Bank Records and Net Worth Increases
2 Page1
7203:
Willful Failure to File Return, Supply Information, or Pay Tax:
Evidence: Bank Records and Net Worth Increases
Part 2
[73-1 USTC ¶9106]
United States of America
, Appellee v. Ed J. Hagen, Appellant.
(CA-10),
U. S. Court of Appeals, 10th Circuit, No. 72-1303, 470 F2d 110,
12/5/72
, Aff'g unreported District Court decision
[Code Sec. 7201]
Crimes: Tax evasion: Evidence: Net worth: Specific items:
Wilfullness.--The taxpayer's conviction on two counts of tax evasion
was affirmed. It was not error to allow the government to introduce
specific items of unreported income in addition to using the net worth
method of reconstructing income. Moreover, there was sufficient
testimony to show wilfullness, and the trial court's instructions
adequately explained the net worth method to the jury.
John B. Owens,
Jr., Scott P. Crampton, Assistant Attorney General, Meyer Rothwacks,
John P. Burke, John R. Lusk, Department of Justice, Washington, D. C.
20530, William R. Burkett, United States Attorney, Oklahoma City, Okla.,
for appellee. Leslie H. Wald, Stanley L. Drexler, 1107 Tower Bldg.,
Denver U. S. Nat. Center, Denver, Colo.,
Rob
ert W. Pittman, 27th Floor, City Nat. Bank Tower, Oklahoma City, Okla.,
for appellant.
Before JONES *,
SETH and HOLLOWAY, Circuit Judges.
SETH, Circuit
Judge:
Defendant
Hagen
was convicted on two counts of wilfully and knowingly attempting to
evade income taxes by filing or causing to be filed with the District
Director of Internal Revenue fraudulent tax returns on behalf of himself
and his wife for the years 1964 and 1965. He has taken this appeal.
The defendant
was in business as a broker-dealer of securities, and he also sold life
insurance. The Government purportedly based its prosecution on the net
worth plus nondeductible expenditures method of showing unreported
income. The Government also introduced evidence of specific items of
unreported income for the stated purpose of proving wilfulness. The
specific items of unreported income aggregated more than was shown by
the evidence relating to increased net worth.
At the
conclusion of the Government's case, the defense declined to offer any
evidence, and rested. The jury returned a verdict of guilty on both
counts.
[Net
Worth Method]
The
defendant-appellant's principal point on appeal is not that the net
worth method was used, but that the trial court should not have
permitted the Government to also introduce evidence as to specific items
of unreported income to an extent that such proof changed the theory of
the case or in any event overshadowed the net worth proof. He also
asserts that it was error because he was surprised by it; because the
jury was confused by it; there was a variance created with the Bill of
Particulars; and the instructions covered only the net worth aspects.
The defendant also asserts that the trial court did not instruct on his
theory of the case.
The record
does not support the contention of defendant that specific item evidence
came as a surprise, and thus he was not prepared to meet it. However,
the extent of it may have been greater than anticipated. The record
shows that copies of schedules of unreported income in the possession of
the United States Attorney of defendant's attorney before trial. These
of defendant's attorney before trial. These were, however, not
extensive. Responding later to a motion for a Bill of Particulars, the
Government refused to divulge other items of unreported income on the
ground that these were evidentiary matters. In its opening statement the
Government stated that it would prove wilfulness by showing defendant's
failure to report specific items of income. Also the defendant in his
opening statement stated that explanation would be made of certain
asserted specific items. Reference was also made to specific items in
the Government's long trial brief. Thus before the trial began the
defendant was put on notice that the case would be one of net worth with
specific items. During the course of the trial the specific item proof
began to assume a larger part of the evidence and at the end it became
difficult to say whether it still was a net worth case. This is the
basis of the objection on appeal. According to the appellant's brief the
biggest jolt came when the Government introduced a sixteen page summary
of omitted specific items, the total of which exceeded in amount the net
worth increases. This indeed made the case difficult to categorize, and
the wilfulness purpose and "likely source" purpose of such
evidence appears secondary. The nature and order of proof, and adherence
to a stated theory are matters within the trial court's discretion. No
objection was made by defendant during the Government's case to evidence
of specific items, nor were requests for continuance made. Furthermore,
no objection was made during the Government's case to the use of the net
worth method. It is obvious from the record that defendant's attorney
was familiar with the limitations placed on the net worth method. Thus
as to the asserted surprise issue, we find no error, and in any event
there has been no showing of plain error to warrant consideration of the
issue of surprise on this appeal. See
United States
v. DeLuzio, 454 F. 2d 711 (10th Cir.), and
United States
v. Wheeler, 444 F. 2d 385 (10th Cir.).
[Wilfulness]
Defendant
argues next that there was no independent proof of wilfulness. He
asserts that the Government merely had its witnesses testify twice to
the same matters in an attempt to confuse and prejudice the jury into
finding wilfulness. We cannot agree. The testimony relative to specific
items of unreported income showed the defendant had from time to time
deposited the proceeds from the sale of stock to his personal account,
in some instances identifying the deposits in his check register as the
repayment of loans that he had made. Other testimony relative to
specific items of unreported income showed that defendant had failed to
report accurately monies he had received as commissions for selling life
insurance, or had understated them as to the amount. This is proper
testimony to show wilfulness of the defendant, and we find no error in
its admission into evidence.
[Instructions]
The defendant
urges that the instructions were erroneous because he asserts they
treated only the net worth method, and that in general terms. The
defendant did not object to the instructions given on the ground here
urged. He tendered some instructions but withdrew them. Thus the court
had no requested instructions from defendant, and no objections directed
to the issue here raised. The objections made by defendant to the
instructions read in part:
"MR.
PITTMAN: As indicated prior to the reading of the instructions, I would
at this time, effective as of that time, like to withdraw my requested
instructions that relate in any manner to the net worth, plus
nondeductible expenses, method of proof, and object to all of the
Court's instructions relating to this method of proof on the ground, and
for the reason that the government's evidence in this case failed to
meet the standard as to when this method may be used under the doctrine
as laid down in the United States versus Holland case and the United
States versus Spies case, and other well known cases in the net worth
theory. The only other objection I have to--."
This
was followed by discussions of instructions pertaining to reasonable
doubt, and to evidence consistent with both guilt and innocence. The
above quoted objection also pertains to the point above discussed
relative to wilfulness.
Reading the
instructions given as a whole, we find them to be sufficient. They
properly covered the net worth case and were otherwise sufficiently
specific to guide the jury as to the issues before it.
Considering
further the above quoted objection as directed to the use of the net
worth theory under Holland v. United States [54-2 USTC ¶9714],
348 U. S. 121, it must be held to have come too late. It was directed to
instructions relative to the method and came after the sides had rested
and the case was about to be submitted to the jury. Again, the defendant
at the outset was advised of the course of action the Government was
going to follow and had adequate opportunity to raise the issue by
motion or objections. In any event the Government followed and met the
requirements of
Holland
v.
United States
. The evidence of specific items was proper as indicated to show
wilfulness, but it was also proper to negate a likely source under Smith
v. United States [54-2 USTC ¶9715], 348
U. S.
147, and United States v. Calderon [54-2 USTC ¶9712], 348
U. S.
160. We also find no variance of the proof with the Bill of Particulars.
As to
defendant's contention that the trial court did not instruct the jury so
as to allow it to consider the defendant's theory of the case, we also
find no error. As stated above, the defendant requested no instructions
on his theory of the case, and is therefore not entitled to
consideration of the claimed error. See McMurray v.
United States
, 298 F. 2d 619 (10th Cir.). Furthermore, before an instruction may
be given, it must have some foundation in the evidence, and we find no
such foundation here.
AFFIRMED.
*
Of the Fifth Circuit, sitting by designation.
[72-1 USTC ¶9371]United States of
America, Plaintiff-Appellee v.
Lawrence
Potts, Defendant-Appellant
(CA-7),
U. S. Court of Appeals, 7th Circuit, No. 71-1497, 459 F2d 412,
4/25/72
, Aff'g District Court, 71-1 USTC ¶9239, 321 F. Supp. 717
[Code Secs. 7201 and 7206(1)]
Crimes: Tax evasion: False return: Evidence: Net worth method:
Willfulness.--The taxpayer's conviction for tax evasion and filing a
false tax return was affirmed. The government proved his 1962 opening
net worth with reasonable certainty and was not required to investigate
leads furnished by his witnesses, whose evidence the trial court found
unpersuasive. Willfulness was proved by the large discrepancies between
his cancelled checks and his records, which had been altered to increase
the amounts shown as paid for materials.
Davis J.
Cannon, United States Attorney, Joseph P. Stadtmueller, Steven C.
Underwood, Assistant United States Attorneys, Milwaukee, Wis., for
plaintiff-appellee. J.
Rob
ert Kaftan,
522 Doty St.
,
Green Bay
,
Wis.
, for defendant-appellant.
Before DUFFY,
Senior Circuit Judge; KNOCH, Senior Circuit Judge; and GRANT, *
District Judge.
GRANT,
District Judge:
Defendant was
indicted and found guilty of underpayment of taxes in violation of 26
U. S.
C. §§ 7201 and 7206(1) for the years 1962, 1963, and 1964, from which
he appeals following a trial to the court. Defendant claims that the
government's proof was insufficient to convict, and that the burden of
proof was shifted to defendant. The errors assigned principally involve
the prosecution's use of the net worth method of proof in establishing
an opening net worth at the close of 1961, the defendant maintaining
that his assets at the beginning of 1962 were greater than those
established by the government's evidence.
[Net
Worth]
During the
years in question, defendant maintained a farm and a cheese
manufacturing facility. The evidence showed a general depression in the
cheese market at the close of 1961, that defendant withheld certain of
his cheese products at public warehouses, and that the defendant's own
property included storage areas sufficient in size to hold the alleged
inventory which he urged would increase his opening net worth by an
amount great enough to offset any tax liability for 1962.
The
government's inventory calculations which formed the basis of
establishing defendant's opening net worth, were substantiated by
records introduced at trial. Defendant objects to the trial court's
having accorded the government's evidence greater weight (which
defendant does not challenge as inaccurate) to the exclusion of
testimony adduced from the defendant's witnesses who claimed that
defendant held additional cheese stores on his own premises some eight
years prior to the trial. The district court found defendant's evidence
"unpersuasive" in view of the long period of intervening time.
Assessment of credibility is a matter committed to the discretion of the
trier of fact. We find no error in the district court's determination,
especially in view of the fact that defendant's claim was totally
unsupported by any business records. Further, we do not believe that the
government's failure to investigate leads furnished by these same
witnesses of the defendant, whose credibility was so tenuous, requires
reversal. Blackwell v. United States [57-1 USTC ¶9644], 244 F.
2d 423 (8th Cir. 1957) cert. den., 355
U. S.
838 (1957).
Bearing in
mind the caution which must attend use of the net worth theory, the
record reflects adequate proof from which the 1962 tax deficiency was
established. "Reasonable certainty" is the standard by which
the opening net worth must be measured, and the government's proof
clearly met this test. Holland v. United States [54-2 USTC ¶9714],
348
U. S.
121 (1954). Contrary to defendant's assertion, such proof need not rebut
all possible suggestions of non-taxable sources of an alleged higher net
worth. Holland, supra, at p. 137. The opening net worth having
been proven, a defendant remains quiet at his peril; this, however, does
not create any presumption nor does it shift the burden of proof. Holland,
supra, at p. 139; U. S. v. Mackey [65-1 USTC ¶9328], 345 F.
2d 499 (7th Cir. 1965).
[Willfulness]
Defendant
further challenges the district court's finding of willfulness
contending that the court failed to consider his lack of formal
education and the fact that his wife had charge of the company's
accounting. Wiseley v. Commissioner [50-1 USTC ¶9504], 185 F. 2d
263 (6th Cir. 1950). Realizing the realities of proving intent to evade
taxes, the courts must often rely upon circumstantial proof as to
intent. Spies v. U. S. [43-1 USTC ¶9243], 317
U. S.
492 (1942); Tinkoff v. U. S. [36-2 USTC ¶9487], 86 F. 2d 868
(7th Cir. 1937). It is sufficient to prove that a substantial amount of
tax liability has been willfully averted or that there has been a
pattern of under-reporting of income as revealed by the taxpayer's books
and records. Spies,
supra; U. S. v. Doyle
[56-1 USTC ¶9553], 234 F. 2d 788 (7th Cir. 1956). The evidence
herein revealed a number of substantial discrepancies between the
defendant's cancelled checks for supplies and the records kept by this
business--all of which represented an overstatement of expenditures for
supplies in excess of $8,000.00. Additionally, these same records which
defendant made available to government agents, revealed numerous
changes, which had been made in defendant's checkbook entries,
increasing the amounts paid for materials used in his business. This
documentary evidence was supported by the testimony of many of the
defendant's suppliers. The record also demonstrates that defendant was
fully involved with his business and its financial development. The
proof amply supports the trial court's finding with respect to intent.
Viewing the
evidence on appeal in the light most favorable to the government as we
must, the district court's judgment is AFFIRMED.
*
Chief District Judge
Rob
ert A. Grant of the Northern District of Indiana is sitting by
designation.
[72-2 USTC ¶9478]United States of
America Vernon M. Mathews, Appellant
(CA-3),
U. S. Court of Appeals, 3rd Circuit, No. 72-1085, 463 F2d 182,
6/6/72
[Code Sec. 7201]
Tax evasion conviction: Timeliness of appeal: Appeal from order.--The
Court determined that it had no jurisdiction over an appeal from a tax
evasion conviction where the first notice of appeal was filed
prematurely (before sentence) and the second notice was filed late. The
premature appeal could not be a source of jurisdiction as an appeal from
a District Court order, where the order was not a final, appealable one.
Thomas A.
Daley, Assistant United States Attorney,
Pittsburgh
,
Pa.
, for appellee. Joseph W. Conway, Balzarini, Walsh, Conway &
Maurizi, 3113 Grant Bldg.,
Pittsburgh
,
Pa.
, for appellant.
Before STALEY,
ALDISERT and HUNTER, Circuit Judges.
Opinion
of the Court
PER CURIAM:
Appellant
seeks review of his conviction under 28
U. S.
C. §7201, for income tax evasion for the years 1964, 1965, 1966 and
1967. He contends that: (1) he should have been apprised of his Miranda
rights during the investigation of his activities by Internal Revenue
Service Special Agents; (2) the government failed to prove appellant's
opening net worth during the years in question; (3) after the jury
commenced deliberations, it was given prejudicial exhibits which created
an inference that appellant was engaged in criminal tax evasion in years
prior to those involved in the indictments; and (4) appellant's expert
witness should have been permitted to testify concerning the weaknesses
of the net worth method of tax analysis.
[Timeliness
of Appeal]
We address
ourselves initially, however, to the timeliness of this appeal.
Appellant was found guilty by a jury on
June 10, 1971
. The district court [72-1 USTC ¶9352] denied appellant's motions for a
new trial and judgment of acquittal on
December 13, 1971
. Notice of appeal from this order was filed on
December 22, 1971
. The court imposed sentence on
December 27, 1971
. Appellant's counsel recognized the prematurity of his December 22
notice of appeal, and, on
January 7, 1972
, filed a notice of appeal "from the judgment and order . . . dated
December 27, 1971
."
Rule 4(b), F.
