Bank Records and Net Worth Increases
2 Page4
The
Sailor Suit Inventory
Although
appellant claims he should be credited with having purchased $20,550
worth of sailor suits from one Goodman in 1945, he could, in 1947,
remember but one transaction with Goodman, involving $1,380 and had no
recollection of the $20,550 transaction involving the issuance and
transmission of nine cashier's checks. Even after being shown the
checks, and the applications therefor, bearing his signature, appellant
"could not recall the circumstances" under which he had issued
such checks and acquired this merchandise. This merchandise, though kept
in the store and later sold, was never listed as a part of appellant's
inventories, never entered on appellant's books as having been purchased
or sold, and never insured, because it was "worthless" or
"was to be returned" or because "no profit was made on
it." When appellant's own auditor, Mr. Ringo, attempted to
ascertain the facts about this merchandise, Ringo was told to take the
matter up with appellant's lawyer. It was not until after the first
trial of this matter that Mr. Ringo was told by appellant of
"merchandise on hand, not included in inventories."
The
$7,724 Item
Should $7,724
have been included as an asset of appellant at the end of 1945?
According to
one interpretation of the evidence, the $7,724 represented a part of the
$20,550 figure commented upon above. This was the transaction concerning
which, at first, the appellant had no memory. But he testified that
after he had received the suits from Goodman, through Levy, Levy in 1945
sold 200 suits for $5,000 which went into the Army and Navy books as a
capital investment. But, in 1945 when 280 more suits were sold for
$7,000, Levy kept the money. This, Levy gave to Moe Saraga, a dealer in
New York
. Appellant then gave Saraga $24,500 from his "store account".
Saraga could not deliver all the suits wanted, and so returned the
$7,000 plus $725 for 49 suits undelivered from the $24,800 advance,
which amount, less $1 for a bank charge, represents the $7,724 claimed.
Obviously, if
the trier of fact were to credit the appellant with the $20,500 in
sailor suits, it should not again credit the $7,000 representing cash
received through sale of some of those suits. And, whether or not the
$7,724 were included as an asset of appellant at the end of 1945, it
would have increased or reduced the amount of undeclared income, but it
would not have done so appreciably, nor to a degree decisive of the
issues herein.
The foregoing
recital of certain of the evidence is not exhaustive. It is merely to
highlight the reasons why the conclusion of the appellate court, after
the first trial, is equally pertinent after the second trial--that the
credibility of the appellant was the principal issue in the case. We
cannot say that the government did not establish "with reasonable
certainty" appellant's net worth as of
December 31, 19
44. When the government introduced proof of likely taxable sources from
which a jury can reasonably find that the net worth increases sprang, it
need not negative all possible non-taxable sources.
In criminal
prosecutions for federal income tax evasion, evidence corroborative of
defendant's admissions need not prove the offense beyond a reasonable
doubt, or by a preponderance of the evidence, but there must exist
substantial evidence, independent of the alleged admission, that the
offense has been committed, and the evidence as a whole must prove
defendant's guilt beyond a reasonable doubt. Smith v. United States,
348
U. S.
147, 156 [54-2 USTC ¶9715]; United States v. Calderon, 348
U. S.
160 [54-2 USTC ¶9712].
The care with
which the trial judge instructed the jury on this subject is of
importance. Among other instructions the jury received was this:
"In
order to safeguard the defendant, the law requires that these statements
(of defendant) relating to vital links in the government case be
corroborated. In this connection, the $50,000 cash item and $7,000 cash
item, used by the government in Exhibit 50 (i.e., amount of cash in safe
deposit box) cannot be considered by you in determining the opening or
closing net worth, because the government did not corroborate that. You
can use, however, whatever amounts the defendant said he had while he
was on the witness stand here under oath."
We conclude
the jury was properly and carefully instructed, and we will not
interfere with their decision on issues of fact, in view of the
conflicting testimony in this case.
This brings us
to the alleged error in admitting the testimony of John Sanchirico.
It should be
said that much of the criticism of the introduction of this testimony
goes to its weight, and not to its admissiblity. The witness, as
executive vice president of Seagoing Uniform Corporation, was capable of
identifying the records of that business. He had worked with the company
over 25 years, had been active in management of it over 15 years. His
firm had an account with the Army & Navy Store at 1926 Broadway,
Oakland
, the appellant's place of business. Sanchirico did not know appellant,
but did know Goodman, the man to whom defendant sent several thousand of
dollars with which to buy sailor's uniforms. Goodman paid the invoices.
Sanchirico's plan shipped uniforms in accordance with Mr. Goodman's
instructions, to the ultimate consignee. A shipping clerk would
hand-write a shipping memorandum which would indicate how many garments
were involved, and where they were shipped to, name of customer, and the
street number or city. Exhibits 66 to 71 inclusive, all indicated,
according to the witness, shipments of sailor suits to Olender. These
documents were kept by the company and were made simultaneously with the
transaction, in the regular course of business.
The only
objection made to Exhibits 66 to 71 was that they were "not proper
rebuttal." This objection was not well taken; nor, had an objection
been made upon grounds of hearsay, would it have been valid. Part
of each document did not purport to involve the appellant, but part
of each written document did. The objection on grounds of hearsay, not
having been made before the trial court, cannot be urged here as
reversible error. Sekinoff v.
United States
, 283 Fed. 38; Bank of
Italy
v. Romeo & Co., 287 Fed. 5.
We recently
ruled on this same evidentiary point in civil litigation, Batelli v.
Kagan et al., 9 Cir., No. 14,803, decided
August 6, 19
56
. In this criminal prosecution, Rule 26 of the Rules of Criminal
Procedure (Title 18 U. S. C. A.) applies, rather than Rule 43 of the
Rules of Civil Procedure (Title 28 U. S. C. A.). The "Act of
Congress" necessary to make the principle of the "Uniform
Business Records in Evidence Act" applicable is Title 28 U. S. C.
A. §1732. The very purpose of this section is to relax the common law
evidentiary rule, and permit introduction into evidence those
contemporaneous business records which once were inadmissible. Hartzog
v.
United States
, 1954, 217 Fed. (2d) 706 [55-1 USTC ¶9128]. And even if such
business records, such as bills of lading, are hearsay as to the
appellant, they are admissible as records made in the regular course of
business. Intermondale v.
North River
, 1951, 100 Fed. Supp. 128. Evidence disclosing a manufacturer's
practice relating to invoices establishing the contents of clothing
cartons, was held admissible in United States v. Garvey, 1945,
150 Fed. (2d) 767.
The judgment
of conviction on all four counts should be, and is, affirmed.
1
The pertinent portions of this letter, in appellant's opinion expressed
on the stand, continue as follows:
"When you
get them, keep them up there for me; as I wrote you previously before, I
still prefer that you put your money into government bonds instead of
stocks. I realize the Bank of America dividends are higher and what you
say about them is true. When you make your next payment to me, I may let
you convince me, but I still think the bonds are the safest
investment."
This reference
to "your money" is more consistent with the appellant buying
bonds with his own money than it is that the money belonged to his
mother.
[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.
The
Sailor Suit Inventory
Although
appellant claims he should be credited with having purchased $20,550
worth of sailor suits from one Goodman in 1945, he could, in 1947,
remember but one transaction with Goodman, involving $1,380 and had no
recollection of the $20,550 transaction involving the issuance and
transmission of nine cashier's checks. Even after being shown the
checks, and the applications therefor, bearing his signature, appellant
"could not recall the circumstances" under which he had issued
such checks and acquired this merchandise. This merchandise, though kept
in the store and later sold, was never listed as a part of appellant's
inventories, never entered on appellant's books as having been purchased
or sold, and never insured, because it was "worthless" or
"was to be returned" or because "no profit was made on
it." When appellant's own auditor, Mr. Ringo, attempted to
ascertain the facts about this merchandise, Ringo was told to take the
matter up with appellant's lawyer. It was not until after the first
trial of this matter that Mr. Ringo was told by appellant of
"merchandise on hand, not included in inventories."
The
$7,724 Item
Should $7,724
have been included as an asset of appellant at the end of 1945?
According to
one interpretation of the evidence, the $7,724 represented a part of the
$20,550 figure commented upon above. This was the transaction concerning
which, at first, the appellant had no memory. But he testified that
after he had received the suits from Goodman, through Levy, Levy in 1945
sold 200 suits for $5,000 which went into the Army and Navy books as a
capital investment. But, in 1945 when 280 more suits were sold for
$7,000, Levy kept the money. This, Levy gave to Moe Saraga, a dealer in
New York
. Appellant then gave Saraga $24,500 from his "store account".
Saraga could not deliver all the suits wanted, and so returned the
$7,000 plus $725 for 49 suits undelivered from the $24,800 advance,
which amount, less $1 for a bank charge, represents the $7,724 claimed.
Obviously, if
the trier of fact were to credit the appellant with the $20,500 in
sailor suits, it should not again credit the $7,000 representing cash
received through sale of some of those suits. And, whether or not the
$7,724 were included as an asset of appellant at the end of 1945, it
would have increased or reduced the amount of undeclared income, but it
would not have done so appreciably, nor to a degree decisive of the
issues herein.
The foregoing
recital of certain of the evidence is not exhaustive. It is merely to
highlight the reasons why the conclusion of the appellate court, after
the first trial, is equally pertinent after the second trial--that the
credibility of the appellant was the principal issue in the case. We
cannot say that the government did not establish "with reasonable
certainty" appellant's net worth as of
December 31, 19
44. When the government introduced proof of likely taxable sources from
which a jury can reasonably find that the net worth increases sprang, it
need not negative all possible non-taxable sources.
In criminal
prosecutions for federal income tax evasion, evidence corroborative of
defendant's admissions need not prove the offense beyond a reasonable
doubt, or by a preponderance of the evidence, but there must exist
substantial evidence, independent of the alleged admission, that the
offense has been committed, and the evidence as a whole must prove
defendant's guilt beyond a reasonable doubt. Smith v. United States,
348
U. S.
147, 156 [54-2 USTC ¶9715]; United States v. Calderon, 348
U. S.
160 [54-2 USTC ¶9712].
The care with
which the trial judge instructed the jury on this subject is of
importance. Among other instructions the jury received was this:
"In
order to safeguard the defendant, the law requires that these statements
(of defendant) relating to vital links in the government case be
corroborated. In this connection, the $50,000 cash item and $7,000 cash
item, used by the government in Exhibit 50 (i.e., amount of cash in safe
deposit box) cannot be considered by you in determining the opening or
closing net worth, because the government did not corroborate that. You
can use, however, whatever amounts the defendant said he had while he
was on the witness stand here under oath."
We conclude
the jury was properly and carefully instructed, and we will not
interfere with their decision on issues of fact, in view of the
conflicting testimony in this case.
This brings us
to the alleged error in admitting the testimony of John Sanchirico.
It should be
said that much of the criticism of the introduction of this testimony
goes to its weight, and not to its admissiblity. The witness, as
executive vice president of Seagoing Uniform Corporation, was capable of
identifying the records of that business. He had worked with the company
over 25 years, had been active in management of it over 15 years. His
firm had an account with the Army & Navy Store at 1926 Broadway,
Oakland
, the appellant's place of business. Sanchirico did not know appellant,
but did know Goodman, the man to whom defendant sent several thousand of
dollars with which to buy sailor's uniforms. Goodman paid the invoices.
Sanchirico's plan shipped uniforms in accordance with Mr. Goodman's
instructions, to the ultimate consignee. A shipping clerk would
hand-write a shipping memorandum which would indicate how many garments
were involved, and where they were shipped to, name of customer, and the
street number or city. Exhibits 66 to 71 inclusive, all indicated,
according to the witness, shipments of sailor suits to Olender. These
documents were kept by the company and were made simultaneously with the
transaction, in the regular course of business.
The only
objection made to Exhibits 66 to 71 was that they were "not proper
rebuttal." This objection was not well taken; nor, had an objection
been made upon grounds of hearsay, would it have been valid. Part
of each document did not purport to involve the appellant, but part
of each written document did. The objection on grounds of hearsay, not
having been made before the trial court, cannot be urged here as
reversible error. Sekinoff v.
United States
, 283 Fed. 38; Bank of
Italy
v. Romeo & Co., 287 Fed. 5.
We recently
ruled on this same evidentiary point in civil litigation, Batelli v.
Kagan et al., 9 Cir., No. 14,803, decided
August 6, 19
56
. In this criminal prosecution, Rule 26 of the Rules of Criminal
Procedure (Title 18 U. S. C. A.) applies, rather than Rule 43 of the
Rules of Civil Procedure (Title 28 U. S. C. A.). The "Act of
Congress" necessary to make the principle of the "Uniform
Business Records in Evidence Act" applicable is Title 28 U. S. C.
A. §1732. The very purpose of this section is to relax the common law
evidentiary rule, and permit introduction into evidence those
contemporaneous business records which once were inadmissible. Hartzog
v.
United States
, 1954, 217 Fed. (2d) 706 [55-1 USTC ¶9128]. And even if such
business records, such as bills of lading, are hearsay as to the
appellant, they are admissible as records made in the regular course of
business. Intermondale v.
North River
, 1951, 100 Fed. Supp. 128. Evidence disclosing a manufacturer's
practice relating to invoices establishing the contents of clothing
cartons, was held admissible in United States v. Garvey, 1945,
150 Fed. (2d) 767.
The judgment
of conviction on all four counts should be, and is, affirmed.
1
The pertinent portions of this letter, in appellant's opinion expressed
on the stand, continue as follows:
"When you
get them, keep them up there for me; as I wrote you previously before, I
still prefer that you put your money into government bonds instead of
stocks. I realize the Bank of America dividends are higher and what you
say about them is true. When you make your next payment to me, I may let
you convince me, but I still think the bonds are the safest
investment."
