith and was not employed by Goodbody. The witness, however, was the section manager in charge of the liquidation of Goodbody and Company, he spent several weeks with Goodbody in 1970 as a consultant, Merrill, Lynch became the owner of all Goodbody records through a subsidiary, and the witness worked with these records on an everyday basis. Finally, I took judicial notice of Securities and Exchange Commission NASD and New York Stock Exchange bookkeeping regulations covering the securities industry. (N. T. 3-75).

6. The Proof of Loan Repayment: Finally, the defendant complains that the proof of repayment of the $90,000 in loans to purchase real estate prejudiced him because he was not given these exhibits in advance of trial. This argument is entirely specious. The first evidence of the existence of the loans was introduced by defense counsel on cross-examination of one of the Government's experts. The Government had no leads to these loans because, although the defendant testified in the support case that he raised the capital for his real estate investments by pledging certificates of deposit, he also testified that he owed no money--as indeed the repayment slips show he did not. Moreover, no interest was reported on his 1968 and 1969 tax returns. In practical effect, the loans were rebuttal evidence. At the trial, it was the Government, not the defendant, that was taken by surprise. If the Government had not been able to prove that each of the loans had been repaid in a year of borrowing, the case may well have been a proper one for dismissal. Under the circumstances, the defendant's claim of prejudice is preposterous.

B. Opening Net Worth

The defendant attacks the Government's opening net worth figure at four points; the starting point net worth figure of $10,000 in 1955; the zero cash-on-hand figure in 1967; the failure to do a full, separate net worth analysis of the defendant's wife and children; and the failure to include in any of the net worth analyses such property as household furnishing and cash surrender value of insurance policies.

1. The Starting Point: The principal basis for the $10,000 starting point figure is the defendant's admission in the support proceeding that his assets on graduation from law school probably did not exceed that amount. The defendant argues the testimony is vague and uncorroborated.

The general rule in net worth cases is that extrajudicial admissions must be corroborated. Smith v. United States [54-2 USTC ¶9715], 348 U. S. 147 (1954); United States v. Calderon [54-2 USTC ¶9712], 348 U. S. 160 (1954). In each of those cases, however, the admissions were made to Internal Revenue Service agents in the course of their investigation. In Smith, the Court indicated that admissions made under other circumstances, providing grounds for the inference of reliability, may not have to be corroborated. Smith v. United States, 348 U. S. at 155, note 3. In Cleveland v. United States [73-1 USTC ¶9357], 477 F. 2d 310 (7th Cir. 1973), the Seventh Circuit held that admissions from in a divorce proceeding which were read to the jury in the tax evasion prosecution need not be corroborated. Cleveland v. United State, 477 F. 2d at 313-14.

It is not necessary to rely on the holding in Cleveland in this case, however, for the Government did present corroboration. Admissions may be corroborated in two ways: (1) by separate evidence tending to demonstrate the truth of the specific fact admitted, or (2) by evidence tending independently to show evasion was attempted and the defendant was responsible. United States v. Mathews [72-1 USTC ¶9352], 335 F. Supp. 157, 162 (W. D. Pa. 1971), appeal dismissed, 462 F. 2d 182, cert. denied, 409 U. S. 896 (1972). As to the first type, the Supreme Court in Smith held that the separate evidence is sufficiently corroborative if it bolsters the admission and thereby proves the offense through the statements of the defendant. 348 U. S. at 156.

Here there was independent evidence that the defendant graduated from law school in 1955, that he and his wife lived in an apartment until 1957, that when they purchased a home in 1958 they paid $11,400, placing 10% down. This closely tracks the corroboration deemed sufficient in Smith which consisted of that defendant's employment was a clerk at $40 a week, and the purchase of a home for $9,600, placing less than one third down. 348 U. S. at 157-58.

The defendant argues that this corroboration is derived from the same source as the $10,000 figure, the testimony in the support case. The short answer to this is that it is not true. The purchase price of the home is shown on the face of the deed. The figure also is bolstered by the application for a mortgage in 1963 which lists assets consisting of $15,000 cash in banks and $4,500 in stocks. Further corroboration is found in the two source and application of funds analyses, the one based on the $10,000 figure of 1955, the other based on the application of 1963. Both analyses produced substantial negative cash positions by the end of 1967. The Government and no leads to any cash hoard in 1955 sufficient to account for both the negative cash position and the $100,000 invested in real estate in the prosecution years. No evidence of such a hoard was produced at trial. In fact, looking at the evidence as a whole, $10,000 is a rather generous estimate of the net worth a law student could acquire before graduation.

In light of the corroboration that was offered, it likewise cannot be maintained that the admission is impermissible vague. The testimony itself identifies assets as including a car, some bank accounts and some stocks. This shows familiarity with his own financial affairs, an area clearly not outside the defendant's competence. The weight to be given the admissions was for the jury. Similarly, it was for the jury to give whatever consideration it wished to defendant's cash hoard argument for 1955. Where there was no evidence of a substantial cash hoard as of that date, let alone evidence that it was still on hand as of the end of 1967, the jury was certainly entitled to reject the argument. McGarry v. United States [68-1 USTC ¶9204], 388 F. 2d 862, 868 (1st Cir. 1967), cert. denied, 394 U. S. 921 (1969).

2. The Zero Cash Figure: The Government, as we have seen, credited the defendant with no cash on hand in the opening net worth figure for the end of 1967. While the defendant in his brief does not clearly distinguish between the starting point figure and the opening net worth figure, [he] appears to argue that the Government's own evidence shows that he had cash. He points to settlement checks cashed in 1967 totaling some $10,000, purchases of stock and bank deposits in 1968, and evidence (though somewhat cryptic) of a safe deposit box.

The Government's source and application of funds analysis produced an actual funds figure as of the end of 1967 of $157,419.52. The net worth figure however, was $173,643.52. Therefore, the analysis produced a negative cash figure of more than $15,000. In other words, before the defendant could have had one dollar to invest in real estate from a cash hoard, he would have to have at least $15,000 to overcome the negative cash figure indicated by the net worth analysis. If the defendant made other purchases and investments, this only increases the amount of cash needed before one dollar could be invested in real estate. In fact, the Government's evidence showed increases in the value of stocks and bank accounts totaling more than $25,000 in 1968. For the defendant to have made these investments as well as the $25,000 real estate investment in 1968 from a cash hoard and not from income he would have required more than $65,000 in cash, just to explain his investments in 1968. Even these figures do not reflect expenditures for the defendant's rather extravagant life-style during this period.

Even if the evidence clearly showed that there was cash on hand, it was for the jury to determine if there was enough to account for the sizable increases in net worth in the prosecution years. Vloutis v. United States [55-1 USTC ¶9262], 219 F. 2d 782, 793 (5th Cir. 1955). In a case such as this where the Government conducted a thorough investigation and still failed to find any cash, and the defendant failed to offer any offsetting evidence of cash, the jury could certainly have concluded there was no cash to find. Fowler v. United States [65-2 USTC ¶9723], 352 F. 2d 100, 107 (8th Cir. 1965), cert. denied, 383 U. S. 907 (1966); United States v. Mackey [65-1 USTC ¶9328], 345 F. 2d 499, 506 (7th Cir. 1965) cert. denied, 382 U. S. 824 (1965).

Contrary to the situation in Dupree v. United States, 218 F. 2d 781, 785-87 (9th Cir. 1955), in which the Government ignored funds claimed to be available by the defendant, and United States v. Uccellini [58 USTC ¶9313], 159 F. Supp. 491-495 (W. D. Pa. 1957), in which the Government's own case negated the defendant's business as a likely source, the Government here did take into account non-taxable sources in reaching the zero cash figure. The defendant testified in the support case that he had not received gifts in excess of $1,000, that he did not gamble and that he did not inherit any money. As to the safe deposit box, the Government had no lead from the defendant that it existed. In the absence of leads, the Government is not required to negate every conceivable source of non-taxable income, a matter that is particularly within the knowledge of the defendant, when it does show a likely taxable source. Holland v. United States, supra, 348 U. S. at 138.

The defendant complains that the defendant's testimony in the support case that he received no gifts in excess of $1,000 is capable of two interpretations. It could mean he received many gifts but none larger than $1,000, or it could mean that the aggregate value of all gifts not more than $1,000. Conceding this to be the case, this is an argument for the jury. Presumably, the jury considered it and resolved the ambiguity against the defendant.

3. Net Worth of the Wife and Children: Had the Government failed to make any net worth investigation of the wife and children, that failure may well have been fatal to the case. United States v. Merriwether, 440 F. 2d 753, 756 (5th Cir. 1971); United States v. O'Malley [55-1 USTC ¶9492], 131 F. Supp. 409, 411 (E. D. Pa. 1955). However, the wife's and children's assets were studied. It is true that numerous bank accounts and securities holdings were in their names, but ownership of those assets is not relevant here. The defendant asserted in the support case that he supplied all the funds for these assets. This claim is repeated in the complaint in equity. There was no lead suggesting that the wife and children could have purchased any of these assets with their own funds. In fact, all the tax returns of the defendant were joint returns. Only one of these returns showed that the wife generated any income independently--the 1964 return on which she reported about $880 in earnings from a business partnership. The defendant himself testified in the support case that she never worked. The Government also introduced all the tax returns it could locate which were filed by the children. From all this evidence, the jury could properly have concluded that the net effect of the wife and children on the net worth computation for the defendant for any of the years under examination was de minimis. United States v. Shy [75-1 USTC ¶9206], 383 F. Supp. 673, 676 (D. Del. 1974).

If the wife or children had assets other than those indicated by the evidence, there were no leads as to where to look for them. They cannot be hypothesized out of nothing. The Government is not required, without leads to negate every possible source of non-taxable income. Holland v. United States, supra, 348 U. S. at 138, Talik v. United States [65-1 USTC ¶9163], 340 F. 2d 138, 140 (9th Cir. 1965).

Most importantly, however, none of these arguments confront the real estate investments which clearly were purchased with the defendant's funds and belonged to him alone.

4. Omissions From the Net Worth Computation: The defendant argues that the Government's case must fail because it did not include all sources of funds in the opening net worth computation. It is not clear if the defendant is referring to the starting point in 1955 of the opening net worth in 1967. As to the starting point, the $10,000 figure is based, as we have seen, on the defendant's own estimate of the value of his car, stocks and bank accounts. The reason no other assets are included is because those are the only assets the defendant said he had. In other words, there were no leads to other assets as of that date. He complains that the opening net worth figure fails to include such personal property as household furnishings and insurance. But the cost of acquiring these assets would represent an expenditure which would only increase the negative cash position and thereby increase the amount of nontaxable income he would need before he could invest in the real estate. Similarly, capital withdrawals from partnership could not affect the Government's figures because, if it was profit, it would be reflected as adjusted gross income, and if it was a withdrawal of capital the cost of acquiring the asset in the first place would already have been reflected as an expenditure.

