7203 - Bank Records and Net Worth Increases 4 Page 2

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Fraud Statutes 

Additional Information:

 

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

 

Bank Records and Net Worth Increases 4 Page2

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Here, too, the Government's contention must fall. In the Adonis case the defendant had previously misrepresented the source of his income in a judicial proceeding so as to carefully explain away most all his income for the year under indictment. In the case before us appellant's attorney while urging against criminal prosecution presented the appellant's inheritance without even stating an amount. Since we do not believe this was a "calculated misrepresentation" within the meaning of the Adonis case, we believe that case is inapplicable.

While we have mentioned the Adonis case, above, and the Second Circuit Ford case, earlier in this opinion, we do not mean to infer that we either approve or disapprove of the exceptions to the necessity of proving likely source that these holdings seem to have established. Suffice it to say that we believe that constitutional guarantees of a defendant must be as zealously guarded in tax evasion cases based upon the net worth theory as they are in other criminal cases. Inroads upon the enunciated net worth safeguards can only result in forcing the accused to prove his innocence, an inherent danger of the net worth theory from inception.

A judgment will be entered vacating the judgment of the District Court, setting aside the verdict, and remanding the case for further proceedings not inconsistent with this opinion.

1 "§145. Penalties

* * *

"(b) Failure to collect and pay over tax, or attempt to defeat or evade tax. Any person required under this chapter to collect, account for, and pay over any tax imposed by this chapter, who willfully fails to collect or truthfully account for and pay over such tax, and any person who willfully attempts in any manner to evade or defeat any tax imposed by this chapter or the payment thereof, shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, be fined not more than $10,000, or imprisoned for not more than five years, or both, together with the costs of prosecution.

* * *"

2 We note in passing that "[w]hether there was sufficient proof of the agency to warrant the admission of the acts and declarations of the agent in evidence, was a preliminary question for the court to determine." Cliquot's Champagne , 70 U. S. 114, 140 (1865). However, the district court here submitted the question of agency to the jury only after holding voir dire hearings and presumably it would not have done so if it had not been convinced that there was sufficient proof of the agency. Under such circumstances we do not believe it was prejudicial error for the court to leave the question to the jury.

3 The Government states that the tax return history of appellant prior to the indictment years shows very little other income besides his police salary. Further, it urges that from the admission of receipt of graft previous to the indictment a jury could find that in the preindictment years Massei evaded his income taxes. Previous evasions constitute relevant evidence of present intent to evade. See Mitchell v. United States , 213 Fed. (2d) 951 (9 Cir. 1954) [54-2 USTC ¶9449], cert. denied 348 U. S. 912 (1955); United States v. Sullivan, 98 Fed. (2d) 79 (2 Cir. 1938) [38-2 USTC ¶9429]; Tinkoff v. United States, 86 Fed. (2d) 868 (7 Cir. 1936) [36-2 USTC ¶9487], cert. denied 301 U. S. 689 (1937).

[Dissenting Opinion]

WOODBURY, Circuit Judge, (Dissenting):

It seems to me that proof of position on a municipal police force, where everyone knows opportunities for graft exist, is as much proof of a likely source of unreported income as is proof of ownership of a business capable of producing income. Cf. Holland v. United States , 348 U. S. 121 (1954) [54-2 USTC ¶9714]. And this is especially true where there is evidence, which I think admissible, indicating that a position on the police force had been a bountiful source of unreported income in the form of graft in prior years.

