7203 - Bank Records and Net Worth Increases 2 Page 5

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Articles by Alvin Brown
Tax Preparation
Offer In Compromise
State Offers in Compromise
Levy
IRS Tax Liens
IRS Tax Liens - continued
IRS Tax Liens - continued 2
Levy - continued
IRS Audits
Audit Techniques Guide
Congressional Contacts
Criminal Investigation
D.O.J Criminal Tax Manual
Tax Litigation
Penalty
Installment Agreements
Statute of Limitations
Frivolous Tax Argument
Interest Abatement
IRS Misconduct
IRS Abuses
Tax Fraud
Fraud Statutes
Bankruptcy
Tax Reform Legislation
Tax Shelters
Tax Court
Trust Fund Penalty
Legislation
Innocent Spouse Relief
Important Links


Fraud Statutes 

Additional Information:

 

7203 - Accountant-Client Privilege
7203 - Accrual Basis
7203 - Admissibility 1 p1
7203 - Admissibility 1 p2
7203 - Admissibility 1 p3
7203 - Admissibility 1 p4
7203 - Admissibility 1 p5
7203 - Admissibility 1 p6
7203 - Admissibility 2 p1
7203 - Admissibility 2 p2
7203 - Admissibility 2 p3
7203 - Admissibility 2 p4
7203 - Admissibility 2 p5
7203 - Admissibility 3 p1
7203 - Admissibility 3 p2
7203 - Admissibility 3 p3
7203 - Admissibility 3 p4
7203 - Admissibility 3 p5
7203 - Admissibility 4 p1
7203 - Admissibility 4 p2
7203 - Admissions p1
7203 - Admissions p2
7203 - Advice of Counsel p1
7203 - Advice of Counsel p2
7203 - Amendment
7203 - Appeal Right to
7203 - Appeal Timeliness
7203 - Appeal Waiver
7203 - Appeal without merit
7203 - Arrest
7203 - Fraudulent Return
7203 - Defeat & Evade Income Taxes p1
7203 - Defeat & Evade Income Taxes p2
7203 - Defeat & Evade Income Taxes p3
7203 - Defeat &  Evade Income Taxes p4
7203 - Attorney Disqualified
7203 - Attorney's Testimony p1
7203 - Attorney's Testimony p2
7203 - Attorney's Testimony p3
7203 - Attorney's Testimony p4
7203 - Bail
7203 - Bank Records &  Net Worth Increases 1 p1
7203 - Bank Records &  Net Worth Increases 1 p2
7203 - Bank Records &  Net Worth Increases 1 p3
7203 - Bank Records &  Net Worth Increases 1 p4
7203 - Bank Records &  Net Worth Increases 1 p5
7203 - Bank Records &  Net Worth Increases 1 p6
7203 - Bank Records &  Net Worth Increases 2 p1
7203 - Bank Records &  Net Worth Increases 2 p2
7203 - Bank Records &  Net Worth Increases 2 p3
7203 - Bank Records &  Net Worth Increases 2 p4
7203 - Bank Records &  Net Worth Increases 2 p5
7203 - Bank Records &  Net Worth Increases 3 p1
7203 - Bank Records &  Net Worth Increases 3 p2
7203 - Bank Records &  Net Worth Increases 3 p3
7203 - Bank Records &  Net Worth Increases 3 p4
7203 - Bank Records &  Net Worth Increases 3 p5
7203 - Bank Records &  Net Worth Increases 4 p1
7203 - Bank Records &  Net Worth Increases 4 p2
7203 - Bank Records &  Net Worth Increases 4 p3
7203 - Bank Records &  Net Worth Increases 4 p4
7203 - Bank Records &  Net Worth Increases 4 p5
7203 - Bank Records &  Net Worth Increases 5 p1
7203 - Bank Records & Net Worth Increases 5 p2
7203 - Bank Records & Net Worth Increases 5 p3
7203 - Bank Records & Net Worth Increases 5 p4
