Bank Records and Net Worth Increases
2 Page3
We have
carefully read that transcript. At no time did DeLucia make any
statement, sworn or otherwise. Though there are several references to a
$300,000 cache, which the Government claims is non-existent, such
references can not be considered averments. Actually this meeting
amounted to little more than verbal fencing between DeLucia's attorneys
and the Internal Revenue Agents. It is highly improbable that a layman
such as DeLucia would understand half of what transpired. We quote the
following relevant portion from the transcript which illustrates the
inefficacy of the conference:
"Mr.
Smith: I don't want to be in the position where you gentlemen bring this
witness in and you are going to sit here and testify for him.
"Mr.
Stewart: He is not bound by what we say here. That goes both ways. Mr.
DeLucia is not bound by what you gentlemen say here either. We are not
testifying for him. We are trying to straighten matters out and arrive
at some understanding in this conference."
Thus there is
a total failure to prove that DeLucia made or caused to be made any
false statement on
September 1, 19
54 as alleged in Counts I and II of the indictment.
[Hearsay]
The second
alleged false statement was supposedly made when Bulger, together with
Bernstein, DeLucia's tax attorney, appeared before Revenue Agent King on
November 19, 19
54 and testified that he had counted $300,010 in the possession of
DeLucia shortly prior to the prosecution years. DeLucia was not present
when Bulger so testified. DeLucia contends that in the absence of
competent evidence that he procured, knew of, or ratified Bulger's
testimony it can not be attributed to him for the purpose of sustaining
Counts I and II.
The Government
in order to establish a connection between Bulger's testimony and
DeLucia's intent to defraud relies on two points. The first is that at
the Grand Jury hearing on DeLucia Bulger testified that he had given the
testimony before King at the request of DeLucia. DeLucia was not present
at this hearing. A transcript of this was read into evidence in the
trial below. DeLucia's counsel objected to the admission of this
evidence in that it was not competent as to DeLucia. With this we agree.
This evidence was perfectly proper as to Bulger under Count IV but as to
DeLucia under Counts I and II it was nothing more than hearsay.
Therefore,
ignoring all that took place at the Grand Jury hearing we turn to the
Government's second point. Here it is argued that inasmuch as Bernstein
had Power of Attorney to do all things in relation to DeLucia's tax
matters that DeLucia could himself do when Bernstein brought Bulger
before Agent King it had the same legal import as if DeLucia himself had
done so. This argument fails in several respects. There is no showing
that Bernstein was aware that Bulger would tell a false story, as we
assume he did. Hence Bernstein was not culpable in any manner and there
is nothing of an illegal nature that we may import to DeLucia.
Secondly while
it is probable DeLucia would have known Bulger's story to be false there
is absolutely no competent evidence showing that DeLucia knew Bulger was
to testify or had testified before Agent King. While it is true that
Bernstein had been DeLucia's tax attorney for a number of years this
does not prove that DeLucia was informed of all that Bernstein did in
relation to the former's tax matters. As to whether DeLucia told Bulger
what to say and whether he intended that the story should be related to
Agent King or at any other time is, from the competent evidence in the
record, mere speculation.
[Attorney's
Act as Act of Client]
The Government
cites several cases to sustain its argument that the action of an
attorney may be chargeable to the client. However, in the first case
cited, Banks v. United States, 8 Cir., 1953, 204 Fed. (2d) 666
[53-1 USTC ¶9402], the attorney there did nothing more than relay to
the Government agents written answers furnished by his client to
specific questions tendered by the agents.
In the second
case, United States v. Bender, 7 Cir., 1955, 218 Fed. (2d) 869
[55-1 USTC ¶9142], this court merely held that where an attorney
submitted an auditor's work sheet to explain discrepancies in his
client's tax return, the Government had not obtained the work sheet
improperly and it could be admitted in evidence.
In Gariepy
v.
United States
, 6 Cir., 1955, 220 Fed. (2d) 252 [55-1 USTC ¶9267], the defendant
at the trial identified the income tax return, supposedly submitted by
others, as his own. In addition the court charged the jury that it could
not find the defendant guilty unless it found beyond a reasonable doubt
that he had knowledge of the falsity of the returns filed.
The defendant
in the case of United States v. Albanese, 2 Cir., 1955, 224 Fed.
(2d) 879 [55-1 USTC ¶9494], had admitted that the returns submitted
were his and that he had given permission to others to sign them for
him.
Therefore, in
three out of the four cases there was substantial proof, through
admissions, or otherwise, that defendant was aware of the relevant act
committed by others in his name. In the Bender case, while it was
not directly shown that the defendant knew his attorney was submitting
the auditor's work sheet, the submission thereof did not constitute the
gravamen of the offense complained of, as it does here.
This Court is
not now holding that circumstantial evidence could not supply the
connection between Bulger's testimony and DeLucia's intent. Such
undoubtedly could be done, Canton v. United States, 8 Cir., 1955,
226 Fed. (2d) 313 [55-2 USTC ¶9705]. What we do say is that where, as
here, an attorney acting in good faith offers a witness who gives false
testimony before Internal Revenue agents and there is no showing,
circumstantial or otherwise, that the client knew that such testimony
was given, the attorney's act can not be imputed to the client to
constitute willful fraud.
We, therefore,
hold that there was a total failure to prove a necessary element of the
offense charged in both Count I and Count II; that the evidence is
clearly insufficient to support the verdict of guilty as to those two
counts; and the District Court erred in denying DeLucia's motion for
judgment of acquittal on Counts I and II.
[Statute
of Limitations]
DeLucia next
contends that the offense charged in Count III was barred by the six
year statute of limitations. The indictment was returned and filed on
March 4, 19
57 charging in Count III that DeLucia had filed a false and fraudulent
return on or about
March 5, 19
51. Government's Exhibit No. 22 is a photostatic copy of DeLucia's 1950
return. There is on the face of the return a stamp bearing the legend:
"Received
Mar. 5, 19
51 Coll. Int. Rev. 1st Dist. Ill. No. 8."
Moreover, when
counsel for the Government offered Government's Exhibit No. 22 in
evidence pursuant to agreement and stipulation of the parties it was
stated to the jury and for the record that it was "filed with the
Collector of Internal Revenue in the First District of Illinois on
March 5, 19
51." DeLucia first raised the question as to whether the date on
the stamp was correct on his motion for a new trial. He offered no
evidence to prove the date was not affixed when the return was received
by the Internal Revenue Department. His objection now is not well taken.
[Refusal
to Furnish Data]
DeLucia also
objects to the refusal of the trial court to direct the submission to
him of certain memoranda in the possession of the Government. The Court
reviewed the memoranda in camera and correctly decided only one
had any relation to the testimony of Agent Smith, the author of the
memoranda. This one was turned over to the defendants. It is now
contended that such refusal was in violation of the mandate laid down in
Jencks v. United States, 1957, 353
U. S.
657.
The District
Court was, however, following the provisions of 18
U. S.
C. A. §3500 and as was said in United States v. Spangelet, 2
Cir., 1958, -- Fed. (2d) --:
"However,
the defendant argues that the mandate in the Jencks case is a
constitutional edict and that Sec. 3500, if it narrows the holding of
the Jencks decision in any regard, is unconstitutional. We cannot
agree. As we read the Jencks case, its rule is an exercise by the
Supreme Court of its supervisory power over the '
admin
istration of criminal justice in the federal courts'. See McNabb v.
United States
, 318
U. S.
332, 340-42. We find no indication in Jencks that the standards
it set forth were constitutionally required. It follows that once
Congress has entered the field its determination of proper federal
criminal procedure is controlling. We conclude that Sec. 3500 in that it
fails to apply the Jencks procedure * * * is not
unconstitutional."
We
agree with the Second Circuit and hold that DeLucia's contention that 18
U. S.
C. A. §3500 is unconstitutional is without merit.
As DeLucia's
complaint concerning instructions relates solely to Counts I and II of
the indictment what we have heretofore held dispenses with necessity for
any comment thereon.
[Net
Worth Method]
DeLucia also
contends that where he himself kept a set of books and records the
District Court erred in permitting use of the net worth method of proof.
This would mean that simply because taxpayer has kept a set of books,
the veracity of which is in question, the Government is estopped from
going beyond those books to prove their falsity or inaccuracy. This is
absurd. Holland v. United States, 1954, 348
U. S.
121, 131-132 [54-2 USTC ¶9714].
DeLucia's main
thrust is delivered at the Government's evidence sustaining the net
worth method of proof. He claims that the Government not only changed
its position from time to time but in failing to prove his net worth at
any particular date it left it to the jury to speculate and guess as to
his guilt. With this we can not agree.
The Government
undertook to prove what assets defendant had on hand at the beginning of
1948 by means of showing his entire preceding financial history. Much of
this evidence was admitted by stipulation. The first step was to show
what income DeLucia had received from all sources from 1920 to
December 31, 19
47. The Government then proceeded to introduce evidence of all known
expenditures during this same period.
The Government
also checked the income tax filing record of DeLucia's wife, Nancy,
under both her maiden and married names for all prior years. A check was
made of Internal Revenue Gift and Estate tax records, probate records,
bank accounts, brokerage houses and insurance company records. As a
result of this investigation the Government contended that DeLucia could
not have had more than $48,697.01 at the beginning of 1948.
The cash on
hand at that date was the central issue in the case, the defense
position being that there was at least $300,000 on hand and the
Government's position that there was no more than $48,697.01. The jury
resolved the issue against DeLucia and we can not say that in doing so
the verdict is not adequately supported by the evidence. In Holland
v. United States, 1954, 348
U. S.
121, 133-134 [54-2 USTC ¶9714], the Court said:
"The
Government also negatived the possibility of petitioners' accumulating
such a sum by checking Mr. Holland's income tax returns as far back as
1913, showing that the income declared in previous years was
insufficient to enable defendants to save any appreciable amount of
money. The jury resolved this question of the existence of a cache of
cash against the
Hollands
, and we believe the verdict was fully supported."
With this as a
starting point the Government went on to show that DeLucia had made
large expenditures that far exceeded any reported income.
It was
stipulated at trial that during the years 1948, 1949 and 1950 and until
March 1954 DeLucia was on parole as a result of a previous conviction.
Parole reports filed by him during the prosecution years were admitted
into evidence by stipulation. These reports show personal and farm
expenditures in the amounts of $217,107.37 for 1948; $120,933.14 for
1949 and $118,770.76 for 1950. These amounts are in substantial
agreement with the expenditures shown on DeLucia's books also in
evidence. The defendant's income tax returns for the same years showed
no net income and, in fact, reported losses as follows: 1948,
--18,944.71; 1949, --2,282.95; 1950, --9,838.82.
In addition to
the proof of expenditures exceeding the reported income the Government
also shows a possible likely source of this unreported income.
During the
period 1944 to March 1954 DeLucia was either imprisoned or on parole and
his returns for that period disclosed no income that can not be readily
accounted for upon the face of the returns. However, his return for the
year 1954, which was the first year he was free of parole, reported
$76,512 from "Personal wagering at tracks, etc." His 1955
return reported $86,050.92 from the same source and his 1956 return
reported $78,460 from "miscellaneous". We think the jury could
very easily have believed that DeLucia simply did not report his income
from such illicit activities during the period that he was on parole,
but did continue to receive such income out of which he made the large
expenditures during the years in question. In
United States
v. Frank, 3 Cir., 1957, 245 Fed. (2d) 284, 287 [57-1 USTC ¶9675],
the Court said:
"It
was also shown that the defendant on several of his income tax returns
had reported a gain from 'sporting enterprises,' an euphemistic term for
gambling profits. He did not return any for 1948 and it is suggested
that this form of activity was another possible source of income. This
point was quite thoroughly developed and the defendant's method of
bookkeeping, or lack of bookkeeping, for his sporting enterprises was
shown. This was all relevant and its weight for the jury."
We hold that
the above evidence, in so far as it relates to Count III, was sufficient
for the jury to find that DeLucia had failed to report income during the
taxable year 1950.
[Separation
of Counts]
DeLucia
originally asserted in his briefs herein that there was inconsistency
between the verdicts of guilty and of not guilty and quoted from the
dissenting opinion in Dunn v. United States, 1932, 284
U. S.
390. However, the majority opinion in that case said on page 393:
"Consistency
in the verdict is not necessary. Each count in an indictment is regarded
as if it was a separate indictment. Latham v. The Queen, 5 Best
& Smith 635, 642, 643. Selvester v.
United States
, 170
U. S.
262."
This Court
said in United States v. Bazzell, 7 Cir., 1951, 187 Fed. (2d)
878, 884:
"As
to the argument that the verdict is inconsistent, it will be enough to
say that where a defendant is charged by two or more counts in an
indictment, consistency between the verdicts on the several counts is
not necessary. Dunn v.
United States
, 284
U. S.
390, 52 S. Ct. 189, 76 L. Ed. 356;
United States
v. Denny, 7 Cir., 165 Fed. (2d) 668; and
United States
v. Coplon, 2 Cir., 185 Fed. (2d) 629, 633. A verdict of
acquittal on one count does not invalidate a verdict of guilty on
another count, although the same evidence is offered in support of each.
Garrison v. Hunter, 10 Cir., 149 Fed. (2d) 844, 845. See also United
States v. Pandolfi, 2 Cir., 110 Fed. (2d) 736."
Moreover,
counsel for DeLucia conceded in oral argument in this Court, and
correctly so, that there is no inconsistency between the verdicts of not
guilty on Count IV and of guilty on Count III. As we are now concerned
only with Count III what has been said is completely dispositive of any
vestige of inconsistency.
[Source
of Income]
DeLucia also
contends that the Government switched its positions in regard to the
alleged hoard of money that he had. However, with this we cannot agree
inasmuch as it appears from the record that the Government has always
contended that DeLucia did receive a large sum through extortion and
that it has been taken into account in the itemization of DeLucia's
income. If anybody is changing positions it is the defendant who has at
times denied that he received the money and on other occasions claims by
innuendo that this constituted the sum from which he made the various
expenditures in the years in question.
