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B. Failure To Investigate Leads Provided By The Taxpayer. Chu next argues that the government failed to investigate or follow up leads provided by the defendants which might have led to non-taxable sources of income, and this failure of the government to investigate the leads renders the government's case insufficient to go to the jury under the decisions of Holland, supra, Scott, supra, and United States v. Keller [75-2 USTC ¶9729 ], 523 F.2d 1009 (9th Cir. 1975). Chu focuses on the government's failure to investigate suggestions that members of the defendants' extended family, including relatives residing in mainland China , allegedly loaned and entrusted the defendants with significant sums of money to "buy a house and create a safe sanctuary for members of the extended family." The government contends that the trial court properly instructed the jury that "they have to find from the evidence that the government had met its burden of investigating any lead or explanation supplied by the taxpayer and that Holland only requires the government to investigate leads 'reasonably susceptible of being checked.' " The government contends that it investigated every lead reasonably susceptible of being checked brought to its attention. Further, the government notes that during the trial it revised the defendants' opening net worth figures upward to take into account nontaxable sources of income supplied by the taxpayers.

In Holland , the United States Supreme Court stated that "When the government fails to show an investigation into the validity of such leads, the trial judge may consider them as true and the government's case insufficient to go to the jury." 348 U.S. at 136. But the Holland court also stated that the government need not investigate all leads. The court in Holland limited the scope of the government's required investigation to "relevant leads furnished by the taxpayer--leads reasonably susceptible of being checked, which, if true, would establish the taxpayer's innocence." Id. at 135-36. Thus, the issue is not whether the government fully investigated each and every lead furnished by the defendants, but whether the government failed to investigate any "relevant leads . . . reasonably susceptible of being checked." Agent William Schroer testified that the government investigated all leads concerning certain bank accounts and other records of the defendants and where appropriate, increased its net worth calculation in favor of the defendants. Our attention, then, focuses on whether the government adequately investigated the proffered leads suggesting that additional non-taxable income may have been realized from certain loan transactions within the defendants' extended family.

In 1982, the defendants provided the government with letters written in Chinese dated in 1979, 1980 and 1981, allegedly from family members in China , and allegedly discussing loans given to the defendants in previous years. Agent Hinkle testified that he had the letters translated, requesting the originals of the letters to have a lab verify their authenticity and also requested supporting documentation for the purported loans. The defendants have failed to provide either the original letters much less any supporting documentation for the purported loans. In United States v. Goldstein, 685 F.2d 179 (7th Cir. 1982), the defendant in a net worth tax prosecution argued that his increase in net worth was attributable to a non-taxable cash inheritance that he received. In holding that the evidence was sufficient to support the jury's guilty verdict, this court stated, "There was not a probated will or other record of any inheritance, and the testimony of the inheritance came from [the defendant's] relatives. The jury was under no duty to accord face value to this self-serving, undocumented testimony." Id. at 182. Similarly in the present case, there is no documentation or record of any loans to the defendants other than the copies of alleged letters from the defendants' relatives, and the jury was under no duty to accord face value to the defendants' self-serving claim of having received loans from family members.

Furthermore, Agent Schroer testified that if the alleged family loans that Chu contends were received before January 1, 1977 (the first tax year under examination) were invested prior to January 1, 1977 and were reflected as assets in the defendants' opening net worth statement, the existence of the loans would have no bearing on the defendants' net worth computation. According to Schroer, the existence of the family loans would benefit the defendants' net worth computation only if the alleged loans were held as cash on January 1, 1977 and were converted into assets during 1977 and 1978. Since, as noted above, the record discloses that the defendants engaged in a pattern of investing available funds and the record is silent of any evidence of any significant cash on hand on December 31, 1976 not included in the government's calculation of the defendants' opening net worth, the jury had ample evidence to conclude that if the defendants in fact received loans from various family members, the funds were invested prior to January 1, 1977 and thus had no bearing on the defendants' net worth during 1977 and 1978.

The diligence of the government in investigating all of the leads which were reasonably verifiable, the lack of the defendants' cooperation in failing to provide originals of letters, the defendants' failure to provide any loan documentation combined with Agent Schroer's testimony that the defendants' net worth would not be affected by any loans invested prior to January 1, 1977 provides sufficient evidence from which a reasonable person would conclude that the government investigated "all leads reasonably susceptible of being checked, which if true, would establish the taxpayer's innocence." Chu's argument that the IRS should follow leads to mainland China is as ridiculous as suggesting that the IRS must follow like leads into the Soviet Union, Poland, Afghanistan, Iran, Iraq, Africa, or other similar, troubled, and/or distant countries. A lead that requires world-wide investigation to be verified can hardly be characterized as "reasonably susceptible of being checked."

C. Likely Source of Unreported Income. Chu contends that the government not only failed to establish a reasonably certain opening net worth and failed to negate all possible sources of non-taxable income, but also failed to provide a likely source for additional unreported income. Chu believes the government failed in this regard because: (1) the government offered no evidence of the number of Phendimetrazine ⁴ actually dispensed rather than stolen, not included in records, or discarded due to damage; (2) the government offered no evidence showing the percentage of Phendimetrazine dispensed for money as opposed to dispensed without charge; and (3) even if each of the 700,000 allegedly missing Phendimetrazine had been dispensed at $.07 a piece, the total income of $49,000 was more than accounted for in the earnings reported by the Southeastern Medical Center for the two years in question.

In net worth tax prosecution, the government must establish "[e]ither a 'likely source' of the illegally unreported income represented by the calculated increase in net worth plus non-deductible expenditures in the year in question . . . or all possible sources of non-taxable income must be negated." United States v. Grasso [80-2 USTC ¶9593 ], 629 F.2d 805, 808 (2nd Cir. 1980). See also United States v. Massei [58-1 USTC ¶9326 ], 355 U.S. 595, 595 (1958). "The government could win its case without even introducing evidence of a likely source of income. . . . Proving a likely source of income is merely one of the ways that the Government can prove that the increased net worth resulted from taxable sources." United States v. Goldstein [82-2 USTC ¶9507 ], 685 F.2d 179, 183 (7th Cir. 1982). Thus, contrary to Chu 's contention, the government need not both prove a likely source and negate all possible sources of non-taxable income. In the present case, the government presented evidence from which a reasonable jury could find that the government had established "a reasonably certain" opening net worth and that the government investigated all "relevant leads . . . reasonably susceptible of being checked," thus negating possible sources of non-taxable income.

In addition to negating sources of non-taxable income, DEA Compliance Inspector Joel Fries testified that his review of the defendants' dispensing records of controlled substances, their account book and their purchases of Phendimetrazine revealed a total of over 698,000 Phendimetrazine units unaccounted for during the years 1977 and 1978, and the defense introduced testimony that the Phendimetrazine tablets were generally dispensed at a cost of $.07 per unit. Thus, the record contained sufficient evidence to allow a reasonable juror to conclude that unrecorded sales of the Phendimetrazine constituted a likely source of unreported taxable income. Chu relies on United States v. Grasso, supra, and United States v. Bethea, 537 F.2d 1187 (4th Cir. 1976), both of which are clearly distinguishable from the present case. In Grasso, the government investigation yielded "no factual basis for identifying a 'likely source' ", 629 F.2d at 808, and in Bethea "not one shred of evidence was introduced at trial to show [the defendant] had any dealings in narcotics or was in partnership with his brother [who dealt in narcotics]." 537 F.2d at 1191. In contrast, the jury in the instant case had sufficient evidence before it to conclude that the government negated all possible sources of non-taxable income and also established that unrecorded sales of the unaccounted-for Phendimetrazine provided a likely source of unreported taxable income.

III.

We turn now to Chu's contention that the trial court erred in admitting the statements made by the defendants to IRS agents into evidence as the agents contacted and interviewed the defendants without the presence of their counsel in violation of Massiah v. United States, 377 U.S. 201 (1964), requiring that indicted individuals be questioned concerning the charges pending in the indictment only in the presence of counsel, and because the defendants did not waive their constitutional rights intelligently, knowingly, and voluntarily. The government argues that the defendants had no right to counsel under Massiah since the indictment charging a violation of the controlled substance statutes had been dismissed before the IRS ever contacted the defendants, and the defendants obviously had not been indicted before the investigation for the income tax evasion was completed. Further, the government contends that the defendants did, in fact, waive any constitutional rights that they retained when they were interviewed by the IRS agents.

In Massiah, the Supreme Court held that an accused "was denied the basic protections of the [Sixth Amendment] [when the government introduced the defendant's own statement against him] which federal agents had deliberately elicited from him after he had been indicted and in the absence of his counsel." Id. at 206. Thus, if in fact Chu had been indicted on the income tax evasion charges at the time of his interview with IRS agents Hinkle or Schroer, any statements made by Chu without the presence of legal counsel would have been inadmissible against him on the tax evasion charges as Massiah prohibits the admission of statements against a defendant when "deliberately elicited from him after he had been indicted and in the absence of counsel." During the period Hinkle and/or Schroer interviewed Chu , the controlled substance indictment had been dismissed and was no longer pending, and he was a free man, not as yet having been indicted on the tax evasion charges. Consequently, Chu 's counsel in a novel but not too clever way seeks to expand upon the protection Massiah affords one under indictment to cover statements made after the dismissal of that indictment. Neither Chu nor his counsel have provided any authority to support this position, but contend in another novel argument that the DEA investigation and the IRS investigation should be considered as one investigation since the DEA was the source of information concerning the defendants, and also argues that the dismissal of the DEA indictment did not terminate the defendants' Massiah rights.

We need not discuss whether the defendants' Massiah rights terminated with the dismissal of the DEA indictment as Chu 's argument fails because the subsequent indictment and conviction involved an entirely different offense--income tax invasion.

"Massiah offers no immunity from liability for uncounseled, and post-indictment statements that involve different criminal acts. Such statements, even though deliberately elicited by government agents after indictment and in the absence of counsel, may form the basis for a separate indictment and may be offered to prove such additional charges. . . . Massiah is limited to holding that incriminating statements made by indicted defendants out of the presence of counsel may not be admitted at trial to prove the charge in the pending indictment."

United States v. Grego, 724 F.2d 701, 703 (8th Cir. 1984) (emphasis added). In Grego, a conversation between two defendants in the absence of counsel was recorded after the defendants had been indicated by a federal grand jury in Georgia on a charge of importation of marijuana. The defendants were subsequently indicted by a federal grand jury in Arkansas for conspiracy to possess marijuana and the trial court admitted evidence of the conversation recorded after the return of Georgia indictment. The court concluded:

"Although both indictments involve marijuana, the acts on which they were based were separate and distinct and did not amount to a single criminal offense. . . .

When the tape of the conversation was made [the defendants] had not been indicted on any offense for which the tape was later used against them; therefore, we affirm the district court's refusal to apply Massiah to exclude the tape."

Grego, 724 F.2d at 703.

The court in United States v. Lisenby, 716 F.2d 1355 (11th Cir. 1983) (en banc) (per curiam), was presented with a similar fact situation and reached a similar conclusion. In Lisenby the defendant had been arrested and charged with possession of marijuana. The government recorded conversations involving the defendant after he had been released (while the possession charge was still pending) and subsequently indicted the defendant for conspiraccy and possession with intent to distribute marijuana. The trial court admitted the taped conversation into evidence at the trial for conspiracy and possession with intent to distribute marijuana. The Eleventh Circuit upheld the admission of the recorded conversation, reasoning that, "The Sixth Amendment right to counsel attaches once adversary proceedings have been commenced, but it attaches as to those adversary proceedings and not other offenses. . . . The admission of statements made after the initial arrest in the trial for a subsequently charged offense is not contrary to Massiah." 716 F.2d at 1359 (emphasis in original) (citation omitted).

The defendants in the case at bar were initially indicted on drug-related charges. Only after the drug-related charges were dismissed and the defendants were free of any criminal charges did the IRS elicit the statements from the defendants that were subsequently introduced at their income tax evasion trial. The income tax evasion charge was completely separate and distinct from the charge of improper record keeping and improper distribution of a controlled substance recited in the prior indictment. Following the reasoning of Grego and Lisenby, the defendants' statements are admissible since at the time the statements were made, the defendants "had not been indicted on any offense for which the [statements were] later used against them." Grego, 724 F.2d at 703. Furthermore, Chu 's argument for suppressing the statements to the IRS agents in this case is even weaker than that rejected by the Eighth and Eleventh Circuits in Grego and Lisenby respectively since at the time of the defendants' statement to the IRS agents in the instant case, no indictment was pending against them. Thus, we hold that the trial court properly admitted the statements the defendants made to IRS agents prior to their indictment for income tax evasion.

Chu also contends that he and Cheng did not waive their constitutional rights when they made statements to the IRS agents. Chu fails to delineate or explain what, if any, constitutional rights the defendants had not waived, much less which of their constitutional rights they did not understand. As we have just concluded, Massiah does not apply to the statements the defendants made to the IRS agents since, at the time of the defendants' statements, they had not as of that date been indicted for income tax evasion. Since the defendants were not in custody at the time of other statements to IRS agents, Miranda v. Arizona , 384 U.S. 436 (1966), does not require that the defendants be admonished of their rights before questioning. Beckwith v. United States [76-1 USTC ¶9352 ], 425 U.S. 341, 347 (1976); United States v. Mapp [77-2 USTC ¶9607 ], 561 F.2d 685, 688 (7th Cir. 1977); United States v. Fitzgerald [76-2 USTC ¶9756 ], 545 F.2d 578, 581 (7th Cir. 1976). Chu contends that because he and Cheng did not understand that the IRS was conducting a criminal investigation, they did not intelligently, knowingly, and voluntarily consent to make statements to the IRS.

The Supreme Court recognized in Beckwith that "noncustodial interrogation might possibly in some situations, by virtue of some special circumstances, be characterized as one where 'the behavior of . . . law enforcement officials was such as to overbear the petitioner's will to resist and bring about confessions not freely self-determined. . . .' " 425 U.S. at 347-48. In the case before us, Hinkle testified that before asking the defendants any questions, he read aloud to the defendants from an IRS warning card:

"[O]ne of my functions is to investigate the possibility of criminal violations of the Internal Revenue laws. . . . Under the Fifth Amendment to the Constitution of the United States I cannot compel you to answer any questions or to submit any information. . . . [A]nything which you say may be used against you in any criminal proceeding which may be undertaken, [and] you may, if you wish, seek the assitance of an attorney before responding."

Chu testified at the suppression hearing held before trial that he is a naturalized citizen of the United States, that he began to learn the English language in his grade school years in China, that he took post-graduate courses at New York University in English after his arrival in the United States, and that he had been practicing psychiatry in this country for more than 20 years. Chu also conceded it was of the utmost importance for him in the practice of medicine, and particularly psychiatry, to understand a patient in order that he might make a proper diagnosis. Further, it seems obvious that the State of Indiana would require that medical doctors be able to fully understand and converse in the English language before granting a license to practice medicine in Indiana . The record also reveals that the defendants were knowledgeable in the field of financial affairs, with sophisticated investments in stocks, real estate, and a medical partnership. Chu acknowledged that he understood the language Hinkle used when explaining the defendants' rights, and after Hinkle recited the standard IRS statement advising the defendants of their rights, the defendants both responded "Yes" to Hinkle's question whether they understood their rights. Before going further with the interview, the defendants discussed whether it was advisable for them to obtain an attorney at this juncture in the investigation. Thus, there is ample evidence in the record supporting the conclusion that the defendants clearly, knowingly and intelligently understood the elements of the warnings read to them by Hinkle, the nature of the investigation, the nature of their rights, and thus that no "special circumstances"existed which would make defendants' statements anything but voluntary. We hold it was not error for the trial court to admit the statements the defendants made to the IRS agents.