This reference
to "your money" is more consistent with the appellant buying
bonds with his own money than it is that the money belonged to his
mother.
[57-1 USTC ¶9675]
United States of America
v. Joseph Frank, Appellant
(CA-3),
U. S. Court of Appeals, 3rd Circuit, No. 12,146, 245 F2d 284, 5/15/57,
Aff'g Dist. Ct., 57-1 USTC ¶9254
Income tax evasion: Misrepresentations of examining officer:
Reconstructed income.--Although the court deplores the tone of
instructions given to revenue agents as to the method of approaching
taxpayers in a so-called "racket group", no fraud was
practiced by the government agents when they described their
investigation as routine, whereas they were contemplaing criminal
action. The government proved its case by the bank deposit expenditure
method corroborated by the net worth method by showing possible sources
of unreported income, and by showing that the defendant could not have
had the amount of opening cash he claimed to have had. The court finds
no reason for reversing the jury finding nor the sentence imposed by the
trial court.
Alexander
Cooper, 1318 Frick Bldg., Pittsburgh 19, Pa., and
Rob
ert M. Taylor, 1521 Walnut St., Philadelphia 2, Pa., for appellant.
Herbert I. Teitelbaum and Leonard J. Paletta, Assistant United States
Attorneys, Federal Bldg., Pittsburgh 19, Pa., for appellee.
Before
GOODRICH, STALEY and HASTIE, Circuit Judges.
Opinion
of the Court
GOODRICH,
Circuit Judge:
This is an
appeal from a judgment of the United States District Court for the
Western District of Pennsylvania convicting Joseph Frank of violation of
Section 145(b) of the Internal Revenue Code of 1939, 26 U. S. C. A. §145(b).
[Alleged
Violation of Rights]
The first
point raised by the appellant is his claim that his constitutional
rights under Amendments Four and Five were violated. On behalf of Frank
it is urged that papers, books and records belonging to him were turned
over to revenue agents by reason of their fraudulent representation to
him concerning the nature of the examination they were making or about
to make. Taxpayer says that he was led to believe that a routine audit
was to be made and if he had known there was a special agent also
assigned to his case he would not have given up his papers without
advice of counsel. Cf. Goulded v.
United States
, 255
U. S.
298 (1921).
[Instructions
to Revenue Agents]
He also brings
to our attention certain instructions which were given to the revenue
agents concerning investigation of a so-called "racket group"
case which this was. These instructions were as follows:
"When
the agent has completed the preliminary background on his taxpayer, he
should then contact the taxpayer, informing him that a routine
examination of his tax return is being made for the year, and that an
appointment would be desirable. The taxpayer may then inform the agent
that he has an accountant who has prepared the return. Your authority is
then complete to contact the accountant. It is advisable to review the
accountant's work papers used in the preparation of the tax return.
However, this should not be that basis of closing the investigation as
the accountant has used the information supplied by the taxpayer and it
may not be complete in divulging all the income, nor will it have all
the records necessary in verification of deductions or business
expenditures.
".
. .
"Be
cautious and alert and cultivate the confidence of the taxpayer without
tipping your hand as he may cooperate to some degree with you, but if he
finds out that you are on his trail as an 'R' sleuth, he may claim up,
and from then on your job will be much more tedious and a lot of harder
work is ahead of you."
We agree with
the appellant that the tone of these instructions is greatly to be
deplored. We think they can be easily misunderstood by an agent to urge
him to get over the line into fraudulent conduct in an effort to capture
a tax evader. They are not the kind of instructions which tend to foster
good relations between a government and its citizen taxpayers even
though some taxpayers may have strayed from the path of accuracy.
The
defendant's point about this matter, however, has been thoroughly
litigated before. There was, before trial, a motion under Rule 41(e),
Federal Rules of Criminal Procedure, for the return of property and to
suppress evidence. There was a hearing upon this motion, a very thorough
hearing. The district judge overruled the motion and filed memorandum
opinion setting out why, in his opinion, the evidence failed to sustain
the contention that fraud was practiced by the government agents.--Fed.
Supp.--(W. D. Pa.
Jan. 4, 19
56) [57-1USTC ¶9254].
Again at the
close of the trial the judge charged the jury, at the defendant's
request, that:
"Any
such evidence, including papers, business books, records, bank records,
and cancelled checks, as well as oral and written admissions obtained by
the defendant by fraud, force, persuasion, misrepresentation, trickery,
or deceit of the Government agents, if any, should not be considered
against this defendant."
The jury's
finding of guilty necessarily involved a finding in agreement with that
of the court at the preliminary hearing on the motion.
The appellant
therefore must demonstrate that there was no reasonable basis to sustain
the conclusion of both the judge and the jury. It is quite clear that he
cannot do this. The agents testified they did described the
investigation as "routine" but denied that they ever told the
taxpayer they were merely conducting an investigation to determine
routine civil tax liability. See the thoughtful discussion by Judge
Soper in Turner v. United States, 222 Fed. (2d) 926 (4th Cir.)
[55-1 USTC ¶9489], cert. denied, 350
U. S.
831 (1955). Every investigation is, in a sense, routine at the start
because the agents cannot know until they get into a given case what
sort of liability will grow out of their investigation. We have recently
held that the agent is not required to warn the defendant that he did
not have to give any information that might be used against him in a
criminal proceeding.
United States
v. Burdick, 214 Fed. (2d) 768 (3d Cir. 1954) [54-2 USTC ¶9475],
remanded, 348
U. S.
905, affirmed on remand, 221 Fed. (2d) 932 [55-1 USTC ¶9428], cert.
denied, 350
U. S.
831 (1955). Under the statutes the government has authority to examine
books, papers and records (see Int. Rev. Code of 1954, §7602; Int. Rev.
Code of 1939, §3614), and we do not think any taxpayer considers an
audit by a revenue agent to be a call for purely social purposes. The
individual conclusions of the judge and the jury are well supported.
[Reconstructed
Income]
An income tax
deficiency for the year 1948 only was involved. The government proved
its case by the "bank deposit expenditure method" and for
corroboration used the "net worth method." Each has become
standard in income tax prosecutions. And each is, obviously, a method of
proving an offense by circumstantial evidence. All the points which
defendant raises in this Court were discusses by the district judge in
his opinion following motion for new trial in the district court.
See--Fed. Supp.--(W. D. Pa.
Dec. 4, 19
56). We need not repeat the detailed statement made in that opinion
showing the careful allowances made by the revenue authorities in order
not to charge the defendant with a greater discrepancy between income
received and income reported than he should be called upon to answer
for. We have checked these statements with the testimony and find them
accurate.
There was also
a showing of possible source of other income than that reported by the
defendant. He was a partner in a vending machine concern. Defendant says
that the government's revenue agent admitted that this concern's books
appeared to be in order. We make nothing of that point however. That
business concern is not on trial and it is enough that partnership in
the business was shown as a possible source of additional revenue. 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. There was also the possibility of income from a pinball
business although the trial judge did not think this was so very strong
and we agree with him. He thought it could be, however, a
"significant indication" of a likely source under our decision
in United States v. Adonis, 221 Fed. (2d) 717, 720 (3d Cir. 1955)
[55-1 USTC ¶9310].
[Opening
Cash]
The proof
concerning what the defendant had on hand at the beginning of the
taxable year in question is relevant to the bank deposit theory of the
case as well as that of net worth. If his deposits or expenditures came
from a safety deposit box in a bank or from a hoard at home, obviously
they are not "income" when taken from their storage place and
deposited in a checking account nor when spent. The amount which the
defendant did have on had at the beginning of 1948 was, as discussed
below, the subject of testimony by government witnesses.
There was a
dispute over the amount of the defendant's cash on hand at the beginning
of the year for which evasion is charged. The defendant says he had
$29,000 at that time, the remainder of $50,000 which he claimed to have
had in 1945. He admitted, in one interview, that all he had in 1945 was
what was in a pocket and what he had in the banks. This was about
$10,000. Then follows the argument that the prosecution cannot depend
upon the petitioner's admission alone but must offer corroborating
evidence. This is based upon Smith v. United States, 348 U. S.
147 (1954) [54-2 USTC ¶9715], where the matter is fully discussed and
where the court went far in extending the rule requiring corroboration
of not only confessions in income tax cases but admissions as well.
Whether this
requirement of corroboration of defendant's admissions applies where the
net worth method itself is used only in corroboration of the bank
deposit method the court did not say for that question was not before
it. But in any event there was corroborative testimony here tending to
show that Frank could not have had $50,000 in 1945. This evidence is
discussed in detail in the opinion of the district judge and need not be
set out again here.
[Intent]
There was a
sufficient showing of intent. The prosecution showed under statement of
income for several other years specifically for the declared purpose of
showing intent. This is itself enough. Holland v. United States,
348
U. S.
121 (1954) [54-2 USTC ¶9714], rehearing denied, 348
U. S.
932 (1955).
The jury was
well and fully instructed both as to law and fact. The defendant was
represented by experienced counsel and ably defended. In the course of
this review we have been back again over the series of cases beginning
with
Holland
v.
United States
, supra. The government's case meets the requirements laid down by
the Supreme Court in that series of decisions.
The sentence
imposed by the trial court which is in conformity with the provisions of
the statute is not reviewable here, no showing of an abuse of discretion
having been shown.Price v.
United States
, 200 Fed. (2d) 652 (5th Cir. 1953);
United States
v. Cosentino, 191 Fed. (2d) 574 (7th Cir. 1951).
The judgment
of the district court will be affirmed.
[57-2 USTC ¶9797]William Epstein,
Appellant v.
United States of America
, Appellee
(CA-6),
U. S. Court of Appeals, 6th Circuit, No. 13034, 246 F2d 563, 7/2/57,
Affirming an unreported District Court opinion
[1939 Code Sec. 145(b)--similar to 1954 Code Secs. 7201-7203]
Tax evasion: Increase in net worth: Evidence of unreported income.--The
defendant, who operated a pawnshop and a store, was convicted by a jury
for evading income taxes for 1949-1952. The Government was justified in
reconstructing his income under the net worth method where his only
books were posted by a bookkeeper once a month from memoranda supplied
by the taxpayer and his wife. The net worth method of reconstructing
income could be used even though it was not shown that there were any
false entries in the taxpayer's books. It was permissible to admit in
evidence financial statements submitted by the taxpayer to his bank and
reports which he had made to Dun & Bradstreet to prove that his cash
on hand at the beginning of the net worth period was less than he
contended. It was also proper to admit in evidence charts to explain the
Government's net worth calculations.
Hal Gerber,
Memphis
,
Tenn.
(William Gerber, Eugene Bernstein, were with him on brief), for
appellant. Milsaps Fitzhugh, Memphis, Tenn. (Edward N. Vaden, Warner
Hodges, Memphis, Tenn., Charles K. Rice, Assistant Attorney General,
Washington, D. C., were with him on brief), for appellee.
Before ALLEN,
MCALLISTER and STEWART, Circuit Judges.
ALLEN, Circuit
Judge:
Defendant 1
was convicted in jury trial on all four counts of an indictment charging
willful evasion of income taxes for the years 1949, 1950, 1951, and
1952. The indictment charged that defendant under-reported his income in
1949 in the amount of $40,527.62; in 1950 in the amount of $29,216.09;
in 1951 in the amount of $52,799.25; and in 1952 in the amount of
$24,397.29, or a total for the four years of $146,940.25.
[Adequancy
of Records]
During all of
the period in question and for over 30 years previously defendant had
operated a pawnshop and a store in
Memphis
,
Tennessee
. Up to January, 1949, he kept his own books in the pawnshop business.
Thereafter he delegated this task to professional bookkeepers. While
defendant's counsel claims that the evidence is "overwhelming"
that defendant's books were adequate, the testimony of his own witnesses
indicated that they were not adequate. After January, 1949, the books
were posted by one Leonard Weis, defendant's witness, who made up
periodical statements from memoranda received from defendant and his
wife, which Weis said he was given "once a month * * * to put on
the books." While Weis computed purchases from checks, the loans
were paid out of cash and the memoranda were the only record Weis had as
to the loans. A similar system where the books of a business were merely
a computation of slips from the totals of a cash register which had no
tapes was held by the Tax Court of the
United States
not to correctly reflect the taxpayer's income and this court affirmed
that holding in Kurnick v. Commissioner of Internal Revenue, 232
Fed. (2d) 678, 680 [56-1 USTC ¶9470].
Defendant's
income tax returns from 1945 on were prepared by W. C. Summers,
defendant's witness, a bookkeeper attached to the accounting firm of
Homer K. Jones & Company. Summers prepared the income tax returns
partly from records made by Weis and from information furnished to
Summers by defendant and his wife. This system of making up income tax
returns of income derived from extensive business operations based on
oral statements or monthly memoranda is subject to the same criticism as
the manner of posting the books by Weis.
Summers stated
that he made "No verification in any way" and put on the
return whatever they told him. Summers told defendant that there should
be a "better system" and suggested that defendant keep more
accurate records and that defendant have Summers's accounting firm
"set up a good set of books." This advice was not followed.
An agent of
the Internal Revenue Service who examined defendant's books testified
that most of defendant's expenses "were paid by cash" and he
knew of no way to check the books. He testified, "I feel that the
figures on the books are not correct." Summers stated to Norris,
Special Agent with the Intelligence Division of the Internal Revenue
Service, that there was no way "to verify sales" from these
books and that no one could "verify expenditures made in
currency." This being the case, the Commissioner was authorized
under the regulations and statute to compute petitioner's income in a
way that would clearly reflect his income. The net worth method was
employed. Defendant's tax accountant, Homer Jones, agreed that this was
the proper method in view of the condition of the books.