7203 - Bank Records & Net Worth Increases 5 p5
7203 - Base Sentence p1
7203 - Base Sentence p2
7203 - Base Sentence p3
7203 - Base Sentence p4
I7203 - Bill of Particluar Conspiracy
7203 - Bill of Particulars
7203 - Books and Records
7203 - Burden of going forward with evidence
7203 - Burden of Proof
7203 - Carryback Offset
7203 - Changing Plea
7203 - Character witness p1
7203 - Character witness p2
7203 - Circumstanial Evidence p1
7203 - Circumstanial Evidence p2
7203 - Circumstanial Evidence p3
7203 - Circumstanial Evidence p4
7203 - Collateral Estoppel
7203 - Collection
7203 - Commitment by U.S. Commissioner
7203 - Communication to Jury
7203 - Compromise
7203 - Consolidation
7203 - Conspiracy p1
7203 - Conspiracy p2
7203 - Conspiracy 1 p1
7203 - Conspiracy 1 p2
7203 - Conspiracy 1 p3
7203 - Conspiracy 1 p4
7203 - Conspiracy 1 p5
7203 - Conspiracy 1 p6
7203 - Conspiracy 1 p7
7203 - Conspiracy 1 p8
7203 - Conspiracy 2 p1
7203 - Conspiracy 2 p2
7203 - Conspiracy 2 p3
7203 - Constitutional Grounds 1 p1
7203 - Constitutional Grounds 1 p2
7203 - Constitutional Grounds 1 p3
7203 - Constitutional Grounds 1 p4
7203 - Constitutional Grounds 1 p5
7203 - Constitutional Grounds 2 p1
7203 - Constitutional Grounds 2 p2
7203 - Constitutional Grounds 2 p3
7203 - Constitutional Grounds 2 p4
7203 - Constitutional Grounds 2 p5
7203 - Constitutional Grounds 3 p1
7203 - Constitutional Grounds 3 p2
7203 - Constitutional Grounds 3 p3
7203 - Constitutional Grounds 3 p4
7203 - Constitutional Grounds 3 p5
7203 - Constitutional Grounds 4 p1
7203 - Constitutional Grounds 4 p2
7203 - Constitutional Grounds 4 p3
7203 - Constitutional Grounds 4 p4
7203 - Constitutional Grounds 5 p1
7203 - Constitutional Grounds 5 p2
7203 - Constitutional Grounds 5 p3
7203 - Constitutional Grounds 5 p4
7203 - Constitutional Grounds 5 p5
7203 - Constitutional Grounds 6
7203 - Contempt Finding Ag. Defendant's Counsel
7203 - Continuance p1
7203 - Continuance p2
7203 - Continuance p3
7203 - Conviction Required
7203 - Copies of Records p1
7203 - Copies of Records p2
7203 - Corporation Officer
7203 - Costs
7203 - Credit for Time Served
7203 - Criminal Contempt
7203 - Cross-Examination PART 1 p1
7203 - Cross-Examination PART 1 p2
7203 - Cross-Examination PART 1 p3
7203 - Cross-Examination PART 1 p4
7203 - Cross-Examination PART 1 p5
7203 - Cross-Examination PART 2
7203 - DefendantHaving Facts Available p1
7203 - DefendantHaving Facts Available p2
7203 - DefendantHaving Facts Available p3
7203 - Degree of Proof p1
7203 - Degree of Proof p2
7203 - Depositions
7203 - Different Statute Cited
7203 - Discovery, Scope Of
7203 - Documentary Evidence in Jury Room
7203 - Double Jeopardy 1 p1
7203 - Double Jeopardy 1 p2
7203 - Double Jeopardy 1 p3
7203 - Double Jeopardy 1 p4
7203 - Double Jeopardy 1 p5
7203 - Double Jeopardy 2 p1
7203 - Double Jeopardy 2 p2
7203 - Double Jeopardy 2 p3
7203 - Double Jeopardy 2 p4
7203 - Enhanced Sentence Sophisticated Means p1
