Bank Records and Net Worth Increases
2 Page5
12. At another
point in his testimony concerning the transactions with President Biow,
Samish testified as follows: "I recall some kind of a conversation
wherein he stated that he wanted to compensate me or something of that
sort and I very definitely told him that under no circumstances can I
accept any compensation. I had no objection if he wanted to put me on
his payroll or anything, but as Mr. Lyon stated, and I stated to Mr.
Lyon at the time, that I explained to Mr. Biow that--* * * I told Mr.
Biow at the time during that conversation that under no circumstances
could I receive any compensation from him for the help of securing any
account, or--and he further stated to me during some conversation,
during the talk with Mr. Lyon, and I reiterated, that while I couldn't
receive any compensation, if he wanted to make some political
contributions or some gifts to some friends of mine who I would
indicate, that that was entirely up to him."
13. If further
appears from the Samish testimony that Treasurer Zinneman did not know
any of the live payees, and that Zinneman showed no interest in the
identity of the payee. Further, in the early stages of the series of
check transactions, Samish furnished all of the names of the payees.
14. Samish was
asked if he remembered any political campaigns in which the Biow Company
had any interest whatsoever. He replied, "What would they have an
interest in campaigns for?" Then he was asked, "These were
political contributions that were to be made for the Biow Company, were
they not?" His response was, "Not to my knowledge." Then,
to the question, "They were political contributions to be made by
you, is that correct?" he responded, "They were political
contributions. I don't say the year 1944, but whenever they were made,
given to me to use at my discretion." Then, following the question,
"In any way that you saw fit, is that right?" he answered,
"Well, I would think so, having in mind they had a full knowledge
that I was concerned about political contributions."
15. Again,
Samish was asked, "Do you know of any campaign in
California
in 1944 in which the Biow Company had an interest?" To this he
replied, "I would say no."
16. Again
concerning the earlier checks, Samish said, "Well, I believe that
Zinneman would call me and ask me for some names and I would give them
to him." Samish, however, contends that all amounts were fixed by
the Biow Company.
17. Later on,
Samish testified that many names he supplied Biow were the names of
persons that "I had some knowledge of, that I was sure wouldn't
have any objection to their name being used." At another time
Samish says, "The Biow money, the Biow political contributions,
made it possible for me to be more generous at times with political
contributions than I could ordinarily be."
18. To the
question, "Did you feel there was anything wrong about the fact
that you were taking money from the Biow Company," Samish replied,
"No, sir."
19. Again, the
Biow money "was just an accumulation of money that was there [in
Samish's safe] to be used for political purposes--political
campaigns."
[Effect
of Testimony]
This court is
of the opinion that Samish's own testimony concerning all of the checks
except four shows almost conclusively that the money (the four checks
excepted) received from the controversial checks was taxable income. One
begins with the business background. Samish, without question, had done
Biow a huge business favor. Biow offers to pay Samish. Can Samish avoid
tax liability by saying, "You can't pay me. But you can make some
gifts to friends of mine [not yours]. Give me the checks. Let me present
them. And you can also give me some political money"? Someone owned
the checks at the moment they were in Samish's hands. That man was
Samish. Someone owned the proceeds of the political checks while he held
the proceeds. That owner was Samish until he disbursed them. See Old
Colony Trust Co. v. C. I. R., 279
U. S.
716 [1 USTC ¶408]. The facts might admit of some other conclusion if
Biow had any knowledge or affection for any of those whom Samish
describes as his "fine friends" who received some of the
"gift" checks. As to the "political" checks, the
result might be otherwise if Samish had not stated that Biow had no
interest in Samish's political operations. It is negatived that Biow had
any political objectives, either generally or specifically, in
California
or anywhere else. Biow did not even say, "You know what we believe
in. Put our money where you think it will generally vindicate what we
believe in."
It well may be
that the testimony of Samish as to the "whys" and
"hows" of the Biow checks is untrue. Certainly it stretches
human credence to believe that he knew so little as he said he did about
the proceeds of any given "political" checks. And it amazes
one to hear that he would be able time after time to cash checks made to
fictitious payees without a word of explanation to the person cashing as
to the lack of endorsement.