C. Net Worth in the Prosecution Years

The defendant complains of two items which were included in his new worth for 1968 and 1969. The first of these is the $18,000 in the western savings Fund Society account. In the support proceeding, the defendant maintained that this was in escrow account, but that some of the funds there were his own. This account was not labeled "escrow," his accountant was not made aware of its existence, and part of one of his loans from First Federal was paid with a check drawn on this account. Therefore, the proper characterization of this account is foreclosed by the verdict of the jury, which heard argument on the subject.

The second item is the inclusion of assets of the wife and children as part of the defendant's net worth in 1968 and 1969. As we have seen, ownership of these assets is not relevant. The jury could have found that the defendant supplied all the funds from the defendant's testimony that his wife never worked, from tax returns listing her as a housewife, from other testimony and exhibits in which the defendant claimed to have supplied all funds for the children's assets, and from letters to Goodbody from the defendant showing that he played an active role in his wife's investments. Similarly, any profits from these assets would have been reported on the tax returns. There were no leads to profits, if any, not disclosed on the returns.

These assets were properly included in the computation where there was no evidence and no lead to their source other than the defendant himself. Talik v. United States, supra, 340 F. 2d at 141.

Finally, there was no grievous error in the Government's computations with respect to the Revere Funds. In 1967, the defendant purchased $10,043.92 worth of these funds for his children. This was listed as an asset in 1967. In 1968, the defendant purchased $15,000 more of the funds and gave all the stock to his children. None of the stock is listed as being on hand as of December 31, 1968, but the gift is listed as an expenditure for 1968. Thus the defendant spent $15,000 for stock in 1968, and that is what the evidence showed. In other words, the $10,043.62 worth of Revere Funds purchased in 1967 is a wash item. It disappears from the stock on hand column at the end of 1968 along with the other Revere Funds purchased in that year. It reappears, not as an asset, but as an expenditure in the adjustments to net worth for 1968 as part of the $26,387.52 gift to the children.

Arguments over the weight of this evidence are now foreclosed by the verdict. United States v. Kleinman [58-2 USTC ¶9951], 167 F. Supp. 870 (E. D. N. Y., 1958), relied on by the defendant, is not to the contrary. That case held that where bank deposits were in the name of another, the Government had to show by "affirmative proof" that the funds were supplied by the defendant. 167 F. Supp. at 873. There such affirmative proof was lacking. Here, it was not. Therefore, the case was for the jury.

D. Willfulness

The defendant argues there is no proof of willfulness because there were no badges of fraud such as those enumerated in Spies v. United States , supra, 317 U. S. at 499. In United States v. Bishop [73-1 USTC ¶9459], 412 U. S. 346 (1973), the Supreme Court attempted to clarify the definition of willfulness in the criminal tax statutes. It said that willfulness was "bad faith or evil intent" to do the act proscribed by the particular statute, in this case, to attempt to evade or defeat payment of income taxes. 412 U. S. at 359-61. This intent could be inferred from knowledge in the taxpayer that more income should have been reported, 412 U. S. at 360, or from any conduct the likely effect of which is to mislead or conceal. 317 U. S. at 499. Here, such conduct was shown by the diversion of settlement checks without the knowledge of his accountant and by failure to keep records of all sources of income.

Willfulness is for the jury to decide. Windisch v. United States [61-2 USTC ¶9720], 295 F. 2d 531, 532 (5th Cir. 1961). The jury could have found willfulness from the following affirmative acts by the defendant which the evidence showed: (1) consistent and substantial understatement of income, United States v. Burrell [75-1 USTC ¶9152], 505 F. 2d 904 (5th Cir. 1974), United States v. Lisowski [74-2 USTC ¶9784], 504 F. 2d 1268 (7th Cir. 1974); (2) filing returns with knowledge more income should be reported, United States v. Fahey [75-1 USTC ¶9102], 510 F. 2d 302 (2d Cir. 1974), United States v. Rischard [73-1 USTC ¶9151], 471 F. 2d 105 (8th Cir. 1973); (3) failure to include all sources of income in his records, Spies v. United States [43-1 USTC ¶9243], 317 U. S. 492 (1942); Holland v. United States, 348 U. S. at 139. United States v. Tunnell [73-2 USTC ¶9560], 481 F. 2d 149 (5th Cir. 1973), cert. denied, 415 U. S. 948 (1974), reh. denied, 416 U. S. 963 (1975), (4) understatement of income in prior years; United States v. Colacurcio [75-1 USTC ¶9416], 514 F. 2d 1 (9th Cir. 1975); and (5) overstatement of business expenses.

IV. The defendant contends that there were several errors at trial which entitle him to a new trial. These include statements by the trial judge either during the trial or in the charge, interruption of the jury's deliberations, sending the Government summaries out with the jury, and alleged prosecutorial misconduct.

A. Statements by the Trial Judge:

In his brief, the defendant cites numerous statements that he claimed prejudiced him. At the hearing, however, defense counsel pressed only one of these. As to the others, a careful reading of the transcript reveals that they have been lifted out of context and given a strained interpretation. The brief ignores other cautionary instructions to the jury, and therefore these contentions are not worthy of further comment.

The contention argued by counsel at the hearing was a portion of the charge which stated generally that an indictment is not evidence but an accusation which the defendant is called upon to answer. He objects that this is an improper comment on his Fifth Amendment privilege. The charge complained of is part of a general criminal charge which has been given probably to thousands of criminal juries over the years. This part of the charge refers of course to the defendant's duty to plead guilty or not guilty and has nothing to do with the Fifth Amendment. Any ambiguity that may have been created in the jurors' minds was cured a few moments later when the jury was instructed as to burden of proof and presumption of innocence. (N. T. 8-7-9).

B. Interruption of Jury Deliberations:

The defendant objects to the fact that the jury was sent home for the evening. This has been the standard practice in this District in the circumstances of this case. No publicity surrounded the case. The hour was late. The jury was admonished to discuss the case with no one. (N. T. 8-49, 50). The following morning, the jury was asked if any of them discussed the case with anyone, and they all said they did not. (N. T. 9-3). In the light of United States v. Piancone, 506 F. 2d 748, 750-51 (3rd Cir. 1974), and Byrne v. Matczak, 254 F. 2d 525, 529 (3rd Cir. 1958), cert. denied, 358 U. S. 816 (1958), this contention is likewise not worthy of more discussion.

C. The Summaries:

The defendant objects that the summaries prepared by the Government witnesses were allowed to go out with the jury. While it is true that the Supreme Court in Holland , supra, cautioned against the use of charts and summaries in net worth cases, 348 U. S. at 129-30, such summaries have been consistently approved when used not as evidence but as an aid to the jury, with guarding instructions. United States v. Johnson [43-1 USTC ¶9470], 319 U. S. 503, 519 (1943); Gariepy v. United States, 189 F. 2d 459, 462 (6th Cir. 1951); Smith v. United States [57-1 USTC ¶9242], 239 F. 2d 168 (6th Cir. 1956), cert. denied, 353 U. S. 983 (1957) reh. denied, 354 U. S. 944 (1957); United States v. Parenti, supra, 326 F. Supp. at 728.

In this case the jury was instructed that the summaries were not evidence and could only be considered if they found there was competent evidence in the record to support the computations. (N. T. 8-26). The summaries themselves were cross referenced to the exhibits and testimony they purported to reflect, and the individuals who prepared them were subjected to searching cross-examination. The use of such summaries are particularly appropriate in a case like this that embraces a thirteen year period and myriad transactions in securities, bank accounts, savings certificates, and real estate. See United States v. Parenti, supra, 326 F. Supp. at 728.

The defendant objects that these summaries omitted some items and contained errors. This contention has been answered elsewhere and need not be restated. He also objects that the summaries contained evaluations of credibility, citing Steele v. United States [55-1 USTC ¶9438], 222 F. 2d 628 (5th Cir. 1958), and United States v. Ward, 169 F. 2d 460 (3rd Cir. 1948) for the proposition that this is impermissible. However, the defendant does not point to any place in the transcript where the Government witnesses passed on credibility. An independent review of the record does not disclose any place where either summary witness evaluated the credibility of any evidence. The only item which conceivably involved credibility was the Western Savings account. The defendant's contentions with respect to the account have likewise been considered elsewhere in this opinion and need not be restated. Otherwise, the record reveals that the Government accepted all the documentary and other evidence in the case at face value. Accordingly, the rule of law cited by the defendant does not appear to be relevant.

D. Prosecutorial Misconduct:

The defendant objects to argument on summation that the people who pay taxes are the victims of people who evade their taxes (N. T. 7-100), and to an analogy between the crime of tax evasion and other crimes such as bank robbery and burglary (N. T. 7-99).

The prosecutor is entitled to strike hard blows but the foul ones. Berger v. United States , 295 U. S. 78, 88 (1935). Statements made by the Assistant U. S. Attorney during the trial must be viewed in the "totality of the circumstances." United States v. Newman, 490 F. 2d 139, 147 (3rd Cir. 1974). While some statements--such as those expressing an opinion on guilt based on facts not in evidence--are so inherently prejudicial as to per se require a new trial, United States v. Schartner, 426 F. 2d 470, 478 (3rd Cir. 1970), the general rule is to determine case-by-case whether the defendant was actually prejudiced. United States v. Somers, 496 F. 2d 723, 740-41 (3rd Cir. 1974), cert. denied, 419 U. S. 832 (1974). Moreover, a prosecutor's remark made in reply to, or in rebuttal of, an improper inference suggested by defense counsel does not result in that prejudice which requires a new trial. United States v. Somers, supra, 496 F. 2d at 741.

A careful reading of the summation arguments of both counsel reveals that the defendant suffered no prejudice by the prosecutor's remarks. Both remarks were made in the context of trying to explain the difference between a civil and a criminal tax action, and to argue that tax evasion is a serious crime. These arguments in turn were required to meet a defense strategy aimed at downplaying the crime and emphasizing the existence of a civil remedy for the Government. For example, at one point in cross-examination, defense counsel remarked. "So no matter which way it works out here he's still going to have to pay the piper in the civil case. Correct?" (N. T. 5-99). At another point he brought President Nixon into the case: "In the case of Nixon where he owed the Government $550,000 and he had false affidavits filed and everything, they merely went against him civilly. Isn't that correct?" (N. T. 7-78). Finally, on closing argument he attempted to prejudice the jury against the Internal Revenue Service by referring to news stories about personal files on taxpayers kept by the Service. (N. T. 7-142). Under the circumstances, therefore, the prosecutor's remarks were within the range of fair argument to answer these tactics.

V. The Court is of the same opinion as Judge Green that there is no merit to the defendant's motion to dismiss for preindictment delay, which was incorporated by reference in his brief on the post-trial motions.

There being no other grounds for granting either the motion for judgment of acquittal or the motion for a new trial, both motions are accordingly denied.

Order

An Now to Wit, this 20th day of January 1976, for the reasons set forth in the Opinion filed concurrently herewith, it is Ordered, Adjudged and Decreed that defendant's motion for judgment of acquittal or in the alternative, for a new trial, be and they are hereby Denied.