7203 - Enhanced Sentence Sophisticated Means p2
7203 - Enhanced Sentence p1
7203 - Enhanced Sentence p2
7203 - Entrapment
7203 - Erroneous calculation of tax
7203 - Exclusion of Oral Testimony
7203 - Exercise Privilege-Exclusion from Courtroom
7203 - Expert Witness p1
7203 - Expert Witness p2
7203 - Expert Witness p3
7203 - Expert Witness p4
7203 - Extenuating Circumstances
7203 - Fact Finding p1
7203 - Fact Finding p2
7203 - Fact Finding p3
7203 - Fact Finding p4
7203 - Fact Finding p5
7203 - Failure of IRS to File Return
7203 - Failure to Assess Tax
7203 - Failure to Prosecute p1
7203 - Failure to Prosecute p2
7203 - Failure to Prosecute p3
7203 - Failure to Prosecute p4
7203 - Failure to Prosecute p5
7203 - Failure to Report Income 1 p1
7203 - Failure to Report Income 1 p2
7203 - Failure to Report Income 1 p3
7203 - Failure to Report Income 1 p4
7203 - Failure to Report Income 1 p5
7203 - Failure to Report Income 1 p6
7203 - Failure to Report Income 2 p1
7203 - Failure to Report Income 2 p2
7203 - Failure to Supply Information
7203 - False Return
7203 - Fictitious names
7203 - Fraud Case Procedures p1
7203 - Fraud Case Procedures p2
7203 - Fraud Case Procedures p3
7203 - Fraud Case Procedures p4
7203 - General Exception
7203 - Good Faith p1
7203 - Good Faith p2
7203 - Good Faith p3
7203 - Good Faith p4
7203 - Government Agent Prosecuting Claim
7203 - Grand Jury 1 p1
7203 - Grand Jury 1 p2
7203 - Grand Jury 1 p3
7203 - Grand Jury 1 p4
7203 - Grand Jury 1 p5
7203 - Grand Jury 2 p1
7203 - Grand Jury 2 p2
7203 - Hearsay Evidence p1
7203 - Hearsay Evidence p2
7203 - Hearsay Evidence p3
7203 - Hearsay Evidence p4
7203 - Hearsay Evidence p5
7203 - Hostility of the Court p1
7203 - Hostility of the Court p2
7203 - Hostility of the Court p3
7203 - Hypnosis
7203 - Identification
7203 - Ignorance of Law
7203 - Immunity p1
7203 - Immunity p2
7203 - Immunity p3
7203 - Impeachment p1
7203 - Impeachment p2
7203 - Improper Comment PART 1 p1
7203 - Improper Comment PART 1 p2
7203 - Improper Comment PART 1 p3
7203 - Improper Comment PART 1 p4
7203 - Improper Comment PART 1 p5
7203 - Improper Comment PART 2 p1
7203 - Improper Comment PART 2 p2
7203 - Improper Comment PART 2 p3
7203 - Improper Comment PART 2 p4
7203 - Improper Comment PART 2 p5
7203 - Improper Comment PART 3
7203 - Improper Question
7203 - Incrimination 1 p1
7203 - Incrimination 1 p2
7203 - Incrimination 1 p3
7203 - Incrimination 1 p4
7203 - Incrimination 1 p5
7203 - Incrimination 2 p1
7203 - Incrimination 2 p2
7203 - Incrimination 2 p3
7203 - Incrimination 2 p4
7203 - Incrimination 2 p5
7203 - Incriminaton Before Grand Jury p1
7203 - Incriminaton Before Grand Jury p2
7203 - Instructions to Jury 1 p1
7203 - Instructions to Jury 1 p2
7203 - Instructions to Jury 1 p3
7203 - Instructions to Jury 1 p4
7203 - Instructions to Jury 1 p5
7203 - Instructions to Jury 2 p1
7203 - Instructions to Jury 2 p2
7203 - Instructions to Jury 2 p3
7203 - Instructions to Jury 2 p4
7203 - Instructions to Jury 2 p5
7203 - Instructions to Jury 3 p1
