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 the inclusion in the
sum of all assets on hand at the outset. To utilize this procedure it is
incumbent upon the Government to prove the foregoing essential facts
beyond a reasonable doubt.
Also
requisite to the net worth method is evidence supporting beyond a
reasonable doubt the inference that in each prosecution year the
defendant's net worth increases are attributable to currently taxable
income. Increases in net worth standing alone cannot be assumed to be
attributable to currently taxable income, but proof of a likely source
from which the jury could find beyond a reasonable doubt that the net
worth increase sprang, is sufficient.
It
is incumbent upon the Government to satisfy the jury beyond a reasonable
doubt that the increased net worth for any year in question was built up
out of earned taxable income from that particular year and did not come
from nontaxable sources. The Government must also establish beyond a
reasonable doubt that the increased net worth for each of the years in
question did not come out of a surplus which the taxpayer had built up
in prior non-prosecution years. As you will observe, in a net worth case
attention is focused on the differences between the taxpayer's assets
and liabilities as of the beginning and as of the end of a given
prosecution year. The increase, if any, in net worth, is presumed to be
net income only when the evidence establishes beyond a reasonable doubt:
First,
that the expenditures for a given year did not come out of a surplus
built up by the taxpayer in years preceding the prosecution years; and
Second,
that there was a possible source or sources of taxable income during
each of the given years to account for the expenditures or the increased
net worth during that year, and
Third,
that there is a fixed starting point at which the taxpayer's financial
condition can be affirmatively established with reasonable certainty.
Thus,
before you can find that there was an additional tax owing from
defendant in this case, it is incumbent upon the Government to establish
as to each count beyond a reasonable doubt, the existence of each and
every one of the requisites to the use of the net worth method I have
just enumerated. Of course, to establish a tax deficiency, the
Government also must prove beyond a reasonable doubt that in each of the
years covered by the respective counts of the Indictment the net worth
increase, plus the personal non-deductible expenditures, exceeded the
reported income for the year in a substantial amount.
If
you find and believe that the Government has failed to prove beyond a
reasonable doubt any single one or more of these requisites and elements
inherent to the net worth expenditures method of computation, it will be
your duty to acquit the defendant on any count as to which you find such
a deficiency of proof.
On
the other hand, if you find beyond a reasonable doubt that the
Government has established all of such requisites and elements attendant
to the net worth expenditures method and that the net worth increase
during any year involved in the respective counts of the Indictment,
plus the personal non-deductible expenditures during the year, exceeded
the reported net income for the year in a substantial amount, and a tax
was due and owing to the United States by the defendant as a consequence
thereof and that he wilfully attempted to evade or defeat such tax or
the payment thereof, then as to such count, or counts, where you so find
beyond a reasonable doubt, it will be your duty to return a verdict of
guilty herein.
[Amended
Returns]
The
Government has offered in evidence in this case amended returns filed by
this defendant and his wife for the years 1948, 1949 and 1950, which
reflect a tax liability in excess of the sum shown on the original
returns. You may consider whether under all of the circumstances of the
case these amended returns constitute an admission that the original
returns, as filed, were incorrect, as is contended by the Government, or
whether, as contended by the defendant, their filing is evidence of good
faith on his part in correcting errors in the original returns when
discovered by him.
The
mere filing of a tax return which is inaccurate is not sufficient to
constitute an offense against the United States.
No
matter what the actual income of the defendant was in any one year, and
no matter that the defendant simply estimated his income on his income
tax returns, and this without actually keeping a record or reviewing any
record yet, if you believe that in good faith he attempted to estimate
and return what he honestly believed to be his income he is not guilty.
In
determining the guilt or innocence of the defendant, it is your duty to
consider his explanation concerning his good faith, even though his
explanation may be mistaken as to the law.
A
man may not shut his eyes to obvious facts and say he does not know of
them. He may not close his eyes and his observation and knowledge of
things that are out in the open and are obvious to him, and say "I
have no knowledge of those facts." If the man honestly and in good
faith believes that he has paid all the taxes he owes, he is not guilty
of criminal tax evasion. But if he acts without reasonable ground for
belief that his conduct was lawful, it is for you to decide whether he
was acting in good faith or whether he intended to evade the tax due and
owing. This question of intent is a question you must determine for
yourselves from a consideration of all the evidence in the case.
The
element of wilful and knowing action goes to the intent of the
defendant. It is seldom possible to prove by direct evidence the intent
actually existing in the mind of a person at a given time. The state of
a person's mind may be determined by his acts and conduct. A person is
held to intend all the probable and natural consequences of acts
knowingly done by him. In determining the question of intent in this
case you should take into consideration not only the direct evidence
bearing thereon but all the facts and circumstances surrounding the
defendant in connection with his professional and business affairs
during the years mentioned in the indictment. If, from a consideration
of all the evidence, you are satisfied beyond a reasonable doubt that
the intent charged existed in the mind of the defendant, then you should
so find. On the other hand, if the Government has failed to satisfy you
beyond a reasonable doubt that the defendant had the necessary intent,
then you should find for the defendant.
You
as jurors are the sole judges of the credibility of the witnesses and
the weight which is to be given the evidence which has been received at
this trial.
In
judging the credibility of the witnesses as reasonable men and women you
may believe the whole or any part of the testimony of any witness or you
may disbelieve the whole or any part of it. You should carefully
scrutinize the testimony given and in so doing consider all of the
circumstances under which any witness has testified, his demeanor, and
his manner while on the stand. Consider the witness's intelligence, the
relation which he bears to the parties interested in the outcome of this
action, his interest in the outcome of the case, and the manner in which
he might be affected by the verdict, and the extent to which he is
contradicted or corroborated by other evidence if at all. Consider each
matter which tends reasonably to shed light on the credibility of a
witness.
You
may reject all or any part of the testimony of a witness who has
wilfully testified falsely as to a material point.
The
defendant has offered himself as a witness and has testified in the
case. Having done so, you are to determine his credibility in the same
way as you would consider the testimony of any other witness.
[Good
Character]
The
defendant has offered evidence in this case as to his good character for
honesty, truth, and veracity. In this connection the law is that the
defendant is entitled to put in issue his good character. This evidence
is competent for your consideration because the law presumes that a man
whose reputation has been good is less likely to commit a crime than one
whose reputation in the community is not good. The good character of the
defendant is evidence and a circumstance which you should take into
consideration, together with all the other facts and circumstances in
determining the guilt or innocence of the defendant on the offense
charged.
While
testimony of good character is not a defense to a crime, such character
testimony may alone create a reasonable doubt although without it the
other evidence would be convincing. That is for you to determine. If you
find from the evidence in this case, beyond a reasonable doubt, that the
defendant did commit the offense as charged in the indictment, it will
be your duty to convict him, notwithstanding his good character.
You
have heard the testimony of witnesses who have given evidence and
testified as experts, giving opinions. This class of testimony is proper
and competent on matters involving special knowledge or skill, or
experience upon certain subjects which are not within the realm of the
ordinary experience of mankind and which require special research and
study to understand. The law allows those skilled in such special fields
to express their opinions, it is entirely within the province of the
jury to say what weight shall be given to them. You jurors are bound by
the testimony of such witnesses only to the extent that their testimony
appeals to your wisdom, convincing you of its truth. The mere fact that
witnesses were called as experts and gave opinions upon a particular
point, does not necessarily obligate you to accept their opinions as to
what the facts are in the face of testimony of witnesses claiming to
have actual knowledge of the facts.
[Summary
Evidence]
There
have been received in evidence several exhibits referred to as schedules
and summaries. Such exhibits are not direct evidence. They can only be
considered by you to the extent that they are corroborated by other
evidence in the case. They were received as summaries of other evidence.
They are admitted only for your assistance and convenience in
considering the evidence which they purport to summarize. Exhibits of
this nature are permitted where they are based upon voluminous books,
records, documents or testimony already in evidence in order to assist
you in determining the ultimate facts or results shown by such books,
records, documents or testimony. You are reminded that it is the books,
records, documents and testimony which are the evidence in this case,
and the summaries are admitted only to assist you in considering that
evidence. For that purpose, you are entitled to consider them. These
summaries represent the conclusions and findings of the witness who
presents them, and you are entitled to consider them as a summary of the
testimony which the particular witness gives.
No
proof is required as to facts or events of which the Court takes
judicial notice. When the Court declares it will take judicial notice of
some fact or event, the jury must accept the Court's declaration as
evidence and regard as conclusively proved the fact or event which the
Court has judicially noticed.
Statements
and arguments of counsel are not evidence in the case, unless made as an
admission or stipulation of fact. When the attorneys on both sides
stipulate or agree as to the existence of a fact, as they have in this
case, the jury must accept the stipulation as evidence and regard that
fact as conclusively proved.
If
the Court has done or said anything that has caused you to believe that
you know how the Court feels this case should be decided, you should
entirely disregard such opinion in arriving at your verdict. The law is
that you should not be guided in your consideration of the case by what
you may think the Court feels about the guilt or innocence of the
defendant.
Your
judgment must be your own, uninfluenced by the Court except that you are
bound to follow the law of the case as the Court gives it to you in
these instructions. As I have told you, the Court is the judge of the
law, and it is your duty to accept the Court's decision as to the law.
On the other hand you are the sole judges of the facts. You shall act
independently, using your own common sense and judgment, and performing
your duty under your oath in deciding the facts wholly independent of
any influence of the Court.
In
determining the facts you should consider only the evidence given upon
the trial. Evidence offered at the trial and rejected by the Court,
evidence stricken from the record by order of the Court, admonitions or
rebukes given by the Court to counsel or witness must not be considered
by you.
I
again repeat that you will consider these instructions in their entirety
and as a whole. You should not separate any portion of them from the
whole and depend upon that or any other portion.
In
order to reach a verdict all twelve of you must agree upon that verdict.
When you retire you will first select a foreman. The verdicts which you
agree upon will be signed by the foreman and then you will return them
into court. You may take the indictment with you into the jury room, but
I again instruct you that it is not evidence against the defendant and
should not be so considered. It is merely the formal charge.
If
you care to examine any of the exhibits which have been received in
evidence, let your wishes be made known to the bailiff who will report
the request to the Court.