The admissions made by the appellant's attorney were, I think, clearly within the scope of his authority to speak for the appellant. I cannot recognize the legitimacy of such a "special authority" as that contended by the appellant, whereby the authority for the admission depends on facts subsequent to the utterance, i. e., if the admission works out to the advantage of the principal it was authorized, but if ultimately disadvantage results, there was no authority. And the fact that the admissions constituted evidence of the commission of a crime other than the one for which the appellant was on trial does not necessarily render the admissions inadmissible. Relevancy is the test of admissibility of this kind of evidence. That is to say, the degree of probative force as weighed against the possibility of undue prejudice determines admissibility. Irrelevant testimony of the commission of some crime other than the one with which a defendant is charged is so highly prejudicial that it is not admissible for that reason. * But otherwise relevant testimony is not rendered inadmissible only because of its tendency to show the commission of another crime. Green v. United States , 176 Fed. (2d) 541, 543 (C. A. 1, 1949). Whether the prejudicial tendency of relevant evidence of the commission of some other crime outweighs its probative value in the case on trial is a matter committed to the discretion of the trial court. Here the evidence of prior graft as a police officer is so logically relevant to prove a continuing source of unreported income that I think the court not only did not abuse its discretion in admitting the evidence but was quite right in doing so. It seems to me that proof of substantial increases in net worth during the prosecution years, coupled with evidence of a through but fruitless search for a non-taxable source for those increases, served the dual purpose of providing adequate corroboration for the admissions of graft-taking during pre-prosecution years and in addition warrants the inference that the appellant continued to take graft during the years covered by the indictment. The fact that the appellant's assignments as a police officer during the prosecution years were different from his previous assignments does not indicate that he did not take graft during the indictment years. I think there can be little doubt that opportunities for graft exist whatever a police officer's assignments or rank may be. Indeed, with higher rank the opportunities probably would increase. I would affirm on the general line of reasoning followed by Judge Hinks in United States v. Ford, 237 Fed. (2d) 57 (C. A. 2, 1956) [56-2 USTC ¶9823].

* Evidence of the commission of another unrelated crime can not be admitted merely to prove the defendant a "bad man," and therefore more likely to have committed the crime alleged than a "good man" with a clean record. While such evidence may in some situations be of some remote relevance, the probability of undue prejudice to the defendant therefrom so far outweighs its probative force with respect to the particular crime alleged that it is universally excluded.

 

 

[57-1 USTC ¶9434]William V. Massei, Defendant, Appellant v. United States of America , Appellee

(CA-1), U. S. Court of Appeals, 1st Circuit, No. 5132, 241 F2d 895, 2/27/57, Conviction set aside and case remanded

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

Tax evasion: Net worth method: Admissions made by an attorney as constituting evidence of "likely source".--Primarily on the basis of certain admissions made by his attorney during a pre-indictment investigation as to the sources of his income, the taxpayer was convicted of willfully evading payment of his income taxes. On appeal, the conviction was reversed and remanded for the following reasons: (1) the admissions by the attorney, irrespective of whether they were properly admissible standing alone, could not without the corroboration of other independent evidence establish a "likely source" of the taxpayer's net worth increases, (2) it was error for the trial court to instruct the jury that it could infer from the attorney's admissions as to earlier illegal payments that the taxpayer probably continued taking these payments during the years set out in the indictment, thus establishing a "likely source" for his net worth increases, (3) the admissions would not be relevant in showing net worth increases or establishing intent, (4) evidence of unexplained net worth increases could not be used to bolster the attorney's admissions to show "likely source" because, without the latter, it could not by itself prove where the net worth increases originated, (5) the admission by the attorney, later shown to be false, to the effect that the taxpayer had derived an unspecified amount of money from a certain bequest, was not such a "calculated misrepresentation" within the meaning of the Adonis case, 55-1 USTC ¶9310, as to relieve the government of the necessity of showing "likely source" by competent evidence, and (6) the mere showing that the taxpayer was a policeman on the vice squad, and thus, in a position to receive illegal payments, without direct evidence showing that he in fact did take a bribe, could not, standing alone, be proof of a likely source from which a jury could infer that the taxpayer derived his net worth increases.

One judge dissented.

Richard Maguire (Thomas J. Carens was with him on brief), for appellant. Daniel Needham, Jr., Assistant United States Attorney (Anthony Julian, United States Attorney, was with him on brief), for appellee.

Before MAGRUDER, Chief Judge, and WOODBURY and HARTIGAN, Circuit Judges.

Opinion of the Court

HARTIGAN, Circuit Judge:

This is an appeal from a judgment entered in the United States District Court for the District of Massachusetts upon the verdict of a jury finding the appellant guilty on each of five counts of an indictment charging him with willfully and knowingly attempting to defeat and evade a large part of the income tax due and owing by him and his wife to the United States for the calendar years 1946, 1947, 1948, 1949 and 1950, in violation of §145(b) of the Internal Revenue Code, 26 U. S. C. §145(b). 1 The appellant was sentenced to concurrent terms of imprisonment of two years on each count and fined $5,000. Execution of sentence was stayed pending appeal. Although the nearly 800 page record before us contains voluminous facts that concern the many contentions made by appellant, as is the usual situation in such cases, we shall set forth only those facts that we believe pertinent to the disposition of this case.

