Bank Records and Net Worth Increases
3 Page2
The
evidence as to the increase in the net worth during the year 1943
consisted largely in proofs of currency expenditures during that year in
amounts greatly in excess of the $90,131 income reported by appellant
for the year 1943, and of all his declared available resources. The
largest single expenditures was of $100,000, paid in two installments
for the purchase of a farm, $45,000 in currency of small denominations
up to $50 bills, the latter part of March, 1943, and the balance,
$34,000 of which was in currency, shortly thereafter. This farm was
carried on appellant's records at an original cost of $55,000 which
appellant told Loyd, upon inquiry by Loyd as to the discrepancy in the
figures, was all he paid. In addition, the evidence showed large
expenditures on the farm including $73,546 for improvements, $128,925
for cattle and hogs, $33,559 for feed, and $10,821 for miscellaneous
items.
[Black
Market Receipts]
Appellant
also told Loyd that the $71,000 miscellaneous income reported in his
1943 return was from "commissions" which he also said
constituted the source of the money paid for the farm and the large
expenditures thereon. These commissions he explained to Loyd as
"tips" paid to him for telling people where they could buy
meat. However, he said he could not remember the names of any such
persons, nor where he had sent them to procure the meat. When Loyd
pointed out to him that their investigations indicated that he had spent
two or three hundred thousand dollars more than he had available
according to his 1943 income tax return, and asked him to explain the
difference, where the money had come from, he replied that he could not
offer any explanation as to where it had come from.
In
addition to the large currency expenditures by appellant, amounting to
$283,455, the record also showed that appellant used two bank accounts
in the name of an agent, none of the transactions of which was entered
in his own books and records. The total of deposits in these two
accounts amounted to $91,971 for the year 1943, none of which was
reflected in appellant's books. In addition, appellant also had an
account in his own name in one bank, not shown in his books, and
deposits in this account aggregated $85,499. Loyd testified that he
questioned appellant about this latter account, and appellant denied
having any such account. The Government construed this as evidence of
appellant's concealment of his resources and transactions. The evidence
showed a total of $151,909 expenditures of which there was no record
whatever in appellant's books and records. As a further part of this
pattern of concealment, the evidence showed that appellant had on record
two mortgages aggregating $37,500 on properties owned by him which were
in fact dummy mortgages, representing no indebtedness on the part of
appellant. The evidence also showed that on several occasions he had his
agent purchase cashier's checks for him from several different banks,
aggregating $35,000, paying cash furnished by himself therefor.
To
establish the fact of a possible source of the income indicated by
appellant's huge expenditures, the Government introduced the evidence of
seven meat peddlers all of whom testified that during the year 1943,
they paid overceiling prices for meat purchased from the Empire Packing
Company, paying the excess in currency either to Chapman direct, or to
one of two salesmen both of whom testified that they received payments
for the excess which they turned over to appellant who directed them not
to keep any record of such payments. In each case, payment was made to
Empire for the regulation price. Only one of the peddler witnesses
testified as to exact amounts, and he stated that his overpayments
started in April, 1943, and continued through December of that year,
amounting to six or seven thousand dollars in all, paid to the two
salesmen who testified that they collected overceiling prices for
appellant. This evidence was not introduced to prove the amount of
appellant's receipts from illegal sources,--in fact the Government made
no attempt to prove the total of such receipts. It was only to establish
the possible source of the funds used for the expenditures which so
substantially exceeded appellant's declared available resources.
[Large
Personal Expenditures]
Appellant
contended that his admittedly large currency expenditures were made from
accumulations of currency over a period of years, kept by him in safety
deposit boxes. To establish this defense he introduced a witness,
Hirsch, who testified that early in 1943 he accompanied appellant to a
bank where the latter had a safety deposit box, and while there had
occasion to observe the contents of his deposit box. He said that he saw
a large amount of cash wrapped in bundles. His testimony regarding this
was as follows:
"I
said, 'Sam,'--I was rather shocked and I had mentioned this to him
before; I said, 'You know the bank across the street burned down, and it
seems you have at least $200,000, maybe $210,000 in cash, in here, get
rid of it, do not keep it in one place, am I not right in the amount?'
"He
said, 'I believe it is about $225,000. I recently counted it.'
*
* *
"I
said, 'Sam, you should do something; I have talked to you about this
before and after today I am just going to keep my mouth shut.'
"So
he said, 'I will take out $50,000,' and he proceeded to count it out and
put it in his pocket."
