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 assets were
ascertained from the ledgers and records of the bank, an investment
counsellor of the defendant, borrowers from the defendant, the contents
of a safe deposit box shown to the agents by the defendant, the land
records and the records of automobile dealers. The liabilities were
obtained from the records of the mortgagees and depreciation was
calculated at a definite percentage per annum based on cost.
The position
of the defendant in respect to the net worth method is that the evidence
was so uncertain as to have no probative force to show tax evasion, and
therefore the computation was inadmissible in evidence. It is said that
the agents did not establish a starting point with reasonable certainty
and in fact had no way of knowing the exact amount of the assets and
liabilities of the defendant either at the beginning or end of the year.
In this respect, however, the quality of the proof offered by the
Government did not differ materially from that usually employed in
criminal prosecutions when the Government is forced to estimate the net
worth of the defendant because he has failed to keep or refuses to
produce records of his business. It has been recognized in gambling
cases and in other cases of tax evasion that it is impossible for the
Government to prove the exact amounts of unreported income, and that to
require precision in computing the profits from an elaborately concealed
business would be tantamount to holding that skillful concealment is an
immovable barrier to proof. See United States v. Johnson, 319
U. S.
503, 517, 518 [43-1 USTC ¶9470].
[Objections
to Net Worth Method]
The evidence
outlined above clearly shows that the Government agents did make a
diligent search to ascertain the assets and liabilities of the
defendant. The specific criticism of the defendant is directed to three
points. (1) There was a failure to include in the assets at the
beginning of the year $4,775 of Home Owners Loan Corporation bonds which
were sold during the year. This omission was pointed out by the agent
himself in direct examination and, when taken into consideration, did
not materially affect the probative force of the evidence. (2) The
calculation does not make any allowance for cash on hand at the end of
December 31, 1943 notwithstanding abundant evidence that the defendant
was handling a large sum of money in the course of his gambling
business. The amount of cash on hand, other than cash in bank, at the
beginning and end of the year was not known to the agents, and therefore
could not be considered; but there was nothing to show that the amount
of cash on hand was greater at one end of the year than the other. The
contention of the defendant in this respect therefore loses
significance. The case is unlike that discussed in Holland v. United
States, 348 U. S. 121 [54-2 USTC ¶9714], and Friedberg v. United
States, 348 U. S. 142 [54-2 USTC ¶9713], in which the taxpayer
presented evidence of substantial cash on hand which was not allowed in
the net worth statement of the Government. Even in those cases a
conviction was sustained by reason of other aspects of the Government's
proof. (3) During the cross examination of the Government agents
defendant's attorney produced checks of the defendant in the sum of
$38,732.87 which were issued in December, 1944 but were outstanding and
not included in the liabilities of the defendant as of the end of the
year. The existence of these checks was not known to the agents until
they were produced by attorneys for the defendant during the trial; but
if they had been previously known it would not have been proper to have
taken them into consideration, unless the amount of outstanding checks
at the end of the previous year had also been known. Nothing in the
evidence indicates that the amount of outstanding checks was materially
different at the end of one year than at the end of the other, and if
they had been taken into account only at the end of 1944, the
computation would obviously have been distorted and incorrect. The
untenable position of the defendant is clearly shown by his offering in
evidence only the checks at the end of the year and his withholding of
the amount of outstanding checks at the beginning of the year. The
defendant's attorneys had access to his records and their failure to
produce those which would have made possible an exact calculation on the
particular point, justifies the inference that their production would
not have been to the defendant's interest.
The evidence
elicited by the two methods of proof used by the agents was in our
opinion sufficient to go to the jury as tending to prove the charges in
the indictment. Obviously and necessarily the computations were inexact
in the accounting sense, as is shown by the striking difference between
the results reached in the two calculations. It was clearly shown,
however, that the agents made diligent efforts to ascertain the true
facts and to run down every lead revealed by their searches and to give
to the defendant the benefit of any circumstance favorable to his side
of the case. It is quite likely that the expenses of the illegal
business were far greater than those which the agents were able to find,
but in view of the large sums of money received from all parts of the
country which passed through the hands of a professional gambler of long
experience over a considerable period of time, it is reasonable to
conclude that the enterprise was not unprofitable.
The defendant
relies on the testimony of eight Government witnesses as to their
gambling transactions with him which allegedly resulted in winnings of
$50,803.10 and losses of $71,682 in 1944. His attorneys state in their
brief that because of this state of the proof the defendant elected not
to take the stand and offered the testimony of two accountants whose
testimony was confined to the criticism of the accounting methods used
by the agents. The eight witnesses, however, constituted a very small
proportion of the persons dealing with the defendant and the attorneys
did not venture to explain why they produced from the defendant's
custody only those items which tended to support the defense and
withheld other items which would have shown the true nature and extent
of the business.
The
significance of deposits constantly made in the course of a lucrative
business as indicating taxable income is pointed out in Gleckmon v.
United States, 8 Cir., 80 Fed. (2d) 394, 399 [35-2 USTC ¶9645]; and
the impossibility in a case of this kind of presenting exact proof of
the receipts and disbursements and the permissible inferences to be
drawn from the operation of an illicit business are pointed out in the
following quotation from the decision of the Supreme Court in United
States v. Johnson, 319 U. S. 503, 517 [43-1 USTC ¶9470], in which
the conviction of tax evasion by a gambler on a magnificent scale was
sustained. The court said:
"*
* * That these gambling transactions were on an enormous scale was
overwhelmingly established. It is not to be expected that the actual
financial transactions of such a vast illicit business would appear by
direct proof. * * * The long duration of this gambling business, the
substantial evidence of the operation of the law of probability in favor
of the houses, such records as there were pertaining to the private
banking facilities and currency exchanges which were at the service of
these houses, made it not a matter of tenuous speculation but of solid
proof that there were winnings of a substantial amount which Johnson did
not report."
Admissibility
of Evidence
The first
objection of the defendant to the admissibility of evidence relates to
the transcript of the Beard checks taken from the microfilm of the
Lincoln National Bank. The evidence was offered in the following manner:
Microfilm copies of the checks made by the Bank by the Recordak process
in the usual course of business were brought into the courtroom in four
large boxes, and having been identified, remained in the courtroom
throughout the trial. They comprised 950 reels of microfilm, each
containing reproductions in miniature of approximately 1500 checks. From
the microfilm the Government made enlarged photographs of 854 checks
cashed or deposited in 1944 at the Bank of Commerce and Savings by Beard
or his wife, and bearing the signature of one or the other as last
endorser. These items were listed on a 19 page document which contained
as to each check the date, the bank on which it was drawn, the drawer,
the payee and the amount; and it also contained figures by which it
could be identified as one of the items in the microfilm. It was
prepared by ten revenue agents under the supervision of agent Samuel W.
Ford.
The defendant
contends that it was error on the part of the court to allow the
transcript of the checks to be introduced in evidence on the grounds (1)
that the reels themselves were not in evidence, (2) that the enlarged
photographs of the 854 checks selected should have been first produced
and (3) that the 19 page transcript was not properly identified by the
persons who prepared it.
It is obvious
that the microfilm itself was to all intents and purposes offered in
evidence since it was present in the courtroom and marked as an exhibit,
and it is equally clear that it was admissible in evidence as a record
kept by the bank in the due course of business under the provisions of
28 U. S. C. §695 which were declared to be competent evidence in the
case of United States v. Manton, 2 Cir., 107 Fed. (2d) 834.
The nature of
the objection that the enlarged photographs of the checks were not first
produced is not clearly shown and it does not appear that the failure of
the ten agents who prepared the transcript from the microfilm to testify
was in any way prejudicial to the defendant. It would of course have
been impossible for the court and jury to have personally examined the
million and more items contained in the microfilm, and to select those
pertinent to the case. The only practical course was to permit the
results of the investigation to be presented to the jury subject to the
examination and verification by attorneys for the defendant. It was
shown that the transcript had been furnished to the defendant three
years before the trial and the photographic copies of the checks two
years before, so that he had ample opportunity for inspection and
comparison. The accuracy of the transcript was demonstrated by the fact
that photographic copies of checks were produced from time to time
during the course of the trial and in no instance was it discovered that
there was any variation between them and the information contained in
the transcript.
It is true
that the agent in charge of the investigation, who appeared as a witness
in the case, did not personally compare each item on the transcript with
the photographic copy of the corresponding check, but the work of
preparing the transcript was made under his supervision and the ten men
who did the actual work were available as witnesses. It was indicated by
the judge that they would be produced if the attorneys for the defendant
desired to interrogate them. It is obvious that the evidence was
relevant and that the defendant was in no way prejudiced by the manner
in which it was produced. 2
The defendant
objected also to the ruling of the court admitting the testimony of
three employees of a telephone company who gave a detailed description
of the telephone equipment which they found at his various bookmaking
establishments in March and May, 1945. The contention is that since the
defendant was not on trial as to the year 1945, the evidence was
inadmissible to sustain the charges contained in the indictments. The
contention is hardly worth consideration since it was conceded during
the trial that the defendant was engaged in gambling operations
throughout the period from 1944 to 1947, inclusive. The evidence was
relevant as showing the nature and extent of the operations, and even as
to the year 1944 it was relevant on the question of the defendant's
intent since it showed his conduct at a time not far distant from the
period covered by the illegal operations for which he was indicted.
Certainly it was not prejudicial to show that the defendant was in
possession of facilities useful in the business in which it was admitted
that he was engaged. Emmich v.
United States
, 6 Cir., 298 Fed. 5 [1924 CCH ¶3481].
Instructions
of the Court
Objection was
made to an instruction of the trial judge that the jury in determining
the issue as to whether the defendant had wilfully filed a false return
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 charged with the duty of checking the accuracy of the
returns, as provided by 26 U. S. C. A. §3614. The instruction was in
the following words:
"Also,
I instruct you that the taxpayer who keeps records of books of account
is required to produce them at a reasonable time for inspection by the
duly authorized Government revenue agents in connection with their
admin
istrative duties in checking the correctness of the returns, and failure
or refusal of the taxpayer to produce his books and records for such
purpose is a circumstance which may be considered by you, the jury, in
determining the issue of whether he has wilfully filed a false return.
"In
this connection, I instruct you that the taxpayer may exercise his
constitutional right under the Fifth Amendment to the Constitution to
refuse to surrender or allow inspection of his books and records by
revenue agents on the ground that to do so might tend to incriminate him
in the event of criminal prosecution; and such constitutional privilege
against self incrimination is not impaired by the rule that the court
has just stated, that the taxpayer's failure to produce any books and
records that he may have, at a reasonable time for inspection by revenue
agents, is a circumstance which may be considered by you, the jury, in
determining the issue of wilfully filing a false return, in a criminal
proceeding such as this."
It is urged
that this instruction was erroneous because the production of the
taxpayer's records was not requested until
April 6, 19
48, more than three years after the 1944 return was made, by which time
the assessment of an additional tax was barred by limitations under 26
U. S. C. A. §275(a). It is conceded, however, that under §§ 3615 and
3633 of Title 26, the District Court has power to compel the production
of records even as to barred years, if the court find basis for a
suspicion of fraud; but since the agents did not apply for an order
under that statute, it is said that the defendant's refusal does not
justify an inference of wrongdoing. Particularly it is urged that to
permit an inference of guilt to be drawn from the failure of the
defendant to produce records which might incriminate him, would violate
the provision of the Fifth Amendment that no person shall be compelled
in any criminal case to be a witness against himself.