R. A. P., provides: "in a criminal case the notice of appeal by a
defendant shall be filed in the district court within 10 days after the
entry of judgment or order appealed from. . . ." Here, the second
notice of appeal was filed 11 days after the date of sentence.
Appellant, therefore, does not, and could not, attempt to justify the
jurisdiction of this court on the basis of the January 7 notice. The
10-day limitation of the period in which a notice of appeal may be
filed, absent a finding of excusable neglect by the trial court, is
mandatory and jurisdictional.
United States
v.
Rob
inson, 361
U. S.
220, 224 (1960);
United States
v. Deans, 436 F. 2d 596, 599 (3d Cir. 1971).
Therefore, the
jurisdiction vel non of this court must result from the notice of
appeal filed on
December 22, 1971
. Clearly, as appellant's counsel himself recognized, this notice was
premature because "[a]n appeal may not be taken until after the
pronouncement of sentence, and must be taken promptly after sentence is
imposed." Corey v.
United States
375
U. S.
169, 172 (1963); Parr v.
United States
, 351
U. S.
513, 518 (1956).
[Appeal
from Order]
In an effort
to circumvent this language, both in brief and at oral argument,
appellant's counsel argued that the instant appeal is from the district
court's order denying appellant's motions for judgment of acquittal and
a new trial. But in United States v. Rizzo, 439 F. 2d 694 (3d
Cir. 1971), we held that an order denying a motion for judgment of
acquittal was not a final appealable order. Moreover, this court has
clearly held that "[n]either the order finding the accused guilty
nor the order denying a new trial is an appealable final order absent
any imposition of sentence."
United States
v. Jarrett, 439 F. 2d 1135 (3d Cir. 1971). 1
Although we
find that because this appeal was not timely filed we are without
jurisdiction, 2
we have examined all of appellant's contentions advanced in brief and
oral argument, and we find them to be without merit.
The appeal
will be dismissed for want of jurisdiction.
1
The wellspring of authority for this well-established proposition is Berman
v. United States, 302
U. S.
211, 212-213 (1937), in which Chief Justice Hughes said: "Final
judgment in a criminal case means sentence. The sentence is the
judgment. * * * In criminal cases, as well as civil, the judgment is
final for the purposes of appeal 'when it terminates the litigation . .
. on the merits,' and 'leaves nothing to be done but to enforce by
execution what has been determined.'" See also, United States v.
Bendicks, 439 F. 2d 1120, 1121 (5th Cir. 1971); United States v.
Garber, 413 F. 2d 284, 285 (2d Cir. 1969); United States v.
Henson, 358 F. 2d 721 (4th Cir. 1966); Northern v. United States
[62-1 USTC ¶9331], 300 F. 2d 131, 132 (6th Cir. 1962).
The Berman
rule has been scrupulously followed in this circuit, see, e.g.,
United States
v. Swidler [53-2 USTC ¶9588], 207 F. 2d 47 (3d Cir. 1953); United
States v. Knight, 162 F. 2d 809 (3d Cir. 1947). In United States
v. Kokin [66-2 USTC ¶15,705], 365 F. 2d 595 (3d Cir. 1966),
however, this court did elect to proceed to the merits, despite a
premature notice of appeal. But in United States v. Battista, 397
F.2d 286 (3d Cir. 1968), when we inadvertently proceeded to the merits
in an appeal from the denial of a motion for a new trial, the Supreme
Court denied certiorari, sub nom. Laris v. United States, 393 U.
S. 936 (1968). "[I]t appearing that the order of the court below
was not a final appealable order, no judgment of conviction, sentence
and commitment having been entered. . . . [o]
ur
former judgment therefore was void for we were without jurisdiction to
adjudicate the appeal."
United States
v. Battista, 418 F. 2d 572, 573 (3d Cir. 1969). (Emphasis
supplied.)
2
Nor can our jurisdiction rest under the ambit of the second sentence of
Rule 4(b): "A notice of appeal filed after the announcement of a
decision, sentence or order but before entry of the judgment or order
shall be treated as filed after such entry and on the day thereof."
The situation contemplated by the second sentence of Rule 4(b) occurred
in Lemke v. United States, 346
U. S.
325 (1953). There, the Court found acceptable the filing of a notice of
appeal one day after the sentence was in fact imposed, but three days
before the judgment was formally entered. This is most unlike the
instant case where the notice of appeal was filed before the fact of
sentencing. Indeed, here the sentencing judge informed appellant's
counsel that an appeal could not be taken before sentencing, and
appellant's counsel agreed:
The Court: So,
I trust you will advise me about whether an appeal is pending.
Counsel: I
will your Honor.
The Court: As
soon as possible. I know there has been one already, which I think is
premature. I think the final order is the sentence here.
Counsel: I
know. I went back and read the rules.
[72-1 USTC ¶9352]United States of
America v.
Vernon
W. Mathews
U.
S. District Court, West. Dist. Pa., No. 70-291 Criminal, 335 FSupp 157,
12/13/71
[Code Secs. 446 and 7201]
Crimes: Tax evasion: Reconstruction of income: Net worth method:
Wilfulness: Miscellaneous assignments of error: Jury trial.--The
jury was rightfully justified in determining that the taxpayer had
wilfully attempted to evade or defeat his income taxes. He was thus
properly convicted on all four counts of the indictment. The evidence to
establish his guilt by use of the net worth method, which was
corroborated by a bank deposits analysis, justified conviction. Numerous
trial errors claimed, pertaining to admission of evidence and
instructions to the jury, were without merit.
Richard L.
Thornburgh, United States Attorney, Pittsburgh, Pa., for U. S. Joseph W.
Conway, Balzarini, Walsh, Conway & Maurizi, 3113 Grant Bldg.,
Pittsburgh, Pa., Samuel Y. Stroh, Law & Fin. Bldg., Pittsburgh, Pa.,
Andrew J. Conner, 1111 Baldwin Bldg., Erie, Pa., Ritchie T. Marsh, 806
Baldwin Bldg., Erie, Pa., for defendant.
Opinion
and Order Denying Motion for New Trial or Judgment of Acquittal
KNOX, District
Judge:
Defendant was
found guilty by verdict of a jury of the crime of wilfully attempting to
evade or defeat income taxes imposed upon his personal income for the
years 1964, 1965, 1966 and 1967 under the provisions of 26 U. S. C.
7201. 1
He has filed Motions for a New Trial or Judgment of Acquittal claiming
that the evidence was insufficient to convict him or was not sufficient
to establish his guilt beyond a reasonable doubt and, in any event, he
should be entitled to a new trial. Numerous trial errors are also
claimed in the Motion for New Trial.
The evidence
showed that defendant for some period of years had operated in [an] IGA
(Independent Grocers Association) supermarket in Edinboro,
Erie
County,
Pennsylvania
, which the evidence indicated became quite profitable. His income tax
returns as filed for the years in question showed tax liability as
follows:
Gross Net Income
Receipts Income Tax
1964 .... $634.323.56 $ 2,549.18 $ 0.00
1965 .... $662.140.61 $ 4,077.33 $ 61.07
1966 .... $717.758.90 $ 4,502.77 $ 482.64
1967 .... $810,007.30 $24,382.41 $5,762.04
[Net Worth Method]
The
government's evidence to establish defendant's guilt used the net worth
method and was corroborated by a bank deposits analysis. The evidence by
the net worth method indicated that as of
December 31, 19
63, an examination of defendant's assets showed he had a net worth of
$217,447.72 and as of
December 31, 19
67, he had a net worth of $382,258.92. Obviously, the net income as
reported by the defendant on his returns did not account for this. Such
a great increase in wealth in such a short period of time obviously
could only be attributed to a large amount of income or gifts or
inheritances. He further admitted to the agents that the only property
he had ever inherited consisted of a few shares of stock in the First
National Bank of Edinboro. Defendant took the stand himself and did not
attempt to explain the tremendous increase in net worth by inheritance
or by gifts. Due allowance was made by the government for increases in
market values of securities during the years in question and this also
failed to explain the reason for the increase.
Defendant's
explanation was that some time in the year 1965 or 1966, he became aware
of the fact that there was a great amount of unaccounted for cash and of
a great increase in his assets nd finally came to the conclusion that
the cash registers in his store were only picking up a total of certain
types of transactions and not giving a daily grand total of all the
sales in the store. These sales, as required by Pennsylvania Sales Tax
Regulations, were broken down into taxable items and nontaxable items
such as food. Notwithstanding this, the defendant made no complaint to
the cash register distributor who sold him the machines that he was not
getting the daily grand total of all transactions. The dealer who sold
him the cash register testified in behalf of the defendant but did not
claim that there was any mistake in the totals provided by the machines
and gave no evidence as to complaints having been made or requests to
rectify the situation.
It further
appeared that defendant would take his cash register tapes home at the
end of each day and enter the totals on a large sheet which was used at
the end of the year to provide item I "gross receipts" on
Schedule C (business income) attached to his income tax return. These
sheets at the end of the year were turned over to his accountant. The
latter testified that from these sheets he prepared the income tax
returns in question. Immediately upon transcribing the totals from each
days sales onto the larger sheets, defendant admitted he destroyed the
tapes so that there was no tangible evidence to support the daily totals
entered upon the larger sheets. The evidence also showed that the total
gross receipts as entered on the federal income tax returns did not
correspond with the gross receipts as shown upon the reports required
for Pennsylvania Sales Tax purposes. It also appeared that defendant
paid out large amounts of cash for the purchases of securities, for the
purchase of life insurance and other assets during the years in
question. The jury was, therefore, entitled to infer that defendant had
destroyed his cash register tapes so that no evidence existed to support
the figures shown on the larger sheets which were used for preparing the
income tax returns, and that defendant did this deliberately as a part
of his scheme to evade taxes. Support for the necessary finding of a
wilful attempt to evade taxes was to be found in the following ample
evidence.
1. His
business background and training at Edinboro State College and
Erie
Commercial
College
.
2. His never
having bothered to reconcile cash in the register with the tape totals,
although he knew how, and his continued daily destruction of the tapes
even after "sensing something wrong". The routine audit in
1961 mentioned by taxpayer furnished no justification for this and
certainly no estoppel would run against the government on this,
particularly in the absence of complete knowledge of the facts.
3. His never
having contacted the seller of the cash registers, the National Cash
Register Company, regarding "the sales he felt he was
missing."
4. The
financial statements he presented his bank which disclosed his awareness
of yearly increases in his net worth far exceeding the taxable income
reported on his returns.
5. His
extensive use of cash, although possessing both business and personal
checking accounts, to make considerable expenditures; cash payments by
him for just one insurance premium, that to the Luthern Brotherhood,
substantially exceeded the taxable income he reported in 1964, 1965, and
1966 (Government Exhibit 70).
6. The false
Pennsylvania Sales Tax Returns he filed from September 1965 through July
of 1967 and again in December of 1967.
Defendant
testified that he was too busy to reconcile cash. Reconciliation of cash
with sales as shown on the cash registers would certainly be a normal
method for any prudent business man to follow to determine if mistakes
were being made by employees or if there was dishonesty or whether the
machines themselves were accurate.
He did not
attempt to file amended returns or report this matter to the internal
revenue agents who later began to question him about his returns.
From this
brief recital of the evidence, it is the opinion of the court that the
jury was rightly justified in determining that defendant had wilfully
attempted to evade or defeat his income taxes. He was thus properly
convicted on all four counts of the indictment. As the net worth method
does have possible objections, it should be used with great caution. See
Smith v. U. S. [54-2 USTC ¶9715], 348
U. S.
147; U. S. v. Calderon [54-2 USTC ¶9712], 348
U. S.
160. The jury was so instructed. 2
Nevertheless, the evidence in the instant case was so overwhelming, it
is difficult to see how the jury could come to any other conclusion.
Use by the
agents of the so-called bank deposit and expenses method also pointed
inevitably to the same conclusion with only a small difference in
unreported income for each year. Even if the net worth method was not
substantiated, the other method likewise justified conviction.
For these
reasons, the Motion for Judgment of Acquittal will be denied.
We will now
turn to the specific grounds urged for grant of new trial.
Ground
1. Lack of Proof of Wilfulness.
The defendant
asserts that the government failed to establish a Section 7201 violation
for each indictment year as its proof did not show that the defendant
wilfully and with specific intent, attempted to evade the taxable income
due and owing the government in each of the years in question. The
defendant further asserts that the government failed to offer
corroborative evidence as to the defendant's opening cash as of
December 31, 19
63, knowing that defendant in the conduct of his business required and
held substantial amounts of cash.
In examining
the evidence together with all inference reasonably and logically
deducible therefrom, it must be viewed in the light most favorable to
the government since the jury returned a verdict of guilty as to all
four counts. United States v. Minker [63-1 USTC ¶15,458], 312 F.
2d 632 (3d cir. 1962), cert. denied, 372
U. S.
953.
What we have
previously said in denying the Motion for Judgment of Acquittal applies
equally to this ground for new trial. Further, taxpayer's understatement
to the Pennsylvania Department of Revenue disclosed his "attitude
toward the reporting and payment of taxes generally". U. S. v.
Taylor [62-2 USTC ¶9590], 305 F. 2d 183 at page 185-186 (4th cir.
1962), cert. denied, 371
U. S.
894. In addition, the defendant's repetition of the same pattern of
substantial understatements for four consecutive years justifies the
inference that his conduct was intentional rather than inadvertent. U.
S. v. Frank [57-1 USTC ¶9675], 245 F. 2d 284 (3d cir 1957). Such
consistent understatement of income is some evidence of wilfulness. U.
S. v. Alker [58-2 USTC ¶9829], 260 F. 2d 135 (3d cir. 1958). As
stated in Holland v. U. S. [54-2 USTC ¶9714], 348
U. S.
121, 99 L. ed. 150, 75 S. Ct. 127 (1954):
"The
petitioners contend that wilfulness 'involves a specific intent which
must be proven by independent evidence and which cannot be inferred from
the mere understatement of income'. This is a fair statement of the
rule. Here, however, there was evidence of consistent patterns of
underreporting large amounts of income, and of the failure on
petitioner's part to include all of their income in their books and
records. Since, on proper submission, the jury could have found that
these acts supported an inference of wilfulness, their verdict must
stand."
While the
question of whether defendant's admitted failures to pay substantial
taxes for the indictment years were wilful is a question of fact for the
jury, such wilfulness may be inferred from acts and circumstances as
well as from direct proof. U. S. v. Magnus [66-2 USTC ¶9660],
365 F. 2d 1007 (2d cir. 1966); Gaunt v. U. S. [50-2 USTC ¶9412],
184 F. 2d 284 (1st cir. 1950); U. S. v. Brown, 446 F. 2d 1119
(10th cir. 1971). Such wilfulness may be inferred from conduct, the
likely effect of which is to conceal. While the element of wilfulness
must exist independently the "requisite proof may take a wider
range than is normally allowed in support of annexed issues, otherwise
there would often be no means to disclose the purpose of the act in
which the very gist of the offense may consist." U. S. v. Alker,
supra, at p. 148. A recent opinion from the Third Circuit has
enumerated findings suggesting fraud: "repeated and substantial
understatement of income; an abject failure to keep adequate books and
records, misstatements to revenue officers regarding cash reserves at
the beginning of the investigated period; excessive dealings in
suspiciously large amounts of cash; and a basic lack of credibility in
taxpayer's alleged cash hoard." Mazzoni v. Commissioner of
Internal Revenue, Nos. 19,338 and 19,339, Third Circuit slip opinion
filed
November 29, 1971
. "Tax evaders seldom leave tracks and therefore circumstances can
be convincing. Though an isolated erroneous tax figure cannot be
escalated or pyramided into fraud, a confraternity of similar errors can
take on more sinister tax aspects." Webb v. Commissioner
[68-1 USTC ¶9341], 394 F. 2d 366 (5th Cir. 1968) at p. 380.