Defendant's
last objection goes to the supplemental instruction given to the jury on
the second day of deliberation. Counsel for both the Government and
defendant presented instructions to the Court based on the holding of
the United States Supreme Court in Allen v. United States, 1896,
164 U. S. 492. Defense counsel made certain objections to the version of
the Allen charge submitted by the Government and the Court
acceded to some of these objections and refused others. The supplemental
instruction as thereafter given by the Court has been approved by this
Court almost in haec verba.
United States
v. Furlong, 7 Cir., 1952, 194 Fed. (2d) 1.
We, therefore,
hold that the Court did not err in giving the supplemental instruction.
[Conclusions]
The portion of
the judgment based upon Counts I and II is reversed and cause remanded
with instructions to grant the motion of the defendant for judgment of
acquittal thereon.
The portion of
the judgment based upon Count III is Affirmed.
[59-1 USTC ¶9327]Frank David,
Appellant v.
United States of America
, Appellee
(CA-6),
U. S. Court of Appeals, 6th Circuit, No. 13,605, 264 F2d 248, 2/2/59,
Aff'g the District Court, 59-1 USTC ¶9326, 168 F. Supp. 269
[1939 Code Sec. 41--similar to 1954 Code Sec. 446(b); 1939 Code Sec.
145(b)--similar to 1954 Code Sec. 7201]
Reconstruction of income: Net worth increase: Cash on hand at year's
beginning.--A trial court should be and is affirmed where a case was
fairly tried and correctly submitted to the jury.
James C.
Herndon, Sam D. Bartle, Sheck & Herndon, Akron, Ohio, for appellant.
Sumner Canary, James C. Sennett, United States Attorney,
Cleveland
,
Ohio
, for appellee.
Before ALLEN,
Chief Judge, SIMONS, Circuit Judge, and KENT, District Judge.
Order
ALLEN, Chief
Judge:
The judgment
of the District Court is hereby affirmed upon the grounds and for the
reasons stated in the memorandum opinion of the United States District
Court upon motion for acquittal or, in the alternative, for new trial.
168 Fed. Supp. 269 [59-1 USTC ¶9326].
[59-1 USTC ¶9326]Frank David,
Appellant v.
United States of America
, Appellee
U.
S. District Court, No. Dist. Ohio, No. 21511, 168 FSupp 269, 2/7/58
Reconstruction of income: Net worth increase: Cash on hand at year's
beginning.--Where, in the course of reconstructing taxpayer's net
income, the Government allowed year-beginning cash balances in excess of
amounts submitted by the taxpayer in financial statements, and
calculated cash accumulations upon the basis of reported income, the
reconstruction was proper.
Sam Bartlo,
James C. Herndon, 430 Second National Bldg.,
Akron
,
Ohio
, for appellant. Russell E. Ake, United States Attorney, James C.
Sennett, Assistant United States Attorney, 400 Federal Bldg., Cleveland
14, Ohio, for appellee.
WEICK, Judge:
The defendant
stands convicted on two counts of an indictment charging him with wilful
evasion of income taxes for the years 1948 and 1949.
He has filed
his motion for judgment of acquittal, or in the alternative, for a new
trial.
[Three
Evidentiary Questions]
Complaint is
first made that during the trial the Court permitted the Government
attorney to distribute to the jury photostatic copies of stipulated net
worth computations for the years 1947, 1948 and 1949, the original of
which, except as to items of cash in dispute, had already been received
in evidence as Joint Exhibit "1A." The purpose was to permit
the jury to intelligently follow the testimony of the witness Keller as
to his computations without being confused over a lot of figures.
No objection
to this procedure was made at the time by defendant's counsel. After the
photostats had been handed the jury defendant's counsel then objected
and the Court instructed the jury that they were merely photostats of an
exhibit already received in evidence by stipulation of the parties,
except as to said cash items which represented what the Government
contended. The Court further instructed the jury that the photostats
were for explanatory and illustrative purposes.
The jury could
not see the figures on the admitted Exhibit "1A." It is not
understandable how defendant could be prejudiced by permitting the jury
to follow the witnesses' testimony by permitting them to use a
photostatic copy of the exhibit which the parties had jointly offered in
evidence, particularly since the Court explained the purpose and that
the cash items represented only what the Government contended he had on
hand. Holland v. United States, 348
U. S.
121 [54-2 USTC ¶9714]. During the course of Mr. Keller's testimony the
figures were explained in detail and the exhibit was later received in
evidence as Gov't. Ex. 17 for explanatory and illustrative purposes.
It is next
contended that the Court erred in refusing to order the Government to
produce a transcribed unsigned statement of the defendant, Frank David,
when the witness Keller was on the stand.
Jencks v.
United States, 353
U. S.
657 (1957) and Title 18 U. S. C. A. §3500 are cited as authority.
The statute
(Title 18 U. S. C. A. §3500) was in force at the time of trial and,
therefore, governs. Lohman, Jr. v.
United States
, No. 13189 (CA 6, 1958).
Under this
statute, the Government would be required to produce the statement of
the witness Keller at the end of his direct examination. Defendant was
granted permission to interrogate the witness Keller and he established
that the witness had made a written report of his investigation of the
case which report the Government produced and handed to defense counsel
for their examination and inspection. Defendant did not offer this
report in evidence.
Defendant
claims that, under this statute, the Court should, in addition, have
ordered production of the transcribed unsigned statement of the
defendant David taken on
September 25, 19
50.
The statute
will bear no such interpretation as it requires only the production of
the statement of a witness of the Government who has completed his
direct examination. It does not require production of the statement of
any other person.
The Court
would have no right to extend the operation of the statute beyond what
its plain language requires.
In any event,
the point is without merit because the statement was later given to
defendant's attorney during the cross-examination of defendant and it
was received in evidence as Gov't. Exhibit 21.
On page 28 of
defendant's brief is contained the following:
"The
statement was admitted as Gov't. Exhibit 21 over the objection of
defendant's counsel."
The record
does not support this claim, but on the contrary shows that defense
counsel consented to the admission of the exhibit in evidence.
In his reply
brief, defendant further charges as error the admission in evidence,
over his objection, of the statement of the witness Spilker. The record
does not support this claim, but shows that the statement originally was
received in evidence as a Joint Exhibit "1-c," without
objection, and the numbering was later changed to Gov't. Exhibit
"1-c."
When it was
offered by the Government attorney, he addressed defense counsel,
"if you have no objection."
Defense
counsel made no objection. Later when the exhibit was remarked Gov't.
Exhibit "1-c" defense counsel stated: "other than that,
we don't object to it." This referred to some pencil marks on the
exhibit which were removed.
It is further
contended that the Court erred in not admitting testimony of the
witnesses Spilker and Correll concerning their conversations with the
defendant.
These
conversations were hearsay evidence and, therefore, inadmissible, but
notwithstanding this fact the record will show that most of the
conversations related to defendant's alleged recovery of about $12,300
from Mae Wise and were in fact admitted in evidence without objection.
Furthermore,
defendant took the witness stand and gave direct testimony on this
subject.
[Main
Issue: Reconstruction of Net Worth]
We now come to
the consideration of defendant's motion for judgment of acquittal.
The rule
applicable in this case was laid down by the Court of Appeals in Ross
v. United States, 197 Fed. (2d) 660 (CA 6, 1952) and requires the
Court to consider the evidence in the most favorable light to the
Government. There must, however, be substantial evidence to support the
verdict of the jury.
The
Government's case was based solely on the "net woth" method of
computation to prove the claimed understatements for the years 1948 and
1949.
The parties
agreed to all the items on the defendant's net worth statements for the
years 1943 to 1949, inclusive, except cash on hand and living expenses
for the years 1943 to 1947, inclusive.
There were
substantial increases in defendant's net worth during the indictment
years not reflected in the income shown on his income tax returns.
The question
for determination by the jury was whether these increases in net worth
resulted from taxable income received by the defendant during the years
in question as claimed by the Government or from use of cash on hand
which he had accumulated prior thereto.
As is usual in
cases involving net worth computations, defendant claimed he had a large
amount of cash on hand which the Government did not take into account.
It was the
contention of the Government that defendant had cash on hand as of
December 31, 19
47 in the amount of $17,500, $18,634.72 on
December 31, 19
48 and $15,957 on
December 31, 19
49.
Defendant, on
the other hand, claimed that he had cash on hand of $28,000 to $30,000
on
December 31, 19
47.
After the tax
investigation started in this case, defendant's attorney Chas. K.
Correll on
December 21, 19
50 sent to the Government, seven financial statements of defendant as of
December 31st for the years 1943 to 1949, inclusive. Each of the
statements showed cash in safe deposit box of $12,500. These statements
had been prepared by defendant's auditor Spilker.
The Government
in its net worth computations as of
December 31, 19
47, gave defendant credit for $5,000 more cash than was shown in his
statement as of the same date which he had furnished to the Government.
This inured to his benefit, as without this credit, his increase in net
worth for 1948 would have been much larger.
In his
statement, which was given to Agents Keller and Kaufman on
September 25, 19
50, defendant stated that the largest amount of cash which he had on
hand since 1942 was $16,000 to $18,000 in 1949. Agents Keller and
Kaufman actually counted the money in defendant's safe deposit box on
August 11, 19
50 in the amount of $15,957.00.
Furthermore,
in November 1948 defendant furnished George D. Harter National Bank of
Canton a financial statement, for use in connection with a loan, which
showed cash on hand of $18,634.22.
The Government
used the figure of $18,634.22 shown as cash on hand in the Harter Bank
statement of November 1948 to establish the beginning cash on hand
December 31, 19
48, which was very close in point of time. Also the actual cash in the
amount of $15,957.00 counted on
August 11, 19
50 was used by the Government to establish the amount of the cash on
hand on
December 31, 19
49.
Defendant's
auditor Lawrence testified that the only accurate way to establish cash
on hand on a given date is to count it.
If this were
required under the law, there never could be a conviction for income tax
evasion where the net worth method of calculation is used, because only
the defendant is in a position to count the money and the jury would
have to believe whatever he said.
In my
judgment, there was substantial evidence to justify the verdict of the
jury with respect to Count Number two of the indictment.
In order to
establish the beginning cash figure of $17,500 as of
December 31, 19
47, involved in the first count of the indictment, the Government
subtracted from the cash of $18,634.22 shown on the Harter Bank
statement of November 1948 the amount of $12,500 cash on hand shown on
the statements defendant furnished to the Government for the years 1943
to 1947, inclusive, and obtained the figure of $6,134 which it
distributed prorata as additional income to defendant over those years.
It also
calculated that from defendant's reported income over those years he had
a possible cash accumulation of $5,362. It added this amount of $5,362
to the amount of $12,300 which defendant, in his written statement made
on
June 25, 19
42, admitted he had on hand, to obtain the approximate beginning figure
of $17,500 for
December 31, 19
47.
The jury was
carefully instructed as to the law applicable to the case in accordance
with the cases of
Holland
, Friedberg, Smith and Calderon reported in 348
U. S.
at pages 121, 142, 147 and 160 respectively. No claim is made here that
the charge was erroneous in any respect.
The jury was
not compelled to believe the testimony of the defendant that he had
$28,000 to $30,000 cash on hand on
December 31, 19
47, but could, in determining his credibility, take into account his
previous plea of guilty, in this Court, to the charge of income tax
evasion for the years 1941 and 1942, and the fact that each year
thereafter he understated his income except the year 1947.
[Proper
Matters for Jury]
The jury also
had a right to consider, in determining his guilt or innocence, his
admission that he had $12,300 in cash in 1942; the seven financial
statements which he furnished the Government for the years 1943 to 1949,
inclusive, each showing cash on hand in the amount of $12,500; his
admission in 1950 that the largest amount of cash he had on hand since
the year 1942 was $16,000 to $18,000 in 1949; the actual count of the
cash on
August 11, 19
50 in the amount of $15,957; his financial statement to George D. Harter
Bank in November 1948 showing $18,634.22 on hand; the testimony of Mae
Wise that defendant did not report all of his sales; that he threw away
a portion of the cash register tape on which his daily sales were
recorded and told her to mind her own business, when she remonstrated;
the stipulation of assets and liabilities which included all items
except cash on hand on the critical dates and living expenses for some
of the years.
Under all the
evidence in this case the jury court find that the beginning cash of
$17,500 for the year 1948 was reasonably accurate.
Defendant
complains that the Government computations did not reflect any credit
for his understatements during the pre-indictment years. The testimony
of Mr. Keller is to the contrary as he testified that the difference in
cash amounting to over $6,000 was prorated as additional income over
those years. Defendant had paid taxes on $3,269 additional income, and
the Government also took into account his living expenses during those
years.
Nor was the
jury bound to believe defendant's story about the alleged theft of
$12,300 of his money by Mrs. Mae Wise. He sued Mrs. Wise to recover this
money and lost the case. He claims that later, at different times, he
found the money in Mrs. Wise's home, but did not tell her about it.
During part of this time he was either rooming or visiting at the Wise
home and had a garden there and Mrs. Wise worked on occasions at his
restaurant.
When Mrs. Wise
testified against him in this trial he did not ask her a single question
about the alleged theft of his money or its recovery.
The verdict of
the jury is supported by substantial evidence.
The motion for
judgment of acquittal or in the alternative for a new trial is
overruled.
[56-2 USTC ¶9810]T. C. Risinger,
Appellant v.
United States of America
, Appellee
(CA-5),
U. S. Court of Appeals, 5th Circuit, No. 15901, 236 F2d 96, 8/3/56,
Affirming District Court
[1939 Code Sec. 145(b)--similar to 1954 Code Sec. 7201]
Criminal tax evasion: Admissibility of evidence.--In upholding a
conviction of willful tax evasion, based upon a net worth analysis, the
Court refused to consider on appeal, for the first time, taxpayer's
objections to testimony of the Government witness as to theory and
content of a net worth analysis. It found that the District Court's
instructions as to weight and sufficiency of evidence were substantially
proper, containing no prejudicial error; and determined, finally, that
there was insufficient evidence in the record considered as a whole to
substantiate the claim that taxpayer did not have a fair trial.
Mack Taylor,
Frank B. Potter,
Fort Worth
,
Tex.
, for appellant. Heard L. Floore, United States Attorney,
Fort Worth
,
Tex.
, for appellee.