We find no
error in the instruction. For the purposes of this case it is immaterial
that the revenue agents did not apply to the court for an order
compelling the production of the records. Request was made of the
defendant and refused, and the natural and proper inference to be drawn
from the refusal, unless the defendant's constitutional rights are
thereby infringed, is that the records disclose improper conduct on his
part. A similar instruction in substantially the same form was sustained
in Myres v. United States, 8 Cir., 174 Fed. (2d) 329 [49-1 USTC
¶9275], and in Olson v. United States, 8 Cir., 191 Fed. (2d) 985
[51-2 USTC ¶9468]. Moreover, the instruction related to the duty
imposed by the taxing statutes upon the defendant to keep records of his
transactions so that the extent of his liability to income tax might be
ascertained; and therefore the case falls within the rule laid down in Shapiro
v. United States, 335 U. S. 1, which reviewed a conviction of
violating the regulations under the Emergency Price Control Act and held
that it was proper for the jury, in determining the issue of the
defendant's guilt, to consider the business records of the defendant
produced by him under a subpoena issued by authority of the statute. It
was held that all records which Congress in the exercise of its
constitutional powers may require individuals to keep in the conduct of
their affairs relating to the public interest become public records in
the sense that they fall outside the constitutional protection of the
Fifth Amendment. The court said: (335
U. S.
32-3)
"It
may be assumed at the outset that there are limits which the Government
cannot constitutionally exceed in requiring keeping of records which may
be inspected by an
admin
istrative agency and may be used in prosecuting statutory violations
committed by the record-keeper himself. But no serious misgiving that
those bounds have been overstepped would appear to be evoked when there
is a sufficient relation between the activity sought to be regulated and
the public concern so that the Government can constitutionally regulate
or forbid the basic activity concerned, and can constitutionally require
the keeping of particular records, subject to inspection by the
Administrator. It is not questioned here that Congress has
constitutional authority to prescribe commodity prices as a war
emergency measure, and that the licensing and record-keeping
requirements of the Price Control Act represent a legitimate exercise of
that power. Accordingly the principle enunciated in the Wilson
case (Wilson v. United States, 221 U. S. 361) and reaffirmed as
recently as the Davis case, (Davis v. United States, 328
U. S. 582) is clearly applicable here: namely, that the privilege which
exists as to private papers cannot be maintained in relation to 'records
required by law to be kept in order that there may be suitable
information of transactions which are the appropriate subjects of
governmental regulation and the enforcement of restrictions validly
established!"
The defendant
also contends that it was error for the judge in the course of his
charge to tell the jury that in arriving at their verdict they might
consider the failure of the defendant to offer an explanation of the
discrepancy between his tax returns and his income, as indicated by the
Government proof. The court said:
"Members
of the jury, having explained that there are several common methods, and
having explained generally, in outline, the two methods that the
Government has seen fit to employ here, I instruct you that under any
such method, you, the jury, may find that the taxpayer has been guilty
of fraud, wilfully committed for the purpose of evading the full amount
of tax that he owes, if, and only if, you shall find that, beyond a
reasonable doubt, there has been no evidence presented or an adequate
explanation of the discrepancies.
*
* *
"It
is true that the burden of proof resting upon the Government does not
shift, as the Court has explained, during the progress of the case. But
when, as here, in trial on charges of income tax evasion, discrepancies
are indicated by the Government's proof, the failure of the defendant to
offer explanation in any form may be considered by you, the jury, in
arriving at your verdict. It is not incumbent upon the Government to
adduce positive evidence to support a negative averment--the truth of
which is fairly indicated by established circumstances--if you should
find that to be true,--and which, if untrue, could be readily disproved
by the production of documents or other evidence, probably within the
defendant's possession or control."
This
instruction was part of a charge in which the jury was repeatedly told
in unmistakable language that the burden of proving the guilt of the
accused as to each of the charges in the indictments rested upon the
Government throughout the trial, and that the proof must be sufficient
to convince the jury of the defendant's guilt beyond a reasonable doubt;
and that the defendant had a constitutional right not to take the stand
and that his failure to do so did not weaken the presumption of
innocence which persisted throughout the trial.
We find no
error in the challenged portion of the charge given in this setting. It
was in accord with the decisions of this and other courts. See
Bell
v.
United States
, 4 Cir., 185 Fed. (2d) 302, 309 [50-2 USTC ¶9499]; Jelaza v.
United States, 4 Cir., 179 Fed. (2d) 202 [50-1 USTC ¶9149]; United
States v. Hornstein, 7 Cir., 176 Fed. (2d) 217 [49-2 USTC ¶9326]; Bradford
v. United States, 5 Cir., 130 Fed. (2d) 630. Even in Olender v.
United States
, 9 Cir., 210 Fed. (2) 795 [54-1 USTC ¶9254], where such an
instruction was criticized as tending to divert the attention of the
jury from the duty of the prosecution to prove its case beyond a
reasonable doubt, the court said (p. 509) that the challenged
instruction, considered as a part of the whole charge would not in
itself have required a reversal if other errors had not been committed
during the course of the trial. As far back as Yee Hem v. United
States, 268 U. S. 178, it was held that the compulsory
self-incriminating clause of the Fifth Amendment was not violated by a
statute which provided that the possession of illegally imported opium
should be deemed sufficient evidence of guilt, unless the defendant
should explain the possession to the satisfaction of the jury. In United
States v. Sullivan, 274 U. S. 259 [1 USTC ¶236], it was held that
the Fifth Amendment does not protect the recipient of illicit income
from prosecution for wilful failure to make an income tax return; and in
the very recent case of Holland v. United States, 348 U. S. 121,
138 [54-2 USTC ¶9714], it was said that "once the Government has
established its case the defendant remains quiet at his peril."
This observation is especially pertinent in this case where the
defendant, although availing himself of his undoubted right to remain
silent nevertheless put in evidence fragmentary portions of the records
of his business, admittedly in his possession, but nevertheless withheld
the writings which would have given a complete picture of his gambling
operations.
[Improper
Argument]
Finally it is
contended that the United States Attorney exceeded the proper bounds of
advocacy in his closing argument by appealing to the prejudices of the
jury and urging them to base their determination on irrelevant factors.
Specific objection is made to statements to the effect that the
defendant had operated one of the biggest gambling rackets in the
country for four years, that he had refused to prove the records of his
business which would doubtless have shown the payment of protection
money, and that if the Government were compelled to perform the
impossible task of proving defendant's expenses in order to secure a
conviction, not a single professional gambler in the United States would
ever pay an income tax. It is argued that it was prejudicial error for
the
United States
to bear down on the "extraneous circumstance" that the
defendant was violating the gambling laws, and to assert in the absence
of proof that his expenses must have consisted largely in bribing the
police. We do not consider that the remarks complained of went beyond
the bounds of permissible argument, or that they were prejudicial to the
defendant, especially as the trial judge fairly charged the jury and
directed their attention to the specific findings which they must make
in order to justify a conviction. It is manifest that the jury were not
diverted from their duty to consider the evidence in all its bearings,
since they found the defendant guilty only as to the year 1944 and
acquitted him of violating the statute with reference to the years 1946
and 1947.
The judgment
of the District Court is affirmed.
1
In 1945 deposits in this account exceeded $62,000; in 1946, $153,000;
and in 1947, $102,000, in each case far in excess of his reported income
for the year.
2
During the trial in the District Court the defendant moved that all of
the evidence of bank deposits be stricken because the bill of
particulars did not specifically state that they would be considered in
the course of the trial. The motion was properly overruled. The bill of
particulars stated that the internal revenue agents examined the records
of the Bank of Commerce and Savings in order to determine the unreported
income of the defendant and found that he had control of various deposit
accounts therein. The defendant excepted to the bill of particulars and
asked for a complete list of all of his checks that were not deposited
and was furnished with a complete list of all of the out-of town items.
Hence he was fully informed that his bank accounts would be used in the
course of the trial and there was no element of surprise when his
deposits were put in evidence. He was of course better acquainted with
the details of his transactions with the bank than the agents who had
prepared the case for trial. See Berger v.
United States
, 295
U. S.
78, 82. Land v.
United States
, 4 Cir., 177 Fed. (2d) 346.
[55-2 USTC ¶9608]C. Maxwell Brown,
Appellant v.
United States of America
, Appellee
(CA-6),
In the United States Court of Appeals for the Sixth Circuit, No. 11980,
224 F2d 845,
August 12, 19
55
Appeal from the United States District Court for the Western District of
Kentucky.
[1939 Code Sec. 145(b)--similar to 1954 Code Sec. 7201]
Criminal tax evasion: Accounting methods: Attorney at law:
Sufficiency of proof.--Taxpayer's conviction for wilfully attempting
to evade his 1946 and 1947 income taxes was upheld when review of the
record indicated (1) that taxpayer's testimony had been impeached by
credible witnesses who were his former clients and (2) that the net
worth reconstruction of income method, although carefully applied and
closely scrutinized, showed increases in net worth far in excess of
reported income.
Lee S. Jones,
J. Walter Clements,
Louisville
,
Ky.
(Helen R. Graft,
Louisville
,
Ky.
, was with them on brief), for appellant. Charles M. Allen, Assistant
United States Attorney,
Louisville
,
Ky.
(J. Leonard Walker, United States Attorney,
Louisville
,
Ky.
, was with him on brief), for appellee.
Before SIMONS,
Chief Judge, and ALLEN and MCALLISTER, Circuit Judges.
SIMONS, Chief
Judge:
From our
decision affirming his conviction for wilfully attempting to defeat and
evade income taxes for 1946 and 1947, the appellant sought certiorari
from the Supreme Court of the
United States
and the writ issued. In a series of cases wherein the "net
worth" method of proof was followed by conviction, the Supreme
Court undertook a general consideration of this technique, noted its
widespread use, and, while upholding its admissibility as circumstantial
evidence, cautioned a close scrutiny of its use because fraught with
danger to the innocent.
The cases
considered were Holland v. United States, 348
U. S.
121 [54-2 USTC ¶9714], Friedberg v. United States, 348
U. S.
142 [54-2 USTC ¶9713], Smith v. United States, 348
U. S.
147 [54-2 USTC ¶9715] and United States v. Calderon, 348
U. S.
160 [54-2 USTC ¶9712]. In each, conviction was upheld. The most
detailed discussion of the dangers residing in the "net worth"
method is to be found in the
Holland
case. Within a few days after these decisions were announced, the Court,
per curiam, without consideration of their merits, granted certiorari in
nine additional net worth cases. It set aside the affirmances therein
and remanded the cases to their respective circuits for consideration,
in the light of
Holland
and associated cases. This appeal is one of those remanded. It has now
been reargued and reconsidered by us in the light of the specific
cautions developed in the principal cases. We have also given study to
those cases that have been reconsidered in the Courts of Appeals since
their remand. They are Strauch, et al. v.
United States
, decided
June 13, 19
55
, (C. A. 6) [55-1 USTC ¶9507], Watts v. United States, 220 Fed.
(2d) 483 (C. A. 10) [55-1 USTC ¶9301], Beaty v.
United States
, 220 Fed. (2d) 681, (C. A. 4) [55-1 USTC ¶9331] and Burdick v.
United States, 221 Fed. (2d) 932, (C. A. 3) [55-1 USTC ¶9428]. None
has produced a result differing from the original decision.
The
government, in the present case, produced direct proof of specific items
of income omitted from the appellant's return and reinforced it by a
"net worth" computation. The appellant is a lawyer. His
clients gave evidence that they had paid him fees in 1946 of over
$4,000.00 more than was reported in his return for that year and of over
$5,000.00 more in 1947 not reported. The appellant, testifying at the
trial, conceded that he had received $7,300.00 in 1946 and $5,700.00 in
1947 which he had not returned as income and upon which he had paid no
tax. He explained his failure upon the ground that the fees were
contingent, that he had an oral contract with each of his clients that
in the event of inability to complete the work undertaken, because of
other commitments, he would refund all or part of the fees received,
that he had followed this practice from 1941 on through the prosecution
years, that, not being a tax lawyer, he had consulted counsel and was
advised that he was not obliged to report such income until his services
were completed, that when he later did complete the cases he included
such fees in his income tax returns for the years 1948 and 1949 and paid
the tax thereon.
The appellant
reported his income on the cash receipts and disbursements methods. In Healy
v. Commissioner, 345 U. S. 278, 281 [53-1 USTC ¶9292], it was
pointed out that one of the basic aspects for Federal Income Tax is that
there be an annual accounting of income and each item must be reported
in the year in which it is properly reportable and in no other. It
relied upon North American Oil v. Burnet, 286 U. S. 417 [3 USTC
¶943], wherein the Court, speaking through Mr. JUSTICE BRANDEIS, said:
"If a taxpayer receives earnings under a claim of right and without
restriction as to its disposition, he is required to return, even though
it may still be claimed that he is not entitled to retain the money and
even though he may still be adjudged liable to restore its
equivalent." There is a claim of right when funds are received and
treated by a taxpayer as belonging to him.
Had the
explanation of the appellant been believed by the jury, it might have
stood him in good stead on the question of wilfulness in failure to
report the fees as income during the prosecution years. The government,
however, introduced thirty-nine witnesses, most of them supporting its
position that unreported fees had been paid to the appellant for past
services in cases upon which no further work was to be done and which
were finally closed in 1946 and 1947. Only one testified to an
arrangement which, though not clear, was open to interpretation that
part of the fee paid was for future services and contingent upon their
being performed. There is no doubt that the appellant treated the money
as his own. While he had two bank accounts and a safety deposit box in
which he kept currency in varying amounts, their totals were never,
during the years involved, sufficient to make adequate refunds to
clients if he had been obliged to do so. This is, in effect, admitted by
the appellant's explanation that he could have sold his real estate and
automobiles, in the event that he had failed to perform. The jury was
justified in rejecting his explanation that the fees were contingent.
