Bank Records and Net Worth Increases 2 Page4

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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.