IV.

Finally, Chu contends that he was denied a fair trial due to the Assistant United States Attorney's imputation of uncharged, unsupported criminal misconduct on the part of the defendants in closing argument in spite of the government's pledge not to offer evidence of uncharged criminal activity. During its closing argument, the government stated:

"Well, you have heard about the results of that [DEA] audit. You heard that they purchased during that period of January 1, '77 through February 23 of '78, before any returns were filed, that they had purchased 830,000, thousand capsules of--831,000 capsules in Logansport , or wherever they lived. Why? I didn't know there were that many people in Logansport or the other town that were so overweight that needed that kind of weight reduction. You heard they were mild uppers. These speckled birds, these robins eggs, what happened to the 698,000 pills that are missing? You think they don't have a value? You think they don't produce money? You would use your common sense and you can use you experience in life, and you can ask that question."

According to Chu, this argument "addressed no material issue in this tax case, was without evidentiary support, and violated repeated prosecutorial pledges on which the defendant relied," and the denial of the defendant's motion for mistrial on the basis of this argument was reversible error under Berger v. United States, 295 U.S. 78 (1935), and United States v. Meeker [77-2 USTC ¶9604 ], 558 F.2d 387 (7th Cir. 1977).

"Although inflammatory argument may be grounds for reversal, the government should not be restricted to a sterile recitation of uncontroverted facts." United States v. Scott [81-2 USTC ¶9663 ], 660 F.2d 1145, 1177 (7th Cir. 1981) (citing United States v. Falk [79-2 USTC ¶9597 ], 605 F.2d 1005 (7th Cir. 1979), cert. denied, 445 U.S. 903 (1980)). Further we note that "we are to consider the prosecutor's conduct not in isolation, but in the context of the trial as a whole, to determine if such conduct was 'so inflammatory and prejudicial to the defendant . . . as to deprive him of a fair trial. . . .' " United States v. Chaimson, 760 F.2d 798, 807 (7th Cir. 1985) (quoting United States v. Zylstra, 713 F.2d 1332, 1339 (7th Cir.), cert. denied, 464 U.S. 965 (1983)); see also United States v. Young, 105 S.Ct. 1038, 1045 (1985); Jentges v. Milwaukee County Circuit Court, 733 F.2d 1238, 1242 (7th Cir. 1984). It is unquestioned that the prosecutor "may prosecute with earnestness and vigor--indeed, he should do so. But, while he may strike hard blows, he is not at liberty to strike foul ones." Berger v. United States, 295 U.S. 78, 88 (1935); see also United States v. Young, 105 S.Ct. at 1042; United States v. Chaimson, 760 F.2d at 809.

The prosecutor's statement concerning the missing Phendimetrazine clearly was material and proper to provide a possible source for additional taxable income as discussed in Section II.C. above. DEA Compliance Officer Joel Fries testified without objection that approximately 698,000 capsules of Phendimetrazine, known on the street as "speckled birds" or "robins eggs," were unaccounted for in the defendants' records, thus providing evidentiary support for the government's argument. Contrary to Chu 's contention, the quoted passage of the prosecutor's argument does not claim that the defendants engaged in any criminal misconduct other than the tax evasion charges they were convicted of. Rather, the prosecutor merely noted that nearly 700,000 Phendimetrazine tablets were unaccounted for and suggested that they had value and could produce income; the prosecutor never even inferred, much less stated that unrecorded sales of Phendimetrazine might be illegal. Viewed in the context of the trial as a whole, we conclude that the quoted passage of the prosecutor's argument was not "so inflammatory and prejudicial to the defendant . . . as to deprive him of a fair trial." Chaimson, 760 F.2d at 809. While the prosecutor may have struck a "hard blow," in the context of the trial it was not a "foul blow." Accordingly, we hold that the prosecutor's closing argument was proper, and the district court's denial of the defendants' motion for a mistrial was not error.

V.

The judgment of the district court is AFFIRMED.

^* The Honorable Floyd R. Gibson, Senior Circuit Judge of the United States Court of Appeals for the Eighth Circuit, is sitting by designation.

¹ The evidence introduced at trial revealed that Chu and Cheng evaded $11,141 in federal income tax for tax year 1977 and $29,933 for tax year 1978.

² After the filing of this appeal defendant Dr. Sylvia Cheng Chu, M.D., died, and the district court set aside and deemed abated defendant Cheng's convictions.

³ Rob in Zeldin analyzed the defendants' net worth for the tax years 1977 and 1978 based on the exhibits received into evidence and the testimony offered at trial. Zeldin prepared charts which summarized the evidence and his analysis of the defendants' financial affairs for 1977 and 1978.

⁴ Phendimetrazine is included on Schedule III of the federal government's list of controlled substances. 21 C.F.R. §1308.13 (1985).

 

 

[78-2 USTC ¶9628] United States of America , Plaintiff-Appellee v. Rob ert Meyer Boulet, Defendant-Appellant

(CA-5), U. S. Court of Appeals, 5th Circuit., No. 76-4442, 577 F2d 1165, 8/8/78 , Aff'g unreported District Court decision

[Code Sec. 7201--result unchanged by '76 Tax Reform Act]

Crimes: Tax evasion: Bank deposits method: Opening cash on hand.--A doctor was properly convicted of tax evasion through use of the bank deposits-cash expenditure method. Because the government established the amount of cash on hand at the start of the period with reasonable certainty and performed the duties incumbent on it in attempting to separate taxable income from other sources in the doctor's gross bankdeposits and cash expenditures, the question of guilt or innocence was properly submitted to the jury.

John P. Volz, United States Attorney, Mary Williams Cazalas, Assistant United States Attorney, Duro J. Duplechin, Jr., Assistant United States Attorney, John H. Musser, IV, Assistant United States Attorney, New Orleans, Louisiana 70130, for plaintiff-appellee.

Michael Fawer & Matthew H. Greenbaum, 1220 First NBC Building, New Orleans, Louisiana 70112, for defendant-appellant.

Before WISDOM, GOLDBERG and RUBIN, Circuit Judges.

ALVIN B. RUBIN, Circuit Judge:

The conviction in this criminal prosecution for willful evasion of income taxes ¹ was based entirely on the government's evidence that it had reconstructed the medical doctortaxpayer's income during the years in question by means of the bank deposits or cash expenditures method. Because the prosecution established the amount of cash on hand at the start of the period with reasonable certainty and performed the duties incumbent on it in attempting to separate taxable income from other sources in the doctor's gross bank deposits and cash expenditures, the question of guilt or innocence was correctly submitted to the jury by the trial court. Therefore, the judgment of conviction is affirmed. ²

[Background]

I. The defendant, a general practitioner of medicine, whose office was in LaRose , Louisiana , was charged with willful evasion of income taxes for the years 1969, 1970, 1971 and 1972. Dr. Boulet was on a calendar year basis. To prove its charges, the government relied upon one of the two traditional indirect methods of proof, analysis of the taxpayer's bank deposits and cash expenditures. Under this method, all deposits to the taxpayer's bank and similar accounts in a single year are added together to determine the gross deposits. An effort is made to identify amounts deposited that are non-taxable, such as gifts, transfers of money between accounts, repayment of loans and cash that the taxpayer had in his possession prior to that year that was deposited in a bank during that year. This process is called "purification." It results in a figure called net taxable bank deposits.

The government agent then adds the amount of expenditures made in cash, for example, in this case, cash the doctor received from fees, did not deposit, but gave to his wife to buy groceries. The total of this amount and net taxable bank deposits is deemed to equal gross income. This is in turn reduced by the applicable deductions and exemptions. The figure arrived at is considered to be "corrected taxable income." It is then compared with the taxable income reported by the taxpayer on his return. ³

In asking the jury to rely on this analysis, as a basis for deciding that the taxpayer willfully underestimated his true income, the government necessarily relies on circumstantial evidence. United States v. Marshall [77-1 USTC ¶9581], 5 Cir. 1977, 557 F. 2d 527, 530, note 3; United States v. Slutsky [73-2 USTC ¶9733], 2 Cir. 1973, 487 F. 2d 832, 839, cert. denied, 1974, 416 U. S. 937, 94 S. Ct. 1937, 40 L. Ed. 2d 287; United States v. Penosi [72-1 USTC ¶9103], 5 Cir. 1971, 452 F. 2d 217, 219-220, cert. denied, 1972, 405 U. S. 1065, 92 S. Ct. 1495, 31 L. Ed. 2d 795; United States v. Doyle [56-1 USTC ¶9553], 7 Cir. 1956, 234 F. 2d 788, 793, cert. denied, 1956, 352 U. S. 893, 77 S. Ct. 132, 1 L. Ed. 2d 87.

It is part of the government's burden of proof to establish beyond a reasonable doubt that the expenditures and deposits come from taxable income for the very year in question. Because our income tax system is on an annual basis, failure to report income must be charged for a specific year. The statute of limitations applicable to prosecutions penalizes only failure to report income for specific years. Moreover, the indictment charges an offense for a specific year, and the proof must conform to the indictment.

There is always the possibility that the taxpayer deposited cash that he received from a non-taxable source or from income taxed in a prior year but kept on hand as cash or even from unreported income from a prior year kept on hand in cash. Such events are common human occurrences, and this possibility may of itself create reasonable doubt. Therefore, the government must establish in some fashion the amount of cash the taxpayer had on hand at the start of the period. This is part of the government's duty to negate the possibility that bank deposits or cash expenditures in the year under investigation originated from non-taxable sources. United States v. Penosi, supra, 452 F. 2d at 219-220. See United States v. Bianco [76-1 USTC ¶9351], 2 Cir. 1976, 534 F. 2d 501, 507, cert. denied, 1976, 429 U. S. 822, 97 S. Ct. 73, 50 L. Ed. 2d 84, suggesting that, in a cash expenditure case, proof of a likely taxable source does not suffice to relieve the prosecution of its duty to negate probable sources of non-taxable income. Compare United States v. Massie [58-1 USTC ¶9326], 1958, 355 U. S. 595, 78 S. Ct. 495, 2 L. Ed. 2d 517 (networth method).

We, therefore, review the record "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." Holland v. United States [54-2 USTC ¶9714], 1954, 348 U. S. 121, 129, 75 S. Ct. 127, 132, 99 L. Ed. 150. The government must prove a full and adequate investigation in a bankdeposits case just as it must in a net-worth case. Holland v. United States, supra. "Such investigation must establish a guarantee of essential accuracy in the circumstantial proof at trial as an element of the government's burden of proving guilt beyond a reasonable doubt. . . ." Slutsky, supra, 487 F. 2d at 840.

[Contentions]

II. It is contended that, in investigating Dr. Boulet, the government failed in two particulars: (a) it did not establish with reasonable certainty the amount of cash that he had in his personal possession, as currency, at the start of each year; these funds were substantial and, when later deposited in a bank account, were erroneously considered income; (b) among his deposits were other items that were not income, such as checks he cashed for patients; failure to delete and exclude these distorted his apparent income. The case does not present the typical problem of an unknown source of income: Dr. Boulet collected his fees in cash. The source of unreported income is contended to be fees paid Dr. Boulet in cash and not reported as income that were detected because they eventually found their way into his bank account.

Because the government did not, and, perhaps, could not, analyze each deposit separately to prove that it was from a taxable source, it is the government's dual burden to establish with reasonable certainty the cash on hand at the beginning of each of the years in question and to negate all other sources of non-taxable income during each of those years. United States v. Marshall, supra. The latter requirement may be satisfied by proof of an adequate investigation that did not disclose non-taxable sources. United States v. Penosi, supra, 452 F. 2d at 219; see also United States v. Mackey, 7 Cir. 1965, 345 F. 2d 499, 506, cert denied, 1965, 382 U. S. 824, 86 S. Ct. 54, 15 L. Ed. 2d 69.

With respect to both non-taxable sources and cash on hand, the government must prove its case beyond reasonable doubt. However, "once the Government has established its case, [in this fashion], the defendant remains quiet at his peril." Holland, supra, 348 U. S. at 138-139, 75 S. Ct. at 137.

Having established that it conducted a thorough investigation "the government is not required to negate all possible non-income sources of the deposits, particularly where the source of the income is uniquely within the knowledge of the taxpayer. At the same time, however, the government may not 'disregard explanations of the defendant reasonably susceptible of being checked.'" Slutsky, supra, 487 F. 2d at 841 quoting from Holland supra, 348 U. S. at 138, 75 S. Ct. at 137. Hence, the government also has a duty to investigate leads furnished by the taxpayer with respect to cash on hand that are susceptible of being checked. United States v. Slutsky, supra, 487 F. 2d 832, 843-844. But proof of the amount of cash on hand, if any exists, depends upon an analysis of accumulated assets and liabilities and not merely upon satisfactory pursuance of those leads, if any, offered by the defendant. See United States v. Marshall , supra, 557 F. 2d at 529; United States v. Slutsky, supra, 487 F. 2d at 842-843. We consider separately whether the government has satisfied its burden with respect to cash on hand and separation of funds that came from non-taxable sources.

A. Opening Cash on Hand

As in a net-worth case, Holland v. United States, supra, 348 U. S. at 132-135, 75 S. Ct. at 134-135, it is essential for the government to establish an accurate cash on hand figure for the beginning of each taxable year. See United States v. Marshall , supra, 557 F. 2d at 530. If the taxpayer's deposits or expenditures during any taxable year came from a safety deposit box or a secret cache, "they are not 'income' when taken from their storage place and deposited in a checking account" or when spent. United States v. Frank [57-1 USTC ¶9675], 3 Cir. 1957, 245 F. 2d 284, 287, cert. denied, 1957, 355 U. S. 819, 78 S. Ct. 25, 2 L. Ed. 2d 35.

Here, the government initially had no cash on hand figure for the start of 1969. Dr. Boulet had informed the agents, and they confirmed with the bank, that he periodically converted currency of small denominations into $100 bills, which he did not immediately deposit. Dr. Boulet himself said he had kept currency in a safe in his mother's home, across the street from his office, until he accumulated $3000 to $4000. He would then convert the money into $100 bills, and keep them in a safety deposit box in the bank, a block from his office. He had no record of the amount of cash he had on hand on January 1, 19 69. The government attempted to establish how much cash Dr. Boulet had on January 1, 19 69, by taking as a starting point the year the taxpayer began medical practice, 1962. The taxpayer had made the statement that he then had "at most $5000 in cash then." The agents then proceeded to analyze the sources of Dr. Boulet's funds and the uses to which he applied them during the 1962-1968 period, in an effort to establish the amount of cash he had on hand at the end of the calendar year 1968. See United States v. Marshall , supra. Its analysis reflected an anomalous negative cash on hand figure on December 31, 19 68; if the taxpayer had the assets he owned, and no greater liabilities than he owed, he must have had over $14,000 in cash on hand not reflected either in bank accounts or other places that the investigation had revealed. Moreover, the investigation showed that, on January 2, 19 69, Dr. Boulet purchased a bank cashier's check for $15,000 with cash from a source that could not be identified. The investigator therefore concluded that Dr. Boulet had $15,000 in cash on hand (in a bank safety deposit box or some other secret place) on January 1, 19 69.

Dr. Boulet does not dispute the logic of the government's analysis, but its accuracy; he attempted to impeach this on the basis that the government failed to discover the source of the $15,000 and by its apparently inexplicable conclusion that there was "negative" cash on hand. He argues that the investigation simply was not pursued far enough. He had in fact a much larger amount in cash at the time, not reflected in bank accounts or other places that maintain records. It was this cash that was deposited in 1969-1972, and thus the source of the deposits in the taxable years was not income for those years, but, as he argues with apparent candor, unreported income from the period 1962-1968; prosecution for these years is, of course, barred by the statute of limitations.