On the whole,
this court deems that the Samish "alibi" is almost a judicial
admission from the witness stand that the checks (four excepted) were
income. Certainly the defendant is not entitled to a better set of facts
than he unmistakably claims them to be.
Judicial
admissions from the stand are something to be accepted cautiously as
concluding an issue. For example, if testimony of a defendant as to a
fact is essentially one of opinion, such as speed, the time a car
entered an intersection, the point of impact, undoubtedly a party is
entitled to have the jury consider more favorable testimony than his
own.
However, here
had Samish paid his taxes, sued the collector for his taxes back, as he
tells the story a trial judge might have been justified in instructing
the jury that these particular "gifts" and
"contributions" to Samish or through Samish were Samish's
income. It appears that the opinion of Mr. Justice Douglas in
Rob
ertson v.
United States
, 343
U. S.
711, 713 [52-1 USTC ¶9343], almost goes this far. 3
However, this court is not sure that the opinion positively eliminates
the element of intent on the part of the payor, Biow. Therefore, this
decision will assume that the intent of Biow remained material to the
issue of income or gift. But this court does not hold that one who has
performed services of value to another for which he is entitled to be
paid--which the recipient proposes to pay--can remove the payments from
income to gift by his uniliateral act of saying, "Don't pay me.
Just give me some sizable gifts."
Even if the
trial court would have been justified in telling the jury that the
checks (four excepted) represented reportable income, that would not
amount to a directed verdict in favor of the government. Even when there
are no issues left for a defendant, a jury has the power to find the
defendant not guilty.
And if
Samish's own testimony proved the payments were taxable, he would not be
stripped of defenses. The question of wilfully attempting to defeat and
avoid payment would be still wide open. For example, Samish says his tax
consultant had all the facts as to the checks from Biow. He relied on
the tax consultant, now dead. He paid no attention to the returns, he
said, except to look for the "X" on the signature line where
he was supposed to sign. If the jury believed this portion of the alibi,
certainly there was nothing wilful about his failure to report and pay.
[Gambling
Activities]
Defendant's
first major assignment of error concerns the fact that the United States
attorney in his opening statement told the jury that he would prove that
appellant gambled a million and a half dollars in the year 1949 and won
$25,000 which he failed to report in his income tax return. In
aggravation of this statement, says the defendant, three witnesses laid
a foundation (or attempted to) for the admission of certain gambling
house records which tended to connect Samish with certain betting
transactions. Countering this, the government says the records were
admissible and were improperly excluded. Whether the records were
admissible will not be here decided beyond saying that the records
presented a very close question as to whether they should be received. A
very important consideration in determining whether the defendant had a
fair trial is to ascertain if the government was overreaching. An
examination of the record indicates that the records were such that the
United States
attorney had a duty to try his level best to get the records in
evidence. If he failed, should that result in a mistrial? One
necessarily must read the whole record. First, with respect to the
residual effect in the jury's mind after the foundation testimony of the
three witnesses was stricken, it is doubtful under all the circumstances
if there was any prejudice to the defendant. The trial judge considered
whether any prejudice had been done and instructed the jurors to
disregard the testimony. The collapse of the government's witnesses
probably inflicted damage only on the government. Generally the defense
so quickly and successfully moved the case back into the yard of Biow
for so much of the time and the issues for days after left this matter
of the "gambling income" so far behind that only a captious
appraisal of the case would hold that these early incidents of the case
were prejudicial.
[Summary
of Checks]
Defendant
complains of a schedule prepared by a revenue agent summarizing the
evidence concerning the many Biow checks sent to Samish. Items of the
summary listed the check number, date of check, Samish's whereabouts on
date of issue, what evidence (Samish's travel record or hotel record)
pointed to Samish's whereabouts on the date in question, the amount of
the check, the name of the drawee bank, the date cashed or deposited,
the record as to Samish's whereabouts on the latter date, and a list of
endorsements on the various checks. The receipt of the summary as to the
checks seems entirely proper. Wigmore on Evidence, 3d Ed., Sec. 1230. Papadakis
v.