Appellant
also introduced the evidence of an accountant, Kulbarsh, who testified
that from his examination of appellant's records, the testimony of
witnesses, and the tax return for the year 1943, he determined that
appellant had cash available for the year 1943 in the amount of
$460,020. He also testified that from his examination of data for the
years 1913 to 1942, obtained from appellant's income tax returns and
information furnished by the Bureau of Internal Revenue, he ascertained
that, after payment of federal income taxes, appellant retained cash in
the amount of $368,186, through the years from 1913 to 1942. This total
apparently represented the difference between appellant's income and the
tax paid thereon for those years, as indicated by his tax returns or
data based thereon. However, on cross examination, after deducting
amounts expended for certain capital transactions, real estate
purchases, and estimated personal living expenses for the period from
1913 to 1942, Kulbarsh estimated the available cash to be only $12,156.
And eliminating the $225,000 item from the net worth estimate as of
January 1, 19
43, he computed the total net worth as $186,268, which was $230,518 less
than his estimate of appellant's net worth as of
December 31, 19
43. In reply to an inquiry of Government counsel, he stated that,
assuming that the excess of net worth on
December 31, 19
43, over that of
January 1, 19
43, was taxable income for 1943, there would be a tax due in excess of
the amount indicated on appellant's tax return for that year.
[Use
of Affidavits]
To
refute the evidence of the meat peddlers who testified that they had
paid overceiling prices for their meat either to appellant or his
agents, appellant introduced in evidence the affidavits of five of them
to the effect that they had paid only the amounts invoiced by Empire,
and had never paid Empire, appellant or any other employees any
additional sums of money, gratuities, or other consideration for the
meat purchased by them from Empire. The secretary of the Empire Company
testified that he was a notary public; that he knew each of the affiants
personally and had acknowledged the signature of each and that each had
signed in his presence. He stated that he had acknowledged about sixty
of the affidavits, and that he distinctly remembered in each instance
that he had told the affiant to read the instrument, sign it, and swear
to it. However, three of the peddlers who testified to the overceiling
prices stated that there had been no notary public present when they
signed; two of these said they had never read the affidavits before.
Appellant
contends that inasmuch as the Government did not have evidence of his
receipt of income from black market sales of meat in excess of the
$71,000 miscellaneous income reported by him, it was highly prejudicial
for it to introduce the evidence. The Government made no attempt to show
the exact amounts of unreported income on which it charged the evasion
of tax. Nor was it necessary that it should do so. United States v.
Johnson, 319
U. S.
503 [43-1 USTC ¶9470]. This case was based on the unexplained and
unreported increase in appellant's net worth during the year 1943 as
indicated by vast expenditures far in excess of his declared available
resources, in conjunction with proofs of a possible source of income as
indicated by the evidence of the group of dealers who testified to
paying him sums of money based on amounts of meat purchased by them from
the corporation of which he was the president and principal stockholder.
Government witness Loyd testified that appellant, who did not take the
stand, told him that the $71,000 "miscellaneous income"
reported on his 1943 return as well as the money with which he made his
large currency expenditures, was derived from "commissions,"
which he explained as "tips" paid to him for telling people
where they could buy meat. This was all substantial evidence to go to
the jury on the question of a source of the income on which he was
accused of evading the tax. Appellant was not entitled to have the
evidence suppressed on the ground that it was derived from an illegal
source. Cf. Spies v. United States, 317
U. S.
492 [43-1 USTC ¶9243].
[Establishment
of Net Worth]
Appellant
contends that, "In a 'net worth case,' the starting point must be
based upon a solid foundation and a Revenue Agent's statement of the
defendant's oral admission or confession when uncorroborated is not
sufficient to convict." We fully agree with this statement of the
law. However, we find no deviation from it in this case. The actual
starting point here was the net worth as established by appellant's
books and records. From these Loyd drew up a statement of appellant's
assets and liabilities as of January 1, and
December 31, 19
42. According to his testimony, he showed these to appellant on at least
two occasions and asked him if he had any other assets or liabilities,
and appellant replied that those were all he had, and, upon specific
inquiry as to whether he had any currency, cash on hand, besides an item
of $2,375 entered on his books, he replied that the records were
substantially correct as to that, and he had no other cash with the
exception of a little money in his pocket. We cannot agree with
appellant's designation of this as an "uncorroborated
admission." In the first place, we think the Government was
entitled to expect that books furnished for examination into a
taxpayer's fiscal affairs would be correct, and a verification of their
accuracy can scarcely be called an "uncorroborated admission."