Before TUTTLE,
CAMERON and JONES, Circuit Judges.
CAMERON,
Circuit Judge:
This is an
appeal from a conviction on a jury verdict finding appellant Risinger
guilty on all five counts of an indictment charging wilful evasion of
income taxes for the years 1948, 1949 and 1950 based upon appellant's
action in filing false and fraudulent tax returns for himself and his
wife in violation of 26 U. S. C. A. (1939) §145(b). Appellant claims
that the Court below committed certain errors in admitting testimony, in
failing to charge the jury accurately and adequately, and in failing to
acquit appellant because of insufficiency of the evidence to sustain the
verdict. Appellant is laboring under the handicap of having failed to
take the steps in the Court below which are necessary to permit reliance
upon most of the errors charged.
[One
Set of Books for Two Enterprises]
During the
years 1948, 1949 and 1950 appellant was engaged primarily in the hotel
business. The income tax returns filed by him were made from the books
and records kept in connection with this business, but did not include
income received from any other business or activity. A large amount of
testimony was introduced by the Government from which the jury could
determine that the porters and bellboys working in appellant's hotels
had, by prior agreement with appellant, split the income received by
them from the illicit businesses of prostitution and sale of
intoxicating liquors carried on by them as an adjunct to the hotel
business.
[Net
Worth Analysis]
This direct
proof of receipt of unreported income was supplemented by a large volume
of proof establishing, under the net worth method, that appellant had
made expenditures during the years in question considerably in excess of
the income available to him from all legitimate sources. The Government
used a large number of witnesses whose testimony, when recapitulated by
the Government's experts, showed that, during 1948, appellant's
expenditures exceeded his available income by $7,522.67; in 1949 by
$12,273.00; and in 1950 by $8,347.20.
In connection
with developing this character of proof the Government followed the
usual custom of having one of its experts analyze the testimony of the
large number of witnesses with whom appellant had had dealings and
placing the expert on the stand to gather together the various fragments
of testimony and present to the jury the picture resulting therefrom in
an understandable and convincing manner.
[Three
Claims of Error]
The
specifications of error chiefly argued by appellant relate to the
evidence given by the porters of money received from the illicit
businesses, it being claimed that said evidence was inadmissible and
highly prejudicial; and that appellant's motion for mistrial based upon
its receiption should have been sustained; and to the claim that the
Court below committed error in failing to charge the jury with respect
to the rule that the unsupported testimony of an accomplice is
insufficient to sustain a conviction.
[Answer
to First Claim]
The testimony
of the porters was not hearsay and was clearly admissible to show that
appellant received from them large amounts of money which were not
reported as income. Cf. Ford v.
United States
, 5 Cir., 1956, 233 Fed. (2d) 56 [56-1 USTC ¶9473]. There was
sufficient direct proof, backed up by circumstantial evidence, that this
split was made under prior arrangement with appellant. The Court below
was careful to limit the effect of this evidence by charging the jury
that it should be considered only as it tended to establish that
appellant had received income and that the jury should not consider the
illicit or immoral character of its source. 1
[Answer
to Second Claim]
Appellant
requested orally, after the Court's charge had been completed, that if
the jury should believe that the porters and bellboys were accomplices
of appellant, his conviction could not be sustained upon the
uncorroborated testimony of these accomplices. The Court refused to give
that instruction and the refusal was, in our opinion, proper. Appellant
was indicted and tried for the crime of wilfully filing false and
fraudulent income tax returns. There was no proof or hint that the
porters were his accomplices in the crime charged against him. In order
for one to be an accomplice he must be concerned in the commission of
the specific crime with which the defendant is charged, he must be an
associate in guilt of that crime, a participant in that offense as
principal or accessory. 2
We conclude, therefore, that the Court did not commit error in
connection with the various rulings relating to the testimony of the
porters, in overruling the motion for mistrial based thereon or in
refusing to give the requested charge predicated upon the assumption
that they were accomplices in connection with the crime upon which
appellant was convicted.
[Answer
to Third Claim]
Appellant next
argues that the Court below erred in permitting the Government experts,
particularly the witness Haskins, the enter into a detailed explanation
of the theory and content of the net worth method of developing income
tax violations, and in permitting said witness too much latitude in
explaining the various items entering into his computations, and in the
effort to advance arguments to sustain the charges of the indictment. We
have recently reversed a conviction of violation of the income tax laws,
basing our decision in part upon what we found to be prejudicial actions
and improper evidence by such government experts. Lloyd v.
United States
, 1955, 226 Fed. (2d) 9 [55-2 USTC ¶9665]. We referred to decisions
of the Supreme Court and of this Court wherein words of admonition had
been written in connection with the reception of such evidence. 3
A careful reading of the testimony complained of by appellant reveals
that quite a few of the questions asked by the Government's attorney
were leading and argumentative, and the answers in some instances
exceeded the limitations by which the introduction of such evidence is
bounded. But we are not able to say that this evidence was clearly
prejudicial or that its reception was "plain error."
[Appellant
Too Late in Claims]
Appellant is
not in position to stand upon the error asserted in connection with this
evidence for the reason that he did not object to it when offered or at
any other time. During the extended examination of the government
witness Haskins, occupying more than fifty pages of the record,
appellant objected only once or twice, and then to the form of the
question; and in each instance the Court required that the question be
reframed as so to "avoid any argument in connection with your
questions." Doubtless the Court would have kept the examination
completely within legal bounds if called upon by seasonable objection to
rule on specific questions and answers. But appellant chose to permit
the evidence to go in without objection, thus reaping the benefit which
is thought normally to attend such a procedure. Having followed that
course, he cannot put the Court below in error for permitting the
examination which he did not attempt to halt. 4
Finally,
appellant argues that the charge to the jury was not adequate or fair,
and that the verdict was not supported by the evidence. Here again
appellant elected to take his chances with the jury, not excepting to
the charge as given nor requesting any written charges; no motion was
made for judgment of acquittal, and no motion for new trial was filed.
Appellant is, therefore, not in a position to insist on the errors thus
asserted. 5
[Trial
Was Fair]
But we are
earnestly importuned to set the judgment aside on the assertion that
appellant was not given a fair trial, and that he was convicted on
insufficient evidence. Of course, we have the right to notice plain
errors affecting the substantial rights of appellant, Rule 52(b),
Federal Rules of Criminal Procedure. But a careful reading of this
record does not impel us to give serious consideration to granting such
relief here. Indeed, the evidence amply supports the jury's verdict and
reflects that the Court below was punctilious in observing every right
to which appellant was entitled.
Finding no
error and being convinced that a just result was reached, the judgment
is AFFIRMED.
1
In ruling on appellant's verbal motion for mistrial the Court stated in
part:
"The
case, as we understand it now, is more or less analagous to a case that
a man makes money and owes tax on it; if he made it in a criminal
enterprise or a gambling enterprise, or in some unlawful transaction, if
he got the money and it came to him so that it was his, he should pay
the tax on it . . .
"I am
going to instruct the jury at this point, since it is raised in this
motion, I will instruct the jury that while a man must pay taxes on the
money which comes into his hands, which is his, which he keeps and is
his, he may receive it from an immoral or some unlawful source, still he
owes the tax. And when he is tried upon a charge of concealing his
income so as to evade the payment of a tax, and doing it wilfully and
intentionally, he should not be charged with any wrongdoing because of
the manner in which he got the money. You are trying him only for not
paying the tax, and you will not try him for any immoral conduct, if you
believe he was guilty of such. . . . In considering the question of
guilt or innocence, don't turn in your mind to the fact that he was
doing something unlawful or immoral. The only question is, did he have
the money, or did he pay the tax . . ."
2
"The general accepted test as to whether a witness is an accomplice
is whether he himself could have been indicted for the offense either as
principal or accessory. If he could not, then he is not an
accomplice." 14 Am. Jur. 840-1, Criminal Law, §110. And see Emmanuel
v. United States, 5 Cir., 1928, 24 Fed. (2d) 905, Cert. den. 278
U. S.
643; Campbell v.
United States
, 5 Cir., 1931, 47 Fed. (2d) 70;
United States
v. Balodimas, 7 Cir., 1949, 177 Fed. (2d) 485 [49-2 USTC ¶9434];
and 22 C. J. S. Criminal Law, §786.
3
Holland v. United States, 348
U. S.
121 [54-2 USTC ¶9714]; United States v. Johnson, 319
U. S.
503 [43-1 USTC ¶9470]; Demetree v. United States, 5 Cir., 1953,
207 Fed. (2d) 892 [53-2 USTC ¶9646]; and Elder v.
United States
, 5 Cir., 1954, 213 Fed. (2d) 876.
4
Allen v.
United States
, 5 Cir., 1951, 192 Fed. (2d) 570; Durden v.
United States
, 5 Cir., 1950, 181 Fed. (2d) 496; Medlin v.
United States
, 5 Cir., 1928, 28 Fed. (2d) 663; Metcalf v.
United States
, 6 Cir., 1952, 195 Fed. (2d) 213;
United States
v. Bender, 7 Cir., 1955, 218 Fed. (2d) 869 [55-1 USTC ¶9142].
5
Rules 30 and 51, Federal Rules of Criminal Procedure: Feutralle et
al. v.
United States
, 5 Cir., 1954, 209 Fed. (2d) 159; Williams v.
United States
, 208 Fed. (2d) 447; McDonald v.
United States
, 5 Cir., 1952, 200 Fed. (2d) 502, and Contreras v.
United States
, 5 Cir., 1954, 213 Fed. (2d) 96 [54-1 USTC ¶49,039].
[57-2 USTC ¶10,011]Bryan E. Ford,
Petitioner v.
United States of America
Supreme
Court of the
United States
, No. 82. October Term, 1957, 355 US 38, 78 SCt 114, 11/12/57, Vacating
and remanding Second Circuit, 56-2 USTC ¶9823, 237 F. 2d 57
[1939 Code Secs. 41 and 145(b)--similar to 1954 Code Secs. 446(b) and
7202]
Tax evasion: Source of net worth increase: Graft payments.--A
conviction of tax evasion, after a trial in which the Government based
its reconstruction of income under the net worth increase method on a
showing that the taxpayer, a policeman on the vice squad, could have
accepted graft payments, was ordered vacated on the ground that the
issue was moot, the taxpayer having died.
Sydney R.
Rubin, Wilder Bldg.,
Rochester
, N. Y. for petitioner. J. Lee Rankin, the Solicitor General, for
respondent.
PER CURIAM:
Upon the
suggestion of mootness the judgment of the United States Court of
Appeals for the Second Circuit is vacated and the case is remanded to
the United States District Court with directions to vacate the judgment
of conviction and to dismiss the indictment.
[56-2 USTC ¶9823]
United States of America
, Appellee v. Bryan E. Ford, Defendant-Appellant
(CA-2),
U. S. Court of Appeals, 2nd Circuit, Docket No. 23754, 237 F2d 57,
8/6/56, Affirming District Court, New York
[1939 Code Sec. 145(b)--similar to 1954 Code Sec. 7202: 1939 Code Sec.
41--similar to 1954 Code Sec. 446(b)]
Tax evasion: Criminal prosecution: Proof by net increase method.--Where
taxpayer's savings during the taxable years and general mode of living
were shown to have been considerably more than his policeman's pay could
have supported, and where the taxpayer's statements in explanation of
the increases were fully discredited, the use of the net worth method of
reconstructing taxable income was proper. The fact that the evidence may
not have sustained a finding that the income was from graft, inasmuch as
the taxpayer's service in a district where gambling and vice were
rampant, and taxpayer's acquaintence with a known gambling leader were
the only facts shown, does not mean the receipt of taxable income from
some undisclosed source was not adequately proved, through the net worth
analysis.
Donald F.
Potter, Assistant United States Attorney, John O. Henderson, United
States Attorney, Western District of N. Y., Rochester, N. Y., for
appellee.
Sydney R.
Rubin, Lomenzo, Salzman & Witt,
Rochester
, N. Y., for defendant-appellant.
Before CLARK,
Chief Judge, FRANK and HINCKS, Circuit Judges.
HINCKS,
Circuit Judge:
This is an
appeal from a judgment of conviction of income tax evasion on three
counts of a five-count indictment which charged the defendant with
evasion of his income tax for the calendar years 1947 through 1951,
respectively. After a trial, in which the Government relied upon the
so-called "net worth" theory of proof, he was convicted on the
counts for the years 1948, 1949 and 1950, and acquitted on the count for
1951. The jury was unable to agree upon a verdict on the first count,
for 1947, and following its stalemate the trial judge directed a verdict
of acquittal on that count. Subsequently, on the defendant's motion for
acquittal on all counts or, in the alternative, for a new trial, but
prior to any imposition of sentence, the judge vacated his previous
directed verdict of acquittal as to Count 1.
[Taxpayer's
Police Service Record]
The defendant
was a
Rochester
policeman who had joined the Police Department in 1921 as a patrolman
and was thereafter continually employed on the force throughout the
pre-indictment and indictment years. His annual gross salary ranged from
a low of $1125 in 1921 to a high of $4400 in 1951. The defendant was
assigned to special duty investigating vice at various times beginning
about 1934. He was so assigned throughout 1947 and thereafter until
about
July 16, 19
48
. On the latter date he was transferred to the detective bureau where he
remained until about May 1949 when he was returned to the vice squad.
There was no evidence that he was engaged specifically in vice
investigation during 1950 but he was restored to his vice investigation
duties on about
December 15, 19
51
.
[Extent
of Net Worth Analysis]
Prior to trial
the Government conducted a thorough investigation of the defendant's
financial status and manner of life from the close of the calendar year
1941 through the close of the final indictment year 1951. The
Government's investigation was exhaustive. Every bank in
Rochester
was checked for accounts of the defendant. The Surrogate's records in
Monroe County were checked for possible legacies from relatives of the
defendant and his wife, and a claimed legacy from the defendant's sister
was negated; the United States Treasury records pertaining to the
issuance of United States Savings Bonds were checked for bond purchases
year by year; the various contractors who worked on the defendant's
residence were interviewed to verify the cost figures given by the
defendant; the department stores in Rochester were checked for
purchases; the automobile dealers where the defendant had purchased cars
were checked for the date of the purchase and the amount involved; the
Rochester Gas and Electric Company was checked for payments by the
defendant; the Clerk's office of the Monroe County Court House was
checked for the date that his old house was sold, the amount for which
it was sold, and the date he purchased the property on which his new
house was located. This list is by no means inclusive. It is set forth
here only as some indication of the meticulousness of the Government's
investigation and to show that the specific items reflected in its net
worth chart were based on undisputedly sufficient evidence.