 

 

 

[75-2 USTC ¶9655] United States of America , Appellee v. Richard G. Mogavero, Appellant

(CA-4), U. S. Court of Appeals, 4th Circuit, No. 75-1026, 521 F2d 625, 8/14/75, Reversing and granting a new trial in unreported District Court decision

[Code Sec. 7201]

Criminal penalties: Evidence: Net worth increase: Instructions to jury: Improper.--Taxpayer's conviction for willfully filing false and fraudulent income tax returns was reversed and a new trial was granted. The conviction was based on legally sufficient evidence that the taxpayer had unreported net worth increases but the instructions to the jury had placed upon the taxpayer the burden of proving beyond a reasonable doubt that his parents were the source of his funds in order to gain acquittal. In a net worth income tax prosecution, the burden of disproving a taxpayer's claimed source of nontaxable receipts rests on the government. Thus, the instruction was in error.

Scott P. Crampton, Assistant Attorney General, Richard B. Buhrman, Gilbert E. Andrews, Rob ert Lindsay, Department of Justice, Washington, D. C. 20530, George Beall, United States Attorney, Baltimore, Md., for appellee. Stephen N. Shulman, Adrian C. May, Jr., David Diener, Cadwalader, Wickersham & Taft, 1000 Connecticut Ave., Washington, D. C., for appellant.

Before WINTER, BUTZNER, and WIDENER, Circuit Judges.

WINTER, Circuit Judge:

Found guilty of filing false and fraudulent individual income tax returns for the years 1967-1970 in violation of 26 U. S. C. §7201, Richard Mogavero appeals, asserting as grounds for reversal that the evidence was insufficient to convict him, that the instructions to the jury were prejudicially erroneous, and that there was error in the district court's refusal to poll the jury on its verdict. We think that the evidence was legally sufficient to permit the jury to find him guilty beyond a reasonable doubt, but we conclude that there was a fatal error in the instructions given the jury requiring reversal and a new trial. The district court's refusal to poll the jury after its verdict was recorded is unlikely to arise at a second trial, and we see no need to pass on its propriety.

I. Viewed in the light most favorable to the government, the proof established that over the years in question defendant's net worth substantially increased over and above that which he reported as taxable income. Indeed, it indicated that his unreported income for the years in question aggregated $164,680.31. To rebut the logical inference that his increased net worth indicated that he under-reported his taxable income in that amount, defendant claimed that the increases were attributable to two loans to him of $80,000 and $84,000, repectively, in the form of currency, from his parents. The first was allegedly made sometime between 1966 and 1970, and the second sometime after March 11, 1968, when his parents gave him a power of attorney to handle their affairs and he made the loan to himself under the power. The proceeds of the latter loan were allegedly invested in the Briarwood Inn, a now defunct business enterprise of which defendant was the proprietor.

The government's evidence further showed that while defendant, in his 1967 tax return, claimed an interest deduction on a $5,000 balance on a loan from his father, he did not claim any interest deduction on the loans of $80,000 and $84,000, respectively for any years. In 1967, 1970 and 1971, defendant filed five financial statements with banks and insurance companies; none showed any liabilities to defendant's parents. Finally, a source and application of funds statement reflecting the financial history of defendant's parents between 1955 and 1970 showed that between 1955 and 1964 defendant's parents spent or invested substantially more than they were known to have received, during 1965 and 1966 they may have accumulated $10,171.90, and that during 1967 to 1970 they may have accumulated approximately $1,750. Thus, the inference that they lacked the means to make the loans as claimed by defendant could logically be drawn. Defendant countered with evidence that for some past period his father had been a bookmaker.

Although conflicting, we think that the evidence was legally sufficient to permit the jury to find that defendant willfully filed false and fraudulent income tax returns for the years 1967 to 1970.

II. In view of the defense that loans from defendant's parents explained his substantial increase in net worth, defendant asked that the jury be instructed as follows:

If you are not convinced beyond a reasonable doubt that the defendant's parents were not the source of the cash money, that the defendant failed to report on his tax returns, then you would find the defendant not guilty. (Emphasis added.)

Conversely, if you are convinced beyond a reasonable doubt that the defendant's parents are not the source of the cash money that the defendant failed to report in his tax return during each of the years involved, then you would find the defendant guilty as to each or any of those years.

While purporting to grant the requested instruction, the district court eliminated the double negative in the first paragraph of the request and told the jury:

In this case the defendant has maintained that the increases in his net worth were the result of cash monies he received in loans from his parents, and the cash monies belonging to his parents that he expended under a power of attorney.

The prosecution must prove beyond a reasonable doubt this is not true in order for you to find the defendant guilty.

If you are convinced beyond a reasonable doubt that the defendant's parents were the source of the cash money, that the defendant failed to report on his tax returns, then you would find the defendant not guilty. (Emphasis added.)

Conversely, if you are convinced beyond a reasonable doubt that the defendant's parents are not the source of the cash money that the defendant failed to report in his tax return during each of the years involved, then you would find the defendant guilty as to each or any of thoe years.

The sentence in the instruction given that "[i]f you are convinced beyond a reasonable doubt that the defendant's parents were the source of the cash money . . . then you would find the defendant not guilty" is not the equivalent of the requested instruction that "[i]f you are not convinced beyond a reasonable doubt that the defendant's parents were not the source of the cash money . . . then you would find the defendant not guilty." The instruction given casts the burden on the defendant to prove beyond a reasonable doubt that his parents were not [sic] the source of his funds in order to gain acquittal. This was error, because Holland v. United States [54-2 USTC ¶9714], 348 U. S. 121 (1954), and United States v. Massei [58-1 USTC ¶9326], 355 U. S. 595 (1958), both hold that in a net worth income tax prosecution the burden of disproving a defendant's claimed source of nontaxable receipts rests on the government. If that burden is not met by proof persuasive beyond a reasonable doubt, a defendant is entitled to acquittal. The requested instruction correctly stated the applicable rule of law, because it applied the proper standard as to burden of proof.

The government concedes that, standing alone, the instruction given would constitute reversible error. The government argues vigorously, however, that the error was overcome when the charge, containing repeated general references to the government's burden to prove each element of its case, is considered in its entirety. We are not persuaded.

It is true that the jury was told about the government's burden of proof--that the burden of proof is always on the government to prove beyond a reasonable doubt every essential element of the crimes charges, that the burden is never on the defendant, and that, in the instant case, the burden was on the government to prove beyond a reasonable doubt that any amounts reflected in the defendant's increased net worth, plus nondeductible expenditures, were from taxable rather than from nontaxable sources. The flaw in the government's logic is that these instructions were all cast in the form of general statements as to burden of proof. The erroneous instruction was addressed to specific findings--application of the general statements to the facts as the jury might find them and the form of verdict which would follow. As a consequence, we think it unlikely that the jury, in making the specific finding of guilt or innocence, would correctly apply the general statements in the contravention of the district court's literal language. Thus, we cannot conclude that the error was overcome.

III. As we have stated, the dispute about the proper time to poll individual jurors on the jury's verdict is unlikely to arise at a new trial. We do not deem it necessary to consider it.

Reversed; New Trial Granted.

 

 

 

[75-1 USTC ¶9456] United States of America , Plaintiff-Appellee v. Charles H. Bush, Defendant-Appellant

(CA-5), U. S. Court of Appeals, 5th Circuit, No. 74-3902, Summary Calendar, *, 512 F2d 771, 5/8/75, Affirming unreported District Court decision

[Code Sec. 7201]

Criminal penalties: Income not reported: Net worth method: IRS procedure, protection of Constitutional rights.--The taxpayer's conviction for tax evasion was affirmed on appeal. The court concluded that the taxpayer had been informed of his rights and had knowingly and voluntarily waived his right to counsel. The court also determined that the government had properly utilized the net worth method by crediting the taxpayer with a zero cash basis at the beginning and ending of the taxable year.

R. Jackson B. Smith, United States Attorney, Edmund A. Booth, Jr., Assistant United States Attorney, Augusta, Ga., for plaintff-appellee. William C. Calhoun, 1116 S. Finance Bldg., Augusta , Ga. , for defendant-appellant.

Before GEWIN, GOLDBERG and DYER, Circuit Judges.

PER CURIAM:

Appellant Charles Bush was found guilty by a jury on a one-count indictment charging him with income tax evasion for the calendar year 1971 in violation of 26 U. S. C. §7201. On appeal, he contends (1) that his motion to suppress certain evidence should have been granted and (2) that he was entitled to a judgment of acquittal because the government allegedly failed to carry the burden of proof as to his net worth. We find no merit in either contention and we affirm the judgment of conviction.

Appellant argues that evidence obtained from him during the first interview with Internal Revenue Service personnel should have been excluded at trial. He asserts that he did not properly waive his right to have an attorney present at the interview and that the government agents used fraud and deceit to encourage him to proceed with the interview unassisted by an attorney. We have carefully reviewed the record, including a transcript of the interview in question, and we find that appellant was given the Miranda-like warnings pursuant to established I. R. S. procedures, that he understood his right to counsel, and that he intelligently, knowingly, and willingly chose not to have counsel present. Furthermore, we can find nothing in the record to support his allegation of fraud and deceit on the part of the government agents. We hold that appellant has failed to meet his burden of proof on this issue. See United States v. Dawson, 486 F. 2d 1326 (5th Cir. 1973); United States v. Tonahill [70-2 USTC ¶9511], 430 F. 2d 1042 (5th Cir. 1970).

At the trial, a government witness testified that, in computing appellant's income by the net worth method, appellant was given credit for zero cash on hand both at the beginning and at the end of the tax year under consideration. Appellant contends that this was improper because he had related to I. R. S. personnel that he had certain sums of money at the beginning and at the end of the year 1971. There is, however, other evidence to support the government's use of the zero cash on hand figure. For example, an amended joint tax return filed by appellant for 1971 reflected zero cash on hand at the end of the calendar years 1970 and 1971. Moreover, we note that, since a zero cash on hand figure was used for the beginning as well as the end of the tax year, this did not affect the determination of appellant's income for 1971 because the net worth method of computation depends on increases in assets to reflect income. With reference to cash on hand, the government gave appellant the benefit of the doubt by not finding an increase in his net worth in that respect. The government did not fail to meet its burden of proof as to appellant's net worth as argued, and, accordingly, he was not entitled to a judgment of acquittal.

Affirmed.

* Rule 18, 5th Cir., see Isbell Enterprises, Inc. v. Citizens Casualty Co. of New York et al., 5th Cir. 1970, 431 F. 2d 409, Part I.

 

 

[75-1 USTC ¶9206] United States of America , Plaintiff v. Ira Lee Shy, Defendant

U. S. District Court, Dist. Del., Criminal Action No. 74-26, 383 FSupp 673, 11/4/74

[Code Sec. 7203]

Criminal penalties: Willfull failure to file returns: Willfulness: Use of net worth method: Opening net worth: Sources of income: Motion for acquittal.--Motion for judgment of acquittal was denied on one count of an indictment for willful failure to file income tax returns where the defendant admitted receiving at least $10,000 gambling income and he did not argue that the evidence of willfulness was insufficient to put before a jury. Motion for acquittal on a second count for the same offense involving a different year was also denied. The government's use of the net worth method in this failure-to-file case was no less reliable than it had been in tax evasion cases (both were used to try to prove that the income received was more than the amount claimed). Further, the government's proof, dealing with the opening net worth and the sources of income, satisfied the standards set in Holland , SCt, 54-2 USTC ¶9714.