United States
, 9 Cir., 208 Fed. (2d) 945 [54-1 USTC ¶9137]; United States v.
Kelley, 2 Cir., 105 Fed. (2d) 912 [39-2 USTC ¶9621]. But assuming
arguendo that the exhibit was improperly admitted, it cannot be said
that the summary in any way weakened Samish's two main points that the
checks were gifts and that his failure to report the payments, if they
were reportable, was the fault of his tax consultant.
[Exclusion
of Testimony]
Samish assigns
as error the fact that he was not permitted to impeach, by the witness
Lyon, Biow's version of a telephone conversation, Biow on one end and
Lyon
and Samish successively on the other. Biow and Samish told diametrically
opposite stories as to whether in certain conversations Biow admitted he
had wronged Samish by certain statements he and Zinneman had given to
internal revenue agents. The statements generally were in accord with
the Biow testimony given later upon the trial. It appears that the Biow
testimony was probably of such materiality as to be impeachable by
contradictory statements. Even the alleged statements of Biow might have
furnished affirmative evidence for Samish. (The latter point is not
decided.) But a reading of the testimony and the record of the colloquy
of court and counsel leaves this court with an abiding doubt as to
whether the trial court did reject the testimony on the ground an
inadequate foundation had been laid or other grounds. A trial judge in
determining the sufficiency of a foundation necessarily must be
permitted considerable latitude. 4
While the court was rather firm in its rulings on the testimony, it
would not be appropriate to find error in the rulings unless there were
a better showing of a foundation. For example, counsel for appellant,
while interrogating
Lyon
, apparently misspoke and used the wrong date by two months as the date
of the conversation. Perhaps the court knew what conversation counsel
meant, and again, it might not have. Hence, in the condition of the
record, a contention of error cannot be sustained.
Furthermore,
assuming the exclusion was error, it is to be pointed out that Samish
had on many points impeached Biow. The testimony, if admitted, does not
produce the belief that it would have tended to swing the scales. The
whole evidence of the case is so overwhelming against Samish and
particularly his own story, so difficult of belief, was so damning that
it doesn't appear that Samish was hurt by a ruling which limited him to
showing on one more point that Biow was unworthly of belief. Little
doubt can there be that if the jury had had Biow within its reach it
would have found him guilty of most any charge selected at random.
[Handwriting
Expert]
Error is
assigned in permitting the noted handwriting expert, Clark Sellers, to
present opinion testimony on rebuttal that three checks, the receipt of
which was questioned by Samish, had been endorsed in the handwriting of
associates of Samish. It may be assumed that the testimony would have
been proper for the case in chief. But certain testimony may be proper
both in chief and in rebuttal. The offering of the testimony at the
beginning may not seem necessary at the moment, and while prosecutors
have a duty to play fair with defendants, it is not unfair to offer
testimony on rebuttal which is proper rebuttal, although it might have
been offered in chief. Also, whether the point was to be proved by
Sellers or by other witnesses is within the prosecutor's discretion. The
contention that Sellers' testimony was not material is without merit.
Much of the complaint of Samish about Sellers is that Sellers was a
great showman. But no indication appears in the record of any
impropriety on the part of the witness. How could a rule be sustained
excluding a witness because he is a good actor? Such a rule might also
be extended to good actors who are defense attorneys or prosecutors.
[Prosecutor's
Comment]
Next the
defendant complains that the prosecutor commented in argument to the
jury that Dorothy Ready was Samish's secretary and he had not called her
as a witness. Actually she was held throughout the trial on a subpoena
issued at the request of plaintiff. Defendant promptly complained about
the remarks, but the court did nothing about the complaint. Reliance is
placed upon Himmelfarb v. United States, 9 Cir., 175 Fed. (2d)
924 [49-1 USTC ¶9313]. In Himmelfarb it appears the witnesses
not called probably were witnesses with no particular connection with
either side of the case. Practically and legally the witnesses in Himmelfarb
were available to either side of the case. Here in the context of the
district attorney's reference to Miss Ready there appears that little
damage could have been done to the defendant. Furthermore, it would seem
that any rules restricting comment on failure to produce witnesses
should be restricted to those who are available both legally and
practically to one side. Wigmore on Evidence, 3d Ed., Sec. 288. To say
that Miss Ready was equally available to both sides is to ignore plain
facts. Miss Ready was the faithful secretary to Samish for years. He so
testified. It is not to reflect on her integrity to say that she
undoubtedly continued to see events through his eyes. The relationship
here is like that in United States v. Beekman, 2 Cir., 155 Fed.