Defendant
contends that because defendant kept books and no specific false entries
were shown, the net worth method of proof is not applicable. However, Holland
v. United States, 348 U. S. 121 [54-2 USTC ¶9714], which affirmed a
conviction for fraudulent evasion of income tax computed under the net
worth method, decides this point squarely in favor of the Government. In
the
Holland
case the conviction was attacked upon the specific ground that the
Government was unable to point out any false entries. The Supreme Court
stated: "Nevertheless, if we believe the Government's evidence, as
the jury did, we must conclude that the defendants' books were more
consistent than truthful, and that many items of income had disappeared
before they had even reached the recording stage. Holland v. United
States, supra, 132.
The net worth
method as used by Norris employed many items of independent evidence
such as defendant's income tax returns as to merchandise and inventory,
bank statements furnished by defendant, cancelled checks, and other bank
records as well as testimony from numerous witnesses as to the purchase
by defendant or from defendant of valuable pieces of land and amounts
paid for them during the years in question.
[Evidence
of Unreported Income]
The court did
not err in overruling defendant's motion for acquittal. While the
evidence was in controversy the government, through many witnesses and
exhibits, presented evidence of substantial understatement of income for
each of the taxable years. The Government also presented evidence of the
existence of a current tax source, namely, income from the pawnbroker
business, the store, and substantial income from other sources. The
consistent understatement of large amounts of income for a number of
years is evidence of willful intent to evade. Kurnick v.
Commissioner, supra, 681; Drieborg v. Commissioner of Internal
Revenue, 225 Fed. (2d) 216 (C. A. 6) [55-2 USTC ¶9632]. In
Holland
v.
United States
, supra, 139, the Supreme Court declared that "evidence of a
consistent pattern of underreporting large amounts of income" will
support "an inference of willfulness."
Norris's
computation as to assets and liabilities for the years under indictment,
other than cash, he testified were almost identical with the figures
calculated for the same items by Homer Jones, head of Summers's
accounting firm prior to the early summer of 1955. This was not denied.
It was shown that defendant's total expenditures during the taxable
years over and above the cost of operating his business were
$368,951.85. The total net income reported by defendant during that time
was $88,170.19 2
These
calculations, which the jury evidently believed, showed that defendant's
private expenditures exceeded his total available income and entitled
the jury to find that defendant had large unreported income. Exhibit 11
Norris showed the total income of Epstein (1920 to 1948) per filing
record was $320,848.50; of Pearl Epstein (1937 to 1948), $35,138.18; of
J. P. Kirschner (1937 to 1948), $128,977.98; total for these three
people, $484,964.66. The total expenditures as shown by the same
exhibit, during the same period, were $514,010.90. Similar circumstances
were held in United States v. Johnson, 319 U. S. 503, 517 [43-1
USTC ¶9470], cited with approval in Holland v. United States, supra,
138, to support the finding that defendant in that case had some
unreported income which was properly attributable to his earnings. When
questioned by Norris, defendant herein declared that there were no
nontaxable sources for large net worth increases such as gifts, loans,
or inheritances. Cf.
Holland
v.
United States
, supra, 137. The important leads particularly stressed in the
Holland
case were lacking. Moreover, the jury could reasonably find for this
record of exhaustive investigation that a likely source of net worth
increase existed in the pawnbroker's business and the Kirschner business
with their many cash transactions.
[Net
Worth Computations]
A crucial
point of the controversy is the Government's calculation of net worth as
of
December 31, 19
48
. The Government figured net worth for that year at $246,839.63 and the
increase in net worth for that year as $36,004.18. Corresponding figures
for 1949 are $299,437.25 net worth, $52,597.62 increase in net worth;
for 1950, $347,247.16 net worth, $47,809.91 increase in net worth; for
1951, $385,694.21 net worth, $38,447.05 increase in net worth; for 1952,
$403,264.87 net worth, $17,570.66 increase in net worth. The corrected
net income calculated for the years 1949, 1950, 1951 and 1952 was
$60,633.24, $66,358.55, $69,325.84 and $38,792.41, respectively. The
figure for net income reported by defendant for 1949 was $20,105.62; for
1950, $37,142.46; for 1951, $16,526.59; for 1952, $14,395.12. The
Government figured that the net income not reported for the taxable
years was as follows:
1949 .... $40,527.62
1950 .... 29,216.09
1951 .... 52,799.25
1952 .... 24,397.29
Defendant in a
statement introduced in evidence calculated a much larger amount than
the Government figure for the net worth of the taxable years. For
December 31, 19
48, defendant calculated $356,695.47; for 1949, $389,508.15; for 1950,
$408,852.75; for 1951, $403,261.66; for 1952, $400,630.43. This made the
increases in net worth for the taxable years much smaller than those of
the Government's calculation so that the income computed in defendant's
statement tallied very closely with the net income reported by defendant
in his income tax returns.
The opening
net worth calculated by the Government for
December 31, 19
48, was $246,839.63 and by defendant the same figure was calculated as
$356,695.47.
[Cash
on Hand]
Except for
cash on hand and in the bank, the assets given by Norris, the Government
witness, in the Condensed Net Worth Determination (Exhibit 5 to Norris)
were the same assets listed in Exhibit 1 to Deutsch, the calculation of
a net worth statement for defendant and his wife made by defendant's
expert witness and the valuation set was the same in each calculation.
The Norris statement for 1948 gives cash on hand $20,000 and cash in
bank $6,183.51. The defendant's statement gives cash on hand $20,000;
Mrs. Pearl Epstein $27,116.02; and J. P. Kirschner Accumulation
$82,739.82. The principal difference in the ultimate calculation arises
from the inclusion of the last two items in defendant's statement.
Norris took his figure from defendant's own statements made not only to
him but to Dun & Bradstreet and to a bank. Defendant said that he
took his figure from his own cash as figured by Norris, that of his wife
and the accumulation of net income from the Kirschner store, all of
which, he said, was kept in an open safe in his pawnbroker shop, the
only safe in the shop. The figure of $27,116.02 for Mrs. Epstein was
later raised to $63,000.
Several
witnesses for defendant, including a police commissioner and a police
chief, testified that they had seen large amounts of money in the safe.
The police chief had seen $100 bills taken from it. Defendant stated to
the Internal Revenue agent that no one except his wife and son knew the
amount of cash in it. Mrs. Epstein did not testify, but her affidavit
received in evidence said that she knew of her own knowledge that large
amounts of cash, including the Kirschner accumulation, were kept in the
safe. The son did not testify on this point. Defendant did not take the
stand.
Defendant had
made many statements contradictory to his claim first asserted to Norris
in 1955 that he had a cash balance of $168,000 in his safe on
December 31, 19
48. During the course of the Government investigation he at first stated
to Treasury Investigator Norris that he had $6,000 to $8,000 cash in his
safe. Later he stated to Norris that he had $22,000 in cash in the same
vault at the beginning of 1948. On
June 21, 19
55, this cash amount was increased by defendant's attorneys to $168,000.
Beginning with 1937 defendant had given a number of voluntary reports to
Dun & Bradstreet. The Dun & Bradstreet report of 1945 lists cash
on hand and in the banks in the sum of $20,000 and lists the same amount
in 1946. The amount defendant reported for cash on hand in March, 1947,
was 15,000.
Defendant also
made signed statements to the Union Planters National Bank of
Memphis
for the purpose of procuring and maintaining credit. One of these stated
that he had "cash on hand and in bank $20,000" on
February 2, 19
45, another that he had "cash on hand $17,500 and cash in bank
$3,600" on
December 31, 19
49.
The facts as
to the Kirschner store, for which defendant lists an accumulation of
$82,739.82 as part of his cash on hand
December 31, 19
48, present further substantial contradictions. This store belonged to
defendant prior to 1937. It was located in the same building as the
pawnbroker shop and the two concerns had a connecting door. On
May 30, 19
37, the Tennessee Legislature passed an act, Chapter 185, Public Laws of
1937, forbidding pawnbrokers to carry on any other business or vocation,
directly or indirectly, in the same building or in any other building
adjoining the place of business and also forbidding anyone licensed as a
pawnbroker from keeping more than one house, shop, or place for such
business of pawnbroker. Defendant in an affidavit received in evidence
declared that because of this enactment his counsel advised him "to
transfer my merchandise inventory to J. P. Kirschner and the J. P.
Kirschner store was operated at 162-164 Beale, while my pawnship was
operated at 166 Beale. . . ." Defendant's son testified that
counsel advised defendant to seal the opening between the two stores and
to place the sales store in the name of "a trusted relative, and .
. . make two separate establishments . . . and . . . to keep separate
books, separate records, and file all separate tax returns on that
basis." In an interview with Norris, defendant said that he
separated these stores upon the advice of an attorney, who counseled him
to "file returns in the name of Kirschner." Norris testified
that defendant said "he figured out the using of Kirschner's name
in order to get around that in the law." Kirschener was defendant's
father-in-law.
From 1937 to
1948 the income from the Kirschner store was returned separately and not
included in defendant's income tax return. Section 17 of Chapter 185,
Public Laws of 1937, was repealed in 1949 and after that the Kirschner
store was dissolved, the inventory was taken over by defendant, and
returns of income from the Kirschner store were made on defendant's tax
returns.
Defendant's
affidavit states that after the door was walled up between the pawnshop
and the store in 1937, "my wife Pearl Epstein was employed as
bookkeeper, while I practically managed the Kirschner store from 166
Beale as well as my own business. . . ." The affidavit also states
that Kirschner received no salary or pay in any form from defendant
during the years 1937 to 1949, but that J. P. Kirschner and his wife,
the latter until her death in 1942, and the former until his death in
1952, lived with defendant and paid no board.
The
arrangement that a partition should be put between the two
establishments, that the second business be put in the name of
defendant's father-in-law with the license issued nominally to
Kirschner, and that income tax returns be filed separately, all of which
arrangement was carried out to the letter, indicates that the purpose of
the transfer was not to change the location of the store. The location
was not in fact changed. To move the store into another building if it
had been done would not require the transfer to defendant's
father-in-law. The shift in the conduct of the business of the store had
two important results: (1) Defendant had only one pawnbroker business
listed under his name and Sections 6 and 17 were thus apparently
complied with; (2) There was a substantial reduction in income tax.
As to the item
of $82,739.82 cash on hand from the Kirschner store defendant finds
himself on the horn of a dilemma. If during the years in which the
Kirschner income accumulated the store belonged to defendant he should
have returned this income in his personal income tax. If the store
belonged to Kirschner the income received did not belong to defendant
and could not be figured in cash on hand as of
December 31, 19
48, in establishing net worth. Defendant did not explain this situation.
The jury was entitled, if it found the store belonged to the defendant,
to consider defendant's failure to return the yearly net income of the
Kirschner store in his income tax return as evidence of substantial
evasion. If the jury found the store belonged to Kirschner it was
entitled to disregard the sum of $82,739.82 in the calculation of net
worth.
The
investigation conducted by Norris was not only thorough but fair. He
held repeated and extensive conferences with defendant's attorneys and
accountants and frankly stated to them the detailed basis for his
various calculations. The jury was entitled to consider the fact that
the shift in defendant's position as to cash on hand, that he had
$168,000 on
December 31, 19
48, was made after Norris had fully disclosed his accounting to
defendant and his representatives.
Norris's
estimates were based not only on the great quantity of documentary
evidence mentioned above, but upon information obtained from numerous
witnesses. The computation of personal expenditures was made on the
basis of minimum expenditures. The estimates as to the value of
defendant's real estate, stocks and bonds, and other property were based
upon cost. With reference to the controversial point of cash on hand
December 31, 19
48, Norris went back to defendant's bank statement for
December 31, 19
46, showing cash on hand and in the bank of $21,740, which was the
largest amount of cash on hand and in the bank shown on defendant's
financial statements prior to the one for 1949. This was a financial
advantage to defendant in the calculation of his net worth.
Whatever the
precise grounds, the jury evidently did not believe defendant's story
that he had, on
December 31, 19
48, $168,000 kept in his open safe.
Defendant
makes numerous attacks upon the charge of the court, all of which have
been considered. We deem it unnecessary to discuss these objections in
detail. The charge, read in its full context, and considered from its
four corners, is clear, complete, correct, and fair.
[Extrajudicial
Statements]
Defendant's
contention that the court committed reversible error in refusing to give
a requested charge that his statements from Dun & Bradstreet and the
signed statements given to The Union Planters Bank were extrajudicial
statements which within recent decisions of the Supreme Court required
corroboration requires more extended comment. Defendant, relying
principally upon Smith v. United States, 348 U. S. 147 [54-2 USTC
¶9715], not only contends that his statements to Norris require
corroboration, but also that his own statements made to private business
concerns years before the controversy arose constitute extrajudicial
statements which cannot be introduced in evidence unless they are
corroborated by independent evidence. The Smith case, 152, 153,
held that the statement requires to be corroborated is "suspect if
it is extracted from one who is under the pressure of a police
investigation. . . ." The Supreme Court declared that extrajudicial
admissions given during police investigation have something of the
nature of a confession and that the accused may not be convicted upon
such admissions if uncorroborated. The court held the corroboration
requirement applies to mere admissions "at least where, as in this
case, the admission is made after the fact to an official charged with
investigating the possibility of wrongdoing, and the statement embraces
an element vital to the Government's case." However, in a note,
page 155, the Supreme Court also states that admissions given under
special circumstances, providing grounds for a strong inference of
responsibility, may not have to be corroborated. Miles v.