During the investigation, the taxpayer told the IRS agents he had $30,000 to $50,000 in cash on hand on December 31, 19 68. Because the IRS study credited him with having $15,000 on hand, this amounted to a claim that he had $15,000 to $35,000 more than the amount credited to him.

The government showed, however, that, from 1966 to 1968, Dr. Boulet consistently deposited cash into a special bank account from which he eventually withdrew funds to build a house. Dr. Boulet had told the agents that he made frequent purchases of savings bonds, certificates of deposit and cashier's checks, and they verified this. In later years he also accumulated savings in a homestead association account that would bear interest, and he purchased interest-bearing bank certificates of deposit from time to time. In 1969 he built a home, and paid for it without executing a mortgage. Although he had said the home cost him about $80,000, he disbursed about $150,000 mostly from the special bank account, but also including $40,000 that he withdrew from interest-bearing accounts.

This evidence cumulatively tended to show that Dr. Boulet accumulated $100 bills, and that he also periodically invested the accumulation. It tended further to show he was not likely to have maintained a non-interest bearing cash hoard sufficient to account for the unreported income that he was alleged to have concealed (all represented by bank deposits in excess of reported income): a total in excess of $124,000, consisting of $31,600 in 1969, almost $53,000 in 1970, over $32,000 in 1971; and over $8,700 in 1972. As the trial court found in denying a motion for a judgment of acquittal, "his cash on hand was in a constant state of flux because he methodically put his money to work earning interest;" it was therefore at least a permissible conclusion that, whatever non-interest bearing cash he may have secretly kept, he would have spent this before depleting an income-producing account to build his home in 1969, the first year under investigation.

The prosecution was not required to prove the opening cash figure with mathematical exactitude. The government's proof was reasonably certain; it led to the conclusion that, when Dr. Boulet bought a certificate of deposit for $15,000 on January 2, 19 69, he invested all of his cash on hand. The government investigated all "leads" furnished by the taxpayer. United States v. Slutsky, supra, 487 F. 2d at 843; United States v. Ramsdell [71-2 USTC ¶9627], 10 Cir. 1971, 450 F. 2d 130, 133; United States v. Stein [71-1 USTC ¶9209], 7 Cir, 1971, 437 F. 2d 775, 778, cert. denied, 1971, 403 U. S. 905, 91 S. Ct. S. Ct. 2205, 29 L. Ed. 2d 680; see also, United States v. Marshall, supra.

There is a distinction between proof of cash on hand sufficient to be submitted to the jury and proof enough to convict. As a matter of law the court must be satisfied in a circumstantial evidence type case that the opening cash balance is established with reasonable certainty. If this is done, then the further question remains whether guilt has been proved beyond reasonable doubt. The jury was correctly instructed on its duty. It was not obliged to credit the proof. The evidence was, however, sufficient to go to the jury free from the taint of inadequate investigation; it satisfied the standard of reasonable certainty that safeguards the accuracy of the circumstantial proof. United States v. Newman [72-2 USTC ¶9719], 5 Cir. 1972, 468 F. 2d 791, 795; cert. denied, 1973, 411 U. S. 905, 93 S. Ct. 1527, 36 L. Ed. 2d 194.

B. Purification of Bank Deposits

Dr. Boulet's receptionist received payments from patients and prepared a list of checks received each day. At the end of the day he and his receptionist would total the cash and checks and enter them on a deposit slip. About noon every day he went to the bank in person and made a deposit. This deposit was the basis used by him to report income.

Sometimes patients presented a check to the receptionist in payment of a bill that was less than the amount of the check; she cashed the check if the cash on hand was sufficient. During the investigation, Dr. Boulet informed the agent that his receptionist kept only about $30 in cash on hand for this purpose. If the receptionist did not have enough cash from the $30 "till money" and from cash fees already collected that day, she referred the patient to the bank, which was only a block away. The patient would go there, cash the check, then return and pay the bill in cash. The agent, therefore, treated all deposits of checks not otherwise identified as reflecting medical fees.

At the trial, however, the receptionist testified that patients frequently presented social security or welfare checks for amounts substantially in excess of their bills, and she would give these checks to Dr. Boulet who would cash them. This contention had never before been made known to the agents. Dr. Boulet now argues that the bank deposits reflect a substantial infusion of cash from his hoard, and are not entirely earned income; hence the government failed adequately to "purify" his bank deposits. He points by contrast to the effort made in United States v. Slutsky, supra, where the government analyzed each check deposited with a face amount in excess of $1000. In Slutsky, however, bank deposits in each of the years under examination exceeded $5,000,000 and the taxpayer had informed the agents that the deposits included non-income items; the IRS made an income analysis of items under $1000, but actually examined in detail only the deposited checks in excess of $1000 each. It treated all currency deposited in some or all of the six bank accounts as income.

Neither Dr. Boulet nor his receptionist gave this kind of information to the agents during the investigation. Moreover, even if the microfilm of every bank deposit had been located and reproduced, and every check made payable to a patient and endorsed by him had been reviewed, there was no way to separate non-income items. If a check had been found in the amount of $150.00, made payable to a patient and endorsed by him, and it was established that his doctor's bill was $8.00, and that he received $142.00 in change, there would be no way to determine whether the receptionist obtained the change from fees already collected that day (together with the till money kept from earlier fees) or obtained some of it from Dr. Boulet. Even if she obtained some funds from Dr. Boulet, because he said he kept some fees on hand in cash, there would be no way to determine whether the cash he then gave was from current and as yet unreported income or from the alleged hoard built up in earlier years.

There were only two possible sources for any change: cash on hand from prior years or fees received from other patients during the current year and not yet deposited. Because cash on hand was established with reasonable certainty, the money paid the patients in exchange for checks could have consisted on undeposited earnings from other patients. Hence, it was a reasonable inference that the deposits consisted of earned income.

As our brethren of the Second Circuit said, in Slutsky, supra, 487 F. 2d at 841, "The adequacy of a bank deposits investigation necessarily turns on its own circumstances." The critical question is whether the investigation was sufficient to support the inference that the unexplained excess in deposits was in fact attributable to currently taxable income. The government is not required to negate every possible nonincome source of each deposit, particularly where the source of the funds is uniquely within the knowledge of the taxpayer and it checks those explanations given by him that are reasonably susceptible of investigation.

Remembering that the suggestion that non-income funds were used to cash checks that were later deposited was made for the first time at the trial, we conclude that the government satisfied its obligation to explore leads thoroughly, and to make an adequate investigation of all the facts reasonably ascertainable. It may not present a case to the jury with less. It may not fling a handful of circumstantial evidence in front of a jury. It must do whatever is reasonable under the circumstances. But it is not required to conjecture about and either prove or negate every conceivable defense once it has met its own burden, explored every reasonable avenue and investigated every lead furnished by the taxpayer and his employees.

C. The Net-Worth Schedules

At the trial Dr. Boulet tested the IRS Special Agent's testimony and the government's case by introducing an analysis of his net worth as of the end of 1968. This was based on another method used by the government in reviewing his income for the years 1962-1968: analyzing the source and application of his funds during that period. Comparison of Dr. Boulet's net worth in 1962 with the net worth this indicated at the end of 1968 might lead to the conclusion that Dr. Boulet had $145,000 in unreported net income during the period 1962-1968. However, the 1968 schedule thus prepared did not show $145,000 on hand at the end of that period in a cash hoard. It showed in cash only the $15,000 attributed to the taxpayer by the government. The analysis merely established the possibility of $145,000 in income that was not accounted for in the government's schedules; but, at the end of 1968, this sum was accounted for by increases in items other than cash on hand.

Although this evidence impeaches the thoroughness of the government's investigation of income during the years 1962-1968 (years not included in the indictment), it is not inconsistent with the cash on hand figure attributed to appellant as of January 1, 19 69. It does not establish a discrepancy between source figures and application figures, but merely that each might be too low by the same amount. Were this an appeal from a conviction for the years 1962-1968, this evidence might yield a reasonable doubt as to the adequacy of the investigation of income in those years; but here, the proof is relevant only to establishing a reasonably certain cash on hand figure at the end of that period. The defendant's schedules, although appropriate grist for the jury, are not so probative with respect to the existence of a cash hoard for the indictment years as to require acquittal as a matter of law.

Even if Dr. Boulet had $145,000 in unreported income from 1962 through 1968, the net worth analysis for this period does not, therefore, undermine the government's case or demonstrate that the cash on hand as of December 31, 19 68 was more than $15,000. The exhibit was offered to the jury in an effort to show the government's failure to prove its case beyond reasonable doubt; it failed to convince them.

For these reasons we conclude that the case was properly submitted to the jury, the taxpayer's motions for a directed verdict were properly denied, and the conviction is therefore AFFIRMED.

¹ In violation of 26 U. S. C. §7201.

² Appellant was sentenced to one year imprisonment on each of the four counts, to be served concurrently. Only the first 90 days were to be spent in incarceration; the remainder of the sentence was suspended and appellant was placed on inactive probation for two years to commence on his release from custody. As a condition of probation, Boulet was to make restitution in the amount of $14,372.45 on Count 1 (1969); $26,288.50 on Count 2 (1970); $14,079.51 on Count 3 (1971); and $4444.75 on Count 4 (1972).

³ The method must be distinguished from the other circumstantial method usually called networth analysis. That method depends upon establishing the taxpayer's net worth at the start of the taxable year by listing all assets, including cash on hand, and all liabilities. The balance is the taxpayer's net worth. A similar analysis is made for the first day of the next taxable year. To any change in the net worth, the investigator adds non-deductible expenditures for living expenses, then deducts receipts from sources that are not taxable income and the amounts represented by applicable tax deductions and exemptions. If the increase in net worth, thus adjusted, exceeds the reported taxable income, the conclusion is drawn that there must have been unreported income. Differences between the two methods are more fully explained in a number of cases and in many topical writings. See in particular, Duke, Prosecutions for Attempts to Evade Income Tax: A Discordant View of a Procedural Hybrid, 76 Yale L. J. 1, 11-15 (1966).

 

 

[87-2 USTC ¶9383] United States of America , Plaintiff-Appellee v. Anthony Leonard Scrima, Defendant-Appellant

(CA-11), U.S. Court of Appeals, 11th Circuit, 85-3521, 6/19/87 , 819 F2d 996, Affirming an unreported District Court decision

[Code Sec. 7201 --Result unchanged by the Tax Reform Act of 1986 ]

Evidence: Net worth increases: Hearsay: Juries, instructions to: Suits by United States: Trials: Expert witnesses.--Using a summary chart, based on documentary and testimonial evidence, the government properly proved under the net worth theory that the taxpayer was guilty of tax evasion. Such evidence illustrated the taxpayer's increase in assets and his nondeductible expenditures minus his liabilities to arrive at his total net worth increases for each of the tax years at issue. Contrary to the taxpayer's argument, the court correctly excluded his business associate's testimony of an out-of-court conversation with him with respect to the amount of his available funds on the grounds that it was inadmissible hearsay. Moreover, the district court did not abuse its discretion when it limited the testimony of the taxpayer's expert witness. Further, the taxpayer was not prejudiced by the instruction to the jury that the expert witness had reached a hypothetical conclusion as to the amount of funds that the taxpayer had on hand.

Rob ert W. Merkle, United States Attorney, Stephen J. Calvacca, Assistant United States Attorney, Orlando, Fla. 32801, for plaintiff-appellee. Harrison T. Slaughter, Jr., Rob ert A. Leventhal, 126 E. Jefferson St. , Orlando , Fla. 32801 , for defendant-appellant.

Before HILL and HATCHETT, Circuit Judges, and HENDERSON, Senior Circuit Judge.

HENDERSON, Senior Circuit Judge:

Anthony Scrima appeals his convictions in the United States District Court for the Middle District of Florida on four counts of income tax evasion in violation of 26 U.S.C. ¶7201. Finding no error, we affirm.

Following an investigation by the Internal Revenue Service, Scrima was indicted in connection with his income tax returns filed for the years 1978 through 1981. He was charged with underreporting his income by approximately $350,000.00 during the four-year period. ¹

At the trial, the government sought to prove Scrima's discrepancies in reported income by means of an indirect method known as the net worth theory, essentially showing that Scrima enjoyed increases in wealth and nondeductible expenditures greater than could be justified by his reported income or any nontaxable sources of funds.

The defendant did not testify in his own defense. Instead, he sought to establish through the testimony of a business associate and an accountant, qualified as an expert witness, that he had an undisclosed cash hoard of $375,000.00 at the beginning of the indictment period which explained the accessions in net worth. The district court ruled the testimony of the businessman, Charles Clayton, inadmissible hearsay. ² Without this testimony, the defendant's accountant, Jerry Speed, could not support his summary chart with any evidence presented at the trial. The trial court instructed the jury that Speed's conclusion that the defendant had $375,000.00 in available funds at the beginning of 1978 was a hypothetical figure based on his deductive reasoning and was not to be considered as direct evidence of that fact. The trial court also prohibited Speed from testifying as to the basis of his conclusion insofar as it related to the hearsay evidence of Charles Clayton and credibility attacks on the government's witnesses. The jury convicted Scrima on all four counts of income tax evasion. On appeal, the defendant contends that these two evidentiary rulings were erroneous and, in effect, vitiated his defense, denying him the right to a fair trial.

To establish a violation of 26 U.S.C. ¶7201, the government must prove, beyond a reasonable doubt (1) the existence of a tax deficiency, (2) an affirmative act constituting an evasion of the tax due, and (3) willfulness. The tax deficiency may be proved by circumstantial evidence through the net worth method. United States v. Carter [84-1 USTC ¶9537], 721 F.2d 1514, 1538 (11th Cir.),cert. denied, 469 U.S. 819, 105 S.Ct. 89, 83 L.Ed.2d 36 (1984). The Supreme Court, in upholding this means of proving willful tax evasion, succinctly described the theory:

In a typical net worth prosecution, the Government, having concluded that the taxpayer's records are inadequate as a basis for determining income tax liability, attempts to establish an 'opening net worth' or total net value of the taxpayer at the beginning of a given year. It then proves 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 nondeductible 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.

Holland v. United States [54-2 USTC ¶9714 ], 348 U.S. 121, 125, 75 S.Ct. 127, 130, 99 L.Ed. 150 (1954).

Because of the dangers inherent in this circumstantial method of proof, the use of the net worth theory is circumscribed by additional burdens. For example, the government must establish opening net worth with reasonable certainty and must investigate all leads furnished by the taxpayer. Holland , 348 U.S. at 135-36, 75 S.Ct. at 135, 99 L.Ed. at 163; United States v. Horton [76-1 USTC¶9219 ], 526, F.2d 884, 886 (5th Cir.), cert. denied, 429 U.S. 820, 97 S.Ct. 67, 50 L.Ed.2d 81 (1976). Furthermore, the government must prove that the net worth increases are attributable to taxable income. This burden may be carried either by proof of a likely source of taxable income or by negating all possible nontaxable sources. Holland , 348 U.S. at 138, 75 S.Ct. at 136-37, 99 L.Ed. at 165. United States v. Massei [58-1 USTC ¶9326 ], 355 U.S. 595, 78 S.Ct. 495, 2 L.Ed.2d 517 (1958). Once the government has established all these elements, it has proven its prima facie case, and "the defendant remains quiet at his peril." Holland , 548 U.S. at 139, 75 S.Ct. at 137, 99 L.Ed. at 166.