Since it is a
well established rule that a defendant may not be convicted solely on
his own admissions, such admissions require corroboration. The requisite
corroboration may be of two types, i. e., separate evidence tending to
demonstrate the truth of the specific fact admitted or evidence tending
independently to show that the evasion was attempted and that the
defendant was responsible. Smith v. U. S. [54-2 USTC ¶9715], 348
U. S.
147, 99 L. ed. 192, 75 S. Ct. 194 (1954).
In the instant
case, it was incumbent on the government to offer corroborative evidence
of the defendant's opening cash as of
January 1, 19
64. In their opening net worth statements the government allowed an
opening cash figure of $10,000 as of
January 1, 19
64. Agent Ruggiero's summary revealed expenditures in cash and from
unknown sources totalling as follows (trans. pp. 329-330):
Unknown
Sources Cash
1964 .... $23,038.48 $ 2,150.00
1965 .... 16,673.25 20.348.12
1966 .... 6,630.42 22,363.18
1967 .... 23,584.66 21,365.69
The above amounts dwarf by a substantial margin the taxable income
reported by the defendant in each of those years. Thus, following the
holding in the Smith case, supra, the court finds that
there was independent corroboration resulting from the defendant's
substantial expenditures, savings and investments which tended to show
that he was underreporting his income during the prosecution years.
Additional corroboration can be found in the defendant's testimony at
trial 3
which was of a type similar to that found to be conclusive corroboration
by the Supreme Court in U. S. v. Calderon [62-2 USTC ¶9525], 348
U. S. 160, 99 L. ed. 202, 75 S. Ct. 1861 (1954).
Further
corroboration of the item of cash is found on defendant's own testimony
at p. 572:
"Q.
Can you give me an idea how much cash you may have had at your home at
any one time?
A.
Well, as business got heavier over the years, you would have to
figure eight to ten thousand dollars if you knew you was going over a
long weekend. (emphasis added)"
Even if we
allowed an additional $5,000 as mentioned by defendant on the stand,
this will not affect in any substantial amount the tremendous
unexplained increase in net worth.
Ground
2. Limitation of Testimony of Joseph Salvia
The defendant
called an expert witness, Joseph Salvia, a Certified Public Accountant,
to testify as to the general weaknesses of the net worth income analysis
and bank deposit expenditure method. This witness had not made either
type of analysis himself with respect to defendant. Furthermore, the
defendant's accounts payable, if any, were not in evidence, thus the
proffered expert testimony would have been based upon matters not in
evidence.
Two circuit
courts have approved the preclusion of such proof when offered to
demonstrate that, if a cash basis defendant (such as Mathews was) were
to shift to an accrual basis of accounting, his unreported income would
be diminished or eliminated. U. S. v. Vardine [62-2 USTC ¶9624],
305 F. 2d 60 (2d cir. 1962); Clark v. U. S. [54-1 USTC ¶9291],
211 F. 2d 100 (8th cir. 1954). In
Clark
, at p. 105, the court reasoned that "it was indisputably clear
that the appellant had been reporting his income on a cash basis and not
on an accrual basis, and that any hypothesizing of facts which had no
probative basis was, therefore, wholly irrelevant and incompetent as a
defense to the charge."
If Mr. Salvia
had made a contrary analysis of the increase in defendant's net worth or
his bank deposit expenditures, to combat the government's case, we would
have been only too ready to receive his testimony. As a matter of fact,
his failure to do so indicates that the government's case could not be
combated.
Ground
3. Depositions of Dr. Barclay.
The defendant
offered the deposition of Dr. Paul J. Barclay as evidence of defendant
medical condition. Dr. Barclay's depositions were taken during trial
because he was leaving the city. The court properly sustained the
government's objection to the admission of such evidence for four
reasons. First, depositions are to be used in criminal cases only in
exceptional circumstances; Rule 15 of the Rules of Criminal Procedure
provides for the use of depositions where the "testimony is
material and . . . is necessary . . . in order to prevent a failure of
justice. . . ." In the instant case, the movant failed to meet its
burden of showing the necessity for this deposition. Secondly, the
deposition indicates that the defendant was not a psychiatric patient
and that Dr. Barclay had treated him for diabetes. The doctor is not a
phychiatrist, but is a renowned specialist in internal medicine and
diabetes. Thirdly, while the defendant reported occasional periods of
insulin shock, Dr. Barclay had never seen the defendant in insulin shock
in fifteen years of treatment. Finally, Dr. Barclay nowhere concluded
that defendant fell within the Third Circuit test of criminal
responsibility, i. e., that at the time of committing the offenses
charged, "as a result of mental disease or defect, (he) lacked
substantial capacity to conform his conduct to the requirements of the
law." U. S. v. Currens, 290 F. 2d 751 (3d cir. 1961).
The court
stated on the record that his personal observation of defendant on the
stand convinced him of no lack of mental capacity.
Dr. Barclay
made clear he was not testifying as to defendant's mental condition. We
would certainly respect his opinion at the time of sentence in
mitigation, but if he had personally taken the stand during the trial,
we would have had to preclude his testimony. It is incredible that
defendant would be in insulin shock every time he signed a tax return or
made a trip to
Erie
to purchase securities with cash.
Ground
4. Admission of Summaries of Bank Deposits Analysis and Net Worth
Analysis
The court
properly admitted and sent to the jury the government's Exhibits 69 and
70, which were the expert witnesses' summaries of the bank deposits
reconstruction and of the net worth analysis. These compilations were
based solely on the evidence in the case and the jury was instructed
that they were admitted only to aid their understanding of the complex
evidence in the case. See Holland v. U. S. [54-2 USTC ¶9714],
348 U. S. 121, 4
75 S. Ct. 127, 99 L. ed 150 where the conviction was affirmed, despite
introduction of such exhibits.
Grounds
5 and 6. Admission of Income for Prior Years
No error was
committed in the admission of government Exhibit 8, representing the
defendant's income tax payments from 1946 to 1963 and the prosecutor's
argument to the jury regarding it was entirely proper. Exhibit 8 was
offered and received for the purpose of laying a foundation for Agent
Blizman's testimony as to the maximum income the defendant could have
earned, based upon the taxes that he paid from 1946 through 1963.
Assuming that defendant spent nothing during this period but saved all
his income plus the stock he owned and a gain on the sale of his
residence, his total available funds would have been $113,826.73.
Nevertheless, the government presented evidence that Mathews had a net
worth as of
December 31, 19
63, in the amount of $217,447.72.
Since the
government in a net worth case is required to negate any contention that
the defendant acquired assets or made expenditures in the indictment
years with wealth he accumulated in prior years either from sources on
which he had already paid taxes or from non-taxable sources, such
testimony was necessary to the government's case. See
Holland
v.
U. S.
, supra, where it was noted that the government had checked
defendant's returns as far back as 1913 to show he could not have saved
any appreciable amount of money.
In view of the
startling difference between the two figures, the prosecutor's remark in
his argument to the jury as to the obvious inference to be drawn from
this difference was not improper. As stated in U. S. v. Polack
[71-1 USTC ¶9356], 442 F. 2d 446 (3d cir. 1971) at p. 447:
"To
say that this remark would have a prejudicial effect on a jury which had
listened throughout a long trial to the unfolding of the testimony is to
attribute a stupidity and absence of common sense which is incredible in
a federal jury."
Finally, the
court instructed the jury to concern itself only with charges for the
indictment years, 5
"while evidence has been introduced with respect to matters for
prior years as background and information to determine net worth, you
are only concerned with offenses for the years in question." It
cannot be assumed that the jury disregarded such instructions. Such
evidence was properly admitted to determine beginning net worth and
negate the existence of any hoard of cash. That it also revealed intent,
design and a past pattern of conduct is something to which we could not
blind the jury.
"Now,
in this connection, you should bear in mind and are entitled to consider
the evidence as to the defendant's income tax returns, and his financial
history in the years prior to 1964. These are to be considered by you
only for such aid as they may give you in determining the taxable income
for the years involved in this case. As I have previously instructed
you, he is charged only for these four years, and you are not concerned
with anything that might have occurred prior to that."
Ground
7. Requested Instruction No. 10
No evidence
was presented in this case that the defendant, Mathews, lacked mental
capacity, or that his diabetic condition produced mental incapacity. In
fact, defendant's demeanor while testifying at his trial indicated that
he was quite rational and articulate. Thus, the court properly refused
to give defendant's point for instruction No. 10. What we have
previously said with respect to Ground No. 3, the deposition of Dr.
Barclay, is also applicable here.
Ground
8. Requested Instruction No. 11
The court
properly refused to give defendant's point of instruction No. 11, which
sought to inform the jury of the penalties specified for tax evasion
upon conviction. It is not the province of the jury to be concerned with
what maximum punishment the court can impose as set forth in the
statute. To so inform a jury would be prejudicial to the government.
These matters are committed to the courts by Acts of Congress.
Ground
9. Lesser Included Offenses
The court
correctly refused to charge the jury that it could acquit the defendant
of income tax evasion, 26 U. S. C. A. 7201, and find him guilty of the
lesser included offenses of wilful failure to pay or wilful filing of a
false return under 26 U. S. C. A. 7203 or 7207. The Supreme Court ruled
in U. S. v. Sansone [65-1 USTC ¶9307], 380 U. S. 343, 13 L. ed.
2d 882, 85 S. Ct. 1004 (1965) that a lesser included offense instruction
is appropriate only where the charged greater offense requires the jury
to find a disputed factual element not required for conviction of the
lesser offense. Here, as in Sansone, there was no issue other
than that of whether defendant's act in filing the tax returns was
wilful. That the returns were false and resulted in a tax deficiency was
undisputed.
As stated by
the Supreme Court in Sansone at p. 352: "If his act was not
wilful, he was not guilty of violating either 7201 or 7203." The
court reasoned further at p. 353: "here, however, there is no
dispute that petitioner's material misstatement resulted in a tax
deficiency. Thus, there is no disputed issue of fact concerning the
existence of an element required for conviction of Section 7201 but not
required for conviction of Section 7207." If the jury in the
instant case found as it did, that the defendant's acts were wilful,
Mathews was guilty of violating Section 7201 as well as Sections 7203
and 7207, and, therefore, no instruction as to lesser included offenses
was required.
Ground
10. Instruction on Absent Witness
The government
did not call Agent Guzzy who was briefly assigned to the Mathews
case and whose testimony would have been merely cumulative. Thus, Guzzy
could not have given testimony that "would elucidate the
transaction," Graves v.
U. S.
, 150
U. S.
118 (1893).
Defense
counsel was aware of Agent Guzzy's presence in the courtroom and could
have called him as a witness if he believed that Guzzy had any testimony
to give that might be favorable to the defendant. While the court
permitted both defense and government counsel to comment in their
summations to the jury on Guzzy's non-appearance as a witness, it
properly refused the requested instruction No. 26 on the failure to call
the witness in question. The Third Circuit has commented regarding the
presumption in question as follows: "For obvious reasons of
practicability, evidence which would be merely cumulative could not
raise such a presumption." U. S. v. Restaino, 369 F. 2d 544
(3d cir. 1966). Nothing material which the agents who were called
testified to could have been contradicted by Agent Guzzy. Anything Guzzy
could have given evidence on was admitted by defendant when he took the
stand. Failure to call Guzzy was, therefore, immaterial.
Ground
11. Failure to Suppress Statements
Both Judge
Weber, on the pretrial motion to suppress, and the trial judge correctly
refused to suppress the non-custodial, voluntary statements and records
of Mathews that he gave to the agents. The evidence revealed that the
defendant was never arrested, placed in custody, or deprived of his
freedom of action by the agents. The defendant, an intelligent
businessman, was questioned by the agents either at his place of
business, or as a convenience to him in their car parked outside.
The agents
were not required to give Mathews the Miranda warnings. As
pointed out in U. S. v. Jaskiewicz [70-2 USTC ¶9616], 433 F. 2d
415 (3d cir. 1970), all circuits except the Seventh Circuit have
rejected the contention that Miranda applies to non-custodial
questioning of taxpayers by agents of the Internal Revenue Service.
Thus, the sole question was whether the statement made by the defendant
to the agents and the records he produced were given voluntarily. Jaskiewicz,
supra; U. S. v. Wheeler [60-1 USTC ¶9306], 275 F. 2d 94 (3d cir.
1960). Defendant took the stand but nowhere testified to any
involuntariness on his part or any coercion or trickery by the agents.
Defense
counsel argues that although Mathews was not in custody, the interview
occurred during a "critical state" of prosecution and he was,
therefore, entitled to the Miranda warnings and to counsel is
entirely without merit. First, when Miranda warnings were given,
defendant never indicated any wish to have counsel present. Second, at
the time of the interview, defendant was neither under indictment nor
was he arrested or charged or in custody and no prosecution was pending.
Donaldson v. U. S. [71-1 USTC ¶9173], 400
U. S.
517, 27 L. ed. 2d 580, 91 S. Ct. 534 (1971).
Other
Grounds
Defendant was
found guilty
June 10, 1971
. He reserved the right in paragraph 14 of his original New Trial
Motion, filed
June 14, 1971
, to amend the same after reviewing the transcript of the trial.
Defendant on
June 25, 1971
, filed Additional and Supplemental Reasons Supporting Defendant's
Motion for New Trial; Motion for Acquittal. These additional and
supplemental reasons are clearly untimely. Rule 33 of the Federal Rules
of Criminal Procedure provides that ". . . a motion for a new trial
based on any other grounds shall be made within seven days after verdict
or finding of guilty or within such further time as the court may fix
during the seven-day period." Rule 29(c) is as follows: "If
the jury returns a verdict of guilty or is discharged without having
returned a verdict, a motion for judgment of acquittal may be made or
renewed within seven days after the jury is discharged or within such
further time as the court may fix during the seven-day period."
Thus, not
having secured additional time for the filing of such motions or
additional reasons supporting the same by permission from the court
within the seven-day period, the defendant's attempt to reserve the
right to file such additions is a nullity. Timeliness of the filing of
such motions or additional grounds therefore and the need for the
granting of extensions are jurisdictional requirements.
U. S.
v. Laurelli, 187 F. S. 30 (M. D. Pa. 1960);
U. S.
v. Kane, 319 F. S. 527 (E. D. Pa. 1970). Nevertheless, this
court has reviewed the additional matters raised and finds them entirely
without merit.
1
"Attempt to evade or defeat tax
"Any
person who wilfully 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 cost of prosecution.
Aug. 16, 19
54
, c. 736, 68 A. Stat. 851."
2
Transcript of trial, p. 723. "Now, because the net-worth method of
proving an unreported income is arrived at by comparing the net-worth of
the defendant at the beginning and at the end of the year, the result
cannot be accepted as correct, unless the beginning or starting point is
reasonably accurate. The proof need not show the exact value of all
assets owned by the defendant at the starting date, but the evidence
must show beyond a reasonable doubt that all the assets owned by the
defendant at the starting date are insufficient to account for the
subsequent increases in his net-worth as shown by the evidence. . .
."