We
find further corroboration of the Government's estimate of appellant's
net worth for the years in question in the evidence of appellant's own
accountant, Kulbarsh. He testified that he examined data derived from
appellant's tax records from 1913 to 1942. He found that during that
twenty-nine year period, appellant had income over and above federal
income taxes amounting to $368,186, or, as we compute it, an average of
twelve or thirteen thousand dollars a year. He stated that there might
have been additional income from nontaxable sources during that time,
increasing the amount of appellant's income, and that he had ascertained
that information from conversations with appellant. However, apart from
this purely speculative, unsubstantiated statement, there was no
evidence whatever that there actually was any such additional income.
Hence we think that the testimony of Kulbarsh may be considered as
additional evidence that appellant had no such resources as would
account for the accumulation of the vast amount of currency which Hirsch
testified he saw, and appellant told him amounted to $225,000. Under
these circumstances we find the cases relied upon by appellant in
support of his contention as to the "uncorroborated admission"
inapplicable. 1 We hold that
there was ample evidence apart from appellant's extrajudicial admissions
to furnish the starting point for establishing his net worth. See Warzower
v.
United States
, 312
U. S.
342.
[Embezzlement
Inapplicable]
Appellant
further contends that, assuming that there was evidence of black market
operations sufficient to sustain a charge of unreported income, such
income must be attributed to the corporation which sold the meat, and
not to himself. He relies upon the case, Commissioner v. Wilcox,
327
U. S.
404 [46-1 USTC ¶9188], involving the question whether embezzled money
constitutes taxable income to the embezzler. There, a bookkeeper who
retained moneys paid for services rendered by the corporation by whom he
was employed, was convicted of embezzlement, and the Court held that he
was not liable for income taxes on those embezzled funds. Here, there
was no question but that the corporation received full payment for all
meats sold by it, and the additional income to appellant resulted from
the collection of what was in effect a premium for such sales by the
corporation which he controlled as president and principal stockholder.
We need not decide whether the corporation was entitled to recover those
additional payments. However, even if it were shown that appellant
collected as agent for the corporation, it would not necessarily follow
that there would be no liability on his part for attempted evasion of
the taxes due on such collections. See
United States
v. Currier Lumber Co., 70 Fed. Supp. 219 [47-1 USTC ¶9172].
Hence we find the Wilcox case no authority for holding appellant
not liable for the tax evasion here charged.
We
think there is ample evidence of record to sustain the Government's
contention that appellant during the year 1943 made expenditures greatly
in excess of his declared available resources, and that he had available
for that year sources of income with which to make such expenditures,
even though appellant disputed that evidence and introduced his own
evidence to explain the facts otherwise. His mode of carrying on his
business operations, obviously calculated to conceal their magnitude and
prevent investigation thereof, amply justifies as inference of willful
attempt to evade payment of tax in violation of section 145(b) as
charged. Spies v.
United States
, 317
U. S.
492 [43-1 USTC ¶9243]; Gleckman v. United States, 80 Fed. (2d)
394 [35-2 USTC ¶9645]; Chadick v. United States, 77 Fed. (2d)
961 [35-2 USTC ¶9416].
JUDGMENT
AFFIRMED.
MINTON,
Circuit Judge, concurs in the result.
1
Naftzger v.
United States
, 200 Fed. 494; Gulotta v.
United States
, 113 Fed. (2d) 683; Pines v.
United States
, 123 Fed. (2d) 604; Tabor v.
United States
, 152 Fed. (2d) 254; Yost v.
United States
, 157 Fed. (2d) 147.
[55-1
USTC ¶9507]Jacob Strauch, Appellant v. United States of America,
Appellee Alex Strauch, Appellant v. United States of America, Appellee
Harry Benjamin Sher, Appellant v. United States of America, Appellee
(CA-6),
In the United States Court of Appeals for the Sixth Circuit, Nos. 11992,
11993, 11994, 223 F2d 377,
June 13, 19
55
On remand from the Supreme Court of the United States.
[1939 Code Sec. 145(b)--similar to 1954 Code Sec. 7201]
Tax evasion: Criminal prosecution: Net worth method of proof:
Reconsideration in light of Supreme Court cases: Reaffirmance.--The
conviction for criminal evasion of income taxes having been remanded for
reconsideration in the light of Supreme Court decisions on the issue of
reconstruction of income under the net worth increase method, the
District Court's judgment was again affirmed. The conviction in the
instant case was also supported independently by other evidence.