To satisfy its burden of proof under the net worth theory, the government introduced a summary chart, based on documentary and testimonial evidence, setting forth Scrima's increase in assets and his nondeductible expenditures minus his liabilities to arrive at his total net worth increases for each of the taxable years. Using these figures, the summary witness explaining the chart testified to the further calculations performed to reach Scrima's taxable income for each year of the indictment term.

The government also introduced evidence from Internal Revenue agents to establish the thoroughness of their investigation in their effort to substantially negate any possible source of nontaxable income. A likely source of taxable income to explain the gap between Scrima's increased net worth and his reported income could be inferred from the testimony of two unrelated witnesses who connected Scrima with the illegal importation of marijuana during the years 1979 and 1980.

Alternative methods were utilized to show Scrima's opening net worth. On the summary chart, the government employed the floating cash or dash formula where cash is an unknown but constant factor throughout the net worth period.See United States v. Giacalone [78-1 USTC §9350], 574 F.2d 328 (6th Cir.), cert. denied, 439 U.S. 834, 99 S.Ct. 114, 58 L.Ed.2d 129 (1978) (proof of defendant-taxpayer's involvement in illegal cash business justified dash method). The government also relied in closing arguments on Scrima's statement to Revenue Agent Chambliss that he kept no more than $500.00 on hand during the four-year span. ³

Scrima does not challenge the sufficiency of the evidence but rather contends that the erroneous evidentiary rulings of the district court crippled his attempt to rebut the government's appraisal of his opening net worth. Scrima cites as error the district court's exclusion of Charles Clayton's testimony of an out-of-court conversation with the defendant with respect to the amount of his available funds on the ground it was inadmissible hearsay. He claims that the statement was admissible under Fed.R.Evid. 803(3), 803(1), or 803(24). ⁴

Federal Rule of Evidence 803(3) authorizes the admission of "[a] statement of the declarant's then existing state of mind, emotion, sensation or physical condition (such as intent, plan, motive, design, mental feeling, pain, and bodily health). . . ." Scrima argues that the conversation was admissible to prove his state of mind that he had ample funds to invest. However, before a statement, otherwise hearsay, can be admitted under 803(3) to show the declarant's then existing state of mind, the declarant's state of mind must be a relevant issue in the case. Prather v. Prather, 650 F.2d 88, 90 (5th Cir. July 1981). Under these facts, Scrima's subjective belief as to his wealth is totally irrelevant. The statement was offered to prove the fact that the defendant actually had the money not that he thought he had it. Consequently, the statement was not admissible under 803(3).

The statement is also inadmissible as a present sense impression under 803(1). To fall within the ambit of this exception to the hearsay rule, the statement describing or explaining the event or condition must be made while the declarant was perceiving the event or condition or immediately thereafter. The underlying theory of this exception is that the "substantial contemporaneity of the event and the statement negate the likelihood of deliberate or conscious misrepresentation." United States v. Peacock, 654 F.2d 339, 350 (5th Cir. Aug. 1981), cert. denied, 464 U.S. 965, 104 S.Ct. 404, 78 L.Ed.2d 344 (1983). The inapplicability of this rule is obvious.

Scrima next seeks to admit Clayton's statement under the residual hearsay exception codified in Fed.R.Evid. 803(24). The case law of this circuit requires that five conditions be met to admit hearsay evidence pursuant to this exception. There must be notice, guarantees of trustworthiness, materiality, probativeness and a meeting of the interests of justice by introducing such evidence. United States v. Parker, 749 F.2d 628, 633 (11th Cir. 1984); United States v. Mathis, 559 F.2d 294, 298 (5th Cir. 1977). While the failure of the defendant to comply with the notice requirement is not fatal absent a showing that the government suffered harm and lacked "a fair opportunity to meet the statements" Parker, 749 F.2d at 633, the district court properly excluded the statement since it lacked the requisite guarantees of trustworthiness and probativeness. The reliability of the statement is open to question because of the possibility that Scrima exaggerated his available funds to impress a future business associate. Moreover, the statement does not indicate that Scrima has $375,000.00 concealed in a cash reserve but could refer to a line of credit or expected returns on illegal activities. Furthermore, section 803(24) would not be applicable to Clayton's testimony because the defendant made no showing that reasonable efforts could not have produced a witness with personal knowledge of Scrima's available funds at that time. Elizarraras v. Bank of El Paso , 631 F.2d 366, 374 n. 24 (5th Cir. 1980). Obviously, the defense sought to place the defendant's remarks before the jury without subjecting them to scrutiny of cross-examination. This is precisely what is forbidden by the hearsay rule.United States v. Willis, 759 F.2d 1486, 1501 (11th Cir.),cert. denied, -- U.S. --, 106 S.Ct. 144, 88 L.Ed.2d 119 (1985). ⁵

Scrima urges as a second ground of reversible error that the trial court abused its discretion by improperly limiting the testimony of his expert, Jerry Speed, under Fed.R.Evid. 703. Based on the testimony of Clayton, Speed concluded that the defendant had available funds of $375,000.00 at the beginning of the indictment period. During lengthy voir dire, Speed admitted that the ultimate basis for his conclusion that Scrima's increased net worth was due to the expenditure of funds equal to $375,000.00 available to him before 1978 was "the non-testimony of source of income or availability of funds during that period of time other than the funds being on hand." (ROA vol. 16 p. 61 lines 15-18.) Speed sought to testify regarding a chart similar to the summary chart utilized by the government to illustrate Scrima's accession in net worth. Speed's chart, however, showed a cash availability of $375,000.00 at the beginning of the indictment period which accounted for nearly all of the defendant's discrepancies. The district court, perhaps in an abundance of caution to preserve the defendant's rights, admitted the chart and Speed's testimony but gave the following cautionary instruction to the jury:

. . . it is my understanding that this witness who appears before you as an expert witness . . . has reached the hypothetical conclusion on funds at hand as a result of deductive reasoning, and the hypothetical of the funds on hand which he's reached has not been tendered as a result of evidence that has been received during the course of this trial.

(ROA 17 p. 14 lines 1-10.) At the request of the government, the district court later reiterated the instruction to the jury. (ROA 17 p. 47 lines 11-21.)

Scrima complains that the district court's cautionary instructions to the jury were erroneous as a matter of law and unduly prejudiced his defense. The law is clear, however, that evidence summaries, such as Speed's chart, must be supported by evidence previously presented to the jury, United States v. Diez, [75-2 USTC ¶9656 ], 515 F.2d 892 (5th Cir.1975),cert. denied, 423 U.S. 1052, 96 S.Ct. 780, 46 L.Ed.2d 641 (1976). Since the defense could not point to any admissible evidence to support the $375,000.00 in available funds shown on the chart, we find no error in the trial court's admonitions to the jury.

The defendant further argues that Speed did not testify merely as a summary witness but qualified as an expert accountant. Since Fed.R.Evid. 703 ⁶ allows an expert to testify based on facts otherwise inadmissible in evidence, Scrima maintains that the trial court erred in refusing to allow Speed to refer to the hearsay statement of Charles Clayton as a basis for his opinion. Rule 703, however, is not an open door to all inadmissible evidence disguised as expert opinion. Although experts are sometimes allowed to refer to hearsay evidence as a basis for their testimony, such hearsay must be the type of evidence reasonably relied upon by experts in the particular field in forming opinions or inferences on the subject. United States v. Cox, 696 F.2d 1294 (11th Cir.), cert. denied, 464 U.S. 827, 104 S.Ct. 99, 78 L.Ed.2d 104 (1983). Scrima made no showing that qualified accountants customarily rely on statements to casual business acquaintances when calculating net worth.

The district court afforded Speed wide latitude to criticize the net worth theory and point out what he perceived to be inconsistencies in the government's case against the defendant. The expert's testimony was precluded only where he sought to rely on Clayton's stricken testimony or on his conclusions about the veracity of the government's witnesses to support his opinion. Since assessing the credibility of witnesses is exclusively within the province of the jury, opinion testimony was properly excluded. Steinberg v. Indemnity Ins. Co. of North America, 364 F.2d 266 (5th Cir.1966); United States v. Rouco, 765 F.2d 983, 995 (11th Cir.1985) (expert testimony properly excluded where expert could offer nothing beyond understanding and experience of average citizen). Due to the limited probative value of Speed's testimony, we find no error in the parameters placed upon his testimony by the trial court and no resulting prejudice to the defendant. See Construction Aggregate Transport, Inc. v. Florida Rock Industries, Inc., 710 F.2d 752, 789 (11th Cir.1983); Cunningham v. Rendevous, Inc., 699 F.2d 676, 678 (4th Cir.1983).

The defendant's convictions are

AFFIRMED.

¹ The indictment alleged that Scrima underreported his 1978 taxable income by $80,357.00, his 1979 taxable income by $197,570.00, his 1980 taxable income by $32,570.00 and his 1981 taxable income by $37,617.00.

² Clayton testified: "He said he had monies, at least $375,000.00, to get started, available in 1978 to get started up here." (Record on Appeal Vol. 15 p. 12 lines 15-16.)

³ When tax evasion is proved through circumstantial evidence, the government must establish with reasonable certainty the net worth of the taxpayer at the beginning of the tax period including the amount of cash available to him. United States v. Normile [79-1 USTC ¶9151 ], 587 F.2d 784 (1979). Generally, when the government relies on the taxpayer's admissions to demonstrate his opening net worth, the government must corroborate that admission. Id. at 786, citing Smith v. United States [54-2 USTC ¶9715 ], 348 U.S. 147, 75 S.Ct. 194, 99 L.Ed. 192 (1954). Where the defendant-taxpayer attempts to explain his increase in net worth by the existence of a secret cash hoard, however, the government is not required to corroborate the taxpayer's statement with respect to his cash on hand at the beginning of the tax period. After everything possible is done to verify the opening net worth, the issue of the amount of the defendant's cash hoard is properly submitted to the jury. United States v. Wilson [81-2 USTC ¶9567 ], 647 F.2d 534, 536 n. 1 (5th Cir. Jun. 1981).

⁴ Fed.R.Evid. 803 provides in relevant part:

The following are not excluded by the hearsay rule, even though the declarant is available as a witness:

(1) Present Sense impression

A statement describing or explaining an event or condition made while the declarant was perceiving the event or condition, or immediately thereafter.

. . .

(3) Then existing mental, emotional, or physical condition

A statement of the declarant's then existing state of mind, emotion, sensation, or physical condition (such as intent, plan, motive, design, mental feeling, pain, and bodily health), but not including a statement of memory or belief to prove the fact remembered or believed. . . .

. . .

(24) Other exceptions

A statement not specifically covered by any of the foregoing exceptions but having equivalent circumstantial guarantees of trustworthiness, if the court determines that (A) the statement is offered as evidence of a material fact; (B) the statement is more probative on the point for which it is offered than any other evidence which the proponent can procure through reasonable efforts; and (C) the general purposes of these rules and the interests of justice will best be served by admission of the statement into evidence. However, a statement may not be admitted under this exception unless the proponent of it makes known to the adverse party sufficiently in advance of the trial or hearing to provide the adverse party with a fair opportunity to prepare to meet it, his intention to offer the statement and the particulars of it, including the name and address of the declarant.

⁵ The defendant complains that the statement should not have been stricken, even if hearsay, because the government failed to make a timely objection. The record discloses, however, that the government's previous hearsay objection to Clayton's testimony as to the defendant's statements regarding his background and financial posture was overruled just prior to the statement in issue. Since the government also advanced arguments asking the trial court to change its position in a contemporaneous manner, the district court did not err in striking the hearsay testimony. See generally, Murphy v. City of Flagler Beach, 761 F.2d 622, 626 (11th Cir. 1985) (subsequent proffer at evidentiary conference satisfied purposes of contemporaneous objection and proffer rule which include a chance for trial judge to correct errors).

⁶ Fed.R.Evid. 703 provides:

Bases of Opinion Testimony by Experts

The facts or data in the particular case upon which an expert bases an opinion or inference may be those perceived by or made known to him at or before the hearing. If of a type reasonably relied upon by experts in the particular field in forming opinions or inferences upon the subject, the facts or data need not be admissible in evidence.

 

 

[77-2 USTC ¶9489] United States of America , Appellee v. Albert L. Honea, Appellant

(CA-8), U. S. Court of Appeals, 8th Circuit, No. 76-2115, 556 F2d 906, 6/17/77 , Affirming Unreported District Court decision

[Code Sec. 7201--result unchanged by '76 Tax Reform Act]

Crimes: Evasion or avoidance of tax: Admissibility of net worth evidence: Instructions to jury.--The taxpayer's conviction for income tax evasion for the years 1969-1972 was affirmed by the U. S. Court of Appeals at St. Louis (CA-8). The District Court did not err in admitting certain evidence related to the taxpayer's net worth for the years 1967-1972, nor did it err in refusing to give three specific insructions to the jury as requested by the taxpayer.

W. H. Dillahunty, United States Attorney, Fletcher Jackson, Assistant United States Attorney, Little Rock , Ark. 72203 , for appellee. Leon B. Catlett, Catlett & Henderson, 727 Pyramid Bldg., Little Rock, Ark. 72201, for appellant.

Before HEANEY, ROSS and STEPHENSON, Circuit Judges.

PER CURIAM:

Albert L. Honea appeals from a jury conviction of four counts of income tax evasion in the years 1969, 1970, 1971 and 1972 in violation of 26 U. S. C. §7201. He alleges that the district court ¹ erroneously admitted government's Exhibit 121 (net worth summary) into evidence and that the trial court erred by refusing three jury instructions requested by the defense. We affirm the conviction.

Honea owns numerous rental houses and a small motel in North Little Rock , Arkansas . The government sought to prove at trial that the substantial increase of Honea's net worth, evidenced by his ownership of 32 rental homes in 1972 compared to his ownership of approximately 10 rental homes in 1969, was due to unreported taxable income. Honea filed tax returns in each of the years in question. He had taken his summaries of rental and motel income and expenses to a C. P. A. who then prepared the depreciation schedules, the returns, and computed the tax, finding that there was no taxable income, thus no tax due in any of the four years. Honea signed the tax returns and mailed them. Using the net-worth method, the government calculated that the taxable income and tax due for each of the years was tax of $10,555.93 on income of $28,885.64 in 1969; $1,879.07 on $8,889.53 in 1970; $799.66 on $4,522.18 in 1971; and $7,950.00 on $29,603.58 in 1972.

Exhibit 121

Honea argues that the trial court erred in admitting into evidence government's Exhibit 121 over his objection. This exhibit was a chart that summarized all the evidence introduced during the trial which related to Honea's net worth on December 31 of each of the years 1967 through 1972. Defendant objected to the introduction of the chart on the grounds that the government could not conclusively show that he had no assets on December 31, 19 68, other than those illustrated on the chart. We find this contention without merit.

The thrust of appellant's claim is that the government did not negate every possible asset Honea may have possessed at the beginning of the prosecution years, thus reducing the alleged growth in net worth reflected on the chart. For example, appellant points out that the agent making the investigation inquired of appellant during the investigation on April 5, 1974 , whether appellant had any stocks or bonds or certificates of deposit, and upon receiving a negative answer, failed to further determine if such were true at the beginning of the prosecution period (January 1, 1969). The district court in overruling the objection commented that defense counsel was free to point out to the jury any defects in the government's computations. In addition, the court properly instructed the jury that in cases wherein the government attempts to prove there is unreported income by showing that the defendant's net worth increased substantially, the government must establish the opening net worth "with reasonable certainty." Holland v. United States [54-2 USTC ¶9714], 348 U. S. 121, 132 (1954); United States v. Stone [76-1 USTC ¶9310], 531 F. 2d 939, 941 (8th Cir. 1976).