United States
, 103
U. S.
304, 311, 312; State v. Saltzman, 241
Iowa
1373.
In United
States v. Calderon, 348 U. S. 160, 165 [54-2 USTC ¶9712], the court
pointed out that the only evidence of defendant's fortunes between 1935
and 1946, the first prosecution year, consisted of his tax returns for
1944 and 1945 "and some meager evidence with regard to his tax
returns for 1941, 1942 and 1943." The court said, "The latter
apparently was obtained from the respondent, and, standing
uncorroborated, cannot serve to corroborate respondent's other
admissions."
The Dun &
Bradstreet statements and the bank statements, relied on by both
parties, are in an entirely different category from the statement made
to Norris. They are not admissions although they shed light upon opening
net worth.
They are not
even declarations against interest; they were made for defendant's
benefit. They constituted the best evidence under the general principle
that a man's own acts, conduct, and declarations which were voluntary
are always admissible in evidence against him.
United States
v. Wood, 14 Peters 430. They were in fact independent evidence
admissible without corroboration. In themselves they strongly
corrobarated the extrajudicial statements made to Investigator Norris
covering the years concerned. As the requested charge on this point
linked the statements made before investigation together with the
statements made in course of investigation, it was properly refused.
Five
objections relate to the admission of charts embodying the calculations
of the Treasury Department in detail. There was no error in the
admission of these charts. They were presented in explanation of the net
worth calculations. While the testimony concerning certain of the items
was in controversy, evidence was presented which entitled the jury to
believe that the charts were substantially accurate. They were shown to
be based upon the evidence, defendant's numerous statements, oral and
written, his cancelled checks, bank records, and oral testimony of
disinterested witnesses. It has been repeatedly held by this court that
such charts are admissible. Smith v.
United States
, 239 Fed. (2d) 168 (C. A. 6) [57-1 USTC ¶9242]; Gariepy v.
United States, 189 Fed. (2d) 459 (C. A. 6) [51-1 USTC ¶9318]. Cf. Eggleton
v.
United States
, 227 Fed. (2d) 493 (C. A. 6) [56-1 USTC ¶9108]. The trial court in
its charge left the jury "free to exercise its untrammeled judgment
upon the worth and weight" of the evidence given in the charts. Smith
v. United States, supra.
The contention
that the court committed reversible error in permitting the admission of
two letters signed by Eugene Bernstein in explanation of one of the
charts had no merit. Bernstein was an accountant employed to represent
defendant. During the course of the investigation he wrote one letter
(dated
February 3, 19
55), on the letterhead of his accountant's firm, with reference to the
holdings of defendant and his wife. He wrote a similar letter on the
letterhead of defendant's attorneys in which his name is listed as tax
counsel, giving similar information with reference to the transactions
between defendant and The Jameson Construction Company. These statements
from attorney and tax counsel are plainly competent.
Counsel for
both parties failed to observe our rule as to preparation of briefs and
appendices, Rule 16(e). The Dun & Bradstreet reports and the bank
statements particularly relied on were not printed in either appendix.
Numerous items of testimony were refered to without page citations. This
imposes an unnecessary burden on the court. Continued disregard of the
rule in this respect may, in the future, call for reprimand, as well as
an order postponing hearing and requiring reprinting of the appendices.
No reversible
error appearing, the judgment of the District Court is affirmed.
1
The appellant will be denominated as in the court below.
2
The itemized expenditures as figured by Norris are as follows:
1949-1952
Business Investments ...... $127,464.65
Real Estate ............... 106,966.93
Living Expenses ........... 49,869.54
Federal Income Tax ........ 22,900.17
Life Insurance ............ 9,448.84
Stocks and Bonds .......... 18,139.53
Servants' Salary .......... $ 10,411.00
Automobiles ............... 5,183.43
Increased Bank Balance .... 7,850.45
Paid Loans, etc. .......... 9,757.95
Capital Loss .............. 959.56
TOTAL ..................... $368,951.85
[57-1 USTC ¶9644]Homer L. Blackwell,
Appellant v.
United States of America
, Appellee
(CA-8),
U. S. Court of Appeals, 8th Circuit, No. 15,552, 244 F2d 423, 5/7/57,
Aff'g unreported Dist. Ct. decision
[1939 Code Sec. 145(b)--similar to 1954 Code Sec. 7201]
Income tax evasion: Income reconstruction: Net worth statements.--Taxpayer
was convicted by a jury on all counts of a 4-count indictment charging
the filing of false returns for the years 1948 through 1951. Taxpayer
was engaged in the wholesale furniture business, selling on cash and
credit. The only record of cash sales was a monthly total entered in a
"little black book", the original records having been
destroyed when the monthly entry was made. The Commissioner
reconstructed taxpayer's income by the net worth method, corroborated by
bank deposits. The court holds that the district court did not err in
refusing taxpayer's motion for a bill of particulars, there is adequate
evidence to support the Government's opening net worth statement showing
a net worth of $73,000, and exhibits were properly admitted in evidence.
As to one exhibit which was erroneously admitted, its admission did not
affect substantial rights of the taxpayer and was not reversible error.
James J.
Waters, for appellant. William O. Russell, Assistant United States
Attorney (Edward L. Scheufler, United States Attorney on brief), for
appellee.
Before
WOODROUGH, VOGEL and VAN OOSTERHOUT, Circuit Judges.
[Income
Tax Evasion]
VAN
OOSTERHOUT, Circuit Judge:
This is an
appeal from judgment imposing sentences upon defendant after his
conviction by a jury upon all counts of a 4-count indictment. Each count
of the indictment charged defendant with filing a fraudulent income tax
return with willful intent to evade income tax due, in violation of
section 145(b), 26 U. S. C. Count I charged that defendant filed a false
income tax return for 1948, wherein his stated income was $2,391.54 and
the tax due thereon was $98.20, whereas, as defendant well knew, his net
income was $18,270.83, upon which he owed an income tax of $3,550.48.
Count II charged that defendant filed a false income tax return for
1949, wherein he stated that he suffered a loss of $10,603.41 and that
no tax was due thereon, whereas, as defendant well knew, his net income
was $3,651.91, upon which he owed an income tax of $407.02. Count III
charged that defendant filed a false income tax return for 1950, wherein
his stated income was $313.60 and no tax was due thereon, whereas, as
defendant well knew, his net income was $10,993.21, upon which he owed
an income tax of $1,921.08. Count IV charged that defendant filed a
false income tax return for 1951, wherein his stated income was
$6,819.31 and the tax due thereon was $1,178.72, whereas, as defendant
well knew, his net income was $16,657.65, upon which he owed an income
tax of $3,829.30.
During the
years involved in the indictment defendant was the sole proprietor of a
wholesale furniture business at
Kansas City
,
Missouri
, and during such years this business was his only source of income
except for a modest amount of interest and dividends. Defendant's
records consisted of an inventory file; a record of charge sales showing
purchaser, amount of payment, date paid, and discount allowed; check
stubs; cancelled checks; bank statements; and a "little black
book." Any merchandise not sold on credit was treated as a cash
sale whether paid for in currency or by check. The only record of cash
sales preserved was a monthly total entered in the little black book.
Originally there was an order, invoice, or notation with reference to
cash sales. After the monthly total of cash sales was taken and entered
in the little black book, such records were destroyed. There was no safe
in the office so any currency received was handled and taken care of by
defendant.
[Records
Insufficient]
The internal
revenue agents investigating defendant's returns determined that the
defendant's records did not properly reflect his income, and proceeded
to determine defendant's net income for the indictment years by the net
worth method. The revenue agents also offered proof to the effect that
the bank deposits during the period under investigation exceeded
defendant's reported receipts.
Defendant
contends his books properly reflect his income and that he has fully
reported his income and paid the tax due thereon. His explanation of the
net worth increases claimed by the Government, and the excess of
deposits over receipts, is that he had since 1936 a hoard of cash of
$80,000 to $100,000, and that this was put into the business as needed.
[Accumulations
Before Tax Year]
Defendant was
born in 1900. In explanation of his cash hoard he testified that he
started earning money when he was in high school, at which time he was
engaged in the "jitney" business, and that he engaged
thereafter in various enterprises, including a trucking business, an oil
business, a theatre operation, an advertising business, a printing
business, and a poster business. He concedes that a number of said
ventures were not too successful, and claims his greatest success in the
poster business in which he was engaged from about 1926 to 1940. He
contends that by 1936 he had accumulated between $80,000 and $100,000 in
currency which he kept in a bank deposit box, and that the hoard was
still available on
December 31, 19
47.
In determining
defendant's opening net worth, the Government did not credit him with
the cash hoard claimed, but gave him credit only for such cash and bank
deposits it was able to verify as being on hand on
December 31, 19
47.
Defendant
asserts that the court committed prejudicial error entitling him to
reversal in the following respects:
1.
Overruling defendant's motion for bill of particulars.
2.
Overruling defendant's motion for judgment of acquittal at the close of
all the evidence and again overruling such motion when it was renewed
after verdict.
3.
Errors in admission of Government evidence.
The
errors asserted will be considered in the order stated.
[Bill of Particulars]
In his
pre-trial motion for a bill of particulars, which the court overruled,
defendant asked that the Government be required to say whether it
claimed understatement of "gross income" and, if so, the items
thereof, and when, where and by whom, and in what manner, paid to
defendant; that the Government be required to say whether it claims
overstatement or duplication of deductions and expenses and, if so, to
state the amount, items, classes or types, and the dated thereof; and
that the Government be required to say whether its determination of
defendant's "net income" for the years in question, is based
upon "the net worth and expenditures method" and, if so, to
state the amount of assets owned, and of the liabilities owing by, and
the net worth of, defendant on January 1 of each of the four years in
question, and that the Government state "in what manner it is
claimed" the questioned income tax returns "were false and
fraudulent."
The
Government, in its suggestions and opposition to this motion, filed
about seven months before trial, stated that the additional income in
each of the years involved in the indictment had been determined by the
net worth method. Thus, defendant had timely notice that the Government
was employing the net worth method of computation. The indictment
advised the defendant of the amount of income the Government was
claiming for each of the years involved.
It is well
settled that a motion for bill of particulars is addressed to the sound
discretion of the court, and that the court's ruling upon such a motion
should not be disturbed in the absence of an abuse of discretion. Wong
Tai v.
United States
, 273
U. S.
77, 82; McKenna v.
United States
, 8 Cir., 232 Fed. (2d) 431, 435 [56-1 USTC ¶9492]. A number of
courts have held that in a net worth prosecution the most that defendant
is entitled to prior to trial is the disclosure of the theory or method
used by the Government to compute net income. Remmer v.
United States
, 9 Cir., 205 Fed. (2d) 277, 281 [53-1 USTC ¶9421]; United
States v.
Caserta
, 3 Cir., 199 Fed. (2d) 905, 910 [52-2 USTC ¶9540]; United
States v. Chapman, 7 Cir., 168 Fed. (2d) 997, 999 [48-1 USTC ¶9312].
Defendant
relies upon Singer v. United States, 3 Cir., 58 Fed. (2d) 74
[1932 CCH ¶9188]. The Singer case is not a net worth case.
Taxpayer's business there was very complicated and the facts presented
are very unusual. The Singer case is distinguished in the
Caserta
case, supra, decided by the same circuit, and the Remmer
case, supra. Defendant also relies upon United States v.
O'Connor, 2 Cir., 237 Fed. (2d) 466 [56-2 USTC ¶9956], 475. There,
the court indicates that the rule requiring a bill of particulars should
be liberally construed in net worth cases, and in footnote 10 sets out a
number of cases in which a bill of particulars was required. The court,
however, found it unnecessary to decide whether the trial court had
abused its discretion in denying the bill of particulars.
Upon the
record in the present case we do not deem it necessary to determine
whether the rule for a bill of particulars should be liberally or
strictly construed. Even if the rule is to be liberally construed, we
are satisfied that the court did not abuse its discretion in overruling
the motion for bill of particulars in the present case. We are not
persuaded that the defendant was seriously handicapped in his defense by
such ruling. The principal issue was whether the defendant was entitled
to have his opening net worth increased by the amount of cash which he
claimed he had accumulated and hoarded prior to the years here involved.
Defendant was fully informed that the Government was proceeding on the
net worth theory. He had many interviews with the investigating agents
and had every reason to believe that the Government was not accepting
his hoard-of-cash claim. At the trial defendant offered a witness from
California
who claimed to have seen the cash hoard in 1935. Defendant's business
was a modest one, wholly owned and controlled by him. His information as
to the nature of his assets during the indictment years was at least
equal to that of the Government. No prejudicial error was committed in
overruling defendant's motion for a bill of particulars.
[Inadequacy
of Records]
Defendant made
a motion for judgment of acquittal at the close of all the evidence and
renewed such motion after verdict. Defendant contends the court erred in
overruling these motions. Defendant first argues that the evidence
establishes that his records are adequate and that no error in his
records has been pointed out, and contends that his income as disclosed
by his records must be accepted.
Many of the
problems involved in this case are settled by Holland v. United
States, 348 U. S. 121 [54-2 USTC ¶9714]. The situation with
reference to the adequacy of taxpayers' books in the
Holland
case is quite similar to that confronting us here. In
Holland
the Court states (pp. 131-132):
"*
* * Petitioners' accounting system was appropriate for their business
purposes; and, admittedly, the Government did not detect any specific
false entries therein. Nevertheless, if we believe the Government's
evidence, as the jury did, we must conclude that the defendants' books
were more consistent than truthful, and that many items of income had
disappeared before they had even reached the recording stage. * * * To
protect the revenue from those who do not 'render true accounts,' the
Government must be free to use all legal evidence available to it in
determining whether the story told by the taxpayer's books accurately
reflects his financial history."