Forms
of verdict have been prepared for your convenience. As to each of the
five counts there are two forms. One will be signed by your foreman as
to each count if you find the defendant guilty. The other will be signed
if you find the defendant not guilty. Remember that you must return a
verdict on each of the five counts.
If
it becomes necessary during your deliberations to communicate with the
Court, you may send a note by the bailiff, but bear in mind that you are
not to reveal to the Court or to any person how the jury stands
numerically or otherwise on the question of the guilt or innocence of
the defendant on any of the five counts, until after you have reached a
unanimous verdict and returned it into court.
Verdict
We,
the jury in the above-entitled case, upon our oath do say, we find the
defendant O. R. Sunderland guilty as charged in counts one, two, three,
four, and five of the indictment herein.
[55-1
USTC ¶9488]United States of America, Plaintiff-Appellee v. Lawrence P.
Bardin, Defendant-Appellant
(CA-7),
In the United States Court of Appeals for the Seventh Circuit, No.
10953. October Term, 1954, October Session, 1954, 224 F2d 255,
June 3, 19
55
Appeal from the United States District Court for the Southern District
of Indiana, Indianapolis Division.
[All issues: 1939 Code Sec. 145(b)--substantially unchanged in 1954 Code
Sec. 7201]
Criminal prosecution: Use of net worth method: Motion for acquittal
denied.--Defendant sold beer at overceiling prices and did not keep
adequate records. He also traded extensively in grains through brokerage
houses. The increase in his net worth for 1946 was $758,000 while the
net income reported for that year was $528,000. Prior to 1942 he filed
no returns. His return for each of the years 1942-1945 showed either a
small net income or none. The jury was justified in finding defendant
guilty of tax evasion and his motion for acquittal was properly denied.
Criminal prosecution: Improper comments by prosecutor.--Defendant's
brother declined to answer certian questions while on the witness stand.
The district attorney commented upon the witness' refusal to testify in
his closing statement. Upon defense counsel's objection, which was
sustained, the district attorney asked the jury to disregard his
comments. These incidents did not deprive defendant of a fair trial and
the trial court did not err in not admonishing the jury that no
inference unfavorable to defendant should be drawn from the witness'
refusal to testify.
Criminal prosecution: Felony charged: Language of count.--Count
II charged that during a certain period defendant did willfully and
knowingly attempt to defeat the payment of the income tax due for 1946
by concealing the nature, extent, and location of his assets and by
refusing to pay the tax due, at all times he having funds with which to
pay the tax, all in villation of Sec. 145(b). The Count charged the
felony under Sec. 145(b), not a misdemeanor under Sec. 145(a).
Jack
C. Brown, for plaintiff-appellee. Prentice H. Marshall, for
defendant-appellant.
Before
FINNEGAN, SWAIM and SCHNACKENBERG, Circuit Judges.
SCHNACKENBERG,
Circuit Judge:
We
have awaited the decisions of the United States Supreme Court in Holland
v. United States 1 and other
"net worth" tax cases. Our consideration of the principles of
law there formulated which we deem applicable to this case, followed by
a divergence of views among the members of this court, has delayed the
decision. The writing of an opinion was assigned to the author on
April 14, 19
55.
This
is an appeal from a judgment of the district court, entered on the
verdict of a jury finding defendant guilty, as charged in a two-count
indictment, of willfully and knowingly attempting to defeat and evade a
large part of the income tax due and owing by him to the United States
of America for the calendar year 1946.
Count
I charged that on or about
May 26, 19
47, defendant did willfully and knowingly attempt to defeat and evade
said tax by filing a false and fraudulent income tax return for the
calendar year 1946, wherein he stated his net income for said year was
$528,824.56 and the tax due and owing thereon was $426,382.89, whereas,
as he then and there well knew, his net income for said year was
$759,827.94, more or less, and the tax due thereon was $639,841.28, more
or less. Count II charged that "on or about
September 15, 19
46, through and including
May 27, 19
47", the defendant did willfully and knowingly attempt to defeat
the payment of said tax due and owing by him "by concealing and
attempting to conceal from the Collector of Internal Revenue the nature
and extent of his assets and the location thereof, said tax being
$639,841.28, more or less, by refusing to pay said tax due and owing,
and at said times he having funds with which to pay said tax." Both
counts are based on 26 U. S. C. A., §145(b). Defendant urges as grounds
for reversal: (1) the trial court's refusal to grant defendant's motion
for acquittal, (2) the alleged misconduct of the United States attorney
during the course of the trial, and the trial court's alleged failure to
take proper and necessary steps to prevent the said misconduct from
influencing the jury in its deliberations, and (3) count II actually
charged defendant with a misdemeanor, rather than a felony, and was
therefore barred by the statute of limitations.
[Motion
for Acquittal Properly Denied]
1.
Whether the trial court erred in refusing to grant defendant's motion
for acquittal, requires us to determine whether the substantial
evidence, taken in a light most favorable to the prosecution, tends to
show the defendant is guilty beyond a reasonable doubt. United States
v. Yeoman-Henderson, Inc., 193 Fed. (2d) 867, at 869 [52-1 USTC ¶9155].
The facts thus proved by such evidence, much of it undisputed, are as
follows:
This
case involves defendant's income for the calendar year 1946.
On
December 6, 19
45 defendant closed a deal for the purchase of a brewery, and embarked
upon the business of selling beer at prices above the ceiling prices
fixed by federal price control regulations. Specific payments to him for
this purpose during the taxable year 1946 totaled $242,492.00. He failed
to keep adequate financial records. He also carried on extensive
tradings in grains through brokerage houses.
Defendant
put $250,000 in a safe in his brother's home in California. According to
defendant, $175,000 was secreted there in 1946, and the balance of
$75,000 in early January, 1947. The jury could reasonably infer that
this $75,000 was a part of defendant's income for 1946, rather than that
it constituted income for the period from
January 1, 19
47 to
January 15, 19
47, when it was deposited in the safe in California.
On
January 1, 19
46 defendant's net worth was $51,297.85, and on
December 31, 19
46, it was $799,610.67. Thus, the difference between the amounts on the
first and last days of 1946, or the net worth increase for 1946, was
$748,312.82. The addition of non-deductible expenditures for 1946
increased the latter figure to $758,713.94. This was defendant's net
income for 1946 computed according to the net worth theory formula. Holland
v. United States, 348 U. S. 121, at 125 [54-2 USTC ¶9714]. The net
income reported by defendant on his return for that year is $528,824.56.
He filed no returns prior to 1942. According to income tax returns filed
with the Internal Revenue Collector, the defendant and his wife had a
total income of $3,861.15 and net income of $2,311.15 for the year 1942.
For 1943 they had a total income of $12,067.25 and net income of
$1,602.25. For the next two years, defendant along reported as follows:
Year Gross income Net income
1944 .... $8,314.85 None
1945 .... 8,196.15 $3,873.30
These figures tend to show that defendant's income during prior years
was insufficient to have enabled him to save any appreciable amount of
money, and thus tend to corroborate the relatively low figure set by the
government as defendant's beginning net worth. Holland v. United
States, supra, at 133. 2 Defendant
failed to file an estimated return for 1946 and delayed filing an actual
return until
May 27, 19
47.
On
June 13, 19
47, defendant talked to the assistant collector of internal revenue. He
claimed inability to pay the tax in the amount shown by his return. He
failed to mention $25,000 which was later found in cash in a safe
deposit box and turned over to the government on a court order and about
$20,000 due him on an account with his stock broker. A day or two prior
to
June 19, 19
47 defendant withdrew the latter amount from the stock broker. He also
failed to mention $46,939.94 which was in one of his bank accounts known
as "L. P. Bardin for the account of Alvin Bardin." All this
was in addition to the sum of $250,000 withdrawn from Indianapolis banks
during 1946 and taken by defendant personally to California and hidden
in the safe hereinabove referred to. Although defendant, when pressed by
the government to file a 1946 income tax return, reported, on
May 26, 19
47, that this money was stolen from the safe during a burglary the day
before, and the physical circumstances surrounding the safe at least
simulated a burglary, none of the money was ever recovered, and no one
connected with the commission of the alleged crime was ever apprehended.
From
the foregoing facts the jury was justified in finding that defendant was
proved guilty as to count I beyond a reasonable doubt, though not to a
mathematical certainty. No more was required. Holland v. United
States, supra, at 138.
The
conduct of the defendant in connection with his belated filing of his
1946 tax return, and his misrepresentation as to his inability to pay
any part of his tax, support the verdict of the jury as to count II.
The
trial court did not err in denying defendant's motion for acquittal.
[Fair
Trial Given]
2.
Alvin Bardin, brother of defendant, was called as a government witness.
He declined to answer certain questions on the ground that to do so
might incriminate him. The court sustained the position of the witness
and he was excused. Upon his departure from the stand no admonition was
given by the court to the jury that they should draw no inferences
unfavorable to the defendant from the witness' refusal to testify.
In
his closing statement, the district attorney referred to the fact that
Alvin Bardin had exercised his privilege of refusing to testify, and
asked the jury why he did that. At this point defense counsel objected,
and that objection was sustained by the court. Thereupon the district
attorney asked the jury to disregard any reference he had made to the
failure of the witness to testify. Defense counsel made no motion in
reference to the incident and did not ask the court to admonish the jury
in reference to the matter. Defendant cannot now in this court be
permitted to capitalize on his counsel's failure to press for further
action by the trial court. Moreover, the court's sustaining of the
objection clearly indicated to the jury that the remark of government
counsel was improper.
We
do not believe that these incidents deprived defendant of a fair trial,
or that the action of the court in connection with them was erroneous.
A
dissenting opinion by our colleague speaks of the failure of the
district court to give to the jury such an instruction on the net worth
theory as is referred to in Holland v. United States, supra.
On
the trial there was no instruction tendered by defendant which was
refused by the court. In this court his counsel has not assigned error
on the subject of instructions. He was represented in the trial court by
a member of the bar at this court, whose competency has not been
questioned herein. In this court, his present counsel has filed a brief
and made an oral argument which attests not only to his competency, but
also to the diligent effort which he made to properly present all
questions deemed to be available on this appeal. Present counsel has not
argued or briefed any point on the instructions. 3
[Felony
Charged in Count II]
3.
