Bank Records and Net Worth Increases
3 Page1
7203: Willful
Failure to File Return, Supply Information, or Pay Tax: Evidence: Bank
Records and Net Worth Increases
Part 3
[53-1
USTC ¶9402]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., 204 F2d 666,
05/27/53
Appeal from the United States District Court for the District of
Minnesota.
Fraud conviction for willful evasion established by net worth
increase method upheld: Fair trial.--Defendant-taxpayer's appeal from a
conviction of willful evasion of income tax failed where large sums of
unreported income were determined by use of the net worth increase
method of reconstructing his income over a period of years. He had a
fair trial, for the court below did not abuse its discretionary power,
as contended.
John
W. Graff (Jerome Hoffmann and Richard E. Kyle were with him on the
brief) for appellant. Murray L. Schwartz, Special Assistant to the
Attorney General (H. Brian Holland, Assistant Attorney General, Ellis N.
Slack and Meyer H. Rothwacks, Special Assistants to the Attorney
General, and Philip Neville, United States Attorney, were with him on
the brief) for appellee.
Before
GARDNER, Chief Judge, and WOODROUGH and THOMAS, Circuit Judges.
THOMAS,
Circuit Judge:
Thomas
W. Banks was indicted, tried and convicted on three counts of an
indictment which charged that he had willfully and knowingly attempted
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. §145(b).
1
The
indictment was returned by the grand jury on
January 14, 19
52. On
February 18, 19
52, the defendant moved to dismiss the indictment and to require the
taking of testimony of the members of the grand jury and the production
of the transcript of the proceedings before the grand jury. The
United States
voluntarily filed two bills of particulars. A motion for a further bill
of particulars was overruled. After defendant had been arraigned and
entered a plea of not guilty he renewed his motion to dismiss the
indictment, require the testimony of the grand jury to be taken and to
produce the transcript of the testimony. Both motions were denied.
On
May 20, 19
52, prior to the introduction of evidence one juror was released by the
trial judge on the ground that he was disqualified and an alternate
juror was substituted for him.
The
trial was concluded on
May 30, 19
52. The defendant offered no evidence but moved for a judgment of
acquittal. The motion was denied, and the jury returned a verdict of
guilty on each of the three counts. On
June 23, 19
52, the court imposed a general sentence of three years' imprisonment
and a fine of $10,000. Notice of appeal was filed
June 30, 19
52.
The
trial was commenced on
May 19, 19
52, and concluded on May 30th. The defendant's brief fills 115 printed
pages and cites 40 cases, four textbooks, two statutes and two Federal
Rules of Criminal Procedure. To discuss each point and each argument
separately would extend this opinion to unreasonable length.
The
defendant contends that the court erred: 1. In refusing to dismiss the
indictment; 2. In dismissing a juror and substituting an alternate; 3.
In holding that the evidence was sufficient to support the conviction on
each of the three counts; 4. In denying his request for a further bill
of particulars; 5. In receiving in evidence the testimony of witnesses
Weinstock, O'Gordon and Kleven, together with certain exhibits; 6. In
permitting the government attorney to comment prejudicially on
defendant's failure to take the witness stand in his own defense; 7. In
failing to give requested instructions and in giving certain
instructions; and 8. In admitting incompetent evidence.
The
defendant's first contention, namely, that the court erred in refusing
to dismiss the indictment upon defendant's motion is predicated upon two
subordinate contentions: first, in general, that there was no competent
evidence to support a finding by the jury that the defendant willfully
attempted to evade and defeat a tax; and, second, the court erred in
refusing to permit the evidence before the grand jury to be made
available to the defendant and his counsel.
The
court properly instructed the jury that the defendant is presumed to be
innocent of the crimes alleged against him in the indictment, and that
the burden was upon the government to prove him guilty beyond a
reasonable doubt. That burden in this case, in which a violation of §145(b)
of the Internal Revenue Code, supra, is charged, required proof
(1) that a tax was due from defendant to the government for each of the
years charged; (2) that the defendant attempted to evade payment of that
tax; and (3) that his attempt so to evade payment was willful.