The appellant was a member of the Police Department of Worcester, Massachusetts , from January 1923 to December 1951. The appellant's assignments as a police officer can be best presented by the chart below:


Jan. 2, 19
23 to

June 1, 19
23 .........       Night patrolman

June 1, 19
23 to              Plainclothesman on vice and

Feb. 15, 19
24 ........       liquor squad

Feb. 15, 19
24 to

Dec. 4, 19
31 .........       Precinct 1--night duty

Dec. 4, 19
31 to

April 20, 19
32 .......       Injured

April 20, 19
32 to            Plainclothesman on headquarters

Mar. 1, 19
33 .........       squad2

Mar. 1, 19
33 to

Jan. 15, 19
34 ........       Precinct 1--night duty

Jan. 15, 19
34 to             Plainclothesman on headquarters

Jan. 20, 19
36 ........       squad

Jan. 20, 19
36 to

Jan. 10, 19
38 ........       Precinct 1--night duty

Jan. 10, 19
38 to             Plainclothesman on headquarters

Sept. 11, 19
39 .......       squad

Sept. 11, 19
39 to            Precinct 1--night duty (promoted

Jan. 6, 19
40 .........       to sergeant)

Jan. 6, 19
40 to              Headquarters squad, sergeant

June 1, 19
43 .........       in charge

June 1, 19
43 to

June 1, 19
47 .........       Personnel officer3

June 1, 19
47 to

Oct. 1, 19
49 .........       License Board investigator4

Sept. 8, 19
47 ........       Promoted to lieutenant

Oct. 1, 19
49 to

Dec. 31, 19
51 ........       Personnel officer


2 Duties of the headquarters squad were the same as the vice squad, i.e. to suppress all forms of vice.

3 Duties of this office were to inspect the physical plant and personnel and to see that patrolmen carried out their assignments.

4 Duties of this office were to investigate license applications for hackney carriages, taxi drivers, gas stations and parking lots.

Appellant's salary for the years 1946, 1947, 1948, 1949 and 1950 was $2,850, $3,300, $3,300, $4,080, $4,080, respectively. From 1937 to 1945 he earned from $2,100 to $2,850 a year. Although the payroll records for the years prior to 1937 had been destroyed and could not be produced, presumably he did not earn more than $2,100 a year during that period. Appellant's wife, from 1933 to 1951, was a housewife with no source of money except that which the appellant gave to her. She has never at any time inherited or received as a gift any money or other valuables.

The Government established the above facts at the trial in attempting to prove that appellant had filed false and fraudulent joint tax returns, for himself and his wife, for the years 1946 to 1950, inclusive. The theory of the Government's case was that the joint net worth of the appellant and his wife was greater at the end than at the beginning of each year in issue, and that the source of their increased net worth was taxable income which exceeded that reported in their joint tax returns.

In this connection the Government produced in evidence the joint returns of the appellant and his wife for the prosecution years which reflected total income of $3,232.62, $3,539.66, $4,549.28, $5,004.91 and $6,701.75 for the years 1946 to 1950, respectively. In contrast to the reported income the Government presented evidence tending to establish that on December 31, 19 45 appellant had a net worth of $61,080.73 and that on December 31, 19 50 appellant had an accumulated net worth of $149,504. Appellant's net worth increases and receipts during the prosecution years, based on records of purchases of annuities, automobiles, land and securities by appellant and his wife, were $27,265.38, $9,991.64, $5,533.22, $9,599.72 and $36,033.31 for the years 1946 through 1950, respectively. Moreover, the Government established that prior to the indictment years there was evidence of receipts by appellant far in excess of the salary paid him. There was no evidence that appellant had ever received any gifts or devises other than an one-half interest in a house which will be discussed below. Since, after a careful study of the record, we believe that the figures concerning opening net worth and increases in net worth during the prosecution years were sufficiently grounded in the evidence, it is not necessary to set forth in detail the many items of proof with respect to them.