Bernard
J. Long, Washington, D. C. (John J. Hooker,
Nashville
,
Tenn.
, was with him on brief), for appellants. Marvin E. Frankel (H. Brian
Holland, Ellis N. Slack, John H. Mitchell, Marvin E. Frankel, Special
Assistant to the Attorney General, Richard B. Buhrman, Washington, D.
C., Fred Elledge, Jr., United States Attorney, Nashville, Tenn., on
brief) for appellee.
Before
SIMONS, Chief Judge; ALLEN and MCALLISTER, Circuit Judges.
ALLEN,
Circuit Judge:
The
judgments in these consolidated cases, Strauch v. United States,
213 Fed. (2d) 805 [54-1 USTC ¶9416] [54-2 USTC ¶9452], were vacated by
the Supreme Court of the United States in its order of
January 10, 19
55 [55-1 USTC ¶9139], and remanded to this court for re-examination in
light of the opinions of the United States Supreme Court in Holland
v. United States, 348 U. S. 121 [54-2 USTC ¶9714]; Friedberg v.
United States, 348 U. S. 142 [54-2 USTC ¶9713]; Smith v. United
States, 348 U. S. 147 [54-2 USTC ¶9715], and United States v.
Calderon, 348 U. S. 160 [54-2 USTC ¶9712].
Examination
has been made of the record and contentions of counsel in light of the
above decisions and in each case the court adheres to its original
conclusion. While testimony was introduced under the net worth method
against Jacob Strauch and under the bank deposit method as to all three
defendants, 1 in each case
ample independent evidence was presented sustaining the convictions.
[The
Facts]
Jacob
Strauch was charged with evasion of income taxes in an indictment which
contained three counts covering the taxable years 1944, 1945, and 1946.
The jury found him guilty under all three counts and the separate
sentences under each count were ordered to run concurrently. Alex
Strauch and Harry Sher were each charged in an indictment containing two
counts covering the taxable years of 1944 and 1945. Each defendant was
found guilty under both counts and the separate sentences imposed under
each count were ordered to run concurrently. If the conviction under any
one count is valid as to each defendant, the sentence must be sustained.
During
all the period involved Jacob Strauch conducted a wholesale jewelry
business of his own and also was a member of the partnership of Strauch
& Sher, the other two members being Alex Strauch and Harry Sher.
Strauch and Sher conducted a wholesale jewelry business from 1943 to
1946. The government presented evidence to the effect that the
partnership made profits of over $100,000 during this period and all
three partners in a written statement executed
December 12, 19
49, declared that the taxable income of the partnership during this
period was over $90,000. During the entire period of the partnership it
filed no return of partnership income. Jacob Strauch filed no return for
1944 showing income from the partnership, and filed no return whatever
for 1945.
As
to Count 1 in the indictment against Jacob Strauch, which covers the
calendar year of 1944, the government showed by direct evidence taken
from the partnership books that $19,859.80 was received by Jacob Strauch
from the partnership in 1944. The balance of unreported income for this
year, $2,674.02, was proved by the bank deposit method. For this year of
1944 Jacob Strauch reported income of $9,478.94.
[Evidence
Under Count II]
Count
II of the indictment against Jacob Strauch charges willful evasion of
income tax in 1946, by willful failure to file income tax return for
1945. Jacob Strauch's net taxable income for the year 1945 was shown to
be $49,018.91. Of this amount $14,008.93 was proved by direct evidence
taken from the books of the partnership and some $800.00 by proof of
Jacob Strauch's income from dividends and capital gains.
The
balance of $34,159.98 was proved by reconstructing Jacob Strauch's gross
income from his sole business on the bank deposit method allowing
deductions for cost of goods sold and expenses as shown by Jacob
Strauch's records, cancelled checks, and other evidence.
As
to Count II of the indictment Jacob Strauch contends that since he filed
no income tax return for 1945 he merely omitted an act required under
the statute, namely, the filing of a return, and cannot rightly be found
guilty of fraudulent evasion of income tax. However, ample evidence of
affirmative, fraudulent acts was presented justifying the verdict as to
Count II. Jacob Strauch made false statements to agents investigating
the case, declaring that there were no books or records of the
partnership, that these records were periodically destroyed. They were,
however, in existence and formed the basis of the reconstruction of the
partnership net income for the years involved of from $90,000 to
$100,000. Jacob Strauch kept no books in his individual business,
handling most of his transactions in cash. He was a partner in a firm
which filed no return. He filed a declaration of estimated tax for 1945
in the amount of $1,214.97, although the correct liability was about
$25,000.