Defendant contends that his prosecution under count II was barred by the
three-year statute of limitations, 4 because the
count charged a misdemeanor under section 145(a), 5 not a felony
under section 145(b)./6/ He relies on Spies v. United States, 317
U. S. 492 [43-1 USTC ¶9243].
The
material allegations of count II are:
"That
on or about
September 15, 19
46, through and including
May 26, 19
47, in the Indianapolis Division of the Southern District of Indiana,
Lawrence P. Bardin did willfully and knowingly attempt to defeat the
payment of the income tax due and owing by him to the United States of
America for the calendar year 1946 by concealing and attempting to
conceal from the Collector of Internal Revenue the nature and extent of
his assets and the location thereof, said tax being $639,841.28, more or
less, by refusing to pay said tax due and owing, and at said times he
having funds with which to pay said tax, all in violation of Title 26,
U. S. C., Section 145(b)."
Defendant
says that the crux of the matter was defendant's refusal to pay his tax
obligation, i. e., his willful failure to pay said tax. The
pertinent parts of §145(a) provide:
"Any
person required under this chapter to pay any estimated tax or tax * * *
who willfully fails to pay such estimated tax or tax * * * shall * * *
be guilty of a misdemeanor and, upon conviction thereof be fined not
more than $10,000.00, or imprisoned for not more than one year, or both,
* * *."
and
of §145(b) provide:
"*
* * any person who willfully attempts in any manner to evade or defeat
any tax imposed by this chapter or the payment thereof, shall * * * be
guilty of a felony, and, upon conviction thereof, be fined not more than
$10,000.00, or imprisoned for not more than five years, or both * *
*."
A
failure to pay a tax, under §145(a), and an attempt to defeat and evade
one, under §145(b), must both be willful. However, the difference
between the two offenses is found in the affirmative action implied from
the term "attempt" as used in §145(b), the felony
sub-section. As the court said in Spies v. United States, supra,
at 499:
"Willful
but passive neglect of the statutory duty may constitute the lesser
offense, but to combine with it a willful and positive attempt to evade
tax in any manner or to defeat it by any means lifts the offense to the
degree of felony."
Accordingly,
in count II, a willful and knowing attempt is charged in the affirmative
action taken by the defendant to accomplish his purpose, i. e.,
"by concealing and attempting to conceal from the collector of
internal revenue, the nature and extent of his assets and the location
hereof." Indeed, the court in Spies v. United States, supra,
at 499, in illustrating what conduct would justify a basis for
"affirmative willful attempt", listed, among others,
"concealment of assets or covering up sources of income." In
view of the fact that defendant was engaged in transactions which
exposed him to prosecution under the federal price regulations, the
following statement of the court in Spies v. United States, supra,
also at 499, is pertinent here:
"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."
We
hold that count II charges a felony under §145(b).
Mr.
Prentice H. Marshall, a member of the bar of this court, served in this
court as appointed counsel for the defendant. We express our
appreciation of his diligent performance of his duties.
For
the reasons herein set forth, we affirm the judgment of the district
court.
1
348 U. S. 121,
Dec. 6, 19
54 [54-2 USTC ¶9714].
2
The evidence also shows an alternative calculation based upon United
States v. Johnson, 319 U. S. 503, at 517. Defendant's total
expenditures for 1946 amounted to $831,441.15, as against his reported
income of $521,883.63. That he had large, unreported income, was
reinforced by this proof.
3
In view of this record, the matter of an instruction on the net worth
theory is undoubtedly irrelevant. However, we note that in Holland v.
United States, 348 U. S. 121, at 129 [54-2 USTC ¶9714] (which
decision was announced after the trial and the arguments before this
court in the case at bar), it was pointed out that charges to a jury in
such a case should be especially clear, including, in addition to the
formal instructions, a summary of the nature of the net worth method,
the assumptions on which it rests, and the inferences available both for
and against the accused.
In
the case at bar, in reference to the net worth theory, the court
instructed the jury:
"In
determining whether defendant Bardin received a net income in excess of
that reported in his income tax return for the year 1946, you may
consider the facts and circumstances in evidence and view them in
relation to each other. In this connection, you may compare the
defendant Bardin's net worth of assets at the beginning of the taxable
period in question and his net worth of assets over income reported at
the end of that period. You may also consider any expenditures of the
defendant Bardin, as well as any property acquired by him during the
period involved, as shown by the evidence."
The
instruction on the same subject given in the Holland case, which
has been made available to this court by the clerk of the United States
Supreme Court, reads:
"Now,
Ladies and Gentlemen of the Jury, the Government has produced evidence
here that on
January 1, 19
46, Mr. and Mrs. Holland had certain property, of a value with respect
to which the Government has presented evidence. And the Government says
that at that time they had a net worth of some nineteen thousand
dollars. The Government says that three years later--this is their
claim, you know--the Government says that at the end of 1946 their net
worth was increased, and again at the end of 1947 that their net worth
was further increased, and again at the end of 1948 their net worth was
again increased. And the Government says it is reasonable to infer that
the increase in the property that they owned, and in the value of it, is
attributable and were the result of purchases from receipts earned in
the taxable years in question from that business."
Neither
of these instructions tells the jury of the pitfalls inherent in the net
worth method, yet, while defense counsel in the Holland case
specifically objected to the instruction given, on the ground that it
did not fully explain the net worth theory, the objection was overruled
and his two tendered instructions explaining the theory in more detail,
were refused. Yet the court affirmed the conviction.
It
seems clear that the language of the Holland opinion will be a
guide for future trials based on the net worth theory, but it does not
indicate that, in cases previously tried, the failure to give a net
worth instruction other than that given in the Holland case and
in the case at bar, requires reversal.
4
26 U. S. C. A., §3748(a).
5
26 U. S. C. A., §145(a).
6 Ibid.
§145(b).
[Dissenting
Opinion]
FINNEGAN,
Circuit Judge. Dissenting.
Judicial
bouquets handed appellate-defense counsel for earned competency are
small simple solace to this defendant, now confronted with prison.
Indeed, I cannot, as easily as the majority does, approve deprivation of
liberty, nor countenance such facile stigmatizing with a criminal
conviction. I also entertain grave doubts that the Government's fiscal
affairs are in so delicate balance that a new trial would jeopardize
that financial equilibrium. My concern, here, is whether there are
present "plain errors or defects affecting substantial rights"
which "may be noticed although they were not brought to the
attention of the court." Rule 52(b), Fed. R. Crim. Proc., 18 U. S.
C. A. I think Rule 52(b) supersedes Rule 30, Fed. R. Crim. Proc., 18 U.
S. C. A. in appropriate cases. This appeal brings into sharp relief some
of the ideas captured by Mr. Justice Frankfurter in a passage from Bollenbach
v. United States, 326 U. S. 607, 615 (1946), where, speaking for the
majority he said:
"From
presuming too often all errors to be 'prejudicial,' the judicial
pendulum need not swing to presuming all errors to be 'harmless' if only
the appellate court is left without doubt that one who claims its
corrective process is, after all, guilty. In view of the place of
importance that trial by jury has in our Bill of Rights, it is not to
be supposed that Congress intended to substitute the belief of appellate
judges in the guilt of an accused, however justifiably engendered by
the dead record, for ascertainment of guilt by a jury under appropriate
judicial guidance, however cumbersome that process may be."
(Italics added.)
Previously
our court paid homage to those principles [United States v. Levi,
177 Fed. (2d) 833, 835 (7th Cir. 1949), United States v. Raub,
177 Fed. (2d) 312, 315 [49-2 USTC ¶9422] (7th Cir. 1949), United
States v. Haupt, 136 Fed. (2d) 661 (7th Cir. 1943)] and now I
perceive no justifiable reason for being deflected from them.
"Strictly speaking," said Mr. Justice Harlan, when delivering
the majority opinion reported as Davis v. United States, 160 U.
S. 469, 487-488 (1895), "the burden of proof, as those words are
understood in criminal law, is never upon the accused to establish his
innocence or to disprove the facts necessary to establish the crime for
which he is indicted. It is on the prosecution from the beginning to the
end of the trial and applies to every element necessary to constitute
the crime." Having awaited, as my brothers particularly note, that
quartet of decisions lead by Holland v. United States, 348 U. S.
121, 138 (1954) [54-2 USTC ¶9714] it is well to recall this apt
statement from that opinion:
".
. . The Government must still prove every element of the offense beyond
a reasonable doubt though not to a mathematical certainty. The settled
standards of the criminal law are applicable to net worth cases just as
to prosecutions for other crimes. . . ."
A
judicial poultice applied at our reviewing level may palliate the sting
of error committed below, but such treatment falls far short of an
actual cure attainable only by ordering a new trial. Bihn v. United
States, 328 U. S. 633 (1946).
Wiborg
v. United States, 163 U. S.
632, 658 (1896), a precursor to current Rule 52, contains Chief Justice
Fuller's trenchant observation concerning a certain question not
properly raised and about which he wrote: ". . . yet if plain error
was committed in a matter so absolutely vital to defendants, we feel
ourselves at liberty to correct it." That Rule 52(b) Fed. R. Crim.
Proc., 18 U. S. C. A. is a restatement of existing law, see 6 Institute
Proceedings, N. Y. Univ. Sch. of Law, 88 (Fed. R. Crim. Proc. with
Notes, 1946). See also: Barron, Federal Practice and Procedure, Rules
Edit., §2587 (1951).
[Plain
Errors and Defects]
I
refuse to affirm Bardin's conviction because, upon mature consideration
of this record, I think it embodies several plain errors and defects
affecting substantial rights belonging to defendant. Therefore, I cannot
placidly cite United States v. Yeoman-Henderson, Inc., 193 Fed.