As to the likely source of the appellant's net worth increases during the indictment years, the Government stated in its bill of particulars as follows:

"1. The likely source of unreported income of the defendant is moneys received by the defendant as an individual from many persons engaged in various illegal activities for the performance by the defendant of his official duties as a member on the Worcester Police Department, for the non-performance by the defendant of his official duties as a member of the Worcester Police Department, and for the performance by the defendant as a member of the Worcester Police Department of services rendered to such persons in connection with such illegal activities."

The Government's theory, plainly stated, was that appellant throughout his career as a police officer had taken graft. The only evidence in support of this theory was that, during the period when the case was under investigation by the Treasury Department, the appellant, through an attorney who represented him only prior to trial, on four instances admitted to Government agents that appellant had taken graft during the pre-indictment years. This evidence was admitted over the appellant's objections and was relied upon by the prosecution to establish the source from which it was likely that the appellant derived his unreported income during the prosecution years.

The record discloses that on November 27, 19 51 appellant's attorney arranged for the opening by the appellant of his safe deposit box in a Westerly , Rhode Island bank, so that agents Hurst and Calatrello might examine its contents. The agents testified in substance that while Hurst was dictating an inventory of the contents to Calatrello, Hurst turned to the appellant and asked him "the source of the funds that were used to acquire the various assets." The appellant replied that "it came from many different people at different times * * * many years ago," whereupon appellant's attorney interrupted and stated that the appellant got the funds during prohibition days "from letting liquor trucks roll" through Worcester . The appellant then "picked up the conversation again and said he got the funds in the nature of a gift and therefore he didn't report it or he didn't think it was taxable."

Moreover, prosecution witnesses testified that on three occasions appellant's attorney, in the absence of the appellant, told them that the money spent by the appellant from 1946 to 1950 came from graft taken by appellant during prohibition days and while he was on the vice squad between 1933 and 1943. These occasions were as follows: (a) on an unspecified date in November or December 1951 to Hurst in his office; (b) on January 24, 19 52 to Hurst in his office; and (c) on May 20, 19 52 to Hurst and attorney Isber of the Treasury's District Counsel's office in Isber's office at a conference during which appellant's attorney was endeavoring to persuade Isber to recommend against criminal prosecution of the appellant.

Government witnesses also testified that during the conference of May 20, 19 52 with Isber, appellant's attorney stated that in February 1949 the appellant obtained "X dollars, after the death of his father, who had saved a lot of cash" from a partnership interest in a tavern which was engaged in the illegal sales of liquor. F. Joseph Donohue, Register of Probate for Worcester County , testified that the petition for probate of the will and the will itself of Pilade Massei, appellant's father, had been duly filed and allowed but no inventory or account had ever been filed. John Bianchi, executor of the will, testified that he had filed no inventory and that the only asset of the estate which he could find was a three tenement house in Worcester . It was established that the appellant in 1949 had received only an one-half interest in the three tenement house from his father's estate.

The trial judge, before admitting the agents' testimony concerning admissions made by appellant's attorney, held voir dire hearings on the attorney's authority to make such admissions for appellant. At these hearings testimony concerning the Treasury Regulations governing powers of attorney and appellant's attorney's statements was heard. Specifically, the Government presented evidence of many letters between appellant's attorney and agent Hurst showing that the attorney had acquired from appellant and had produced whatever information concerning appellant's finances that Hurst requested during the period of investigation before criminal prosecution was decided upon. The evidence revealed that the appellant through his attorney had cooperated fully with the investigating agents. However, the power of attorney that was supposed to have been given by appellant, as provided for by the Treasury Regulations, could not be produced, although there was substantial evidence that such a power of attorney had been filed.

After the voir dire the district court ruled that the statements of appellant's attorney would be admitted into evidence but "that the ultimate question of the authority of the agent to make admissions binding upon this defendant will be for the jury, under instructions which the Court will consider proper at the appropriate time."