We are satisfied from our examination of the record that the government met its burden of showing with reasonable certainty the beginning net worth of appellant for each of the years in question. Mr. Honea had been investigated by special agents of the Internal Revenue Service in 1968 for the years 1965 through 1967. In connection therewith a net worth computation had been prepared by government agents showing Honea's net worth as of December 31, 19 67. This computation was then presented to Honea's attorney and he acquiesced in the computation. ² Moreover, in the instant trial Honea testified that his net worth increases were due to depreciation claimed on his tax returns. He made no claim then, nor does he now, that there actually existed a certificate of deposit on December 31, 19 68. The record further indicates that the financial institutions that Honea told the agent he did business with were all contacted and their records of dealings with Honea were introduced at the trial as various exhibits. Every lead furnished by Mr. Honea was followed. Holland v. United States, supra, 348 U. S. at 135-36. Although the burden of proof does not shift "[o]nce the Government has established its case, the defendant remains quiet at his peril." Id. at 138-39.

Instructions

Honea further alleges that the trial court's refusal to give three jury instructions requested by Honea was error. Because these claims are clearly without merit, we will not reproduce the requested or proffered instructions. It is sufficient to note that Honea's requested instruction 7 concerned the inference to be drawn between an incrase in net worth and fraudulent intentions. Honea's requested instruction 9 explained the difference between a willful failure to report, and a negligent, careless or mistaken failure to report, all taxable income. Both of these requested instructions were unnecessary and cumulative in light of the instructions given by the trial court. The instructions given were almost identical to instructions approved by this court in like cases. United States v. Pohlman, 510 F. 2d 414, rehearing en banc, [75-2 USTC ¶9677] 522 F. 2d 974 (8th Cir. 1975), cert. denied, 423 U. S. 1049 (1976); United States v. Berzinski [76-1 USTC ¶9211], 529 F. 2d 590 (8th Cir. 1976).

Honea's requested instruction 8 stated that the jury could consider as evidence of a person's good faith belief that he paid all taxes due, that the person cooperated with IRS agents who investigated the case. The court gave a completely adequate instruction concerning the issues of good faith, willfulness, and intent. United States v. Ojala [76-2 USTC ¶9760], 544 F. 2d 940 (8th Cir. 1976); United States v. Pohlman, supra; United States v. Berzinski, supra. Reviewing the court's instructions as a whole, we find that they were proper, United States v. Cartano, 534 F. 2d 788, 793 (8th Cir.), cert. denied, 97 S. Ct. 121 (1976), and it was not error to refuse the instructions requested by Honea.

The conviction is affirmed.

¹ The Honorable G. Thomas Eisele, Chief Judge , United States District Court for the Eastern District of Arkansas.

² This was a civil matter and Honea paid the tax and penalties due.

 

 

[51-2 USTC ¶9497]R. D. Leeby, Appellant v. United States of America , Appellee

(CA-8), In the United States Court of Appeals, for the Eighth Circuit, No. 14,306, 192 F2d 331, November 13, 1951

Appeal from the United States District Court for the District of North Dakota.

Evasion of income taxes: Motion for acquittal: Waiver of objection to denial.--Taxpayer, charged with wilfully and knowingly attempting to defeat and evade a large part of the income tax due and owing by him to the United States , interposed a motion for acquittal at the close of the Government's case. After this motion was interposed, and denied at the close of the Government's case, however, the taxpayer offered testimony and testified in his own behalf. While taxpayer was entitled to offer evidence in his defense, notwithstanding the fact that he had interposed a motion for acquittal at the close of the Government's testimony, by so doing he waived his objection to the ruling of the court in denying his motion and his right to allege this ruling as error upon conviction. Taxpayer not having interposed a motion for judgment of acquittal at the close of all the testimony, the court cannot now consider the question of sufficiency of the evidence to sustain the judgment and sentence of conviction.

Evasion of income taxes: Instructions to jury: Admissibility of evidence: Failure to report income in prior years.--The indictment charging taxpayer with having wilfully and knowingly attempted to defeat and evade a large part of the income taxes due and owing to the Government involved the calendar years 1944, 1945 and 1946. Over taxpayer's objection there was received in evidence testimony with respect to his income during 1942 and 1943 and testimony that he filed non-taxable returns for the year 1940 and as far back as 1930. As to this testimony the court instructed the jury specifically and cautioned the jury that the taxpayer is not charged with having violated the income tax law for any years other than 1944, 1945 and 1946. The testimony was admissible for the purpose of estimating the taxpayer's income on the receipts and disbursements basis, or on the net worth basis. His returns for prior years would have some bearing on the question of taxpayer's intent to evade the income taxes due to the Government. The trial court in its instructions pointed out the basis for the admission of this testimony and the limited purpose for which it should be considered by the jury.

Evasion of income taxes: Admissibility of evidence of net worth of taxpayer.--Taxpayer objected to the Government's use of the net worth summary when it had offered a summary of receipts and disbursements. The trial court overruled this objection and taxpayer contends the court erred in so doing. The Government's calculations, in this action charging taxpayer with wilful evasion of income taxes, were based upon the receipts and disbursements method and it submitted in corroboration the net worth summary. This was not an action to recover the amount of taxes alleged to be due, nor an action in which it was necessary to determine the exact amount of taxpayer's income for the years in question. On this phase of the case all that it was necessary to show was that there was omitted from the reported income a substantial amount. The calculations here were based upon such records and statements as taxpayer made available. The court is here dealing solely with the admissibility of certain evidence, not its weight or conclusiveness, and it was competent to permit the Government to submit its estimates of income based upon both the net worth and the receipts and disbursements methods, as the basic facts of both calculations were all before the jury.

Income tax evasion: Evidence as to OPA violations.--There was no abuse of discretion, in an action charging taxpayer with wilful evasion of income taxes, in admitting testimony to the effect that taxpayer had been fined for violation of OPA regulations, since the instruction of the court to the jury cautioned the jury that the taxpayer was being tried only for the charges contained in the indictment. It was proper to show that taxpayer had been charging more than the ordinary or accepted gross profit on his sales and in that connection the Government was permitted to show that taxpayer had been selling at a profit exceeding the selling price.

J. F. X. Conmy (Francis Murphy was with him on the brief), for appellant. P. W. Lanier, United States Attorney (Joseph A. Struett and Marc A. White, Attorneys, Chief Counsel's Office, Bureau of Internal Revenue, were with him on the brief), for appellee.

Before GARDNER, Chief Judge, and WOODROUGH and THOMAS, Circuit Judges.

GARDNER, Chief Judge, delivered the opinion of the Court:

Appellant was convicted on an indictment of three counts, each count charging a violation of Section 145(b), Title 26 U. S. C., in that he wilfully and knowingly attempted to defeat and evade a large part of the income tax due and owing by him to the United States of America by filing and causing to be filed with the Collector of Internal Revenue for the District of North Dakota, a false and fraudulent income tax return. The indictment involves the calendar years 1944, 1945 and 1946. The counts are substantially identical except as to the year covered and the amount of alleged income and income tax involved.

[Facts]

During the time here involved defendant operated a grocery store, a bakery and lunch counter and did some catering. For the year 1944 he reported an income of $6,217.62; for the year 1945 he reported an income of $8,149.00, and for the year 1946 he reported an income of $8,839.00. Government witnesses, based upon an examination of defendant's books in which his daily sales were recorded, his bank statements, check stubs and statements made to them by the defendant as to his earnings in the catering and bakery department, determined defendant's income for the year 1944 to be $21,128.89, for the year 1945 to be $27,157.27 and for the year 1946 to be $31,149.95. The total amount of income taxes for the three years as paid by defendant was $4,655.89, whereas the amount due according to the government's calculation was $31,372.51. From the records, statements, books and other information obtained from statements made by defendant and introduced in evidence, the government witnesses prepared certain exhibits. From the same sources the government witnesses prepared a statement of defendant's assets for the years 1942 to 1946, inclusive, which was signed by the defendant and is known in the record as Exhibit 58. Based upon the exhibits so prepared, the government witnesses, who were confessedly expert accountants, prepared a net worth computation and a determination of defendant's aggregate unreported income for the years involved. Defendant also offered a net worth statement. This statement omits from his income an item of $12,000.00 cash which defendant claimed to have saved over a period of twenty years and had refrained from depositing in the bank until May 6, 19 46, and certain other sums alleged to have been salvaged from his place of business and stock which had been damaged by fire. The details of these calculations we do not deem important for the reasons hereinafter noted.

At the close of the government's case defendant moved for a judgment of acquittal, which motion was denied and the case submitted to the jury on instructions to which defendant took certain exceptions but which are not here urged as grounds for reversal.

[Contentions of Taxpayer]

In seeking reversal defendant contends: (1) the court erred in admitting evidence as to income and claimed tax deficiency in 1942, 1943 and 1947, and in admitting testimony as to the filing by defendant of nontaxable returns for a period of years prior to the times involved in the indictment; (2) the court erred in overruling objections to the government's net worth summary and the government's receipts and disbursements summary on the ground that they were inaccurate and included years not covered by the indictment; (3) the court erred in permitting the government to use the net worth method when the receipts and disbursements method was also used; (4) the court erred in permitting testimony that the defendant had violated O. P. A. regulations and had been fined therefor; (5) the court erred in denying his motion for judgment of acquittal interposed at the close of the government's case.

[Denial of Motion for Acquittal]

We shall first refer to the claim of error in denying defendant's motion for acquittal interposed at the close of the government's case. It is observed that after this motion was interposed and denied at the close of the government's case, defendant offered testimony and himself testified in his own behalf. He did not renew this motion at the close of all the evidence. Defendant was entitled to offer evidence in his defense notwithstanding the fact that he had interposed a motion for acquittal at the close of the government's testimony but by so doing he waived his objection to the ruling of the court in denying his motion and his right to allege this ruling as error, and defendant not having interposed a motion for judgment of acquittal at the close of all the testimony, we cannot now consider the question of the sufficiency of the evidence to sustain the judgment and sentence of conviction. A careful review of the evidence, however, convinces that if the evidence admitted over defendant's objection was competent, the evidence was abundantly sufficient to sustain the verdict. The question therefore goes to the competency of the evidence, rather than to its sufficiency. There remains for consideration only the rulings of the court challenged by defendant as to the admissibility of evidence.

[Instructions to Jury]

Over defendant's objection there was received in evidence testimony with reference to defendant's income during 1942 and 1943. There was also testimony that defendant filed non-taxable returns for the year 1940 and as far back as the year 1930. As to this testimony the court instructed the jury as follows:

"With respect to the years prior to 1944, it is presumed that the defendant has complied with the provisions of the internal revenue laws and has filed a return and paid his income tax in each of those years when he had a net income subject to tax. Evidence that he did not file a tax return for any of those prior years or that he filed a nontaxable return may therefore be considered by you as an admission by him that he did not have a net income in excess of the amounts for which he would have been required by law to have filed an income tax return or paid a tax. In that connection, however, I caution you that the defendant is not charged with having violated the income tax law for any years other than for the three years mentioned in the indictment; namely, 1944, 1945 and 1946."

In estimating defendant's income on the receipts and disbursements basis, or on the net worth basis, the witness considered the question of his income or want of income prior to 1944 and we think the testimony was admissible for that purpose and the court carefully limited it to that purpose. Hanson v. United States , 8 Cir., 186 Fed. (2d) 61 [51-1 USTC ¶9118]; Schuermann v. United States, 8 Cir., 174 Fed. (2d) 397 [49-1 USTC ¶9281]; Lisansky v. United States, 4 Cir., 31 Fed. (2d) 846 [1929 CCH D-9277]; United States v. Skidmore, 7 Cir., 123 Fed. (2d) 604 [41-2 USTC ¶9716]. In the Skidmore case the trial court gave an instruction as follows:

"With respect to the years prior to 1929, it is presumed that the defendant has complied with the provisions of the Internal Revenue Laws and has filed a return and paid his income tax in such of those years when he had a net income subject to tax. Evidence that he did not file a tax return for any of these prior years may therefore be considered by you as an admission by him that he did not have a net income in excess of the amounts for which he would have been required by law to have filed a tax return."

This instruction was approved by the appellate court. In the instant case the court made it very clear to the jury that the defendant was not charged with having violated the income tax law for any years other than those charged in the indictment. The mere fact that this evidence may have pointed to the laxities or offenses is not important if the evidence was pertinent to the issues involved in the instant case. We think the trial court in its instructions pointed out the basis for the admission of this testimony and the limited purpose for which it should be considered by the jury. It was contended by defendant that he had no intention to evade the income taxes, implying that if there was any violation it was inadvertent. His returns for prior years would have some bearing on the question of his intent and also his credibility in testifying that he had not intended to underestimate his income. In Neff v. United States , 8 Cir., 105 Fed. (2d) 688, in considering a somewhat similar contention we said:

"Questions as to the admissibility of this class of evidence are within the wise discretion of the trial court and its rulings as to the same should not be interfered with by a reviewing court unless it is clear that the questioned evidence has no connection or bearing upon any of the issues involved in the charge. In view of the facts and circumstances disclosed by the record in this case, and the clear and unambiguous instructions of the trial court as to the limited purpose of the evidence, and restricting its effect solely to the question of intent, in our opinion, there was no abuse of discretion on the part of the trial court in the admission of the challenged testimony."

Certainly in view of what is said by us in Hanson v. United States , supra, there was no abuse of discretion in admitting this testimony.

[Admissibility of Evidence of Net Worth of Taxpayer]

It is next urged that the court erred in overruling defendant's objection to the government's use of the net worth summary when it had offered a summary of receipts and disbursements. The government's calculations were based upon the receipts and disbursements method and it submitted in corroboration the net worth summary. The net worth computations were based upon a balance sheet which the government auditors prepared and which the defendant himself signed. The defendant offered in evidence a summary purporting to show his net worth and this summary corroborated to a considerable extent the summary offered by the government. It differed in that the defendant eliminated certain assets confessedly acquired but claimed by him not properly taxable as income. The testimony offered by him in support of this contention, however, was not conclusive on the jury. Defendant insisted that the government's exhibits were inaccurate because they did not take into account either bills payable or bills receivable. They were prepared, however, on the cash basis and there is nothing to indicate that defendant had adopted the accrual basis of accounting; in fact, so far as he was guided by any acceptable method of calculating income that method was the cash basis as distinguished from the accrual basis. It must be borne in mind that this was not an action to recover the amount of income taxes alleged to be due, nor an action in which it was necessary to determine the exact amount of defendant's income for the years in question. On this phase of the case all that it was necessary to show was that there was omitted from the reported income a substantial amount. The calculations here were based upon such records and statements as defendant made available, and as said by the Court of Appeals for the Sixth Circuit in Gariepy v. United States, 189 Fed. (2d) 459 [51-1 USTC ¶9318]:

"At best it was, of course, but an estimate, but as an estimate it was entitled to the consideration of the jury because based on substantially the entire evidence in the record."

The accuracy of the government's computations of income based on the receipts and disbursements method is corroborated by the fact that the amount of income as determined by that method is substantially the same as determined by the government's net worth calculation. But we are not here dealing with the weight or conclusiveness of the evidence but rather to its admissibility and we think it was competent to permit the government to submit its estimates of income based upon the two methods invoked as the basic facts of both calculations were all before the jury. Hanson v. United States, supra.