(2d) 867 (7th Cir. 1952) [52-1 USTC ¶9155] and simply state the trial
court acted correctly in denying defendant's motion for judgment of
acquittal. Because even if the defendant appears to be a bad man in
light of the prosecution's portrayal, he is still entitled to a fair and
impartial trial free from plain errors and defects mentioned in Rule
52(b). See my recent dissenting opinion in United States v. Vasen,
No. 11209, U. S. Court of Appeals, 7th Cir.,
April 15, 19
55. The converse of this proposition is virtually the inarticulated
major premise underlying affirmance of Bardin's conviction. Turning now
to the two major areas of error for which I would reverse, they can be
grouped as follows: (1) insufficient jury instructions and, (2)
prejudicial conduct of the prosecuting attorney.
Merely
recording recognition, without more, of the familiar and well settled
postulate pervading all criminal prosecutions, i. e., the
persuasion must be beyond a reasonable doubt, is insufficient in this
appeal. Yet, I am also aware: "the truth is that no one has yet
invented or discovered a mode of measurement for the intensity of human
belief. Hence there can be yet no successful method of communicating
intelligibly to a jury a sound method of self-analysis for one's
belief." 9 Wigmore, Evidence, §2497 (3rd ed. 1940). Despite Dean
Wigmore's report of judicial struggles to articulate the definitive
characteristics of "beyond a reasonable doubt" that phrase
remains the bench-mark in criminal cases. In Bardin's case the character
of evidence spun on looms of computations powered by the net worth
theory would have considerable impact on the minds of his jurors.
Since
there is a grave possibility that jurors' reaction to reasonable
doubt will vary with instructions given them on various aspects of
the case there is an acute need for careful judicial guidance in cases
of this sort. When instructions are insufficient in this, or any,
net-worth-expenditure case undue strength is lent the prosecution's
theory. I think this defendant has the right to have a jury weigh the nature
of proof offered against him. The difference between theorizing and
suspicioning, in these cases, is that in the former formidable working
papers and a maze of figures casts an aura of reliability around the
government's accountants. Indeed, the Holland majority's
admonition (348 U. S. 121, 129) should be pointed up, because at the
trial level, in Bardin's case, the Government erected its case against
him by coupling the expenditures theory with the net worth
theory:
"Appellate
courts should review the cases bearing constantly in mind the
difficulties that arise when circumstantial evidence as to guilt is the
chief weapon of a method that is itself only an approximation."
[Net
Worth Method]
In
this case for the tax year 1946 the government has reconstructed what it
contends was income flowing into Bardin's hands during that period. It
has attempted to form a bridge between the opening and closing of that
taxable year by detailing intermediate changes through a summation of
transactions. This merely means that a hypothesis is sponsored
concerning Bardin's taxable income for 1946, and various changes are
analyzed. But these computations involve drawing of inferences by the
government's witnesses which are, in turn, passed on to the jury for
further extraction of inferences. I am well aware of the difficulties
implicit in prosecuting persons accused of violating §145, but I do
think when such estimates are submitted to a jury the fact-finders ought
to be told about the method. My cautionary mood, here, is fairly well
described by that which Mr. Justice Clark reports as the stimulus for
taking and reviewing Holland v. United States, 348 U. S. 121,
124-125 (1954) [54-2 USTC ¶9714]:
"In
recent years . . . tax-evasion convictions obtained under the net-worth
theory have come here with increasing frequency and left impressions
beyond those of the previously unrelated petitions. We concluded that
the method involved something more than the ordinary use of
circumstantial evidence in the usual criminal case. Its bearing,
therefore, on the safeguards traditionally provided in the
admin
istration of criminal justice called for a consideration of the entire
theory . . .." (Italics supplied.)
To
appreciate the impact upon the jury of the net-worth theory--and it is
simply a theory, it becomes necessary to examine that technique under
one phase of the statutory setting for violation of which this defendant
was prosecuted. Section 145(b) of the Revenue Act of 1939, 26 U. S. C.
145(b) (1953), 53 Stat. 62-63 (1939) does not contain the words
"fraud" or "criminal fraud." Bardin is prosecuted
under that section for non-disclosure of alleged income, and the conduct
with which he is charged must be willful. United States v. Murdock,
290 U. S. 389, 394-396 (1933) [3 USTC ¶1194]. Spies v. United
States, 317 U. S. 492, 499 (1942) [43-1 USTC ¶9243] contains some
faint adumbration of criteria indicative of conduct proscribed by the
words, ". . . any person who willfully attempts in any manner
to evade or defeat any tax . . .," appearing in §145(b). From Spies
v. United States, 317 U. S. 492 (1942) [43-1 USTC ¶9243] comes this
explanation of the dichotomy embraced by §145: (i) "willful
failure to pay the tax when due is punishable as a misdemeanor" (§145(a))
and, (ii) the "serious and inclusive felony defined to consist of
willful attempt in any manner to evade or defeat the tax. §145(b)."
Of course the language of §145(b) outlawing attempts to evade taxes
"in any manner" is sweeping enough to make it a felony to
willfully omit income from a tax return which has been filed. United
States v. Beacon Brass Co., 344 U. S. 43 (1952) [52-2 USTC ¶9528].
The problem lies in proof of such an act by application of the indirect
methods of computing income, i. e., net-worth expenditure theory.
When
reversing a conviction, under §145(b), bottomed on the
"expenditure" method, reported as United States v. Caserta,
199 Fed. (2d) 905 (2d Cir. 1952) [52-2 USTC ¶9540], Judge Goodrich
summarized the so-called net-worth theory as follows:
"This
theory is in effect that if a taxpayer's net worth has increased during
a given period in an amount greater than his reported income for the
period, there must be a discrepancy in his income tax return and
payment.
"An
outgrowth of this net-worth method is the 'expenditure' test . .
.."
[Statement
of Assets and Liabilities]
A
letter, dated
May 26, 19
47, written by Bardin and transmitted to the Collector of Internal
Revenue with his income tax return for 1946, supplies the first and
dominant strand in the texture of this case. After apologizing for
tardily filing his return after the expiration of an extension of time
previously granted, defendant stated:
"However,
I will be unable to pay this tax or any part of it for an indefinite
time to come. I had $250,000.00 in cash in a safe in my brother's home
in Los Angeles, California, until yesterday when the safe was
burglarized and the money was stolen. This is a very heavy loss as you
will realize and unless the money can be recovered, it is going to be
very difficult for me to pay anything. The theft has been reported to
the F. B. I. and to the police at Los Angeles."
After
Government witness, W. Plummer, assistant director of the Bureau of
Internal Revenue, identified the foregoing letter, it was received in
evidence without objection. As the result of Plummer's conferences with
Bardin during June, 1947, defendant submitted the following
"Verified Statement of Assets and Liabilities" to the
government, and it was susequently introduced into the record below:
"ASSETS.
"Cash on hand ................................. $ 110.00
Amount stolen from safe in home
of Archie Bardin in Los Angeles,
California ..................................... 250,000.00
Airplanes ...................................... None
Automobiles .................................... None
Real Estate .................................... None
Personal effect, clothing, wrist
watch .......................................... 250.00
Loaned to W. G. Brower of
Indianapolis, Indiana the sum
of $55,000 evidenced by the
promissory note of the said
Brower in the principal sum
of $55,000 and which note is
secured by 800 shares of the
preferred stock and by 24,000
shares of the common stock
of Cold Springs Brewing Co.,
Lawrence, Massachusetts; also
secured by 3000 shares of
common stock in The Walnut
Corporation, Boston, Mass.,
contingent value ............................... 55,000.00
Creditors claims against Cold
Springs Brewing Co. purchased
by Lawrence P. Bardin for
which he paid the sum of
$8,500, the claims amounting
to $16,124, present estimated
value .......................................... 4,000.00
Account with Thomson & McKinnon
of Indianapolis, Indiana ....................... 450.00
Total Assets ................................... $309,810.00
"LIABILITIES.
Income Tax, Collector of Internal
Revenue, as shown by return
of Lawrence P. Bardin .......................... $481,000.00
(This does not include interest
or penalty. Furthermore,
taxpayer expects to file
an amended return which will
show a tax liability of less than
$481,000, the exact amount of
which has not as yet been
determined.)
Claim in suit of County Distributors,
Inc. v. Lawrence
P. Bardin in the Suffolk Superior
Court, Cause No. 413429,
Boston, Massachusetts, cause
pending, no legal liability,
cost of defense, contingent
liability ...................................... 1,000.00
Claim in suit of U. S. v. Lawrence
P. Bardin, et al., Cause
No. Criminal 8711 in the U. S.
District Court in Indianapolis,
Indiana, no personal liability
on the part of Lawrence P.
Bardin ......................................... 0
O. P. A. suit in the U. S. District
Court at Indianapolis,
Indiana, against Lawrence P.
Bardin, et al., Cause No. Civil
1376, compromise contingent
liability ...................................... 50,000.00
Total Liabilities .............................. $532,000.00"
[Safe Burned Open]
Portions
of certain witnesses' testimony may well be injected at this juncture on
matters supplied by defendant. Archie Bardin, brother of the defendant,
testified that while living in California during 1946 and 1947, taxpayer
had a safe "put in" the witness's home. He described, as part
of his testimony given for the government, this safe as being a little
round floor one which was in the corner of a closet. Archie Bardin
denied having access to the safe. He also recounted a chaotic scene, he
found one day in May, 1947, upon returning home from a visit to the
beach with his wife and children. It was, then, Archie Bardin found this
safe "burned open." This witness disclaimed any knowledge of
the safe's contents prior to the episode. He notified the Los Angeles
Police Department and his brother, the defendant, who arrived in Los
Angeles "the next day or a day later."
Confirmation
of the household disarray, discovered by Archie Bardin, came from
Sergeant R. S. Ruble, safe burglary detail, Los Angeles Police
Department. His investigation, related as a government witness,
disclosed that Archie Bardin's house had been entered by cutting a
window screen. He found their house completely disarranged and the
cylinder type Keyway floor safe burned open by use of an acetylene
torch. In the bottom of this safe he found small minute papers and one
envelope--on which was partially legible, "The Property of L.