Due to this ruling the appellant endeavored to establish the atmosphere and context in which his attorney's statements had been made. The appellant took the position and offered evidence to show that, at the conferences with Hurst and Isber, his attorney was speaking argumentatively and hypothetically with no intention of binding his client. For example, the appellant offered testimony that his attorney cited decisions to Isber and that he had no personal knowledge of appellant's activities during prohibition and the time he was on the vice squad. The district court, as first, refused to allow such testimony and had it stricken when it was recited, stating that "anything that is a contention I am going to exclude, * * * I am not going to have anything go in that is a contention or an argument, whether it's by the Government or the defendant." Later in the trial, however, the court, without stating the reason for its change of mind, did allow such testimony. Indeed, the attorney, appellant's only witness, was permitted to testify at length that his entire presentation to Isber was a legal argument based upon hypotheses and assumptions. And in its charge the court clearly left it to the jury to determine if the attorney's remarks had been statements of fact or hypotheses, specifically stating "you may not consider them against the defendant, * * * if you find that the alleged statements of fact * * * were made as hypotheses."

The trial judge further charged, concerning the statements of graft taking, as follows:

"Now, if you find that the admissions alleged were made, you have to go a step further. Then it becomes your duty to determine if a source is established, because that is what is necessary. Now, I say this advisedly: the source which the Government alleges--and if I am wrong I desire to be corrected--is illegal payments by persons unknown to induce this defendant Massei to perform acts of misfeasance, malfeasance and nonfeasance, to do something that was improper, that was wrong, and that with particular application to the position which he held, a position of a fiduciary nature, a position of a police officer, a member of the police force of the City of Worcester. There is a presumption, and I am going to instruct you on this, there is a presumption that a police officer does not receive illegal payments. That is a very, very efficacious presumption, and it would apply to other men holding offices of trust and confidence, but if you find that that presumption had been rebutted, and rebutted by the test that I have given you, has been rebutted, for example, by the admissions made by the defendant, so far as the presumption applies to him, then I charge you that you may infer, having in mind his continued position in the police department, you may infer that continued payments of this sort were a likely source of the increases in net worth reflected by the Government's evidence, if you find that they showed it."

The appellant objected to the admissibility of his attorney's statements on the grounds of relevancy and materiality, among others, and at the conclusion of the evidence generally moved to strike the testimony concerning the statements made by his attorney on the ground that they were not corroborated by the evidence.

At the close of the Government's case the appellant moved for a verdict of acquittal on the ground "that the evidence on each count is not legally sufficient to support a conviction." The court refused to pass on the motion in view of the fact appellant had not rested his case. At the close of all the evidence appellant renewed his motion for a verdict of acquittal, stating specifically to the court, among other things, that as to likely source the Government had presented only "these alleged admissions by [appellant's attorney] talking about the defendant's activities back in prohibition days, and also the defendant's activities back when he was on the Vice Squad--all prior to 1943. There is absolutely nothing, if your Honor please, in this case, by way of evidence bearing on the years in question--absolutely nothing."

On appeal the appellant presents as contentions, among others, that the alleged admissions made by him through his attorney were unauthorized, irrelevant and uncorroborated. Further, he argues that without these admissions the Government failed to prove a likely source of the appellant's increases in net worth. Therefore, appellant contends the district court should have granted his motion for a verdict of acquittal made at the close of all the evidence.

The Government, on the other hand, urges that the question of whether appellant's attorney had the authority to make the statements in issue properly was left to the jury. As to relevancy, it urges that the statements were relevant as to the establishment of the starting net worth, as to likely source and as tending to prove previous tax evasions, which, the Government claims, would show fraudulent intent on the part of appellant to evade his taxes during the prosecution years. Moreover, the Government seems to maintain that the admissions of graft taking were fully corroborated by independent evidence that appellant remained on the police force through the indictment years and that appellant had met worth increases that cannot be explained in any other way.

After a careful consideration of the record and the briefs, we are of the opinion that the judgment of conviction cannot stand mainly on the ground that the admissions of appellant through his attorney, whether they were properly admissible or not, as the only evidence of likely source, were not corroborated by independent evidence. In view of this the trial judge erred in not striking out the admissions and in not granting the appellant's motion for a verdict of acquittal. Although we believe the crucial issue in this case is that dealing with corroboration of the aforementioned admissions, we shall also touch upon other questions involved therein.