Failing
to secure the cooperation of the defendant in its investigation of his
income for the years involved, the government used the net worth and
gross expenditures method of proving the increase in defendant's net
worth from year to year. This method has been approved by this and other
courts. Leeby v.
United States
, 8 Cir., 192 Fed. (2d) 331 [51-2 USTC ¶9497]; Schuermann v.
United States, 8 Cir., 174 Fed. (2d) 397 [49-1 USTC ¶9281]; Pollock
v. United States, 5 Cir., 202 Fed. (2d) 281 [53-1 USTC ¶9229]; United
States v. Yeoman-Henderson, Inc., 7 Cir., 193 Fed. (2d) 867 [52-1
USTC ¶9155]; Gariepy v. United States, 6 Cir., 189 Fed. (2d) 459
[51-1 USTC ¶9318]; Bell v. United States, 4 Cir., 185 Fed. (2d)
302 [50-2 USTC ¶9499]; Brodella v. United States, 6 Cir., 184
Fed. (2d) 823 [50-2 USTC ¶9477]. The purpose of the government's
evidence by this method is to show that the net worth of the taxpayer
increased from year to year from a fixed starting point in amounts
greater than shown on his income tax returns.
Here
the government used as the starting point the net worth of defendant at
the end of the year 1936 as determined from his own affidavit filed with
the Bureau of Internal Revenue in 1937. Starting with the date given in
that affidavit the investigators for the government found defendant's
net worth at the end of the year 1936 to be $18,578.78.
The
government introduced evidence to show that defendant's net worth
increased thereafter so that at the close of 1944 it was $231,029.26; in
1945 it was $270,968.33; in 1946 it was $296,087.27; and in 1947 it was
$322,877.34. The defendant's taxable net income as reported in his
returns for the three years involved was for 1945, $20,170.11; for 1946,
$27,100.99; and for 1947, $20,609.29. His taxable net income as claimed
by the government was for 1945, $43,690.11; for 1946, $36,799.97; and
for 1947, $41,453.07. And his federal income taxes which should have
been reported and paid, but were not, were for 1945, $15,044.06; for
1946, $5,829.41; and for 1947, $12,067.55.
In
arriving at these figures the government investigators compiled and
analyzed statistics for the years 1936 to and including 1947 showing
defendant's cash deposits in banks, his United States bonds purchased
and held, his receivables, his investments in marketable stocks and
bonds, stocks of operating companies, investments in real estate and
other property, and his liabilities for mortgages, other loans and
accounts payable; and from all such data arrived at a statement of his
taxable income for all three years.
This
written undisputed evidence was all introduced in evidence by the
government; and it was sufficient to warrant the submission of the case
to the jury and to support the verdict, requiring an affirmance of the
judgment, unless some other alleged error of the court requires a
reversal. Pollock v. United States, 5 Cir., 202 Fed. (2d) 281
[53-1 USTC ¶9229].
We
shall next consider defendant's objections to the grand jury
proceedings. It is asserted that the court erred in refusing to permit
the evidence taken before the grand jury to be made available to the
defendant and to his counsel. It is the law that matters occurring
before a grand jury may not be disclosed to the defendant nor to his
counsel unless "permitted by the court . . ." Rule 6(e) of the
Federal Rules of Criminal Procedure. Two judges in this case denied the
motions of defendant calling for a transcript of the evidence taken
before the grand jury. The question for decision here, therefore, is
whether the rulings of these judges upon the motions so made were an
abuse of discretion on their part.
The
motions in question asked the court--
1.
To dismiss the indictment . . .;
2.
To require the members of the grand jury . . . to disclose matters
occurring before such grand jury; and
3.
To permit the furnishing to counsel for defendant of a stenographic
report of the proceedings before the grand jury when the case against
the defendant was presented.
Counsel
for defendant filed with the motion his affidavit in which he avers that
he had investigated the circumstances pertaining to the proposed
prosecution of his client; that he had been informed that
representatives of the newspapers were outside the grand jury room on
the morning of
January 14, 19
52, when the grand jury was in session; that it appeared in one
newspaper of
January 15, 19
52, that the grand jury was called into session at 10:00 a.m. to receive
instructions; that at 10:30 a.m. that same day it commenced hearing
testimony; that at 11:30 a.m. word was sent that it was ready to report;
and that it made its report at 11:45 a.m. It was further averred that
only one witness was called before the grand jury and that such witness
was the special agent of the Intelligence Unit of the Bureau of Internal
Revenue who directed the investigation of the taxpayer's affairs.