L.," and under "L", "Indianapolis Brewing Company,
Indianapolis," and "small pieces of money, just the edges of
money that you could tell it was currency." In the evening of the
day he commenced his investigation, Sergeant Ruble's partner talked with
Lawrence Bardin over the telephone. Without objection from counsel,
Ruble related his partner's conversation with defendant Bardin in which
Bardin said he placed $250,000 in the safe; his first deposit of
$100,000 being made on December 5, 1946 after drawing this sum from an
Indiana bank and flying, in his private plane, to California; that
sometime after Christmas and before New Year's (in the year of 1947)
defendant said he had placed $75,000.00 in this safe, and on January
15th or 20th he put another $75,000 in the safe--half of this sum coming
from the Indiana National Bank; the balance from the Fidelity Trust
Company Bank. Defendant was said to have stated he personally made these
deposits; that no one save Lawrence Bardin had keys to the safe
"and no one had permission to enter and no one knew the amount of
money in the safe." Sergeant Ruble expressed a deprecatory opinion
of the safe. While no recovery of the money had been made, Ruble stated:
"We think we have a good lead on where part of the money is located
at the present time. It was burned and scorched and unable to be
patched. We have several good suspects in the case. We were able to go
so far as to establish who our suspects were and we can put them in Los
Angeles at a certain hotel a few hours prior to the burglary. We can
identify the box that otherwise was being carried into the house, which
ties it up in our own mind pretty well."
[Gist
of Prosecution's Case]
Momentarily
putting to one side that evidentiary segment, brings me to several
theories on which the government tried this case below. During the
calendar year of 1946 the prosecution contends:
(a)
Lawrence Bardin sold beer at overceiling prices and received, according
to the proof below, $224,122 in payments.
(b)
He spent approximately $856,891.15.
(c)
Yet, reported taxable income of $528,824.56 for 1946.
(d)
During 1946 his net worth increased $748,312.82.
Of
course this is a capsuled version of the prosecution's case against
defendant Bardin. But it penetrates to the core of the evidence. In
other words the magnitude of Bardin's expenditures, it is contended,
manifest presence of unreported taxable income for 1946, net worth
methodology supplies the hypothesis for establishing and accounting for
variations in his assets, and testimonial evidence tabulated some
receipts and disbursements.
After
his motion for judgment of acquittal was denied, defendant introduced
several pieces of documentary evidence concerning litigation involving
himself, Alvin Bardin, Indianapolis Brewing Company, Denmark Brewing
Company, Eulberg Brewing Company and the government. By introducing
evidence after the government rested, and subsequent to his motion,
defendant has precluded us from reviewing that first motion. United
States v. Aman, 210 Fed. (2d) 344, 346 (7th Cir. 1954). By his
second motion for judgment of acquittal interposed at the close of all
the evidence, defendant has raised several major points for
determination. Briefly, he urges that the evidence is insufficient to
sustain a conviction under either Count I or II, and "that there is
no proof of the corpus delicti independently of extra judicial
admissions of the defendant"; "The net worth-expenditure
method of establishing net income, being based upon circumstantial
evidence, cannot be applied in this cause because the evidence fails to
establish with certainty or accurately the net worth of the defendant at
the beginning of the tax year in question and therefore is uncertain and
does not form a proper basis upon which to apply and determine the net
worth at the end of the period in question." And that ". . .
the evidence introduced by plaintiff establishes the fact that the
defendant in his income tax return in question actually overstated his
net taxable income."
Parenthetically
I note defendant's "standing objection," reflected in this
record, to various lines of direct examination and evidence of
defendant's admissions and statements. I also recognize that at least at
one interview with Internal Revenue agent Loyd, the defendant was
accompanied by his two lawyers. At this conference Bardin discussed
certain phases of his income tax liability for 1946.
[Meaning
of Corpus Delicti]
Corpus
delicti is a phrase that has
suffered treatment as an intellectual shuttlecock in many judicial
opinions. I think the following an authoritative explanation of its
definitive characteristics:
"It
is clear that an analysis of every crime, with reference to this element
of it, reveals three component parts, first, the occurrence
of the specific kind of injury or loss (as, in homicide, a person
deceased . . .); secondly, somebody's criminality (in contrast,
e.g. to accident) as the source of the loss,--these two together
involving the commission of a crime by somebody; and, thirdly,
the accused's identity as the doer of this crime.
"(1)
Now, the term 'corpus delicti' seems in its orthodox sense to signify
merely the first of these elements, namely, the fact of the specific
loss or injury sustained; . . . This, too, is a 'a priori' the more
natural meaning; for the contrast between the first and the other
elements is what is emphasized by the rule; i. e. it warns us to
be cautious in convicting, since it may subsequently appear that no one
has sustained any loss at all; . . .
"(2)
But by most judges the term is made to include the second element also, i.
e. somebody's criminality . . .
This
broader form makes the rule much more difficult for the jury to apply
amid a complex mass of evidence, and tends to reduce the rule to a
juggling-formula.
"(3)
A third view, indeed, too absurd to be argued with, has occasionally
been advanced, at least by counsel, namely, that the 'corpus delicti'
includes the third element also, i. e. the accused's identity or
agency as the criminal. By this view, the term 'corpus delicti' would be
synonymous with the whole of the charge, and the rule would require that
the whole be evidenced in all three elements independently of the
confession, which would be absurd . . ." (VII Wigmore, Evidence,
§2072 (3rd ed. 1940).)
Recently,
another "net worth case," Smith v. United States, 348
U. S. 147, 154-155 (1954) [54-2 USTC ¶9715] precipitated some
pronouncements relevant here:
".
. . But in a crime such as tax evasion there is no tangible injury which
can be isolated as a corpus delicti. As to this crime, it cannot
be shown that the crime has been committed without identifying the
accused. Thus we are faced with the choice either of applying the
corroboration rule to this offense and according the accused even
greater protection than the rule affords to a defendant in a homicide
prosecution . . . (citing) . . . or of finding the rule wholly
inapplicable because of the nature of the offense, stripping the accused
of this guarantee altogether. We choose to apply the rule, with its
broader guarantee, to crimes in which there is no tangible corpus
delicti, where the corroborative evidence must implicate the accused
in order to show that a crime has been committed. . . .
".
. . There is some uncertainty in the lower court opinions as to whether
the corroboration requirement applies to mere admissions. . . . We hold
the rule applicable to such statement, at least where, as in this case,
the admission is made after the fact to an official charged with
investigating the possibility of wrong doing, and the statement embraces
an element vital to the Government's case. . . ."
I
confine my dissent to certain factual aspects demonstrative of the need
for suitable instructions consonant with precepts announced in Holland
v. United States, 348 U. S. 121 [54-2 USTC ¶9714].
[Relevant
Facts]
So
much, then, of the facts, relevant to this opinion follow. Defendants'
federal income tax returns for the calendar years 1942 to 1946 were
introduced in evidence. Neither Lawrence Bardin, nor his wife, filed any
such returns prior to 1942. He reported net income of $2,311.15 for
1942, $1,717.25 in 1943, $8,114.85 in 1944, and $2,873.30 in 1945.
Attached
to his 1945 return is a statement scheduling various capital
transactions, including the sale of grain futures during the last three
days of 1945. Bardin stated his occupation, variously, as manufacturer,
broker, salesman and executive in different returns. No 1946 estimated
tax return was filed by him.
During
1945, Frank McHale was a principal stockholder in, and attorney for, the
Indianapolis Brewing Company. From this witness' testimony, given in the
government's behalf, it appears that Lawrence Bardin, and two attorneys,
Klein and Jacobson, negotiated with McHale for the purchase of that
Brewery, and as a result an agreement was prepared for stockholder
approval. Jacobson represented Alvin Bardin. This sale, closed
December 6, 19
45, was for a total price of $476,662.16. Alvin Bardin, pursuant to
contract terms, was to pay $215,464.26 and on
December 6, 19
45, he paid $35,464.26. At a special board of directors' meeting held
December 7, 19
45, new directors succeeded the old, who resigned, and Alvin Bardin was
named president. Thereupon, Indianapolis Brewing purchased from Alvin
Bardin capital stock of Denmark and Eulberg Breweries, paying him for
each block, respectively $98,200.00 and $81,100. Adding this payment,
totaling $179,300 to the prior $35,464.26 payment equated to the agreed
down payment of $215,464.26. Six promissory notes were executed totaling
$261,197.90, representing the unpaid balance on purchase price due to
the Indianapolis Brewing Company stockholders.
Under
its mortgage to the Fidelity Trust Company, Indianapolis Brewing Company
borrowed $120,000.00 on
December 14, 19
45, using the Denmark and Eulberg stock as security. This same day Alvin
Bardin paid $90,000.00 out of the borrowed funds, thereby reducing
indebtedness to a former Indianapolis shareholder to $171,197.90. After
May 27, 19
46, this balance was paid in full.
Nine
government witnesses testified, in substance, that during 1946, they
paid overceiling prices to Lawrence Bardin for beer--the legal price
being paid by sight draft invoice bill of lading to Indianapolis Brewing
Company. This source, according to Special Agent Loyd, whose testimony
we subsequently point up, produced $224,122. All government witnesses
related their personal negotiations with defendant under which they were
supplied with beer only upon paying money over the list price, at prices
averaging from 10¢ to $1.60 per case. Some evidence presented by the
prosecution indicated defendant sought out these persons when he,
Lawrence Bardin, was attempting to finance the purchase of the
Indianapolis and Denmark Breweries.
[Special
Agent's Testimony]
Special
Agent Hugh S. Loyd, Bureau of Internal Revenue, was a pivotal government
witness. On
April 15, 19
49 he interviewed the defendant and during this interview Lawrence
Bardin stated inter alia: that he was uncertain as to what amount
of money, if any, Alvin Bardin owed him at the end of 1944, 1945 and
1946; that he and Alvin had obtained advance deposits from prospective
customers of the Denmark and Eulberg breweries, used in the acquisition
of the stock of those companies; that he was uncertain as to the amount
of cash he had on hand at the end of 1945 and 1946; that he initiated
the negotiations leading to the acquisition of the Denmark and
Indianapolis breweries; that some of his personal expenses were paid
through the account entitled "L. P. Bardin for act of Alvin
Bardin"; that Alvin Bardin furnished the funds which were credited
to that account; that Alvin Bardin furnished the funds with which he,
defendant, paid the former shareholders of the Indianapolis Brewing
Company; that he had invested approximately $150,000.00 in the Cold
Spring Brewery in 1947; that he obtained the funds for this investment,
as well as the amounts deposited with Thomson and McKinnon and the
$250,000.00 cash stolen from the Los Angeles safe, by overceiling
collections on the sales of beer by the Indianapolis Brewing Company.