The obligation to pay the tax and the penalty for failure to truthfully
account for taxable income is unequivocally fixed by 26
U. S.
C. A. §145(b).
The government
also supported its direct evidence with computations made by Revenue
Agents, showing increases in net worth far in excess of reported income.
There was also a computation made by a former auditor of the appellant
which differed only slightly from that made by the Agents, based upon
information furnished by the taxpayer. This was evidence not privileged.
Gariepy v.
United States
, 189 Fed. (2d) 459 [51-1 USTC ¶9318], Himmelfarb v. United
States, 175 Fed. (2d) 924 [49-1 USTC ¶9313], Williston,
Evidence 3rd Ed. §2325. Concededly, the computations were but
approximations and lacked precision. They showed a result, however,
indicating a substantial increase in net worth in the prosecution years
over the amount of reported income. The admission of these computations
into evidence was not prejudicial, in the face of the taxpayer's own
evidence of failure to disclose income substantially in excess of what
the government's proof showed. In Strauch v.
United States
, supra, we sustained conviction of all three defendants upon ample
independent evidence. In United States v. Burdick, supra, it was
held that the conviction under review was fully sustainable without
resort to the net worth theory and, this being the case, it would
constitute a mere academic exercise to reconsider the net worth features
in the light of the guidance furnished by the Supreme Court with respect
to net worth prosecutions. It may be that in a case where the issue of
tax evasion may be close upon balanced direct evidence, prejudice might
be perceived in the introduction of a net worth statement subject to
criticism for infirmities therein. This is not that kind of case.
We have
examined the instructions of the Court to the jury and find no
prejudicial error there. In any event, no timely objections were made to
the net worth instructions, principally complained of, required by Rule
30 of Federal Rules of Criminal Procedure. Complaint is also made of
misconduct on the part of several jurors brought to the attention of the
Court by affidavits, and rejected. This not only runs counter to the
rule that jurors may not impeach their verdicts, Nicely v. United
States, 129 Fed. (2d) 357 (C. A. 6), but the affidavits were fully
and categorically met by the affidavits of other jurors. The Court knew
both the accusing jurors and those accused. He had, undoubtedly,
qualified them and had witnessed their conduct in other cases. He had
opportunity superior to ours in determining their credibility and
passing on their conduct. The Court's denial of a new trial upon this
ground is not clearly erroneous. The assailed judgment is affirmed.
[53-1 USTC ¶9357]
United States
v. James H. Boyer
In
the United States District Court for the Northern District of West
Virginia, No. A-6530, 110 FSupp 592,
March 6, 19
53
Evasion of taxes: Net worth and net worth increases: Evidence.--Defendant's
claim that there was no credible evidence to support the government's
net worth statement as of the year-end before the taxable years was not
substantiated where circumstances included the following: Government's
net worth figure was based on a signed and sworn statement by defendant,
made at a conference with government agents in the presence of his
accountant, and was supported by other evidence. There were no records
for prior years and evidence as to taxpayer's prior earnings did not
disprove the government's net worth figure, which was much lower than
that asserted by defendant. Defendant's statement of net worth was
derived by his accountants from a count of his cash about one week
before the trial and seven years after the crucial date and by making a
back calculation therefrom without adequate records. Also defendant
failed to corroborate his claim that there was a duplication of assets
listed in the Government's net worth statement, since it appeared that
all withdrawals from bank accounts were credited against expenditures or
purchases and that no other miscalculations had been made.
Howard Caplan,
United States Attorney, Milford Gibson and H. Clare Hess, Assistant
United States Attorneys, of Fairmont, W. Va., for the government.
Russell Furbee, C. Howard Hardesty, Jr., and A. Blake Billingslea, of
Fairmont
, W.
Va.
, for defendant.
WATKINS,
District Judge:
The defendant
was indicted on three counts under Section 145(b) of the Internal
Revenue Code, 26 U. S. C. A., Sec. 145(b), for attempting to defeat and
evade a large part of his income taxes for the years 1946, 1947, and
1948 by filing false and fraudulent returns for each year, wherein he
knowingly understated his net income and the amount of the tax. It was
charged that for the year 1946 he reported a net income of $5,215.13 and
a tax of $851.13, whereas his income was $37,855.81 and his tax
$16,647.78; and for the year 1947 he reported a net income of $4,981.15
and a tax of $794.06, whereas the income was $37,458.78 and the tax
$16,490.30; and for the year 1948 he reported a net income of $5,728.62
and a tax of $840.15, whereas the income was $13,644.45 and the tax
$3,140.18.
After a
ten-day trial defendant was found guilty by a jury of all three counts
of the indictment. He has now made a motion to set aside the verdict of
the jury and to award him a new trial. No exception was taken to the
charge of the court which the defendant says fairly and accurately
stated the law governing the case. Neither is there any complaint as to
the admission of testimony. Although eight grounds of error are alleged
in the written motion for a new trial, in brief and in oral argument the
defendant relies on only two points. First, he says there is no credible
evidence to support the net worth statement as of the beginning date
December 31, 19
45
, and second, that there is a duplication of assets listed in the
government's net worth statement.
[Government's
Case Based in Part on Net Worth Statements]
The
government's case consisted, in part, of net worth statements at the
beginning and end of each year, derived from available records, and also
oral and written admissions of the defendant to the revenue agents who
investigated the case. The defendant and three accountants testified and
gave their explanation of the discrepancies between the income reported
by the defendant and the much larger income shown by the net worth
statements, the admissions made by defendant and the evidence
corroborating such net worth statements. Upon this motion for a new
trial the sufficiency of the evidence must be viewed in the light most
favorable to the
United States
. Jalaza v.
United States
, 4 Cir., 179 Fed. (2d) 202 [50-1 USTC ¶9149]; Stinnett v.
United States, 4 Cir., 173 Fed. (2d) 129 [49-1 USTC ¶9217]. If we
are to consider the evidence in the light most favorable to the
United States
, we must look to the evidence offered by the Government. An examination
of the record shows that there is an abundance of credible evidence to
support the government's net worth statement showing the net worth of
the defendant at the beginning of the period under examination.
Nearly all of
the items shown on the government's net worth statement (Government's
Ex. No. 13) were agreed to in writing by the defendant. This written
stipulation (Stipulation No. 1) included nearly all of the assets and
liabilities of the defendant for each of the years in question,
including bank accounts, government bonds, loans and notes receivable,
real and personal property. It also included adjustment for living
expenses and non-taxable portion of capital gains. This net worth
computation had been made by government agents after examination of all
available papers and records of the defendant, his bank account, court
house records, and interviews with third parties with whom defendant had
transacted business. To save the time of producing all this proof, (it
being necessary to support each item in the net worth computation with
evidence before the net worth statement is admitted in evidence) the
defendant agreed and stipulated as mentioned above. The important item
omitted from the stipulation was the amount of cash on hand at the
beginning and end of each of the years 1946, 1947 and 1948. The
government's net worth statement showed cash on hand of $7,000 at the
beginning of 1946. At the trial defendant testified that he had $45,000
to $55,000 cash on hand on this date, which, if the jury believed to be
true, would have explained and accounted for that much of increase in
net worth. The government's net worth statement showed an increase in
net worth during these three years of $80,108.61 and unreported taxable
net income of $68,634.14.
During the
years in question defendant was engaged in the slot machine, pin ball,
music machine and pool room business. He also had a source of income
from football, basketball and baseball pools, punch boards, and
gambling. The slot machines, music machines and pinball machines were
placed in various clubs and places of business from which defendant
received a percentage of profits.
[Evidence
as to Cash Holdings at Beginning of First Taxable Year]
When the
government's net worth statement was introduced in evidence, showing
that the amount of cash on hand at the beginning period was $7,000 and
was the same at the beginning of each year thereafter, no objection was
made by the defendant. Any such objection would not have been well
taken, because, prior to its omission, the government had introduced
much evidence to support its figure of cash on hand.
Special Agents
Hanlon and Ervin both testified that in their initial interview with the
defendant on
July 18, 19
51, at his pool room, an inventory of the safe revealed approximately
$7,000 in currency, and that defendant told them this was money he had
been able to accumulate since he had been in business. Hanlon testified
that defendant stated! "I've built that $7,000 cash up from
1941", which he said was his operating capital and which he said he
had had on hand for a number of years and was built up from
December 31, 19
41. Defendant denied making these statements. Special Agent Ervin
testified:
"An
inventory of the safe revealed approximately $7,000 in currency which
Special Agent Hanlon asked Mr. Boyer was that the currency that had been
accumulated from the first of January, 1951, up to the date of the
interview. Mr. Boyer said no, he said that is the cash that I have been
able to accumulate over the years. So in order that there would be no
question of cash on hand, in order that the taxpayer would not be taxed
on an accumulation of cash, the $7,000 was carried back to being on hand
December 31, 19
45."
Subsequent
examination of such records of the taxpayer as were available, and other
evidence hereafter mentioned, corroborated this figure, with the result
that defendant on
November 19, 19
51, signed a written statement setting forth his assets and liabilities
as of
December 31, 19
45, the beginning date, in which statement cash on hand was listed at
$7,000. At the same time he signed another financial statement giving
his assets and liabilities as of
December 31, 19
50, in which his cash on hand is listed at $7,000. Defendant also signed
a statement giving his assets and liabilities as of
December 31, 19
41, in which he stated he had no cash on hand. At the same interview he
answered certain questions in writing in which he stated that on
December 31, 19
50, he had $7,000 cash on hand "Accumulated since 1941", and
no cash on hand
December 31, 19
41. All of these statements were signed and sworn to by the defendant in
the presence of Brill, his accountant, who had kept his books, and who
was present at the conference at the request of the defendant.
At the same
interview the defendant signed a written affidavit (Government Ex. #11),
in which he made the following statement:
"I
have gone over the net worth statements determined by the investigation
of Special Agent John F. Hanlon and Internal Revenue Agent William Ervin
and am in agreement with their findings. I wish to let it be known that
the unreported income determined through the agents' investigation
resulted in my failure to report gamblings winnings in the year 1945 to
1950 inclusive."
Defendant told
the government agents that he played poker, tip boards, and gambled. At
the end of the written questions and answers, the following appears:
117.
"Is there anything further you care to add to this record? No,
except to say that this understatement resulted in my failure to report
my gambling earnings."
Both the
affidavit and the questions and answers were signed and sworn to by the
defendant in the presence of his accountant A. D. Brill, who, on
January 15, 19
52, signed the following letter, addressed to Agent Hanlon:
"I
prepared tax reports for the years 1945 to 1950 inclusive. Sometime
during the year 1945, Mr. Boyer employed me to install bookkeeping
system for his business. The books and records were maintained by me
from information furnished by the tax payer. The said tax returns for
the years 1945 to 1950 inclusive were compiled from these records. At no
time did I even suspect that the tax payer (Mr. Boyer) was not reporting
his correct income. I was very much surprised while attending a
conference on
November 19, 19
51, in which it was learned that Mr. Boyer had failed to report his
correct income. Mr. Boyer explained in the conference that this
unreported income resulted from his failure in furnishing me with all of
his income.
"Very
truly yours,
A. D. Brill".
[Earnings Prior to Taxable Years Viewed as Corroborating Government's
Data]
The prior
income and earning history of the defendant is especially significant.
It corroborates the findings of the government agents as revealed by
their testimony and as set forth in the net worth statements, and shows
that the defendant could not possibly have had $55,000 accumulated in
cash on
January 1, 19
46.
1. Defendant's
prior earnings were as follows: 1919-1921, Stevenson Wholesale Co., $20
per week; 1921-1925, truck driver, $25 per week; 1926, worked in store,
$30 per week; 1928, steel worker, average $30 per week; 1930-1935,
worked for fruit company, $12 per week; 1935-1937, no employment;
1937-1939, worked for Millard Arnett, amusement machine operator, $12
per week.