The court at
page 746 further affirmed defendant's Request for Instruction No. 22 as
follows: "Because the net-worth theory of analysis is so fraught
with-danger to the innocent, the court must carefully scrutinize its
use." This is affirmed with the modification, "however, here,
the Government has relied not only on the net-worth theory, but also on
the bank deposit method."
3
Transcript of trial, pp. 572, 629-630.
4
Note the
Holland
case is strikingly similar in that there the defendant had destroyed
adding machine tapes.
5
Transcript, p. 717.
[69-2 USTC ¶9735]United States of
America, Appellee v. Paul Anthony Coppola, Appellant
(CA-2),
U. S. Court of Appeals, 2nd Circuit, No. 33900, 425 F2d 660, 11/19/69,
Affirming District Court, 69-2 USTC ¶9460, 296 F. Supp. 903
[Code Sec. 7201]
Crimes: Tax evasion: Willful attempt: Conviction: Constitutionality:
Lesser-included offenses: Felony v. misdemeanor.--The taxpayer's
challenge to the constitutionality of Code Sec. 7201, which punishes
income tax evasion as a felony, could not be sustained on the ground
that such section covered exactly the same ground and offenses as Code
Secs. 7203 and 7207, which punish as misdemeanors the failure to pay a
tax due and the filing of a fraudulent return. The offenses were not the
same; the misdemeanors were lesser-included offenses of the felony and
no equal protection claim arose on a valid conviction of the felony.
Richard B.
Buhrman, Johnnie M. Walter, Assistant Attorney General, Joseph M.
Howard, Department of Justice, Washington, D. C., 20530, Stewart H.
Jones, United States Attorney, for appellee. Jocob D. Zeldes, Elaine S.
Amendola,
955 Main St.
,
Bridgeport
,
Conn.
, for appellant.
Before
LUMBARD, Chief Judge, KAUFMAN and HAYS, Circuit Judges.
PER CURIAM:
Paul Coppola
pleaded guilty to a charge of wilfully attempting to evade the payment
of $15,592.84 in income taxes for the year 1961 by filing a fraudulent
income tax return in violation of 26 U. S. C. §7201. He was sentenced
to two years imprisonment and fined $10,000. On this appeal from the
judgment of conviction entered by Judge Mansfield, sitting by
designation in the District of Connecticut [69-2 USTC ¶9460], he
challenges the constitutionality of §7201. 1
The basis for this challenge is the contention that, on the facts
charged, §7201, which punishes income tax evasion as a felony, covers
exactly the same ground and offenses as §§ 7203 and 7207, which punish
as misdemeanors the failure to pay a tax due and the filing of a
fraudulent income tax return. Coppola therefore urges that §7201 is
void for vagueness and that to allow a prosecuting attorney to choose
the provision under which a given defendant is to be prosecuted would
constitute an improper delegation of power and could lead to violations
of the equal protection clause of the Constitution.
There is no
basis to Coppola's claim that the three sections cover exactly the same
offenses. In Sansone v. United States [65-1 USTC ¶9307], 380
U. S.
343, 351-52 (1965), the Supreme Court clearly stated that the government
must prove more to secure a felony conviction under §7201 than is
required for a misdemeanor conviction under either §7203 or §7207. 2
The elements of a §7201 felony violation are wilfulness, a tax
deficiency, and an affirmative act constituting an evasion of a tax,
such as the filing of a fraudulent tax return. In order to prove a
violation of either misdemeanor provision, however, the government need
show only two of these three elements--wilfulness and failure to pay a
tax due for §7203 or wilfulness and an affirmative act for §7207.
Since all three elements required for a §7201 conviction were present
in this case, the indictment--and plea of guilty--were appropriate.
Because of the
Supreme Court's decision in Sansome, Coppola directs our
attention to the charges of the indictment rather than to the terms of
the statutes. He contends, and we agree, that proof of the charges
contained in the instant indictment would establish not only a violation
of §7201 but violations of §§ 7203 and 7207 as well. This contention,
however, merely establishes that §§ 7203 and 7207 are lesser included
offenses, not that §7201 is unconstitutional. In order to state a claim
of constitutional dimensions, Coppola must establish the converse, that
a violation of either misdemeanor section would invariably constitute a
violation of the felony provision. The exegesis in Sansone stands
as an effective barrier to any attempt to maintain this position.
Indeed, Justice Goldberg provided a clear illustration of a situation
which would give rise to a violation of §7207 but not of §7201. Sansone
v. United States [65-1 USTC ¶9307], 380
U. S.
343, 352 (1965). A taxpayer's fraudulent misstatement of his gross
receipts could be offset by an understatement of his deductible
expenses.
Since an
attempt to avoid the payment of appropriate income taxes is the most
common reason for wilfully filing a fraudulent income tax return, it is
very likely that most wilful misrepresentations in tax returns will give
rise to tax deficiencies and therefore that most violations of §7207
will also constitute violations of §7201. But this statistical
probability of considerable overlapping casts no doubt on the
constitutionality of §7201. Rather, it shows that, despite its specific
reference to fraudulent tax returns, §7207 creates an exception to the
rule that the filing of a fraudulent tax return will generally give rise
to a felony prosecution under §7201 and does not itself establish a
general rule that such an act shall be punishable only as a misdemeanor.
Cf. United States v. Beacon Brass Co. [52-2 USTC ¶9528], 344
U. S.
43 (1952).
In brief, we
are unable to distinguish Coppola's claims from those of a defendant
charged with first degree murder who argues that since proof of the
facts set forth in the indictment will show him guilty of manslaughter
as well as murder, he must be convicted for manslaughter rather than
murder. Coppola attempts to rebut this analogy by arguing that a
defendant charged with murder would always he entitled to an instruction
on the lesser included offense of manslaughter. What he neglects to
mention is that if he had placed in dispute a factual element required
for conviction under §7201 but not for conviction under §§ 7203 or
7207, he too would have had a right to a charge on the lesser included
offense. Sansone v. United States [65-1 USTC ¶9307], 380
U. S.
343, 350 (1965). It was his own decision to admit rather than to contest
the charges against him.
Affirmed.
1
Coppola entered his plea of guilty on the condition that he be allowed
to contest the constitutionality of §7201 on appeal. See United
States v. Grassia, 354 F. 2d 27 (2d Cir. 1965), vacated on other
grounds [68-1 USTC ¶15,820], 390
U. S.
202 (1968).
2
It is on this ground that we distinguish the dissenting opinion of
Justice Black in Berra v. United States [56-1 USTC ¶9480], 351
U. S. 131 (1956), in which Justice Douglas concurred and on which
Coppola places considerable and unjustified reliance. Berra
involved §3616(a) of the Internal Revenue Code of 1939, the predecessor
of §7207. Conviction under §3616(a) required proof of an "intent
to defeat or evade" taxes. Therefore, if §3616(a) applied to the
income tax, any proof sufficient to establish a violation of §3616(a)
would also establish a violation of the felony provision of the 1939
Code, §145(b). For this reason, Justice Black questioned the
constitutionality of §145(b) on grounds similar to those urged upon us
by Coppola. However, in the Internal Revenue Code of 1954, the statute
involved in this case, the requirement of an "intent to defeat or
evade" taxes appears only in §7201 and not in §7207. Thus, the
dissent in Berra has no relevance to cases arising under the 1954
Code.
[69-2 USTC ¶9596]United States of
America, Appellee v. Joseph F. Schipani, Appellant
(CA-2),
U. S.
Court of Appeals, 2nd Circuit, Docket No. 33157, 414 F2d 1262,
8/11/69
, Aff'g District Court, 68-2 USTC ¶9510, 289 F. Supp. 43
[Code Secs. 446 and 7201]
Crimes: Failure to file returns: Net worth method: Admissibility of
evidence: Electronic monitoring: Trial.--The taxpayer's conviction
on five counts of willful income tax evasion was affirmed. The trial
court applied the proper legal principles in determining that the only
tainted evidence from electronic monitoring was that relating to a
likely source of income and that the other evidence of the taxpayer's
net worth was proved beyond a reasonable doubt to be untainted. Further,
it was not necessary to rely upon a "likely source" of net
worth to sustain the conviction. Also, it was permissible to admit into
evidence a statement voluntarily made by the taxpayer to prison
officials some years prior to the years in issue concerning the amount
of cash which he had. Nor was the taxpayer denied a fair trial where the
court did not base its decision on the taxpayer's alleged criminal
background.
Johnnie M.
Walters, Assistant Attorney General, Lee A. Jackson, Joseph Howard, Cono
R. Namorato, Janet R. Spragens, Department of Justice, Washington, D. C.
20530, Vincent T. McCarthy, United States Attorney, Jerome C. Ditore,
Assistant United States Attorney, Brooklyn, N. Y., for appellee. Abraham
Glasser, Jacob F. Lefkowitz, 150 Broadway,
New York
, N. Y., for appellant.
Before HAYS
and FEINBERG, Circuit Judges, and JAMESON, District Judge. *
JAMESON,
District Judge:
This is an
appeal from a judgment of conviction entered
December 6, 19
68, after trial without a jury, on five counts of willful income tax
evasion through failure to file returns for the years 1956-1960
inclusive, in violation of 26 U. S. C. 7201. 1
Appellant was
first found guilty of the same offenses, after a non-jury trial, 2
on
October 15, 19
65, and was sentenced on
December 3, 19
65. This conviction was affirmed by this court on
June 29, 19
66
. United States v. Schipani, 2 Cir. 1966, [66-2 USTC ¶9512] 362
F. 2d 825. Certiorari was denied on
November 7, 19
66. 385
U. S.
934, 87
S. Ct.
501, 17 L. Ed. 2d 431.
On
November 30, 19
66, the Solicitor General filed a supplemental memorandum in the Supreme
Court advising the Court that material evidence against appellant was
based in part on electronic surveillance and suggesting that by reason
of this taint the "Court vacate its order denying certiorari, grant
certiorari, vacate the judgment of the court of appeals, and remand the
cause to the district court for a new trial, should the government seek
to prosecute the petitioner anew." 3
On
December 12, 19
66, acting "(u)pon the suggestion of the Solicitor General and upon
an independent examination of the case," the Supreme Court remanded
to the district court "for a new trial should the Government seek
to prosecute petitioner anew." 385
U. S.
372, 87
S. Ct.
533, 17 L. Ed. 2d 428.
Following
remand, appellant filed a motion to suppress all evidence obtained as a
result of any electronic surveillance. A full evidentiary hearing on the
motion commenced
May 6, 19
68, and continued for five days. The Government made full disclosure of
all available information relating to electronic surveillance of any
conversations in which appellant had participated. 4
In a thorough and well-reasoned opinion, Judge Weinstein suppressed all
evidence introduced at the first trial relating to appellant's
"likely sources of income" 5
and otherwise denied the motion.
United States
v. Schipani, E. D. N. Y. 1968, [68-2 USTC ¶9510] 289 F. Supp.
43.
At the second
trial, the entire record of the first trial was received in evidence as
an exhibit, pursuant to a stipulation entered into by the Government,
appellant, and appellant's trial counsel. Since "likely
source" evidence had been excluded, the Government's case rested
solely on a negation of all non-taxable sources of income, a theory
approved in United States v. Massei, 1958, [58-1 USTC ¶9326] 355
U. S. 595, 78 S. Ct. 495, 2 L. Ed. 2d 517.
Following
detailed findings, the court concluded: "During each of the years
charged in the indictment the defendant had substantial taxable income
greatly in excess of six hundred dollars. During each of these years he
should have paid a substantial income tax. He failed to file income tax
returns and concealed his income wilfully in order to defraud the
government of income taxes due by him to the government. The government
has proved beyond a reasonable doubt all the elements of the crime
charged for each of the years charged in the indictment. The defendant
is guilty as charged on all counts."
United States
v. Schipani, E. D. N. Y. 1969, [68-2 USTC ¶9510] 293 F. Supp.
156, 163, 164.
I. Appellant
first questions the propriety of the proceedings upon remand and
contends that the Government could not constitutionally retry the case
on the basis of "first-trial proofs." He argues that the
ruling of the district court that there was sufficient taint-free
evidence to permit a retrial on the same evidence constituted a
"collateral finding" that "the Supreme Court of the
United States was 'in error' in having adjudicated to the contrary in
deciding the same electronic issues in December, 1966, on the merits and
'upon an independent examination of the case.'"
We do not so
read the Court's opinion. It is significant that the Supreme Court,
after its "independent examination of the case," did not order
a dismissal. Appellant had petitioned for a "remand with direction
to vacate the judgment of conviction and to dismiss the
indictment." The Court did not grant the petition but instead
provided expressly for a "new trial should the Government seek to
prosecute * * * anew." 6
Had the Court intended the construction placed upon its order by
appellant, it would have granted his motion.
Clearly it was
necessary to determine in some manner what evidence was tainted. This
the district court did in an extended suppression hearing, with complete
disclosure to appellant by the Government of all available information
in the Government's files and with an opportunity to cross-examine the
key agents and investigators who had any knowledge of the electronic
surveillance. 7
The per
curiam opinion of the Supreme Court did not hold or even suggest
that all evidence at the first trial was tainted by electronic
surveillance. The Court had been advised by the Solicitor General that
some of the leads and evidence were tainted. Neither the Solicitor
General nor the Supreme Court had the benefit of the careful analysis
and testimony with respect to the sources of all evidence which were
available to the district court as a result of the suppression hearing. 8
The evidence
at the suppression hearing disclosed that the F. B. I. had been
compiling information on appellant since 1958. In a report dated
October 10, 19
60, the defendant was described by one source as "one of the most
influential and most powerful figures in New York underworld" and
"considered to be associated with several of New York's top
hoodlums" (289 F. Supp. at p. 46). The first information obtained
by electronic surveillance was in 1961 through an investigation of
Michael Clemente and covered the "Prisco Travel Bureau, a 'front'
for Clemente's criminal activities and a meeting place for many of
New York
's top mobsters." Although appellant was not the subject of that
electronic surveillance, nine conversations in which he participated and
27 others in which he was discussed or his name was mentioned were
electronically monitored (p. 47).
The district
court properly examined all of the evidence in the first trial to
determine whether all or only a part was tainted by the electronic
surveillance, and whether any untainted portion was independent of and
distinguishable from that which was tainted. 9
After a full hearing the court, in a careful opinion, first recognized
that "evidence is admitted if it is obtained from an untainted
'independent source' but excluded if it is obtained as a result of the
illegality"; that evidence discovered "as a result of both
legal and illegal leads" is inadmissible, even though "the
legal lead would itself probably have sufficed to uncover the
evidence" (289 F. Supp. at p. 54); and that the Government is
required to "prove beyond a reasonable doubt that the evidence it
introduces was legally obtained" (at p. 59).
Applying the
foregoing rules, the court found, inter alia, that the only
tainted evidence was that relating to a likely source of income; that
the "(o)ther evidence of the defendant's net worth was proved
beyond a reasonable doubt to be untainted" (at p. 61); that the
investigation was not intensified by reason of any tainted information, 10
and that it was "highly likely that the government would have
launched a saturation investigation * * * even if no information had
been received from electronic surveillance of the Prisco Travel
Bureau" 11
(at p. 64).
We approve the
legal principles applied. The findings were not clearly erroneous. They
were supported by substantial evidence.
II.