In addition,
Government agents questioned the defendant concerning his sources of
income, inheritances, gifts, borrowed funds and the sources of his
wife's income and funds. The Government treated the defendant and his
family as an economic unit and calculated the defendant's assets,
liabilities and expenditures on that basis. The Government purported to
show the net worth (assets minus liabilities) of the defendant at the
close of each calendar year beginning with 1941. Exhibit 80. 1 It credited the defendant with an opening net worth of
$57,490.40 as of
January 1, 19
47, which figure included no allowance for cash on hand. To the increase
(or decrease) in the defendant's net worth for each subsequent year in
the indictment period, it added the defendant's personal (nondeductible)
expenditures for that year thus determining his gross income. It
calculated the defendant's taxable income for each year by subtracting
from his gross income all known nontaxable income receipts and allowable
nonbusiness deductions during that year. By subtracting his reported
income from his taxable income figures thus arrived at, the Government
calculated unreported taxable income during the indictment years 1947
through 1950 of $15,455.61, $7,892.20, $2,976.17, and $1,103.22,
respectively. For 1951 the Government calculated an overestimation of
taxable income of $180.62.
For
the pre-indictment years 1942 through 1946 the Government, through the
same basic scheme, calculated unreported taxable income of $4,996.32,
$6,167.55, $5,648.68, $9,009.12, and $17,122.00, respectively. These
figures were included in the net worth chart, Exhibit 80, which went to
the jury.
[Government's
Contentions]
It
was the Government's theory that the unreported taxable income as
indicated by its net worth chart was graft received by the defendant for
nonperformance of his duties as a policeman and as a member of the vice
squad. Although there was no direct evidence that the defendant ever
received a bribe, the evidence did disclose that he had
"opportunities" flowing from his position in charge of the
investigation of vice. There was evidence that there was wide open
gambling in Rochester during the spring and early summer of 1948 when
the defendant was on the vice squad; that on three or four occasions
between April and June 1948 the defendant had been told by Officer
Stanton about the sale of policy slips by one Passorelli, but no action
was taken until Officers Faulkner and Van Auker were notified of similar
sales and thereupon made an arrest; that statistics of gambling cases
disposed of in the City Court of Rochester indicated an upswing in
prosecution of gambling from 1948 to 1951 after other officers had been
assigned to the squad; and that the defendant was on friendly terms with
a professional gambler, Thomas L. O'Brien, whose restaurant he and his
wife patronized and whose house he had visited on two occasions. There
was evidence that O'Brien had called the defendant by telephone two or
three times in 1954 to inquire about rumors that the defendant was going
back to the police force, and that at an unidentified date the defendant
and his wife had briefly visited O'Brien at his summer cottage. Police
Lieutenant Irish testified that while he, Irish, was on the vice squad
he had been offered bribes on several occasions. This evidence was first
admitted and subsequently stricken out by the court with instructions to
the jury to disregard it.
[Inconsistencies
in Taxpayer's Story]
The
Government introduced proof of inconsistencies and fabrications in the
defendant's extrajudicial explanations of his finances. When the
defendant was questioned by a superior in 1947 about the expensive home
he was building on
Gregory Hill Road
, he claimed he could sell his Linden Street House for $10,000 and get a
mortgage for the rest. Actually, the sale of the
Linden Street
residence netted him about $4800, and the new house, costing $37,800,
with the land and all improvements, was not mortgaged. In April of 1952,
when interrogated by Revenue Agents, the defendant stated that the
construction of his new home cost him only $19,400. He claimed to have
received in 1943 an inheritance from his brother, Clarence, of $500,
with which the Government credited him, and a gift of $8800 from
Clarence in 1937 which went into bond purchases in later years. 2
He stated that he had no source of income from any other source than his
salary. When asked how he could deposit over $13,000 in banks during
1946 and 1947 on his salary of about $3,000, the defendant replied,
"That is a lot of money. It looks bad, doesn't it?" At a
conference with the Revenue Agents in July 1952 he stated that the house
cost "around $25,000" and when confronted with his prior
statement said, "I might have lied about that unwittingly. I have
nothing to conceal." At that time the defendant claimed the $500
inheritance and a gift of $8900 from Clarence in 1939 as his only gifts
and inheritance. He stated that he used the gift from Clarence to make
bank deposits in 1946 or 1947 and explained his bond purchases and other
bank deposits by systematic savings and accumulations, 3
an explanation which was completely destroyed by his wife's testimony at
the trial. 4
In November 1952, at a meeting with Police Department officials, the
defendant claimed for the first time that in 1940 he and Clarence had
pooled some money for a joint business venture and that when the venture
failed to materialize Clarence before his death in 1941 turned over the
pooled funds to the defendant. He also mentioned then for the first time
a legacy of his wife's from a Great Aunt Mary from the West which will
be discussed later. The Government also presented evidence that the
defendant had concealed bond purchases, expenditures, and bank accounts,
and made misrepresentations relating to the purchase of a car for his
daughter, Nancy, in his preindictment extrajudicial statements. In
short, the evidence of fabrication, misrepresentation and concealment
was strong and the jury may well have concluded that his constantly
shifting explanations were incredible.
[Evidence
on Behalf of Taxpayer]
The
defendant did not take the stand. The defense called several witnesses
who were superiors and associates of the defendant on the police force.
These witnesses testified to the defendant's reputation for being an
efficient policeman and to his activities in suppression of vice. Irma
Ford, his wife, testified on his behalf and claimed the existence of a
substantial cash hoard on hand at the opening date (January 1, 1947)
derived principally as gifts from Mrs. Ford's relatives, particularly a
Great Aunt Mary of California, and from the defendant's brother
Clarence. Mrs. Ford testified that she had $2000 when she married the
defendant. She claimed to have received $2000 from Great Aunt Mary in
1922 and another $6000 over a subsequent period of five or six years,
before Mary died. Out of a sizeable estate which, she testified, Mary
bequeathed to Mrs. Ford's mother, she claimed to have further received
approximately $5800 as gifts in three installments during 1937, 1938 and
1939. She also claimed gifts of $2400 from her daughter Jean in 1948
before Jean entered a convent. Mrs. Ford testified to the claimed gift
of $8800 or $8900 from Clarence in about 1937 and also testified to
finding a thick envelope containing money in the defendant's dresser
drawer in the summer of 1941, a few months before Clarance's death,
which contained the substantial sum (in an unspecified amount) allegedly
left with the defendant by Clarence after their alleged business venture
failed of consummation.
[Government's
Rebuttal Evidence]
The
Government introduced independent evidence tending to negate the claim
of a substantial cash hoard on hand in 1947 and deriving from
acquisitions in the 1920's and 1930's and to prove that its alleged
existence was a fabrication. There was considerable evidence of small
loans and debts throughout the 1930's. As late as 1940 the defendant
borrowed $100 from the Central Trust Company. He made a payment thereon
of $25 on
June 24, 19
40, and renewed the note in the amount of $75 on
August 8, 19
40. On
November 8, 19
40, it was renewed again in the amount of $55, and was paid in full on
February 8, 19
41. In addition, the Government introduced evidence tending to show that
even if the defendant's explanations as to the accumulation of the hoard
were true the hoard had been dissipated by the acquisition of non-cash
assets prior to
January 1, 19
47. According to the pre-trial statements of the defendant and the trial
testimony of his wife as to the alleged sources of the hoard is had been
fully accumulated in an amount in excess of $24,700 prior to the death
of Clarence in November 1941. During the period from
January 1, 19
42 until the opening date,
January 1, 19
47, the Government's evidence purported to show approximately $43,000 of
visible net worth increases and personal expenditures in excess of
reported earnings. Therefore, even if the jury had believed the
defendant's explanation, there would have been ample evidence to
indicate an exhaustion of the hoard before
January 1, 19
47.
Accumulation Dissipation
of Cash Hoard of Cash Hoard
(per Defendant's (per Government's
evidence) evidence)
1919 Irma Ford's assets at marriage .......... $ 2,000 1942 $ 4,996.32
1922-28 Gifts from Aunt Mary .................... 8,000 1943 6,167.55
Gifts from Irma Ford's mother out of
1937-39 Aunt Mary's bequest ..................... 5,800 1945 9,008.12
1937-41 Gifts from Clarence5 .................... 8,900 plus6 1946 17,122.00
Total ................................... $24,700 plus 7$42,942.67
5 The $500 bequest from Clarence is not included in this chart since the
Government credited the defendant with exempt income in that amount for
1943.
6 The additional amount was the sum alleged to have been contributed by
Clarence to the joint venture with the defendant which Irma Ford
testified was left with the defendant in 1941.
7 The jury by failing to reach a verdict on the 1947 count in effect
gave the defendant the benefit of the doubt as to an additional
$15,455.61 in funds possibly accumulated prior to the indictment years.
[Taxpayer Challenges Opening Net Worth]
The
defendant does not challenge any of the specific items included in the
net worth chart. Rather, he attacks the reliability of the opening net
worth figure (January 1, 1947), claiming omission therefrom of a
substantial cash hoard in currency then on hand. The Government credited
the defendant with an opening net worth of $57,490.40. This figure
included a credit for $36,303.33 deposited in seven bank accounts which
the Government's investigation had uncovered. It did not, however,
include any credit for currency on hand. The defendant asserts that this
omission renders the Government's evidence of net worth so unrealiable
as to lack probity as a foundation for its purported calculation of
unreported net income.
[Fact
Question]
We
think that was a question for the jury. Our function in passing on the
sufficiency of the evidence is complete upon a determination that the
opening net worth figure is supported by an adequate investigation,
including the tracking down of leads furnished by the defendant, and is
corroborated by some independent proof tending to negative the existence
of a cash hoard on hand at the opening date.
Here,
the opening figure was supported by an exhaustive investigation by the
Government and was independently corroborated by evidence of the
defendant's precarious financial condition during the period when,
according to the defense, he had a substantial cash hoard on hand. 5
There was further evidence that even if the defendant had accumulated
such a hoard as and when contended by the defense it would have been
absorbed by his proved expenditures prior to the opening date. 6
Finally, there was evidence of the defendant's inconsistent, false and
misleading extrajudicial statements which the jury might well have
concluded were intentionally fabricated. 7
[Government's
Calculations Justified]
In
the context of this case, it is not necessary for us to decide whether
any one of these lines of corroborative proof was sufficient. Their
cumulative effect was to produce firm ground to infer the accuracy of
the Government's opening net worth figure. To reduce the totality of
proofs to its component parts and examine each part for its independent
probative efficacy would be to distort the overwhelming substantiality
of the proofs as a whole into a congeries of irrelevant abstractions.
[Income
Must Have Been Taxable]
Since
the Government thus furnished adequate evidence of the substantial
accuracy of its opening net worth figure and since the other figures on
its chart were independently supported and were never challenged, it
follows that there was adequate support for a finding by the jury of
unreported income during the indictment years from some source.
The fact that the Government thoroughly investigated the defendant's
affairs and financial condition and yet failed to uncover any
substantial nontaxable receipts beyond that shown on its chart, was
sufficient, at least for purposes of its prima facie case, 8
to negative an inference that the receipts thus demonstrated may have
derived from a nontaxable source.
[Government
Carried Burden]
Somewhat
overlapping the contention just above dealt with, the defendant claims
that the Government's proofs were insufficient because of its failure to
track down leads furnished in his extrajudicial explanations as to the
source of his net income and expenditures. We do not agree. His claim as
to the low cost of his new house the Government did track down--and
found substantially exaggerated. His claim of a legacy from his sister
was checked and found untrue. His statement that he kept a large sum of
cash derived from his brother in the Police Department safe was
apparently tracked down as far as possible with a result by no means
favorable to the defendant's contention. His claims as to the receipt in
pre-indictment years and his disposition of various cash gifts received
from his brother Clarence and of gifts to his wife through her Great
Aunt Mary were so vague that they were not susceptible of further
investigation. The burden on the Government in this respect was only to
provide "effective negation of reasonable explanations by
the taxpayer inconsistent with guilt. Such refutation might fail when
the Government does not track down relevant leads furnished by the
taxpayer--leads reasonably susceptible of being checked, which, if true,
would establish the taxpayer's innocence."
Holland
, pp. 135, 136. Here the explanations were neither
"reasonable" nor "susceptible of being checked."
Moreover,
here as in Holland, even if the defendant's leads were assumed to
be true, "the incidents relied on by the petitioner [the
defendant here] were so remote in time and in their connection with
subsequent events proved by the Government that" whatever the
defendant's net worth was in 1941 (when the last contribution from
Clarence was allegedly received) it "appears by convincing evidence
that" on
January 1, 19
47, he had only such assets as the Government credited to him in its
opening net worth figure. Here, even if all the preindictment gifts
claimed had been received as and when claimed, they did not prove cash
on hand on
January 1, 19
47. At most, they would explain only part of the $43,000 by which his
combined increase in visible net worth and personal expenditures, as
shown by the Government's chart, exceeded his aggregate income as
reported for the years 1941 through 1946.
Nor
do we agree with the contention made that in the circumstances of this
case the Government, to prevail, was required to interview the
defendant's wife about her own assets, sources of exempt income and the
receipt of the gifts said to have been received from her Aunt Mary. It
is true that the financial status and history of Mrs. Ford was clearly
relevant to the prosecution of the defendant, especially since the
family was treated as a unit for purposes of calculating net worth
increases and expenditures. But we think the Government adequately
exhausted investigation of that possible source of income by its
questioning of the defendant in July 1952 as to his wife's assets and
sources of income. He stated then that his wife did not work except
occasionally in a hospital, that she had no stocks or securities, but
that she "had a little money that her folks left her."
Moreover, it may not be assumed that a pre-trial interview with Mrs.