[Evidence as to Taxpayer's Violation of OPA Regulations]

It is seriously urged that the defendant was prejudiced by the ruling of the court admitting reference to the fact that defendant had been fined for violation of the O. P. A. regulations. When the government's auditors were checking defendant's accounts defendant advised that he had had difficulties with the O. P. A. and had been required to deposit a bond of $1,000.00 and that he had to pay certain fines so that there was but $600.00 returned to him. These transactions had to be accounted for in the net worth statement as well as in the receipts and disbursements statement. In the receipts and disbursements statement the $600.00 was shown as a credit against the total deposits. In the net worth statement the fines paid were set up as an unallowable expense. Defendant's counsel in cross-examining one of the government's expert witnesses, brought out the fact that the exhibit prepared by him showed a gross profit in excess of 50 per cent whereas the grocer's mark-up cost had a range of from 15 to 21 per cent. In this connection we think it was proper to show that the defendant had been charging more than the ordinary or accepted gross profit on his sales and in that connection the government was permitted to show that the defendant had been selling at a profit exceeding the selling price. There was no abuse of discretion in admitting this testimony especially in view of the instruction of the court that the defendant was being tried only for the charges contained in the indictment. Harper v. United States , 8 Cir., 143 Fed. (2d) 795; Neff v. United States , supra; Diehl v. United States , 8 Cir., 98 Fed. (2d) 545. In the last cited case we said:

"Even though the evidence complained of was incompetent, its admission, over the objection made to it, would not justify a reversal in this case, where there was an abundance of competent evidence to sustain the verdict of the jury and the trial was in all other respects fair and impartial."

Convinced as we are that the defendant had a fair trial the judgment appealed from is affirmed.

 

 

[51-2 USTC ¶9468]Wanlo R. Olson, Appellant v. United States of America , Appellee

(CA-8), In the United States Court of Appeals for the Eighth Circuit, No. 14,260, 191 F2d 985, October 22, 1951

Appeal from the United States District Court for the District of North Dakota.

Evasion of income taxes charged: Propriety of evidence of net worth: Books for taxable year available: Testimony as to legal advice and bank accounts: Instruction regarding books of account.--Taxpayer was convicted on three counts of an indictment which charged him with attempting to defeat and evade a large part of his federal income taxes in the years 1944, 1945, and 1946, by filing false returns in violation of Code Section 145(b). Objection was made by taxpayer to admission of evidence of his net worth for 1946. He had kept a set of books for that year, on the basis of which the government had reached the conclusion that taxpayer attempted tax evasion. The government submitted the purport of the books, but further along in the trial offered evidence of taxpayer's net worth for the year 1946. The court sustained the government's position, determining that it had rightly sought to corroborate and check its conclusions by reference to other available evidence tending to support its accusation and to show the same tax evasion. The court also concluded that no reversible error was committed by the District Court in striking from the record evidence of details concerning legal advice given to taxpayer to omit certain items of profit from his 1946 tax return. Testimony that such advice had been given was permitted to stand, but the taxpayer's rights were demand to be fully protected. The judgment of conviction was not reversed on the ground that the court erred in not striking testimony regarding a bank account opened in 1947 as being irrelevant when the taxpayer first moved to strike such testimony but in sustaining the motion to strike when further evidence was adduced showing that the deposits were made in 1947. Instructions to the jury regarding books of account and their availability to the government, which conformed substantially with the declaration of law made by this court in Myres v. United States, 174 Fed. (2d) 329, 49-1 USTC ¶9275, were not erroneous.

Francis Murphy submitted brief for appellant. P. W. Lanier, United States Attorney (Joseph A. Struett, Attorney, Chief Counsel's Office, Bureau of Internal Revenue, was with him on the brief), for appellee.

Before GARDNER, Chief Judge, WOODROUGH and THOMAS, Circuit Judges.

WOODROUGH, Circuit Judge, delivered the opinion of the Court:

Wanlo R. Olson was convicted on three counts of an indictment which charged him with attempting to defeat and evade a large part of his federal income taxes in each of the years 1944, 1945 and 1946, by filing false returns in violation of Section 145(b) of the Internal Revenue Code, 26 U. S. C. A. 145(b). In count one it was charged that he returned net income for 1944 in the sum of $3,864.37 and the tax thereon in the sum of $707.00, whereas his net income was $74,269.42 and the tax $47,228.40. In count two, the net income and tax charged to have been returned for 1945 were $4,906.91 and $943.00, respectively, whereas the amounts were in fact $72,963.49 and $46,289.33. In count three the charge was that the net income and tax returned for 1946 were $12,188.87 and $2,937.18, respectively, whereas the true sums were $58,304.73 and $30,683.62. He was sentenced to three years imprisonment and a fine of $10,000 on count one, and to the same penalty on each of counts 2 and 3 "but such sentence on counts 2 and 3 to run concurrently with the sentence imposed in count 1." He appeals. His trial before the court and a jury upon his plea of not guilty extended over more than a week but he submits his appeal upon a condensed record which includes only the parts of the evidence and proceedings he has deemed sufficient to present the four points of error argued and relied on by him for reversal. The record does not include any motion for directed verdict at the conclusion of all the evidence and there is no claim that the evidence adduced at the trial was not sufficient to support the verdict and judgment.

The same counsel who represented the defendant throughout the trial in the District Court of North Dakota and the appeal to this court in the case of Hanson v. United States, 186 Fed. (2d) 61 [51-1 USTC ¶9118], also represented the defendant in this case on his trial and on this appeal. In the Hanson case this court considered at length the question of the sufficiency of the evidence to support the conviction for violations of the same statute here involved and there were doubtless points of similarity in the kind of evidence in the two cases. But beyond stating that the evidence against this appellant supported the verdict of guilty returned against him by the jury, we are called on here to discuss only the particulars presented and relied on by appellant.

[Four Points Argued for Reversal]

The four points presented and argued for reversal are: (1) that the court erred in admitting testimony as to appellant's net worth for the taxing year 1946; (2) that it erred in sustaining objection to defendant's testimony as to certain advice given him by a lawyer; (3) that it erred in denying defendant's motion to strike certain testimony; (4) that it erred in giving an instruction duly excepted to.

[Objection to Evidence of Net Worth in 1946]

1. Enough of the record of the proceedings on the trial has been brought up to show that the defendant kept a set of books showing his income for the year 1946 and the government submitted the purport thereof to the jury. Further along in the trial it offered evidence of his net worth at the beginning and at the end of the year 1946. Both items of evidence (the books and the net worth) tended equally to show that the defendant had received large amounts of income during 1946 and he had made return of only a small fraction or less than ten percent of the tax that he owed in respect to it. But he objected to the evidence of net worth on the ground that it "constituted a mere substitute method in the absence of books, the government having already established that there were adequate books kept for the year."

In making his objection to the evidence of net worth offered by the government the defendant did not point out to the trial court wherein he claimed that the evidence tended to his prejudice. He merely objected generally that it was incompetent and improper. Counsel for the government replied that the tendered evidence of net worth was "entitled to its place in the record as additional evidence or corroborative evidence or evidence which should be considered by the jury under all the circumstances."

On this appeal appellant argues that the evidence "impressed the jury with the notion that appellant's books of account were unreliable" and their unreliability "tended more strongly to indicate bad faith on his part than the failure to keep any books whatsoever in 1944 and 1945."

But we find no merit in the assignment of error. As the defendant kept a set of books for 1946 the government in the first instance determined his correct income and his attempt to evade the tax on it on the basis of the books. But it rightly sought to corroborate and check its conclusion by reference to other available evidence tending to support its accusation and to show the same tax evasion. In the case of O'Connor v. United States, 9 Cir., 175 Fed. (2d) 477 (1949) [49-2 USTC ¶9329], a prosecution under the same statute as is here involved, the government agents employed and there were submitted to the jury three different methods of determining the income of the accused and no error was found in the resulting judgment. In Jelaza v. United States , 4 Cir., 179 Fed. (2d) 202 (1949) [50-1 USTC ¶9149], the opinion of the Court of Appeals shows that it approved the use of three different methods of arriving at income on the trial of a charge of violating the same statute that is here involved. Likewise, in United States v. Chapman, 7 Cir., 168 Fed. (2d) 997 (1948) [48-1 USTC ¶9312], the amount of income was shown by books of account and also by proof of net worth at different times as in this case.

In this case the defendant's books for 1946 tended to show the attempted tax evasion in that year as charged and the comparisons of net worth at different dates added corroboration. Though the government agents did not reach exactly the same results in figures from their studies of defendant's books and his net worth at the beginning and end of 1946, there was enough similarity to afford corroboration. Both studies tended to show his tax returns were grossly false as charged. The record brought up does not show what defense was offered to the government's showing, both by book records and by other corroborating evidence, that in the period covered by the indictment the defendant only returned and paid a little more than 3 percent of the taxes he owed. We find no basis in the record to conjecture that the evidence complained of was otherwise than probative of the offense charged. As was said in United States v. Tandaric, 7 Cir., 152 Fed. (2d) 3, l. c. 6: "It is to be remembered that we must pass upon defendant's contention without regard to technical errors, defects or exceptions which do not affect the substantial right of the parties, 28 U. S. C. A. Sec. 391, and the question whether prejudice results from the erroneous admission of evidence is one of practical effect, when the trial as a whole and all the circumstances in the case are regarded." The first point argued affords no cause for reversal.

[Details as to Defendant's Legal Advice Stricken]

2. As to the second point, it appears that defendant was charged with receiving an item of more than five thousand dollars in 1946 as a result of transactions with one Krick Company. Defendant had loaned one Krick $25,000 and had agreed to take a share of the company's profits in lieu of interest. The amount charged as income represents those profits. The defendant testified that he consulted with a lawyer named Taylor, since deceased, as to whether or not he had to account for the receipts on his income tax, and in response to the question, "What was his advice to you?", testified that he was advised to leave it out for the time being. The record indicates that the defendant desired and was proceeding to state his conversation about the matter with the lawyer verbatim but was interrupted by an objection made by the prosecutor to the narration by the witness of the details of the conversation. The court sustained the objection only as to the narration of such details of conversation, allowing the testimony as to the advice given by the lawyer to stand. There was no offer to prove made on behalf of defendant and the record indicates that defendant's counsel asked the court, "You are not striking out this last sentence?", referring to the advice given by the lawyer, to which the court replied, "It is not being stricken". Defendant's counsel seemed content with the court's answer and pressed the matter no further. In its instruction the court specifically called the attention of the jury to defendant's testimony that "he was advised that he did not have to report the income from a certain $25,000 loan" and it is clear that the defendant's rights in respect to the $5,559.59 item of income in 1946 were fully protected. The part of the record that has been brought up in relation to it presents no error.

[Testimony Concerning Bank Accounts Stricken]

3. As to the refusal of the court to strike out testimony.

It appears that defendant disclosed in answers to questions put to him on cross-examination that he had a bank account in California . He said, "Right here I can't say the date when I first opened an account in this California bank. I can't say for sure that the account was opened in 1945". The defendant moved to strike all testimony as to the deposits in the California bank on the ground that they were made in 1947 [after the dates of the offenses charged.] The motion was denied. Later further evidence was adduced and it was shown that the bank deposits in California were made in 1947 and were therefore not relevant. A motion was then made to strike all the testimony with reference thereto, and it was sustained. In striking it out the court admonished the jury to "just disregard it as though it had never been offered."

We find no merit in the contention that the judgment ought to be reversed because the court denied the motion to strike the testimony about the deposits in the California bank in the first place and before the defendant had identified the dates of them as being subsequent to 1947. The court's ruling and admonition fully protected defendant's rights so far as is shown by anything in the record before us.

[Propriety of Instruction Regarding Books of Account]

4. The point last argued is that the following instruction given by the court was erroneous:

"You are instructed that a taxpayer who keeps books of account or any records from which his income can be ascertained is required to produce them at reasonable times for inspection by the Government revenue agents and that the failure or refusal of such taxpayer to produce his books and records is a circumstance which might be considered in determining the issue of wilfully filing a false return. If you find in this case that the defendant did have books of account or any other records from which his net income could be ascertained and that he failed to produce them on reasonable request by the Government revenue agents, you may give consideration thereto in determining the issue of whether or not he wilfully filed a false return or returns."

This instruction, it may be noted, conforms substantially with the declaration of law made by this court in Myres v. United States, 174 Fed. (2d) 329, l.c. 337 [49-1 USTC ¶9275]. There was an appeal from conviction and sentence under the same statute that is involved here, and the court stated:

"The defendant argues that the court erred in instructing the jury that a taxpayer who keeps books of account or records from which his net income can be ascertained is required to produce them at reasonable times for inspection by government Revenue Agents, and that the failure or refusal of such a taxpayer to produce his books and records is a circumstance which might be considered in determining the issue of willfully filing a false return. The defendant asserts that this instruction was highly prejudicial because it implied that the defendant had books or records and that he concealed them from the Revenue Agents. It is true that the defendant had no books of account, but he did have the case files of the firm, some memoranda as to expenses and all of the cancelled checks upon the several bank accounts. That these were helpful to his own accountants in reconstructing his income is apparent. His withholding this assistance from the Revenue Agents was entitled to significance, particularly in view of his professed willingness to help them and his failure to do so. The defendant also contends that the charge in this respect misstated the law and is contrary to the Fifth Amendment to the Constitution of the United States relative to self-incrimination. We fail to see how the defendant's privilege against self-incrimination was in any way involved in this case."

The record brought up in this case indicates that the facts in this case were similar to those in the Myres case in that the defendant here had no books of account for the years 1944 and 1945, and claimed that while he had records for 1946 he had only a few for 1945 and nothing for prior years, but he did have in his office a certain record of "daily recipts", "records of the sales", "the salaries paid", "invoices in a big drawer". His employee, Mrs. Iver Lee, whom he called to testify in his behalf, proved that defendant did have some records for the year 1944. The government agents who heard her testify took the stand in rebuttal and testified that if they had had access to the records testified to by Mrs. Lee it would have saved them one-third of the time they had to spend working out the evidence they adduced. The record brought up does not show that the instruction complained of was prejudicially erroneous.

As we have not found error in the judgment appealed from it is affirmed.

 

 

[51-1 USTC ¶9118] Rob ert Hanson, Appellant v. United States of America , Appellee

(CA-8), In the United States Court of Appeals for the Eighth Circuit, No. 14,137, 186 F2d 61, December 29, 19 50

Appeal from the United States District Court for the District of North Dakota.

Admissibility of evidence: Self-incrimination.--Government's auditor reconstructed taxpayer's income by means of net worth determination based on taxpayer's bank statements, cancelled checks, and other memoranda. At the time taxpayer produced such statements, checks, etc., he was neither under arrest nor charged with any offense and supplied them voluntarily. He was not warned that the evidence therein might be used against him. At the time of this proceeding for tax evasion taxpayer objected to the admissibility of this evidence and stated that its admission was in violation of his constitutional rights. The Court ruled, however, that since the evidence was voluntarily supplied and was not obtained under false pretenses, it was admissible.

Evidence: Prior years' taxes not in question.--Taxpayer had not filed income tax returns for 20 years prior to the tax years under consideration although he held a number of income-producing properties and was engaged in various businesses. Taxpayer objected to the admission of this evidence on the grounds that it was outside the scope of the indictment, but the Court held that it was given in rebuttal and the admission was not prejudicial error.

Evidence: Summation of net worth.--The Court held that the admission of the exhibit representing a financial statement prepared by a government official to show the assets and liabilities of taxpayer for the years in question was proper.

Motion for acquittal denied.--Taxpayer's motion for judgment of acquittal interposed at the close of evidence was denied inasmuch as the jury found on the evidence and testimony that the taxpayer was guilty.

Mr. Francis Murphy for appellant. Mr. P. W. Lanier, United States Attorney, for appellee

Before GARDNER, Chief Judge, and WOODROUGH and THOMAS, Circuit Judges.