(2d) 580, where a party's employee was held not equally available to his
opponent as a witness and the court found no error in his opponent's
comment on the failure to call him. Also, Samish's failure to call his
secretary well could have been because he feared her testimony under
cross-examination might increase the evidence that the creation of the
check payees was a farcical deception making clearer the payments to
Samish as income to him and possibly show to the jury her belief in his
guilt.
[Court's
Instructions]
The court gave
the following instruction:
"The
law does not require that any taxpayer segregate his deductible expenses
in any way, nor that any deductible expenses be carried on the
taxpayer's books under any particular account name. If an item of
expense, such as commissions, is included in the total deductible
expenses on any taxpayer's books, it is immaterial under which
particular deductible expense account it might appear. All ordinary
and necessary expenses incurred in carrying on a business, including
compensation for personal services rendered, are allowed as a
deduction." (Italics added.)
The
defendant complains vigorously of the giving of this instruction.
Better would
it have been if the instruction had not been given. It does seem to pass
lightly over the keeping of dishonest books.
Looking for a
moment at the fact issues involved, it seems that the books were
admissible at the outset to show the intent of Biow in the matter. The
false books show an intent to treat the payment as business expense.
Possibly they are also susceptible of some inference that Biow intended
to make Samish presents of the questioned checks. It is doubtful if any
juryman, instructions notwithstanding, would still think Biow kept his
books honestly or that the court had told him that Biow did. At any
event, in view of the overwhelming testimony of the whole case, it is
not to be said that the instructions were prejudicial to the defendant.
But under the instructions as a whole, it appears that the jury was
still entitled to use the false books as evidence of an intent to make a
gift. Read in the right of all the instructions, the one in particular
complained of now has been overemphasized by appellant. Further, the
interpretation of defendant begs the question. Read the instruction
closely. The effect is: No harm is done if a taxpayer puts a deductible
item under the wrong class of deductions, it is still deductible. The
instruction does not purport to say the checks were not gifts or that it
cannot be inferred from the false bookkeeping that the items were gifts.
The instruction begins, "If an item of expense such as commissions,
etc." This did not tell the jury that the checks were properly
entered as commissions. The defendant exploited to the Nth degree the
disdeeds of Biow. This instruction did not stop him or seriously cramp
him.
Also,
complaint is made of this instruction:
"If
you find it to be a fact that the Biow Company charged to business
expenses any payments that you may find to have been made to the
defendant, you may consider that fact among other facts in determining
whether or not the Biow Company intended such payments to be
gifts."
This
instruction permits the jury to consider how the entries were made. If
the books were admissible, as they were, the instruction was proper. A
close reading of the instruction would indicate that the instruction
lets the jury find either "gift" or "no gift."
Furthermore, the instruction looks far more appropriate in context,
which always must be considered.
The court
failed to give three instructions suggested by defendant. As to these
instructions, defendant gave no ground for his exception when he
excepted. Disregarding this failure, the court's choice was correct. One
instruction was adequately covered elsewhere. The giving of the
instruction would have placed emphasis on certain testimony to which
emphasis defendant was not entitled. The other two instructions
concerned matters which were not real substantial issues in the case.
Lastly, the
defendant complains that the indictment was insufficient and,
alternatively, that he was entitled to a bill of particulars. In
essence, the indictment charged how much taxable income the defendant
failed to report each year in question but did not specify the source or
detail of particular income omitted. Defendant is concluded on this
matter by this court's decision upholding a similar indictment in the Himmelfarb
case, supra.
On the whole
record, it appears that defendant had a fair trial. If there be slight
error in the record, it could not have changed the outcome in this case,
in this court's view.