It
developed that the special agent referred to was George H. McKusick who
testified at the trial and whose testimony for the government is
reviewed above. He testified as to the method adopted, that is the net
worth method, and the findings of the investigators. Reviewing that
evidence indicates that not more than an hour or at most an hour and a
half would be necessary to place it before a grand jury or a petit jury
in case no time was consumed by counsel's objections and arguments to
the court on admissibility. The evidence was admissible not only before
the grand jury but also upon the trial. We do not think the judges
abused their discretion in denying the motion.
Further
a trial court's exercise of discretion in denying a motion to quash or
dismiss an indictment because of irregularity, if any, in grand jury
proceedings is not ordinarily reviewable. United States v. Holmes,
3 Cir., 168 Fed. (2d) 888. The same rule applies to defendant's motion
for a bill of particulars. United States v. Rosenburgh, 74 U.S.
580; Wong Tai v. United States, 273 U.S. 77, 82; Knauer v.
United States, 8 Cir., 237 Fed. 8; Stewart v. United States,
8 Cir., 300 Fed. 769; Bedell v. United States, 8 Cir., 78 Fed.
(2d) 358; Pines v. United States, 8 Cir., 123 Fed. (2d) 825; Braatelien
v. United States, 8 Cir., 147 Fed. (2d) 888.
It
is next contended that the court erred in receiving the testimony of one
Joseph A. O'Gordon and Exhibits 70 and 71. Reference to the testimony
discloses that O'Gordon representing the defendant in the fall of 1950
discussed with representatives of the Bureau of Internal Revenue some
aspects of defendant's business. The revenue officer submitted to
O'Gordon a list of questions to which he requested answers. Answers of
the defendant were obtained by O'Gordon on a separate sheet of paper and
delivered to the revenue agent. O'Gordon was called as a witness by the
government and identified the paper containing the list of questions as
Exhibit 70 and the paper containing the answers as Exhibit 71. They were
received in evidence over the objection of counsel for defendant.
The
objection was on two grounds: first, that the lawyer-client relation
existed between defendant and O'Gordon and the answers were privileged,
and further they were incompetent because they were submitted as part of
a proposed settlement of a civil case. O'Gordon at the time in question
was not negotiating with the revenue officer as a mere attorney. He was
acting as defendant's agent with a power of attorney. In that capacity
he secured defendant's answers to the questions submitted and returned
them to the officer. Under these circumstances they were admissible. In American
Fur Co. v. United States, 2 Peters 358, 364, 27 U.S. 229, 233, the
Supreme Court say: ". . . whatever an agent does or says, in
reference to the business in which he is at the time employed, and
within the scope of his authority, is done or said by the principal; and
may be proved, as well in a criminal as a civil case; in like manner as
if the evidence applied personally to the principal." The testimony
objected to here was clearly admissible. Himmelfarb v. United States,
9 Cir., 175 Fed. (2d) 924 [49-1 USTC ¶9313]. The information requested
was furnished by Banks to O'Gordon for the sole purpose of giving it to
McKusick in answer to McKusick's questions. O'Gordon was therefore
acting within the scope of his authority as Banks' agent.
The
defendant next contends that the court erred in admitting the testimony
of the witness Gerald O. Kleven, an expert called by the government, and
in admitting Exhibits 224, 225, 226, and 227.
Exhibit
224 is a summary of all the evidence in the case. Exhibit 226 consists
of a calculation by the witness of the differences between the net
income reported by the defendant in his income tax returns and the net
income shown by the government's evidence, including the amount of taxes
due according to each such net income and the differences between the
taxes so calculated. Exhibits 225 and 227 are merely enlarged copies of
Exhibits 224 and 226 respectively.
That
such expert testimony is admissible in cases of this character has been
decided by this court and other courts frequently. See Myres v.