In our present
case, as previously stated, the defendant preserved only monthly totals
of his cash sales. The memoranda upon which the monthly totals were
based were not available for checking. The investigation also disclosed
that the total deposits exceeded the total receipts. It is true, as
defendant contends, that if his books were accurate and complete they
would reflect his entire income. There is substantial evidence of an
increase in defendant's net worth during each of the years involved in
an amount considerably in excess of his reported net income. Defendant's
explanation of this increase is the hoarded cash which he placed in the
business. If the Government has proven that defendant did not have this
hoarded cash, then the only source for the increased net worth above the
reported income would be defendant's furniture business. The court,
several times in its instructions, advised the jury in effect that, if
defendant's records reflected substantially all transactions of
importance on the question of income, such records are the best
evidence, and in that event the Government could not establish income by
the net worth method. The evidence presented a fact question for the
jury on the adequacy and truthfulness of defendant's records.
[Opening
Net Worth]
The
Holland
case, supra, also makes it clear that the opening net worth must
be established with reasonable certainty. Defendant vigorously urges
that the Government's evidence has failed to meet this requirement.
Particular attack is made upon failure to include defendant's claimed
cash hoard. Much of the evidence bearing upon this issue has been set
out heretofore. Most of the items upon the opening net worth statement
are taken from the defendant's records. The real controversy is over the
hoarded currency claim of the defendant. Defendant is largely dependent
upon his own testimony to support the cash hoard. One witness testified
that the defendant owed him about $300 for a refrigerator, and in 1935
defendant took him to the bank and paid him out of defendant's deposit
box. The witness stated that he saw a lot of money in the box, but did
not know what, if anything, the box contained besides money, and did not
know the denominations of the bills. The witness stated that he would
have nothing to substantiate any guess that he might make as to the
amount of currency in the box. This evidence is remote and very vague as
to the amount of hoarded currency. The bank records indicate that the
defendant had made many trips to his deposit box. Evidence was also
offered to the effect that defendant was well regarded in the community
and that he enjoyed a good credit standing. The witnesses so testifying
did not attempt to estimate defendant's net worth. The opening net worth
of $73,000 would be sufficient to entitle the defendant to a
satisfactory credit rating.
The
Government's proof to negate defendant's currency hoard claim is largely
circumstantial. Defendant's testimony is that he filed his first income
tax return in about 1933. Defendant's accountant, on the basis of
workpapers in his possession, testified as to defendant's income for the
years 1934 to 1947. During the years 1934 to 1936 defendant suffered a
loss. Defendant's highest net income in the 1937-1940 period was $1,706.
His highest net income in the 1940-1947 period was $7,500. Defendant
purchased a home in 1935 and shortly thereafter mortgaged it for $4,000.
He also made a number of bank loans during the period he claimed to have
the currency available. Defendant made various financial statements to
the First National Bank of
Kansas City
,
Missouri
, for credit purposes. Exhibit 76, dated
May 15, 19
45, shows cash of $18,000 and a net worth of $38,900. Exhibit 77, dated
July 3, 19
46, shows cash of $15,937.43, bank deposits of $16,754.58, and a net
worth of $76,009.21. Exhibit 78, dated
November 1, 19
48, shows cash of $14,700, bank deposits of $6,830.39, and a net worth
of $97,221.25. Exhibit 79, dated
August 11, 19
50, shows cash of $22,000, bank deposits of $5,764.43, and a net worth
of $126,392.58. Exhibit 80, dated
December 31, 19
50, shows bank deposits of $1,317.26 and a net worth of $118,061.42. The
Government's net worth computations as of December 31 of each year are:
Year Net Worth
1947 .... $ 73,078.57
1948 .... 90,327.00
1949 .... 91,855.72
1950 .... 97,020.82
1951 .... 113,124.44
During the period from
July 3, 19
46, to
December 31, 19
50, the defendant's financial statements given his bank show a net worth
increase from $76,000 to $118,000, or approximately $42,000. From
December 31, 19
47, to
December 31, 19
50, the increase in net worth, as computed by the Government, amounted
to approximately $24,000. The periods covered are not identical, but the
trend of increasing net worth is at least as great in defendant's
financial statements as in the Government's net worth computations. The
opening inventory in the Government's net worth statement credits
defendant with cash in bank under business assets in the sum of
$9,631.59 and with personal and family deposits aggregating $4,195.48.
The jury was properly instructed that it is necessary for the Government
to establish opening net worth with reasonable certainty. There is
adequate evidence to support the Government's opening net worth
statement.
[Failure to Investigate Leads]
Defendant also
contends that the Government has failed to investigate leads. There is
an obligation on the part of the Government in net worth cases to negate
reasonable explanations of the taxpayer inconsistent with guilt. In the
Holland
case with reference to leads, the Court, among other things, states (p.
138):
"*
* * But where relevant leads are not forthcoming, the Government is not
required to negate every possible source of nontaxable income, a matter
peculiarly within the knowledge of the defendant."
See
also Kampmeyer v. United States, 8 Cir., 227 Fed. (2d) 313, 316
[55-2 USTC ¶9779].
The leads
furnished by the defendant were remote, vague, and indefinite. For the
most part there was no reasonable way to check up on defendant's
earnings and savings from his multiple ventures, some dating back more
than 35 years. Revenue Agent Bennett testified he made such inquiries as
he could at the Better Business Bureau, banks, and of various people in
the theatre business. Investigation was also made as to the income tax
defendant had paid and financial statements given banks.
The court
submitted to the jury the issue of whether the Government sufficiently
investigated any leads furnished by the defendant. The record in this
case supports a finding that the Government did all it reasonably could
under the circumstances of this case to investigate relevant leads.
[Proof
of Willfulness]
Defendant next
urges that there is no proof of willfulness. "Willfulness 'involves
a specific intent which must be proven by independent evidence and which
cannot be inferred from the mere understatement of income.'" Holland
v. United States, supra, p. 139. The test of willfulness is quite
fully discussed in Spies v. United States, 317
U. S.
492, 499 [43-1 USTC ¶9243]. Willfulness involves a state of mind.
Direct proof of willfulness is seldom available. A consistent pattern of
underreporting large amounts of income or overclaiming deductions and
not recording such items on the taxpayer's records is evidence from
which willfulness may be inferred. Holland v. United States, supra;
Zacher v. United States, 8 Cir., 227 Fed. (2d) 219, 224 [55-2 USTC
¶9745]; Canton v. United States, 8 Cir., 226 Fed. (2d) 313, 321
[55-2 USTC ¶9705].
The record in
this case contains evidence from which a jury could infer a consistent
underreporting of substantial amounts of income. Additionally, defendant
admitted failure to report $9,000 in sales in 1949 and $4,000 in 1950.
Defendant explained that this was done to offset some deductions which
he had overlooked claiming in prior years. The weight to be given
defendant's explanation of why he did not report this income was for the
jury.
Without
further prolonging the discussion of the voluminous evidence in this
case, we state that we have carefully examined the record, including the
original transcript of the evidence, and are convinced that a jury
question was presented as to all the essential elements of the crime
charged.
[Admissible
Evidence]
Defendant
contends that the court committed prejudicial error in receiving in
evidence certain Government exhibits. Attack is made upon the admission
of Exhibit X. Exhibit X is a chart approximately eight feet high and six
feet wide, with red and black lettering, entitled "Summary of Net
Worth Increases, Homer L. Blackwell." This exhibit purports to be a
chart summarizing the Government's evidence bearing upon the various
categories of assets and liabilities of the defendant involved in the
computation of defendant's net worth on December 31 of the years 1947 to
1951, inclusive. It is subdivided into 24 items. The chart was placed in
the courtroom near the wall, across the room from the jury box. Each
item on the chart was covered with a strip of brown paper. Immediately
after the Government had offered proof to support an item on the chart,
the strip covering such item was removed. After the Government had
offered evidence as to all of the items on the chart, it introduced in
evidence Exhibit 58 which contained the same information as Exhibit X.
Defendant objected to the accuracy and completeness of the chart.
Net worth
summaries, properly identified and supported by substantial evidence,
are admissible in tax fraud prosecutions. Hanson v.
United States
, 8 Cir., 186 Fed. (2d) 61, 67 [51-1 USTC ¶9118];
Canton
v.
United States
, supra, at p. 317. The issue of whether the evidence presented
established the net worth for the various years as claimed by the
Government was properly submitted to the jury.
Defendant
further contends Exhibit X was prejudicial because of its size and
constant display in the courtroom. Defendant relies upon Lloyd v.
United States, 5 Cir., 226 Fed. (2d) 9 [55-2 USTC ¶9665], and
Holland
v.
United States
, supra.
In the
Holland
case the Court, in speaking of the danger to be guarded against in net
worth cases in order to insure an adequate appraisal of the evidence,
states (pp. 127-128):
"*
* * There is great danger that the jury may assume that once the
Government has established the figures in its net worth computations,
the crime of tax evasion automatically follows. The possibility of this
increases where the jury, without guarding instructions, is allowed to
take into the jury room the various charts summarizing the computations;
bare figures have a way of acquiring an existence of their own,
independent of the evidence which gave rise to them."
The Lloyd
case, after referring to the foregoing admonition in the
Holland
case, states the general rule to be that the admission of charts is
discretionary with the trial court, and that its rulings are subject to
review only under a clear showing of an abuse of discretion. The court
concedes that the proper use of charts often makes the complex evidence
upon which such charts are based more intelligible to the jury, but
cautions that a trial court is charged with grave responsibility to
insure that an accused is not unjustly convicted in a "trial by
charts." The Lloyd case was reversed on other grounds, so
the court found it unnecessary to determine whether there was an abuse
of discretion in the admission of charts.
The chart in
our present case has stronger evidentiary support than the one used in
the Lloyd case and does not have the offensive subtitles used on
the Lloyd chart. The court in our present case during the trial
cautioned the jury on numerous occasions upon the consideration to be
given Exhibit X, stating, among other things:
"*
* * an exhibit of this character is admissible but I caution the Jury
that this is a Net Worth Statement constructed by Bureau of Internal
Revenue personnel and that you are not to give any emphasis to the size
of this exhibit any more than you would if you were examining it on a
piece of paper of normal size. Undoubtedly the Government's view in
putting it on an easel and in this size is merely for the convenience of
the Jury in seeing it."
"But
I don't want the Jury to get any wrong idea about what this is. This is
just a reflection up to now of what the witnesses have testified to, if
you so believe, and you are to pay attention to and be governed by the
evidence and not by what is on this exhibit, and if you don't think the
testimony sustains this exhibit, then you pay attention to the evidence
and not to this exhibit, you understand?"
The
court did not permit the chart to be taken into the jury room. Under the
circumstances disclosed by the record in this case, the court did not
abuse its discretion in admitting Exhibit X.
Defendant also
complaints of the admission of Exhibits 85-88, which are Revenue Agent
Concannon's computations of tax due based upon an assumed net income.
Upon objection to said exhibits, the court stated:
"I
will admit these exhibits only if and providing it is clearly and
definitely understood that the figures used are only assumptions;
otherwise the objection will be sustained. But if it may be clearly
understood that the figures used are assumptions and assuming those
figures to be true, the tax would be so much, then that is proper."
Government
counsel accepted such condition. The court carefully insisted throughout
Concannon's examination that his computation of tax liability be based
upon an assumed net income. The net income assumed was the amount of
increase in net worth for each of the years as disclosed by Exhibit X.
The issue of whether the Government had proven net income in the amount
claimed was left to the jury's determination. Thus the Government was
doing no more than asking the witness a hypothetical question to the
effect, "assuming the net income of so many dollars for the year in
question, how much would the tax be?" It is within the trial
court's discretion to permit such expert testimony. United States v.
Johnson, 319
U. S.
503, 519 [43-1 USTC ¶9470]; Zacher v.
United States
, supra, at p. 228.
Finally,
defendant claims error in the admission of Exhibit 90. This exhibit was
a copy made by Agent Gable of a paper found in the files of defendant's
accountant. Gable discovered the instrument, which he copied, while
examining, with defendant's consent, defendant's tax file in the
accountant's office. The exhibit purports to list at least some of the
assets of the Independent Poster Company for the years 1936 to 1939, the
assets totaling less than $2,000 in each year. No listing of inventory
appears in the exhibit. No showing was made as to the origin or purpose
of the instrument of which Exhibit 90 purports to be a copy or how such
instrument got into accountant's file or who made it. The instrument was
not signed by defendant, and there is no evidence that he ever saw it.
The offer of Exhibit 90 was objected to because of the indefiniteness of
what was copied. The court by its remarks indicated that the question of
proper identification of the exhibit had been raised.
We do not
believe the instrument of which Exhibit 90 purports to be a copy was
sufficiently identified to authorize the admission of Exhibit 90. See Olender
v.
United States
, 9 Cir., 210 Fed. (2d) 795, 805 [54-1 USTC ¶9254].
The question
now arises as to whether the erroneous admission of Exhibit 90
constituted prejudicial error. Errors which do not affect substantial
rights shall be disregarded. Rule 52(a), Rules of Criminal Procedure.
The test for determining whether error is prejudicial is set out in Kotteakos
v. United States, 328
U. S.
750, 765. The error is prejudicial unless the reviewing court can say
with fair assurance that the judgment of the jury was not swayed by the
error. In
Davis
v.
United States
, 8 Cir., 229 Fed. (2d) 181, we quote with approval from Williams
v. United States, 8 Cir., 265 Fed. 625, as follows (p. 187):
"Whether
prejudice results from the erroneous admission of evidence at a trial is
a question that should not be considered abstractly or by way of
detachment. The question is one of practical effect, when the trial as a
whole and all the circumstances of the proofs are regarded."