Defendant's
representation below and here was exceptionally good. Defendant, as most
defendants must, made the hard choice as to whether he would take the
witness stand. He elected to do so. If his story is true, objectively he
almost admits guilt. He pretty well discredited Biow and he was able to
exploit almost without limit the providential (for him) circumstance of
Biow's false books.
Primarily this
decision rests upon this court's belief that there was no error below,
but secondarily it rests upon the conclusion that if there was error in
the rulings on any or all of plaintiff's three main contentions 5
then it was harmless under the standards laid down in Kotteakos v.
United States, 328 U. S. 750. The main debatable issue really was
the matter of wilfulness. This the jury, properly instructed, found
against Samish.
The defendant
has been fairly convicted.
The judgment
is affirmed.
1
Samish, a resident of
California
, filed separate returns for himself and his wife, Merced C. Samish, for
the years 1946 and 1947, splitting community income between the returns.
For the years 1948, 1949, 1950 and 1951 he filed joint returns. Each of
the eight returns was the subject of one count in the indictment.
2
The total of all checks proved was about $90,000.
3
See also Noel v. Parrott, 4 Cir., 15 Fed. (2d) 669 [1 USTC ¶184].
4
United States v. Angelo, 3 Cir., 153 Fed. (2d) 247; Atlantic
Greyhound Corporation v. Eddins, 4 Cir., 177 Fed. (2d) 954.
5
The subjects of these contentions were:
(a) The
references to gambling activities of Samish in the prosecutor's opening
statement and the foundation testimony to show gambling activities
(later stricken);
(b) Exclusion
of some testimony of the witness Lyon which might have further impeached
Biow;
(c) The
court's instructions which doubtless referred to Biow's books.
[55-1 USTC ¶9400]Samuel R. Beard,
Appellant v.
United States of America
, Appellee
(CA-4),
In the United States Court of Appeals for the Fourth Circuit, No. 6902,
222 F2d 68, 222 F2d 84,
April 15, 19
55
Appeal from the United States District Court for the District of
Maryland, at Baltimore.
[1939 Code Sec. 145(b)--similar to 1954 Code Sec. 7201]
Tax evasion: Trial: Gambling operations: Proof under net worth
method: Admission of evidence: Jury instructions.--The defendant was
convicted of violating 1939 Code Sec. 145(b) in failing to disclose
income from the operation of a gambling business with intent to evade
tax. The Government computed the defendant's taxable income by the net
worth method by ascertaining the extent of his assets from ledgers and
records of the bank, an investment counsellor of defendant, his
borrowers, the contents of a safe deposit box, land records, and the
records of automobile dealers. The liabilities were obtained from
records of mortgagees and depreciation was calculated at a definite
percentage per annum based on cost. The following assignments of error
by defendant were overruled: (1) that such proof was legally
insufficient to sustain the verdict of guilty, (2) that the Court
improperly instructed the jury that (a), in determining the issue as to
whether the defendant falsely filed the return, the jury might take into
consideration his failure or refusal to produce his books and records
for inspection when requested to do so by the Government agents and (b),
in arriving at their verdict, the jury might consider the failure of
defendant to offer an explanation of the discrepancy between his tax
returns and his income, (3) that the Government's attorney exceeded the
proper bounds of advocacy in his closing argument to the defendant's
detriment, (4) that the Court improperly admitted testimony to show the
nature and extent of the defendant's operations for a certain year, and
(5) that transcripts of defendant's checks taken from the microfilm of
the bank were improperly admitted.
Thomas J.
Kenney and Michael Gould (Joseph O. Kaiser on brief), for appellant.
George Cochran Doub, United States Attorney, and Walter E. Black, Jr.,
Assistant United States Attorney, for appellee.
Before PARKER,
Chief Judge, and SOPER and DOBIE, Circuit Judges.