[Evidence
Under Count III]
As
to the evidence under Count III the computation of Strauch's unreported
income for 1946 was made up from an analysis of his bank deposits. He
reported $16,922.27. The additional amount estimated was $18,078.09.
Jacob Strauch told the investigator that the origin of his bank deposits
was "receipts from the sale of jewelry" in the form of checks
and cash going directly into the bank account or first put in his safe
and then deposited in the bank. He stated that no money constituted
non-business receipts such as gifts, insurance proceeds, or prior
accumulations of money went into the bank account. The deposits during
1946 were made at regular intervals, never less than 5 and never more
than 11 in one month. The government agent carefully eliminated from the
estimate the proceeds of loans, of capital transactions, deposits
representing income from interest and dividends, and amounts drawn from
the partnership. Between 1939 and 1949 Jacob Strauch made loans at his
bank totalling $8,000. In 1940 he filed a financial statement with the
bank, listing a total net worth of $29,039. In 1942 he reported net
income of $4,420.38 and in 1943 $5,218.36, yet in 1944 and 1945 his bank
deposits were about $106,000 in excess of reported gross income. These
circumstances constituted substantial independent evidence sustaining
the government's estimate based upon bank deposits.
On
November 7, 19
46, Jacob Strauch made a sworn statement that his net worth for the
taxable year ended
November 1, 19
46, was $113,043.99. The pattern of Strauch's accounts and his course of
conduct during the period involved entitled the jury to take into
consideration his admission as to net worth in connection with other
evidence as to amounts of unreported income presented by the government.
These circumstances corroborate the admissions of Jacob Strauch and his
statements that his bank deposits reflected income. United States v.
Calderon, supra, 168; Smith v.
United States
, supra, 158, 159.
[Taxpayers'
Admissions]
The
convictions of Alex Strauch and Harry Sher each involved charges of
evasion of income tax with reference to the years 1944 and 1945, for
which years no partnership return was ever made. The written statement
heretofore referred to made by the partners
December 12, 19
49, listed in detail the total receipts of partnership income for the
taxable years together with the total expenses and costs of sales. This
statement with its calculation of over $90,000 profit for the years 1943
to 1946 was corroborated in every essential by the books of the
partnership. By defendants' written admission about 90% of the profits
of the enterprise was realized in 1944 and 1945. The books which were
made up ante litem motam fully corroborated the admissions. Warszower
v.
United States
, 312
U. S.
342.
The
government agent testified that "some five" sets of books,
single entry journals, which listed sales and expenditures of the
partnership were used in calculating the net earnings of the partnership
during the taxable years. No books recording capital accounts or
distribution of profits were found. For 1945 there was a book marked
"Diamond Book," and another book which covered watches, watch
bands, etc. The book of expenditures covered both overhead and
purchases. The records of purchases were given up to
August 19, 19
46, and the records of sales were kept until
November 7, 19
45. It was admitted that these books showed gross profits on each
transaction except in occasional cases where no profit was made. Sher
stated to the investigator that there was an oral agreement that the
profits should be divided equally. He kept the books and both he and an
expert accountant witness for defense testified to the effect that the
books were accurate.
The
unreported income of the three partners was estimated from the books as
follows:
Partner 1944 1945
Jacob Strauch .... $19,859.80 $14,008.93
Alex Strauch ..... 19,859.80 14,008.92
Harry Sher ....... 17,033.10 11,390.30
The government arrived at its estimate of income from the partnership by
totalling the entries for gross profits and subtracting all the
allowable business expenses, for 1944 and 1945, the profit for these
years being found to be $59,579.39 and $42,026.77, respectively. The
estimate of the government was relatively close to the statement signed
by the partners, which figured income for 1944 at $63,958.97, and for
1945 at $26,398.22. Jacob Strauch and Alex Strauch admitted that they
had reported none of this partnership income and Sher reported only
$2,326.69 in 1944 and $2,115.62 in 1945. That the partners actually
received substantial amounts from the partnership was shown by three
checks drawn
January 9, 19
45, to "cash" cashed by the three partners individually, and
totalling $30,000.