We now look to
the facts and circumstances of this case in the light of the foregoing
standards.
The basis fact
issue for the jury was whether defendant had the $100,000 currency hoard
which he claimed he had accumulated by 1936, and whether such hoard was
still on hand on
December 31, 19
47. Defendant had claimed that the poster business was a most profitable
business. The defendant had claimed on direct examination that in 1936
he had an inventory that cost him over $100,000. Upon cross-examination
he was unable to estimate the net worth of the poster business in 1936,
and couldn't say whether such net worth was $50,000 or $5,000. Defendant
conceded that after talking pictures came in in the late 1920's the
poster business was practically ruined and that by 1936 the business was
unprofitable. Defendant's income tax returns reflect that at least from
1934 until the sale of the poster business in 1940 the poster business
was not profitable. In exchange for the poster business in 1940
defendant received a 5-year employment contract from the purchaser,
calling for a salary of $8,000 a year.
To refute the
cash hoard claim, the Government relied principally upon defendant's
income tax returns and the financial statements defendant had given to
banks, and the fact that during the period defendant claimed the cash
hoard he borrowed money in substantial amounts on numerous occasions and
that he had mortgaged his home.
The amount of
the inventory of the poster business in the 1936 to 1940 period had
little, if any, bearing upon the determination of defendant's net worth
on
December 31, 19
47
. There was ample evidence to support the Government's net worth
computation without considering Exhibit 90. Upon the record before us we
can say with reasonable assurance that the admission in evidence of
Exhibit 90 had no substantial influence upon the verdict arrived at by
the jury, and hence we conclude that the admission of Exhibit 90 could
not constitute reversible error.
The court gave
the jury elaborate instructions which were very fair to the defendant
upon the net worth issue. An examination of the entire record convinces
us that defendant had a fair trial and that the trial court has
committed no prejudicial error.
The judgment
appealed from is affirmed.
[56-2 USTC ¶9630]Harvey N. Mighell,
Appellant v.
United States of America
, Appellee
(CA-10),
U. S. Court of Appeals, 10th Circuit, No. 5185, March Term, 1956, 233
F2d 731, 5/17/56, Affirming District Court (unreported)
[1939 Code Sec. 145(b)--substantially unchanged in 1954 Code Sec. 7201]
Crimes: Willful evasion of income taxes: Net worth method: Cash and
inventory at beginning of prosecution period.--The net worth method
was used by the prosecution. Appellant contended that he had a
substantial amount of cash and liquor inventory at the beginning of the
prosecution period. Conviction was affirmed on the grounds that there
was no direct and conclusive evidence of such cash and inventory and
that whatever evidence there was on those two items was for the
determination of the jury. Furthermore, in the instant net worth case,
the Government had followed all reasonable leads in an attempt to
establish the true facts.
Carl V. Rice
(Ernest J. Rice, Claude L. Rice, were with him on brief), for appellant.
Royce D. Sickler, Assistant United States Attorney (William C. Farmer,
United States Attorney, was with him on brief), for appellee.
Before
BRATTON, Chief Judge, HUXMAN and MURRAH,
United States
Circuit Judges.
HUXMAN,
District Judge:
This is an
appeal from a conviction in the United States District Court of Kansas
for criminal evasion of federal income taxes. Defendant, Harvey N.
Mighell, was found guilty under 26
U. S.
C. A. §145(b) on four counts for wilful failure to report substantial
amounts of his income in 1947, 1948, 1949 and 1950. He was fined $3,000
and sentenced to imprisonment for a period of two years on count one,
and to imprisonment for two years on each of the other three counts,
such sentences to run concurrently with each other and with the sentence
imposed on count one.
The proof for
the prosecution was based upon the net worth method, sanctioned with
limitations by the Supreme Court in Holland v. United States, 348
U. S. 121 (1954) [54-2 USTC ¶9714], and three companion cases. 1
It is admitted that defendant was actively engaged in the illegal
business of buying and selling liquor in
Kansas
prior to the prosecution period and during 1947. There is dispute over
whether such business continued in 1948 and later years. He also had
income during the prosecution period from farming, oil, hotel and cafe
partnerships, gambling, and some nonrecurring sources. A substantial
amount of evidence was presented concerning these various dealings. The
appeal raises only two principal questions: (1) Did the Government
satisfy its burden of proof to establish a substantially accurate net
worth statement as of the beginning of the prosecution period,
January 1, 19
47; and (2) did the government diligently pursue the leads which would
tend to support defendant's innocence?
There is
dispute over the inclusion or exclusion of several items in calculating
the net worth of defendant at the various crucial dates. The principal
controversy, however, is over alleged cash and liquor inventory which
defendant claims he had on hand at the beginning of the prosecution
period. The Government, in its presentation, gave defendant credit for
no liquor inventory and only $10,100 cash on hand as of
December 31, 19
46. Defendant claims he had approximately $115,000 in cash and liquor
inventory as of that date. If defendant's contention is true the excess
expenditures during the 1947 to 1950 period relied upon by the
Government are very largely explained since it is agreed that at the end
of 1950 defendant had only about $10,000 cash and no liquor on hand. The
burden of persuasion, of course, is upon the Government, and if we find
there was no evidence reasonably tending to support the jury's verdict
the judgment of conviction must be reversed.
[Government's
Evidence]
The
Government's computations established the net worth as of
December 31, 19
46 of $123,318.01, and a net worth at the end of 1950 of $233,803.58, an
increase of $110,485.57. The Government's evidence tending to support
its calculations of appellant's net worth status was as follows: From
1921 to 1928 defendant was a mechanic making an average of $110 per
month. Between 1929 and 1936 he farmed, was a mechanic and tinsmith and
bootlegged some whiskey. From 1938 to April, 1940 he was serving a
sentence in the Iowa State Penitentiary. Sometime during 1940 he was
divorced from his first wife, in which proceeding there was no property
settlement and no alimony award. According to his parole reports,
between April, 1940 and at least May, 1941 he worked on his father's
farm for $20 per month. During this time he reportedly received small
amounts of money--from $2 to $10--from time to time from his mother. A
1941 investigation by the Alcohol Tax Unit of the Internal Revenue
Department in
Iowa
found no assets of the defendant. On
November 14, 19
41, he placed a $414.30 chattel mortgage on a 1941 Ford automobile,
which he had or purchased.
During March
and April, 1942 he worked for the Cessna Aircraft Company for 60 cents
an hour. During the last six months of 1942 he was serving a
Missouri
sentence for transportation of liquir and had no earnings. In 1944 when
he purchased the home in
Russell
,
Kansas
, he mortgaged it for $5,000. It was shown that he had no substantial
inheritances or gifts. His first federal income tax return was filed in
1943. From 1943 through 1946 he reported a net income of approximately
$57,000.
Appellant was
married to his second and present wife in December, 1942. An
investigation showed that she had acquired no substantial amount by way
of gifts, loans, or inheritances. Here first federal income tax return
was filed in 1942 showing income of less than $2,400. She testified that
at the beginning of 1943 her assets amounted to about $1,000. This in
substance was the Government's evidence from which it prepared
appellant's net worth statement as of December, 1946.
[Appellant's
Evidence]
Appellant
offered substantially the following evidence. His son and his wife
testified that $50,000 cash was buried in 1943. A garage owner stated
that prior to 1945 appellant had left various amounts of cash of as much
as $38,000 with him from time to time for overnight safekeeping. Other
persons testified that he had large sums of money on different occasions
in the preprosecution period. Edward Flaherty, a former partner,
testified that for an operation as large as that of appellant's it would
take a bank roll of as much as $50,000.
There was
testimony concerning nearly $35,000 of mutilated or deteriorated money
turned over in 1950 to a bank in
Russell
,
Kansas
, and one in
Omaha
,
Nebraska
. Appellant's wife testified that she told an agent for the Government
that she put $26,000 of such money in the First National Bank of
Omaha
,
Nebraska
. A check by a government agent with that bank showed a deposit in that
amount but there was no record that it was deteriorated money.
The most that
can be said from this evidence is that it presented a conflict for the
jury's determination. No one other than appellant's wife testified that
appellant had on hand $50,000 or any substantial part thereof as
operating capital at the beginning of 1947. Neither was there any direct
evidence that there was on hand at any time a substantial liquor
inventory. We are in effect asked to presume that there must have been
on hand a large inventory in order to carry on illicit liquor operations
of such magnitude, but such a presumption disregards the very nature of
appellant's illegal business. His business was carried on in dry
territory close to the border of a state where the purchase of liquor
was lawful. It is unreasonable to presume, especially in the absence of
any evidence to the contrary, that rather than subject himself to search
and seizure appellant sent the trucks which he owned across the line by
stealth, loaded them with liquor, and transported it to its destination,
rather than keeping on hand in dry territory, where it was subject to
confiscation, large quantities from which to make deliveries. In any
event in the absence of any clear and convincing evidence that appellant
had on hand a substantial liquor inventory, the question at best was for
the jury.
Neither was
the evidence conclusive that there was a buried hoard of $50,000 or, if
there was, when it was buried. But even if we assume that such sum was
buried prior to 1947, it still leaves unaccounted for a very substantial
amount of unreported income, if the jury believed the Government's
evidence, as it apparently did.
[All
Reasonable Leads]
In the second
assignment of error it is urged that the Government failed to follow all
reasonable leads in an attempt to establish the true facts in its net
worth case, as required by
Holland
v.
United States
, supra, and kindred cases. Two instances of this failure to track
down leads are urged in connection with the buried money contention.
When Internal Revenue investigators were questioning appellant on
December 9, 19
52
, he mentioned the buried money and asserted that his son Roger had seen
him count it during the period prior to 1947. It is urged that the
Government erred in not interrogating the son. At this time appellant's
son was in the army. His address was furnished and it is urged that the
Government erred in not having someone near the boy's army camp
interrogate him on the claim of buried money before the father had time
to prepare him for the questioning. Appellant had stated to the
investigator that "I don't think he will answer any questions for
you." In view of that as well as the further fact that if the son
had corroborated his father's statement, it would not have conclusively
established the existence of such a buried hoard at that time, it is our
view that failure to interrogate the son did not constitute a violation
of the admonition of the Supreme Court.
With respect
to the cashing of the mutilated or deteriorated money in
Russell
,
Kansas
, and
Omaha
,
Nebraska
, it is urged that the Government should have done more checking than it
did. Appellant's wife told the agents that she put $26,000 of this money
in the First National Bank of
Omaha
,
Nebraska
. The agent did check with the bank and the records there showed such a
deposit but no record that it was deteriorated money and the agent did
not investigate further than writing to the Currency Redemption
Department. No hint was given by appellant's wife that the deteriorated
money had first been converted to good money at the Omaha National Bank
and the good bills then taken and placed in deposit in another bank. In
the absence of more information than the Government had, we do not think
it was required to check every bank in
Omaha
to see if deteriorated money had been redeemed there.
The instant
net worth case involves tracing transactions over a number of years.
Appellant's total net worth at the end of the prosecution period was
nearly a quarter of a million dollars. Taking this into account and the
further fact that books on a large part of the operation were
nonexistent, it seems inconceivable that all ends would be tied down and
no remote possibilities overlooked. It is our conclusion from a careful
examination of the entire record that the Government made a reasonable
effort to track down all sources of possible information in establishing
appellant's net worth and that there was no violation of the admonition
laid down by the Supreme Court in the Holland case.
AFFIRMED.
1
Friedberg v. United States, 348
U. S.
142 [54-2 USTC ¶9713]; Smith v. United States, 348
U. S.
147 [54-2 USTC ¶9715]; United States v. Calderon, 348
U. S.
160 [54-2 USTC ¶9712].
[56-1 USTC ¶9141]Golden C. Chinn,
Appellant v.
United States of America
, Appellee
(CA-4),
In the United States Court of Appeals for the Fourth Circuit, No. 7004,
228 F2d 151,
December 16, 19
55
Appeal from the United States District Court for the Northern District
of West Virginia, at Wheeling.
[1939 Code Sec. 145(b)--similar to 1954 Code Sec. 7201]
Wilful attempts to defeat and evade taxes: Fraudulent understatement
of income.--A jury found taxpayer guilty of tax evasion for the
years 1947 and 1949, and not guilty for 1948. On appeal, the court holds
that taxpayer was not denied the right to a speedy trial, since he at no
time demanded or sought an earlier trial on the indictment, and he was
tried as soon as the orderly conduct of the business of the court
permitted. The evidence supported the Government's recomputation of 1947
income by use of the net worth method and increases of 1949 for specific
unreported items. Taxpayer's counsel was not unduly restricted by the
trial court in his cross-examination of a Government witness.
L. E. Woods,
Jr. (Campbell, McNeer & Woods, and C. F. Bagley on brief), for
appellant. Vincent P. Russo, Department of Justice, and John R. Morris,
United States Attorney (H. Brian Holland, Assistant Attorney General,
and Joseph M. Howard, Department of Justice, on brief), for appellee.
Before PARKER,
Chief Judge, and SOPER and DOBIE, Circuit Judges.