John H. McDonald, Assistant United States Attorney, Wilmington , Del. , for plaintiff. Carl Schnee, Suite 1110 , Bank of Delaware Bldg., 300 Delaware Ave. , Wilmington , Del. , for defendant.

Opinion

LAYTON , District Judge:

By his motion for judgment of acquittal made pursuant to Rule 29(c), F. R. Crim. P., the Defendant challenges the Government's exclusive reliance on the net worth method to prove one count of an indictment for willful failure to file income tax returns. 1

Ira Lee Shy was tried before a jury on an indictment charging willful failure to file income tax returns for the years 1970 (Count I) and 1971 (Count II), in violation of 26 U. S. C. §7203. The jury was unable to agree upon a verdict, and the Court declared a mistrial. Defendant has renewed his motion for judgment of acquittal.

Rule 29 states the standard: a judgment of acquittal is to be entered "if the evidence is insufficient to sustain a conviction. . . ." The evidence ". . . and the inferences to be drawn from it must be taken in the light most favorable to the Government . . . [and] the sufficiency of the evidence must be judged upon the record as a whole." United States v. Feldman, 425 F. 2d 688, 692 (3 Cir., 1970).

The offense with which the Defendant is charged contains three elements which must be proved: (1) duty to file--that the Defendant received at least $1700.00 in gross income in the year charged, (2) failure to file--admitted as to each count herein, and (3) willfulness in respect to failure to file--in controversy herein.

The net worth method, which Defendant challenges as applied to this case, was used solely to show that the Defendant had a duty to file--that he earned more than $1700.00 in each year charged.

Count II

Were Defendant's arguments accepted, I find that they would not justify acquittal on Count II (1971). Disregarding all net worth evidence, there is in the record Defendant's admission that he received at least $10,000.00 in gambling income in 1971. 2 The requirement to file and the failure to file being admitted, only the issue of willfulness is in controversy. Defendant does not argue that evidence of willfulness was insufficient to put before a jury.

Count I

No proof of actual income was made for the year 1970. It is in this count that the Government relied exclusively upon the net

[Use of Net Worth Method]

[Use of Net Worth Method]

The Defendant points out that an exhaustive search of reported cases fails to uncover one in which the net worth method has been used exclusively to prove duty to file. 3 He argues:

"(W)henever the theory . . . has been applied by other courts, the . . . defendants have been charged with some type of fraud or misrepresentation . . . in the filing of their returns. Therefore, it was proper . . . to allow the government to utilize this theory by utilizing prior admissions (in the form of tax returns) or current admissions (again in the form of tax returns) in proving net worth. In the case at bar, such theory must fail."

Even if Defendant's observation were correct, 4 his argument would miss the point of allowing net worth proof. In evasion cases it is used to show a factual discrepancy between the amount the taxpayer reported as income and the amount the Government contends he actually received. In this failure-to-file case it was used to show a factual discrepancy between the amount of income the Defendant claimed to have received in the years charged (i. e., less than $1700) and the amount the Government claims he received (i. e., more than $1700). Defendant has pointed to no factor which would make the net worth method less reliable in the latter instance than in the former. 5

[Opening Net Worth]

In his second attack upon the method's application in this case, Defendant accurately states the law:

"It is clear that the net worth theory rests in large part upon the government's ability to establish, with reasonable certainty, an operning net worth, to serve as a starting point, from which to calculate the future increases in the defendant's assets."

He argues that since at the Government's starting point, 12-31-69, Defendant is credited with the rather meagre assets of two cars plus $100.00 cash on hand, the Government failed in its obligation to show a "solid net worth starting point."

If, indeed, Defendant had substantially greater assets on that date, Defendant is correct. But it may properly be inferred from the record that he did not. The jury reasonably could have believed representations by Government witnesses that they made every effort to collect independent data on Defendant's financial condition at the "starting point," and that, so far as could be found, this was all he owned. United States v. Penosi [72-1 USTC ¶9103], 452 F. 2d 217, 220 (5 Cir., 1971), cert. den. 405 U. S. 1065. Defendant did take the stand and he did not claim to have owned more at the "starting point" than that with which the Government credited him. See United States v. Mackey [65-1 USTC ¶9328], 345 F. 2d 499, 506 (7 Cir., 1965) cert. den. 382 U. S. 824; United States v. Adonis [55-1 USTC ¶9310], 221 F. 2d 717, 718 (3 Cir., 1955); United States v. Frank [57-1 USTC ¶9675], 245 F. 2d 284 (3 Cir., 1957). Compare United States v. O'Malley [55-1 USTC ¶9492], 131 F. Supp. 409 (E. D. Pa., 1955).

No case cited by the Defendant stands for the proposition that the Government is obliged to credit a taxpayer with enough fictional assets and nonexistent prior tax returns to build a "solid" starting point. Again, this was the point of the Holland case--the Government having presented the results of a comprehensive effort to ascertain opening net worth, the Defendant may furnish "leads" as to whatever the Government may have missed, or he may claim that he had assets at that time which are unknown to the investigators. The Defendant herein did neither. Holland , 138-9.

[Sources of Income]

There remains Defendant's contention that the net worth statement erroneously included possessions and expenses pertaining either to both Defendant and his wife or to his wife alone. 6 Had the Government failed to make a net worth investigation about the wife, Defendant would be correct. United States v. Meriwether [71-1 USTC ¶9390], 440 F. 2d 753, 756 (5 Cir., 1971). However, the Government's investigation included possible income sources for Defendant's wife. Like the Defendant, she had filed to income tax returns for the years previous. Unlike the Defendant, she had no apparent source of income. Defendant's own testimony indicated that she worked only occasionally. "This was all relevant and its weight for the jury." Frank, supra, at 287. The jury could properly have inferred from the record that the net effect of the wife on the net worth calculations for the Defendant was de minimis.

[Conclusion]

I hold that the Government's use of the net worth method as if in an evasion case did not render it unreliable in this failure-to-file case, and that the Government's proof satisfied the standards set in the Holland case. Defendant's motion will be denied.

Submit Order.

1 For explanation of this method, see Holland v. United States [54-2 USTC ¶9714], 348 U. S. 121 (1954).

2 Although Defendant testified to this as part of the Defense's case, he was not "filling in a gap" in the prosecution's case. The Government put into evidence Defendant's admission to an Internal Revenue agent that he had received $10,000.00 from illegal gambling in 1971. But even if this admission came to light only in the Defendant's case, after denial of Defendant's motion for acquittal made at the close of the Government's case, the rule in the Third Circuit is that the Court should consider it in ruling upon the renewed motion for acquittal. United States v. Belgrave, 484 F. 2d 915, 917 (3 Cir., 1973); United States v. Feldman, supra.

3 But see United States v. Johnson, 460 F. 2d 20 (9 Cir., 1972), and United States v. Walker, 479 F. 2d 407 (9 Cir., 1973), failure-to-file cases in which the net worth method was used to corroborate other evidence.

4 In the evasion case of United States v. Schipani [66-2 USTC ¶9512], 362 F. 2d 825, 826 (2 Cir., 1966) cert. den. 385 U. S. 934, the Defendant kept no records and filed no return. The case was tried on the net worth theory.

5 See generally Annotation. 2 L. Ed. 2d 1870 et seq. It is true that, by definition, failure-to-file cases involve no affirmative submissions by the taxpayer which the Government can show to have been purposefully and wrongfully made. The effect is to force the Government to prove circumstantially the essential element of willfulness. See Holland , supra, at 139. Proof of the element of willfulness is separate from proof of duty to file. It is to proof of willfulness that Defendant's argument should properly pertain. The jury could have found, from the record as a whole, sufficient proof of willfulness to sustain a conviction.

The apparent absence of failure-to-file cases in which the method has been used exclusively can be explained only by speculation. One possibility is that the Government's burden of proof on the duty-to-file issue is usually met so easily that resort to this complicated and confusing method is unnecessary. Another possibility is that since failure-to-file is a misdemeanor, ordinarily the Government might not proceed with cases that are difficult to prove.

6 The inclusion in the opening net worth calculation of cars in which the wife had an interest can only have helped the Defendant.

 

 

[74-1 USTC ¶9258] United States of America , Appellee v. W. Horace Lowder, Appellant

(CA-4), U. S. Court of Appeals, 4th Circuit, No. 73-1176, 492 F2d 953, 2/22/74, Aff'g unreported District Court decision

[Code Secs. 6531 and 7206(1) and 18 U. S. C. Sec. 371]

Crimes: Conspiracy to defraud U. S.: Statute of limitations: False returns: Net worth method: Evidence.--A secretary-treasurer of six corporations was properly convicted of conspiring with the corporations to defraud the United States by obstructing the IRS in its task of computing and collecting revenue. The six-year statute of limitations on prosecutions for certain tax law violations, not the general five-year statute on violations of federal laws, applied to the action, so the prosecution was not barred. He was also properly convicted on two counts of filing false returns. The evidence was sufficient on these counts and the net worth method was properly used.

Scott P. Crampton, Assistant Attorney General, Meyer Rothwacks, John P. Burke, Rob ert L. Baker, Richard P. Slivka, Department of Justice, Washington, D. C. 20530, for appellee. W. Horace Lowder, pro se.

Before WINTER, CRAVEN, and BUTZNER, Circuit Judges.

PER CURIAM:

W. Horace Lowder was convicted in January, 1973, in a trial by jury, of one count of conspiracy to defraud the United States by obstructing the Internal Revenue Service in its task of computing and collecting revenue (18 U. S. C. §371) and two counts of knowingly filing false corporate income tax returns (26 U. S. C. 7206(1)). Lowder was sentenced to two years' imprisonment on each count and was fined $10,000 on the conspiracy count and $5,000 on each of the other two counts.

[Background]

The government's case was based on the theory that Lowder utilized his intimate connection with six family-owned corporations to foster an intricate scheme whereby their tax liability would be obscured and evaded, in the years 1961-65. The basic facts as to those years for each corporation follow:

(1) All Star Mills, Inc. (Mills): The original family corporation, founded in 1932 by Lowder's father; principal business was sale of flour and animal feed; Lowder's ownership 111/2%. There were 26 other stockholders.

(2) Lowder Farms, Inc. (Farms): A second family-owned corporation, founded in 1950 by Lowder's father and uncle; principal business of beef cattle and farming; Lowder's ownership 111/2%. There were 24 other stockholders.

(3) All Star Hatcheries, Inc. (Hatcheries): Founded in 1959 by Lowder for the business of hatching and growing poultry (broilers); Lowder and wife owned 100% of stock.