Appellant's next contention that the evidence was insufficient to
sustain a conviction was considered by this court on the appeal from the
first conviction. 12
As noted supra, at each trial the Government relied on the
"net worth" theory. 13
The evidence of "likely source" income accepted at the first
trial was excluded at the second trial. The evidence negating
non-taxable income, however, was identical at the two trials.
In affirming
the first conviction, this court found that the "totality of
circumstances shown by the evidence" supported the conclusion that
no "cash hoard" ever existed; that the "absence of such a
reserve fund was established as part of the Government's prima facie
case" and appellant "remained quiet at his own peril." 14
The opinion pointed out that the appellant had not suggested any
"nontaxable sources other than a cash hoard" and that
"the Government negatived all other reasonably possible sources
from which Schipani could have acquired non-taxable funds." It was
held that, "Under the circumstances, proof of 'a likely source' of
net worth increases is not necessary," relying on United States
v. Massei, supra, and other cases cited. (362 F. 2d at 830.) 15
We adhere to
our conclusion that it was not necessary to rely upon a "likely
source" of net worth to sustain a conviction, and hold that after
the elimination of all evidence of "a likely source," the
evidence was still sufficient to prove guilt beyond a reasonable doubt.
With respect
to appellant's contention that the Government failed to establish the
element of "willfulness," Judge Weinstein sets forth in detail
the factors showing "a pattern consistent only with that of a
guilty mind" (293 F. Supp. at 161). We agree with his conclusion.
The factors enumerated in his opinion are essentially the same as those
considered by this court in its prior decision (362 F. 2d at 831).
III. This
court also considered on the prior appeal appellant's contention that
the trial court erred in admitting into evidence the prison record of a
statement given by appellant to a prison official in February, 1943,
that he had only $1350 in cash which he had left with his vife. The
statement was offered to show appellant's net worth in 1943 as a
starting point in proving his net worth at the beginning of the
indictment period. The statement was given in the course of a routine
interrogation by prison authorities relating to Schipani's personal
history. It was unrelated to any pending investigation of a criminal
offense, and particularly bore no relationship to the present case,
which was not initiated until many years later. We adhere to our prior
holding that there is no basis for appellant's claims that this
statement constituted an involuntary or incriminatory statement in
violation of appellant's Fifth Amendment rights and was an unlawful
search and seizure in violation of the Fourth Amendment. 16
IV. Finally,
appellant complains of the conduct of the trial judge, first in
"refashioning * * * an indispensable element in the formulation and
proof of the indictment charges." In the first trial, the
Government relied upon the "presumption of innocence" arising
from the failure to file returns in pre-indictment years. This court
held this approach improper, and the trial judge properly called this
conclusion to the Government's attention. In following the suggestion of
this court (362 F. 2d at 829-30) the district court did not abuse its
discretion.
Nor is there
merit in appellant's contention that he was denied a fair trial by the
"infection of the record with reference to his alleged notorious
criminal background." As noted supra, appellant resisted the
Government's motion to withdraw its consent to a trial without jury. The
motion was denied by reason of the trial court's conclusion that there
was "a substantial danger that the defendant will be severely
prejudiced if he is tried before a jury" (44 F. R. D. at 463),
based in large part upon the testimony in the suppression hearing with
respect to defendant's criminal activities. In an order entered
October 14, 19
68, Judge Weinstein granted appellant's motion to strike all references
to appellant's alleged background of illicit activities, saying in part:
"The Court will not base its decision on the defendant's criminal
background, if any." We find no evidence that the trial court gave
any weight to the evidence of appellant's criminal activities in
arriving at the guilty verdict. The proof was sufficient without
considering this evidence.
Appellant also
complains of the court's reference to appellant's "demeanor and
general appearance," in view of the fact that appellant did not
take the stand. We agree with the district court that, "The trier's
observation of the non-witness defendant's demeanor and general
appearance may be--and almost invariably is--considered by him in
evaluating evidence introduced at the trial (citing case)."
Moreover, Judge Weinstein specifically stated that "* * * the
conclusion that defendant was guilty beyond a reasonable doubt was
reached solely on the record."
Affirmed.
*
Senior District Judge of the District of Montana, sitting by
designation.
1
26
U. S.
C. 7201 provides in pertinent part:
"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 * * *."
2
Prior to the first trial the parties had waived a jury. Before the
second trial, the Government moved to withdraw its consent to trial
without jury. The motion was resisted and denied, the court holding that
the Government's waiver covered "the above entitled case"
rather than a particular trial.
United States
v. Schipani, E. D. N. Y. 1968, [68-2 USTC ¶9510] 44 F. R. D.
461.
3
The memorandum set forth that it had come to the attention of the
Solicitor General that appellant had been a participant in a number of
conversations which had been electronically monitored as a result of
trespass. The Solicitor General was unable on the basis of information
then available to "say * * * that none of the evidence used by the
government at petitioner's trial was obtained, either directly or
indirectly, from an improper source."
4
With respect to the evidence presented at the hearing, the court said in
part:
"The
Government has freely revealed all data available to it. It has
presented all the surveillance logs of conversation in which the
defendant participated or was mentioned, the files of the Federal Bureau
of Investigation, the Alcohol and Tobacco Tax Division of the Treasury
Department, the Intelligence Division of the Internal Revenue Service,
and the Department of Justice, and the testimony of the many agents and
attorneys in the 1961-1963 investigations of the defendant and the 1966
review of their work by the Department of Justice. In addition, the
Federal Bureau of Investigation 'case agent' assigned to the Schipani
investigation reviewed all the Federal Bureau of Investigation reports
relating to the defendant and underlined all information obtained as a
result of electronic surveillance" (289 F. Supp. at p. 45).
5
Each time the case was tried on the "net worth" theory. At the
first trial the Government offered evidence of "likely
sources" of income, as well as negating all non-taxable sources of
income.
6
A similar procedure of remand for an exclusionary hearing was followed
in United States v. Wade, 1967, 388 U. S. 218, 87 S. Ct. 1926, 18
L. Ed. 2d 1149; Gilbert v. California, 1967, 388 U. S. 263, 87 S.
Ct. 1951, 18 L. Ed. 2d 1178.
7
The evidence adduced at the suppression hearing included "a
painstaking analysis of all the evidence introduced" in the first
trial, prepared by the Special Agent of Intelligence in charge of the
Schipani investigation, with a member of the staff of the United States
Attorney. "The products of their labors was a comprehensive chart
which denotes a specific source or sources for each witness and piece of
evidence (including 292 exhibits) introduced at the trial" (289 F.
Supp. at p. 49).
8
The same is true of the memorandum prepared by James Dewey O'Brien, then
the Assistant Chief of the Criminal Section of the Tax Division, upon
which appellant heavily relies in support of his contention that all
first trial proofs were tainted.
9
The proper test is: "(W)hether, granting establishment of the
primary illegality, the evidence to which instant objection is made has
been come at by exploitation of that illegality or instead by means
sufficiently distinguishable to be purged of the primary taint." Wong
Sun v. United States, 1963, 371 U. S. 471, 488, 83 S. Ct. 407, 9 L.
Ed. 2d 441; Hoffa v. United States, 1966, 385 U. S. 293, 309, 87
S. Ct. 408, 17 L. Ed. 2d 374; United States v. Wade, 1967, 388 U.
S. 218, 241, 87 S. Ct. 1926, 18 L. Ed. 2d 1149.
10
"The government has established by a preponderance of evidence and
possibly by clear and convincing proof--though not beyond a reasonable
doubt--that the intensity of its investigation by Intelligence and the
Alcohol Tax Division was not affected by tainted information." 289
F. Supp. at p. 64.
The court had
previously concluded that proof showing that the intensity of the
investigation was not the result of tainted information was satisfied by
a preponderance of the evidence.
11
In reaching this conclusion the court relied in part upon the untainted
F. B. I. report of
October 10, 19
60, supra, and "additional leads * * * through acceptable
investigative techniques. Defendant had never filed an income tax return
although he obviously enjoyed a high standard of living. Immediately
after the investigation began, the defendant appeared so vulnerable and
the likelihood that an income tax investigation would prove fruitful was
so great, that government agents would naturally focus on him" (289
F. Supp. at p. 64).
12
In view of the factual background contained in the prior opinion of this
court (362 F. 2d 825) and the detailed findings of Judge Weinstein in
his order following the suppression hearing (289 F. Supp. 43) and in his
opinion following trial (293 F. Supp. 156), we do not deem it necessary
to set forth the evidence in detail in this opinion.
13
In a net worth case, the Government "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. 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." Holland v. United States, 1954, [54-2 USTC ¶9714]
348
U. S.
121, 125, 75 S. Ct. 127, 99 L. Ed. 150, rehearing denied 348
U. S.
932, 75 S. Ct. 334, 99 L. Ed. 731.
14
Appellant did not offer any evidence at either trial, but relied on
insufficiency of the Government's proof.
15
Appellant recognizes that this issue was determined adversely to his
contention in our opinion affirming conviction on the first appeal, but
argues that the "inartistic reference to a 'reasonably' proved
negation of 'all possible' not-taxable source under the Massei
case" was an unwarranted extension of the Massei rule and
does not find support in other cases construing Massei. We find
nothing in the cases cited by appellant contra to our construction of Massei
as applied to the facts of this case.
16
The cases upon which appellant relies are factually distinguishable in
that the statements under consideration in those cases were given in
connection with the investigation of the accused.
[69-1 USTC ¶9316]William A. Agoranos,
Appellant v.
United States of America
, Appellee
(CA-5),
U. S. Court of Appeals, 5th Circuit, No. 25997, 409 F2d 833, 4/2/69,
Affirming an unreported District Court decision
[Code Secs. 446 and 7201]
Fraud: False and fraudulent returns: Proof by net worth increase:
Opening net worth: Self-incrimination: Right to counsel.--The
taxpayer's conviction for filing false and fraudulent returns, proof of
which was based on the increase in net worth, was sustained. Opening net
worth was established with reasonable certainty and there was no failure
to negate reasonable explanations of the taxpayer's net worth position
which were inconsistent with guilt. Further, the taxpayer's
constitutional right against self-incrimination and his right to counsel
were not violated by the failure of the IRS agent to give him a Miranda
type warning at the time of an interview regarding the repayment of a
loan included as a loan receivable in the beginning net worth. The
taxpayer was not in-custody at the time of the interrogation. Therefore,
the Miranda rule was not applicable since it applies only to
in-custody interrogations.
Eli H. Subin,
140 S. Court St.,
Orlando
,
Fla.
, for appellant. Edward F. Boardman, United States Attorney,
Rob
ert B. McGowan, Assistant United States Attorney, Tampa, Fla., Allen P.
Clark, Assistant United States Attorney, Jacksonville, Fla., for
appellee.
Before
PHILLIPS, *
BELL, and MORGAN, Circuit Judges.
BELL
, Circuit Judge:
Appellant was
convicted of filing false and fraudulent income tax returns in violation
of §7201 of the Internal Revenue Code of 1954, 26 USCA, §7201. The
income tax returns involved were for the years 1960, 1961, and 1962. His
return reflected no taxable income for the year 1960 whereas the
government claimed that he had taxable income of $13,295.60. Taxable
income of $2,375.67 was reported for the year 1961 and the government
claimed that the true taxable income was $10,732.45. For 1962, appellant
reported $1,229.38 as taxable income and the government contended that
his true taxable income was $11,773.95.
Appellant's
books and records were inadequate and the government established its
case on the net worth approach. 1
The beginning point was net worth as of
December 31, 19
59
. The jury resolved the issues against appellant and this appeal
followed. We affirm.
[Assignments
of Error]
There are two
assignments of error. One is the contention that appellant's Fifth
Amendment right against self-incrimination and his Sixth Amendment right
to counsel were violated by the failure of an internal revenue
investigator to give him a Miranda type warning at the time of an
interview. Miranda
v. Arizona,
1966, 384 U. S. 436, 86 S. Ct. 1602, 16 L. Ed. 2d 694.
[Miranda
Warning]
It appeared
that the investigation of appellant had begun on
April 30, 19
63
. Simultaneously the government was investigating the affairs of Thomas
Butman to whom appellant had made a loan. On
July 29, 19
63, a special agent interviewed appellant regarding the repayment of the
loan by Thomas Butman. No Miranda warning was given; in fact, the agent
testified that he did not know at the time that appellant was being
investigated. The Butman loan was included as a loan receivable in the
beginning net worth statement and it is appellant's position that the
entire net worth statement was rendered inadmissible by the failure to
give the Miranda warning. Additionally, as we perceive it, appellant
claims that he was prejudiced by the disclosure that Butman was a
Las Vegas
gambler.
Assuming, arguendo,
that the introduction of the Butman loan evidence prejudiced appellant,
the short answer is that appellant was not in custody and the Miranda
doctrine applies only to in-custody interrogation. Cf. Mathis v.
United States
, 1968, [68-1 USTC ¶9357] 391
U. S.
1, 88
S. Ct.
1503, 20 L. Ed. 2d 381. Moreover, there was no objection to the
implication that Butman was a gambler and the testimony did not rise to
the level of plain error.
[Net
Worth Computation]
The other
assignment of error is based on the connection that the government was
in possession of leads as to sources of cash on hand which were not
sufficiently investigated and thus the opening net worth used by the
government was inaccurate and invalid within the teaching of Holland
v. United States, supra, 348 U. S. 121, 135. These leads had to do
with monthly income from the sale of a bar being received in 1959, he
sum of $4,600 received on
July 29, 19
59 from a stockbroker, and the sum of $2,500 withdrawn from appellant's
bank account on
November 16, 19
59. Another lead had to do with a loan to E. C. McGee in the amount of
$1,000 which it is urged should have been included as a loan receivable
in the opening net worth.
Accuracy in
the opening net worth statement is important since the correctness of
the end result depends on all assets being included at the outset.
However, we are convinced from a careful consideration of the evidence
that the government was not remiss in its handling of these leads.
Considered in light of appellant's transactions during the year 1959 and
in light of the opening net worth statement as of
December 31, 19
59
, they were sufficiently accounted for within the teaching of
Holland
. There was no failure to negate reasonable explanations of
appellant's net worth position which were inconsistent with guilt. The
opening net worth statement included $2,000 cash on hand plus some
$5,700 in banks. During 1959 appellant made a lump sum alimony
settlement with his wife in the amount of $13,300 and he admitted that
$5,800 of this sum was paid in cash or checks. During the same year he
spent $2,800 in cash for a swimming pool and also made certain loans. We
think that these expenditures tend to account for the sums in question.
The evidence of a loan being outstanding on
December 31, 19
59 to McGee was inconclusive.
AFFIRMED.
*
Of the Tenth Circuit, sitting by designation.
1
The court stated in Holland v. United States, 1954, 54-2 USTC ¶9714,
348 U. S. 121, 75 S. Ct. 127, 99 L. Ed. 120:
"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 differences
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 . . ." 348 U. S. at 124.
[69-1 USTC ¶9308]United States of
America, Plaintiff v. Hom Ming Dong, Defendant
U.
S. District Court,
Dist.
Ariz.
, No. C-17412 Phx., 293 FSupp 1249, 12/6/68
[Code Secs. 446 and 7201]
Crimes: Attempted tax evasion: Reconstruction of income: Net worth
method: Adequacy of records: Likely source of income: Cash hoard: Burden
of proof.--Conviction on six counts of attempted income tax evasion
ensued where the government established with reasonable certainty, by
means of the net worth method for reconstruction of income, the
taxpayer's beginning and ending net worth for each year in issue. The
taxpayer's records were entirely inadequate as a basis for determining
liability and the net worth method was properly used for such purpose.