2. In 1942
defendant bought out Millard Arnett for $8,000, of which he admits
$6,000 war borrowed. With reference to this purchase he signed a written
statement as follows: "I did not have any cash on hand so I am
presuming that the $8,000 capital investment consisted of a mixture or
combination of borrowed money and sale of war bonds." At the trial
defendant testified that when he borrowed this money he had $35,000 to
$40,000 cash on hand; that at the end of 1941 he had $25,000 to $30,000
cash on hand; and at the end of 1940 about $23,000 to $30,000 cash on
hand. Defendant stated that he kept this cash in dresser drawers at
home, at his place of business and in his machines, and other places.
3. He never
received any gifts or inheritance.
4. He never
filed an income tax return until the year 1940. His income reported
since 1940 was as follows: 1941, $6,909.70; 1942, $4,541.11; 1943,
$1,163.99; 1944, $4,601.20; 1945, $6,713.49. Total, 1941-1945,
inclusive, $23,929.49 In order to corroborate defendant's statement at
the trial that he had $45,000 to $55,000 cash on hand on
December 31, 19
45, the defendant's Exhibit #9 was introduced showing that in addition
to the total income of $23,929.49 reported in these years, defendant had
deducted depreciation aggregating $23,437.51, which added to the
reported income would make a total of $47,367.00 of income available for
the years 1941 through 1945. But upon cross-examination, Pearson, one of
defendant's accountants, admitted that the uncontradicted evidence in
the case showed that in these years the defendant had made expenditures
of $52,848.52, or $5,481.52 more than the total reported income plus
depreciation.
5. Defendant
purchased his first automobile in 1939 on credit and paid for it an
installments of $25.74 a month.
6. He produced
no record as to his cash on hand on
January 1, 19
46, making it necessary for the government to secure that information
from other sources.
7. On
July 18, 19
51, he told government agents that his net worth was around $10,000 on
January 1, 19
46.
[Large
Expenditures from Cash Not Kept in Any Bank]
Defendant made
large expenditures of cash or currency, which he did not keep in any
bank, and which cash expenditures were not reflected in his books and
records. In 1946, 1947 and 1948, the years under consideration,
defendant made expenditures in cash of $76,793.12, whereas he reported a
total income for these three years of only $15,924.90. According to his
tax returns for these three years he spent in cash $60,868.22 more than
he reported as income. Most of these cash expenditures were made in 1946
and 1947. In those two years his cash expenditures were $60,438.12,
whereas his reported income for those two years was $10,196.68, or his
cash expenditures were $50,241.84 more than his reported income. Almost
all of his business was transacted in cash.
Many of the
particular expenditures were unusually large to be made in currency. For
example: 1946, payment on Haymond property $5,000; advance of $5,000 for
improvements Haymond property; real estate purchase $2,800; loan $3,000;
loan $2,000. 1947, payment Haymond property $10,000; advance for
improvements Haymond property $10,000; loan $2,500; loan $2,171.14.
None of the
large cash expenditures mentioned above was reported to his accountant,
Brill, who kept his books at the time such expenditures were made, and
never appeared on the books in the year made. Cash expenditures which
were not recorded in his books were as follows: 1946, $27,800; 1947,
$24,671.14; 1948, $355.00. Cash expenditures reported on his books were:
1947, $7,966.98; 1948, $16,000.
[Records
Prior to Taxable Years Not in Evidence]
Brill did not
know of the large cash expenditures for loans, some of which were
admitted to be business loans. When the defendant made the statement in
Brill's presence that he had not reported all his income, Brill stated
to defendant in the presence of the revenue officers: "Mose, if
you'd given me all of your income you wouldn't be in the trouble you're
now in. * * * Boy, that floored me. * * * I didn't know about those
loans."
Defendant's
books and records were kept by Brill and were based on information
furnished by defendant, and the tax returns were made by Brill from the
same source of information. Prior to 1945 there were no records
available of defendant's transactions, those records having been lost.
There were no records in defendant's books of the large amount of
claimed cash on hand. His records were not kept at defendant's place of
business where entries could be made daily, but were made from periodic
reports by defendant to Brill. Under the evidence there were many
opportunities for the defendant to divert his receipts by making loans
or other investments out of current receipts and not reporting either
the current receipts or the loan to his accountant. Defendant did
business in such a manner that he was the only person who would know at
any given time of all of his transactions and know the amount of cash on
hand at a particular time.
[Unusual
Use of Cash in Business Held Indicative of Fraudulent Intent]
Failure of the
defendant to keep adequate records to reflect his transactions, assets
and liabilities so that the revenue agents could ascertain his correct
net income is evidence of knowledge, wilfulness and intent, and
corroborates the admissions of the defendant as to the amount of cash on
hand, and admissions that he did not report all of his income. The same
can be said about the unusual use of currency by defendant. Unusual use
of cash in business transactions indicates a fraudulent intent.
United States
v. Jelaza, 4 Cir., 179 Fed. (2d) 202 [50-1 USTC ¶9149]. In the Jelaza
case, the court, on page 204, said:
"The
existence of large sums of money in cash not deposited in bank but kept
in a safe deposit box is a highly suspicious circumstance. * * * And the
circumstances surrounding those deposits and withdrawals varied quite
widely from commonly accepted business practices."
It is well
settled law that actual knowledge may be inferred from acts of the
defendant and such inference may arise from a combination of acts,
although each standing alone may seem unimportant. Cooper v.
United States
, 8 Cir., 9 Fed. (2d) 216 [1 USTC ¶149]; Battjes v. United
States, 6 Cir., 172 Fed. (2d) 1 [49-1 USTC ¶9149]. In the case of Bell
v. United States, 4 Cir., 185 Fed. (2d) 302 [50-2 USTC ¶9499], it
was held that a large increase in net worth coupled with inadequacy of
the records to show fully the transactions of the taxpayer is further
evidence of wilful intent.
The magnitude
of understatement of income in this case is independent evidence of
wilful intent, and corroborates the admissions of defendant as to the
amount of cash on hand and his statements that he did not report all his
income. Oliver v.
United States
, 7 Cir., 54 Fed. (2d) 48 [1931 CCH ¶9649]; Cave v. United
States, 159 Fed. (2d) 464 [47-1 USTC ¶9171]. The evidence of the
government shows that in 1946 defendant reported $5,215.13, or only
151/2 per cent of his income of $37,855.81; that in 1947 he reported
$4,981.15 or only 131/2 per cent of his income of $37,458.78; and that
in 1948 he reported $5,728.62 or only 42 per cent of his income.
The defendant
denied some of the admissions, and stated that he did not remember
making others, and offered evidence to show that he had been sick and
was not mentally or physically able to transact business. Brill's
evidence for the most part corroborated the testimony of the defendant.
He did not deny being a witness to the execution of the various
affidavits as to net worth, but stated that he signed only as a witness,
not knowing the contents of the financial statements; that the defendant
signed the papers after he had been assured by the revenue agents
present that there was very little difference in their figures and his
figures; and that there was no oath to any of the signed papers. He
stated that the paper in which defendant admitted he had not reported
all his gambling winnings (Government Ex. #11) was read aloud to
defendant before defendant signed it and before Brill signed it as a
witness.
[Accountants'
Back Calculation of Net Worth]
The defendant
based his defense around a net worth statement prepared by his
accountants which showed that he had $57,094.30 cash on hand
December 31, 19
45. Without any records to show the amount of cash on hand, and in the
face of defendant's oral and written admissions, defendant's accountants
pursued a most ingenious method. First, the accountants met in the
office of defense counsel
November 24, 19
52, about one week before the date of trial, and, upon recommendation of
one of the accountants employed for the trial, it was decided to have a
"surprise count" of the cash that the defendant then had on
hand, and from this figure determine what amount of cash he had on hand
December 31, 19
45. They called the defendant into the conference and Jackley, the
accountant who suggested the idea, describes the procedure as follows:
"We
specifically attempted not to inform Mr. Boyer as to what we was going
to do. Mr. Boyer came into the office between 3:00 and 3:30, I do not
know the exact time, and we sat down at the conference table and we told
Mr. Boyer exactly what we wanted. We wanted to count all of his cash,
but we also wanted Mr. Brill to go along and we also wanted a
disinterested third party to make this cash count with Mr. Boyer and Mr.
Brill observing. That was done."
The
"surprise" count was made and from this figure the accountants
calculated how much cash defendant had on hand at the end of each year
back to
December 31, 19
45. In making the calculation they assumed that the "surprise"
count correctly showed the amount of cash defendant had on hand
November 24, 19
52, and further assumed that defendant had correctly reported to Brill
all of his income, and that defendant's tax returns for the years in
question had correctly stated his income. The jury evidently did not put
much faith in this method of calculating defendant's cash on hand.
[Claim of Dupulcation of Assets]
There is no
merit in the second point relied upon by defendant to the effect that
the government's net worth statement contains duplication of assets
under the reasoning of the Third Circuit Court of Appeals in United
States v. Caserta, 3 Cir., 199 Fed. (2d) 905 [52-2 USTC ¶9540].
In the
Caserta
case, income was calculated on the "expenditure" method.
Checks were drawn on defendant's bank account payable to
"cash" totaling $2,850 during 1948 and $742.60 in 1949. These
cash withdrawals were added as expenditures in calculating defendant's
income. Also included as expenditures were payments of $1,900 for a
boat, $783.10 to General Motors and many other expenditures. If $100 of
the cash withdrawal from the bank account was used to buy the boat there
would be a duplication in expenditures, since only one expenditure of
$100 was made and defendant would be charged with two expenditures of
$100 each. Had the government calculated the income on strictly a net
worth basis, the cash withdrawals from bank account would have decreased
his bank account and decreased his net worth to the full amount of the
withdrawals, and the expenditure for the boat would have increased his
net worth accordingly. In other words, the withdrawal from the bank
would have been deducted from his assets and the expenditure for the
boat would be added to his assets so that one would balance the other.
The cash withdrawal would be credited against the cash expenditure for
the boat instead of being added. In the
Caserta
case that was not done. The government agent was there asked, "In
your tax assessment or analysis, then, you did not credit the cash
withdrawals against the cash expenditures; is that correct? A. No,
sir." This was an admission of following an incorrect method of
calculating income.
[No
Mistake on Account of Bank Withdrawals]
In this case
all withdrawals from bank accounts were credited against expenditures or
purchases. Here it does not appear that any check withdrawals were made
to "cash", and the defendant does not contend that there is
any duplication in the bank account items, all of which were covered by
stipulation. He contends that there is possible duplication in the
$7,000 cash on hand figure for the years 1946, 1947 and 1948. It is
urged that the $7,000 cash on hand "could have been used in the
making of the loans" in some of the years, in which event the cash
on hand should have been diminished to such extent. There is no evidence
upon which to base this supposition or possibility.
The defendant
admits that if the net worth statement showing $7,000 as the amount of
cash on hand at the end of 1946, 1947 and 1948 is true, that there can
not possibly be any duplication of assets. As pointed out above in the
discussion of proof there is credible evidence to support these figures.
Defendant signed an affidavit that he had no cash on hand on
December 31, 19
41, and told the agents that the $7,000 which he had in his safe on
July 18, 19
51 was an accumulation since 1941. He signed other affidavits that on
December 31, 19
45, and on
December 31, 19
50, his cash on hand was the same amount, $7,000. In order to give the
defendant the benefit of any doubt, the sum of $7,000 cash on hand was
carried back to the beginning of 1946. There were no books or records
available to show the amount of cash on hand and the revenue agents
proceeded to secure the evidence relating to that matter from all
available sources, and from interviewing the defendant himself. They
found that his figures of $7,000 were corroborated by other evidence
related above. At the trial defendant denied the figures contained in
his affidavits and oral statements and testified that on
December 31, 19
45 he had $45,000 to $55,000 cash on hand. The jury was called upon to
resolve these conflicting statements to determine whether the cash on
hand was $7,000 or at least $45,000.
To illustrate
defendant's contentions, and as an example only, it is now urged that
there is some possibility that in 1946, the sum of $1,000 of the $7,000
cash on hand might have been used to make a loan; that there is further
possibility during 1946, this $1,000 was not restored to the cash
account from current income, in which event the cash on hand at the end
of the year should be $6,000 instead of $7,000 as shown on the net worth
statement. There is no evidence to support these suppositions. At the
trial defendant said that these loans, amounting to $11,500.00, were
made out of money "I had accumulated behind 1946 or 1947 or
1948." this being the cash fund of $45,000 to $50,000 which he
testified he had on
December 31, 19
45.
Under this
supposition the defense now urges that the true cash on hand at the end
of 1946 would be less than $7,000. If more, it would not help him. At
the trial the defense contended that at the end of 1946, he had in
excess of $30,000 in cash.