Loyd
further testified that the testimony and evidence showed:
(a)
the defendant had received overceiling payments in the amount of
$224,122.00;
(b)
the defendant had invested $329,765.30 in cashier's checks during 1946
(this amount Loyd later raised to $451,437.32);
(c)
as of the end of 1946 there were credits in defendant's account with
Daniel F. Rice of $7,657.82, and with Thomson & McKinnon of
$151,546.42, with a resultant net credit after charges in both of
$139,208.19;
(d)
in 1947, the defendant had invested $150,000.00 in the Cold Springs
Brewing Company;
(e)
the defendant claimed a deduction of $5,339.84 for Indiana Gross Income
Tax though he had paid $2.50;
(f)
during 1946, the defendant made expenditures of:
(1)
$7,657.82 deposited with Daniel F. Rice;
(2)
$151,546.42 deposited with Thomson & McKinnon;
(3)
$241,973.00 credited to the account "L. P. Bardin for the acct of
Alvin Bardin";
(4)
$171,197.90 payments to former shareholders;
(5)
$4,813.20 payments on income tax;
(g)
these expenditures totaled $692,887.17 from which Loyd eliminated
certain itemized matters totaling $85,996.02, leaving net expenditures
of $606,891.15 (502-504);
At
this juncture defense counsel renewed a previous objection raised
against Loyd's recapitulation of evidentiary data concerning net worth,
but the trial judge stated "This is the summary breakdown."
Loyd continued testifying to the effect he had added $250,000.00 as cash
on hand, to the total net expenditures.
Loyd
then identified cashier's checks which defendant had stated to Loyd he
had purchased with funds from Alvin Bardin and used to pay the former
shareholders of the Indianapolis Brewing Company, and they were
admitted. On the basis of these exhibits Loyd raised the amount expended
by defendant in 1946 for cashier's checks to $451,437.32.
[Witness'
Summation of Evidence]
This
witness then reported his summation of what the evidence showed:
(h)
on
January 1, 19
46, the credit balance of defendant's account with Daniel F. Rice was
$15,413.59;
(i)
on
January 1, 19
46, the credit balance of defendant's account with Gerstenberg Co. was
$270.00;
(j)
on
December 31, 19
46, defendant's Thomson & McKinnon account had a credit balance of
$139,208.19; on
January 15, 19
47, it was $139,438.19; on
March 31, 19
47 it was $41,890.67; on
May 27, 19
47 it was $33,797.89;
(k)
as of
December 31, 19
46, defendant had invested $23,000.00 in Central Air Parts, Inc., which
remained the same through
May 27, 19
47;
(1)
as of
September 15, 19
46, defendant had loaned Archie Bardin $10,000.00, which debt remained
the same through
May 27, 19
47;
(m)
the cost of the Indianapolis Brewing Company stock was $296,662.16 as of
January 1, 19
46 arrived at by deducting the $180,000 proceeds from the Eulberg and
Denmark transaction from the contract price of $476,662.16 but,
on
December 31, 19
46, and thereafter the cost basis of the stock was $476,662.16;
(n)
as of
December 31, 19
46 the defendant had $250,000.00 cash on hand, as was so on
March 31, 19
47; by
May 27, 19
47 he had none;
(o)
the account "L. P. Bardin for the acct of Alvin Bardin" had
credit balances as follows:
(1)
January 1, 19
46 ........ $ 150.00
(2)
September 15, 19
46 ..... 52,523.02
(3)
December 31, 19
46 ...... 40.32
(4)
January 15, 19
47 ....... 4,835.47
(5)
March 31, 19
47 ......... 110,861.57
(6)
May 27, 19
47 ........... 143,519.44
(p)
on
December 31, 19
46 "L. P. Bardin for the acct of Alvin Bardin" was debited
$80,000.00 and "Accounts Payable--Due Others" was credited a
like amount, which amount remained in the latter account through
May 27, 19
47;
(q)
the "summary concerning the total of the testimony" he had
just "recited" was:
(1) as of
January 1, 19
46 ........ $ 312,495.57
(2) as of
September 15, 19
46 ..... 608,269.95
(3) as of
December 31, 19
46 ...... 978,910.67
(4) as of
January 15, 19
47 ....... $ 983,935.82
(5) as of
March 13, 19
47 ......... 1,142,414.40
(6) as of
May 27, 19
47 ........... 916,979.39
(r)
the account "Loans Officers" reflecting amounts due the
Indianapolis Brewing Company, showed the following balances:
(1) as of
January 1, 19
46 ........ $ 90,000.00
(2) as of
September 15, 19
46 ..... 179,300.00
(3) as of
December 31, 19
46 ...... 179,300.00
(4) as of
May 27, 19
47 ........... 179,300.00
(s)
as of
January 1, 19
46, $171,197.90 was owed the former shareholders of the Indianapolis
Brewing Company;
(t)
"all of these liabilities" amounted to:
(1) as of
January 1, 19
46 ...... $261,197.90
(2) as of
December 1, 19
46 ..... 179,300.00
(3) as of
May 27, 19
47 ......... 179,300.00
(u)
the difference between assets and liabilities amounted to:
(1) as of
January 1, 19
46 ........ $ 51,297.85
(2) as of
September 15, 19
46 ..... 428,969.95
(3) as of
December 31, 19
46 ...... 799,610.67
(4) as of
May 27, 19
47 ........... 737,679.39
(v)
the difference between the assets minus liabilities as of
January 1, 19
46, and as of
December 31, 19
46, was $748,312.82;
(w)
the defendant paid life insurance premiums of $3,334.20 during 1946 and
suffered a non-deductible long term capital loss of $2,253.72, which
when added to his income tax payment and the previous sum of $748,312.82
totaled $758,713.94;
(x)
the defendant's 1946 income tax return showed a net income of
$521,883.63.
Loyd
revised his earlier statement as to the defendant's expenditures during
the year 1946, eliminating therefrom another $25,450.00, leaving a
"balance" of $831,441.15.
On
cross-examination Loyd admitted that Alvin Bardin had reported the
capital gain tax on gain realized from the sale of the Indianapolis
Brewing Company stock to the several tavern owners. Although he (Loyd)
knew the question of beneficial ownership of the Indianapolis stock was
involved in this prosecution he had not investigated to determine who
had received the final receivership dividend. He also testified that in
his opinion the expenditures of the defendant represented taxable
income, qualifying this however as based upon assumptions that (i)
defendant had no prior accumulations, (ii) the account "L. P.
Bardin for the acct of Alvin Bardin" belonged to defendant, and
(iii) the money spent by defendant belonged to defendant. Furthermore,
if there was any duplication, then the conclusion would be incorrect.
Loyd
reduced the cost basis of the Indianapolis stock by $180,000.00 as of
January 1, 19
46, because the Eulberg and Denmark stock was returned to its prior
owner in May, 1946. In his net worth computation, Loyd assumed that
defendant owned the Indianapolis Brewing Company stock.
The
government closed its case by recalling Earl P. Miller, an Internal
Revenue Agent, and asking him the following hypothetical question:
"*
* * assuming that the defendant in this case * * * had a net cash income
for the taxable year, 1946, as shown by the income tax return for that
year in the sum of $521,883.63, and assuming that he made expenditures
in the amount of $831,441.15 in excess of his available declared
resources, was taxable income received by the defendant during the year
1946, would there be a tax due and owing the United States by the
defendant in excess of the amount of tax, if any, as shown on the
defendant's income tax return for the year 1946?"
To
this the defendant objected on the grounds that the
"hypothesis" was not established by the evidence. The
objection was overruled. Miller answered that upon a net income of
$831,441.15 there would be a tax liability of $688,295.38 and that
defendant had paid $31,757.55 on his 1946 income tax.
[Tabulation]
This
record contains considerable evidence, but enough has been stated
showing the complexity of the testimony and the resultant need for
carefully guiding a jury. What is said in the Holland case, and
which I quote further along in my opinion, becomes meaningful, here,
only when related to the facts in Bardin's case. Having assembled some
data embraced by this record, and about which defense and prosecution
contest, I tabulated it as follows:
(a) Computed by Government witness Loyd (T. R. 515). He arrived at this
figure "* * * by taking the amount of $476,662.16 as testified to
by the witness McHale and deducting therefrom the amount of $180,000.00
also testified to by witness McHale as being funds obtained from the
Indianapolis Brewing Company used in connection with the acquisition of
Stock of the Denmark and Eulberg Company and in turn the funds being
given to the stockholders in payment of the--of part of the cost of the
stock in the brewery, the Indianapolis Brewing Company."
(b) Red figures.
Several
points of divergence between defense and prosecution are readily
apparent from that analysis. The pith of certain evidentiary aspects is
thus laid bare and, without weighing the evidence, I think a charge
following the Holland standard is required.
[Instructions
Inadequate]
I
am well aware that the Holland court affirmed notwithstanding
some challenges, launched by the Hollands against the district judge's
charge, yet I think the pattern of instructions laid down by the Supreme
Court is controlling in Bardin's appeal.