[Use of Inventories]
The
contention that the evidence of unreported partnership income was not
admissible because the government used defendants' accounting system
instead of making inventories has no merit. Section 22(c) of the
Internal Revenue Code of 1939, 26 U. S. C., Section 22(c), provides
that, whenever in the opinion of the Commissioner the use of inventories
is necessary in order clearly to determine the income of any taxpayer,
inventories shall be taken by such taxpayer upon such basis as the
Commissioner, with the approval of the Secretary, may prescribe as
conforming as nearly as may be to the best accounting practice in the
trade or business and as most clearly reflecting the income. Regulation
111, Section 29.22(c)-1 of the applicable regulations issued by the
Commissioner states that, in order to reflect the net income correctly,
inventories at the beginning and end of each taxable year are necessary
in every case in which the production, purchase, or sale of merchandise
is an income-producing factor.
Under
this statute and regulation the Commissioner had a discretionary
authority to require the taxpayer to take inventories. We are cited to
no section of the statute nor to any regulation requiring the
Commissioner to take an inventory and, as a practical matter, only the
taxpayer can take an inventory. Here the taxpayer took no inventories.
Defendants in effect contend that, because defendants failed in their
duty to keep proper records, merely recording gross sales and expenses,
the government cannot prove fraudulent evasion of income tax from
defendants' own books and accounts. The purpose of inventories, as
stated in Lucas v. Kansas City Structural Steel Co., 281 U. S.
261 [264] [2 USTC ¶520], 268, "is to assign to each period its
profits and losses." In this case Justice Brandeis observed that
whether in a particular business inventories are necessary for the
determination of income is a question left by the statute to the
judgment of the Commissioner. The Lucas case held that the
taxpayer should have taken inventories. But here the books disclosed the
gross profits on each sale which had a profit and disclosed instances
where there was no profit. They also disclosed the complete expense of
operation and thus assigned to each year its profits and losses. Under
26 U. S. C., Section 41, the method of accounting regularly employed in
keeping the books of the taxpayer is to be the basis of the computation
of the net income. This section was complied with in the computations
herein.
We
are cited to no decision in which a judgment for evasion of income tax
was reversed because the taxpayer failed to file inventories, and the
government in establishing income which was shown to have been received
in substantial amounts employed taxpayers' own books, which correctly
showed gross profits, made proper deductions for all expenses and
revealed substantial unreported income.
We
deem it unnecessary to discuss other questions previously raised before
this court, given extensive consideration on application for rehearing,
and not covered by the doctrine of the
Holland
, Friedberg, Smith, and Calderon cases.
[Conclusion]
The
trial judge charged the jury at considerable length upon issues
presented. Defendants' two special requests were allowed and, on being
given the opportunity to make further requests at the conclusion of the
charge, able counsel failed to take advantage of the opportunity. In
view of the uncontradicted evidence of the books and other direct
evidence supporting the verdict, we conclude that no prejudice resulted
from the charge and that no reversible error is shown. We adhere to our
conclusion originally announced that the verdicts of the jury are
sustained by overwhelming evidence. The government proved by testimony
independent of the statements used in evidence a consistent pattern of
underreporting large amounts of income and of defendants' failure to
include all of their income in their books and records. Holland v.
United States, supra, 139. Independent evidence was shown of the
likely source of unreported taxable income. Holland v. United States,
supra, 138. The independent evidence fortified the truth of the
admissions made. The tax returns and the failure to make returns
corroborated the admissions. Smith v. United States, supra. The
general history of defendants during the taxable years provided
sufficient independent evidence of the crime of tax evasion to
corroborate their written statements. United States v. Calderon,
supra.
The
judgments of the District Court are affirmed.
1
In order to avoid confusion the defendants will be denominated by their
individual names.
[54-2
USTC ¶9452]Jacob Strauch, Appellant v. United States, Appellee Alex
Strauch Appellant v. United States of America, Appellee Harry Benjamin
Sher, Appellant v. United States of America, Appellee
(CA-6),
In the United States Court of Appeals for the Sixth Circuit, Nos. 11992,
11993, 11994, 213 F2d 805,
June 17, 19
54
Criminal prosecution: Instructions to the jury.--In the criminal
trial of taxpayers for willful evasion of taxes, the trial judge charged
the jury with respect to penalties and instructed the jury that if the
taxpayers were acquitted the government could not appeal. The majority
of the Circuit Court found that the trial judge's instructions could not
be construed as asking the jury to convict, in view of the overwhelming
evidence of the taxpayers' guilt. Therefore the petition for a rehearing
was denied. One dissenting opinion.