In the
Caserta
case there was an admission that the bank account had been diminished.
Here there is no evidence that the $7,000 cash account was diminished at
any time during the year, and certainly no evidence that, if diminished
during the year, it had not been replenished from current income prior
to the end of the year. The government's evidence is to the effect that
the defendant's current income for each of the years 1946 and 1947
exceeded the sum of $37,000, and was sufficient to cover his loans and
investments in the respective years, without diminishing his cash on
hand. His net assets, after deducting liabilities, increased during the
three years from $27,725.16 to $107,833.77. His statement was to the
effect that this cash on hand had been "built up" since 1941,
not that it had been diminishing. The defendant now urges that the
evidence shows that this $7,000 fund was "working capital". At
the trial defendant was asked if he did not tell the revenue agents that
the $7,000 was "working capital" to which he replied, "I
do not think I made those assertions at all, no, sir." He also
denied that he told the officers that the $7,000 fund which they had
counted, had accumulated since 1941.
[Conclusions]
The statement
of the defendant to the effect that he had been accumulating the $7,000
since 1941; the signed net worth statement that he had no cash on hand
on
December 31, 19
41; the signed net worth statement that the $7,000 was on hand as of
December 31, 19
45; the signed net worth statement that the $7,000 was on hand
December 31, 19
50; the undisputed fact that it was on hand on
July 18, 19
51; plus the other evidence mentioned above, certainly substantiates the
overnment's position that this amount of cash was in the defendant's
possession during the years 1946, 1947 and 1948. Government Exhibit No.
13, a net worth computation, shows the defendant's cash on hand for the
years 1947 and 1948 at $7,000. This exhibit was introduced into evidence
without objection by the defendant. Such net worth statements are
competent evidence as to the financial history of the defendant and,
considered in conjunction with the above-mentioned evidence, were
sufficient evidence upon which the jury could find that the defendant
had $7,000 cash on hand at the end of each of the years in question.
In
Bell
v.
United States
, supra, Judge Soper said:
"An
estimate of the taxpayer's net worth as a means of determining his
income is resorted to in the absence of accurate records which it is his
duty under the statute to make and preserve, and by its very nature it
is an approximation; but it has been held in this and other
jurisdictions to be an appropriate method to support a criminal
prosecution under the statute, and the absence of proof of the exact
amounts of unreported income is not fatal if there is substantial
evidence tending to prove the defendant's guilt beyond a reasonable
doubt."
Speaking of
the necessity of proving the corpus delicti independently of the
confession or admission, in the
Bell
case Judge Soper said:
"Moreover,
the rule does not require that the corpus delicti be completely
shown by evidence aliunde defendant's confessions, but admits the
confessions where other substantial evidence of the crime is shown, and
thereupon both the statements of the defendant and the independent
evidence must be taken into consideration by the jury in determining
whether guilt is proven beyond a reasonable doubt."
The testimony
of the revenue agents and that of the defendant and Brill was in
conflict in some respects. The credibility of the witnesses was
submitted to the jury. The issues were factual, clearly for
determination by the jury. Since the case was ably argued by counsel,
the court did not discuss the evidence, and no exceptions were taken to
the court's charge. There is substantial evidence to support the
verdict. The motion for a new trial is denied.
[54-1 USTC ¶9137]C. N. Papadakis,
Appellant v.
United States of America
, Appellee
(CA-9),
In the United States Court of Appeals for the Ninth Circuit, No. 13,772,
208 F2d 944, December 21, 1953
Appeal from the United States District Court for the Southern District
of California, Central Division.
Criminal penalties: Unreported income determined by net worth method:
Whose income?: Sufficiency of evidence.--Defendant and his father
were charged with attempting to defeat and evade income taxes due and
owing by the father and defendant. The latter had general supervision of
his father's business affairs, as well as being responsible for
reporting the income of the family enterprises for tax purposes. The
required information was turned over to an accountant who prepared the
returns. By use of the net worth method, the Government established that
the parents had total unreported income of $20,822.94 in 1945. Defendant
contended that this amount was overstated since $16,761.52 belonged to
him and his brother. The Court held that although the defendant and his
brother reported this amount on their own returns, the evidence
indicated that the parents were not under any obligation to pay this sum
to the sons. Also, that the jury could have inferred from the evidence
that the sons reported the income in order to avoid higher surtax rates
applicable if the income would have been reported by the parents.
Moreover, even if this amount were not considered, the parents would yet
have unreported income of nearly $3,000 for 1945. With respect to
unreported income for the years 1947 through 1949, the Court held that
(1) one-half of the profits was the income of the father's partner, and
(2) payments made by the defendant and his brother to the father on the
purchase price of the inventory of the liquor store were not taxable
income. Nevertheless, even after allowance for these errors, the parents
still had unreported income in each of the taxable years, and testimony
of the accountant indicated that the omissions were deliberate and made
under the defendant's direction.
Criminal penalties: Fact finding.--Defendant was also guilty of
attempting to evade taxes of himself and his wife on the income from a
partnership. Relying on the partnership books, the Government
established substantial overstatements of purchases and expenses and
understatements of gross receipts. The accountant testified that, at the
defendant's direction, he had cut net income on partnership returns.
There was also evidence of an attempted bribe of a Bureau agent
investigating the partnership.
Criminal penalties: Admissibility of evidence.--Defendant
objected to the admission of certain exhibits on the ground that they
were hearsay as against him. The Court held admissible (1) an exhibit
admitted without objection by the defendant in the lower court, (2) a
summary of deposits and checks drawn on bank accounts of the father and
the partnership, (3) a net worth statement of the parents signed by the
father, and (4) summaries of omissions from a book showing receipts from
rental properties. Evidence of certain oral statements made out of court
by the father were hearsay as against the defendant but defendant failed
to show that these statements were prejudicial.
Criminal penalties: Instructions to the jury.--The Court below
did not err in refusing to give an instruction on the defense of
entrapment. The accountant had informed Government officials of
irregularities in 1948 but continued to work for the defendant until
1952. However, there was no evidence that the accountant was ever an
agent of the Government, and the defense of entrapment is available only
where there has been "an instigation by government officials
* * *." Nor was it reversible error not to instruct the jury that
the accountant was an accomplice and that his testimony was to be viewed
with extreme caution. The Court did not err in instructing the jury that
in judging the testimony of the defendants they were to consider the
interest of the defendants in the case, "their hopes and fears, and
what they have to gain as a result of your verdict." An instruction
that "* * * any juror should not hesitate to abandon his own view
when convinced it is erroneous" was properly given. The Court also
acted properly in refusing to instruct that "* * * unless the
evidence established guilt * * * beyond a reasonable doubt, in the mind
of each and every juror, then such juror should vote to acquit * *
*."
Russell E.
Parsons,
Beverly Hills
,
Calif.
, for appellant. Laughlin E. Waters, United States Attorney, Ray H.
Kinnison, Assistant United States Attorney, Chief, Criminal Division,
James K. Mitsumori, Assistant United States Attorney, Los Angeles,
Calif., for appellee.
Before
STEPHENS, BONE and ORR, Circuit Judges.
BONE, Circuit
Judge:
Appellant, C.
N. Papadakis, stands convicted on 16 counts of willfully and knowingly
attempting to defeat and evade income taxes by filing and causing to be
filed false and fraudulent income tax returns in violation of 26 U. S.
C. A. §145(b).
The first 8
counts charged appellant and his father, Nick Papadakis, as joint
defendants, with attempting to defeat and evade income taxes due and
owing by Nick and his wife, Katina, who reported their income on a
community property basis. Counts 1, 3, 5 and 7 relate to income taxes
due and owing by Nick for the taxable years 1945, 1947, 1948 and 1949,
respectively. Counts 2, 4, 6 and 8 concern income taxes due and owing by
Katina for the same years, and in the same order.
The counts
numbered 9 through 16 charged appellant as sole defendant with willfully
attempting to defeat and evade income taxes due and owing by himself and
his wife, Helene, who reported their income on a community property
basis. Counts 9, 11, 13 and 15 relate to income taxes due and owing by
appellant for the taxable years 1946, 1947, 1948 and 1949, respectively.
Counts 10, 12, 14 and 16 concern income taxes due and owing by Helene
for the same years, and in the same order.
Appellant was
sentenced to 10 months imprisonment on each of the 16 counts, the
sentences to run concurrently, and to pay a fine of $200 on each of the
counts--a total of $3,200. Nick was convicted and sentenced on counts 1
through 8 but took no appeal.
Prior to the
taxable years involved Nick Papadakis owned and operated the LaSalle
Hotel and two liquor stores in
San Pedro
,
California
, and owned a number of other properties on which he received rental
income. In 1946 Nick turned over the business of the two liquor stores
to appellant and his brother, George Papadakis, who thereafter operated
the stores as a partnership under the firm name of Anchor Liquors. Prior
to 1950 Anchor Liquors took on two additional partners and acquired two
more liquor stores.
Nick and his
wife received all of the income from the LaSalle Hotel and the rental
properties until early in 1947 when Nick took his son, Ernest, in as his
partner. Ernest left this partnership late in 1949 to join the firm of
Anchor Liquors.
The income of
Nick and his wife from all of the properties, including the two liquor
stores, is in issue for the year 1945 under counts 1 and 2 of the
indictment, and their incomes from the LaSalle Hotel and the rental
properties for the years 1947 through 1949 are in issue under counts 3
through 8. The incomes of appellant and his wife from Anchor Liquors for
the years 1946 through 1949 are in issue under counts 9 through 16.
Appellant
challenges the sufficiency of the evidence on all counts and we turn
first to that question, putting off for the moment questions raised as
to the admissibility of certain evidence introduced by the government.
Sufficiency
of the Evidence
In determining
whether the evidence was sufficient to sustain the verdict we view the
record in the light most favorable to the government and affirm if the
evidence, so viewed, was sufficient to justify the jury in finding,
beyond a reasonable doubt, that there has been a willful attempt to
evade taxes. Gendelman v.
United States
, 9 Cir., 191 Fed. (2d) 993, 995 [51-2 USTC ¶9474], cert. denied
342
U. S.
909; McFee v.
United States
, 9 Cir., 206 Fed. (2d) 872, 874 [53-2 USTC ¶9549].
Counts 1
through 8. Appellant was charged in these counts on the theory that
he knowingly and willfully assisted Nick in an attempt to defeat and
evade income taxes due and owing by Nick and his wife.
In late 1945
appellant was given general supervision of his father's business
affairs. For all of the taxable years in question he had charge of
reporting the income of the family enterprises for tax purposes. Books
were kept by several members of the Papadakis family showing receipts
and expenses of the LaSalle Hotel and the rental properties. The manager
of each of the liquor stores kept the books for that store. At the end
of each year appellant collected from the person or persons who kept the
books information as to the receipts, costs and expenses of the hotel
and rental properties and of each of the liquor stores. From these
figures appellant prepared consolidated work sheets and turned these
sheets over to an accountant, who prepared the required partnership and
individual returns.
Counts 1 and 2
concern the incomes of Nick and Katina for the year 1945. The books and
records for the LaSalle Hotel and rental properties being admittedly
incomplete, the government relied solely upon the net worth-expenditures
method to prove that Nick and Katina had unreported income in 1945. In
other words, the government sought to show the net worth of Nick and
Katina as of the beginning and the end of the year 1945 and the
non-deductible expenditures and gifts made by them in that year. If the
increase in their net worth plus their non-deductible expenditures and
gifts exceeded their reported income, and this excess was not
satisfactorily explained, the jury was entitled to find, as it evidently
did find, that they received income in that year which they failed to
report.McFee v. United States, supra.
The evidence
was sufficient on counts 1 and 2. The government introduced evidence and
computations based thereon which, if believed, established that Nick and
Katina had a total unreported income of $20,822.94 in 1945. The only
substantial dispute of fact was whether the income from the liquor
stores in that year, amounting to $16,761.52, was income of Nick and
Katina or of their two sons, appellant and George Papadakis. The theory
of the defense was that while the profits of the two stores went into
the bank account of Nick or were expended by him, those profits in fact
belonged to appellant and George, as owners of the businesses; that Nick
and Katina were therefore obligated to appellant and George for the
amount of those profits; and that in failing to take this obligation
into account the government overstated the unreported income of Nick and
Katina in the amount of the income from the stores.