The Supreme Court in Holland v. United States, 348 U. S. 121, 125 (1954) [54-2 USTC ¶9714] stated "that the Government deems the net worth method useful in the enforcement of the criminal sanctions of our income tax laws. Nevertheless, careful study indicates that it is so fraught with danger for the innocent that the courts must closely scrutinize its use." Further, the Court [at p. 129] declared that "Appellate courts should review the cases, bearing constantly in mind the difficulties that arise when circumstantial evidence as to guilt is the chief weapon of a method that is itself only an approximation." After these general cautionary remarks, the Court set forth certain safeguards for net worth cases. In this connection it was stated [at pp. 137-138] that "Increases in net worth, standing alone, cannot be assumed to be attributable to currently taxable income. But proof of a likely source, from which the jury could reasonably find that the net worth increases sprang, is sufficient." Recently, in reviewing a civil tax deficiency case, we interpreted the above language as meaning that proof of a likely source is "an indispensable element of the net worth method in any of its applications." Thomas v. Commissioner of Internal Revenue, 232 Fed. (2d) 520, 526 (1 Cir. 1956) [56-1 USTC ¶9449].

Generally, likely source has been proved in net worth cases in two ways. Where the taxpayer disclosed ownership of a business it was considered sufficient proof of likely source for the Government to establish that the disclosed business was capable of producing much more income than was reported. Holland v. United States, supra. Also, where the taxpayer was an owner of an undisclosed business, proof that the undisclosed business was capable of producing income was considered sufficient. United States v. Johnson, 319 U. S. 503 (1943) [43-1 USTC ¶9470].

But absent an income producing business, proof of likely source has been of a different kind. For example, in United States v. Chapman, 168 Fed. (2d) 997, 999 (7 Cir. 1948) [48-1 USTC ¶9312], cert. denied 335 U. S. 853 (1948), where the bill of particulars in effect stated "that the source of the 'other income' was the illegal sale of meat at overceiling prices," the Government introduced the evidence of seven meat peddlers all of whom testified that during the year 1943 they paid overceiling prices, paying the excess in currency either to Chapman, the defendant, or his agents. Likewise, in United States v. Skidmore, 123 Fed. (2d) 604 (7 Cir. 1941) [41-2 USTC ¶9716], cert. denied 315 U. S. 800 (1942), where the theory of the Government apparently was that defendant had received unreported income from payments for "protection", there was some evidence of payments made to the defendant by bookmakers.

And in a recent case, which bears a striking similarity to the case at hand, where the Government's theory was that the unreported taxable income was graft received by the defendant for nonperformance of his duties as a policeman and as a member of the vice squad, "[a]lthough there was no direct evidence that the defendant ever received a bribe, the evidence did disclose that he had 'opportunities' flowing from his position in charge of the investigation of vice." United States v. Ford, 237 Fed. (2d) 57 (2 Cir. 1956) [56-2 USTC ¶9823]. The evidence in the Ford case as to "opportunities" of the defendant to receive bribes, though seemingly not essential to the majority's holding, disclosed that there was wide open gambling in Rochester, New York when the defendant was on the vice squad; that the defendant did not take any action against one selling policy slips, although he knew about it; that statistics of gambling cases disposed of in the City Court of Rochester indicated an upswing in prosecution of gambling after other officers had been assigned to the squad; and that the defendant was on friendly terms with a professional gambler. See also Ford v. United States, 233 Fed. (2d) 56 (5 Cir. 1956) [56-1 USTC ¶9473], cert. denied 352 U. S. 833 (1956).

In the instant case the only direct evidence of likely source were the admissions made by appellant through his attorney in which the latter stated that appellant had taken graft during pre-indictment years. Primarily we must consider, insofar as necessary, the appellant's contention that these statements were inadmissible.