GARDNER, Chief Judge, delivered the opinion of the Court:

Appellant was convicted on an indictment of four counts, each charging that he had wilfully and knowingly attempted to defeat and evade a large part of the income tax due and owing by him to the United States of America , in violation of Section 145(b), Title 26 U. S. C. The counts of the indictment refer respectively to the calendar years 1945, 1946, 1947 and 1948, it being charged in each count that appellant reported a certain specified income on which he paid but that in each of said years his income was substantially greater than reported and on which he paid the income tax. Appellant will be referred to as defendant.

At the time of the trial defendant was a resident of Lisbon , North Dakota , where he was engaged in operating a garage and during the times involved he kept no books of account but maintained a bank account and had his cancelled checks. In May or June, 1947, Mr. O. C. Berg, a Deputy Collector of Internal Revenue, called upon defendant advising him that he desired to check defendant's income tax returns for the years 1944 and 1945. Being advised by defendant that he had kept no records, Mr. Berg asked to examine defendant's bank statements and cancelled checks, which defendant turned over to him. Mr. Berg also examined defendant's tax returns for the years 1943 and 1946 and procured from defendant his bank statements and cancelled checks for those years. Mr. Berg, from the reports and statements furnished him by the defendant, and from statements made to him by the defendant, reconstructed defendant's income for the years in question, and being of the view that defendant had understated his income, Mr. Berg called in a Mr. Sherrill W. Anderson, Special Agent of the United States Treasury Department, to verify and corroborate Mr. Berg's findings. Mr. Anderson calculated, from the data furnished him and from an independent investigation, defendant's income on what is referred to in the record as a net worth basis. Following this investigation the indictment herein was returned and before the time of trial defendant moved to suppress the evidence obtained from him by the government's agents and to dismiss the indictment because it was based upon evidence obtained from the defendant in violation of the Fourth and Fifth Amendments to the Constitution of the United States . A hearing was had on this motion, at which testimony was taken and the court denied the motion. Each of the counts of the indictment alleged the amount of income reported, the tax due on the reported income, the alleged true and correct income which should have been reported, and the true and correct income tax which defendant should have paid. This may be summarized as follows:

                                                      Tax on                                  True

                                   Income           Income          Corrected                Tax

Count              Year          Reported         Reported             Income                Due

I             1943 ....         $4,537.92          $792.36         $12,875.88         $ 3,625.34

II            1944 ....          5,259.48           819.87          33,126.79          15,207.41

III           1945 ....          5,034.80           879.70          18,609.96           6,298.28

IV            1946 ....          4,917.39           679.00          30,592.74          12,319.12

 

The government's auditors testified to an examination of the defendant's bank statements, cancelled checks, deposit slips, and other bank records. From these and from statements made to them by defendant, they prepared a summary of the gross earnings, expenses, and net taxable income of the defendant for each one of the years in question and upon this net taxable income they computed the tax which they asserted defendant should have paid. The government, also through its auditors, introduced testimony as to the net worth of the defendant on January 1, 19 43, and the net worth of the defendant at the end of each calendar year thereafter up to and including December 31, 19 46. These calculations were embodied in exhibits introduced and received in evidence. Generally speaking, these exhibits purport to show gross receipts, operating expenses, allowable deductions, net income and income tax due calculated upon the corrected net income basis. The results show substantially the same figures charged in the indictment, as above set out. The defendant objected to the evidence produced by the government's auditors upon the same grounds set out in his motion to suppress and his objections were overruled.

Defendant took the witness stand in his own behalf and in explanation of the discrepancy between his returns for the years involved and the reconstructed income testified to by the government's witnesses, stated that prior to 1941 he lived in Elliott, North Dakota, where he operated an elevator, a cream station, a hardware store, sold livestock, and operated an electric light plant; that when he moved from Elliott, North Dakota, to Lisbon, North Dakota, in 1941, he was without means; that thereafter many people who owed him money when he lived in Elliott paid him approximately $50,000.00 or $60,000.00 of money due him; that certain properties which he had in Elliott became valuable and that he realized large sums of money by the sale of these properties, but that he had no profits from the sales, and that all of these sums approximating $127,000.00 in amount were placed in his bank account; that any additional money not accounted for was the result of the fact that he hauled a great deal of cattle for other people and the sale price of these cattle went through his account without representing any income to him; that he did not report the money received from his Elliott debtors because he had been advised that it was not taxable. He testified that he at no time intentionally evaded payment of any income tax due. In rebuttal the government offered evidence to show that defendant had filed no income tax returns for the period of twenty years prior to 1940. The evidence was received over defendant's objection. At the close of all the testimony defendant moved for judgment of acquittal, which motion was denied and the case was submitted to the jury on instruction to which neither party saved exceptions.

The jury found the defendant guilty on all four counts and pursuant to this verdict the court entered judgment and sentence of imprisonment for a period of three years on count 1 and for a like period of three years on each of counts 2, 3 and 4, the sentences on counts 2, 3 and 4 to run concurrently with the sentence imposed on count 1. Defendant seeks reversal on substantially the following grounds: (1) the court erred in denying defendant's motion to suppress and to dismiss and to strike evidence obtained from defendant in violation of the Fifth Amendment; (2) the court erred in admitting evidence that defendant did not pay any Federal income tax for the years 1920 to 1940; (3) the court erred in admitting in evidence Exhibit 484; (4) the court erred in denying defendant's motion for judgment of acquittal.

We think the paramount, if not the controlling, issue in this case is whether the court erred in overruling defendant's objections to the evidence of the government's auditors which confessedly was based upon admissions made by the defendant and on the documents consisting of cancelled checks, bank statements and other memoranda which defendant delivered to them before the indictment was returned. The question was raised by motion to suppress, by objection to the testimony and by motion to strike the testimony, and finally by a motion for judgment of acquittal. The contention of the defendant is based on the Fifth Amendment to the Constitution of the United States , which in effect provides that no person "shall be compelled in any criminal case to be a witness against himself." It is the contention of the defendant that the words "in any criminal case" are not limited to the actual trial and that they should be so construed as to include the request of the Revenue Agent for the documents made use of in the prosecution against the defendant. The privilege is a personal one and need not be asserted. At the time defendant produced his cancelled checks and bank statements and made certain admissions to the Revenue Agent he was not under arrest; neither had he been charged with any offense, nor was he threatened with prosecution or otherwise coerced. The papers referred to were his private papers and he might have stood on his constitutional right to decline to produce them. This he did not do but without compulsion he voluntarily delivered the documents to the Revenue Agent. Neither was he under any compulsion to make the admissions which he made to the Revenue Agent. But it is said that he should have been warned that the documents might be used as evidence against him. At the time in question there is no evidence that a criminal prosecution was in contemplation. The government agent, in the performance of his duty, went to defendant, advising him that he wished to check his income tax returns for the years in question. There is nothing to indicate that there was even any suspicion at that time that the defendant was guilty of a criminal offense. In these circumstances we think there was no occasion nor necessity for warning the defendant that any statements he might make or documents he might produce would be used against him in a criminal prosecution. Wilson v. United States, 162 U. S. 613; Powers v. United States, 223 U. S. 303; United States v. Block, 2 Cir., 88 Fed. (2d) 618; United States v. Heitner, 2 Cir., 149 Fed. (2d) 105; Himmelfarb v. United States , 9 Cir., 175 Fed. (2d) 924 [49-1 USTC ¶9313]; Nicola v. United States, 3 Cir., 72 Fed. (2d) 780 [4 USTC ¶1331]. In Wilson v. United States , supra, the court, addressing itself to this contention, said:

"And it is laid down that it is not essential to the admissibility of a confession that it should appear that the person was warned that where he said would be used against him, but on the contrary, if the confession was voluntary, it is sufficient though it appear that he was not so warned."

And in Powers v. United States , supra, the court said inter alia:

"We are of the opinion that it was not essential to the admissibility of his testimony that he should first have been warned that what he said might be used against him."

In United States v. Block, supra, in an opinion by Judge Learned Hand speaking for the court, it is among other things said:

"The objection is that as he had not been warned of his privilege against self-incrimination before he gave these answers, they were inadmissible in the case at bar; were not 'voluntary.' Even so, it is impossible to see how the judge at that trial could have apprehended that any warning was necessary, and that alone would seem to be answer enough. Moreover, although the authorities are not wholly clear as to whether a witness must be warned of his privilege in such a case, if his testimony is to be later used against him, for us the question is determined by two decisions of the Supreme Court: Wilson v. United States, 162 U. S. 613, 16 S. Ct. 895, 40 L. Ed. 1090, and Powers v. United States, 223 U. S. 303, 32 S. Ct. 281, 56 L. Ed. 448, in each of which testimony of the accused taken on preliminary examination was successfully used against him on his trial. In the first he had been taken into custody the night before, apparently to protect him from the threats of a mob. A commissioner examined him; he was not represented by counsel, or advised that he need not speak; apparently the examination was in invitum. Still the court thought the testimony voluntary. In the second case the accused voluntarily took the stand at the preliminary examination, and his statement was used against him, though he had not been advised of his privilege."

In Nicola v. United States , supra, which was a tax evasion case, the court, referring to the question of waiver, said:

"Was it necessary for the defendant to invoke it in the first place before the revenue agent or could he wait until his trial on indictment for attempting to evade a part of his income tax? Under the authority of McKnight v. United States (C. C. A.) 115 F. 972, 981, Lisansky v. United States , supra [31 Fed. (2d) 846, 1929 D-9277], and United States v. Murdock, 284 U. S. 141, 148, 149, 52 S. Ct. 63, 65, 76 L. Ed. 210, 82 A. L. R. 1376 [2 USTC ¶828], it was necessary for him to claim immunity before the government agent and refuse to produce his books. After the government had gotten possession of the information with his consent, it was too late for him then to claim constitutional immunity."

In the instant case the defendant did not act under compulsion of any kind. The right or privilege being a personal one can surely be waived and the constitutional amendment invoked does not prohibit one from voluntarily producing evidence which may incriminate him. While the court overruled defendant's objections to the admissibility of this testimony it is observed that in the court's instructions, reference is made to the contention of the defendant on this issue. The court, after referring to the fact that the government's agents, when they consulted with defendant with reference to his income tax returns, did not advise defendant that criminal prosecution might result, said:

"The court instructs you that the United States Government has a right to have its Collectors and Agents of Internal Revenue make investigations of the returns of income taxpayers and such representatives of the Government have a right to go to the various taxpayers whose returns are being investigated and ask them for information that the taxpayer is willing to give and that might be pertinent to such investigation. You are further instructed that if the representatives of the Government of the United States , in making such investigation, identify themselves as to their business and the taxpayer then voluntarily and willingly gives information or records to such investigators, the obtaining of such information in such a manner is not a violation of the Constitutional rights of the taxpayer."

This in effect left to the jury the question as to whether or not the defendant had voluntarily given to the government auditors the data used by them in testifying. The jury, having returned a verdict of guilty, necessarily found that defendant acted under no compulsion in furnishing the government agents with the information referred to. As has heretofore been observed, there were no exceptions saved to the court's instructions.

We think there was no error in the admission of this testimony.

It is next urged that the court erred in admitting testimony that defendant had not paid income taxes for the period of twenty years prior to 1940. The proof shows that he had filed no income tax returns for that period. This was produced by the government in rebuttal. Defendant as a witness in his own behalf testified that during the years covered by the indictment he received and deposited in the bank large sums of money owed him prior to 1941. A part of the balance he testified was from the sale of properties which he had owned prior to that time. During this period he was in the hardware business. He owned two business buildings, a warehouse, a pool hall, a cream station, a light plant, an apartment house, a feed mill and other properties, and was engaged in various businesses. On cross-examination he was asked, among other things: "Now, during the time that you were accumulating all of this property did you make any Federal income tax returns to the Federal government?" Over objection he was permitted to answer, "I don't know." In rebuttal the government was permitted to show that defendant first filed an income tax return in the year 1940. Apparently defendant was trying to account for large sums of money which found its way into his bank account during the years covered by the indictment. The testimony was not objected to on the ground that it was not proper rebuttal but that it was immaterial because it was outside the scope of the indictment. Defendant denied any intention of violating the revenue laws, leaving the inference that if there was any violation it was inadvertent. Failure to file returns for prior years would have bearing upon the question of his intent, but in addition to that it had a bearing on the credibility of the witness with reference to his transactions during the years prior to 1941. As said in Lisansky v. United States, 4 Cir., 31 Fed. (2d) 846 [1929 D-9277],

"But the evidence as to the income in 1924 and the return made in regard thereto was clearly competent. In the first place, it tended to contradict certain explanations made by defendants as to transactions occurring in 1923; and, in the second place, in so far as it tended to show a false return made in 1924, it was competent as bearing upon the question of fraudulent intent."

In Schuermann v. United States , 174 Fed. (2d) 397 [49-1 USTC ¶9281], this court said:

"We think it reasonably may be inferred, from the defendant's returns for the years prior to 1942, that the likelihood of his having accumulated a large surplus from his activities was negligible."

Referring to this testimony the court in its instructions said:

"With respect to the years prior to 1940, it is presumed that the defendant has complied with the provisions of the Internal Revenue Laws and has filed a return as paid his income tax in each of those years when he had a net income subject to tax. Evidence that he did not file a tax return for any one of those prior years may therefore be considered by you as an admission by him that he did not have a net income in excess of the amounts for which he would have been required by law to have filed a tax return. In that connection, however, I caution you that the defendant is not charged with having violated the income tax law for any years other than for the four years mentioned in the indictment; namely, 1943 to 1946, inclusive."

This instruction was not excepted to and it finds support in United States v. Skidmore, 7 Cir., 123 Fed. (2d) 604 [41-2 USTC ¶9716]. We are clear that the admission of this testimony in rebuttal was not prejudicial error.

It is contended that the court erred in admitting the government's Exhibit 484. This exhibit is a summation of the net worth of the defendant for the years 1942, 1943, 1944, 1945 and 1946. It was prepared by Mr. Anderson, who explained in his testimony that the exhibit represents a financial statement prepared to show the assets and liabilities of the defendant for the years 1943, 1944, 1945 and 1946. The witness further testified:

"The assets we have covered in the testimony and have shown that as of this date, which is January 1, 19 43, his assets totalled $41,055.84. As of January 1, 19 44, they total $52,279.58. As of January 1, 19 45, they total $82,643.61. As of January 1, 19 46, they total $99,562.21, and as of the close of December, 1946, they total $129,164.30. Those are asset totals.

"The liability totals for the same period are $1,000.00 as of January 1, 19 43; $1,357.50 as of January 1, 19 44; $1,890.63 as of January 1, 19 45; $7,225.31 as of January 1, 19 46; and $8,235.48 as of the close of business December 31, 19 46.

"As I have testified, the net worth is the difference between the assets and the liabilities, which means then that on January 1, 19 43, Mr. Hanson was worth $40,055.84. On January 1, 19 44, we was worth $50,922.08. On January 1, 19 45, he was worth $80,752.98; on January 1, 19 46, he was worth $92,336.90; and as of the close of business December 31, 19 46, he was worth $120,928.82."

Further explaining the exhibit the witness testified:

"From the cancelled checks, we have determined what he spent for living expenses by check, and those totals have been introduced. They show that during 1943, his cost of living was $3,210.64; during 1944, it was $2,524.13; during 1945, it was $4,999.29; and during 1946, it was $2,201.49. Those items represent the cost of living that we can prove by cancelled check. Adding the increase in net worth to the amount spent for cost of living, we arrive at a figure that was called adjusted gross income, and it shows that during 1943, his adjusted gross income was approximately $14,076.88. During 1944, it was $32,355.03. During 1945, it was $16,583.21, and during 1946, it was $30,793.41."