7203 - Instructions to Jury 3 p2
7203 - Instructions to Jury 3 p3
7203 - Instructions to Jury 3 p4
7203 - Instructions to Jury 3 p5
7203 - Instructions to Jury 4 p1
7203 - Instructions to Jury 4 p2
7203 - Instructions to Jury 4 p3
7203 - Instructions to Jury 4 p4
7203 - Instructions to Jury 4 p5
7203 - Instructions to Jury 5 p1
7203 - Instructions to Jury 5 p2
7203 - Instructions to Jury 5 p3
7203 - Instructions to Jury 5 p4
7203 - Instructions to Jury 5 p5
7203 - Instructions to Jury 6 p1
7203 - Instructions to Jury 6 p2
7203 - Instructions to Jury 6 p3
7203 - Instructions to Jury 6 p4
7203 - Instructions to Jury 6 p5
7203 - Instructions to Jury 7 p1
7203 - Instructions to Jury 7 p2
7203 - Instructions to Jury 7 p3
7203 - Instructions to Jury 7 p4
7203 - Instructions to Jury 7 p5
7205 Convictions p1
7205 Convictions p2
7205 Convictions p3
7205 Convictions p4
7205 Convictions p5
7205 Double Jeopardy
7205 Exemption Certificates
7205 Hostility of the Court
7205 Indictment
7205 Information
7205 Intent to Deceive Lacking
7205 Right to Counsel
7205 Trial, Timeliness
7205 Variance
7205 Venue
7205 Willfulness
7206 False Returns 1 p1
7206 False Returns 1 p2
7206 False Returns 1 p3
7206 False Returns 1 p4
7206 False Returns 1 p5
7206 False Returns 2 p1
7206 False Returns 2 p2
7206 False Returns 2 p3
7206 False Returns 2 p4
7206 False Returns 2 p5
7206 False Returns 3 p1
7206 False Returns 3 p2
7206 False Returns 3 p3
7206 False Returns 3 p4
7206 Basis for Allegation of Fraud
7206 Concealment of Assets p1
7206 Concealment of Assets p2
7206 Conspiracy 1 p1
7206 Conspiracy 1 p2
7206 Conspiracy 1 p3
7206 Conspiracy 1 p4
7206 Conspiracy 2 p1
7206 Conspiracy 2 p2
7206 Constitutionality p1
7206 Constitutionality p2
7206 Constitutionality p3
7206 Costs
7206 Disclosure of Returns
7206 Estoppel p1
7206 Estoppel p2
7206 Estoppel p3
7206 Evidence 1 p1
7206 Evidence 1 p2
7206 Evidence 1 p3
7206 Evidence 1 p4
7206 Evidence 1 p5
7206 Evidence 2 p1
7206 Evidence 2 p2
7206 Evidence 2 p3
7206 Evidence 2 p4
7206 Evidence 2 p5
7206 Evidence 3 p1
7206 Evidence 3 p2
7206 Evidence 3 p3
7206 Evidence 3 p4
7206 Evidence 3 p5
7206 Evidence 4 p1
7206 Evidence 4 p2
7206 Evidence 4 p3
7206 False Claims Against U.S.
7206 False Documents p1
7206 False Documents p2
7206 False Statements in Return 1 p1
7206 False Statements in Return 1 p2
7206 False Statements in Return 1 p3
7206 False Statements in Return 1 p4
7206 False Statements in Return 1 p5
7206 False Statements in Return 2 p1
7206 False Statements in Return 2 p2
7206 False Statements in Return 2 p3
7206 False Statements in Return 2 p4
7206 False Statements in Return 3 p1
7206 False Statements in Return 3 p2
7206 False Statements in Return 3 p3
7206 False Statements in Return 3 p4
7206 False Statements in Return 3 p5
7206 False Statements in Return 4 p1
7206 False Statements in Return 4 p2
7206 False Statements in Return 4 p3
7206 False Statements in Return 4 p4
7206 False Statements in Return 4 p5