Ford would have added anything to the case not contributed by her
testimony on trial. And that testimony, even if true, did not impugn the
Government's opening net worth statement, as we have noted in the
preceding paragraph.
In
short, we think the amplitude of the investigation actually made,
summarized elsewhere in this opinion, fully satisfies the investigatory
burden on the Government and justified all the inferences, affirmative
and negative, which the jury apparently based thereon.
[Government's
Proof Was Adequate]
The
defendant also contends that the net worth proofs were not corroborated
by proof of a likely source of additional income and hence were
insufficient to support the verdict. The argument would have pertinence,
we think, only if there were a lack of other evidence to prove that the
defendant had unreported current receipts. Here, however, without proof
of a likely source the Government's proofs were fully adequate to
support a finding that the defendant had substantial unreported receipts
during the indictment years from some source. For the proofs, as
we have seen, negatived the defendant's claim of a cash hoard on hand
during the indictment period and supported the accuracy of the
Government's opening net worth figure. The other figures in the
Government's net worth chart were affirmatively supported by the
Government's investigation and indeed were not challenged. The
Government having thus established unreported current receipts from some
source, all that was needed to complete a prima facie case
was enough proof to negative the possibility that the unreported current
receipts thus established were nontaxable.
Merely
to supply this necessary link in the Government's case, it was not
necessary to prove directly the receipt of graft or that graft was a
"likely source" in the sense that it was a source which the
defendant had actually drawn upon. "Likely source" is but one
method to negative all the possible nontaxable sources of the alleged
net worth increases: it is not always an indispensable element in a net
worth case.
United States
v. Adonis, 3 Cir., 221 Fed. (2d) 717 [55-1 USTC ¶9310]. This
conclusion, we think, is supported by passages in Smith v. United
States, 348 U. S. 147, 158 [54-2 USTC ¶9715], and United States
v. Calderon, 348 U. S. 160, 164 and 165 [54-2 USTC ¶9712], and is
wholly consistent with Holland v. United States, 348 U. S. 121,
137 and 138 [54-2 USTC ¶9714]. Direct proof of a likely source here was
unnecessary because the Government sufficiently proved unreported
current receipts by directly substantiating its opening net worth figure
by independent evidence and because the results of its exhaustive
investigation of the defendant's affairs warranted an inference that he
had no nontaxable income during the indictment years not credited to him
on the Government's net worth chart. 9
The
defendant urges that the evidence relating to graft opportunities should
have been excluded as prejudicial to the defendant since the Government
failed to link him directly with graft. We do not agree. The evidence
showing the possibility of graft, although not sufficient in itself to
prove unreported current receipts, was relevant and material for
its tendency to show that the unreported receipts, independently
established, derived from a taxable source. The evidence
therefore was properly received as corroborative. It added strength to
the inference that the unreported receipts were taxable.
[Willfulness
Amply Shown]
The
finding of the defendant's willfulness was supported by an abundance of
evidence. Here, as in
Holland
, p. 139, there was evidence of a consistent pattern of
underreporting comparatively substantial amounts of income both within
and before the indictment years. And the use of fabrications to deny the
underreporting of income, rather than a defense of non-willful
negligence in failing to report it, provides some additional evidence of
a willful attempt to evade income taxes through concealment of taxable
sources. Gariepy v.
United States
, 6 Cir., 189 Fed. (2d) 459 [51-1 USTC ¶9318], 463; Sasser v.
United States, 5 Cir., 208 Fed. (2d) 535, 539 [54-1 USTC ¶9118].
On
appeal, it has been suggested in behalf of the defendant that despite
the absence of admissions or other proof that he received graft, it is
possible that he did do so prior to the indictment years and thereby
built up a cash hoard sufficient to account for the apparent unreported
income in the indictment years. On this theory the defendant's
fabrications are explained as an effort to conceal guilt in receiving
graft rather than guilt of tax evasion. In consequence, it is argued,
the fabrications may not be treated as corroborative of the Government's
opening net worth figure. Although this contention runs counter to the
defendant's pre-trial assertions and the theory of the defense at the
trial, it has some plausibility and deserves consideration to the extent
that it may have bearing on the prima facie sufficiency of the
Government's proof.
But
we cannot indulge in the assumption that the defendant took graft in
large amounts prior to the opening indictment date and shut our eyes to
the likelihood that, if so, he continued to do so during the indictment
years when the source remained available. If we assume, as we are now
asked to do, that prior to 1947 the defendant actually profited through
graft, by the defendant's own hypothesis accompanied by proof of
opportunities for graft there existed a likely source of unreported
taxable income during the indictment years which constituted adequate
corroboration of the Government's proofs of additional taxable income,
under the Holland doctrine.
In
addition to the major contentions already discussed, the defendant
presses several other claims of erorr all of which we find without
merit. He suggests the possibility that some of his excess funds might
have come from his son, James Ford. Not only was such a claim not made
prior to or at the trial, but James Ford testified that prior to the
indictment years he was successively at college, in the army, and at law
school, and during the indictment years until April 1949 he was
successively employed by a law firm for approximately $25 a week, and as
a Post Office clerk for about $60 a week. Thereafter, he was employed as
a claims examiner with the State Labor Department. On the evidence the
jury might reasonably have concluded that none of the defendant's
expenditures derived from James. Moreover, the Government need not
negate every possible source of nontaxable income where leads are not
forthcoming. Holland v. United States, supra, at 138; Rossi v.
United States, 289 U. S. 89, 91-92; Warring v. United States,
4 Cir., 222 Fed. (2d) 906, 911-912 [55-1 USTC ¶9473].
[Hung
Jury as to One Year No Bar]
The
defendant contends that the conviction must be reversed because the
entire case rests on the accuracy of the Government's opening net worth
figure and that the jury's inability to reach a verdict for 1947 imports
a finding that the figure was inaccurate. That argument is specious. On
appeal we are concerned not with the impact of the evidence on the jury
but with its legal sufficiency. We think the evidence sufficiently
supported the Government's opening net worth figure for 1947 even though
the jury for some reason failed to convict on the 1947 count. Even if
the jury had acquitted the defendant on the 1947 count that acquittal
would not destroy the validity of its verdict for subsequent years.
United States
v. Costello, 2 Cir., 221 Fed. (2d) 668, 673 [55-1 USTC ¶9342]; United
States v. Coplon, 2 Cir., 185 Fed. (2d) 629, 633; Horne v.
United States
, 5 Cir., 193 Fed. (2d) 175. That is so quite apart from the fact
that in this case the opening figure for 1948, although calculated by
the scheme of that for 1947, was based on independent data.
It
is urged by the defendant that the evidence of opportunities from graft
went beyond the limits of the order of preclusion entered by the judge
before trial which precluded the Government "from introducing
evidence at the trial as to the claimed possible or probable sources of
the defendant's alleged undisclosed income, except to show that the
defendant was employed as a police officer, the nature of his duties as
such * * * and that the defendant's increase in net worth did not come
from a non-taxable source or sources." This order substantially
followed the language used by the Government in its bill of particulars
stating what it intended to prove. We think the proofs properly fell
within the confines of the order. In addition there is no claim that the
defendant was surprised by the evidence.
[Technical
Error]
Error
is assigned for failure of the trial court to inform defense counsel as
to its rulings on the defendant's requests to charge in advance of
summation. Rule 30 of the Federal Rules of Criminal Procedure provides
that, "The court shall inform counsel of its proposed action upon
the requests prior to their arguments to the jury * * *." We think
that in the setting of this case strict compliance with the Rule was
waived when counsel, without request or objection, proceeded with his
summation. But even if there were technical error it was harmless. The
judge charged in substantial compliance with all the defendant's
requests save one and there is neither assertion nor showing of harm
resulting from noncompliance with the Rule.
The
defendant also assigns as error the admission of the items on the net
worth chart purporting to show Additional Unreported Net Income for the
pre-indictment years 1942 through 1946. This evidence was highly
relevant both on the issue of the defendant's intent 10
and to refute the defendant's claim as to a substantial cash hoard on
hand at the opening indictment date consisting of receipts from Clarence
or Aunt Mary prior to 1942. We hold that this evidence was properly
admitted.
[Harmless,
If Erroneously Admitted, Evidence]
The
defendant claims prejudice from the admission of Irish's testimony that
on occasions he had been approached with offers of graft money.
Subsequent to its admission this testimony was stricken on the authority
of Ford v. United States, 5 Cir., 210 Fed. (2d) 313 [54-1 USTC ¶9233],
and in the charge the jury was admonished to disregard it. If its
admission was erroneous, we think the subsequent action taken must be
deemed to have sufficiently safeguarded the defendant from resulting
prejudice. We incline to think, however, that in view of the independent
evidence of unreported income during the indictment period the testimony
was relevant and admissible for its bearing on the source of that
income. It tended to show that
Rochester
police officials had opportunities to obtain taxable income in the
nature of graft and thus reinforced an inference, permissible on other
evidence, that the defendant's unreported income was taxable. We hold
that nothing connected with this item is cause for reversal.
Finally,
there is a claim that the trial court erred in vacating its directed
verdict of acquittal on Count 1 of the indictment. The argument is that
if the defendant is retried on that count he will be placed in double
jeopardy. Since the order is interlocutory and the defendant has not yet
been placed in jeopardy thereunder, the issue is not currently
appealable and the pending appeal as to Count 1 must accordingly be
dismissed. Lewis v.
United States
, 216
U. S.
611;
United States
v. Swidler, 3 Cir., 207 Fed. (2d) 47 [53-2 USTC ¶9588], cert.
denied 346
U. S.
915. Cf. Berman v.
United States
, 302
U. S.
211.
Affirmed
on Counts 2, 3, and 4. Appeal dismissed on Count 1.
Net
Worth and Expenditure Statement
BRYAN
E. FORD
71 Gregory Hill Rd.
Rochester
, N. Y.
1
Copy of Exhibit 80 will be appended to this opinion.
2
In this April explanation, the defendant claimed that he kept this sum
in an envelope in the Police Benevolent Association safe until 1944,
that he thereafter kept it at home until he deposited it in 1946 or
1947. Arthur J. Doyle, Treasurer of the Association, testified at the
trial that he turned over to the defendant on
March 1, 19
38 a thin envelope from the safe. Mrs. Ford, also at the trial,
testified on direct examination that this envelope was an inch thick and
was placed in the defendant's dresser drawer.
3
The following is an except from the testimony of Special Agent Nunn as
to the July 1952 interview with the defendant.
"I
told him during the year 1944 he had deposited $10,688.89. In that same
year his salary was $2825.00. I asked him where the money came from, he
said 'That was savings, also savings we had accumulated over a period of
30 years.' I told him in the year 1947 he deposited $17,198.50, and that
during the same year his salary was $3073.38. He said 'Same procedure.'
I told him in 1947 he deposited $18,734.00 and his salary was $3149.96.
His answer was 'Same procedure.' Then I told him in each of the years,
1947 through 1951, 'Your deposits are greatly in excess of your salary.'
He said 'My answer is the same for those years.' Then I told him that he
had told us he had not received any other income in addition to his
salary and the money from his brother. His answer was 'That is right.' I
asked him 'Could you please explain how you accumulate this amount of
money?' His answer was 'I can only tell you through savings.'"
The
information included in this testimony had previously been reduced to
writing in a signed statement by the defendant.
4
The following is an excerpt from the cross-examination of Irma Ford, the
defendant's wife, at the trial.
"Q.
Now, did you manage to live wholly on Mr. Ford's salary? A. I tried to.
*
* *
"Q.
All during the time he was employed on the Police Department? A. I tried
to.
Q.
Were you able to? A. Yes.
Q.
Did you live, in fact, under his salary? A. No.
Q.
You spent from his salary just about the amount that he earned? A. That
is right.
Q.
You were not able to save anything from his salary? A. No."
5
The corroborative sufficiency of this type of evidence was approved by
the Supreme Court in Holland v. United States, 348 U. S. 121
[54-2 USTC ¶9714], 132-6; in Friedberg v. United States, 348 U.
S. 142, 143-5 [54-2 USTC ¶9713]; and in Smith v. United States,
348 U. S. 147, 157-8 [54-2 USTC ¶9715].
6
With regard to similar evidence in United States v. Calderon, 348
U. S.
160, 167 [54-2 USTC ¶9712], the Supreme Court stated, "There could
hardly be more conclusive independent evidence of the crime."
7
Proof of fabrication of an alibi is itself some affirmative evidence of
guilt.
United States
v. Simone, 2 Cir., 205 Fed. (2d) 480, 482-3; 3 Wigmore on
Evidence §§ 278, 279 (3rd Ed. 1940). Of course, standing alone, such
evidence would not be sufficient to support a conviction. But when
coupled with extensive affirmative proof of tax evasion under the net
worth method, it may suffice.
United States
v. Adonis, 3 Cir., 221 Fed. (2d) 717 [55-1 USTC ¶9310].
8
Cf. Rossi v.
United States
, 289
U. S.
89.
9
We do not overlook the fact that the Judge charged that, to convict, the
jury must find that the defendant actually received graft. In this
respect, we think the charge was too favorable to the defendant. It
overlooked the availability of inferences based on other independent
evidence.
10
Bateman v.
United States
, 9 Cir., 212 Fed. (2d) 61, 66, 68 [54-1 USTC ¶9341]; Hanson v.
United States, 8 Cir., 186 Fed. (2d) 61, 66 [51-1 USTC ¶9118]; Lisansky
v. United States, 4 Cir., 31 Fed. (2d) 846, 851 [1929 CCH D-9277].
Cf. Johnson v.
United States
, 318
U. S.
189 [43-1 USTC ¶9288].
[Dissenting
Opinion]
FRANK,
Circuit Judge (dissenting):
Holland
v. U. S., 348 U. S. 121 [54-2 USTC ¶9714], and its companion
decisions warn us that the net-worth method is a dangerous instrument,
to be used with caution, lest it may have the effect of
unconstitutionally putting on an accused the burden of proving his
innocence. 1
Because of that warning, I have such doubts about affirming this
conviction that I feel constrained to dissent.