Finally, a likely source of taxable income was shown.
Morton Sitver,
Assistant United States Attorney,
Phoenix
,
Ariz.
, for plaintiff. Stockton & Hing, Security Bldg.,
Phoenix
,
Ariz.
, for defendant.
Opinion
Statement of the Action
MUECKE,
District Judge:
On
February 25, 19
66, the defendant Hom Ming Dong was charged in a six-count indictment
with attempted income tax evasion (26 USCA §7201) for the taxable years
1959 through 1964 inclusive. Hom Ming Dong entered a plea of not guilty
to all counts. A jury trial was waived and the case was tried to the
Court.
A request
having been made that the Court enter findings of fact and conclusions
of law, this opinion shall answer that request as allowed by Federal
Rules of Criminal Procedure, Rule 23(c).
Background
and Facts
The defendant
and his wife filed joint federal income tax returns in 1960, 1961, 1962,
1963, 1964, and 1965 in the District of Arizona for the taxable calendar
years 1959 through 1964 inclusive. Exs. 3 through 8. The allegations of
attempted tax evasion in the six counts of the indictment were founded
upon the tax returns filed by Hom and his wife.
During the
taxable years 1959 through 1964 inclusive, Hom Ming Dong owned and
operated Tom's Food Market located in a low-income area at
701 South 16th Street
,
Phoenix
,
Arizona
. The market sold groceries of various kinds, meats, and alcoholic
beverages. Mr. Hom and his wife, Carol Shaw Dong, lived in the rear of
the store building together with their five children. For the years
indicated, the defendant reported the following adjusted gross income
and listed the following tax liabilities on his returns:
TABLE
I (Source: Exs. 3-8)
Adjusted Gross
Years Income Reported Tax Liability
1959 ..... $5,357.13 $124.28
1960 ..... 4,901.29 47.00
1961 ..... 4,708.63 11.00
1962 ..... 4,685.00 2.00
1963 ..... 6,802.64 384.84
1964 ..... 7,648.32 420.95
The defendant paid the amount of the tax he reported as due in each of
these years. Ex. 9.
Frank Edward
Barndt, an Internal Revenue Agent assigned to audit Mr. Hom's 1962
returns, first met the defendant at Tom's Market on
September 10, 19
64, having telephoned the previous day to set up an appointment. Tr. p.
2. During the telephone conversation with Mr. Hom, Agent Barndt
requested that the defendant make his records available, including his
journals, check register, bank statements, and cancelled checks. Tr. p.
27. The only records made available were one small journal, which was
not very detailed (Tr. p. 29), and some bank statements. The defendant
also furnished copies of his 1961 and 1963 tax returns. When asked to
explain how he made entries and how he computed income using the
journal, he replied that he "just kept track." Tr. p. 30. At
first, when asked for bank statements, Mr. Hom stated that he could not
find them, but his accountant, Marvin E. Hamilton, who was present at
the meeting, asked Mr. Hom whether he hadn't found some of them. Mr. Hom
stated that he had and produced six bank statements for the year 1962.
Tr. p. 30.
The only
record of transactions kept by Mr. Hom, other than bank statements, was
the small journal. Barndt's preliminary audit showed that bank deposits
exceeded the amount of income shown in the journal for the same period
of time by approximately $30,000. Tr. p. 31. The income shown in the
journal coincided with the amount shown on the 1962 tax return. Tr. p.
40.
The only
record of daily transactions which Hom Ming Dong kept was the small
journal referred to above. Ex. 66, pp. 4, 5. This journal was never
entered into evidence nor marked for identification. The following
description was given by Agent Barndt:
"It had
an in column and an out column and as he explained it to me that the in
showed the amount of cash that he had received during the day and that
the out column was the amount of the number of expenses that he had made
with a figure at the bottom showing his net profit or loss as the case
may be for the day. The records, the book was not very detailed in that
I could not verify a specific number. Let us say that there was an
amount shown as an expense. I had no way of verifying what this expense
was."
The unsworn
statement of Hom Ming Dong taken in the office of the Internal Revenue
Service on
December 8, 19
64, with Mr. Hom's attorney present and placed in evidence as
Government's Exhibit 66, includes the following dialogue:
"47.
Q. Concerning your sales at the store, do you ring them all up on the
cash register?
A.
Every penny.
48.
Q. Do you have a tape on the cash register?
A.
My cash register has no tape.
49.
Q. How do you get the sales at the end of the day? How do you determine
your sales--do you read the cash register at the end of each day?
A.
I put $30.00 in change, then I ring up all my sales. At night I take my
$30.00 out; all the rest is sales for that day.
50.
Q. What about purchases? Are most of your purchases by check--most of
them?
A.
No.
51.
Q. You have a lot of currency purchases?
A.
It is rather hard to tell. Let's say this way--you're asking me how I
pay those little bills and stuff now?
52.
Q. Yes.
A.
Some are paid by check; others paid by cash; and some of them are paid
by check that I cash for the customers, so that's three ways paying.
53.
Q. Do you know about how much of your total purchases is paid by either
cash or customers' checks?
A.
I have no breakdown, Mr. Bigler. (Mr. Hing) I think
Hamilton
made some kind of a breakdown on that.
54.
Q. At the end of the day do you write your sales down somewhere?
A.
Yes.
55.
Q. Where do you write it down?
A.
I write it in a book." Ex. 66, pp. 4, 5.
In response to
further questions regarding what books or records Mr. Hom had, he
answered that there was very little space in his store and went on to
say.
"I keep
only limited records, and those I don't think absolutely necessary--I
have to make room for my things and I don't keep those old
records." Ex. 66, p. 5, q. 62.
This
answer was given in response to questions concerning records for 1959
and 1960. Mr. Hom went on to say that three years was all that he kept
his records. Ex. 66, p. 5, q. 61.
On
November 12, 19
64, Special Agent Lester A. Bigler of the Internal Revenue Service's
Intelligence Division contacted the defendant at Tom's Market. Tr. p.
134. Agent Barndt accompanied Agent Bigler to the store where they had a
conversation with Mr. Hom. The defendant stated that he was represented
by counsel, Mr. Hing, and that he would cooperate to whatever extent he
was advised by his attorney but that he didn't care to answer any
questions. Mr. Hom was requested by Agent Bigler to furnish all records
he had pertaining to his income and expenses for the years 1959 through
1964. Mr. Hom replied that the decision was up to his attorney,
whereupon the interview terminated. Tr. p. 136. Agent Bigler contacted
Mr. Hom on at least one other occasion and the defendant refused to
answer any questions.
The defendant
was interviewed in the presence of his attorney on
December 8, 19
64, at an Internal Revenue Service Office in
Phoenix
,
Arizona
. The questioning was conducted by Special Agent Bigler. Agent Barndt
and a court reporter were also present. The defendant stated that at the
end of each day he would keep $30.00 cash for change on hand to start
off the next day. Ex. 66, pp. 4 and 6.
The
Government, by utilizing the net worth method of arriving at a tax
liability, computed the following adjusted gross incomes and tax
liabilities for Hom Ming Dong in the taxable years alleged in the
indictment:
TABLE
II (Source: Exs. 93 and 104)
Adjusted
Gross Tax
Count Year Income Liability
I 1959 .... $21,197.42 $3,919.23
II 1960 .... 27,064.61 5,988.55
III 1961 .... 19,324.38 3,357.31
IV 1962 .... 22,663.47 4,417.58
V 1963 .... 28,311.78 6,462.48
VI 1964 .... 19,206.73 2,961.82
Accordingly,
the Government found that Hom Ming Dong had understated his adjusted
gross income and his tax liability in the following amounts:
TABLE
III (Source: Exs. 93 and 104)
Understatement
of Adjusted Understatement
Gross of Tax
Count Year Income Liability
I 1959 .... $15,840.29 $3,894.95
II 1960 .... 22,163.32 5,941.55
III 1961 .... 14,615.75 3,346.31
IV 1962 .... 17,978.47 4,415.58
V 1963 .... 21,509.32 6,078.04
VI 1964 .... 11,558.41 2,540.87
In explanation
of the rise in his visible assets, Hom Ming Dong told Agent Barndt that
he had received a large amount of money from his father. However, he
would not give a specific figure. Tr. p. 32. Later, at the time of the
formal interview, the defendant stated he had "close to"
$200,000 in 1947 when he came to
Phoenix
. This cash hoard allegedly consisted of $55,000 inherited from Mr.
Hom's father in 1938, (Ex. 66, p. 7), and $130,000 which his wife had
inherited from her parents in 1946 when they died in a cholera epidemic
in
Hong Kong
. Ex. 66, p. 8.
Concerning the
inheritance of Mr. Hom, the Government introduced in evidence a portion
of a transcript of an interview held by the United States Immigration
Department purporting to be with Mr. Hom's father, Hom Guen Fee, also
known as Hom Chew Doon. Exs. 103 and 102. These exhibits (103, 102) were
admitted by the Court solely for the purpose of showing what attempts
the Government had made to check out leads as to the source of the
defendant's alleged cash hoard. It was not admitted to prove the truth
of the statements contained therein, only because the Court found that
the foundation was not laid to prove that the Hom Guen Fee, also known
as Hom Chew Doon, named in the interview was in fact the defendant's
father.
The
defendant's story concerning Mrs. Hom's inheritance of $130,000 was to
the effect that her parents had died in a cholera epidemic in
Hong Kong
,
China
, and that Mrs. Hom's grandmother took control of the inheritance and
saved it for Mrs. Hom. The defendant claims that his wife's parents were
very wealthy merchants. Ex. 66, p. 8. Purportedly, the grandmother took
a portion of the amount of money which the parents of Mrs. Hom left and
gave the rest of it, $130,000, to Mrs. Hom. Then the grandmother took
that portion of the money she had retained, left Hong Kong and returned
to inland
China
to spend the rest of her life. Ex. 66. p. 8.
The dialogue
between the defendant's attorney and Agent Bigler at the trial elicited
the fact that Agent Bigler had written to the International Relations
Department of the Internal Revenue Service which had in turn contacted
their representative in the
Hong Kong
area and had obtained a marriage certificate for Hom Ming Dong and his
wife (Ex. 86. Tr. pp. 375-376). However, Agent Bigler was unable to
state affirmatively whether or not the Government had actually attempted
to check out the story of the inheritance relative to Mrs. Hom's parents
being wealthy merchants and dying in the cholera epidemic of 1945. Tr.
pp. 373-376. Obviously, the Government is unable to communicate with or
trace the grandmother who is in Communist China.
When Mr. Hom
was questioned regarding the location of his $55,000 inheritance during
the period that he was serving in the U. S. Navy, Mr. Hom stated that he
had left the $55,000 with a friend named Mr. Eng. Ex. 66, p. 9. However,
Mr. Hom did not known Mr. Eng's first name nor did he know where in San
Francisco, Mr. Eng lived. Ex. 66, p. 10. Mr. Hom stated that he knew
nothing about Mr. Eng, but that Mr. Eng had been recommended as an
honest man and, therefore, he trusted him with his $55,000 cash. Ex. 66,
pp. 16 and 10. The Government attempted to locate Mr. Eng but was
unsuccessful. Tr. pp. 309-311.
Mr. Hom
further stated that after he and his wife were married in Hong Kong in
1946, he returned to the
United States
with $100,000 in
America
currency in his sea bag. Ex. 66, p. 9. In an effort to verify the
truthfulness or falseness of the statements regarding the sea bag, the
Government obtained from the Bureau of Naval Personnel a list of
officers and enlisted men who were serving with Mr. Hom at the time he
was married in
Hong Kong
. Ex. 107. The Court admitted Exhibits 107, 108 and 108A for the purpose
of indicating that the Government had attempted to check the leads given
by defendant. Tr. pp. 346-351. The contents of the letters of reply
received from the personnel serving aboard the USS KERMIT ROOSEVELT with
Mr. Hom were not allowed into evidence on the basis of hearsay. Tr. pp.
347, 348.
In response to
the question "Why didn't you put it (the money) in the bank?"
Mr. Hom responded:
"I
believe and my wife's belief I have to describe too different--I myself,
even me, don't believe banks at first but agree I later learn that the
bank that have insurance are safe place to keep money. Part of this
money is my family's share. Between we both agree that I would have free
will to do what my share was so I began to put some money in the bank.
My wife is more objection to the bank than I am. She don't believe bank
is safe until recent years that I reason her out. Keeping this money at
home is risky against fire and theft perhaps, so I convince her that
most banks nowadays have insurance and we should gradually put this
money into the banks for the use of our children."
Ex. 66, p. 11.
To
refute the defendant's statement relative to his distrust of banks, the
Government introduced evidence that the defendant had maintained a
savings account in a Pioche,
Nevada
, bank as early as 1941 when he was approximately 18 years of age. Ex.
81. The Government also introduced evidence showing that Mr. Hom had a
savings account in a San Francisco bank from
August 20, 19
45, to
May 7, 19
46 (Ex. 82) and another account in a San Francisco Bank from
June 13, 19
56, to
July 11, 19
60 (Ex. 83).
The
Government's exhibits further show that the
Homs
began opening savings accounts in
Arizona
as early as 1951, which account had an opening deposit of $5,000. Ex.
25. In 1952, the
Homs
opened another account with an initial deposit of $7,000. Ex. 16. By the
end of 1954, the
Homs
had opened five savings accounts in
Arizona
banks with initial deposits in excess of $24,000. Exs. 12, 14, 16, 25,
and 27.
The Government
in its effort to further discredit the defendant's story of a cash hoard
introduced evidence that the defendant had purchased his store on a
conditional sales contract (Exs. 63, 64); and had purchased various
equipment on conditional sales contracts (Exs. 70 thru 80); and that Mr.
Hom had cashed twenty-eight United States Savings bonds in 1946 prior to
their maturity date. Ex. 52.
The testimony
of various character witnesses was to the effect that Mr. Hom was a
law-abiding citizen who sent his children to church regularly and
provided an excellent education for them, and that both he and his wife
seldom, if ever, went out socially and that Mr. Hom was a hard-working,
industrious individual. Tr. pp. 699-719, 734-738, 738-739, 739-740, and
740.
Conclusions
Net Worth
Method of Proof: The prosecution was based on the net worth method
of proof, which method has been approved by the United States Supreme
Court.
U. S.
v. Johnson (1943) [43-1 USTC ¶9470] 319
U. S.
503, 63 S. Ct. 1233; Holland v. United States (1954) [54-2 USTC
¶9714] 348
U. S.
121, 75 S. Ct. 127.
The basic
elements to be proven in the net worth method are (1) the lack of
adequate records, (2) the beginning and ending net worth of the taxpayer
for each period involved, and (3) a likely source of income that would
be taxable. The Supreme Court in
Holland
v.
United States
, supra, described a typical net worth prosecution:
"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." 75
S. Ct.
at p. 130.
The evidence
in this case shows that the taxpayer's records were inadequate as a
basis for determining income tax liability and, therefore, the net worth
method of proof is proper. Holland v. United States, supra.
The records of
Mr. Hom were inadequate in that: (1) no cash register tape was used to
record daily sales; (2) all cancelled checks were not available; (3) the
purchases of merchandise for cash or by third-party checks were not
recorded and are therefore unknown; (4) the only transaction journal
known to have been in existence was not made available to the
Government; (5) the method of computing daily sales was completely
inadequate; and (6) Mr. Hom destroys all records over three years old.