7206 False Statements in Return 5 p1
7206 False Statements in Return 5 p2
7206 False Statements in Return 5 p3
7206 False Statements in Return 5 p4
7206 False Statements to IRS Agents p1
7206 False Statements to IRS Agents p2
7206 False Statements to IRS Agents p3
7206 Forgery
7206 Grand Jury
7206 Guilty Plea p1
7206 Guilty Plea p2
7206 Immunity
7206 Indictment 1 p1
7206 Indictment 1 p2
7206 Indictment 1 p3
7206 Indictment 1 p4
7206 Indictment 1 p5
7206 Indictment 2 p1
7206 Indictment 2 p2
7206 Instructions to Jury 1 p1
7206 Instructions to Jury 1 p2
7206 Instructions to Jury 1 p3
7206 Instructions to Jury 1 p4
7206 Instructions to Jury 1 p5
7206 Instructions to Jury 2 p1
7206 Instructions to Jury 2 p2
7206 Instructions to Jury 2 p3
7206 Instructions to Jury 2 p4
7206 Instructions to Jury 2 p5
7206 Instructions to Jury 3 p1
7206 Instructions to Jury 3 p2
7206 Instructions to Jury 3 p3
7206 Instructions to Jury 3 p4
7206 Instructions to Jury 3 p5
7206 Jury Verdict Disregarded
7206 Jury p1
7206 Jury p2
7206 Jury p3
7206 Lesser Included Offense p1
7206 Lesser Included Offense p2
7206 Motion For Continuance
7206 Motion to Sever
7206 Motion to Transfer
7206 Motion to Vacate Sentence
7206 Net Worth Statement
7206 Offer in Compromise
7206 Perjury
7206 False or Fraudulent Returns p1
7206 False or Fraudulent Returns p2
7206 False or Fraudulent Returns p3
7206 False or Fraudulent Returns p4
7206 False or Fraudulent Returns p5
7206 Prior Convictions
7206 Prior Law
7206 Probation
7206 Prosecutor's Comment p1
7206 Prosecutor's Comment p2
7206 Restitution
7206 Right to Counsel p1
7206 Right to Counsel p2
7206 Sentence p1
7206 Sentence p2
7206 Sentence p3
7206 Sentence p4
7206 Sentencing Guidelines 1 p1
7206 Sentencing Guidelines 1 p2
7206 Sentencing Guidelines 1 p3
7206 Sentencing Guidelines 1 p4
7206 Sentencing Guidelines 1 p5
7206 Sentencing Guidelines 2 p1
7206 Sentencing Guidelines 2 p2
7206 Sentencing Guidelines 2 p3
7206 Statute of Limitations p1
7206 Statute of Limitations p2
7206 Venue
7206 Willfulness Defined p1
7206 Willfulness Defined p2
7206 Willfulness Defined p3
7206 Willfulness Defined p4
7207 Conviction
7207 Defenses
7207 Motion to Dismiss
7207 Sentencing
7207 Willfully Defined
7210 Willful Failure to Obey Summons
7212 Assault
7212 Bribery
7212 Constiutionality
7212 Indictment
7212 Interference p1
7212 Interference p2
7212 Interference p3
7212 Interference p4
7212 Jury Instructions
7212 Rescue of Seized, Levied Property p1
7212 Rescue of Seized, Levied Property p2
7212 Sentence p1
7212 Sentence p2
7212 Statute of Limitations
7212 Suppresion of Evidence
7215 Constitutionality
7215 Conviction
7215 Corporation
7215 Defenses
7215 Evidence
7215 Intent
7215 Speedy Trial
7216 Consent
7216 Preparer Defined
7216 Scope of Statute
7217 IRS Employees

 

Bank Records and Net Worth Increases 2 Page5

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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.

 

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