John
J. Hooker, Nashville, Tenn. (Morris L. Strauch, Memphis, Tenn., William
S. Miller, Jr., Little Rock, Ark., were with him on brief), for
appellants. James L.
Rob
erts,
Nashville
,
Tenn.
(Fred Elledge, Jr., James M. Swiggart,
Nashville
,
Tenn.
, were on brief), for appellee.
Before
ALLEN, Circuit Judge, and STARR and GOURLEY, District Judges.
Memorandum
on Petition for Rehearing
ALLEN,
Circuit Judge:
This
case is before the court upon petition for rehearing. Appellants urge
(1) that the court erred in not holding the Ecklund case, 159
Fed. (2d) 81 (C. A. 6) controlling, and (2) that the judgment should be
reversed because of prejudicial error in the charge of the trial court.
The question whether the statement of income filed voluntarily by the
three appellants constituted an offer of compromise was fully considered
in connection with the hearing and we adhere to our conclusion that Ecklund
v.
United States
, supra, does not govern this controversy. Under this record the
statement filed was not an offer of compromise and was admissible.
The
question whether the District Court erred in charging upon the subject
of the penalty provided under §145(b) of Title 26 U. S. C. for willful
attempt to evade or defeat income taxes was not considered in the trial
but was raised at the hearing by one of the members of this court. This
portion of the charge was included in the general charge, was not
excepted to by able counsel nor attacked by them either in brief or
argument upon the hearing in this court. The majority of the court
thinks that the charge, the pertinent portion of which is given in the
margin, 1 was not
prejudicial. We think the statement by the court, "If your verdict
is not guilty then that is the end of the case. The Government can't
appeal from that verdict by the jury," was favorable to appellants
and under the facts of this case it could not have induced a conviction.
The three indictments set forth alleged income tax evasion for the
taxable years, two of the appellants being charged with falsifying the
income from a partnership of which all three appellants were members,
and the third appellant being charged with failure to declare income
from the partnership and also from an individual business which he
owned. After the investigation of possible tax evasion began the three
appellants voluntarily executed a statement setting forth material
variations from the taxes reported by them in the taxable years and
concerning these variations made the following statement:
"This
statement executed by Harry B. Sher, Alex Strauch and Jacob Strauch this
12th day of December, 1949:
"Having
re-examined, at the request of my counsel and auditors, the books and
records of Strauch & Sher, a partnership, and having, pursuant to
request, re-examined supporting memoranda with reference to sales and
expenditures of the said partnership,
"It
is the opinion and belief of the undersigned that a corrected statement
of income of the said partnership is properly reflected in the exhibit
hereto attached, entitled 'Restatement of Partnership Income,' and that
taxable income of the undersigned should be appropriately computed as a
result of the said restatement:
"Further,
that the variations resulting from the totals reflecting in the said
restatement from the income as reported by the individuals, or as set
forth in explanatory comments heretofore submitted are attributable to
error in maintenance of records and the classification of items of
income and expense and are not attributable to intent on the part of the
undersigned to defraud the government, or willfully, to evade the
payment of any income taxes as and when due.
"This
statement has been prepared at our request in conformance with
information furnished by ourselves.
"/s/
HARRY B. SHER,
/s/ ALEX STRAUCH,
/s/ JACOB STRAUCH."
It
was shown by this statement and the records of the partnership that all
three appellants in the years 1944 to 1946, inclusive, received income
on which they failed to pay a tax. The bank deposits of Jacob Strauch
showed that he had received income in 1944, 1945 and 1946 from an
individual jewelry business on which he did not pay a tax. The evidence
upon these points was overwhelming. In the face of this evidence, much
of it taken from appellants' own books of account, the jury found
appellants guilty. We see nothing in the court's statement which can be
construed as asking the jury to convict, and in addition we cannot
conceive that under this record this portion of the court's instructions
could have influenced the jury as to conviction. The lack of exception
by experienced counsel and the total failure to argue at the hearing in
this court the point now stressed strongly indicates that the error of
the trial court, which is not to be commended, was not prejudicial. None
of the cases relied upon are in point. In Lovely v.
United States
, 169 Fed. (2d) 386 (C.