DOBIE, Circuit
Judge:
On
April 6, 19
54, the grand jury for the Northern District of West Virginia returned a
four-count indictment against appellant Golden C. Chinn, charging him
with wilful attempts to defeat and evade a large part of his income
taxes for the years 1947 to 1950, inclusive, by filing and causing to be
filed returns fraudulently understating his net income in each year in
violation of Section 145(b), Internal Revenue Code of 1939. The amounts
of net income and the taxes due thereon, as reported on his returns and
as corrected, were alleged to be as follows:
Reported Corrected
Net Income Tax Net Income Tax
Count One (1947) ..$ 951.22 $ 74.00 $11,368.79 $2,821.63
Count Two (1948) ..2,243.99 235.00 5,924.93 1,022.34
Count Three (1949).3,385.26 417.00 4,992.54 809.02
Count Four (1950)..3,813.30 590.91 4,814.20 799.08
[The Trial]
The trial
commenced on
February 14, 19
55. Before the jury was empaneled, Chinn made a motion to dismiss the
indictment on the ground that he had been denied the right to a speedy
trial, in violation of the Sixth Amendment to the Constitution of the
United States
. The motion was denied. On
February 18, 19
55, at the conclusion of its case in chief, the Government moved to
dismiss count four of the indictment, and the motion was granted. Chinn
then moved for a judgment of acquittal on count three or, in the
alternative, that specific items of evidence be withdrawn from the
consideration of the jury, and for a judgment of acquittal on counts one
and two. These motions, as well as additional motions to withdraw
specific items of evidence from the jury's consideration, were denied.
On
February 22, 19
55, at the close of all the evidence, Chinn renewed his motions for
judgment of acquittal, which, again, were denied. On the same day the
jury returned a verdict of guilty as to counts one and three of the
indictment and of not guilty as to count two. Appellant's motion to set
aside the jury's verdict and for a new trial was overruled on
April 19, 19
55.
[The
Sentence]
Chinn was
sentenced to imprisonment for 18 months and fined $3,000.00 on each of
counts 1 and 3, the sentences of imprisonment to run concurrently, the
fines to be cumulative. Appeal to us had been duly taken by Chinn.
On this
appeal, three questions are presented:
[Issues]
(1) Whether
Chinn was denied the right to a speedy trial in violation of the Sixth
Amendment of the Constitution of the
United States of America
.
(2) Whether
the judgment of conviction is supported by substantial evidence.
(3) Whether
the court unduly restricted Chinn's counsel in his cross-examination of
the witness Dickinson.
[Right
to Speedy Trial]
We find no
merit in Chinn's contention that he was denied his right to a speedy
trial under the Sixth Amendment to the United States Constitution. Chinn
was indicted on
April 6, 19
54. His trial commenced on
February 14, 19
55, at Wheeling, West Virginia, before the Honorable Herbert S. Boreman,
who was appointed and entered on duty as United States District Judge
for the Northern District of West Virginia on
August 16, 19
54. Chinn was at large under a $5,000.00 bond. He, at no time, demanded
or sought an earlier trial on the indictment, and he was tried as soon
as the orderly conduct of the business of the court permitted.
This right to
a speedy trial is a personal right which may be waived if the accused
fails to claim this right timely. The fixing of a date for a criminal
trial in the federal courts is largely a matter in the discretion of the
trial judge. Nor can we find here any arbitrary, oppressive or vexatious
delay which was prejudicial to Chinn's rights. See, Morland v.
United States
, 193 Fed. (2d) 297, 298; Shepherd v.
United States
, 163 Fed. (2d) 974, 976, 191 Fed. (2d) 919; McDonald v.
Hudspeth, 113 Fed. (2d) 984, cert. den. 311
U. S.
683; Pietch v.
United States
, 110 Fed. (2d) 817, 819, cert. den. 310
U. S.
648.
[Evidence
Supports Jury Verdict]
This brings us
to the second question. We think the jury's verdict was supported by
substantial evidence. The record in this case, running into many hundred
pages, is large and complicated. There were many conflicts in the
evidence, involving questions of the credibility of witnesses. On
important points, the jury's verdict indicates clearly that these
conflicts were resolved against Chinn. To review this record in minute
detail would be utterly impracticable. We must, therefore, content
ourselves with comments on what we consider to be the record's most
salient features.
For the years
1913 to 1941, Chinn filed no returns. He filed a nontaxable return for
1942, a nonassessable return for 1943 and a return that reflected a tax
liability of $152 for the year 1944. For the year 1945, he filed a
declaration of estimated tax on which he paid $41.75; his final return
for the year disclosed no tax liability and $41.75 was refunded to him.
His return for 1946 was an "even" or nontaxable return.
The Government
employed the increase in net worth plus non-deductible expenditures
method of proof to establish the 1947 offense. Proof of the offense for
the year 1947 was supported by direct evidence of specific items of
unreported income. Proof of the 1949 offense was made only by direct
evidence of specific items of unreported income.
For the
calendar year 1947, Chinn reported gross receipts from rentals in the
amount of $5,535.00 and a taxable net income of $951.22. A carefully
prepared, detailed report by Agent Oxley showed by the net worth method
a taxable income of Chinn of $10,401.23, a showing a deficiency in
unreported income on Chinn's part of $9,450.01 for 1947.
In addition to
the net worth method, the Government introduced direct evidence of
specific items of unreported income on Chinn's part. Among these items
were taxable income from the sale of certain lots in
Proctorville
,
Ohio
, the sale of lots in
Chesapeake
,
Ohio
, and the sale of certain restaurant equipment to John Angelo. Moreover,
in 1946, Chinn built and subsequently operated a potato chip factory.
There was conflicting evidence both on the net worth statement of Oxley
for 1947, and on the specific items just mentioned. The record affords
evidence for the substantial accuracy of Oxley's computations and the
jury must have believed Oxley.
It seems at
least a bit odd that the only income reported by Chinn for 1947 was
income from rentals. Yet, during this year, he seems also to have been
rather actively engaged in buying, selling and trading in real estate,
buying, selling and trading in restaurant and beer equipment, lending
money at interest, and operating a potato chip factory.
The
Government's case for the year 1949 involved taxable income, not
reported by appellant, totalling $1,068.62, which consisted of a
short-term capital gain of $800.00 from his sale of 1402 Maple Avenue,
Kenova, West Virginia, to J. O. Meredith; $180.00 in interest from W. A.
Nixon; $87.86 in interest from Goodwin Preston; and $.76 in interest
from J. O. Meredith.
Here again
were there sharp conflicts in the evidence. Chinn claimed that the Nixon
interest was paid in 1951. Nixon's testimony, however, refuted this
contention. A photostatic copy of the note was admitted in evidence and
from an examination of the document it appeared, and the Government
contended, that the date on which the $180.00 interest payment was
recorded had been tampered with in that the figure "1951" had
been superimposed over the figure "1949." Also, Chinn claimed
that he received the
Preston
interest as trustee for a specified woman friend.
Preston
testified that he made all payments on the note to Chinn. Here, again,
it was the province of the jury to resolve questions of credibility and
the jury resolved them against Chinn.
In this case,
not only were there inconsistences in Chinn's testimony, but there were
a number of suspicious circumstances which well might have influenced
the jury in arriving at its verdict. Among these were Chinn's stories of
a hoard of concealed cash with his sister, some of which was placed in a
jar, covered with parawax and bacon grease and stored in an ice box.
Further is Chinn's claim that he made a gift of certain premises to his
woman friend, when he actually took from her a note secured by a deed of
trust, foreclosed the deed of trust and had title to these premises
vested in his own name. There were, too, instances of his taking title,
for no satisfactory reason, to property in the names of persons other
than himself.
Chinn
contended that the agents did not give him credit for cash on hand at
the beginning of 1947 and, therefore, did not correctly estimate his net
worth as of that date. It might well be that the agents were justified
in rejecting Chinn's somewhat incredible claims as to the possession of
this money at the beginning of the period.
For cases that
seem to uphold our views that there was here adequate evidence to
justify the jury's verdict, see United States v. Calderon, 348 U.
S. 160 [54-2 USTC ¶9712]; Smith v. United States, 348 U. S. 147
[54-2 USTC ¶9715]; Holland v. United States, 348 U. S. 121, 132
[54-2 USTC ¶9714]; United States v. Ragen, 314 U. S. 513 [42-1
USTC ¶9186]; Pinellas Ice Co. v. Commissioner, 287 U. S. 462 [3
USTC ¶1023]; Rollinger v. United States, 208 Fed. (2d) 109 [53-2
USTC ¶9647]; Jelaza v. United States, 179 Fed. (2d) 202 [50-1
USTC ¶9149]; Himmelfarb v. United States, 175 Fed. (2d) 924
[49-1 USTC ¶9313], cert. den. 338
U. S.
860; Rusk v. Commissioner, 53 Fed. (2d) 428 [2 USTC ¶819].
[Cross-Examination
of Government Witness]
Chinn contends
that the District Court prejudicially restricted him in his
cross-examination of the witness Dickinson with respect to
Dickinson
's testimony that he recommended a jeopardy assessment against Chinn in
1951. On his direct examination,
Dickinson
testified that as a result of an investigation he made at the Twentieth
Street Bank in
Huntington
,
West Virginia
, in 1951, he recommended a jeopardy assessment against Chinn. We find
no ground here for a reversal.
The scope and
extent of cross-examination is peculiarly within the sound discretion of
the trial judge.
United States
v. Hornstein, 176 Fed. (2d) 217, 220 [49-2 USTC ¶9326]; United
States v. Tandaric, 152 Fed. (2d) 3, 6, cert. den. 327
U. S.
786; Jelke v.
United States
, 255 Fed. 264, 288. Here, the question whether Chinn had property
in his name in excess of the amount of the jeopardy assessment levied
against him in 1951, had little relevancy or importance in connection
with the charges contained in the indictment.
[Judgment
Affirmed]
The judgment
of the District Court is affirmed.
Affirmed.
[54-1 USTC ¶9118]John W. Sasser,
Appellant v.
United States of America
, Appellee
(CA-5),
In the United States Court of Appeals for the Fifth Circuit, No. 14448,
December 9, 19
53, (208 F. (2d) 535)
Appeal from the United States District Court for the Northern District
of Georgia.
Penalties: Fraud: Evidence: Jury trial.--The taxpayer was
convicted of wilfully attempting to evade payment of income taxes in the
years 1945-1948 by filing false and fraudulent returns in violation of
Code Sec. 145(b). He had no records and his income had been recomputed
under the net worth method. The court held that on the evidence
presented, the jury was justified in rendering a verdict for conviction.
L. Eugene
McNatt,
Atlanta
,
Ga.
, for appellant. J. Ellis Mundy, United States Attorney, Herbert A.
Ringel, Assistant United States Attorney, Atlanta, Ga., for appellee.
Before
HUTCHESON, Chief Judge, and RUSSELL and RIVES, Circuit Judges.
RUSSELL,
Circuit Judge:
John W. Sasser
was convicted on four counts of an indictment which charged him with
wilfully attempting to evade a large part of his federal income taxes
for each of the years 1945, 1946, 1947 and 1948 by filing false and
fraudulent income tax returns for those years in violation of §145(b)
of the Internal Revenue Code, 26 U. S. C. A. §145(b). The Court imposed
a fine of $2,000, suspended the imposition of a sentence of imprisonment
and placed the defendant on probation for a period of two years.
The burden was
upon the government to prove beyond a reasonable doubt that the returns
filed by Sasser for each of the years contained in the indictment were
false and fraudulent and that by the filing of such returns Sasser
wilfully attempted to evade the payment of taxes lawfully due. The
primary contention urged by Sasser upon this appeal is that the
government did not meet this burden and that its evidence fails to prove
either that there were understatements of income or a wilful attempt to
evade payment of taxes.
The evidence
on behalf of the government as to the claimed understatements of income
is furnished largely by the testimony of two agents of the Bureau of
Internal Revenue who participated in the investigation of Sasser's
income tax returns. By their testimony, it was established that Sasser
and his wife had no visible source of income during the taxable years
other than the income derived from a grocery store and two liquor stores
owned and operated by Sasser during portions of those years. There was
evidence that Sasser received a small inheritance in 1947, and that his
wife was the recipient of a few small gifts of cash during the taxable
years which were not taken into account in determining the alleged
understatements of income. These items, however, were insubstantial.
[Use
of Bank Deposits and Withdrawals]
The taxpayer
maintained no records for the years under review, except that he had in
his possession bank statements showing deposits and withdrawals for the
years 1947 and 1948. From these statements and the cancelled checks in
Sasser's possession the agents attempted to reconstruct the taxpayer's
income for those two years. This was done by adding the total deposits
and subtracting from that sum redeposits and expenses paid by check. In
making these computations all expenses claimed on the income tax returns
were allowed, but those expenses which were not paid by check were
concluded to have been paid by cash which represented undeposited
receipts. Based upon this conclusion, which is certainly a reasonable
one under the circumstances, the gross sales represented by the adjusted
bank deposits were increased by the amount which the total expenses
claimed and allowed exceeded the amount of such expenses paid by check.
The final result thus obtained indicated that the taxpayer had
understated his income by approximately $10,000 in 1947, and by
approximately $4,500 in 1948.
[Net
Worth Method for 1945 and 1946]
Inasmuch as
there were no records available covering the years 1945 and 1946, the
agents resorted to what is commonly referred to as the "net
worth" or "increase in net worth" method to establish
Sasser's income for those years. This method was also used to
corroborate the understatements for the years 1947 and 1948 indicated by
the computations based upon the bank statements and checks. The net
worth method of reconstructing taxable income in cases where the
taxpayer has no records from which his actual income may be computed is
a hybrid method of determining income based upon the cost of assets
owned by the taxpayer at the beginning and at the end of each taxable
period. In cases where this method is used it is essential that the cost
of all assets owned by the taxpayer at the beginning and at the end of
the taxable year be established within a reasonable degree of certitude.
