Bank Records and Net Worth Increases
1 Page6
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, al