Admittedly
Nick held fee title to the land and the store buildings, but several
members of the Papadakis family testified that the business of one of
the stores had belonged to George Papadakis since 1935 and that the
business of the other had been the property of appellant since 1939. The
off-sale liquor licenses for the stores were in the names of appellant
and George, and they reported the income from the stores in 1945, as in
prior years, as their own for income tax purposes. However, there was
abundant evidence to sustain the conclusion that the businesses in fact
belonged to Nick and his wife in 1945. The net worth statement
introduced by the defense, on which appellant relies, lists the
inventories of the stores as belonging to Nick and Katina as of
December 31, 19
44 and
December 31, 19
45, and it is admitted that appellant and George Papadakis were obliged
to buy the inventories from Nick for a very substantial sum in 1946,
when the firm of Anchor Liquors was formed. And there is room for doubt
that Nick was ever in fact under an obligation to pay his sons the 1945
profits from the stores, for no payments were ever made by him and no
time set for payment. Appellant testified vaguely that perhaps Nick
would take care of the matter in his will.
From the fact
that appellant and George reported the 1945 income from the stores on
their own income tax returns it might have been found that appellant
acted in good faith, and that there was no willful attempt to evade
taxes on that income. But this was a question for the jury. There was
evidence that in 1949 appellant told a Bureau agent that the business
belonged to Nick in 1945. This cast doubt on appellant's good faith in
failing to report the income from the stores as income of Nick and
Katina. There was ample evidence, as will be seen, from which the jury
could have decided that this was but a part of a deliberate,
long-continued practice by appellant of attempting to defeat taxes on
the income from the family enterprises, and that the reporting of the
income of the stores by appellant and George was merely a ruse to avoid
the higher surtax rates which would apply if the income was reported
[by] Nick and Katina.
Moreover, even
if the income of the stores is eliminated from the income of Nick and
Katina, and if we allow for a seeming minor error in the government's
computation, the government's proof still established that Nick and
Katina had unreported income of nearly $3000 in 1945.
Counts 3
through 8 concern the incomes of Nick and Katina Papadakis from the
LaSalle Hotel and the rental properties for the years 1947 through 1949.
The government relied upon both the net worth-expenditures method and
upon other evidence to prove evasion of the taxes of Nick and Katina for
those years.
The government
claims to have established, by the net worth-expenditures method, that
Nick and Katina had unreported income of $42,949.12 in 1947, $42,395.02
in 1948, and $34,440.29 in 1949. However, a large part of the income
attributed to Nick and Katina in the government's computation was in
fact the income of Ernest Papadakis, who was Nick's partner in those
years. The government concedes the existence of this partnership. The
profits from the LaSalle Hotel and the rental properties all went into
Nick's bank account or were expended by him for his own account. This
was brought out by Martha O'Sullivan, testifying as a government witness
on direct examination, and was never contradicted. One-half of the
profits held or expended by Nick in the years 1947 through 1949 were
taxable to Ernest, and the government did not consider this in its
calculation of the unreported income of Nick and Katina for those years.
It was also
brought out in the government's own evidence, and never disputed, that
in the years 1947, 1948 and 1949 appellant and George Papadakis made
payments to Nick on the purchase price of the inventory of the liquor
stores. Those receipts were not taxable income, and the government's
computation of unreported income is therefore excessive because of a
failure to take them into account.
After allowing
for these errors, Nick and Katina had unreported income, according to
the net worth-expenditures proof of the government, of more than $10,000
in 1947, $15,000 in 1948 and $5,000 in 1949. Appellant contends that
there was an additional overstatement by the government of unreported
income of $7,000 in 1949, but the basis for that contention has been
nowhere satisfactorily explained.
There was
other, overwhelming proof of appellant's guilt on counts 3 through 8.
Some of this evidence was supplied by the defense itself. In attacking
the government's net worth-expenditures computation appellant relies
upon defense evidence that Ernest's share of the profits of the LaSalle
Hotel and the rental properties was more than $23,000 in 1947 and more
than $27,000 in 1948. Admittedly the share of Nick and Katina was an
equal amount in each of those years. Yet the partnership tax return
stated Nick's share to be less than $11,000 in 1947 and less than
$14,000 in 1948, and this was of course reflected in the individual
returns of Nick and Katina.
A Bureau agent
testified that an audit of the rental receipt book kept for the rental
properties revealed a great number of omissions. This book was the
source of information for the income tax returns. In some instances
receipts of rent were proved by the production of checks drawn by
tenants, indorsed by Nick, and it was shown that those receipts were
never entered in the book. Substantial omissions were admitted by
several members of the Papadakis family. There were apparent omissions
which were never explained. The undisputed and apparent omissions
amounted to more than $8,000 in 1947 and 1948 and more than $7,000 in
1949. While appellant did not personally make the entries in this book,
he had general supervision of the family enterprises, and the jury could
well have concluded that he was fully aware of the omissions when he
directed the preparation of the tax returns.
In his
investigation the Bureau agent first totaled the rental receipts shown
in the book on an adding machine. Later he made an audit of the book.
Some of the apparent omissions had been filled in between his first and
second examinations of the book. This was admitted by Ernest Papadakis,
a defense witness.
Leonard
Mattis, an accountant who prepared the income tax returns for the
Papadakis family for the years 1947 through 1951, testified that in
March of 1948, in the course of preparing the partnership income tax
return for the LaSalle Hotel and the rental properties, he found that
approximately $22,000 had been spent in 1947 in remodeling the LaSalle
Hotel. Mattis thought this should have been capitalized, but appellant
told him to put it all down as deductible expense, and that if they were
caught, he (appellant) would take care of it. When Mattis had prepared a
tentative return, appellant told him it was still "too damn
high." Under appellant's direction, Mattis raised expenses and cut
gross receipts until the net income was reduced by $16,000 on the final
return.
The following
year Mattis prepared a tentative return for the partnership for the year
1948 from the work sheets given him by appellant. Appellant told him
that the income shown on the tentative return would have to be cut.
Accordingly, Mattis, at appellant's direction, reduced the gross
receipts on the final return by $10,000. Moreover, when appellant found
that there would be an overall tax saving by omitting the rental paid
Nick by Anchor Liquors from the rental receipts, and also omitting it
from the expenses of Anchor Liquors, this was the course followed, with
the view that Anchor Liquors would be reimbursed by appellant's father
in the amount of the tax saving to the latter.
The evidence
was clearly sufficient on counts 3 through 8.
Counts 9
through 16. These counts charged appellant with attempting to evade
taxes of himself and his wife on the income from Anchor Liquors for the
years 1946 through 1949. Appellant was in charge of preparing the tax
returns for the firm. He signed the partnership returns and also the
individual returns of his wife.
The government
did not use the net worth-expenditures method of proof on these counts.
They relied instead upon the partnership books. These books revealed
that there had been substantial overstatements of purchases on the
partnership returns for each of the years 1947, 1948 and 1949, and in
addition that gross receipts had been understated and expenses
overstated for the year 1949. The resulting understatements of net
income in the partnership returns were reflected in the individual
returns of appellant and his wife. This evidence was corroborated by
Mattis, appellant's accountant. He testified that, at appellant's
direction, he cut net income on the partnership returns in the years
1947 through 1949, and that work papers made available to him indicated
a similar practice in the preparation of the return for 1946.
At Mattis'
first meeting with appellant in March of 1948, Paul Hoffman, the prior
accountant for the Papadakis family, was present. According to Mattis,
Hoffman told him that "they had been cutting the grass and changing
the inventory from year to year." When Mattis asked whether that
was risky, Hoffman said that "they had been getting away with it
for years."
There was
evidence that shortly after the Bureau investigation of Anchor Liquors
was commenced, appellant offered a Bureau agent a bribe first of $1,000
and then of $1,500 to "wind up this case--set up some deficiency
and get out."
The evidence
was sufficient on counts 9 through 16.
Admissibility
of Evidence
Appellant
contends that Government Exhibits 34, 74, 75, 77, 77-A and 77-B were
hearsay as against appellant.
Exhibit 34 is
a statement showing the net worth of Nick and Katina Papadakis as of the
beginning and end of each of the taxable years involved. It was prepared
by Martha O'Sullivan, an accountant for Nick. Whether it was hearsay as
against appellant we need not decide, for it was admitted without
objection by appellant. Moreover, it was almost an exact copy of Defense
Exhibit N-D, on which appellant here relies. Appellant can hardly
contend, therefore, that he was prejudiced by Exhibit 34.
Exhibit 74 is
a summary of the deposits made in and checks drawn on the bank accounts
of Anchor Liquors and Nick Papadakis. It was introduced to show that the
amounts of cash which flowed through these accounts were abnormally
large when compared with the reported incomes of the depositors. It was
based upon records kept in the ordinary course of business by the bank.
These records were identified by an official of the bank and properly
admitted in evidence under the Business Records exception to the hearsay
rule. 28
U. S.
C. A. §1732. Exhibit 74 was admissible as a summary or tabulation of
the results of an examination of these records. Augustine v. Bowles,
9 Cir., 149 Fed. (2d) 93; Hanson v.
United States
, 8 Cir., 186 Fed. (2d) 61 [51-1 USTC ¶9118]; United States v.
Kelley, 2 Cir., 105 Fed. (2d) 912 [39-2 USTC ¶9621].
Exhibit 75 was
a net worth statement of Nick and Katina Papadakis signed by Nick. It
was hearsay as against appellant, but the error in admitting it as
against him was clearly harmless. Exhibit 75 was substantially the same
as Government Exhibit 89, as to which appellant makes no complaint. Even
Defense Exhibit N-D, on which appellant relies, varies from Exhibit 75
in only a few particulars. Defense Exhibit N-D corrects errors in
Government Exhibits 75 and 89--errors which we have noted above--and
these corrections constituted the only substantial differences between
the government and the defense on the net worth-expenditures evidence.
Appellant was not prejudiced by the admission of this exhibit.
Exhibits 77,
77-A and 77-B were summaries of omissions from the book showing receipts
from the rental properties. Photostatic copies of the pages of the
rental receipt book and, later, the original book itself were received
in evidence. The book was admissible as against appellant under the
business records exception to the hearsay rule. 28
U. S.
C. A. §1732. Exhibits 77, 77-A and 77-B were admissible a summaries or
tabulations of the results of an examination of the book.Augustine v.
Bowles, supra; Hanson v.
United States
, supra;
United States
v. Kelley, supra.
Appellant
presents a blanket objection to all of these documents. All of them,
says appellant, summarized accumulations of properties by Nick and
Katina or transactions in which appellant had no part and therefore they
were hearsay as against him. In other words, appellant asserts that the
facts should not have been shown as against him since he had nothing to
do with those facts. But that is no valid objection under the hearsay
rule. That rule is not concerned with what facts may or may not be the
subjects of evidence. Other rules, such as the rules of relevancy, deal
with that question. The hearsay rule is concerned only with the reliability
of evidence offered to prove a fact, whatever that fact might be. It
operates to render inadmissible extra-judicial writings or declarations
introduced to prove the truth of what was said or written, on the theory
that such evidence, not being subject to the tests of cross-examination,
is not reliable. 5 Wigmore on Evidence, §1361. That appellant had no
part in the transactions summarized in the exhibits complained of may
raise a question of relevancy, but it is a matter of indifference so far
as the hearsay rule is concerned.
If appellant
means to say that the documents were irrelevant as against him, the
contention is clearly without merit. The documents tended to show that
Nick and Katina Papadakis had income which they failed to report, and
therefore that there was an attempt to defeat their income taxes--an
attempt in which appellant had a very active, if not the principal part.
The court
below also admitted evidence of certain oral statements made out of
court by Nick Papadakis. The declarations were properly received as
against Nick as admissions of a defendant, but they were hearsay as to
appellant. Lutwak v.
United States
, 344
U. S.
604. The court below instructed the jury at the close of the trial to
consider out-of-court statements by either of the defendants only as
against the defendant who made them, but this was not sufficient. The
court should have directed that the declarations were received only as
against Nick Papadakis at the time they were admitted. Lutwak v.
United States
, 344
U. S.
604, 619. In this connection, three oral conversations of Nick with
Bureau agents are complained of. They were as follows: (1) Bureau agents
examined the journal showing receipts from the rental properties. They
discovered apparent omissions and asked Nick Papadakis why the rentals
had not been shown. Nick replied that he did not know. (2) Nick stated
to Bureau agents that the entries in the rental receipts book had been
made by himself, his son and his daughter. (3) Bureau agents discovered
in their second examination of the rental receipt book that apparent
omissions had been filled in since their first examination of the book.