SOPER, Circuit
Judge:
After a
lengthy trial in the District Court [54-1 USTC ¶9196], Samuel R. Beard
was convicted of violating Title 26 §145(b) of the Internal Revenue
Code under an indictment which charged that he wilfully and knowingly
attempted to defeat and evade a large part of the federal income tax due
by him for the year 1944 by filing a false and fraudulent return wherein
he stated that his net income for the year was $16,751.76 and the tax
thereon $5,555.88, whereas he knew that his net income was actually
$542,216.27 and the tax thereon $483,563.30. At the same time he was
acquitted of similar charges in another indictment with respect to the
years 1946 and 1947. Prosecution of similar charges as to 1945 was held
to be barred by limitations. He was sentenced to serve a term of five
years in prison and to pay a fine of $10,000. He appeals to this court
on the grounds (1) that the trial court erred in admitting certain
testimony; (2) that if this evidence had been excluded, the proof was
legally insufficient to sustain the verdict of guilty; (3) that
erroneous instructions were given to the jury, and (4) that the United
States Attorney exceeded the proper bounds of advocacy in his closing
argument to the detriment of the defendant.
[Sources
of Information]
The Government
undertook to compute the taxable income of the defendant first by
showing his receipts and disbursements and second by showing his net
worth in each of the years covered by the indictments. The evidence
offered by the Government tending to sustain the charge with reference
to the year 1944 may be summarized as follows: Beard was a resident of
Washington, D. C. On
March 15, 19
45 he filed a joint income tax return with his wife for the year 1944
with the Collector of Internal Revenue in
Baltimore
. This return disclosed a gross income of $17,337.07 consisting of
$5,005.43 in dividends and interest, $3,754.30 in rents and $8,577.34
from the business of the Lincoln Athletic Club in which Beard was a
partner; and it showed a net income of $16,751.56 on which a tax of
$5,555.58 was paid. The return was based on records maintained on behalf
of the taxpayer relating to legitimate transactions on his part, and it
is conceded by the Government that these records were substantially
correct and that the taxpayer correctly reported his income from these
sources.
The tax return
for 1944 contained no information as to income from any other business
under the caption "profit or loss from business or
profession." In other words, the return disclosed no income from
any source other than those above mentioned. It was shown, however, by
extensive undisputed testimony that during the year 1944 and subsequent
years Beard conducted a gambling business on a vast scale as a
bookmaker, dealing directly with the betting public, and also as a
"lay-off" man for other bookmakers who placed
"hedging" bets with him. For this purpose he maintained
establishments at 307 9th Street, N. W., Washington, D. C., and 3701
Bladensburg Road, Colmar Manor, Maryland, and another at 3603 38th
Street, Colmar Manor, Maryland, which he used in case of interference by
the police. The
Bladensburg Road
location was equipped with a battery of telephones and
Western Union
ticker service for prompt racing returns and other purposes of the
business.
The revenue
agents who investigated the case repeatedly requested Beard to produce
the records of his gambling operations. At first he agreed to do so but
later, on the advice of counsel, he refused to furnish them while the
criminal aspect of the charges was pending. Nevertheless the Government
agents were able to show that Beard deposited large sums of money in
joint bank accounts in the name of himself and his wife in the Bank of
Commerce and Savings in
Washington
, D. C. Therein he separately maintained an investment account, a
commercial account and two savings accounts, as well as two safe deposit
boxes. The deposits in the investment account in 1944 amounted to
$26,308.54 and the deposits and withdrawals in this account were
consistent with the figures on his tax return. The deposits in 1944 in
the commercial account amounted to $203,225.44 consisting of $44,149.44
in checks, $150,773.45 in currency and $8,302.55 in coin. The deposits
in this account, 85 in number in 1944, were made continuously throughout
the year. The total deposits were more than ten times the gross income
reported in his tax return for this year. 1
The Government agents were unable to identify withdrawals from this
account since they did not have access to the returned checks of the
defendant. In addition to the deposits in the investment account and the
commercial account, $15,377.70 was deposited in Beard's savings account
and $3,231.75 in his wife's savings account.