[Jury
Charge]
The
trial judge, in the plainest terms, told the jury that it could not find
defendant guilty, unless it found (1) that he had a "probable
source of income" (other than his salary or interest on his bank
account and bonds) and (2) that this probable source was graft. His
charge, in this respect, reads: "To justify the use by the
Government of this net-worth-expenditure method you must be satisfied on
all the evidence in the case that the defendant has a probable source of
income other than his salary and the interest on his bank accounts and
the bond interest. You must be satisfied that the probable source of his
income was in some way connected with his duties as head of the Vice
Squad, with receiving money or things of value either in exchange for
services rendered to people whom he came in contact with as an officer
of the Vice Squad, or exchange for forbearing to do something he was
supposed to do as an officer of the Vice Squad."
According,
then, to the theory on which the case went to the jury, probable graft
was an essential element of the government's case; and Holland v. U.
S. teaches that every essential element must be proved beyond a
reasonable doubt. Of course, such proof of any essential may be by
circumstantial ("indirect") evidence. But I think that here
the circumstantial evidence of probable graft--which Judge Hincks
significantly calls proof of "the possibility of graft"--was
much too meager to justify a jury finding of the existence of that
element. For look at that evidence as Judge Hincks describes it:
(a)
When defendant was on the vice squad, there was wide open illegal
gambling.
(b)
While on this squad, in 1948 defendant was told, by another policeman,
of the sale of policy slips by one Passorelli, but "no action was
taken" until two other officers, learning of this fact, made an
arrest.
(c)
The number of prosecutions for gambling increased when other policemen
were assigned to the vice squad.
(d)
Defendant was on "friendly terms" with O'Brien, a professional
gambler; defendant and his wife patronized O'Brien's restaurant; twice,
they visited at O'Brien's house and once at O'Brien's summer cottage.
After defendant had left the police force, O'Brien phoned defendant two
or three times to ask whether defendant was going back on the force.
(Another
policeman, Irish, testified that while on the vice squad he (Irish) had
"been offered bribes" several times. But this item of evidence
was stricken.)
[Believes
Evidence Insufficient]
I
think a jury could not reasonably infer from this evidence that
defendant had probably received graft. Observe that defendant was but a
subordinate of the Chief of Police. Even assuming that defendant allowed
too much gambling to go on unmolested when he was on the squad, it may
well be that he did so under orders from the Chief; judicial notice
informs us that experience in many cities shows the great likelihood of
such a situation. The statistics as to the number of arrests are
misleading: Winfield, the government witness who supplied these figures,
testified that one single raid accounted for a very large number of
arrests; that in a single raid in 1950 about 100 persons were arrested
and that the figures did not show the number of raids as distinguished
from the number of arrests.
The
"Texas Ford case," Ford v. U. S., 210 Fed. (2d) 313,
318 (C. A. 5) [54-1 USTC ¶9233]--cited by Judge Hincks in another
connection--was a pre-Holland decision. The defendant was Chief
of Police. On its face, the court's opinion might seem to support Judge
Hincks as to the proof of probable graft. But, in the instant case, the
government in its brief itself says of that case: "While it does
not appear in the court's opinion, the record in that case discloses
that the defendant there had received gifts of clothing from the
operators of some of the gambling establishments." 2
In the case at bar, there is not a syllable of such evidence.
It
is this circuit's doctrine that, in a criminal case, there is no
difference, when it comes to granting a judgment of acquittal, between a
"preponderance" and "beyond a reasonable doubt,"
that the difference is for the jury only. I have recently said why I
disagree with that doctrine.
U. S.
v. Masiello, -- Fed. (2d) -- (C. A. 2,
July 18, 19
56). But in the instant case, I think the difference unimportant because
I think that, if probable grafting was an indispensable element of the
government's case, the government's proof of that fact was so flimsy
that it did not approach anything remotely like a preponderance.
[Criticism
of Majority View]
As
I read Judge Hincks' opinion, he is not willing to hold that, if graft
were an essential element, the evidence on that issue would be
sufficient. For otherwise he would surely have simplified his opinion by
affirming on the quite simple theory presented by the judge to the jury
(which Judge Hincks mentions only in passing and then in a footnote).
Judge Hincks sedulously avoids affirmance on that ground. Instead, he
elaborately, over several pages, works out a different theory which is
as follows:
(1)
There was no need whatever here for the government to prove a
"likely source," because the evidence was entirely adequate to
support a finding that defendant had unreported receipts during the
indictment years which must have derived from "some source" or
other, without specifying any.
(2)
Consequently, the government made a case for the jury without the
evidence of probably graft, i.e., the jury could reasonably have found
defendant guilty if no evidence of probable graft had been received.
(3)
However, evidence of "possibility of graft" was properly
received as "corroborative" of the evidence that the
unreported taxable income derived from some unidentified source or
other, corroborative in the sense that it added what was not essential,
i.e., proof of a particular likely source.
I
shall, for the moment, assume that Judge Hincks correctly says that no
proof of a "likely source" was needed here, that it sufficed
to prove "some source" without proof of any particular
probable source. 3
If so, the evidence of possible grafting was admissible only if it
tended to show (although unnecessarily) a particular likely source. But,
as noted above, that evidence was so exceedingly slim that it could not
tend to prove that fact.
Therefore,
the reception of that evidence should have led to a mistrial or, at the
very least, that evidence should have been stricken from the record. For
it was most prejudicial since, on the basis of that flimsy evidence, a
jury of
Rochester
citizens were allowed to hear arguments by the prosecutor that the
accused had been a grafting
Rochester
policeman, and the judge's charge heavily underscored the importance of
that evidence.
Judge
Hincks attempts to get rid of this error by relegating to a footnote
that part of the trial judge's charge which made probable graft a
central issue, and by then saying in that footnote that that charge
"was too favorable to the defendant." Surely the phrase
"too favorable" is a quaint way of characterizing a charge
centering on prejudicial evidence that should not have been in the case.
Had the case gone to the jury without the evidence concerning graft and
under a charge contrived in accord with Judge Hincks' theory, the jury
might or might not have found defendant guilty. But I think we cannot
properly affirm a conviction resulting from a conjectural verdict based
on an imaginary charge with reference to an imaginary record, i.e., a
record not containing the prejudicial evidence about graft. Judge Hincks
seems to regard this error as "harmless," for he apparently
seeks to exorcise it by stating that we must look to "the totality
of proofs," their "overwhelming substantiality," and must
avoid "irrelevant abstractions." I think the markedly
prejudicial error in the reception of the graft evidence, emphasized by
the judge's charge, is no "irrelevant abstraction." It is the
very kind of error which could easily account for the verdict. Kotteakos
v. U. S., 328
U. S.
750, admonishes us that such an error is not "harmless," that
we may not affirm a conviction merely because, reading a cold record, we
believe the defendant would have been convicted if the error had not
occurred.
Moreover,
I gravely doubt the validity of a basic postulate of Judge Hincks'
theory. That is, I question whether Holland v. U. S., 348
U. S.
121 [54-2 USTC ¶9714], ever permits a conviction in a net-worth case
without proof of a "likely source," which (to quote Judge
Hincks) "the defendant had actually drawn upon." Cf.
U. S.
v. Costello, 221 Fed. (2d) 668, 670-671 (C. A. 2) [55-1 USTC ¶9342]
True, in Holland, the Supreme Court said (137-138) that proof of
such a source is "sufficient"; and one can argue that there is
a difference between what is an essential and what is
"sufficient."
But
in
Holland
, the Court (at p. 137) carefully pointed out that there was a
"likely source" in the income from the hotel. In discussing
(at p. 138) U. S. v. Johnson, 319
U. S.
503 [43-1 USTC ¶9288], the Court said that there "the taxpayer was
the owner of an undisclosed business capable of producing taxable
income," and that in
Holland
there was such a "disclosed business" (i.e., the hotel). Also
(at p. 126) the Court said: "In each of the four cases decided
today the allegedly unreported income comes from the same disclosed
sources as produced the taxpayer's reported income * * *"
[Interpretation
of Authority Questioned]
Judge
Hincks, I think, misinterprets Smith v. U. S., 348
U. S.
147 [54-2 USTC ¶9715]. I think it makes clear (1) that proof of a
"likely source" is necessary and (2) that even a defendant's
affirmative admissions, during a pre-indictment investigation, must be
corroborated. In the Smith case, the evidence showed the
following: The year before the indictment years, defendant had acquired
a racing-news service, described by the Court as "a business
producing unrecorded amounts of income." (See 348
U. S.
at 149, 159.) In the course of a preindictment investigation, defendant
had made a written statement affirmatively admitting what he called his
"true net worth." The government relied, in large part, on
this written admission. The Court said that, "whether we consider
the statement an admission of one of the formal 'elements' of the crime
or of a fact subsidiary to the proof of these 'elements,'" it was
"crucial" to, "an element vital to," the
government's case. As the admission was made after the commission of the
alleged crime, the Court held it required corroboration because, though
not "involuntary," still "its reliability" was
"suspect," since it was "extracted from one * * * under
pressure of" an investigation, "whose words may reflect rather
the strain and confusion attending his predicament rather than a clear
reflection of his past." In discussing (pp. 156-157) the
"quantum of corroboration," the Court said, "all elements
of the offense must be established by independent evidence or
corroborated admissions," adding at once, "but one available
mode of corroboration is for the independent evidence to bolster the
confession itself and thereby prove the offense 'through' the statements
of the accused. Under the above standard the Government may provide the
necessary corroboration by introducing substantial evidence, apart from
petitioner's admissions, tending to show the petitioner understated his
taxable income." This entire discussion is, in its context,
concerned exclusively with proof of corroboration of an affirmative
admission. The same is true of the court's subsequent discussion (pp.
158-159). There the Court said, "But substantiating the opening net
worth is just one method of corroborating these extra-judicial
statements," and went on to state that the "admissions may
also be corroborated by an entirely different line of proof--by
independent evidence concerning petitioner's conduct during the
prosecution period, which tends to establish the crime of tax evasion
without resort to the net worth computations." The Court then
summarized the evidence of his conduct "coincident with
petitioner's opening of the racing-news service." This conduct, the
Court concluded, "does corroborate the net worth statement by
tending to show that petitioner was understating his income during the
prosecution years." Here, again, the Court spoke of the necessity,
in one way or another, of corroborating the defendant's admissions, and
again referred to a business which was a "likely source."
However,
let us assume, arguendo, that, in an appropriate case, it is not
essential to prove a "likely source." Even so, I have these
doubts about Judge Hincks' reasoning, which, as I understand it, runs
thus:
For
proof of a likely source, the government could substitute evidence, in
the form of statements emanating from the defendant, which negated the
possible existence of enough non-taxable sources to account for the
apparently unreported taxable income. This substituted essential element
of the government's case was not proved by defendant's testimony, since
he did not take the stand. It was, says Judge Hincks, sufficiently
proved by evidence of defendant's lies during the course of the
pre-indictment investigation.
[Proof
of Source of Income]
If,
then, I understand Judge Hincks, these out-of-court lies became an
essential part of the government's case. Judge Hincks' reasoning
therefore disturbs me: Assuming arguendo, that proof of a likely
source was not necessary, then, if defendant, out of court, had made affirmative
admissions of facts tending to show unreported taxable income (or
lack of a sufficient "cash hoard" or the like), such
admissions, if corroborated, would have sufficed. But defendant's
out-of-court statements were, at most, lies, by way of denying such
affirmative facts. Do such negative statements measure up to
admissions? To put it differently, assuming again that proof of a likely
source was not needed, do these negative statements (falsehoods)
suffice, even if corroborated, to support the verdict?
I
think not. As above noted, the Smith case calls for corroboration
of even an affirmative admission. The reason for such a requirement is
also stated, in Holland, 348 U. S. 121 at 128-129 [54-2 USTC ¶9714],
where the Court observed that, in the course of a pre-indictment
investigation, the taxpayer "may be more concerned with a quick
settlement than an honest search for truth," and said, "The
problem of corroboration, dealt with in the companion case of Smith
v. U. S., post 147, and U. S. v. Calderon, post 160,
therefore becomes crucial." Note, then that (as in Smith) in
U. S. v. Calderon (348
U. S.
at 164) the defendant had made pre-indictment affirmative admissions,
and that (pp. 165 ff.) there was evidence corroborating these
admissions.
To
be sure, if there were enough independent evidence, aside from
pre-indictment lies (negative statements), then, of course, evidence of
those lies would be admissible as cumulative evidence. Like flight, or a
false alibi, or spoliation of documents, such lies are proof of a guilty
mind. But, absent independent evidence otherwise sufficient to prove
facts essential to a verdict of guilt, I doubt whether evidence of lies,
flight, false alibis or spoliation will support such a verdict,
especially in a net-worth case. The reason for not accepting such
evidence as proof of an essential element was stated by Judge Shaw in Comm.
v. Webster, 5 Cush. 295, 316: An "innocent man, when placed in
a condition of suspicion and danger, may resort to deception." See
also, Ayala v. U. S., 268 Fed. 296, 300 (C. A. 1); Vick v.
U. S.
, 216 Fed. (2d) 228, 232 (C. A. 5).
Judge
Hincks apparently disagrees with what I said in the preceding paragraph.
He cites, inter alia,
Holland
v.
U. S.
, 348
U. S.
121 [54-2 USTC ¶9714]; Friedberg v. U. S., 348
U. S.
142 [54-2 USTC ¶9713], and U. S. v. Calderon, 348
U. S.
160, 167 [54-2 USTC ¶9712]. I think my discussion of
Holland
and Smith, supra, shows that they do not bear him out. I see
nothing on the subject in Friedberg: there the defendant took the
stand and "vacillated" in his testimony (see 248
U. S.
at 143). Speaking of the defendant's "false and misleading
extra-judicial statements," Judge Hincks surprisingly remarks that
the Supreme Court, "with regard to similar evidence," stated
in U. S. v. Calderon, 348 U. S. 160, 167 [54-2 USTC ¶9712],
"There could hardly be more conclusive independent evidence of the
crime." Judge Hincks has overlooked the fact that this statement of
the Supreme Court refers to "respondent's testimony at the
trial" conflicting with his "testimony at a former
trial." 4
[Authorities
Distinguished]
Judge
Hincks also cites several circuit court cases. All but one (i.e., U.