It
clearly appears that the 42 instructions given below were inadequate,
incomplete and incompatible with these views authored by the Holland
(348 U. S. 121, 129 [54-2 USTC ¶9714]) majority:
"While
we cannot say that these pitfalls inherent in the net worth method
foreclose its use, they do require the exercise of great care and
restraint. The complexity of the problem is such that it cannot be met
merely by the application of general rules . . . (citing) . . .. Trial
courts should approach these cases in the full realization that the
taxpayer may be ensnared in a system which, though difficult for the
prosecution to utilize, is equally hard for the defendant to refute. Charges
should be especially clear, including, in addition to the formal
instructions, a summary of the nature of the net worth method, the
assumptions on which it rests, and the inferences available both for and
against the accused . . .." (Italics supplied)
To
by-pass this quoted portion from the Holland case, handed down
subsequent to Bardin's trial, predicated either upon sequence in
adjudications, or failure to assert certain errors of which I now take
cognizance would be inharmonious with fair play and sound
admin
istration of criminal justice. Respect for law is too easily lost among
technical brambles. Though the instructions, given below, are
unchallenged at this level, their inadequacy is indisputable by contrast
with the Holland criteria. My course is simply consistent with
Rule 52(b), Fed. R. Crim. P. 18 U. S. C. A. and should not be hereafter
construed as opening the sluices for examination of other than plain
errors adversely affecting substantial rights of defendants. I would
delimit such holding to the situation now before us. As I analyze the
assorted instructions it is clear there were none summarizing the nature
of the net-worth theory, and no explanations of its assumptions were
explained to the jury. The expenditure aspect of this case was also
neglected. Certainly detachment and objectivity, both in feeling and
thought, are difficult enough outside a courtroom without expecting an
untutored jury to reach sound, fair and just conclusions in a complex
case such as this unless they are supplied the correct legal benchmarks.
It is difficult to see how these jurors could correctly determine if the
evidence adduced, during trial, fitted within the framework of the
offense described in the indictment.
Because
the Holland court affirmed despite its own delineation of
criteria for measuring jury changes in net-worth cases, fails, in my
opinion, to furnish an escapehatch for use in the instant appeal. I am
unable to perceive why justice must be postponed "for future trials
based on the net-worth theory." Awaiting decisions in Holland
and its companion cases was, apparently, only an empty gesture on our
part. I say this even after reading the Hollands' petition for rehearing
(denied 348 U. S. 932) grounded upon alleged defective instructions
evaluated by the Supreme Court's own announcements in their case. It is
idle to speculate why the petition was rejected. Yet the criteria was
laid down in the Holland opinion and this defendant ought to have
the benefit of our foresight in waiting as we did. I think we should
have some hesitancy in flaunting such specific standards for jury
instructions however the bellwether case was ultimately determined. My
view, here, buttressed by the statement made in Holland v. United
States, 348 U. S. 121, 127 (1954) [54-2 USTC ¶9714] which precedes
the court's six point approach: "This leads us to point out the
dangers that must be consciously kept in mind in order to assure adequate
appraisal of the specific facts in individual cases."
(Italics supplied.)
[One
Basic Assumption]
Nevertheless,
Mr. Justice Clark said in his prefatory portion of the Holland
opinion (348 U. S. 121, 125 [54-2 USTC ¶9714]), "careful study
indicates that it (the net-worth method) is so fraught with danger for
the innocent that the courts must closely scrutinize its use. One basic
assumption in establishing guilt by this method is that most assets
derive from a taxable source, and that when this is not true the
taxpayer is in a position to explain the discrepancy. The application of
such an assumption raises serious legal problems in the
admin
istration of criminal law."
Relevant,
here, is one of the dangers from among the six mentioned by the Holland
opinion:
(A)
". . . the method requires assumptions, among which is the equation
of unexplained increases in net worth with unreported taxable income.
Obviously such an assumption has many weaknesses. It may be that gifts,
inheritances, loans and the like account for the newly acquired wealth.
There is great danger that the jury may assume that once the
Government has established the figures in its net worth computations,
the crime of tax evasion automatically follows." (Italics
added.)
When
certain conduct of the United States Attorney is heaped upon these
defective instructions I would be driven to ignore the realties of life
to assume absence of any impact upon the jurors' minds. In its brief,
the government argues that its counsel ". . . made a single,
isolated reference to Alvin Bardin's refusal to testify which he
(counsel) immediately mitigated by telling the jury to disregard what he
said and draw no inferences from it." Falling back on defendant's
failure to object or request an instruction, the prosecution would have
us ignore this episode. Though its argument suggests some
super-technical credit it reveals a robust disregard of human nature in
the jury box. Moreover, defendant's case was interlaced with alleged
financial relationships between the brothers Bardin. Consequently the
government attorney's generous remarks only served to underscore the
prosecution's point and cut ground from under the man on trial.
For
this latter reason and, because I am opposed to "guessing"
defendants into prison, especially when the Supreme Court has
specifically instructed both appellate and trial courts in the handling
of networth cases, I would reverse this judgment of conviction and order
a new trial.
[52-1
USTC ¶9155]United States of America, Plaintiff-Appellee v.
Yeoman-Henderson, Inc., and Roy R. Yeoman, Defendants-Appellants
(CA-7),
In the United States Court of Appeals for the Seventh Circuit, No.
11445. October Term, 1951, January Session, 1952, 193 F2d 867,
January 17, 19
52
Appeal from the United States District Court for the Northern District
of Illinois, Eastern Division.
Prosecution for willful failure to report: Penalties: Net worth
statement: Motion for directed verdict of acquittal: Admissibility of
evidence.--The court properly overruled taxpayer's motion for a
directed verdict of acquittal where, by reason of taxpayer's own net
worth statement, together with other evidence, the jury was entitled to
draw the inference that he knew that his income tax returns and the
returns for his wholly owned corporation (whose books he kept) were
false, and that when he filed them he did so with intent to defeat or
evade a part of the income tax due by him and by his corporation to the
United States. Nor was it error to admit evidence of the purchase by
taxpayer in a prior year of an automobile which he placed in the name of
a third party without the latter's knowledge or consent. U. S. v.
Fenwick, 177 Fed. (2d) 488, 49-2 USTC ¶9448, distinguished.
Before
MAJOR, Chief Judge, DUFFY and LINDLEY, Circuit Judges.
DUFFY,
Circuit Judge:
This
is an appeal from judgment entered upon verdicts of a jury finding each
of the defendants guilty of willfully and knowingly attempting to defeat
and evade a large part of the income taxes due and owing by each of them
for the years 1944, 1945 and 1946. Defendants' motions for a judgment of
acquittal at the close of the plaintiff's case and at the close of all
of the evidence were respectively denied, as were the motions for a new
trial. The court imposed a general sentence upon defendant Roy R. Yeoman
of imprisonment for a term of one year and a day, and a fine of $100
upon the corporate defendant.
[The
Facts]
Prior
to and during the years 1944, 1945 and 1946, the defendant Roy R. Yeoman
(hereinafter called "Yeoman"), as president and treasurer of
Yeoman-Henderson, Inc. (hereinafter called "company"),
operated a jewelry store in Waukegan, Illinois, owned by the company.
Although his wife, Marion, was the secretary of the company, Yeoman
personally maintained the books and records of the company, preparing
its income tax returns as well as his own. The company was in fact a
one-man corporation.
The
income tax returns filed by Yeoman for himself and for the company
showed net income and taxes due as follows:
Net Income of Tax due by Net Income Tax due
Year Roy R. Yeoman Roy R. Yeoman of Company by Company
1944 .... $2,160.00 $133.00 $1,575.35 $357.44
1945 .... 2,160.00 133.00 1,222.08 364.63
1946 .... 2,160.00 192.00 *(1,058.88) 0.00
* (Indicates net loss for year 1946)
Defendants
contend that the evidence does not sustain the verdicts and judgment,
the principal attack being leveled at a net worth statement of defendant
Yeoman. Error is also claimed in admitting evidence of the purchase by
Yeoman in 1941 of an automobile which he placed in the name of a third
party without the latter's knowledge or consent.
Revenue
Agent O'Hanlon testified that Yeoman informed him that during the years
in question he had no other source of income than his jewelry business;
that all deposits in his personal checking account, in his savings
account, and in his wife's checking account at the First National Bank
at Waukegan represented receipts from his jewelry business.
The
evidence disclosed total deposits in Yeoman's checking account as
follows: 1944, $26,976.91; 1945, $48,778.19; and 1946, $50,591.91. In
1944 the sum of $1,861.00 was deposited in Yeoman's savings account, and
$2,613.30 in Marion Yeoman's checking account; in 1945, $1,830.00 and in
1946, $3,235.00 was deposited in her account. None of the deposits
listed in this paragraph was entered in the books and records of the
company.
Commencing
in 1945 Yeoman maintained a second accounts receivable book, in which he
entered company sales. Practically all of such sales were not recorded
in the regular corporation accounts receivable, nor were such sales
reported in computing the corporation income tax return. Yeoman's excuse
for maintaining the second accounts receivable book was that the rental
of his store building was based on a percentage of gross sales, and that
he considered the rental on that basis to be exorbitant.
Sales
of $5,247.22 for 1945 were listed in this second book, but only $24.25
thereof was included by Yeoman in the company's 1945 income tax return.
Sales of $11,371.43 were listed for 1946, but only $75.50 were included
in the company's 1946 income tax return.
Revenue
Agent Willis computed from the exhibits and testimony in evidence the
company's tax liability was $14,787.67 for 1944, $20,896.48 for 1945,
and $1,517.37 for 1946. He likewise computed Yeoman's tax liability was
$440.00 for 1944, $2,963.81 for 1945, and $1,161.79 for 1946.
In
a memorandum prepared by Yeoman he admitted expending $7,976.10 in 1944
and $1,276.19 in 1945 in remodeling and repair of his residence. Yeoman
also told Agent O'Hanlon that in 1944, 1945, and 1946 his living
expenses were approximately $3,000 a year and that obviously he could
not live on the $2,160 salary which he reported in his income tax
returns. On
December 14, 19
48, Yeoman gave Agent O'Hanlon a net worth statement prepared by Yeoman
which indicated his net worth as of
December 31, 19
41, through 1947. The agent testified he had absolutely nothing to do
with the preparation of this net worth statement.
The
defendants called two witnesses: McEwen and Lynch. McEwen told of a
business deal where he turned over to Yeoman $10,000 in cash in 1945,
and $5,000 additional in 1946, and that Yeoman put this money in his
safe; that in 1948 Yeoman gave him his bank book and told him to go to
the bank and withdraw the $15,000 from Yeoman's savings account, which
he did. But Agent O'Hanlon testified that he had two conversations with
McEwen in 1948 in which he asked for all records of his transactions
with Yeoman, but that nothing was mentioned about the alleged $15,000
transaction.
Lynch,
a certified public accountant, questioned many of the results reached
and computations made by the agents who testified for the government,
but he did admit that the company owed a tax to the United States in
excess of the amount of tax shown on the company's income tax returns
for 1944, 1945 and 1946.