By subtracting the cost of the assets owned at the close of the year
from those owned at the beginning of the year and reducing the
difference by the sum of the taxpayer's liabilities at the close of the
year, his increase in net worth during the years may be established. Of
course, in order to compute the taxable income for the year it is
necessary to adjust this figure by adding to it personal expenditures
and reducing this sum by any non-taxable, or only partially taxable,
income.
[Agents
used "everything we could get our hands on"]
In computing
Sasser's increase in net worth the agents checked all evailable public
and private records and, to use the language of one of the agents,
"everything that we could get our hands on that related to the
case." They determined and so testified that his net worth as of
January 1, 19
45, was $42,262.42, which amount included, among other things, cash,
bank deposits, Postal Savings, Government Bonds, accounts receivable,
inventory, real estate and fixtures and equipment. With that figure and
those assets as a starting point they testified as to the cost basis of
all assets owned by Sasser as of December 31st of each succeeding year
through
December 31, 19
48. The value of these assets, reduced by the amount of outstanding
liabilities, showed that Sasser's net worth for each of the years was
increased by an amount greatly in excess of the net income reported on
his income tax returns.
During the
course of the investigation, Sasser submitted to the agents, at their
request, a statement showing his net worth for the years under review.
This statement was offered in evidence. All of the items contained
therein are in substantial agreement with those testified to by the
agents, except for the cash on hand at the beginning and end of the
years 1945 and 1946 and the inventory claimed to have been on hand as of
January 1st, 1945. It is therefore evident that the primary difference
between the evidence offered by the government and the taxpayer's
contentions relative to his increase in net worth relates to the cash
and inventory on hand as of
January 1, 19
45. On this crucial date, Sasser claimed to have had an estimated
inventory of $20,526.81. However, the closing inventory for the year
1944 and the opening inventory for the year 1945, as reflected by
Sasser's income tax returns for those years, was $2,640.11, the figure
accepted by the agents in determining Sasser's net worth. This figure is
consistent with the inventory shown on Sasser's income tax return for
the year ended
December 31, 19
43.
Sasser has
consistently contended that he had large sums of undeposited cash
secreted in his home and in a safe owned by his father prior to 1942. He
stated that beginning in 1940 he commenced converting this cash into
inventory and that in 1942 he had an inventory valued at approximately
$32,000. During the course of the investigation he told conflicting
stories to the agents regarding the amount of cash he had and where he
kept it. He accounted for this large amount of cash by saying that he
had saved it from his earnings, which were admittedly modest, over a
period of years beginning in 1917. Notwithstanding the large amounts of
cash which he claimed to have had on hand, during the years immediately
prior to 1943 Sasser made purchases of equipment on the monthly
installment plan and was required to pay interest on the balances due.
Sasser told the agents that he had a considerable sum deposited in the
First National Bank at
Waycross
,
Georgia
, on
December 31, 19
40, but that he had been told that the bank records covering his account
for that year had been lost. On his net worth statement submitted to the
agents he estimated this deposit to be $9,500. At the trial there was
produced by the government records of the bank showing that on
December 31, 19
40, Sasser had only $578.51 credited to his account.
[Inventory
"Recorded" on Cards]
After telling
the agents that he had no records concerning the large inventory he
claimed to have had during the early 1940's, Sasser later produced six
small index cards on which were listed items which he said were
contained in the inventory. The agents testified that Sasser told them
that the cards had been prepared in August, 1941, and were a record of
the actual inventory he had on hand at that time. He further stated that
the cards, which showed signs of age, had been shifted around and he had
just found them. A witness for the government, testifying as an expert,
testified that in his opinion the writing on the cards was of recent
origin and that the cards had the appearance of having been deliberately
soiled so as to cause them to look as though they were original records.
Sasser denied that he told the agents that the cards had been prepared
in 1941 and testified that he and his son had prepared them from memory
in 1949 and that he told this to the agents.
All of these
facts were presented for consideration by the jury, as were Sasser's
denials and explanations of them. The case was submitted to the jury
under instructions which were not complained of. It was within the
province of the jury, as triers of the facts, to believe the evidence
offered by the government and to reject that offered by the defendant.
It is not the purpose of this Court to re-try the facts. Our inquiry
into them is limited to a determination of whether the admissible
evidence was sufficient to overcome the objections raised by the
defendant's motion for a judgment of acquittal and to sustain the
verdict. We think that it was. Considering the evidence in the light
most favorable to the government, as we must do upon this appeal, it is
evident that Sasser understated his income for each of the years
contained in the indictment by a substantial amount. It is true that
these amounts can not be determined with exactness. However, in order to
sustain the conviction, it is not necessary that the understatements be
proved to the exact dollar. It is sufficient to show that substantial
amounts of taxable income were unreported. United States v. Johnson,
319
U. S.
503, 517 [43-1 USTC ¶9470]. Likewise was the question of whether these
understatements were made wilfully with intent to evade payment of taxes
a fact issue peculiarly within the province of the jury. In making this
determination the jury could properly consider the amounts of the
understatements, the number of years for which they were made, the
equivocal statements made by the defendant to the agents, his attempts
to conceal the understatements and the absence of records reflecting his
income. Since in the final analysis each case must be decided upon its
own facts, it would serve no useful purpose to cite and discuss the
numerous cases dealing with this proposition. We think that under the
facts of this case the jury was warranted in finding that Sasser did
wilfully attempt to defeat and evade a large part of his income tax due
for each of the years by filing false and fraudulent income tax returns.
[All
Evidence Was Admissible]
Turning now to
the contention that much of the evidence offered by the government was
inadmissible for various reasons urged by the defendant, and that
without such evidence the record does not support the verdict, we find
it without merit. The only objections made to the testimony of the
agents was that it was premature, that until the corpus delicti
had been established such "expert testimony" was inadmissible.
The further objection was made that one of the agents had "lured
[Sasser] into taking certain actions that I say is a violation of his
constitutional rights." These objections apparently related to a
motion to suppress evidence filed before trial relative to "all
clues" obtained from certain documents and extra-judicial
admissions furnished by Sasser during the course of the investigation.
The claim of violation of Sasser's constitutional rights urged at the
trial and renewed here is clearly without foundation. The record shows
without dispute that in furnishing all documents and information Sasser
acted voluntarily. Neither does the record support the contention that
proof of the understatements of income rests wholly upon extrajudicial
admissions made by Sasser. The trial court properly overruled the motion
to suppress the evidence and admitted the testimony over the objections
urged. The government offered in evidence thirty items of documentary
evidence most of which were received over the defendant's objections. It
is now contended that the court erred in admitting in evidence fifteen
of these exhibits. We shall not consider each of these items separately,
but we conclude that they were admissible over the objections made at
the time of the trial.
We have
carefully considered all of the other points raised by the defendant,
but no reversible error has been found. The judgment is affirmed.
Judgment
affirmed.
[55-1 USTC ¶9499]Arthur H. Samish,
Appellant v.
United States of America
, Appellee
(CA-9),
In the United States Court of Appeals for the Ninth Circuit, No. 14,261,
223 F2d 358,
May 20, 19
55
On Appeal from the United States District Court for the Northern
District of California, Southern Division.
[1939 Code Sec. 145(b)--similar to 1954 Code Sec. 7201]
Tax evasion: Criminal prosecution: Admissibility and exclusion of
evidence: Instructions to jury.--Taxpayer was convicted of
attempting to evade payment of income taxes by not reporting on his
returns for tax years 1946-1951 a total of about $90,000 in checks drawn
by an advertising agency. The checks were made payable to taxpayer's
friends, associates, and relatives, and to fictitious persons. In
affirming the trial court, the appellate court ruled against taxpayer on
the following assignments of error: (1) the prosecutor improperly made
references to taxpayer's alleged gambling activities in his opening
statement and attempted to elicit foundation testimony to show the
gambling activities, which testimony was later stricken; (2) a schedule
prepared by the government summarizing the evidence concerning the
checks sent by the advertising agency to taxpayer was improperly
admitted; (3) the court improperly excluded some testimony of one
witness which might have further impeached the head of the advertising
agency; (4) the court improperly permitted a noted handwriting expert to
present opinion testimony on rebuttal that three checks had been
endorsed in the handwriting of taxpayer's associates; (5) the prosecutor
improperly commented in argument to the jury that taxpayer's secretary,
who was the payee on some of the checks, had not been called by taxpayer
as a witness; (6) the court gave two improper instructions to the jury
referring to the advertising agency's books and improperly refused to
give three requested instructions; and (7) the indictment was
insufficient and, alternatively, taxpayer was entitled to a bill of
particulars.
Harold C.
Faulkner, Wilbur F. Mathewson, Allan L. Fink, Melvin, Faulkner, Sheehan
& Wiseman, San Francisco, Calif., for appellant. Lloyd H. Burke,
United States Attorney,
Rob
ert H. Schnacke, Assistant United States Attorney, San Francisco,
Calif., for appellee.
Before DENMAN,
Chief Judge, CHAMBERS, Circuit Judge, and CLARK, District Judge.
CHAMBERS,
Circuit Judge:
Arthur H.
Samish appeals from his conviction on eight counts of an indictment
charging him with wilfully attempting to defeat and evade payment of
income taxes.
[Facts]
The alleged
income which he did not report on his income tax returns for the years
1946, 1947, 1948, 1949, 1950 and 1951 1
concerns a series of checks drawn by the Biow Company, a New York
advertising agency. The checks varied in amounts from $950 to $5,000. 2
At first the checks were payable to known Samish business associates,
relatives or simply friends. Later the checks as issued were written to
fictitious payees. With two or three exceptions, Samish admits receipt
of all the checks. Only one does he deny receiving.
In 1943 the
defendant played some part in getting for the Biow Company a substantial
portion of the advertising business of Schenley Distillers, a very fine
account for an advertising agency. Samish was a friend of Louis
Rosenstiel, chairman of the board of Schenley. The leading actors for
Biow in the events with which this court is concerned were Milton H.
Biow, president, and Morris Zinneman, treasurer. Biow's admit that in
making the remittances to Samish, for whatever reason the checks were
sent, they falsified their books in that they charged the amounts
thereof to various radio, television, magazine and newspaper accounts.
But orrally they stoutly maintained the checks were given Samish as
compensation for securing Biow the Schenley account. There clearly
appears to have been sufficient testimony to withstand the motion for
acquittal made by defendant at the end of plaintiff's case.
Defendant, as
well he may, admits that the evidence is sufficient to sustain the
jury's verdict. On the issue of unreported income, it can be said that
it is overwhelming.
From a
practical standpoint the defense of Samish was to "try" Biow.
And if Biow's low standard of morality as shown in the record is any
excuse for Samish, then Samish ought to go free.
Many of the
appellant's assignments of error concerned the Biow testimony in one way
or another. But first it seems proper to deal with Samish's story about
the checks. Eventually Samish, in defense, took the stand.
[Taxpayer's
Testimony]
Extensively,
portions of the Samish testimony are set forth seriatim, either verbatim
or summarized narratively:
1. In a
preliminary conversation with Al Lyon, president of Philip Morris Co.,
in 1944,
Lyon
said to Samish regarding Biow's obtaining the Schenley account,
"You are entitled to a finder's fee or some monies." Samish
replied, "Al, I am not interested in receiving anything for myself;
I represent Schenley interests; I can't--I can't take anything."
Said
Lyon
, "Well, don't be a fool. You are entitled to something. You have
got a lot of political contributions to make." Said Samish, "I
have some very fine personal friends, too."
2. Soon after,
Samish saw President Biow, and Samish says Biow said, "Art, we are
very appreciative of getting this Schenley account." Samish
continues that Biow told him that Mr. Lyon had talked to him about some
political contributions and gifts and said that if he (Samish) would go
to Mr. Zinneman he would have some checks for him.
3. Shortly
thereafter, Samish was dealing with Zinneman, Biow's treasurer, and
Zinneman reported, according to Samish, that Biow had talked to him, and
Zinneman asked Samish for the names for some checks. Samish says that he
suggested the use of his name. Zinneman protested that he didn't want
Samish's name and that he didn't even want Samish to endorse the checks,
for reasons which Zinneman said were his business. Thereupon, Samish
gave him some names for checks.
4. One of the
first checks received by Samish was in the amount of $2500 payable to
his secretary, Dorothy L. Ready. Of this he says, "I made a present
to her as a gift to her from Mr. Biow."
5. Another
check was handed by Samish to one Miss E. Mack. Samish says it was given
to Miss Mack "as a gift from Mr. Biow."
6. Another
check, says Samish, was handed to Mr. Frank Howard as a gift from the
Biow Company.
7. Another
check, in 1948, says Mr. Samish, was given to Miss Ready "as a gift
from Mr. Biow."
8. In 1949,
says Samish, he "handed a $2500 check to Miss Ready as a gift from
the Biow Company."
9. Another
check, in 1949, went to F. Howard, Samish's son-in-law, "as a gift
from the Biow Company."
10. In 1950, a
check went to A.
Rob
bins, a friend of Samish, "as a gift from the Biow Company."
Following the testimony concerning some of these presents, including the
Rob
bins check, Samish said, "Well, the reason being . . . the three or
four--I think it is four--that I gave these gifts to were close friends
and people who I liked and people who I wanted to do something for, like
I have done for many other people."
11. The checks
used for political purposes and payable to fictitious payees, Samish
related he was able to cash at various places without himself making any
endorsement thereon. Generally, he said, the proceeds of the checks went
into an envelope or political "kitty" which he usually kept in
his safe, although he did make some distribution of the proceeds of
checks which he cashed for political purposes in New York without taking
the checks to the envelope in his safe in San Francisco where he
ordinarily kept the "kitty." Generally Samish could not
identify the political recipients of the proceeds of the checks which he
reported were used for political purposes.