Nick was asked why these additions had been made, why the book had never
been totaled, and whether the book was the original book kept for the
rental properties. Nick replied that he couldn't understand the talk as
to the filling in of omissions, that the book must have been totaled at
some time, and that the book was the original book.
Appellant
contends that this evidence was "highly inflammatory" but he
gives no reason why it should be so considered and we perceive none. The
only declaration of Nick which could conceivably have prejudiced
appellant was the statement that he did not know why there were
omissions from the book. But evidence of the same omissions was
introduced at the trial and never rebutted or explained by the defense.
The errors in failing to limit the effect of these declarations, whether
considered singly or cumulatively, were wholly innocuous. This is a
clear case for application of Rule 52(a) of the Federal Rules of
Criminal Procedure. 1
The
Court's Instructions
Questions
raised as to the lower court's instructions to the jury make it
necessary to consider the role of appellant's former accountant, Leonard
Mattis, in the transactions and investigations which gave rise to the
indictment in this case. Mattis was employed at some time prior to March
of 1948 by Paul Hoffman, who for years had prepared income tax returns
for members of the Papadakis family. At a meeting between Mattis,
Hoffman and appellant in March of 1948, ways and means of cutting income
taxes were discussed. Mattis testified that he thereafter took part in
preparing fraudulent income tax returns for the Papadakis family for the
taxable year 1947 under the direction of appellant. In September or
October of 1948, either because he had fears concerning his part in the
preparation of the returns, or because he thought he might obtain, as an
informer, a part of the government's recovery of deficiencies as against
members of the Papadakis family, Mattis wrote a letter to the Internal
Revenue Bureau stating what had transpired. In the summer of 1949, after
the Bureau had begun an investigation of the Papadakis family
enterprises, Mattis was called to the San Pedro Office of the Bureau of
Internal Revenue to meet with an investigator. Later he turned over a
number of his work papers on Papadakis income tax matters to Bureau
agents. Mattis continued to prepare income tax returns for the Papadakis
family through March of 1952, and during that period was in touch with
Bureau agents.
Appellant
contends, first, that the court below erred in refusing to give
instructions on the defense of entrapment. We think not. The defense of
entrapment is available only where there has been "an instigation
by government officials of an act on the part of persons
otherwise innocent in order to lure them to its commission and punish
them." (Italics supplied). Sorrells v.
United States
, 287
U. S.
435, 448. The defense is recognized, not because a person induced by
another is any the less guilty of the crime committed, but because it is
deemed unconscionable to permit the government to prosecute an accused
for an offense instigated by its own agents. "The defense is
available, not in the view that the accused though guilty may go free,
but that the government cannot be permitted to contend that he is guilty
of a crime where the government officials are the instigators of his
conduct." Sorrells v. United States, supra, 287
U. S.
at 452.
Here there is
not a shred of evidence that Mattis was ever an agent of the government.
His testimony certainly did not so indicate, and the defense did not see
fit to explore the matter on cross-examination. The evidence is that he
prepared the income tax returns of the Papadakis family for the years
1947 through 1951 for a reasonable fee, and that he contacted government
officials in the summer of 1948 either out of fear or in hope of a
profit. Neither is there any evidence that Mattis instigated the
fraudulent preparation of tax returns, or that he implanted the criminal
design in the mind of appellant. Mattis did not appear on the scene
until March of 1948, two years after the commission of the crimes
charged in counts 1 and 2 of the indictment and a year after the crimes
charged in counts 9 and 10. Mattis testified that it was only under
appellant's instructions that he thereafter prepared fraudulent returns.
Appellant denied giving such instructions, but he did not testify that
Mattis at any time suggested the falsification of returns. There is
simply no evidence of entrapment, and the court below correctly refused
an instruction on that subject.
Appellant also
contends, rather anomalously, in view of his position on the entrapment
issue, that Mattis was an accomplice, and that the court below erred in
failing to instruct the jury that the testimony of an accomplice is to
be viewed with extreme caution. Whether Mattis was an accomplice we need
not decide, for it does not appear that appellant requested an
instruction on that score. But assuming that Mattis was an accomplice,
and assuming further that the instruction had been requested, a refusal
to give it, though not the better practice, would not have been
reversible error. Caminetti v. United States, 242
U. S.
470, 495, affirming 9 Cir., 220 Fed. 545;
United States
v. Wilson, 2 Cir., 154 Fed. (2d) 802, 805, cert. denied 328 U.
S. 823, rehearing denied 329 U. S. 819; cf. Kearns v. United States,
9 Cir., 27 Fed. (2d) 854, cert. denied 278
U. S.
652; Stillman v.
United States
, 9 Cir., 177 Fed. (2d) 607.
Appellant
urges that the court erred in refusing to instruct the jury to consider
the "motives and statements" of prosecution witnesses who were
officers of the government, but that subject was adequately covered in
another instruction.
It is next
contended that the court erred in instructing the jury that in judging
the testimony of the defendants they were to consider the interest of
the defendants in the case, "their hopes and fears, and what they
have to gain or lose as a result of your verdict." This instruction
was proper.Frederick v.
United States
, 9 Cir., 163 Fed. (2d) 536, 550, cert. denied 332
U. S.
775; Marino v.
United States
, 9 Cir., 91 Fed. (2d) 691, cert. denied 302
U. S.
764;Schulze v.
United States
, 9 Cir., 259 Fed. 189.
Appellant
requested an instruction that the defendant was entitled to the
individual and independent verdict of each and every member of the jury,
and that unless the evidence established guilt of the crime charged,
beyond a reasonable doubt, in the mind of each and every juror, then
such juror should vote to acquit the defendant. The court refused this
instruction, and charged the jury that "Jurors are expected to
agree upon a verdict where they can conscientiously do so, you are
expected to consult with one another in the jury room and any juror
should not hesitate to abandon his own view when convinced it is
erroneous." The instruction requested was properly refused; the
instruction given was substantially correct. Allen v.
United States
, 164
U. S.
492;Zamloch v.
United States
, 9 Cir., 193 Fed. (2d) 889, cert. denied 343
U. S.
934; Egan v.
United States
, D. C. Cir., 5 Fed. (2d) 267; Lias v.
United States
, 4 Cir., 51 Fed. (2d) 215, affirmed 284
U. S.
584; Bowen v.
United States
, 8 Cir., 153 Fed. (2d) 747, cert. denied 328
U. S.
835;
United States
v. Furlong, 7 Cir., 194 Fed. (2d) 1, cert. denied 343
U. S.
950.
The judgment
is affirmed on all counts.
1
"RULE 52. HARMLESS ERROR AND PLAIN ERROR
"(a)
Harmless Error. Any error, defect, irregularity or variance which does
not affect substantial rights shall be disregarded."
[55-2 USTC ¶9532]Thomas W. Banks,
Appellant v.
United States of America
, Appellee
(CA-8),
In the United States Court of Appeals for the Eighth Circuit, No.
14,648, 223 F2d 884,
June 28, 19
55
Appeal from the United States District Court for the District of
Minnesota.
[1939 Code Sec. 145(b)--similar to 1954 Code Sec. 7201]
Tax evasion: Criminal prosecution: Net worth method: Reconsideration
in light of Supreme Court cases: Reaffirmance.--The conviction for
criminal evasion of income taxes having been remanded for
reconsideration in the light of Supreme Court decisions on the issue of
reconstruction of income under the net worth increase method, the
District Court's judgment was again affirmed after reviewing the alleged
errors of the trial court in its rulings on the admissibility or
sufficiency of the evidence admitted or rejected as proof of income
under that method and in its instructions.
Joseph A. Maun
and John W. Graff for appellant. George E. MacKinnon, United States
Attorney (Clifford Janes and Alex Dim, Assistant United States
Attorneys, were with him on the brief), for appellee.
Before
GARDNER, Chief Judge, and WOODROUGH and THOMAS, Circuit Judges.
THOMAS,
Circuit Judge:
Appellant,
Thomas W. Banks, was indicted, tried and convicted in the District Court
of Minnesota [53-1 USTC ¶9158], for willfully and knowingly attempting
to evade his income taxes for the years 1945, 1946 and 1947, in
violation of §145(b) of the Internal Revenue Code, 26 U. S. C. A. Upon
appeal to this court the judgment of conviction was affirmed on
May 27, 19
53
. 8 Cir., 204 Fed. (2d) 666 [53-1 USTC ¶9402]. The Supreme Court denied
a petition for certiorari, 346
U. S.
857. Thereafter the order denying certiorari was vacated and the case
was restored to the docket of the Court. 347
U. S.
1007.
[Net
Worth Method]
The charge of
income tax evasion against appellant was proved by the government by the
net worth method. On
December 6, 19
54, the Supreme Court decided four other net worth cases: Holland v.
United States, 348
U. S.
121 [54-2 USTC ¶9714];Friedberg v. United States, 348
U. S.
142 [54-2 USTC ¶9713]; Smith v. United States, 348
U. S.
147[54-2 USTC ¶9715], and United States v. Calderon, 348
U. S.
160 [54-2 USTC ¶9712].
On
January 10, 19
55, a petition for certiorari was granted; the judgment was vacated, and
the case was remanded to this court "for consideration in the light
of
Holland
v.
United States
", and the Friedberg, Smith andCalderon decisions
of the Supreme Court [55-1 USTC ¶9139].
On
January 24, 19
55, this court entered an order placing the case upon the calendar of
the court for rehearing at the March, 1955, session and limiting the
argument of counsel to the question of alleged errors of the trial court
in its rulings with reference to the admissibility or sufficiency of the
evidence admitted or rejected as proof of net income under the so-called
net worth method and to any alleged error in the instructions of the
court relating to such net worth method.
Elaborate
printed briefs have been filed by the parties and the case has been
argued orally. Basically counsel for appellant contend that the trial
court erred in denying appellant's motion for a judgment of acquittal or
for a new trial. In support of this general contention counsel argue
that
1. The
government's case was founded upon uncorroborated admissions of
appellant;
2. The
government failed to investigate leads available to it independently to
verify the uncorroborated admissions of appellant; and
3. The court
erred in failing to give certain requested instructions.
It will be
noted that appellant did not testify in his own behalf at the trial and
he offered no evidence to explain or deny the charge in the indictment
or the evidence of the government.
The facts in
the case and the contentions of appellant on the appeal are related and
considered by this court in the opinion reported in 204 Fed. (2d) 666
[53-1 USTC ¶9402], supra.
Appellant
urges most emphatically that the government's case was founded upon his
own uncorroborated admissions. The rule requiring corroboration of
admissions and confessions in criminal cases, and particularly in
"net worth" cases is stated and discussed at length by the
Supreme Court in Smith v. United States, 348 U. S. 147, 156 [54-2
USTC ¶9715], in which it is said:
"There
has been considerable debate concerning the quantum of corroboration
necessary to substantiate the existence of the crime charged. It is
agreed that the corroborative evidence does not have to prove the
offense beyond a reasonable doubt, or even by a preponderance, as long
as there is substantial independent evidence that the offense has been
committed, and the evidence as a whole proves beyond a reasonable doubt
that defendant is guilty.
"(Citations).
But cf.
United States
v. Fenwick, 177 Fed. (2d) 488 [49-2 USTC ¶9448]. In addition to
differing views on the substantiality of specific independent evidence,
the debate has centered largely about two questions: (1) whether
corroboration is necessary for all elements of the offense established
by admissions alone (citations), and (2) whether it is sufficient if the
corroboration merely fortifies the truth of the confession, without
independently establishing the crime charged, compare (citations). We
answer both in the affirmative. All elements of the offense must be
established by independent evidence or corroborated admissions, But one
available mode of corroboration is for the independent evidence to
bolster the confession itself and thereby prove the offense 'through'
the statements of the accused."
The record
here discloses that the trial court throughout the trial and in his
instructions to the jury carefully protected appellant's constitutional
rights, especially his right to the presumption of innocence until the
evidence of the government established his guilt beyond a reasonable
doubt.
[Admissibility
of Evidence]
We shall first
consider the contention that the government's case was founded upon
uncorroborated admissions of the appellant. This contention refers to
(1) the opening net worth statement for 1936, and (2) the net worth and
income for the taxable years 1945, 1946 and 1947. Both contentions are
without merit.
The opening or
beginning net worth used by the government in its computations was
established at $18,578.58 as of the end of the year 1936. This was based
upon an affidavit executed by appellant on
July 2, 19
37, in which he listed his assets as of
December 31, 19
36. The affidavit was filed by appellant in connection with his defense
in a claim then pending against him for unpaid taxes. It is corroborated
by the investigations of the revenue agents made soon after it was filed
and again after the initiation of the present case. Their testimony
fully and adequately corroborates the admissions made in the affidavit.