Lynch
testified that the statement of Yeoman's net worth introduced into
evidence over defendants' objection was a hybrid of a cash basis and an
accrual basis, and was inaccurate. Claiming the net worth statement was
proved to be untrustworthy, defendants insist that under the rule laid
down by this court in United States v. Fenwick, 177 Fed. (2d) 488
[49-2 USTC ¶9448], the judgment of conviction must be reversed.
[Existence
of Substantial Evidence]
When
a motion for a judgment of acquittal is made, the sole duty of the trial
judge is to determine whether substantial evidence, taken in the light
most favorable to the government, tends to show the defendant is guilty
beyond a reasonable doubt. Bell v. United States, 4 Cir., 185
Fed. (2d) 302, 310 [50-2 USTC ¶9499]. The rule is well stated in Curley
v. United States, C. A., D. C., 160 Fed. (2d) 229, 232:
"The
true rule, therefore, is that a trial judge, in passing upon the motion
for directed verdict of acquittal, must determine whether upon the
evidence, giving full play to the right of the jury to determine
credibility, weigh the evidence, and draw justifiable inferences of
fact, a reasonable mind might fairly conclude guilt beyond a reasonable
doubt. * * *"
In
considering the evidence most favorable to the verdict and such
reasonable inferences as the jury may have drawn therefrom (United
States v. O'Brien, 7 Cir., 174 Fed. (2d) 341), we think the trial
court properly denied defendants' motions for a judgment of acquittal.
Nor
does our decision in United States v. Fenwick, supra, justify a
judgment of reversal in this case. Any general language in the opinion
of that case must be considered in light of the facts there involved. In
the Fenwick case, there was no proof that the taxpayer had not
previously accumulated assets. The government agent admitted he had not
inquired of defendant whether he had had cash on hand, accumulated from
earnings from his business in the years prior to the period then under
examination, and the United States Attorney stated that there might have
been other assets. The Fenwick opinion pointed out that the
evidence on the trial fell short of excluding all possible available
sources of taxable income from which the increased net worth and the
excess expenditures could have been derived. Contrasting the
inadmissibility of the net worth statement in the Fenwick case,
where it was the result of computation by the agents, in the case at bar
the net worth statement was prepared by Yeoman himself, without the
assistance of a revenue agent, and while it probably was inaccurate in
some respects, it cannot be considered as an extra-judicial admission,
unsupported by other evidence, and was in fact admissible into evidence
as an admission against interest.
[Gist
of Offense]
The
crime denounced by Sec. 145(b), Internal Revenue Code (26 U.S.C.A. 145),
is complete when the taxpayer willfully and knowingly files a false
return with intent to defeat or evade any part of the tax due to the
United States. Myres v. United States, 8 Cir., 174 Fed. (2d) 329
[49-1 USTC ¶9275]; Guzik v. United States, 7 Cir., 54 Fed. (2d)
618, 619 [1931 CCH ¶9681], certiorari denied 285 U. S. 545. From the
evidence in the record before us, the jury was entitled to draw the
inference that defendant Yeoman knew that his income tax returns and the
returns for the company for the years 1944, 1945 and 1946 were false,
and that when he filed them he did so with intent to defeat or evade a
part of the income tax due by him and by his company to the United
States for those years.
Standing
by itself, the fact that Yeoman in 1941 purchased a Nash automobile and
registered the title thereof in the name of Edward P. Tiernan without
the latter's knowledge or consent would not be admissible as proof of an
attempt by him to evade income taxes in the years 1944, 1945, and 1946.
However, in the case at bar this evidence tied up with other relevant
and material testimony.
[Analysis
of Evidence]
Defendant
Yeoman was under an obligation to keep correct books and records. United
States v. Hornstein, 7 Cir., 176 Fed. (2d) 217 [49-2 USTC ¶9326].
In the notes payable account of the company for 1944, four items
aggregating $9,555, as "Loans from Bank," were listed; also
under "Money Received from E. P. Tiernan" were the items of
January 10, 19
44, $3,250, and
October 31, 19
44, $1,250. The company records maintained by Yeoman also disclosed four
items aggregating $3,000 as "Money Repaid to E. P. Tiernan,"
and three items aggregating $3,536.51 as "Paid bank on Note."
The vice president of the only bank with which Yeoman did business
testified the bank had not made any loans during 1944 to either Yeoman
or the company. E. P. Tiernan testified that neither in 1944, nor any
other time, did he make any loans or payments of any kind to or receive
any sums of money as loan repayments from either defendant.
In
Yeoman's statement he listed an automobile as an asset as of
December 31, 19
41. Undoubtedly this was the Nash automobile he traded in 1946 on a new
Pontiac, paying the difference by check. Tiernan testified that he never
authorized Yeoman to have the title of the Nash car taken in his name,
nor did he advance any funds toward the purchase of the car. We think
the evidence was admissible, in view of the apparent efforts Yeoman had
made to have the books of the company reflect various business
transactions with Tiernan, all of which Tiernan testified were untrue.
Finding
no error in the conduct of the trial, the judgment of conviction is
affirmed.
[48-1
USTC ¶9312]The United States of America, Plaintiff-Appellee v. Samuel
Chapman, Defendant-Appellant
(CA-7),
In the United States Circuit Court of Appeals for the Seventh Circuit,
No. 9369, 168 F2d 997,
June 18, 19
48, Cert. denied, 335 U. S. 853, 69 S. Ct. 82
Appeal from the District Court of the United States for the Northern
District of Illinois, Eastern Division.
Criminal proceedings: Corporate earnings: Personal liability of sole
stockholder: Sufficiency of bill of particulars and supporting evidence:
Embezzlement.--In criminal proceedings brought for evasion of taxes,
it was held (1) that the Government's bill of particulars was sufficient
in alleging that taxpayer's private expenditures for the taxable year
greatly exceeded his available declared resources, (2) that the charge
of tax evasion was adequately supported by testimony showing net worth
at the beginning and end of such year, including the receipt of moneys
in addition to the regulation prices charged for sale of meat by the
corporation of which he was an officer and principal stockholder, and
the use of bank accounts in agents' names, and (3) that even though he
acted as agent for the corporation in collecting the income, he is
liable for attempted evasion of the tax due thereon. The rule in Commissioner
v. Wilcox. 327 U. S. 404, 46-1 USTC ¶9188, involving embezzled
money, has no application. Judgment affirmed.
Otto
Kerner, Jr., Jack A. Welfeld, for the plaintiff-appellee. Henry W.
Dieringer, Michael F. Mulcahy, for the defendant-appellant.
Before
SPARKS and MINTON, Circuit Judges and DUFFY, District Judge.
[The
Facts]
SPARKS,
Circuit Judge:
Appellant
was convicted of attempting to evade payment of income tax alleged due
for the year 1943, in violation of section 145(b) of the Internal
Revenue Code. The principal errors urged on this appeal relate to the
bill of particulars, the use of allegedly prejudicial testimony relating
to appellant's receipt of moneys in addition to the regulation prices
charged for the sale of meat by the corporation of which he was an
officer and principal stockholder, and the use of an allegedly
uncorroborated extra-judicial admission to prove one of the essential
elements of the offense.
Appellant
is the president and principal stockholder of the Empire Packing
Corporation, engaged in the processing and sale of meat. The indictment
charged him with attempting to evade a large part of his individual
income tax by filing a fraudulent return showing gross income of
$90,124, instead of an actual gross income of $301,405, including an
item of $282,115 listed in the indictment as "other income,"
and by concealing from the Collector the true gross and net income
received by him during the vear and the sources thereof.
Appellant
asked for and the court allowed a bill of particulars as to the item of
"other income." The Government thereupon filed a bill stating
that it was prepared to prove that appellant expended the amount alleged
in the indictment over reported income but that it did not possess the
information necessary to specify in detail the amount of every item
making up the aggregate of $282,115, or by whom each item making up this
aggregate amount was paid to appellant, or the character or manner of
payment. Appellant then moved to dismiss on the ground that this
admission on the part of the Government that it lacked knowledge as to
the income alleged voided the indictment. Subsequently, the Government
was permitted to amend its bill of particulars to state that appellant
expended during the year 1943 an amount in excess of the total of his
available declared resources, and to file supplemental bill to the
effect that the source of the "other income" was the illegal
sale of meat at overceiling prices, the details of which transactions
were matters peculiarly within the knowledge of appellant. The motion to
dismiss was overruled, and the court denied a motion for a more specific
bill of particulars.
[Opinion]
We
find no error in this action of the District Court. The bill of
particulars as amended and supplemented sufficiently apprised appellant
of the theory of the charge against him and of the general character of
the evidence the Government expected to rely upon to sustain that
charge. He was not entitled to more. United States v. Skidmore,
123 Fed. (2d) 604 [41-2 USTC ¶9716]; United States v. Gorman, 62
Fed. Sup. 347 [45-2 USTC ¶9433]. The granting or denying of a bill of
particulars is, of course, a matter within the sound discretion of the
court. We find here no abuse of that discretion.
[Supporting
Proofs]
In
presenting its case, the Government undertook to show that appellant's
private expenditures for the year 1943 greatly exceeded his available
declared resources, and that he had sources of income for that year from
which the additional funds could have been derived.
As
a starting point in ascertaining appellant's net worth, the Government
established by his books and records that his total assets as of
January 1, 19
42, amounted to $246,668. Appellant himself corroborated this. According
to the testimony of Revenue Agent Loyd who conducted the examination of
the books, he stated that, except for a few dollars in his pocket, he
had no other cash on hand and no currency in any safety deposit box, and
that the work papers prepared by the agents showing assets and
liabilities as of
January 1, 19
42, were substantially correct. The agent added to the amount of
appellant's net worth as of
January 1, 19
42, the total of income reported for the year 1942 and, with adjustments
for certain items, ascertained his net worth as of
January 1, 19
43, to be $282,227. As of
December 31, 19
43, the evidence indicated a net worth of $533,538, or an indicated for
that taxable year of $251,310 which, together with $51,304 of
nonduductible expenditures and property transfers, resulted in a taxable
income of $302,614.