[Other
Investigative Sources]
Strong light
was thrown on the source of the deposits in Beard's commercial account
by an investigation of the amount of the out-of-town checks and money
orders received by him which he deposited or cashed at the Bank of
Commerce and Savings. This bank cleared through the Lincoln National
Bank in
Washington
. The microfilm records of the latter bank for the years 1944 to 1947,
representing hundreds of thousands of items, were meticulously examined
by the Government agents, and the items originating with Beard were
tabulated. The examination showed that during 1944 Beard received 854
checks and money orders drawn on out-of-state banks, and 1746 such items
during the four year period. They were drawn on 250 different banks in
150 cities in 36 states, including
New Hampshire
,
New York
,
Pennsylvania
,
Florida
,
Louisiana
,
Texas
,
Illinois
,
Ohio
,
Montana
,
Nebraska
,
Nevada
and
California
. The money orders were drawn in 19 cities located in 12 states. The
last endorser on all of these checks was the defendant Beard. The agents
prepared a tabulation of each one of the items showing the name of the
bank, the drawer, the payee and the amount; and the tabulations were
submitted to the defendant's attorneys two years before the trial. The
Beard items on the microfilm were photographed and were made available
to the defendant's attorneys long before the trial. The microfilms were
retained in the bank but they were produced in court at the time of the
trial.
All of the
checks and money orders were either deposited or cashed at the National
Bank of Commerce. They amounted in 1944 to $717,384.50, in 1945 to
$169,849.80, in 1946 to $217,610.83 and in 1947 to $109,504.71.
In addition to
the large number of out-of-town checks and money orders cashed or
deposited at the Bank of Commerce, it was shown that Beard handled large
sums of cash and local checks during 1944 and subsequent years. It was
his custom to bring or send to the Bank of Commerce two or three days
each week checks, currency and coins, the latter in a canvas bag, and to
exchange the proceeds for $100 bills or other bills of large
denomination. The sum total of these transactions for the entire year
1944 was not shown because no record of such items was kept by the Bank
until
June 15, 19
45 when records were set up under Treasury Regulations with respect to
abnormal currency transactions. These transactions amounted to
$443,593.69 for the period from June 15 to
December 31, 19
45, $925,379.84 for the year 1946, and $408,611.35 for the year 1947, or
a total of $1,777,584 for the two-and-a-half-year period.
A summary
taken from the records of the Bank of Commerce and Savings shows that
during the year 1944 Beard received the sum of $975,238.81, which
included deposits in the investment account $26,308.54, commercial
account $203,225.44, savings account $15,377.70, Building Association
$50.35, Mrs. Beard's savings account $3,235.98, out-of-town clearances
$717,384.50, local checks $9,656.30. This total does not include the
currency transactions in this year, of which there are no records, in
which Beard exchanged checks and currency for bills of large
denomination.
It was obvious
to the Government agents that the sums of money which passed through the
defendant's hands in 1944 did not fairly represent his net income; and
therefore they undertook an exhaustive search to ascertain what
deductions should be made for possible duplications, business expenses
and amounts not attributable to the defendant's gambling operations. For
this purpose the agents took the following steps: after first obtaining
his known expenses from the records of Frank Owings, an investment
counsellor of the defendant, the agents analyzed and investigated
Beard's investments and out-of-town clearances to determine what, if
any, duplication there might be between the two, and further to find, as
well as they could without access to Beard's gambling records and books,
what portion of the funds which passed through his hands constituted
taxable income.
Having found
for the four years a total of 1746 out-of-town clearance items on the
microfilm of the Lincoln National Bank, upon which Beard was the last
endorser, the Government agents attempted to locate all the drawers,
endorsers and remitters thereof and were successful as to 1200 of them,
some of whom appeared on more than one item and for large amounts. By
virtue of this search out-of-town items in the sum of $247,100.07 were
eliminated from the total for the year 1944 because the remitters
claimed that the checks were cashed by Beard for their accommodation,
and the agents accepted their statements.
The agents
also strove to eliminate duplications. It was the custom at the Bank of
Commerce and Savings for the teller to place a stamp on checks which
were cashed but not on checks which were deposited. Guided by this
circumstance the Government eliminated the deposits from the total of
out-of-town clearances since it was obvious that they had already been
included as deposits in one of Beard's accounts at the bank. In
addition, in order to eliminate possible duplications, a comparison was
made of the dates of all the checks which had been cashed with the dates
of currency deposits. Where, in any instance, the two coincided, it was
assumed that the proceeds of the check had been deposited and the amount
of the check was deducted to the extent it was represented by a deposit
on the same day. Additional deductions were made for business expenses
and gambling losses when they could be ascertained.