(4) All Star Foods, Inc. (Foods): Founded in 1959 by Lowder to raise layers and produce and market eggs; Lowder owned 51% through stock held by him and Hatcheries. Mills owned 49%.

(5), (6) All Star Industries, Inc., and Consolidated Industries, Inc., were both named as co-conspirators but their activities did not play any significant role. The former was formed in 1961 to hold a mortgage on property owned by Foods; the latter was formed to be the legal owner of a farm. Lowder owned 100% of the former, 331/3% of the latter.

Lowder throughout the relevant years was the active manager of the affairs of each corporation. He held, among others, the position of secretary-treasurer in each, was in charge of the overall business and financial operations for all, including bookkeeping, and signed each of the corporate tax returns. That Lowder was responsible for the practices alleged to have constituted a scheme to cover up tax liability was not disputed by him; the other shareholders and officers apparently gave him a free hand in decision making.

The four active corporations were Mills, Farms, Foods, and Hatcheries, all of whose books and records were kept in the offices of the original company, Mills. Almost all of the paper work--handling sales invoices, posting accounts, etc.--was handled by Mills' employees.

In addition to regular business with third parties, these four corporations, along with the two inactive ones, engaged in a substantial number of inter-corporate transactions. Their records over the four-year period showed that some $17 million was transferred by checks running from each corporation to the five others; that some $5 million of this amount was attributable to loans extended or loans repaid; and that the remaining $12 million was reflected as expenses on the books of the paying corporations. The nature and validity of these expensed transfers--whether the amounts represented transactions in real goods and services or whether they were mere transfers of money fraudulently treated as "expenses" to avoid a showing of profits--was the crux of the case before the jury.

[Contentions]

The major contentions advanced by Lowder are: (1) conviction on the first count was barred by the statute of limitations, 18 U. S. C. §3282; (2) the employment of a net worth method in count two was erroneous; (3) the convictions on each count rested on insufficient evidence. For the major portion of the proceedings in the district court and before us, Lowder represented himself. There is no claim that his lack of counsel was the result of indigency. In January, 1972, three months after his indictment and one year before the trial, Lowder discharged his retained attorney over a fee dispute. The legal and factual complexity of the charges have made his chosen course hazardous, but we have endeavored to scrutinize the record and give the assigned errors full consideration. We decline, however, to hear argument pro se.

Count I

The conspiracy conviction is assailed as barred by the applicable statute of limitations. We do not agree and, therefore, we affirm.

Lowder and the six corporations were charged with conspiring, from January, 1961, up through the date of the indictment, Cotober 8, 1971, to defraud the United States "by impeding, impairing and obstructing the lawful functions of the Internal Revenue Service, . . . in the ascertainment, computation, assessment and collection of revenue" from the four active corporations.

As alleged and proved the essence of the government's case was that: (1) each corporation had a different accounting year--Mills was on a calendar year basis and the other five were each on different fiscal years; (2) the transfers of money, ostensibly paid for supplies such as feed, would usually occur in large amounts towards the close of the fiscal year for the transferor/"purchaser"; (3) these transfers, treated as expenses, would in virtually every instance wipe out then-existing profits which had been accumulating to the transferor during its taxable year; (4) the "seller"/transferee would in turn eliminate the effect these amounts had on its books as receipts (and potential profits) when its taxable year closed a few months later by another transfer similarly expensed, and so on, in a process denoted as "rolling" by the investigating agent; (5) the transfers of money, in the aggregate, overstated the value of the goods actually changing hands, i. e., Mills did sell feed to Hatcheries, but not nearly in the quantities which would justify the amounts expensed on the books; (6) the fact that Mills and Farms were on an accrual basis method of accounting and Hatcheries and Foods were on a cash basis method was utilized by Lowder to obscure the real transactions; and (7) the underlying documents--invoices, ledger cards, etc.--against which the validity of these transfers could have been checked were deliberately destroyed or concealed.

Of the eighteen alleged overt acts, all of which were corporate income tax filings for the years in question, the latest occurred on March 14, 1966, the date of the filing of Mills' return for the previous calendar year. The date of the indictment is October 8, 1971, approximately five years and seven months after the date of the last overt act alleged therein.

Before the trial, the court ruled that the six-year statute of limitations specified in 26, U. S. C. §6531(a) applied to the conspiracy count as well as to the fraudulent filing charges. Lowder asserts that the first count, charging a conspiracy to defraud under 18 U. S. C. §371, was governed by the general five-year limitation period specified in 18 U. S. C. §3282, 1 but we think the six-year limitation period in 26 U. S. C. §6531 governs. The general conspiracy statute, 18 U. S. C. §371, contains no period of limitations. Limitations, for indictments under §371, are those supplied by other provisions of law, or where there are none, by 18 U. S. C. §3282 which is a general statute of limitations applicable "[e]xcept as otherwise expressly provided by law." Thus, §3282 applies where no other statute is applicable, and, stated conversely, its application is ousted when there is a special limitation period prescribed for a specific offense.

In the case of prosecutions of violations of the tax laws, 26 U. S. C. §6531 provides, in relevant part:

No person shall be prosecuted . . . for any of the various offenses arising under the internal revenue laws unless the indictment is found or the information instituted within 3 years next after the commission of the offense, except that the period of limitation shall be 6 years--

(1) for offenses involving the defrauding or attempting to defraud the United States or any agency thereof, whether by conspiracy or not, and in any manner . . ..

It thus appears that for a conspiracy to defraud the United States by filing false and fraudulent tax returns--the crime charged against Lowder, §6531 prescribes a six-year period of limitations and, as part of the overall statutory scheme, §3282, by its terms, is inapplicable.

Two authorities do apparently stand opposed to what seems to be this fairly obvious statutory scheme: Grunewald v. United States [57-1 USTC ¶9693], 353 U. S. 391 (1957); and United States v. Klein [57-2 USTC ¶9912], 247 F. 2d 908 (2 Cir. 1957), cert. denied, 355 U. S. 924 (1958).

In Klein, on an indictment charging a §371 conspiracy to defraud in language virtually identical to that contained in count one here, the court, as a prelude to its discussion of the evidence showing the period that the conspiracy continued, stated that 18 U. S. C. §3282 was applicable. In Grunewald, on an indictment charging a conspiracy `to defraud the United States in the exercise of its governmental functions of admin istering the internal revenue laws'" the Court stated that the "first question before us is whether [the §371 count] was barred by the applicable three-year statute of limitations. 8" 353 U. S. at 396. The footnote was to §3282 (amended in 1954 to provide for the present five-year period).

The government argues that the language in both cases represents not holding, but dicta, since the precise issue here was not contested by the parties. Especially in Grunewald, we do not think that the language was dicta. On the other hand, the language was not part of the main holdings in either case; it was not with respect to any issue which was fully briefed and pressed; and it seems nothing more than mere inadvertence on the part of both courts that the specific language of §6351, and its predecessors, was overlooked. We, therefore, conclude to follow the specific statutory language, rather than the contrary statements in Grunewald and Klein and hold that the applicable limitation period was six years. The prosecution against Lowder on count one was not barred.

Count II

Lowder was convicted on count two of knowingly subscribing to a false income tax return. 26 U. S. C. §7206(1). The corporate tax return for Hatcheries for the fiscal year ending May 31, 1965, reported taxable income, before net operating loss deduction and special deductions, of $39,815.44. The government charged that the figure was deliberately and substantially understated.

The government offered a computation showing the increased net worth of Hatcheries for that fiscal year in order to establish the substantiality of the understatement. The computation for Hatcheries for that year was derived from a more extensive net worth computation which embraced all six corporations over the 1961-65 four-year period on a calendar year basis. The latter showed a total unreported taxable income in excess of $1.5 million for all corporations over the period, with a resulting estimated unreported tax liability of over $400,000.

From the four-year (calendar-year basis) net worth computation, the government's expert witness extracted the computation of net worth increases over that period for Hatcheries alone. Since the increases for Hatcheries were still on a calendar-year basis, they were then converted by monthly pro-ration to reflect fiscal year increases as of each May 31st, Hatcheries' closing date. Thus, for the fiscal year ending May 31, 1965, 7/12th of the 1964 net worth increase was added to 5/12ths of the 1965 net worth increase to arrive at a 12-month fiscal year net worth increase of $151,372.44. Since Hatcheries' return reported taxable income of $39,815.44, the computation reflected additional taxable income for the fiscal year ending May 31, 1965, of $111,557.00.

Having examined the exhibits and retraced the computations, we cannot accept Lowder's claim that this derivation should not have been admissible as proof of understatement. As we understand his brief, his objection amounts to a claim that the government cannot cour through complexity of the apparent scheme to the substance of corporations' financial activities. The net worth method was most appropriate in this case where the gross figures appearing on the books and transferred to the tax returns were suspect and the underlying documentation was unavailable. See Johnson v. United States [64-1 USTC ¶15,537], 325 F. 2d 709 (1 Cir. 1963). More specifically, since utilization of the different fiscal year dates was apparently an integral part of the scheme to "roll" income to avoid taxation, we think the government was properly allowed to pierce the surface by its pro-rata derivation. Holland v. United States [54-2 USTC ¶9714], 348 U. S. 121, 131 (1954).

Lowder also attacks the conviction on count two on the additional ground of insufficient evidence. That the taxable income was properly shown to have been understated is already settled. Lowder signed the return. As to the requisite criminal intent, the jury may of course infer that from circumstantial evidence. United States v. Barnes [63-1 USTC ¶9247], 313 F. 2d 325 (5 Cir. 1963). Such a basis existed, to cite but one example, in Lowder's failure to produce verifying documents for large expense items on Hatcheries' books for the instant year, at times in 1966 when, according to other testimony, the documents should have been in the corporate offices.

Construing the evidence most favorably for the government, we find it was sufficient to permit the jury to adjudge Lowder guilty beyond a reasonable doubt. Bell v. United States [50-2 USTC ¶9499], 185 F. 2d 302 (4 Cir. 1950), cert. denied, 340 U. S. 930 (1951). The conviction on count two must therefore stand.

Count III

The conviction on count three was also for knowingly filing a false return under 26 U. S. C. §7206(1). The government charged that, as to Hatcheries' tax return for the fiscal year ending May 31, 1966, Lowder deliberately failed to report $33,704.28 of taxable income as represented by three checks: (1) two checks from Foods to Hatcheries, dated December 30, 1965, totaling $32,519.28, which amount the government showed was expensed at that time on Foods' books; (2) one check from Farms to Hatcheries dated November 29, 1965, in the amount of $1,185.00, which amount was expensed at that time on Farms' books.

The only objection raised by Lowder is that the evidence was insufficient. He claims that the government failed to show any actual loss of revenue since, by his version, the Foods checks had been mislaid from the dates of making until February, 1967, at which time they were recorded on Hatcheries' books and computed in the income for that next fiscal year. But what Lowder might have done in subsequent years was irrelevant to whether he filed the return for the instant fiscal year knowing that those checks should have been reported as income to Hatcheries. The jury evidently did not believe his story, and we cannot say that they were unwarranted in so doing. That checks totaling over $33,000--money which at least could have been earning interest--were mislaid for fourteen months, and turned up after the IRS agent had begun his investigation, was sufficient to support the verdict on the element of intent. Bell v. United States, supra.