It is next
contended that appellant's admissions in exhibits 70 and 71 were not
adequately corroborated. These exhibits were connected with the
investigations made by the government of appellant's income and his tax
returns for the years involved. Agent George H. McKusick of the Bureau
of Internal Revenue was conducting the investigations. In December,
1950, McKusick requested appellant to come to a conference for the
purpose of substantiating his tax returns for the years 1945, 1946 and
1947. Appellant refused to come to such a conference but instead sent
his attorney, Mr. Joseph A. O'Gordon, with a power of attorney. It
developed that Mr. O'Gordon, although he had a power of attorney, could
not answer any questions relating to the income or business of the
appellant. McKusick then submitted to him a list of questions (exhibit
70) concerning appellant's business transactions which had been
discovered in the investigations and requested him to obtain the answers
of appellant. In the following February Mr. O'Gordon returned the
questions with the answers of appellant on a separate sheet of paper
(exhibit 71). Mr. O'Gordon testified at the trial and identified the
exhibits.
The admissions
in these exhibits amply support the verdict of the jury. And the
admissions are amply corroborated by the evidence. They are corroborated
in part by appellant's income tax returns, in part by his wife's returns
and by bank accounts in her name but which consisted of deposits of
appellant's money. These admissions are corroborated by the undisputed
evidence that most of the items were received by appellant from the sale
of property or corporate stocks and deposited in his wife's bank account
but not reported by her as taxable income. Properties were sold which
were owned jointly by appellant and some other person. The other person
reported his share of the proceeds of such sales but appellant did not
include any part of his share in his tax returns. Without detailing here
all of such transactions shown in the record we are satisfied that all
of the admissions referred to are amply corroborated. The requirements
of the Supreme Court in theSmith case, supra, are fully
met, wherein the Court says (page 156):
"All
elements of the offense must be established by independent evidence or
corroborated admissions, but one available mode of corroboration is for
the independent evidence to bolster the confession itself and thereby
prove the offense 'through' the statements of the accused." Citing Parker
v. State, 228
Ind.
1, 88 N. E. 2d 556.
This statement
of the Court applies with particular emphasis to appellant's admissions
of his living expenses for the taxable years involved. Revenue Agents
McKusick and Kleven conducted an investigation of the living expenses of
appellant for the three years involved and submitted their findings to
appellant's attorney, O'Gordon, and his accountant, Weinstock, both of
whom had filed powers of attorney from appellant with the agents. The
estimates were submitted by them to appellant and they reported that he
would "be happy to use the figures." Thus the independent
evidence of O'Gordon and Weinstock "bolstered the confession itself
and thereby proved" the amount determined `through' the statements
of the accused."
[Investigation
of Leads]
Appellant's
second contention is that the government failed to investigate leads
available to it or independently to verify the uncorroborated admissions
of the defendant. This contention is without merit and is not applicable
to the situation presented here. The admissions referred to are to be
found in exhibits 33, 70 and 71. In this case the investigation by the
revenue agents preceded the admissions of appellant. The answers and
statements of appellant in these exhibits referred only to matters which
had been previously investigated by the government. The answers to the
questions demonstrated the guilt of appellant and they were corroborated
in each instance.
The word
"leads" is explained in the
Holland
case (348
U. S.
121, 135, 136 [54-2 USTC ¶9714]) as follows:
"When
the Government rests its case solely on the approximations and
circumstantial inferences of a net worth computation, the cogency of its
proof depends upon its effective negation of reasonable explanations by
the taxpayer inconsistent with guilt. Such refutation might fail when
the Government does not track down relevant leads furnished by the
taxpayer--leads reasonably susceptible of being checked, which, if true,
would establish the taxpayer's innocence. When the Government fails to
show an investigation into the validity of such leads, the trial judge
may consider them as true and the Government's case insufficient to go
to the jury."
Appellant's
argument overlooks the fact that the admissions in exhibits 33, 70 and
71 were his own statements in answer to questions of the revenue agents
and that they were all connected with the investigations made by the
revenue agents. Each admission had already been investigated. There was
no necessity for further following up the admissions with further
investigation. The corroboration of these admissions was sufficient to
meet the suggestions and requirements of theHolland case. If any
of the facts admitted in any way proved the innocence of appellant the
evidence warranted the submission of that issue to the jury.
[Instructions
to Jury]
Finally it is
contended that the court erred in failing to give certain requested
instructions.
In summary the
contention is that the court failed (1) to give defendant's requested
instruction No. 11, and (2) to give any instruction relative to the net
worth theory of proof on tax evasion.
Requested
instruction No. 11 reads:
"In
this case the government relies on a claimed increase in the defendant's
net worth in the years 1945, 1946 and 1947 to prove claimed unreported
income during said years. The government's case must fail if the claimed
net worth of the defendant at the starting point of the periods in
question is not correct and has not been established beyond a reasonable
doubt. A correct starting point must include all of the defendant's
assets at that time as well as all of his liabilities. It is also
incumbent upon the government to exclude any reasonable probability that
the increase in net worth is attributable to capital assets or
accumulations by the taxpayer in periods prior to the starting point of
the net worth period in question.
"In
addition to establishing a correct starting point, it is incumbent upon
the government to prove beyond a reasonable doubt the defendant's net
worth for each year from the starting point up to and including the year
1947."
We have
carefully reviewed all fourteen instructions requested by counsel for
appellant as well as all the instructions given by the court and we are
convinced there is no merit in appellant's contentions. The Supreme
Court in theHolland and Smith cases, supra,
recognized that the net worth method of proof consists of circumstantial
evidence; and the trial court gave defendant's requested instruction No.
1 on circumstantial evidence in the exact language of the request.
The
instructions given by the court protected every right of the defendant
and presented and submitted his claims fairly to the jury. Counsel
criticise the instructions because they do not use the term "net
worth method." There was no dispute, however, in regard to the
character of the net worth method. It was and is a circumstantial
evidence method of proof, and the instructions given covered every
element of the contentions of the parties and the testimony of the
witnesses. The testimony introduced and the arguments of counsel, all of
which are set out in the record, made clear the meaning of the term, so
that a technical definition was unnecessary.Wishart v.
United States
, 8 Cir., 29 Fed. (2d) 103, 105;Shreve v.
United States
, 9 Cir., 103 Fed. (2d) 796, 812, cert. den., 308
U. S.
570. No prejudice is shown here resulting from the absence of a
definition of the term "net worth." See
3 Am
. Jur., 639. There was no issue as to the meaning of the term "net
worth", and no prejudice is shown for failure to define the term.
See Deacon v.
United States
, 1 Cir., 124 Fed. (2d) 352.
Since the
submission of this case to the court on reargument as above set out on
March 9, 19
55, the appellant has called the attention of the court to two cases
involving the question of tax evasion from other circuits.
[Other
Cases Considered]
On
April 11, 19
55, the United States Court of Appeals for the Ninth Circuit filed its
opinion in the case of Bloch v. United States, 221 Fed. (2d) 786,
[55-1 USTC ¶9364], in which it reversed and remanded the case for a new
trial on the sole ground that the trial court's instruction on
willfulness was erroneous. In this connection it is interesting to note
that appellant made no objection to the instruction as given, but only
objected to the failure of the court to give his requested instruction.
However, the Ninth Circuit followed Rule 52(b) of the Federal Rules of
Criminal Procedure and applied by the Supreme Court in United States
v. Atkinson, 297
U. S.
157, as follows:
"In
exceptional circumstances, especially in criminal cases, appellate
courts, in the public interest, may, of their own motion, notice errors
to which no exception has been taken, if the errors are obvious, or if
they otherwise seriously affect the fairness, integrity, or public
reputation of judicial proceedings."
The trial
court's charge there on the subject of willfulness which the appellate
court found to be erroneous is as follows:
".
. . It [willfulness] includes several states of mind, any one of which
may be the willfulness to make up the crime.
"Willfulness
includes doing an act with a bad purpose. It includes doing an act
without a justifiable excuse. It includes doing an act without ground
for believing that the act is lawful. It also includes doing an act with
a careless disregard for whether or not one has the right so to
act."
It may be
noted that the court stated that the trial court's instruction on
presumption, which is similar to that given by the trial court here, was
erroneous, but the court reversed on the court covering the subject of
willfulness.
While
appellant apparently feels that the error in the trial court's
instructions in the Bloch case place the case here on all fours
with that case, he fails to consider, in spite of the similarity of the
instruction as to presumption in both cases, the plain and clear
instructions submitted to the jury by the trial court here as to the
question of intent, so here the instructions of the trial court taken as
a whole place the case completely outside of the error the appellate
court found in the Bloch case. On the subject of intent the trial
court in this case stated:
"The
element of intent enters into the offenses charged in the indictment and
is one of the questions for you to consider and decide. That is, whether
the defendant willfully and knowingly attempted to defeat and evade a
portion of his income tax due and owing by him to the United States of
America for the calendar years 1945, 1946 and 1947."
Appellant also
overlooks two other cases from the Ninth Circuit, in both of which the
appeals were based on erroneous instructions.
In one of
them, Bateman v. United States, 9 Cir., 212 Fed. (2d) 61 [54-1
USTC ¶9341], decided on
April 15, 19
54, before the Supreme Court had ruled on the
Holland
and companion cases (348
U. S.
), the court said (page 70):
"As
often occurs counsel has singled out one instruction in claiming error
without regard to the instructions considered as a whole. The
instructions on intent, given by the Court, correctly stated the law,
were plain and understandable, and left no room for doubt in the minds
of the jurors . . .
"It
is apparent that the jury was fully instructed that if appellants acted
in good faith they should be acquitted."
So here, the
trial court instructed the jury: ". . . if you are not satisfied of
the defendant's guilt beyond a reasonable doubt, you should find him not
guilty." And certainly, the trial court's instructions on intent
"correctly stated the law, were plain and understandable, and left
no room for doubt in the minds of the jurors."
The second
case from the Ninth Circuit to which we refer is that of Legatos v.
United States decided on
May 12, 19
55 [55-1 USTC ¶9443]. This decision was entered after the decision in
the Bloch case, supra, and in that opinion the court
refers to both the Bateman andBloch cases as follows:
"It
is our conclusion that, considered as a whole the Court's instructions
on intent and willfulness clearly and correctly stated the law and were
not such as to mislead the jury. We conclude, therefore, that the
present case is governed by Bateman v.
United States
, supra, and is distinguishable from Wardlaw v.
United States
, supra, and Bloch v.
United States
, supra, where the effect of the court's instructions considered as
a whole was not discussed."
A careful
review of these three opinions of the Ninth Circuit convinces us that
the case here has more similarity to the Legatos and Bateman
cases than to the Bloch case. And the statement in the Legatos
case,supra, "that, considered as a whole the Court's
instructions on intent and willfulness clearly and correctly stated the
law and were not such as to mislead the jury", applies here.
The case ofSteele
v.
United States
was decided by the Court of Appeals for the Fifth Circuit on
May 13, 19
55, 222 Fed. (2d) 628, [55-1 USTC ¶9438], and the court reversed the
decision of the trial court, stating that the most prejudicial of the
errors dealt with two government exhibits, one of which purported to be
a computation of Steele's income on a net worth basis, and the other
exhibit a computation of such income on the expenditures--available
funds basis. The court upheld appellant's contention that there were
omissions, interpretations and discrepancies between the record and the
exhibits and a considerable portion of the testimony of some of the
witnesses. Here the exhibits conformed to the evidence submitted by the
government.
In the Steele
case after the jury had retired the United States Attorney requested
that the exhibits be sent to the jury room, which was done over the
objections of appellant. Nothing in the record here indicates what
happened to exhibits 33, 70 and 71 after the jury retired. The decision
in theSteele case is not applicable here. The trial court here
exercised great care and caution in reference to the testimony of the
government witness who prepared the exhibits and in receiving the
exhibits themselves, and in his instructions to the jury that intent to
defeat and evade is an essential to the crime charged he guarded against
the possibility that the jury would assume that the figures in the
exhibits once established confirmed the guilt of appellant.
[Conclusion]
Since the
resubmission of this case on
March 9, 19
55
, we have reviewed the original record and briefs, the petition for
rehearing, the records and briefs submitted at the time of the
reargument, and the cases called to our attention since then by the able
counsel on both sides. We are still convinced that appellant had a fair
trial and that there is no reversible error. Accordingly the judgment of
the trial court is affirmed.