Tr. pp. 30, 34, and 721-725; Ex. 66, pp. 4-6.
Establishing
Taxpayer's Net Worth: The greatest hurdle facing the Government was
the establishment of the taxpayer's net worth at the beginning and end
of each year. In the case presently before the Court, the Government
computed the following adjusted opening and ending net worth for the
periods covered by the indictment: (Exhibit 93)
TABLE
IV
Net Worth
Increase
Year Opening Closing [TEH] *
1959 .... $115,421.82 $135,592.41 $20,170.59
1960 .... 135,592.41 161,762.46 26,170.05
1961 .... 161,762.46 180,184.55 18,422.09
1962 .... 180,184.55 204,618.93 24,434.38
1963 .... 204,618.93 234,170.81 29,551.88
1964 .... 234,170.81 254,252.63 20,081.82
* The increase in net worth shown in this table does not correspond to
the adjusted gross income shown in Table III because federal income
taxes and self-employment taxes paid, payments of life insurance
premiums, and bank drafts sent to Hong Kong were included in the
adjusted gross income figure but not in the increased net worth figure.
In arriving at
the opening and closing net worth figures, the Government included cash
in banks, U. S. Savings bonds at cost, merchandise inventory,
depreciable assets, federal income taxes, and self employment taxes
paid, life insurance premiums and bank drafts sent to Hong Kong (Ex.
93). The evidence of the 26 savings accounts utilized and controlled by
Mr. Hom is undisputed, as are most of the other assets. There is some
dispute concerning the value of Mr. Hom's merchandise inventory, but in
the Government's computation (Ex. 93) it used the merchandise inventory
figures given by Mr. Hom in his income tax returns.
The Government
established the taxpayer's opening net worth of $115,421.82 for the
period starting
January 1, 19
59. This consisted of bank account balances of $13,541.73 (Ex. 26),
$10,976.32 (Ex. 28), $181.52 (Ex. 13), $14,345.94 (Ex. 15), $15,719.53
(Ex. 17), $10,273.38 (Ex. 29), $10,274.58 (Ex. 36). He also had United
States Savings Bonds valued at $13,250.00 (Ex. 53), merchandise
inventory as listed on his tax return of $2,550.80 (Ex. 3), depreciable
assets valued at $25,353.94 on his return, making a total of $126,835.79
in assets. Subtracted from this are total liabilities of $11,413.97
which are comprised of $9,091.71 in accumulated depreciation (Exs. 3-8)
and $2,322.26 accumulated interest on trust accounts with his children
(Exs. 28, 30, and 37; Ex. 100 entered for illustrative purposes). Thus,
the defendant's net worth as of
January 1, 19
59, was $115,421.82.
The
defendant-taxpayer attempted to show the Government's starting net worth
figure of $115,421.82 was arbitrary and unreasonable. The defendant's
challenge to the 1959 starting net worth figure was predicated on the
fact that the Government had allowed only the $210 currency deposited on
January 8, 19
59 (Ex. 19) as part of the cash on hand on
January 1, 19
59. Tr. pp. 376-377. The defendant contended there was no showing by the
Government that the $3,549.37 worth of checks deposited at the same time
was not currency on
January 1, 19
59 and, therefore, the amount of cash on hand was incorrect and the
starting net worth figure was unreasonable and arbitrary. Tr. pp.
376-380. This same line of reasoning was directed at the other starting
net worth figures also. Tr. pp. 380-390 and 742-753.
Based upon the
entirety of the evidence, we do not find the Government's starting net
worths unreasonable or arbitrary. However, even if we were to accept the
defendant's contention and determine that the amount of the checks
deposited on
January 8, 19
59 should be considered cash on hand as of
January 1, 19
59, the Government's figures would, to our mind, be established to a
reasonable certainty and the unreported taxable income would still be
substantial.
Holland
v.
U. S.
supra.
The Holland
case does not require that the opening net worth be proven to a
mathematical certainty (Holland v. U. S. (1954), 348 U. S. at
page 138, 75 S. Ct. at page 137) but rather that the opening net worth
be established with reasonable certainty (Holland v. U. S. (1954)
348 U. S. at page 132, 75 S. Ct. at page 135). In the later case of Banks
v. C. I. R. (8th Cir. 1963) [63-2 USTC ¶9698] 322 F. 2d 530, the
Court said:
"Some
error in any net worth construction is perhaps to be expected. It is
only a 'reasonable certainty' which is required by
Holland
and its companion cases." Banks v. C. I. R., supra, at page
548.
In the Banks
case, the Appellate Court was confronted with the situation of having
the commissioner make no allowance for cash on hand in his net worth
reconstruction at any time during the net worth period but having the
tax court find that Banks, in fact, had approximately $60,000 cash on
hand at the beginning of the period. Banks v. C. I. R., supra, at
page 538. Regardless of this finding, however, the tax court in the Banks
case found the defendant guilty and was upheld by the Appellate Court
which said,
"We
are fully satisfied that there was reasonable certainty here; that the
opening net worth statement was not prejudicial or arbitrary; * *
*." Banks v. C. I. R., supra, at page 548.
Investigating
Taxpayer's Leads: The most critical challenge to the Government's
opening net worth figure is the defendant's claim that he had close to
$200,000 when he came to
Phoenix
. Ex. 66, p. 7. As previously discussed, Mr. Hom stated that his cash
hoard was the result of the inheritances of both he and his wife. Ex.
66, pp. 7-9.
The Government
introduced no direct evidence to dispute the existence of Mr. Hom's cash
hoard. Rather it relied on the inferences that could be drawn from the
history and activities of Mr. Hom as was done in the
Holland
case.
Holland
v.
United States
(1954) [54-2 USTC ¶9714] 348
U. S.
121, 133, 75 S. Ct. 127, 134.
Mr. Hom
contended that initially neither he nor his wife trusted banks. Ex. 66,
pp. 11-12. This contention was buttressed by the testimony of Mr. C. T.
Huang, who is of Chinese ancestry and the branch manager of Bank of
America, Chinatown Branch,
San Francisco
,
California
. Tr. p. 207. Mr. Huang testified on cross-examination that based on his
three and one-half years of intimate contract with immigrant Chinese,
".
. . [I]t is their (immigrant Chinese) general feeling that they don't
trust the bank, in
China
, here." Tr. p. 217.
Mr.
Hom said that finally after many years he and his wife were convinced
that banks were safer than their home. Ex. 66, p. 11. Thereafter, Mr.
Hom began dribbling his cash hoard in to bank accounts so that people
would not become suspicious and rob him at his store and home. Tr. p.
33, Ex. 66, pp. 11-12. The apparent method used by Mr. Hom to get the
cash hoard into the banks was to cash checks for customers and to then
deposit the checks. Ex. 66, pp. 11-12.
The statements
and actions of Mr. Hom are inconsistent, improbable and undermine the
creditability of his testimony. On the one hand, Mr. Hom says he is
afraid that people will know he has money, but yet, on the other hand,
he cashed an increasing number of checks, some so large he used $100
bills to cash them. Ex. 66, p. 12. Logically, it would seem that fewer
people would learn of his cash hoard if he deposited it in banks than
would learn of it by his cashing so many checks.
As previously
discussed, the Government attempted to track down Mr. Hom's leads, slim
as these were, relative to Mr. Eng's holding the $55,000 inheritance,
the distrust of banks, and the sea bag containing $100,000 in American
currency. It was obviously impossible to reach Mrs. Hom's grandmother in
Communist China. Therefore, we find that the Government did all it could
reasonably be expected to do in investigating the leads provided by Mr.
Hom. Holland v. U. S., supra.
Following the
decisions of the United States Supreme Court in Holland v. United
States (1954) [54-2 USTC ¶9714] 348 U. S. 121, 133, 75 S. Ct. 127,
134, and the Circuit Court cases of Baumgardner v. C. I. R. (9th
Cir. 1957) [58-1 USTC ¶9170] 251 F. 2d 311, and Banks v. C. I. R.
(8th Cir. 1963) [63-2 USTC ¶9698] 322 F. 2d 530, this Court finds that
Mr. Hom's contention of a cash hoard of $200,000 has been disproven by
the aggregate of the Government's evidence and that the opening and
ending net worths have been established to a reasonable certainty.
Likely
Source of Taxpayer's Income: The defendant in his various briefs and
arguments has stressed the point that Mr. Hom's store could never make
the amount of money necessary to provide for the increased net worth
found by the Government. However, the Ninth Circuit in Whitfield v.
United States of America (9th Cir. 1967) [67-2 USTC ¶9646] 383 F.
2d 142, stated:
"In
Holland
, the Supreme Court remarked, 'Also requisite to the net worth method is
evidence supporting the inference that the defendant's net worth
increases are attributable to currently taxable income.' 348
U. S.
137. (Emphasis supplied.) It added, 'But proof of a likely source, from
which the jury could reasonably find that the net worth increases
sprang, is sufficient.' 348
U. S.
at 138. (Emphasis supplied.)" 383 F. 2d at page 144.
It is not
incumbent upon the Government to show all sources of income. It is
sufficient to prove a likely source from which it can be reasonably
found that the net worth increase was derived. Feichtmeir v. United
States [68-1 USTC ¶9217], 389 F. 2d 498 (9th Cir. 1968). In the
presentation of its evidence of a likely source of income which should
have been reported, the Government has met the burden required by the
Holland
, Feichtmeir, and Whitfield cases.
The store was
open seven days per week. Tr. pp. 708-711; Ex. K. There was no record of
the purchases of inventory stock made by cash or third-party checks. The
only records of inventory were those shown on the income tax returns or
the figures given to Mr. Hamilton by Mr. Hom. There is no evidence of an
independent audit of any kind. The defendant makes much ado about the
financial statement prepared by Mr. Hamilton for the year 1964. However,
the testimony of Mr. Hamilton was to the effect that the statement was
prepared from information given by Mr. Hom after the investigation had
begun. (Tr. pp. 155-157) and that he, Mr. Hamilton, made no independent
examinations (Tr. p. 178).
There was
testimony from various defense witnesses to the effect that a
neighborhood grocery store could not produce such an income. Tr. pp. 620
and 683. However, considering the fact that the store was open such long
hours, that little or no money was spent for advertising or additional
employees (Tr. p. 154, Ex. 67), that a high mark-up is inherent to
neighborhood grocery stores (Tr. pp. 617, 619 and 698), particularly
those selling liquors, and that the amount of checks cashed would
indicate a substantial amount of foot traffic, this Court is of the
opinion that the store was the likely source of income.
Although the
Court permitted various individuals to express their opinions as to the
income that the defendant might have derived from his store, there was
no showing made that the opinion accurately reflected a true or actual
knowledge of the operation, sales, income, overhead, and any other
information that would provide the foundation necessary to give such
opinions weight and creditability.
The Government
having established the likely source of taxable income which was
unreported, and the failure to keep adequate records which concealed the
actual income, this Court infers a willfulness to defraud the Government
of taxes rightfully owing, and finds Hom Ming Dong guilty on each of the
six counts of the indictment as charged.
Holland
v.
United States
(1954) [54-2 USTC ¶9714] 348
U. S.
121, 75 S. Ct. 127; Spies v. United States [43-1 USTC ¶9243],
317
U. S.
492, 63 S. Ct. 364.
[69-1 USTC ¶9173]United States of
America, Plaintiff-Appellee v. James W. Tolbert, Sr.,
Defendant-Appellant
(CA-7),
U. S. Court of Appeals, 7th Circuit, No. 16494, 406 F2d 81, 1/14/68,
Aff'g an unreported District Court decision
[Code Sec. 7201]
Tax evasion: Criminal prosecution: Proof by net worth increase:
Willfulness.--Taxpayer's conviction of willful tax evasion, proof of
which was based on the net worth method, was upheld. The Government
proved the taxpayer's willful evasion of taxes by independent evidence.
Testimony of the taxpayer's accountant from whom he had withheld
independent evidence. Testimony of the taxpayer's accountant, from whom
he had withheld information, and that of an agent was independent
evidence from which the jury could have properly inferred a willfulness
on his part to evade taxes. Various other contentions by the taxpayer,
such as that the Government failed to prove obvious liabilities and
failed to check out accounts receivable and other assets, were without
merit. Also, the jury was properly instructed on intent and willfulness.
James B.
Brennan, United States Attorney,
Rob
ert J. Lerner, Thomas R. Jones, Assistant United States Attorneys,
Milwaukee, Wis., for plaintiff-appellee. Harvey M. Silets,
7 S. Dearborn St.
,
Chicago
,
Ill.
, for defendant-appellant.
Before DUFFY,
Senior Circuit Judge, KILEY and FAIRCHILD, Circuit Judges.
KILEY, Circuit
Judge:
Defendant
Tolbert was convicted by a jury of income tax evasion for the years 1955
and 1956, in violation of 26 U. S. C. §7201. He has appealed. We
affirm.
[Facts]
Tolbert is the
proprietor of Tolbert Oil Company which sells, at both wholesale and
retail, various grades of gasoline and fuel oil together with
miscellaneous items such as batteries, tires, and grease.
For the years
1955 and 1956, and some years prior, Tolbert, in reporting income, had
computed his gross income by estimating an average profit per gallon for
each grade of gasoline and oil, and then multiplying this by the total
number of gallons sold for the year. He subtracted his deductible
expenses in order to arrive at the adjusted gross income for the years.
Using this method, Tolbert reported net profit of $3,043.43 and
$5,489.16 from the business, and his adjusted gross income at $3,980.93
and $6,329.16, for the years 1955 and 1956, respectively.
Tolbert was
indicted, after an investigation by the Internal Revenue Service. He was
charged in one count with filing a fraudulent income tax return for 1955
by reporting adjusted gross income in the amount of $3,980.93 and tax
payable in the amount of $567.30, when he knew that his adjusted gross
income was $31,836.32 and tax payable was $9,380.37; and in a separate
count with filing a fraudulent return for 1956 by reporting taxable
income of $3,296.25 and tax payable of $785.25, when he knew that his
taxable income was $49,057.20 and his tax payable was $19,869.75.
[Proof
by Net Worth Increase]
He argues that
some of the standards set by the Supreme Court in Holland v. United
States [54-2 USTC ¶9714], 348 U. S. 121 (1954), for net worth
prosecutions have not been met, and that the district court erred in
denying his motion for acquittal because the government's proof does not
"exclude every other hypothesis but that of guilt." The Court
in Holland, at 124, said that where the net worth method is used
there is involved something more than the ordinary use of circumstantial
evidence in the usual case, and courts of appeal should "bear
constantly in mind" the difficulties that arise when circumstantial
evidence is the "chief weapon" in the net worth method. 348
U. S.
at 129. The Court rejected, however, at 139-140, a claim that the jury
in these cases should be instructed on the rule Tolbert contends for,
saying "the better rule" is that where the jury is instructed
on reasonable doubt, the rule Tolbert contends for is
"confusing and incorrect."
[Proof
of Willfulness]
Holland v.
United States establishes the rule that the government must prove
the defendant's willful evasion of taxes by independent evidence and
that this necessary element cannot be inferred from a mere
understatement of income. Tolbert contends that there is no independent
evidence of willfulness established by the government. We disagree.