Lowder's miscellaneous assignments of error, which he merely listed without discussion in his brief, have been considered. They do not warrant discussion and are devoid of merit.

For the reasons stated, the convictions on each count are affirmed.

AFFIRMED.

1 Section 3282 provides:

Except as otherwise expressly provided by law, no person shall be prosecuted . . . for any offense, not capital, unless the indictment is found or the information is instituted within five years next after such offense shall have been committed.

 

 

[73-2 USTC ¶9787] United States of America , Plaintiff-Appellee v. David M. Sarvis, Defendant-Appellant

(CA-9), U. S. Court of Appeals, 9th Circuit, No. 73-1719, 488 F2d 526, 11/7/73, Aff'g unreported District Court decision

[Code Sec. 7203]

Crimes: Tax evasion: Evidence: Net worth.--The Court of Appeals found that the District Court did not err in admitting evidence of the taxpayer's net worth as relevant to the issue of willfulness in determining whether the taxpayer willfully attempted to evade tax and willfully filed a false return. Accordingly, the taxpayer's conviction of attempted tax evasion and making and subscribing to a false return was upheld.

Charles E. Brookhart, Scott P. Crampton, Assistant Attorney General, Meyer T. Rothwacks, John P. Burke, Laurence J. Whalen, Department of Justice, Washington, D. C. 20530, Sidney E. Smith, United States Attorney, Thomas C. Frost, Assistant United States Attorney, Boise, Idaho, for plaintiff-appellee. Jesse R. Walters, James W. Derr, Derr Bldg., 817 W. Franklin St., P. O. Box 1006, Boise, Idaho, C. L. Green, 612 Hays, Boise, Idaho, for defendant-appellant.

Before CHAMBERS, CHOY and WALLACE, Circuit Judges.

PER CURIAM:

Sarvis was convicted by a jury of attempted tax evasion and making and subscribing to a false return. In shotgun fashion, he asserts 42 alleged errors. In many instances, he fails to spell out his argument and provide us with suitable authority. We affirm.

One question deserves comment. In United States v. Walker [73-1 USTC ¶9426], 479 F. 2d 407 (9th Cir. 1973), we reversed a tax case due to the admission of evidence pertaining to the increased net worth of the taxpayer. In criminal prosecutions evidence of net worth must be used with "great care and restraint." Holland v. United States [54-2 USTC ¶9714], 348 U. S. 121, 129 (1954). Appreciation, gifts, and other nontaxable or unrealized income may significantly increase the value of a person's property to make increases in net worth an inaccurate reflection of taxable income. These dangers make it imperative that the court closely scrutinize the use of net worth evidence. Id. at 125. Thus, in Walker , a failure to file case, we held that evidence of increases in net worth was improperly admitted where the government had already established that the defendant had a duty to file. Once the government had established this duty, the evidence had no relevancy and could only have resulted in prejudicing the defendant in the eyes of the jury.

In the present case, however, Sarvis had filed a return and the questions were whether he had willfully attempted to evade and willfully filed a false return. The district court admitted evidence of his net worth as relevant to the issue of willfulness. Willfulness must be established by independent evidence and may not be inferred from a mere understatement. Id. at 139. Nevertheless, where the taxpayer has no records or records that are inadequate to show his actual tax liability, a consistent pattern of understatement as shown by proof of increases in net worth may give rise to an inference of willfulness. Id.; see Feichtmeir v. United States [68-1 USTC ¶9217], 389 F. 2d 498 (9th Cir. 1968). The district court correctly admitted the evidence on this issue and there was no error.

AFFIRMED.

 

 

[73-2 USTC ¶9560] United States of America , Plaintiff-Appellee v. Perry Russell Tunnell, Defendant-Appellant

(CA-5), U. S. Court of Appeals, 5th Circuit, No. 72-3787, 481 F2d 149, 7/18/73, Aff'g an unreported District Court Decision

[Code Secs. 446 and 7201]

Attempt to evade tax: Willfulness: Reconstruction of income: Net worth method: Burden of proof.--The Government properly applied the net worth increase method of reconstructing the taxpayer's income. Further, the requisite evil motive and affirmative act were present for a determination of a willful attempt to evade tax.

Rob y Hadden, United States Attorney, Tyler, Tex., Richard P. Slivka, Scott P. Crampton, Assistant Attorney General, Meyer Rothwacks, Department of Justice, Washington, D. C. 20530, for plaintiff-appellee. J. W. Tyner, Jerry Bain, 237 S. Broadway, Tyler , Tex. , for defendant-appellant.

Before AINSWORTH, GOLDBOLD and INGRAHAM, Circuit Judges.

AINSWORTH, Circuit Judge:

Perry Russell Tunnell was convicted on each of three counts for willfully attempting to evade federal income tax during the years 1965, 1966, and 1967, in violation of 26 U. S. C. §7201 (1970). 1 The central issue on appeal concerns the sufficiency of the Government's evidence based on the net worth method. We affirm.

I. One of the essential elements which the Government had to prove was that taxpayer owed tax on at least some unreported income for each of the three years named in the indictment. Because taxpayer's records were inadequate, the Government utilized the so-called "net worth method" described and approved in the leading Supreme Court case of Holland v. United States [54-2 USTC ¶9714], 348 U. S. 121, 125, 75 S. Ct. 127, 130 (1954):

In a typical net worth prosecution, the Government, having concluded that the taxpayer's records are inadequate as a basis for determining income tax liability, attempts to establish an "opening net worth" or total net value of the taxpayer's assets at the beginning of a given year. It then proves increases in the taxpayer's net worth for each succeeding year during the period under examination and calculates the difference between the adjusted net values of the taxpayer's assets at the beginning and end of each of the years involved. The taxpayer's nondeductible expenditures, including living expenses, are added to these increases, and if the resulting figure for any year is substantially greater than the taxable income reported by the taxpayer for that year, the Government claims the excess represents unreported taxable income. In addition, it asks the jury to infer willfulness from this understatement, when taken in connection with direct evidence of "conduct the likely effect of which would be to mislead or to conceal." Spies v. United States [43-1 USTC ¶9243], 317 U. S. 492, 499, 63 S. Ct. 364, 368, 87 L. Ed. 418.

See also United States v. Newman, 5 Cir., 1972, [72-2 USTC ¶9719] 468 F. 2d 791, cert. denied, 411 U. S. 905, 93 S. Ct. 1527 (1973) [41 L. W. 3516]; Lee v. United States , 5 Cir., 1972, 466 F. 2d 11.

In the present case the Government determined the correct taxable income and tax to be the amounts set out below, compared to the taxable income and tax actually reported by Tunnell on his returns, as follows:

        Government Determination                   Tunnell Reported
Year                  Income         Tax              Income        Tax
1965 ....         $ 9,236.73    $ 971.55            $ 181.52    $142.08
1966 ....          35,579.77    5,942.14            2,241.98     113.33
1967 ....          34,783.42    7,738.31         (20,864.63)        -0-

 

To rely on determinations of income by the net worth method, it was necessary that the Government establish Tunnell's opening net worth at the start of 1965 with reasonable certainty, introduce evidence supporting the inference that his net worth increased due to currently taxable income, and negate all reasonable explanations and leads furnished by Tunnell which were inconsistent with guilt. See Holland , 348 U. S. at 132, 135, 137, 75 S. Ct. at 134-36. In examining the record we find that the Government sustained its burden.

Based on a detailed financial analysis, the Government determined Tunnell's assets on December 31, 1964 to be $57,686.89, including cash on hand, cash in banks, the Pines Motel and Trailer Park, some farm land he inherited, mobile homes, automobiles, trucks, and deferred expenses. But he had offsetting liabilities of $64,447.55, so the Government set his opening net worth at a deficit of $6,760.66, which we find to be fully supported by the record. Counsel for taxpayer objected to the Government's introduction into evidence of tax returns for 1962, 1963, and 1964, and when the jury during its deliberations requested the 1963 and 1964 returns, counsel also objected to the district judge's allowing the jury to see the returns again. These returns were admissible and could be viewed by the jury at its request, because the small amounts of income reflected in these returns were relevant to corroborate the asserted deficit net worth as of December 31, 1964. The returns consistently showed the taxpayer had little income during the prior three years. Furthermore, the district judge gave the jury a proper limiting instruction that the documents could only be considered for the limited purpose of determining Tunnell's opening net worth.

The Government showed that the likely source of Tunnell's net worth increases was from taxable income, as opposed to exempt income, by showing that he could have had income from the Pines Motel other than that reported. Appellant objected to testimony that this motel, in addition to providing the taxable income generally expected, also provided Tunnell with an opportunity for income from prostitution activities. This was necessarily admissible to fulfill the Government's responsibility under Holland of showing a likely source for the unreported income over the three-year period. Tunnell, himself, volunteered the information to a Government agent that he had two to four girls working for him during all three years of 1965 through 1967 and that he made as much as $12,000 from their prostitution in one year. 2 This income was taxable even if it was unlawful. See James v. United States [61-1 USTC ¶9449], 366 U. S. 213, 219, 81 S. Ct. 1052, 1055 (1961).

The only leads furnished by taxpayer as inconsistent with guilt were that he had available $20,000 to $21,000 from the sale of a motel in Galveston during the prior tax year of 1964, that he "floated" checks, and that he borrowed money to live on during the years 1965 through 1967. The sale of the motel was reported on his 1964 return as a loss, and the correctness of that return was not disputed by the Government. Thus no tax was due on the proceeds received from the sale at an amount less than the basis. But contrary to appellant's assertion in his brief that he had $20,000 available as a result of the sale, testimony by one of two other people with interests in the motel indicates that a promissory note of about $15,000 had to be paid after the sale and the remaining $5,000 from the sale was divided among three people, so that Tunnell probably got less than $2,000.

"Floating" checks was defined as writing a check in excess of the amount in the bank account but then depositing money from another account in time to cover the check. Evidence indicates that Government agents thoroughly reviewed Tunnell's assets and liabilities and bank accounts to negate either his borrowing money or his floating checks as sufficient to account for the net worth increases.

II. As inferred by the Supreme Court from the words "willfully attempts" in the statute, the second and third necessary elements for conviction are evil motive by the defendant Tunnell and an affirmative act to carry out his scheme to evade tax. See 26 U. S. C. §7201 (1970); Spies v. United States [43-1 USTC ¶9243], 317 U. S. 492, 63 S. Ct. 364 (1943). See generally United States v. Bishop [73-1 USTC ¶9459], -- U. S. --, 93 S. Ct. 2008 (1973) 41 L. W. 4765]. Here the consistent pattern of understating large amounts of income coupled with evidence of inadequate records kept by taxpayer permits an inference of willfulness sufficient to create a jury question. See generally Holland , supra, 348 U. S. at 139, 75 S. Ct. at 137; Holbrook v. United States, 5 Cir., 1954, [54-2 USTC ¶9640] 216 F. 2d 238, cert. denied, 349 U. S. 915, 75 S. Ct. 605 (1955). The requisite affirmative act can be found in the filing of false tax returns for each year of the indictment.