United States, 8 Cir., 174 Fed. (2d) 329 [49-1 USTC ¶9275], cert.
den., 338 U.S. 849; Kirsch v. United States, 8 Cir., 174 Fed.
(2d) 595 [49-1 USTC ¶9274]; Cave v. United States, 8 Cir., 159
Fed. (2d) 464 [47-1 USTC ¶9171], cert. den., 331 U.S. 847, rehear.
den., 332 U.S. 786; Gleckman v. United States, 8 Cir., 80 Fed.
(2d) 394 [35-2 USTC ¶9645], cert. den., 297 U.S. 709; United States
v. Johnson, 319 U.S. 503 [43-1 USTC ¶9470].
Counsel
for defendant in their brief say: "While there is an appropriate
area in tax cases of this kind for expert testimony . . . there are
limitations as well", and they contend that this case comes within
those limitations. Attention is first directed to the case of Kirsch
v. United States, supra, in which this court reversed the conviction
of the taxpayer because the witness assumed without qualification that
all of the defendant's deposits in a certain account represented income
for tax purposes, although the government's own evidence showed that a
large part of the deposits did not represent income. That is not the
situation here. The Kirsch case is not in point. Other objections
to these exhibits are trivial and without merit.
Defendant
contends further that the court erred in admitting the testimony of
Leonard H. Weinstock as to the defendant's living expenses for the years
1945, 1946, and 1947. It will be recalled that Mr. George H. McKusick
was in charge of the investigation of defendant's income for the years
involved. Defendant gave Weinstock a power of attorney to represent him
in conferences with McKusick. McKusick furnished Weinstock a copy of his
estimate of defendant's living expenses for submission to defendant.
Weinstock was called as a witness to testify to the schedule of living
expenses for the years in question, but claimed to have forgotten the
amounts agreed upon, whereupon he was cross-examined by counsel for the
government over objection of defendant's counsel. There was no error in
admitting his testimony under these circumstances. It is the law that
where a party, in good faith, has called a witness in his behalf and is
surprised by his adverse testimony, he may, in the court's discretion,
be allowed to cross-examine or to show by others, that the witness has
previously made statements materially at variance with his present
testimony. Ellis v. United States, 8 Cir., 138 Fed. (2d) 612; Lewis
v. United States, 8 Cir., 153 Fed. (2d) 724.
The
defendant complains that the court erred in dismissing a juror after he
had been selected and substituting an alternate for him. The court
consistent with the provisions of Rule 24 of the Federal Rules of
Criminal Procedure examined the prospective jurors on their voir
dire. The next morning after the jury and the alternates had been
selected the court directed that the juror in question be brought before
the court from the jury room where he was reminded that at the voir
dire on the preceding day in answer to a question he stated that he
had his tax matters all straightened out with the government. Upon
further questioning by the court it then developed that he had trouble
over his tax problems with the government in 1945; that he had made
returns for 1948 and 1949; that he had not paid all the taxes due for
those years and that he had not made a return for 1950 or 1951, but that
he had intended to do so. The court thereupon excused him from the jury
and substituted an alternate juror. It is clear that on his voir dire
examination the juror, whether intentionally or not, misled the court
and counsel in reference to his tax troubles with the government. Under
these circumstances the court did not abuse its discretion in dismissing
the juror and substituting an alternate. No good reason to the contrary
is suggested by counsel for defendant. His contention is that defendant
was entitled to have the juror remain on the panel. But no proceedings
other than the selection of the jury had been had. Under these
circumstances the defendant's contention is without merit.
Another
contention of defendant is that the evidence fails to disclose an
affirmative willful attempt to evade and defeat a tax and hence there is
no offense under 26 U.S.C. §145(b). To support this contention the case
of Spies v. United States, 317 U.S. 492 [43-1 USTC ¶9243], is
cited. In fact the opinion in that case supports his conviction, and not
his contention. That opinion, quoted by defendant in his brief, points
out that a willful attempt to evade may be inferred by ". . .
concealment of assets or covering up sources of income, handling of
one's affairs to avoid making the records usual in transactions of the
kind, and any conduct, the likely effect of which would be to mislead or
to conceal. If the tax-evasion motive plays any part in such conduct the
offense may be made out even though the conduct may also serve other
purposes such as concealment of other crime."