We take the
evidence most favorable to the government: Tolbert withheld information
from his accountant, Lytle, who prepared the tax returns for the years
in question. Lytle had several meetings with Tolbert and his wife in
preparing their joint 1955 and 1956 returns. At their first meeting he
advised Tolbert and his wife that it was usual to compute gross income
by beginning with total sales and subtracting from that the cost of
sales, computed by taking the opening inventory for the year, adding the
purchases made during the year, and subtracting the year-end inventory.
Lytle suggested that Tolbert keep a double entry accounting system, and
Tolbert responded that he was on a commission basis. Lytle got the
"impression" that Tolbert kept no books and records. During
the trial, when confronted with six hardbound books which were single
entry records of Tolbert's sales, Lytle testified he had never seen them
before.
The six books
contain information regarding defendant's wholesale sales, and his
retail sales on credit. The agent was able to compute, for both years,
defendant's gross sales from these books, and from this figure to
compute his gross profit from wholesale operations by subtracting the
cost of goods sold. The agent was not able to reconcile defendant's
commissions earned figure reported in his tax return with the
computations.
[Independent
Evidence]
The evidence
of Lytle and the agent is independent evidence of an understatement of
income, from which, we think, the jury could have properly inferred a
willfulness to evade taxes on Tolbert's part. The six books containing
sales records would have been very useful to Lytle to compute net
income, especially after he had advised Tolbert that the usual way to
compute income was to start with gross sales. The jury could have found
that Tolbert withheld these books from his accountant. The lack of
evidence that he withheld information from the agent, once the
investigation began, does not exculpate Tolbert. The pertinent proof of
the element of Willfulness was the withholding of books from Lytle.
We conclude
that there is ample evidence in the record to justify the district
court's denial of Tolbert's motion for acquittal. And we cannot say the
evidence was not enough to justify the jury's inference that he was
guilty of willfulness beyond a reasonable doubt.
[Checking
Out Leads]
Tolbert also
contends the government failed to prove "obvious liabilities,"
and failed to check out accounts receivable and other assets.
The substance
of the first two contentions is that the government failed to check out
leads given it in its investigation of Tolbert's fiscal affairs, as
required by Holland v. United States, at 135. There is no merit
in these contentions.
We reject the
argument with respect to such obvious leads as taxes payable, wages
payable, and other accounts payable, since Tolbert stipulated at the
trial in great detail with respect to liabilities and cannot be heard to
complain here.
Tolbert had
furnished the agents a statement of financial condition as of
December 31, 19
56, listing his accounts receivable as $54,239.20. This same figure was
used for the three net worth method starting dates,
December 31, 19
54,
December 31, 19
55, and
December 31, 19
56. Tolbert argues that the starting figure is inaccurate, that it is
reversible error to have the same figure as accounts receivable for all
three dates, and that the government failed to check out the reasons why
the receivables actually increased. There is testimony that the accounts
receivable did increase about $27,000 over the years 1955 and 1956.
However, if this was inaccurate the error is in Tolbert's favor, and
does not prejudice him. There would be prejudice only if the evidence
showed, and it does not show, that the accounts receivable decreased
over the two years.
The assets on
the starting date,
December 31, 19
54, were computed largely on the basis of stipulations and the
defendant's tax returns. The tax returns contained a straight-line
depreciation schedule which necessarily included the original cost of
the depreciable assets, and their depreciation. From this, the
depreciated value could be calculated. The value of the real estate was
stipulated. After a careful review of all the evidence, we think there
is substantial evidence to support the net worth calculations for the
dates
December 31, 19
54, 1955 and 1956.
Tolbert gave
no leads 1
with respect to the existence of substantial cash on hand, or to any
other assets. He submitted two statements of financial condition, as of
December 31, 19
50, and
December 31, 19
56, listing his assets, including "other cash." He stated that
none of his insurance policies had matured within the last ten years;
that he had received $500 as beneficiary of a life insurance policy of
his father, and that this money was used for funeral expenses; that he
had no interest in any trust or estate; that he had not received any
inheritance within the past ten years; that he had received no gifts of
over $100 from anyone within the last ten years; and that he had no "assets
of any kind, either actual or contingent, other than those listed
herein." (Emphasis added.) We think these statements clearly
refute any implication that defendant may have had another non-taxable
source of income from which he acquired an increase in his assets.
The only other
lead of importance shows that defendant sold a farm in 1953 for $65,000,
and that in exchange he received a piece of land valued at $16,000, a
$15,000 note and mortgage, and the balance of the money in cash. He
deposited this cash in his bank account, together with $16,000 from a
sale of land, and proceeds of the $15,000 note. This bank deposit was
obviously not a hidden source of cash. We are not persuaded that the
government did not check out leads in accordance with the requirement of
Holland v. United States, p. 135.
[Evidence
Properly Admitted]
We see no
merit in the contention that the district court committed reversible
error by admitting in evidence, for the government, over objection, a
three page summary of defendant's net worth and expenditures as of
December 31, 19
54, 1955 and 1956. The final entry is a computed figure showing the
defendant's increase in net worth over the years 1955 and 1956 to be
$26,690.38 and $46,714.89.
Admission of
summaries has received judicial approval by this and other courts. United
States v. Vernard, 287 F. 2d 715, 722, (7th Cir. 1961), and cases
cited therein.
The summary
was prepared so that the jury could easily check its accuracy. Each
entry, apart from the computations, was labeled as to its source. If the
jury was doubtful about a particular item, they could have easily
checked it. Moreover, they were instructed that this summary was not
proof of any facts, and that if it did not correctly reflect the facts
or figures shown by the evidence, the jury should disregard it. The
Internal Revenue agent who prepared the summary, on the basis of his
review of the material later introduced at the trial, testified at
length as to the meaning of each item, and was subject to
cross-examination as to its accuracy.
[Proper
Jury Instructions]
The case was
tried for eight days. The jury was given the case at 4:32 p.m.; at 10:05
p.m. it requested a rereading of instructions on reasonable doubt (not
granted because of defendant's objection); at 11:00 p.m. the court
indicated it had "toyed" with the idea of giving the Allen
instruction before releasing the jury; at 12:15 a.m. the Court gave the
Allen charge; 2
and the jury returned the verdict fifteen minutes later. Tolbert
contends the instruction, under the circumstances, coerced the verdict,
and that since the government's case is weak, the giving of the Allen
charge is reversible error.
Since we have
found ample evidence to sustain the conviction, we cannot agree that
this case is weak.
In United
States v. Furlong, 194 F. 2d 1 (7th Cir.) cert. denied, 343 U. S.
950 (1952), this court said that the instruction there was proper, in so
far as it followed the typical Allen charge. A concluding sentence, not
within the typical Allen charge, was not objected to by Furlong, and was
therefore not considered by this court. In a footnote in United
States v. White, 382 F. 2d 445 (7th Cir. 1967), this court said it
did not find it necessary to "reconsider" the merits of the
Allen charge, or to review the "unsolicited" giving of it. The
note said however that the points argued (the charge per se and
the timing of the charge) do not present plain error, and the body of
the opinion did not discuss these arguments. In dissenting, Judge
Cummings criticized a sentence in the instruction given in White:
"If you should fail to agree on a verdict, the case must be
retried." The same sentence appears in the instruction before us.
We agree with Judge Cummings that the statement in this sentence is
untrue and could mislead the jury. However, what was said in the White
footnote, and in the dissent there, applies here: there was no showing
of undue prejudice from that sentence and hence there is no reversible
error.
The charges in
Jenkins v. United States, 380
U. S.
445 (1965) was not the typical Allen instruction. There the judge told
the jury "You have got to reach a decision in this case."
For the above
reasons the judgment of the district court is affirmed.
1
The customary context of the word "leads" was stated by the
Supreme Court in the
Holland
case, at p. 127:
Among the
defenses often asserted is the taxpayer's claim that the net worth
increase shown by the Government's statement is in reality not an
increase at all because of the existence of substantial cash on hand at
the starting point. This favorite defense asserts that the cache is made
up of many years' savings which for various reasons were hidden and not
expended until the prosecution period. Obviously, the Government has
great difficulty in refuting such a contention. However, taxpayers too
encounter many obstacles in convincing the jury of the existence of such
hoards. This is particularly so when the emergence of the hidden savings
also uncovers a fraud on the taxpayer's creditors.
In this
connection, the taxpayer frequently gives "leads" to the
Government agents indicating the specific sources from which his cash on
hand has come, such as prior earnings, stock transactions, real estate
profits, inheritances, gifts, etc. Sometimes these "leads"
point back to old transactions far removed from the prosecution period.
Were the Government required to run down all such leads it would face
grave investigative difficulties; still its failure to do so might
jeopardize the position of the taxpayer.
2
The Court: Ladies and gentlemen of the jury, it is now
12:15
, and you have had the case almost eight hours, and I want you to know
that the Court appreciates the serious consideration that you are giving
this case. But since you have had it for eight hours, at this time I
would like to read to you an additional charge and then ask you to
retire to consider it a little longer.
This is the
additional charge I would like to read. In a large proportion of cases,
absolute certainty cannot be expected. Although the verdict must be the
verdict of each individual juror and not a mere acquiescence in the
conclusions of others, yet you should examine the questions submitted
with proper regard in deference for the opinions of each other, and you
should listen to each other's opinions with a disposition to be
convinced.
It is your
duty to decide the case if you can conscientiously do so. If a much
larger number of jurors favor conviction, a dissenting juror should
consider the reasonableness of his doubt when it makes no impression
upon the minds of other jurors equally intelligent and impartial who
have heard the same evidence.
If, on the
other hand, the majority favors acquittal, the minority should ask
themselves whether they might not reasonably doubt the correctness of
their judgment. Likewise, the jurors in the majority favoring a finding
for either party should ask themselves whether they might not reasonably
doubt the correctness of their judgment when it makes no impression upon
the minds of the minority jurors equally intelligent and impartial as
they are who have heard the same evidence.
If you should
fail to agree on a verdict, the case must be retried. Any future jury
must be selected in the same manner and from the same source as you have
been chosen. And there is no reason to believe that the case would ever
be submitted to twelve men and women more competent to decide it or that
the case can be tried any better or more exhaustibly than it has been
here, or that more or clearer evidence could be produced on behalf of
either side.
Now, you may
retire, and reconsider the evidence in the light of the Court's
instructions. Thank you very much.
[69-1 USTC ¶9204]
Rob
ert Gordon Hayes, Appellant v.
United States of America
, Appellee
(CA-5),
U. S. Court of Appeals, 5th Circuit, No. 23540, 407 F2d 189, 1/29/68,
Aff'g unreported District Court decision
[Code Sec. 7201]
Crimes: Tax evasion: Sufficiency of indictment: Jurisdiction.--An
indictment was sufficient where it contained both the statutory language
and a reference to the specific section alleged to have been violated
and disclosed the means by which the defendant had allegedly attempted
to evade paying tax. In addition, the Southern District of Florida had
jurisdiction to return the indictment although the place where the
alleged criminal offenses took place (Jacksonville, Florida) was
transferred to a new federal judicial district after the alleged
criminal acts took place (1958, 1959 and 1960) but before the indictment
was returned (1965).
[Code Secs. 446(b) and 7201]
Reconstruction of income: New worth method: Opening net worth:
Evidence: Tax evasion.--In using the net worth method to reconstruct
the defendant's taxable income, the Government's opening net worth
figure was correct. The taxpayer failed to establish a claimed $64,000
cash hoard; a $10,000 figure for opening cash on hand, based on
testimony of the taxpayer's accountant, was reasonable; and the
Government's cost basis for land and partially constructed apartments
was correct.
[Code Sec. 7201]
Crimes: Tax evasion: Evidence of prior crimes.--The trial court
committed no error in admitting evidence relating to the defendant's
prior convictions. The trial court carefully considered both the nature
of the prior offenses and the length of time that had elapsed since
their commission.
[Code Sec. 7201]
Crimes: Tax evasion: Trial: Cross-examination.--A question asked
during cross-examination of the defendant concerning whether or not he
ever escaped from prison was well within the scope of cross-examination,
[Code Sec. 7201]
Crimes: Tax evasion: Defenses: Self-incrimination: Jury trial.--The
defendant's right to remain silent was not violated when Government
agents and Government counsel commented on his failure to explain his
substantial increase in net worth. Much of the relevant testimony and
argument was either not objected to or was directly invited by defense
counsel's conduct. Furthermore, any prejudicial impact from the
statements was erased by trial court warnings to the jury.
One
dissent.
[Code
Sec. 7201]
Crimes: Tax evasion: Miscellaneous defenses.--The trial court
committed no error in admitting into evidence and submitting to the jury
two net worth summaries prepared by the Government; jury instructions as
to wilfulness were proper; and whether or not the defendant's attempt to
defeat paying tax was "wilful" was a question for the jury to
decide.
Wilfred C.
Varn,
Rob
ert M. Ervin,
305 S. Gadsden St., P. O. Box 1567
,
Tallahassee
,
Fla.
, for appellant. Mitchell Rogovin, Assistant Attorney General, Joseph M.
Howard, Burton Berkley, Department of Justice, Washington, D. C. 20530,
Clinton Ashmore, United States Attorney, Steward J. Carrouth, Assistant
United States Attorney, Tallahassee, Fla., for appellee.
Before JONES
and GODBOLD, Circuit Judges, and SCOTT, District Judge.
JONES, Circuit
Judge:
The appellant,
Rob
ert Gordon Hayes, and his wife, Ruth, were indicted on
January 11, 19
65, in the Southern District of Florida for wilfully attempting to evade
and defeat income taxes due the United States for the years 1958, 1959
and 1960 in violation of 26 U. S. C. A. Sec. 7201. Pursuant to a motion
filed by the defendants, the cause was transferred to the Northern
District of Florida. At a jury trial, appellant Hayes was convicted and
his wife acquitted on each of the three counts contained in the
indictment. Subsequently, a fine of $2,000 was levied and concurrent
sentences of fifteen months imprisonment on each count were imposed.
From this judgment and sentence, Hayes has appealed.
[Indictment
Challenged]
Appellant's
first specification of error challenges the jurisdiction of the Southern
District of Florida to return the indictment. Hayes filed his income tax
returns for the years 1958, 1959 and 1960 with the District Director in
Jacksonville
,
Florida
, which, when the returns were filed, was within the Southern District
of Florida. On
July 30, 19
62
, an area including
Jacksonville
was transferred into the simultaneously created Middle District of
Florida. 28
U. S.
C. A. Sec. 89(b). It is asserted that, because the indictment was
returned after
Jacksonville
became a part of the Middle District, a grand jury of the Southern
District had no jurisdiction to return the indictment.
In answering
appellant's jurisdictional challenge, reference to 18
U. S.
C. A. Sec. 3240 is particularly appropriate. This section provides:
"Whenever
any new district or division is established, or any county or territory
is transferred from one district or division to another district or
division, prosecutions for offenses committed within such district,
division, county, or territory prior to such transfer, shall be
commenced and proceeded with the same as if such new district or
division had not been created, or such county or territory had not been
transferred, unless the court, upon the application of the defendant,
shall order the case to be removed to the new district or division for
trial."
Because
there is no question but that the Southern District could have indicted
Hayes had the Middle District not been created, Holbrook v. United
States, 5th Cir. 1954, [54-2 USTC ¶9640] 216 F. 2d 238, it seems
clear that the above statute permits the Southern District to do so,
although the place of the alleged offenses had been transferred to a new
district after the time alleged for the commission of the offenses.