Appellant raises several other points which we have considered and find to be without merit.

AFFIRMED.

1 Section 7201 reads as follows:

Any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $10,000, or imprisoned not more than 5 years, or both, together with the costs of prosecution.

2 This evidence thus differs from that presented in Armes v. Commissioner, 5 Cir., 1971, [71-2 USTC ¶9539] 448 F. 2d 972, 975-76 n. 2, where the evidence of prostitution activities never reached beyond suspicion and innuendo.

 

 

[73-2 USTC ¶9544] United States of America , Plaintiff-Appellee v. Hector R. Calles, Defendant-Appellant

(CA-5), U. S. Court of Appeals, 5th Circuit, No. 72-3195 Summary Calendar, *, 482 F2d 1155, 7/11/73, Aff'g unreported District Court

[Code Secs. 446 and 7201]

Tax evasion: Net worth method: Reconstruction of income: Trial errors: Proof.--On the evidence, the trial court properly determined under the "net worth method" of reconstructing income that the taxpayer wilfully failed to report income during the years in question. An opening net worth of zero was established with reasonable certainty. Consequently, the taxpayer's conviction for tax evasion was affirmed. Additionally, assertions by the taxpayer that the trial court committed various trial errors so that he was denied a fair trial were rejected.

Rob ert W. Rust, United States Attorney, Miami, Fla., Scott P. Crampton, Assistant Attorney General, Meyer Rothwacks, Department of Justice, Washington, D. C. 20530, for plaintiff-appellee. Lawrence E. Hoffman, 12-D Miami Beach Federal Bldg., Miami Beach, Fla., for defendant-appellant.

Before THORNBERRY, GOLDBERG and RONEY, Circuit Judges.

RONEY, Circuit Judge:

After a jury trial, appellant Hector R. Calles was convicted on two counts of wilfully attempting to evade and defeat his income tax liability for the years 1969 and 1970, in violation of 26 U. S. C. A. §7201. He was sentenced to two concurrent four-year terms in prison. On appeal, appellant contends (1) that the Government failed to establish, by means of the "net worth method," that he had taxable income during the years charged in the indictment, and (2) that various trial errors entitle him to a new trial. We affirm.

[Facts]

At the trial, the Government developed this preliminary evidence: Appellant Calles is a Cuban citizen born in 1931, has a college education plus two years of law school in Cuba, and claims to have been a government official in the early days of the Castro government. He entered the United States illegally in 1962 and has eluded the Immigration authorities ever since. He has never filed an income tax return. He established residence in Miami , but he has held his assets in the name of others. For example, his $68,000 home is in his wife's name, his yacht, Roxanna II, has been held in the names of at least two and possibly three friends, and his automobiles were registered under the name of "Santora."

According to the testimony of several federal and state law enforcement officials, appellant claimed various employments and occupations in conversations with them. For example, on May 25, 1968, he claimed to be in the jewelry business. On December 6, 1969, he said that he was the owner or manager of a ladies' wear store. On November 17, 1970, he told police that he was a merchant. On December 13, 1970, he said that he was a lobsterman and lobster dealer in Miami and the Bahamas .

In interviews with Government agents, appellant discussed what he termed his business activities in this country. He claimed that, after several years of inactivity subsequent to entering the United States, he invested and lost $32,000 in a partnership named Ablado Couture; engaged in an illegal nightclub operation in which he asserts that he invested $19,000; invested and lost $2,500 in a firm called B. A. U. International; in 1968 invested between $25,000 and $30,000 in the Roxanna Boutique in New York. This last claimed investment, however, was cast in doubt or at least clarified by the statement of Yolanda Alonzo, appellant's mother-in-law. When contacted by Government agents, Mrs. Alonzo stated that she was the owner of the Roxanna Boutique and that appellant's only investment was $2,000.

When questioned about his income, appellant gave two "sources" of funds. First, he claimed that many people brought money out of Cuba to him, from a hoard that he had built up as a Cuban official. He named only two such people and, since both of them had fled to other countries to avoid criminal prosecutions in the United States , his claim could not be verified. Second, appellant told the Government agents that he could call certain persons who would give money to him if he asked for it. He refused to identify these persons, but he told the Government agents that he would kill these people if the money was not forthcoming.

At the trial, appellant testified that his wife had no independent income during the years specified in the indictment, and he stated that his wife had never received any inheritances, gifts, or loans.

[Proof Necessary for Tax Evasion]

I. To sustain a conviction under Section 7201, the Government must prove three elements: the existence of a tax deficiency, willfulness, and an affirmative act constituting an evasion or an attempted evasion of the tax. Sansone v. United States [65-1 USTC ¶9307], 380 U. S. 343 (1965).

The Government employed the "net worth method" to establish the tax deficiency here. The procedure for this method was approved in Holland v. United States [54-2 USTC ¶9714], 348 U. S. 121, 125 (1954):

In a typical net worth prosecution, the Government, having concluded that the taxpayer's records are inadequate as a basis for determining income tax liability, attempts to establish an "opening net worth" or total net value of the taxpayer's assets at the beginning of a given year. It then proves increases in the taxpayer's net worth for each succeeding year during the period under examination and calculates the difference between the adjusted net values of the taxpayer's assets at the beginning and end of each of the years involved. The taxpayer's non-deductible expenditures, including living expenses, are added to these increases, and if the resulting figure for any year is substantially greater than the taxable income reported by the taxpayer for that year, the Government claims the excess represents unreported taxable income.

See also United States v. Massei [58-1 USTC ¶9326], 355 U. S. 595 (1958); United States v. Newman [72-2 USTC ¶9719], 468 F. 2d 791 (5th Cir. 1972), cert. denied, 411 U. S. 905 (1973); United States v. Penosi [72-1 USTC ¶9103], 452 F. 2d 217 (5th Cir. 1971), cert. denied, 405 U. S. 1065 (1972).

The Government's computation of appellant's taxable income for the years in question shows a net worth of $0 on December 31, 1968; $15,521.42 on December 31, 1969; and $64,898.33 on December 31, 1970. Thus, according to the Government's figures, appellant's net worth increased by $15,521.42 during 1969 and by $49,376.91 during 1970. Combining these figures with proven non-deductible expenditures, the Government's expert caculated a tax liability of $4,117.82 for 1969 and $19,135.93 for 1970.

[Use of Net Worth Method]

1. Appellant contends that the zero net worth figure is not supported by the proof and is in fact contrary to his mode of living during 1968, the preprosecution year. We disagree. When appellant arrived in this country in 1962, he made a sworn statement that his assets consisted of only $925. In late 1962, he was living in a $60 per month room and his last month's rent had been paid by a friend. Also in 1962, he borrowed $2,500 from a friend, a debt that remains unpaid. In 1963, he excused his burglary of a store by claiming that he needed funds to buy medicine. In 1967 or 1968, he was unable to pay the $1,000 medical expenses incurred with the birth of a child, so he was forced to seek financial assistance from his mother-in-law. In 1969, when he bought a $28,000 home he was unable to make the required down payment and was forced to resort to second and third mortgages, the latter for $600.

We recognize that the "net worth method" requires an accurate and definite showing of an opening net worth, for the figure is the keystone of the "net worth method" calculation process. Nevertheless, the Government's evidence provides substantial and sufficient support for the jury to conclude that appellant's zero net worth at the close of 1968 had been established with the requisite "reasonable certainty." Holland v. United States, supra at 132.

2. Appellant contends that the Government was required to prove a likely source of income and to negate all possible sources of nontaxable income. This argument incorrectly states the law. As the Supreme Court made clear in United States v. Massei, supra, at 595: "In Holland we held that proof of a likely source was 'sufficient' to convict in a net worth case where the Government did not negative all the possible nontaxable sources of the alleged net worth increase." Thus, the rule is that the Government in a "net worth method" case must either prove a likely source of income or negate all possible sources of nontaxable income. It need not do both.

In the case before us, the Government presented evidence of both of these alternatives. First, appellant's statements that people who refused to send money to him when asked were killed established him as an extortionist and provided a likely source of taxable income. Second, appellant's statement to the Government agents that he had no income except that from his extortions and from his failing businesses indicates no nontaxable source of income. Finally, we note the Supreme Court's admonition in Holland , supra:

But where relevant leads are not forthcoming, the Government is not required to negate every possible source of non-taxable income, a matter peculiarly within the knowledge of the defendant.

348 U. S. at 138. See also United States v. Newman, supra.

The Government's proof was sufficient on this point.

3. Appellant contends that the evidence does not support a finding of either willfulness or affirmative conduct by him. He claims that his mere failure to file a return does not constitute a sufficient willful, affirmative act to satisfy Section 7201.

What must the Government show to establish the necessary affirmative willfulness? In Spies v. United States [43-1 USTC ¶9243], 317 U. S. 492 (1943), the Supreme Court spoke to this requirement:

By way of illustration, and not by way of limitation, we would think affirmative willful attempt may be inferred from conduct such as keeping a double set of books, making false entries or alterations, or false invoices or documents, destruction of books or records, concealment of assets or covering up sources of income, handling of one's affairs to avoid making the records usual in transactions of the kind, and any conduct, the likely effect of which would be to mislead or to conceal.

317 U. S. 499.

Other courts have held that willfulness may be inferred from such actions as holding assets in others' names, Chinn v. United States [56-1 USTC ¶9141], 228 F. 2d 151 (4th Cir. 1955), making false explanations, United States v. Callanan [72-1 USTC ¶9111], 450 F. 2d 145 (4th Cir. 1971), and making inconsistent statements to Government agents, United States v. Jett [65-2 USTC ¶9706], 352 F. 2d 179 (6th Cir. 1965), cert. denied, 383 U. S. 935 (1966). Moreover, this Court recently stated in United States v. Newman, supra, that "[i]t is clear that making false statements to Treasury agents for the purpose of concealing income constitutes a sufficient affirmative act to satisfy [Section] 7201." 468 F. 2d at 794.

In the case at bar, appellant held all of his assets in others' names. He made false and inconsistent statements and explanations, such as his $25,000 alleged investment in the Roxanna Boutique which in reality was but a $2,000 investment, his various claimed occupations, and his claim of a cash hoard in a friend's safety deposit box that was proven to be empty. He made false statements to Treasury agents, such as denying that he owned a boat. Moreover, appellant admitted that he was aware that he should have filed income tax returns. Hence, the jury could infer affirmative willfulness from these facts.

[Trial Errors Contended]

II. Appellant contends that several errors during the trial mandate reversal for a new trial. We find no merit to these contentions, either singly or in combination.

1. Appellant argues that the trial court erred when it permitted the Government to introduce evidence of his financial condition in 1962, 1963, and 1967. He rests this objection on two bases: first, that the evidence was irrelevant, since the indictment charged only crimes allegedly committed in 1969 and 1970; and second, that the evidence, even if relevant, was too remote.