S. v. Adonis, 221 Fed. (2d) 717 [55-1 USTC ¶9712]) are (1)
unrelated to a net-worth problem and/or (2) ante-date the Supreme Court
decision in Holland and its companion decisions:
(a)
Sasser v.
U. S.
, 208 Fed. (2d) 535 (C. A. 5) [54-1 USTC ¶9118] was pre-Holland.
Moreover, the evidence of the out-of-court lies was but one among
several factors enumerated by the court, and not a factor essential to
support the verdict.
(b)
Gariepy v. U. S., 189 Fed. (2d) 459, 463 (C. A. 6) [51-1 USTC ¶9318]
was pre-Holland. Moreover, the court said the defendant had made
affirmative "admissions"; the court also said they were
"admissible" because they "reinforced permissible
inferences from evidence at the trial."
(c)
U. S.
v. Simone, 205 Fed. (2d) 480, 482 (C. A. 2) was not a net-worth
case; also, it was pre-Holland. It relied on Smolin, 182
Fed. (2d) 782, 786 "and cases there cited." So turn to Smolin,
182 Fed. (2d) 782, 786 (C. A. 2). It, too, was not a net-worth case, and
was pre-Holland. It cited and relied on Tucker v. U. S.,
151
U. S.
164. But in Tucker the defendant testified at the trial, and the
Supreme Court said that his out-of-court statement was used to
"contradict his testimony upon the stand."
The
one post-Holland net-worth case which seems to support Judge
Hincks is U. S. v. Adonis, 221 Fed. (2d) 717 (C. A. 3) [55-1 USTC
¶9712]. If it does, I think it wrong. See McCormick, Evidence (1954)
538-539. See also Morgan, 59 Harvard L. Rev. (1946) 480 at 557 to the
effect that the "greater number of cases hold that spoliation does
not amount" to "evidence of necessary facts not otherwise
appearing in the case"; and see Maguire and Vincent, Admissions
from Spoliation or Related Conduct, 45 Yale L. J. (1935) 227.
So
I think, that, even on Judge Hincks' theory, the judge should have
granted defendant's motion for a judgment of acquittal at the close of
the government's evidence. Defendant, however, did not stand on the
denial of this motion, but introduced evidence in his defense. If this
evidence had contained anything affirmative which supplied the missing
essential of the government's case, the jury's verdict would have been
proper, on Judge Hincks' theory. But there was no such evidence
introduced by the defense. The testimony of Mrs. Ford, a witness for the
defense, did not do the trick. To be sure, the jury may well have
believed that she lied. However, as she was but a witness, not a
defendant, her lies constituted a negative only. They cannot, I think,
supply affirmative proof, for the government, of a missing essential.
Even if a civil case in most jurisdictions, "disbelief of testimony
is not the equivalent of proof of facts contrary to that
testimony"; Boice-Perrine Co. v. Kelley, 243 Mass. 327, 137
N. E. 731, 733; Zarillo v. Stone, 317 Mass. 510, 58 N. E. (2d)
848, 849 (Mass.); Cruzan v. N. Y., N. H. & H. Rr. Co., 227
Mass. 594, 116 N. E. 879, 880; Pariso v. Towse, 45 Fed. (2d) 962,
964 (C. A. 2). Consequently, although the defense put in evidence, that
evidence did not strengthen the government's case. Wherefore, even in
Judge Hincks' theory, we should reverse. 5
1
See
Holland
v.
U. S.
, 348
U. S.
at 128.
2
See also Davena v. U. S., 198 F. 2d 230, 231 (C. A. 9).
3
At one point, Judge Hincks says no "direct proof" of a
particular likely source was necessary. If he means that
"indirect" or circumstantial evidence of a particular likely
source would do, I agree. But there was lacking any but the flimsiest
"indirect" evidence on that score.
4 The complete passage reads as follows: "Even more
conclusive corroboration, however, is respondent's testimony at the
trial that he had $16,000 or $17,000 cash on hand at the starting point.
This conflicted with the statements being corroborated ($500) and
respondent's testimony at a prior trial ($2,000 to $9,000), but for the
purpose of independently establishing the crime charged the jury could
accept this testimony. Respondent further testified that he had $3,000
or $4,000 in cash at the end of the prosecution period. Taken together
with the remainder of the net worth statement, which was stipulated or
independently established, this testimony establishes a deficiency in
reported income of more than $30,000. There could hardly be more
conclusive independent evidence of the crime."
5
See Criminal Rule 29.
[56-2 USTC ¶10,055]Bill Corbett,
Appellant v.
United States of America
, Appellee
(CA-9),
U. S. Court of Appeals, 9th Circuit, No. 14,801, 238 F2d 557, 11/14/56,
Affirming an unreported District Court decision
[1939 Code Sec. 145(b)--corresponding to 1954 Code Secs. 7201 and 7202]
Crimes: Bank records and net worth increases: Jury trial: Expert
witness.--The court sustained the conviction of taxpayer, a hotel
operator, on an indictment which charged violations of 1939 Code Sec.
145(b) for wilful evasion of income tax. Taxpayer improperly contended
the allowance of testimony of summaries invaded the province of the jury
and that they were incorrect, since there was a careful compilation in
court of the foundation material before reception of a summarization by
the accountant. Also, taxpayer improperly claimed error in that the
witness testified to the contents of bank records which were not in
evidence. The use in the computation of bank deposit slips which had
been destroyed before trial was proper, because secondary evidence of
its contents could be admitted.
Little,
LeSourd, Palmer, Scott & Slemmons, F. A. LeSourd, Brockman Adams,
Seattle
,
Wash.
, for appellant. Charles P. Moriarty, United States Attorney, John S.
Obenour, Assistant United States Attorney, Tacoma, Wash, for appellee.
Before ORR and
CHAMBERS, Circuit Judges, and TOLIN, District Judge.
TOLIN,
District Judge:
After trial in
the District Court defendant was convicted of Counts One and Two of a
four-count Indictment which charged four separate violations of Title
26, U. S. C., Sec. 145(b) [wilful evasion of income tax]. The District
Court dismissed Count Four, and the jury acquitted defendant of Count
Three.
Among the
grounds urged for reversal is the familiar one that the Court erred in
denying defendant's motion for judgment of acquittal. The basis for the
motion was insufficiency of the evidence. In asserting this ground,
appellant urges a different view of his earnings than he related before
indictment to prospective purchasers of his business. They, in turn, as
witnesses, recalled defendant's narrative of current affluence during
the indictment period.
Defendant's
income during the years here in question 1
was derived principally from his operation of the Claremont Hotel in
Seattle, Washington. Dewey Metzdorf, a prospective purchaser of the
Claremont
, testified that appellant had told him during 1946 that the hotel was
netting $86,000.00 per year. Appellant reported on his tax return for
1945 (filed in 1946) that his net income for that year was $10,021.48,
and for 1946 he reported $8,274.44. On another occasion appellant told a
business visitor to the hotel of a technique relating to late night
hotel rentals whereby, "I rent the rooms or my boy rents the rooms
and we never make any accounting for tax purposes--it does amount to
considerable."
The
prosecution theory as to all counts was that the sum total of a large
number of irregular practices in handling the finances of the hotel
resulted in an understatement of income on the books of the hotel and
that defendant knowingly and wilfully used the understatement as a
correct one for tax purposes. The Government contended the true net
income in 1945 had been $23,359.07 and the 1946 net income was actually
$26,759.01. Summarizations of the evidence of income supported
appellee's contention as to these amounts. Appellant's employees
testified that it was their custom, at the oral direction of appellant,
to enter records of allowances on the guests' accounts, whereas such
allowances had not in fact been given the guests. In addition to a
system of original false entry of such allowances on the books, there
was testimony by employees that many records of the hotel were changed
to convert original book entries showing payments of room rentals into
entries showing allowances or credits to guests. These book alterations
were made by use of erasures and ink eradicator, with new figures
written in by, or at, the direction of appellant. By this method, that
which originally had been recorded as "income" was changed to
appear as "outgo". The testimony of the several witnesses to
this method of falsely creating records of allowances or credits
supports the Government's claim that the recorded income of the
Claremont
was reduced $14,595.00 in 1945, and $17,542.00 in 1946. Expert
examination of the records, by use of a fuming process which partially
restored and made visible the original entries, corroborated the
employees' testimony of extensive entry alterations. One of the
employees who assisted appellant in his changing of records testified
extensively to what had been done, and further testified that appellant
told her she was as guilty as he. In addition to large scale use of this
system, many payments of room rentals went directly to appellant without
having any book record made of the receipt of the money. Two clerks and
a bookkeeper testified to operation of these systems.
Appellant
claimed that the entires of "allowances" to guests correctly
reflected the frequent granting of brief free rent as a good will
gesture to a permanent guest or a courtesy to persons whose residence in
the hotel would enhance its prestige.
Opposed to
this exculpatory testimony of appellant was the testimony of many guests
as to whom the records showed "allowances" but who testified
that, on the contrary, there were no allowances in their cases but the
accounts were paid in full.
Employees of
appellant who testified that they had followed his instructions in such
manipulations, segregated large numbers of the hotel records which they
asserted were of this false character.
A night clerk
also testified to withholding from any record whatever, those lodgings
rented during late night hours. The monies collected from this class of
rental were handed to appellant each day in an envelope. The same clerk
testified to similar handling of rentals collected from servicemen who
patronized a one-dollar per cot service for the use of sleeping
facilities on the hotel mezzanine.
This testimony
attributed considerable additional income to defendant. The exact amount
is uncertain because the employee witness stated it by estimates. By any
of the methods used by him to compute this sum, a substantial unreported
income was related. Either the improper allowance method, or the failure
to report night rentals would in itself establish an income higher than
that reported.
[Summaries
Admissible]
During the
giving of testimony by Government agents in which written computations
and summaries were used, there were frequent defense objections to the
use of summaries, and the District Court as frequently pointed out to
the jury that the agents' testimony in this field was not the primary
evidence but a summary of other evidence.
In its very
complete and readily understandable instructions, the Court referred to
the agents' summaries in this way:
"There
have been admitted in evidence certain exhibits, variously referred to
here as schedules or summaries. Strictly speaking these exhibits are not
received as evidence themselves, but are admitted as a summary of the
evidence admitted in the case and the summaries are admitted only for
your assistance and convenience in considering the other evidence which
they purport to summarize. Exhibits of this nature are permitted where
they are based upon voluminous books, records or documents, but you are
reminded that it is the books, records and documents which are the
evidence and the summaries are admitted only to assist you in
considering the evidence, and for that purpose you are entitled to
consider them."
Despite this
formal instruction in the charge and appropriate cautionary comment by
the Court while the summary evidence was being received, it was
emphatically urged on this appeal that the allowance of testimony of
summaries invaded the province of the jury. It is also claimed that the
summaries are incorrect.
Computation
and summaries by expert accountants has long been allowed for the use of
juries in this type of case. 2
It was specifically approved by the Supreme Court in United States v.
Johnson, 319 U. S. 503, 63 S. Ct. 1233, 87 L. Ed. 1546 [43-1 USTC ¶9470].
Among safeguards which must be applied are procedural methods which
bring before the jury the basic evidence which is summarized; also that
broad scope of cross-examination be permitted in order that the accuracy
of the account's summary may be tested. It must be made clear to the
jury that such testimony and charts are but summaries of other evidence
and that the jury should examine the basis upon which summarization
rests, for it is not primary evidence at all but, instead, a gathering
together and accounting classification of primary evidence.
In United
States v. Johnson, 319
U. S.
503 [43-1 USTC ¶9470], the Supreme Court, in upholding this type of
evidence, said:
"* * * No
issue was withdrawn from the jury. The correctness or credibility of no
materials underlying the expert's answers was even remotely foreclosed
by the expert's testimony or withdrawn from proper independent
determination by the jury. The judge's charge was so clear and correct
that no objection was made, though, of course, there were exceptions to
the refusal to grant the usual requests for charges that were either
redundant or unduly particularized items of testimony. * * *"
That
language applies equally well to this case. The argument to this Court
that the summaries were incorrect or were not supported by evidence,
asks this Court to reassess what was, and always is, the jury's duty to
examine and reject or accept. The record in this case shows a careful
compilation in court of the foundation material before reception of a
summarization by the accountant.
[Evidence of Destroyed Bank Deposit Slips]
Among the
summaries was one by which the Government sought to trace some of the
amounts of money from defendant's original records into deposits of
equivalent amounts in his bank account. The investigating agent
testified in part from an examination of bank deposit slips but all of
the deposit slips relating to Count One were not in the mass of
documentary evidence because a destruction of old records procedure had
been employed by the bank in the usual course of disposition of old
records. 3
The checking of bank deposits equal in amount to funds made available by
the false hotel income recording system was also an enumeration of the
details of false entries and alteration of the hotel records which were
in evidence. Appellant overlooks this dual function of the expert
witness testimony and claims error in that the witness testified to the
content of bank records which were not in evidence. In actuality, this
was a small portion of a considerably larger analysis. It related to no
more than a small amount of a total which would have been impressive
without this disputed item. However, the use in the computation of bank
deposit slips which had been destroyed before trial, was not improper.
It has long been recognized that when a record has been destroyed,
secondary evidence of its contents may be admitted. 4
That is what occurred in this case.
Examination of
the entire record convinces this Court that all required safeguards were
applied in the reception of the expert summary testimony and that the
basic evidence had been elaborately computed and accurately summarized.
The judgment
should be, and is hereby, affirmed.
1
Count One, 1945; Count Two, 1946.
2
Barcott v.
United States
, 169 Fed. (2d) 929 [48-2 USTC ¶9377]; Gendelman v. United
States, 191 Fed. (2d) 993 [51-2 USTC ¶9474]; Remmer v. United
States, 205 Fed. (2d) 277 [53-1 USTC ¶9421].
3
This was true as to Count One only. The deposit slips as to Count Two
were complete.
4
Goldsmith v.
United States
, 42 F. 2d 133; Callanan v.
United States
, 223 F. 2d 171; United States v. Phelan, 252 Fed. 891;
United States
v. White, 223 F. 2d 674; Wigmore, 3rd Edition, Sec. 1192.
[56-2 USTC ¶9936]Milton H. Olender,
Appellant v.