We think the exhibit was properly admitted in evidence. Ray v. United States , 8 Cir., 114 Fed. (2d) 508; Cooper v. United States , 8 Cir., 9 Fed. (2d) 216 [1 USTC ¶149]; United States v. Kelley, 2 Cir., 105 Fed. (2d) 912 [39-2 USTC ¶9621]; United States v. Schenck, 2 Cir., 126 Fed. (2d) 702 [42-1 USTC ¶9363]. In United States v. Kelley, supra, it is among other things said:

"The prosecution's accountants were allowed to present their calculations from the books and returns in evidence. This kind of evidence when based upon documents themselves competent and accessible, is always admissible; a jury without such guidance would be totally unable to cope with complicated accounts."

The data from which this exhibit was compiled was all produced in open court and counsel had an opportunity of examining the witness with reference thereto. There is no merit in the contention that the exhibit was not admissible.

It is finally contended that the court erred in denying defendant's motion for judgment of acquittal interposed at the close of all the evidence. As the jury found the defendant guilty, the evidence must be viewed in a light most favorable to the government. The jury was not bound to believe the testimony of the defendant and as we have held the evidence of the government's accountants was competent, we think it abundantly supported a verdict of guilty. Schuermann v. United States supra; United States v. Potson, 7 Cir., 171 Fed. (2d) 495 [49-1 USTC ¶9119]; Barcott v. United States, 9 Cir., 169 Fed. (2d) 929 [48-2 USTC ¶9377]; United States v. Johnson, 319 U. S. 503 [43-1 USTC ¶9470]; Lurding v. United States, 6 Cir., 179 Fed. (2d) 419 [50-1 USTC ¶9159].

Finding no prejudicial error in the record, the judgment appealed from is affirmed.

 

 

[55-1 USTC ¶9149]Fay Heasley, Appellant v. United States of America , Appellee

(CA-8), In the United States Court of Appeals for the Eighth Circuit, No. 15,091, 218 F2d 86, January 13, 19 55

Appeal from the United States District Court for the District of North Dakota.

[1939 Code Sec. 145(b)--similar to 1954 Code Sec. 7201]

Criminal prosecution: Sufficiency of indictment.--Defendant, a farmer, was convicted of filing false and fraudulent income tax returns. There was no error in denying defendant's motion to dismiss the indictment on the ground of insufficiency of the indictment, since the indictment had charged defendant with attempt to evade income tax by understating his adjusted gross income.

[1939 Code Sec. 145(b)--similar to 1954 Code Sec. 7201]

Criminal prosecution: Sufficiency of evidence: Net worth method.--There was no error in denying defendant's motion for acquittal on the ground of the insufficiency of evidence, since the net worth summarization prepared by the Government was based upon the net worth statement signed and sworn to by defendant.

[1939 Code Sec. 22(n)--similar to 1954 Code Sec. 62; 1939 Code Sec. 145(b)--similar to 1954 Code Sec. 7201]

Criminal prosecution: Instructions to jury.--There was no error in instructing the jury that taxable income was to be computed on the basis of adjusted gross income which generally represented the profit from business operations and that the burden was upon the Government to establish the amount of defendant's taxable income as well as defendant's failure to make a true report for the purpose of evading tax.

Submitted on brief (Francis Murphy was on the brief), for appellant. Ralph B. Maxwell, Assistant United States Attorney ( Rob ert Vogel, United States Attorney, was with him on the brief), for appellee.

Before GARDNER , Chief Judge, and JOHNSEN and COLLET, Circuit Judges.

GARDNER, Chief Judge:

Appellant was convicted on three counts of an indictment which charged him with willfully and knowingly attempting to defeat and evade a large part of his Federal income taxes for the years 1946, 1947 and 1948 respectively. He was acquitted on Court IV of the indictment which charged him with a similar offense for the year 1949. We shall refer to appellant as defendant. During the times here involved defendant was a farmer and carried on extensive farming operations in North Dakota . He claims to have kept no books of account or record of his farming operations or financial transactions. In his income tax return for the year 1946 he reported $317.00 as tax due and owing; for the year 1947 he reported $150.50 as tax due and owing; and for the year 1948 he reported $240.00 as tax due and owing. It was charged in the indictment that there was in fact justly due and owing for the year 1946 the sum of $12,007.45; for the year 1947 the sum of $19,093.14; and for the year 1948 the sum of $27,518.36. In the absence of any books of account the government attempted to prove the allegations of the indictment by the receipts and disbursements method and by the so-called net worth method. It was the contention of defendant that he had only a grade school education, that he had no knowledge of methods or systems of accounting or of the requirements of the revenue laws, that for the various years involved he had turned over all the records he had covering each year's business to John Schoonover, an expert accountant, and that he had relied upon Schoonover to prepare his tax returns and that the returns which he signed were prepared by Schoonover and believed by defendant at the time they were made to be substantially correct. As Mr. Schoonover had prior to the time of trial died it was not possible to secure his testimony.

The counts of the indictment are identical except as to the period involved and amounts of income and tax designated therein. Count I may be taken as typical. It reads as follows:

"That on or about the 10th day of February, 1947, at Fargo, in the District of North Dakota, one Fay Heasley, late of Eldridge, North Dakota, did willfully and knowingly attempt 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, by filing and causing to be filed with the Collector of Internal Revenue for the Internal Revenue Collection District of North Dakota, at Fargo, North Dakota, a false and fraudulent income tax return wherein he stated that his adjusted gross income for said calendar year was the sum of $4,071.03 and that the amount of tax due and owing thereon was the sum of $317.00, whereas, as he then and there well knew, his adjusted gross income for the said calendar year was the sum of $31,563.58, upon which said adjusted gross income he owed to the United States of America an income tax of $12,007.45."

In due course defendant interposed a motion to dismiss the indictment on the grounds that "the said Indictment and each and every count thereof fails to set forth or describe a public offense as defined by the laws of the United States, in that the Internal Revenue Act in force at the times set forth in the various counts in said. Indictment required the payment of tax only upon net incomes of individuals and that said Indictment and each and every count thereof wholly fails to allege that the said defendant did not during the times mentioned in each of said counts actually return and pay a proper amount upon his net income for each of the years involved." The motion was denied. At the close of the government's testimony and again at the close of the entire case defendant interposed a motion for judgment of acquittal on the grounds that "there is a variance between the Indictment and the proof offered in that the Government's Indictment charges an evasion of adjusted gross income tax for the four years involved and for the further reason that the testimony offered in behalf of the Government is based in substantial measure upon opinion or conjecture and asked this jury to arrive at a conclusion in a substantial measure based upon such opinion or conjecture on the part of the Government's witnesses." Both motions were denied and the case was sent to the jury by the court on instructions to which the defendant saved certain exceptions to be hereinafter noted. The jury as hereinbefore observed found the defendant guilty on Counts I, II and III and not guilty on Count IV. On the verdict thus returned the court entered judgment and sentence of imprisonment for a period of three years on each count, the sentences to run concurrently.

Defendant seeks reversal of the judgment and sentence thus imposed on substantially the following grounds:

1. The trial court erred in refusing to dismiss the indictment.

2. The trial court erred in receiving in evidence government's exhibit 82--net worth summarization.

3. The trial court erred in denying the motion for judgment of acquittal at the close of the government's case and at the close of the entire case.

4. The trial court erred in instructing the jury in effect that the charge of fraudulent report of adjusted gross income was a sufficient basis for determining whether or not an attempt had been made to evade a tax.

[Sufficiency of Indictment]

The sufficiency of the indictment is challenged because it includes a charge that the defendant in his income tax returns willfully and knowingly understated the amount of his adjusted gross income, it being argued that the amount of taxes due from a taxpayer is not dependent upon the amount of his adjusted gross income but such tax is levied upon his net income.

The indictment embodies the words of the statute and ordinarily an indictment for a statutory offense is sufficient where the charge is made in the words of the statute. The defendant is charged with a willful and fraudulent attempt to defeat and evade a large part of his income tax by understating his adjusted gross income. The indictment would have been good had it not embodied the additional charge or information as to the manner in which the evasion was attempted. Rule 7(c) of the Federal Rules of Criminal Procedure provides that:

"The indictment or the information shall be a plain, concise and definite written statement of the essential facts constituting the offense charged. It shall be signed by the attorney for the government. It need not contain a formal commencement, a formal conclusion or any other matter not necessary to such statement. Allegations made in one count may be incorporated by reference in another count. It may be alleged in a single count that the means by which the defendant committed the offense are unknown or that he committed it by one or more specified means. The indictment or information shall state for each count the official or customary citation of the statute, rule, regulation or other provision of law which the defendant is alleged therein to have violated. Error in the citation or its omission shall not be ground for dismissal of the indictment or information or for reversal of a conviction if the error or omission did not mislead the defendant to his prejudice."

This indictment specifically informed the defendant of the time of the commission of the alleged offense, of the place of its commission, of the method by which he was alleged to have committed it, and it informed him as to what amount he paid and the amount which he should have paid. Had defendant desired further information he could have asked for a bill of particulars and the fact that the indictment informed him of the amount reported by him as his adjusted gross income and the amount of his actual adjusted gross income did not, we think, impair its validity nor make it vulnerable to the charge of indefiniteness and uncertainty. From the facts stated the court could say that there was an income tax due from the defendant to the government and the defendant was definitely advised as to the amount of income tax unpaid. We think the allegations of the indictment fully satisfied the requirements of Rule 7(c) of the Federal Rules of Criminal Procedure and informed defendant of the nature and cause of the accusation against him within the meaning of all Constitutional provisions. Cochran and Sayre v. United States , 157 U. S. 286; Risken v. United States , 8 Cir., 197 Fed. (2d) 959; Cave v. United States , 8 Cir., 159 Fed. (2d) 464[47-1 USTC ¶9171]; Hewitt v. United States, 8 Cir., 110 Fed. (2d) 1; Capone v. United States , 7 Cir., 56 Fed. (2d) 927 [3 USTC ¶885]; Guzik v. United States, 7 Cir., 54 Fed. (2d) 618 [1931 CCH ¶9681];United States v. Rosenblum, 7 Cir., 176 Fed. (2d) 321[49-1 USTC ¶9314]; Himmelfarb v. United States, 9 Cir., 175 Fed. (2d) 924 [49-1 USTC ¶9313]. InHewitt v. United States , supra, quoting from Hagner v. United States, 285 U. S. 427, the requisites of an indictment are thus stated:

`The true test of the sufficiency of an indictment is not whether it could have been made more definite and certain, but whether it contains the elements of the offense intended to be charged, "and sufficiently apprises the defendant of what he must be prepared to meet, and, in case any other proceedings are taken against him for a similar offense, whether the record shows with accuracy to what extent he may plead a former acquittal or conviction.'""

We think this indictment clearly advised the defendant of the facts constituting the offense with which he was charged and a conviction or acquittal would be a bar to a further prosecution for the same offense.

[Net Worth Summarization]

As the defendant produced no books or records reflecting his farming operations or financial transactions government accountants attempted to ascertain the extent of his income by the so-called net worth method. The results of their computation were embodied in what is referred to as a summarization identified as exhibit 82. When the exhibit was offered in evidence it was objected to on the ground that proper foundation had not been laid and that it was incompetent and immaterial because it purported to show the adjusted gross income of defendant for the years in question. Defendant signed and swore to a statement identified as exhibit 11 which reflected his net worth as of January 1, 19 44. As to this statement he said in part as follows:

"I, Fay Heasley, hereby certify that the above list of assets and liabilities constitutes a true and complete list of my holdings and of my debts as at January 1, 19 44. I certify that at that date I had no other assets and no other liabilities. The above figure regarding cash represents the amount on deposit at the National Bank of Jamestown in my checking account and I certify that I had no other cash in any bank, at home, or at any other place. Again, the above list is a true and complete picture of my financial standing as at January 1, 19 44."

This definitely fixed a starting point from which the government accountants prepared exhibit 82 showing defendant's net worth for the years 1946, 1947, 1948 and 1949. It is argued that the corpus delicti may not be proven alone by extra judicial statements. This contention is doubtless correct but the weakness of this argument is that it goes to the weight or sufficiency of the evidence and not to its competency. In the cases relied upon by defendant the question was not as to the admissibility of the testimony but as to its sufficiency to prove the corpus delicti. The government in the instant case does not rely on this testimony alone as proof of the corpus delicti. It is relied upon as corroborative of the facts sought to be established by the testimony as to defendant's receipts and disbursements for the years in question. Whether or not the testimony standing alone would be sufficient to establish the guilt of the defendant is not the test of its admissibility. We have consistently approved the use of the so-called net worth method of determining taxable income in conjunction with the receipts and disbursements method.Schuermann v. United States , 8 Cir., 174 Fed. (2d) 397[49-1 USTC ¶9281]; Hanson v. United States, 8 Cir., 186 Fed. (2d) 61 [51-1 USTC ¶9118]; Olson v. United States, 8 Cir., 191 Fed. (2d) 985 [51-2 USTC ¶9468]; Leeby v. United States, 8 Cir., 192 Fed. (2d) 331 [51-2 USTC ¶9497]. There was no error in admitting exhibit 82.

By his motion for acquittal interposed at the close of the case defendant laid the basis for challenging the sufficiency of the evidence. As the jury found the defendant guilty the evidence must be viewed in a light most favorable to the government. The government's proof of receipts and disbursements by the defendant for the years involved showed the amount of taxes due and evaded as charged in the indictment. If this evidence was competent it abundantly sustained the verdict returned. The probative value and admissibility of this character of testimony cannot well be questioned. As we have pointed out in Leeby v. United States , supra, and Hanson v. United States , supra, the offense here is not one requiring exact proof as to the amount of net income evaded but whether or not the defendant attempted to evade a substantial amount of net income tax. Thus inLeeby v. United States , supra, we said:

"It must be borne in mind that this was not an action to recover the amount of income taxes alleged to be due, nor an action in which it was necessary to determine the exact amount of defendant's income for the years in question. On this phase of the case all that it was necessary to show was that there was omitted from the reported income a substantial amount."

We conclude that there was no error in denying defendant's motion for acquittal on the ground of the insufficiency of the evidence.

[Instructions to Jury]

It remains to consider the contention of defendant that the court erred in its instructions to the jury particularly in its instruction with reference to the adjusted gross income. It is somewhat difficult to gather from the objections made just what counsel had in mind but apparently he did not wish to be in the position of having waived his objection to the indictment. This is manifest from the following part of his objection:

"What I am objecting to is the Court's approval of the method of drawing the indictment."

We have already considered the question of the sufficiency of the indictment. What the court said in its instructions with reference to the adjusted gross income is followed by a clear statement as to what are the essential elements of the offense as charged. The instruction reads in part as follows:

"The computation of an adjusted gross income is an essential step toward arriving at a net taxable income upon which the tax which the defendant should pay is computed. Consequently, if the adjusted gross income is incorrectly stated, it then follows that the net income which is derived therefrom would also be incorrect. Adjusted gross income is, roughly speaking, the defendant's profit from his business operations. It is arrived at through deducting from his entire income the cost of doing business. When that figure is arrived at, that is, the adjusted gross income, then the net income is ascertained by subtracting therefrom certain deductions allowed by law. The tax which the defendant must pay is computed from the net taxable income, which must be arrived at through subtracting the exemptions from the net income. Therefore, if the net income is wrong, any subsequent figure based thereon must be wrong. The law requires the defendant to pay an income tax on his net taxable income only, so it follows that in this case the burden is upon the Government to establish to your satisfaction beyond a reasonable doubt the amount of the defendant's net taxable income in each of the years involved in the indictment, and that the defendant has willfully and knowingly substantially failed to make a true report and that he has done so for the purpose of defeating or evading payment of the correct tax."

We think the jury was correctly instructed and that the defendant was accorded a fair trial. The judgment appealed from is therefore affirmed.