We find no error here. Appellant had claimed that his 1969 and 1970 expenditures were made out of a cash hoard brought to this country from his native Cuba . Thus, his standard of living and his statements were relevant to prove or to disprove its existence. The same issue surfaced in Holland v. United States, supra, where 1948 was the prosecution year and evidence of taxpayers' behavior in the 1920's and 1930's was admitted to negate the existence of the hoard. Certainly, since Holland requires the Government to investigate all exculpatory leads and explanations offered by the defendant in a "net worth method" case and to show in court the results of that investigation, once appellant raised the defense of the hoard then the Government was required to rebut it. The evidence here objected to was neither irrelevant nor too remote.

2. Appellant contends that the District Court erred in permitting several law enforcement officers to testify about conversations that they had had with appellant. He argues that, even if relevant, that evidence should have been excluded because its prejudicial and inflammatory effect outweighed its relevancy.

A District Court has wide discretion in determining relevancy and materiality, and its ruling will not be distrubed absent a showing of an abuse of that discretion. United States v. Allison, 474 F. 2d 286 (5th Cir. 1973); United States v. Garr, 461 F. 2d 487 (5th Cir.), cert. denied, 409 U. S. 880 (1972); O'Brien v. United States, 411 F. 2d 522 (5th Cir. 1969). Although the rule is clear that the prosecution must not employ evidence of prior crimes for the purpose of showing either the defendant's criminal character or his propensity to commit crimes, e.g., United States v. Garber, 471 F. 2d 212 (5th Cir. 1972), nevertheless, evidence of prior criminal conduct is admissible if relevant for another purpose and if its probative worth is not outweighed by its prejudice. See, e.g., United States v. Payne, 467 F. 2d 828 (5th Cir. 1972), cert. denied, -- U. S. -- (1973).

Applying this balancing test, we conclude that the officials' testimony did not unfairly prejudice appellant. Only one witness testified about a particular violation of the law, and that testimony established that appellant had justified a burglary by complaining that he needed money to buy medicine. The testimony was plainly relevant to rebut appellant's claim of a cash hoard. Moreover, the jury was cautioned twice about the limited purpose of this testimony. The District Court acted well within its discretion in dealing with this testimony. Cf. United States v. Abshire, 471 F. 2d 116, 118 (5th Cir. 1972) ("The inclusion of references to 'jail' or 'prison' does not disqualify essential, otherwise relevant, testimony").

3. Appellant complains that he was denied a fair trial when he was not permitted to examine his Immigration and Naturalization Service file. At the trial, in response to appellant's motion to examine the file, the Government admitted that the file might contain exculpatory material, searched the file briefly, and tendered the single exculpatory item producible under Brady v. Maryland, 373 U. S. 83 (1963). When appellant renewed his motion to examine the file, the District Court held an in camera inspection of the file and denied production, ruling that the file contained no material relevant to appellant's defense. This ruling was correct. The file contained no statements of Government witnesses, and appellant had no right under either Rule 16, F. R. Crim. P., or the Jencks Act, 18 U.S.C.A. §3500, to examine it.

4. Appellant contends that the District Court erred when it "cut off" his attempts to disprove the zero net worth figure established by the Government for the preprosecution year of 1968. He points to two such instances. First, when cross-examining the Government's "net worth method" expert, appellant's counsel was not permitted to inquire about the income figure developed for 1968. Second, appellant later attempted to introduce this evidence directly, but was again unsuccessful. These rulings were correct. Appellant's income in 1968, as derived from his expenditures for that year, was irrelevant to disprove his net worth at the close of that year.

5. Finally, appellant contends that he was denied a fair trial because the jury took with it into the jury room an exhibit containing an inadmissible statement by appellant admitting that he had been previously arrested for carrying a concealed weapon. During the trial, counsel for both appellant and prosecution had agreed that that particular statement was irrelevant and should be excised before the exhibit was given to the jury. The trial court instructed both counsel to check the exhibits before the jury received them, but neither attorney noticed the failure to delete the objectionable statement. After about three hours, appellant's counsel remembered that the statement had not been excised and notified the Court. After the exhibit and been removed from the jury room, with the statement not deleted, the Court examined the jury members and concluded that there was no reasonable possibility that any prejudice had inured to appellant.

This error does not require a new trial. First, the trial court asked each juror if he or she remembered examining that particular exhibit. No one answered affirmatively. The Court then instructed the jury to disregard anything that they might have seen on the exhibit in question. We discern no error in either this procedure or the Court's conclusion that the trial process had not been irretrievably tainted. Second, upon discovery of the error, appellant's counsel did not move for a mistrial; he sought only the cautionary instruction that was given. Having made a conscious choice not to move for a mistrial, appellant may not now on appeal complain of the trial court's failure to declare one. Ladakis v. United States , 283 F. 2d 141 (10th Cir. 1960).

Even if this set of circumstances constituted error, we conclude that it was harmless beyond reasonable doubt. Appellant was entitled to a fair trial not a perfect one, and in our judgment he received a fair trial. United States v. Harden, 469 F. 2d 65 (5th Cir. 1972):

Rarely, if ever, is a hotly contested adversary proceeding conducted perfectly, but in our judgment appellant received a fair trial in this case.

469 F. 2d at 66.

AFFIRMED.

* Rule 18, 5th Cir.; see Isbell Enterprises, Inc. v. Citizens Casualty Co. of New York , et al., 431 F. 2d 409, Part I, (5th Cir. 1970).

 

 

[73-1 USTC ¶9304] United States of America , Plaintiff-Appellee v. Kenneth Vanderburgh, Defendant-Appellant

(CA-9), U. S. Court of Appeals, 9th Circuit, No. 72-2549, 473 F2d 1313, 2/9/73

[Code Sec. 7201]

Criminal penalties: Tax evasion: Agent's warning of rights: Instructions to jury: Use of net worth method: Miscellaneous errors asserted.--Conviction for willful evasion of taxes was affirmed. IRS agents gave the defendant adequate warning of his rights when first contacted. The instructions to the jury, taken as a whole, covered the requested defense instructions refused by the trial court. The government was allowed to prove its case by use of the net worth method even though the defendant's books were claimed to be complete and adequate. Miscellaneous errors asserted by the defense were not cause for reversal.

Dean C. Smith, United States Attorney, Carroll D. Gray, Assistant United States Attorney, Spokane, Wash., for plaintiff-appellee. Howard A. Anderson, Gerald A. Rein, Morrison, Huppin, Ewing & Anderson, 521 Parkade Plaza, Spokane, Wash., for defendant-appellant.

Before KOELSCH and WRIGHT, Circuit Judges, and EAST, * District Judge.

PER CURIAM:

The Judgment of Conviction on two counts of income tax evasion for the reporting years of 1965 and 1966, under Title 26 U. S. C. Section 7201, is affirmed.

The Defendant-Appellant asserts eleven errors of law. We conclude all eleven asserted errors are without merit and comment on only these:

Issue 1

The investigating Internal Revenue Special Agents failed to give the Defendant an adequate warning of his rights when he was initially contacted.

The record reveals a more than adequate warning under U. S. v. Chikata [70-1 USTC ¶9448], 427 F. 2d 385 (9 Cir. 1970) and the books of account were voluntarily turned over. Simon v. U. S. [70-1 USTC ¶9212], 421 F. 2d 667 (9 Cir. 1970), cert. denied 90 S. Ct. 1691.

Issues 5, 6, 7, 8 and 9

These requested instructions were partisan pinpoints of phases of the Defendant's defense. The record reveals that the substance of the requested instructions refused by the trial court were adequately covered by the instructions given, when considered as a whole.

Issue 10

It was error to permit the Government to prove its case through the net worth method because the Defendant maintained a complete and adequate set of books of account.

The record reveals the set looked good at first blush, but, also, substantiates the truism of these sage words:

"DeLucia also contends that where he himself kept a set of books and records the District Court erred in permitting use of the net worth method of proof. This would mean that simply because taxpayer has kept a set of books, the veracity of which is in question, the Government is estopped from going beyond those books to prove their falsity or inaccuracy. This is absurd." U. S. v. DeLucia [59-1 USTC ¶9161], 262 F. 2d 610, 614 (7 Cir. 1958). Defendant's enlargement on bail is revoked, effective now.

Affirmed.

* Honorable William G. East, Senior United States District Judge for the District of Oregon, sitting by designation.

 

 

[73-1 USTC ¶9147] United States of America v. John C. Parenti, Appellant

(CA-3), U. S. Court of Appeals, 3rd Circuit, No. 72-1263, 470 F2d 1175, 12/26/72, Affirming District Court, 71-2 USTC ¶9613, 326 F. Supp. 717

[Code Sec. 7201]

Crimes: Tax evasion: Defenses: Inspection of evidence.--Taxpayer's challenges to the trial judge's rulings on the admission of evidence and his instructions to the jury failed to demonstrate prejudicial error. Holland v. United States [54-2 USTC ¶9714], was dispositive of taxpayer's challenge to the government's "net worth" method of proof. Further, it was held, the evidence was sufficient to support the jury's verdict. Accordingly, the judgment of conviction was affirmed.

Joseph H. Reiter, Department of Drug Abuse and Law Enforcement, 308 Walnut St., Philadelphia, Pa., for appellee. Benjamin R. Donolow, 22 S. 22nd St. , Philadelphia , Pa. , for appellant.

Before KALODNER, ADAMS and ROSENN, Circuit Judges.

Opinion of the Court

PER CURIAM:

This appeal is from a judgment of conviction entered by the District Court pursuant to a jury verdict finding the defendant-appellant John C. Parenti guilty of attempting to evade and defeat payments of his 1961, 1962 and 1963 income taxes in violation of 26 U. S. C. A. §7201.

On this appeal Parenti challenges as prejudicial error ten of the trial judge's rulings on the admission of evidence and two of his instructions to the jury. He also challenges as unconstitutional the Government's use of the "net worth" method of proof. Finally, he contends that the Government's evidence was insufficient to sustain the jury's verdict and that the trial judge erred in denying his motion for a directed verdict.

On review of the record we are of the opinion that Parenti's challenges to the trial judge's rullings on the admission of evidence and his instructions to the jury fail to demonstrate prejudicial error. Holland v. United States [54-2 USTC ¶9714], 348 U. S. 121 [1954], is dispositive of Parenti's challenge to the "net worth" method of proof. We are further of the opinion that the evidence was sufficient to support the jury's verdict.

Judicial economy would not be served by a detailed discussion of Parenti's challenges to the sufficiency of the evidence and to the trial judge's rulings on the admissibility of evidence and his instructions to the jury, in light of the exhaustive consideration they were accorded in Judge Troutman's well-reasoned Opinion 1 denying Parenti's motion for a judgment of acquittal or, in the alternative, a new trial.

For the reasons stated the judgment of conviction will be affirmed.

1 Judge Troutman's Opinion is reported at [71-2 USTC ¶9613] 326 F. Supp. 717 (E. D. Pa. 1971).

 

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