Here
the evidence shows that defendant failed to report his entire income for
taxation; that he paid only a part of the taxes which he should have
paid. He held property in the names of nominees; he procured cashier's
checks with which he paid for property. He did not furnish to his
attorney, Mr. Weinstock, who made out his income tax returns,
information necessary to make accurate returns. A part of such
information which he furnished was on adding machine tape. He simply
told Weinstock that the source of such income was "wagering."
This, of course, referred to a part of his income only. The evidence
shows that the total income included in his returns was much less than
his actual income. The jury could very well find from all the testimony
that defendant willfully attempted to evade and defeat his federal
income taxes.
It
is further charged that government attorneys prejudicially commented on
the failure of defendant to take the witness stand in his own defense.
No direct charge of that kind was made by government counsel. What
occurred in substance was that in argument to the jury and in analyzing
the government's evidence they pointed out that the government's
evidence was undisputed.
No
objections were made nor exceptions taken to these references at the
time they occurred. Such references did not directly call the attention
of the jury to the fact that defendant did not testify and no comment
was made on his failure to testify further than to point out that the
government's testimony was undisputed. In this situation there is no
question to review. Johnson v. United States, 318 U.S. 189 [43-1
USTC ¶9288]. Further, "The statement of counsel that certain
evidence is not denied is not a violation of the safeguard vouched an
accused by the law." Baker v. United States, 8 Cir., 115
Fed. (2d) 533, 544, cert. den., 312 U.S. 692. In the cited case the
court quotes with approval the statement of the court in Lefkowitz v.
United States, 2 Cir., 273 Fed. 664, 668, that "It is only
objectionable to comment upon the failure of the defendant personally to
testify; and if at the close of the whole case any given point stands
uncontradicted, such lack of contradiction is a fact, an obvious truth,
upon which counsel are entirely at liberty to dwell."
Here
there was no direct reference to the failure of Banks to testify. The
law was not, therefore, violated. In Morrison v. United States, 8
Cir., 6 Fed. (2d) 809, 811, Judge Booth speaking for this court said:
"Comments by court and counsel that certain testimony is
uncontradicted is common, oftentimes helpful, and very generally held to
be without error." Citing authorities.
Counsel
for defendant requested 14 numbered instructions to be given to the
jury. His careless criticism of the court is illustrated by his assigned
error for alleged failure to give these instructions. His first
requested instruction reads:
"For
proof of its case, the government relies upon circumstantial evidence.
Circumstantial evidence consists of facts proved from which the jury may
infer by process of reasoning certain ultimate facts. A conviction may
be had upon circumstantial evidence, but to warrant a conviction on such
evidence the proven facts must not only be consistent with the
hypothesis of guilt and point surely and solely in the direction of
guilt, and must clearly and satisfactorily exclude every other
reasonable hypothesis except that of guilt."
In
his brief counsel says: "Requested instruction No. 1 pertained to
circumstantial evidence and while the court did state something about
circumstantial evidence it refused to state that the government relied
upon circumstantial evidence."
A
comparison of the requested instructions with the instructions given is
convincing that the court most carefully protected the rights of the
defendant and that as a whole the given instructions were more favorable
to the defendant than were the requested instructions. The court gave
requested instruction No. 1 on circumstantial evidence in the exact
language of the request.
The
whole record discloses, we think, that the defendant had a fair trial.
The judgment appealed from is accordingly
Affirmed.
1
26 U.S.C.A.
Sec.
145. Penalties * * *
(b)
Failure to Collect and Pay Over, or Attempt to Defeat or Evade Tax--
Any
person required under this chapter to collect, account for, and pay over
any tax imposed by this chapter, who willfully fails to collect or
truthfully account for and pay over such tax, and any person who
willfully attempts in any manner to evade or defeat any tax imposed by
this chapter or the payment thereof, shall, in addition to other
penalties provided by law, be guilty of a felony and, upon conviction
thereof, be fined not more than $10,000, or imprisoned for not more than
five years, or both, together with the costs of prosecution.