[Summary
of Facts]
As the result
of the information revealed by their searches, the agents made the
following deductions: (1) deposits in the defendant's investment account
in the bank comprising the sum of $16,436.34 which represented monies
received by Beard in payment of loans by him, and $4,775 from the
proceeds of bonds sold during the year; (2) a deposit of $532 in the
bank account of the defendant's wife; (3) out-of-town items in the
amount of $26,809 deposited in Beard's commercial account; (4)
$32,936.09 representing a possible duplication of the amount of
out-of-town checks cashed by the defendant and money deposited in the
defendant's commercial account; (5) the sum of $3,123.41 in out-of-town
items found to be a payment of loans made by Beard; (6) the sum of
$247,100.07 of out-of-town items which, according to statements made by
the drawers to the agent, represented checks cashed by Beard for their
accommodation; (7) deductions for business expenses for wire service
rental, bad checks and gambling losses in the sum of $35,279.05. The
aggregate of these items reduced the amount of the income chargeable to
Beard to the sum of $608,246.75.
This amount
was further reduced as the result of developments during the trial. The
Government produced a number of witnesses who had given out-of-town
checks in varying amounts to Beard in payment of gambling losses. On
cross examination some of these witnesses testified that on occasion
they has won bets with Beard and they identified certain of his checks
in payment, which his attorneys produced. These items were accordingly
deducted and, together with other corrections, reduced the unreported
income of Beard in 1944 to the sum of $517,383.89. From this amount an
exemption of $1,000 was deducted and after making allowance for the sum
of $5,555.88 previously paid by Beard as the tax of the year, a
deficiency of $454,664.98 was ascertained.
Net
Worth Method
The
Government, however, in proving its case did not rely entirely upon the
calculation which showed the monies passing through Beard's hands in the
course of his gambling business, and the deductions and eliminations
therefrom which the revenue agents were able to find. There was also an
earnest effort to ascertain the financial status and taxable income of
the defendant by comparing his net worth at the beginning and at the end
of each of the years covered by the indictments. The computation was
made by Samuel W. Ford, a revenue agent of the Treasury Department with
twenty years' experience, and E. Russell Kennedy, a special agent of the
Internal Revenue Service for 27 years. In making their investigations
the agents checked the land records of the
District of Columbia
and the nearby counties in
Maryland
and
Virginia
, visited over 80 banks and checked motor vehicle registries and
automobile dealers' records. They also examined the records of the
investment counsellor of Beard, and made contact with numerous persons
who had had transactions with the defendant. The purpose was to
ascertain the defendant's assets consisting of real estate, stocks,
bonds, bank accounts, currency, &c., and also his liabilities such
as mortgage liens, obligations to banks and brokers, personal loans and
debts.
The
computation as to 1944, except as to depreciation, was based on evidence
taken at the trial. It showed assets at the end of 1943 of $289,754.57,
consisting of cash in bank, loans receivable, war savings bonds,
automobiles, real estate, furniture and fixtures in a hotel and a
partnership interest in a barber shop; and liabilities of $45,260.77
consisting of deeds of trust or mortgages on real estate and
depreciation on buildings, furniture and fixtures, or a net worth of
$244,493.80. The corresponding figures at the end of 1944 showed assets
of $365,543.36 and liabilities of $43,485.91, or a net worth of
$325,057.45. Thus the increase in net worth during the year was
$80,563.65, to which was added income taxes of $9,241.21 paid during the
year, making a total increase in net worth in the sum of $89,804.86 for
the year 1944. The money spent for living expenses during the year,
usually added in a net worth statement, was not taken into consideration
since the figures were not available. The computation also showed a
progressive increase in net worth for the succeeding years, that is,
$58,723.42 in 1945, $61,355.17 in 1946 and $132,188.50 in 1947.
The sources
from which the figures were taken were explained. The asset