United States of America
, Appellee
(CA-9),
U. S. Court of Appeals, 9th Circuit, No. 14,916, 237 F2d 859, 9/24/56,
Aff'g unreported DC
[1939 Code Sec. 145(b)--substantially unchanged in 1954 Code Sec. 7202]
Crimes: Willful evasion of income taxes: Net worth method: Admission
of testimony.--The Government used the net worth method to
reconstruct income for the taxable years 1945 and 1946. Conviction for
tax evasion was affirmed on the grounds that the Government's evidence
established with "reasonable certainty" the taxpayer's net
worth as of
December 31, 19
44
and that whatever evidence there was on the point was for the
determination of the jury. Since the Government's figure was not
completely corroborated, the jury was properly instructed to consider
only the taxpayer's statements under oath as to the amount of cash in
his safe deposit box. Furthermore, the admission of the testimony of a
witness was not error where his testimony that clothing was sold and
shipped to the taxpayer was based on shipping records made
simultaneously with the sale and shipment in the regular course of
business.
Leo R.
Friedman,
San Francisco
,
Calif.
, for appellant. Lloyd H. Burke, United States Attorney, John Lockley,
Assistant United States Attorney, San Francisco, Calif., for appellee.
Before: HEALY,
CHAMBERS and BARNES, Circuit Judges.
BARNES,
Circuit Judge:
This is a
criminal prosecution for income tax evasion. Appellant was convicted on
four counts charging him with wilfully attempting to defeat and evade
federal income taxes by filing false and fraudulent returns. Counts 1
and 3 had reference to his own 1945 and 1946 income tax returns; counts
2 and 4 to his wife's 1945 and 1946 income tax returns, which he
prepared.
[Net
Worth Method]
The government
relied on the "net worth method" of establishing guilt. This
required the government to show "with reasonable certainty"
the opening net worth of appellant as of
December 31, 19
44, his net worth as of
December 31, 19
45, and his closing net worth as of
December 31, 19
46, Holland v. United States, 348 U. S. 121 [54-2 USTC ¶9714],
and that appellant and his wife realized taxable income which they
failed to report. According to the government's computations, appellant
and his wife should have reported net taxable income of $87,999.24 in
1945, and $43,212.00 in 1946. Appellant had returned $41,067.61 in 1945,
and $23,514.62 in 1946. The figures included the income of both the
husband and the wife, who reported their income on a community propety
basis.
The defense
attempted to show that the net worth of appellant and his wife, as of
December 31, 19
44, was higher than that computed by the government, that the increase
in their net worth was less, and that the greater part of this increase
did not represent taxable income because it belonged to someone else, or
was obtained through nontaxable gifts.
Most of the
facts on which the government based its calculations were contained in a
stipulation between the parties and an amendment thereto. There were
1,000 pages of record, and many exhibits.
Appellant
urges the conviction must be reversed because of insufficiency of the
evidence as to net worth, and because the testimony of witness John
Sanchirico was improperly admitted.
Insufficiency
of Evidence
Appellant
specified the evidence was insufficient to establish the offenses
charged in that his net worth at the three critical dates was not
established to a reasonable certainty. This was because:
(a) Appellant
had $70,000 plus, in cash, in a safe deposit box on
December 31, 19
44
, and not $50,000, as the government contended.
(b) The
$20,000 in par value of government bonds in appellant's possession at
the end of both 1945 and 1946 were the property of and had been
purchased by appellant's mother, Mollie Olender, and were not his
property, as the government contended.
(c) Appellant
had $20,550 in merchandise (sailor suits) on hand at the end of 1944,
which were not included by the government as assets.
(d) Appellant
should not have been credited with $7,724 on hand at the end of 1945,
which the government computation included.
In the
previous appeal the decision of this court, Olender v. United States,
210 Fed. (2d) 295 [54-1 USTC ¶9254], emphasized that there was a
decided conflict in the evidence, and "since the defense case
rested primarily upon the testimony of appellant, it was his credibility
which was principally at issue." The same may be said of the second
trial.
A reading of
the transcript quickly indicates that the methods used by appellant to
keep track of his financial affairs, did little to inspire confidence in
either his integrity or his truthfulness. Appellant was no untutored son
of the soil. He was a university graduate with a bachelor of science
degree, "with honors", in economics. He had studied principles
of accounting, statistics, money and banking, cost accounting,
corporation finance, business organization and
admin
istration, factors in industrial efficiency, and other comparable
subjects. He was sufficiently well versed in income tax procedure to
make out income tax returns for himself, his wife, his mother, and his
friends. His memory of business transactions involving many thousands of
dollars was, to put it charitably, not good.
Mr. Ringo, a
certified public accountant hired by appellant, attempted to prepare a
net worth statement for his client but ran into numerous difficulties.
When one set of figures furnished by appellant had been worked out, some
new expenditure would come to light, and throw the proposed statement
"out of balance." As an example, Ringo, after coming to
preliminary conclusions, discovered records showing appellant's
purchase, theretofore undisclosed to the accountant, of a single
premium, fully paid, life insurance policy costing $15,833.46, in 1945.
It was then that appellant, for the first time, told his accountant
about $10,500 in cash moneys his mother allegedly had given him.
Appellant suggested to his accountant that no mention be made of a
$5,000 investment in Asturia Export Corporation, made in 1944, because
it was then worthless; that Ringo should "leave this out." His
accountant explained this could not be done, because its then
worthlessness bore no relationship to the net worth issue upon which the
government's case was based.
On many other
factual matters the appellant could not be considered a convincing
witness. He could give no estimate of what his living expenses were in
1945; had no record of such expenses; no idea of what food cost for
three people in 1945; no idea nor estimate as to such matters in 1946.
He also testified that in 1945 he received $2,500 or $3,000 from his
wife's mother, Mrs. Foote, although she had been on old age assistance
for seven years.
Appellant
claimed he lived frugally in 1945. The stipulated personal expenses
deductible, i.e., the appellant's cost of living for himself, his wife
and daughter for that year, was $2,739.38. This was some $230 less than
the deduction he claimed that year for donations to charity.
Before trial
appellant supplied certain information to his accountant, Ringo,
explaining the extent of cash moneys kept by him in his safe deposit
box. These were appellant's estimates only. These estimates showed
(United States Exhibit 19) $50,000 on hand on
December 31, 19
44; $7,000 on hand on
December 31, 19
45; and zero on hand on
December 31, 19
46. But these estimates were not haphazardly arrived at:
"Q.
Did you go over that net worth statement with Mr. Olender after it was
prepared?
"A.
(By Mr. Ringo) Very much so, yes."
At the trial
appellant claimed he had over $70,000 in cash on hand in his safe
deposit box on
December 31, 19
44. There is corroboration that in May of 1944 appellant did have
$70,000 or $71,000 cash in his box. This corroborated evidence raised
the preliminary question of the worth of United States Exhibit 10--the
final product of appellant's accountant's efforts to establish valid net
worth statements--and the subsequent question as to whether or not the
government's evidence had been corroborated.
Appellant
remembered with certainty that he had in the box in cash in the
beginning of 1945, "over $70,000." At the end of 1945 he could
approximate no figure. It was more than $5.00. But he had no positive
recollection. At the beginning of 1946, defendant's answer was the same,
and at the end of 1946, he couldn't approximate it, "it would only
be a guess." "There was some money in there, I don't remember
how much."
In the
original net worth figures prepared by appellant's auditor from
information supplied by the appellant (though only as estimates),
appellant was hard put to explain how he accumulated large sums of cash
he thereafter expended. So that appellant might rebut any inference that
his expenditures in 1945 and 1946 were from unreported taxable income,
appellant submitted to the government, through his auditor, an analysis
of his net worth
January 1, 19
42, to
December 31, 19
47. (Olender's Exhibit 7, attached to his Exhibit 1, which was United
States Exhibit 10 in this trial.) Appellant's Schedule A, attached to
such Exhibit 7 (part of United States Exhibit 10), read as follows:
"MILTON
H. OLENDER,
Gifts
from Mrs. J. Olender--Mother (per Books of Mrs. J. Olender--Information
from M. H. Olender)
"WITHDRAWALS
FROM SAVINGS ACCOUNT IN
FRESNO
:
Date Amount
February 3, 19
42
..... $ 1,000.00
March 31, 19
43 ....... 1,000.00
January 6, 19
44 ...... 2,000.00
July 5, 19
44 ......... 2,500.00
December 15, 19
44 .... 1,000.00
January 2, 19
45 ...... 3,000.00
$10,500.00"
At the first
trial, appellant testified that these moneys were given him by his
mother in cash. At the second trial, the government produced important
testimony bearing on these alleged gifts. United States Exhibits 40
through 48, inclusive, were photostats of the records of the Bank of
America, Fresno Branch. They showed Mollie Olender's savings accounts
No. 3941 and No. 2146 (deposits and withdrawals) and Mollie Olender's
commercial accounts. These records show that Mrs. Mollie Olender:
(1) Withdrew
$1,000 from savings account No. 3941 on
February 3, 19
42, and that she deposited the same in her savings account No. 2146 on
the same day. She withdrew $200 of it from No. 2146 that day.
(2) Withdrew
$1,000 from savings account No. 3941 on
March 31, 19
43, and deposited it to her commercial account.
(3) Withdrew
$2,000 on
January 6, 19
44, from account No. 3941, and deposited it to savings account No. 126
of Terry Olender Gamborg. This had not been withdrawn up to
June 30, 19
52.
(4) Withdrew
$1,000 on
December 15, 19
44, from No. 3941, and deposited it on the same day in her commercial
account. No withdrawals of any similar sums had been made from the
commercial account up to June, 1945.
(5) Withdrew
$3,000 on
January 2, 19
45, from No. 3941 and deposited it to Terence [sic] Olender Gamborg.
(6) Withdrew
$2,500 on
July 5, 19
44, from the First National Bank in
Fresno
. There was no evidence of redeposit of this money, and appellant
testified it was given to him. See "some corroboration" in
defendant's Exhibit Q, although appellant's oral testimony was
unprecise.
Thus, as to
five of the six gifts testified to by appellant under oath, this
documentary evidence proved the falsity of his testimony.
A lack of
certainty or an utter lack of recollection on the part of the taxpayer
cannot tip the scales against the government, for "skillful
concealment cannot be an invincible barrier to proof." United
States v. Johnson, 319
U. S.
503, 517 [43-1 USTC ¶9470].
An inadequate
system of recording income hardly places the taxpayer in a different
class than one who keeps no book at all. "Both are receiving
unrecorded amounts of income." United States v. Calderon,
348
U. S.
160 [54-2 USTC ¶9712]. In the Calderon case, where defendant
relied on a "hoard" in his safe deposit box, a lesser increase
in assets ($48,000 in four years) over and beyond income, plus receipt
of unrecorded amounts of taxable income, was sufficient variance,
compared to reported income, to support an inference of tax evasion. We
think the same inference clearly exists here. That same case (Calderon)
disposes of appellant's claim that each year's figures must be
established to avoid fatal uncertainty. In Calderon, taxpayer's
hoard was alleged to have been $16,000 or $17,000; the government's net
worth computation started with $500.
"But
one problem remains, the $17,000 hoard of cash could have absorbed the
computed income deficiency for one or more of the prosecution years and
respondent was convicted on all four counts. It might be argued that
there must be evidence of a deficiency for each of the years here
in issue. There is no merit in this contention. The evidence need not
comply with the niceties of the annual accounting concept." Calderon
v. United States, 348
U. S.
160, 168 [54-2 USTC ¶9712].
The
$20,000.00 in Bonds
Appellant
relies heavily on his contention that $20,000 of bearer bonds in his
safe deposit box were purchased by him for his mother, with her money.
Appellant had two safe deposit boxes, one in his name; one in the joint
names of himself and his mother. The bonds were kept in the former box.
In 1947, appellant returned as his own property the income from these
bonds. In other years, his mother returned the interest, on returns
prepared by appellant. Appellant testified he kept these bonds in an
envelope at the time of the first trial, with his mother's name on the
envelope. Appellant did not produce the envelope at either trial,
although he had it at the time of the first trial, nor did he know what
happened to it after the first trial, nor whether it had been destroyed,
nor when he had last seen it.
On
August 23, 19
46, appellant wrote in answer to a letter of inquiry from the government
that the $20,000 in bonds were "purchased for the account of my
mother, * * * on written instructions from her, which I have in my
possession." Appellant apparently referred to two letters written
by his mother. The first letter, dated
November 23, 19
45, states:
"If
you do buy the bonds, just put them in our box for safekeeping."
and
the second letter, dated
December 14, 19
55, reads:
"I
have been forgetting to mention those bonds you bought for me last
week." 1
No evidence
was advanced to show any withdrawals from Mrs. Mollie Olender's bank
accounts, with which the $20,000 in cash could have been advanced to
appellant, which was the procedure appellant followed when the
government questioned the $10,500 he claimed in gifts from his mother.
Mollie Olender
died
June 2, 19
51
. Nothing had been done by appellant prior to her death to obtain her
version of this transaction, beyond his retaining the letters above
described.
The federal
estate tax return (United States Exhibit 52) filed
December 15, 19
52, (by appellant's sister, not by appellant) shows that decedent,
Mollie Olender, had purchased over $25,000 par value in government bonds
and had them issued in joint tenancy with her daughter, and over $17,000
par value in government bonds, and had them issued in joint tenancy with
her son, the appellant. The estate tax return further stated:
"The
decedent may have had an interest in $20,000 United States Treasury
Bonds * * * as for the past few years interest of $450 on bonds of this
type was included as income in decedent's income tax returns Decedent's
son was her accountant and prepared her income tax returns."
On
March 30, 19
53, after the first trial, a supplemental inventory was filed by this
appellant, as co-executor, in the estate of Mollie Olender, deceased,
listing the $20,000 in bonds as part of the estate. On
July 13, 19
53, the $20,000 were sold on order of "Estate of Mollie Olender, by
Milton Olender," and the proceeds credited to the estate. Again, on
the issue of his mother's ownership of $20,000 in bonds, there was ample
conflicting evidence from which the trier of fact could come to a
conclusion either way as to whether the appellant had used his mother's
money or his own, to purchase these bonds.