[56-2
USTC ¶9651]United States of America, Plaintiff v. O. R. Sunderland,
Defendant
U.
S. District Court, Colo., Criminal No. 13951, 4/18/56
[1939 Code Sec. 145(b)--corresponding to 1954 Code Sec. 7201]
Criminal prosecution: Tax evasion: Net worth method: Jury
instructions: Verdict.--Taxpayer was charged under 1939 Code Sec.
145(b) with wilfully attempting to defeat and evade income taxes by
filing false and fraudulent joint returns on behalf of himself and his
wife for taxable years 1947-1951. In order to arrive at a verdict the
Court instructed the jury on the law of the case as it pertained to (1)
the requirements of proof under the net worth method of reconstructing
net income, (2) the nature of evidence to show wilful intent on the part
of the defendant, (3) his good character as evidence, (4) the effect of
filing amended returns, (5) the weight to be given to testimony of
expert witnesses, and (6) the burden of proof and reasonable doubt. The
jury returned a verdict of guilty against taxpayer on all counts.
Donald
E. Kelley, United States Attorney, 348 Post Office Building, Denver,
Colo., for plaintiff. Lowell White, 550 Equitable Building, Kenneth W.
Rob
inson,
Rob
ert D. Charlton, 605 Ernest and Cranmer Building, Denver, Colo., for
defendant.
Instructions
to the Jury
BREITENSTEIN,
District Judge, Ladies and Gentlemen:
You
have patiently heard the evidence in this case and the arguments of the
lawyers. It now becomes the duty of the Court to instruct you as to the
law which will govern your deliberations in the case.
As
I have previously stated to you, it is your duty as jurors to follow the
law as stated in the instructions of the Court. It is solely the
province of the jury to determine the facts on the evidence presented.
In so doing it is the duty of the jury to accept the law as given you in
these instructions.
No
single one of these instructions states all the law applicable to the
case. All of the instructions must be taken and considered together as
they are connected with and related to each other as a whole.
At
the outset you should understand some of the well-established principles
of law applicable to all criminal cases. As you know this is a criminal
case.
Under
our system of government the defendant enters upon the trial in a
criminal case with the presumption of innocence in his favor. That
presumption of innocence continues and remains with the defendant in his
favor during the trial until it is overcome by evidence and guilt is
established to the satisfaction of the jury beyond a reasonable doubt.
The presumption of innocence alone is sufficient to acquit the defendant
unless the jury is satisfied beyond a reasonable doubt of the
defendant's guilt from all the evidence in the case.
The
indictment is no evidence of the guilt of the defendant and must not be
considered by you as such. The indictment is merely a formal statement
of the offense alleged by the Government to have been committed by the
defendant in order that he may know the charges which he must meet. The
indictment is not evidence, does not constitute proof, and will be
regarded by you only as a statement of the offense.
The
defendant in a criminal case is not required to prove his innocence. The
burden is on the Government to prove guilt of the offense charged, and
every material element thereof, beyond a reasonable doubt. In the event
that you have a reasonable doubt as to whether the defendant has been
proved to be guilty, then it will be your duty to resolve that doubt in
his favor and return a verdict of not guilty.
A
reasonable doubt is a doubt founded upon a consideration of all the
evidence and must be based on reason. Beyond a reasonable doubt does not
mean to a moral certainty or beyond a mere possible doubt or an
imaginary doubt. It is such a doubt as would deter a reasonably prudent
man or woman from acting or deciding in the more important matters
involved in his or her own affairs. Doubts which are not based upon a
reasonable and careful consideration of all the evidence, but are purely
imaginary, or born of sympathy alone, should not be considered and
should not influence your verdict. It is only necessary that you should
have that certainty with which you transact the more important concerns
in life. If you have that certainty, then you are convinced beyond a
reasonable doubt.
A
defendant may not be convicted upon mere suspicion or conjecture. A
defendant should be acquitted if the evidence is equally consistent with
innocence as with guilt.
[Kinds
of Evidence]
There
are two types of evidence from which a jury may properly find a
defendant guilty of an offense. One is direct evidence--such as the
testimony of an eye witness. The other is circumstantial evidence--the
proof of a chain of circumstances pointing to the commission of the
offense.
The
jury may convict upon circumstantial evidence as well as upon direct
evidence if it is so strong and convincing as to prove the guilt of a
defendant beyond a reasonable doubt. When the case rests wholly or
partly upon circumstantial evidence it must be so strong and convincing
as to exclude every reasonable theory and hypothesis of the innocence of
the defendant, and when so strong and convincing it meets the
requirement of proving the guilt of the defendant beyond a reasonable
doubt.
Now,
in this case the Grand Jury has returned an indictment in five counts.
Each count is a separate offense and requires separate consideration by
you. In this particular case each of the five counts is the same except
for the year involved and the amount of money involved. I will read the
first count in full; the other counts I will merely summarize as to the
items on which they are different from the first count.
In
the first count the Grand Jury charges: "That on or about the 15th
day of January, 1948, in the State and District of Colorado, and within
the jurisdiction of this Court, O. R. Sunderland, who during the
calendar year of 1947 was married, did wilfully and knowingly attempt to
defeat and evade a large part of the income tax due and owing by him and
his wife to the United States of America for the calendar year 1947 by
filing and causing to be filed with the Collector of Internal Revenue
for the District of Colorado at Denver, Colorado, a false and fraudulent
joint income tax return on behalf of himself and his said wife, wherein
it was stated that their net income for the calendar year 1947 was the
sum of $6,990.00, and that the amount of tax due and owing thereon was
the sum of $1,289.53, whereas, as he then and there well knew their
joint net income for the said calendar year was the sum of $34,217.10,
upon which said net income there was due and owing to the United States
of America an income tax of $14,475.04, all in violation of 26 U. S. C.
A., Section 145(b)."
Now,
the second count involves the year 1948. Therein it is alleged that in
the income tax return filed for that year the net income was shown in
the sum of $8,730.00, with a tax due of $1,347.30, whereas the
Government charges the joint net income was $31,847.50 and the tax due
was $8,549.50.
The
third count is the same except it involves the year 1949, and it said
for that year the return of the defendant showed a net income of
$6,873.70, and a tax due thereon of $1,124.00, whereas according to the
allegations of the Government, the net income for that year was
$31,881.56, the tax due on that was $8,566.70.
Count
four covers the calendar year 1950 and asserts that the return filed by
the defendant showed a net income of $14,864.87, with tax due in the
amount of $2,897.70, whereas the Government asserts that the net income
for that year was $43,472.15, and the tax due was $14,339.08.
The
fifth and last count covers the year 1951. The charge is that the return
filed showed a net income of $20,035.08, with a tax due of $4,984.28,
whereas the Government asserts that the joint net income in that year
was $32,172.67, with a tax due of $10,098.88.
As
I have told you the indictment is merely the statement of the offense
charged and is not evidence against the defendant. The defendant has
entered a plea of not guilty to the charges contained in the indictment.
The issues which you are to determine are the guilt or innocence of the
defendant on each of the five counts in the indictment.
The
indictment in this case is based upon a statute of the United States, 26
U. S. C., Sec. 145(b), which, so far as applicable in this case,
provides:
"*
* * any person who wilfully attempts in any manner to evade or defeat
any tax imposed by this chapter or the payment thereof, shall, in
addition to other penalties provided by law, be guilty of a felony"
and,
upon conviction thereof, be punished as provided by law.
The
offense with which the defendant is charged in each count of the
indictment, involves three principal elements:
1.
There must have been a tax due from the defendant under the applicable
revenue act;
2.
There must have been an attempt by the defendant to evade or defeat such
tax on the payment thereof;
3.
Such attempt was done knowingly and wilfully.
[Element
of Crime]
As
to the first element, that is that there was a tax due from the
defendant under the applicable revenue act, the Government must prove
beyond a reasonable doubt that there was due from the defendant for each
of the years 1947, 1948, 1949, 1950, and 1951, an income tax in an
amount greater than was reported and paid by him to the Government for
that year. It is not necessary that the Government prove an evasion of
all of the tax as charged in the indictment. It is sufficient if any
substantial portion of a tax was attempted to be wilfully defeated and
evaded as charged in the respective counts.
Passing
to the second element, that is that there must have been an attempt by
the defendant to evade or defeat the tax or the payment thereof, the
words "attempt to defeat or evade" involve two things; first,
an intent to defeat or evade the tax and, second, some act knowingly
done in the furtherance of such intent. The intent phase of the attempt
contemplates that the defendant had knowledge and understanding that he
had an income in such years which was taxable and which he was require
by law to report and that he attempted to evade or defeat the tax
thereon, or a substantial portion thereof, by knowingly and purposely
failing to report all the income which he knew he had during that
calendar year and which he knew it was his duty to state in his return
for that year. If you believe, or have a reasonable doubt with respect
thereto, that this defendant acted in good faith in making his tax
returns, believing that they truly reflected his income for the
respective years, then he is not guilty. Neither negligence nor
carelessness, unaccompanied by bad faith, render him guilty.
As
concerns "an act done in furtherance" of the unlawful intent,
there are various things that might be done in an attempt to defeat the
tax or a part thereof. To establish the "attempt to evade,"
the Government must establish beyond a reasonable doubt that there was
the intent to evade and that false and fraudulent returns were filed as
an act in furtherance of the effort to evade. Fraud and wilful attempt
to evade a tax are never presumed. The burden is on the United States to
establish to your satisfaction beyond a reasonable doubt that the
defendant acted fraudulently and with a wilful intent to evade a tax.
If
you find beyond a reasonable doubt that the defendant has attempted to
defeat or evade the tax as charged in the indictment, then before a
conviction can be had on any of said counts it also is incumbent upon
the Government to prove beyond a reasonable doubt that during each of
the years involved such an attempt was wilful.
The
word "wilful" means more than intentional or knowing and
contemplates an act done with evil purpose as contrasted with an
accidental, inadvertent or innocent one. Wilfulness involves a specific
intent which must be proven by independent evidence and which cannot be
inferred from the mere understatement of income.
Bona
fide mistakes should not be treated as false or fraudulent, but no man
who is able to read and write and who signs a tax return is able to
escape the responsibility of at least good faith as to the correctness
of the statement which he signs, whether prepared by him or somebody
else.
Unless
you are convinced beyond a reasonable doubt that the defendant acted
wilfully within the definition I have just given you to evade or defeat
his income tax in any given year involved, you cannot find the defendant
guilty of the crime charged for that year even though you find that a
tax was actually due for that year and unpaid.
Recapitulating,
the Government has the burden of proving to your satisfaction, beyond a
reasonable doubt, each and all of the foregoing essential elements as to
each of the five counts contained in the indictment. If you should find
with respect to any such counts that any one of the essential elements
which I have mentioned has not been proved to your satisfaction, beyond
a reasonable doubt, it will be your duty to acquit the defendant as to
such count or counts. On the other hand, if you find with respect to any
such counts that all of these essential elements have been proved to
your satisfaction, beyond a reasonable doubt, then it will be your duty
to return a verdict of guilty as to such count or counts.
[Net
Worth Method]
In
this case, to establish the first essential of the offenses charged,
that is that an additional tax is owing for each of the calendar years
involved, the Government is relying on what is known as the net worth
expenditure method of proof in the form of circumstantial evidence. In
the prosecution of a case under the net worth theory, the Government
upon the claim that the taxpayer's records are inadequate as a basis for
determining income tax liability, first seeks to establish an
"opening net worth" or total net value of the taxpayer's
assets at the beginning of a given year. It then offers proof of
increases in the taxpayer's net worth for each succeeding year during
the period under examination and calculates the difference between the
adjusted net values of the taxpayer's assets at the beginning and end of
each of the years involved. The taxpayer's known non-deductible
expenditures, including living expenses, are added to these increases
and if the resulting figure for any year is substantially greater than
the taxable income reported by the taxpayer for that year, the
Government claims the excess represents unreported taxable income.
An
essential condition in cases of this type is the establishment with
reasonable certainty of an opening net worth to serve as a starting
point from which to calculate future increases in the taxpayer's assets.
The importance of accuracy in this figure is immediately apparent as the
correctness of the results depends entirely upon t