First we turn to the three instances when appellant's attorney stated to the Government agents, in the absence of appellant, that appellant had taken graft. "The general rule is that, upon the trial of an accused person, evidence of another offense, wholly independent of the one charged, is inadmissible." Bracey v. United States , 142 Fed. (2d) 85, 87 (D. C. Cir. 1944), cert. denied 322 U. S. 762 (1944). In this connection it was stated in Railton v. United States, 127 Fed. (2d) 691, 693 (5 Cir. 1942):

"* * * It is logical to conclude, and very apt to be concluded, that because a man was dishonest once he will steal again. It is certainly 'more probable' that a crooked official did steal than if he were an upright one. Yet our law forbids these very premises. It cannot be shown that the accused has committed other similar crimes to show that it is probable he committed the one charged. * * *"

It follows from the above cases, we believe, that it was error for the district court to admit these admissions into evidence and to charge the jury, as it did, that from the admission of graft taking during pre-indictment years it could infer appellant continued taking graft during the indictment years, and thus find likely source. It is not a legally permissible inference, absent some reasonable connection, that appellant having committed a criminal act in the past, continued to do so. Such an inference, in essence, would fly in the face of the above quoted rule that "[i]t cannot be shown that the accused has committed other similar crimes to show that it is probable he committed the one charged." Railton v. United States, supra, at 693. See also Lovely v. United States, 169 Fed. (2d) 386 (4 Cir. 1948); Sang Soon Sur v. United States , 167 Fed. (2d) 431 (9 Cir. 1948); Bracey v. United States , supra.

Moreover, we do not believe that the admissions of graft taking prior to 1943, when appellant, as a patrolman during prohibition and as a member and head of the vice squad at a later date, had opportunities open to him for graft, were connected with the prosecution years, since there was no evidence whatsoever showing that these opportunities continued during the indictment years when appellant performed totally different duties as personnel officer and license board investigator. See United States v. Adonis, 221 Fed. (2d) 717 (3 Cir. 1955) [55-1 USTC ¶9310]. Nor do we think that these admissions, due to the remoteness in time from the indictment years and due to the change in appellant's duties as a police officer, are relevant as to likely source, as tending to establish a common design or plan, which seems to have been the situation in Green v. United States, 176 Fed. (2d) 541 (1 Cir. 1949).

However, it might be contended, aside from the issue of the authority of appellant's attorney to make such statements, 2 that even though the admissions might not be relevant as to likely source, they would be admissible if they are relevant as to other elements of the crime, specifically opening net worth and intent 3 to evade taxes. See Green v. United States , supra. Although this might be so, it is significant that the lower court instructed the jury to consider the statements of graft taking only as to likely source. In this connection the court charged:

"Now also, with respect to [appellant], there has been some testimony as to his past conduct. Please bear in mind that that evidence was allowed in only as it has some bearing upon the issue of the source of the defendant's income and as bearing upon the charge before this court. You are to consider it only on that issue alone."

Furthermore, we are of the opinion that even if the court had charged the jury to consider the statements of graft taking on the issues of opening net worth and intent to evade taxes, it would have been error. As to opening net worth, the Government certainly did not need these declarations of graft taking to prove appellant had sizeable holdings on December 31, 19 45 by reason of the fact that appellant contended, as appears from all events leading up to the trial, that he had even more money than the Government gave him credit for on that date. As to the intent to evade taxes, assuming prior evasions were relevant, we do not believe that the circumstances surrounding the prior evasions would be relevant. The jury could have been informed of the prior evasions, if any, without mention of the graft taking. Since it was the prior evasions, in themselves, that had probative value as to intent to evade and not the graft taking, the admissibility of such prejudicial evidence would not have been warranted on this issue.

Therefore, the only purpose, as manifested by the court's charge, that these admissions could have served would be to prove that appellant continued taking graft during the indictment years. This, as we have discussed above, is not a permissible inference. To hold otherwise, in our considered judgment, would be to run the danger of convicting the appellant for the taking of graft some years before the indictment when the indictment charges him with income tax evasion.

Our views on admissibility, as expressed above, also apply to the statement made by the attorney, in appellant's presence, concerning graft taking by appellant during prohibition, at the Westerly , Rhode Island bank on November 27, 19 51. In fact, this admission in referring only to graft taking during prohibition was even farther removed in time and circumstance from the indictment years than the others.

But, notwithstanding the issue of admissibility, the aforementioned admissions should not have gone to the jury as part of the Government's case since they were not corroborated. In Smith v. United States, 348 U. S. 147 (1954) [54-2 USTC ¶9715], where the defendant had made extrajudicial admissions concerning his net worth which the Government presented as part of its case, the Supreme Court held that an admission embracing a vital element of the crime made after the fact to an investigating official must be corroborated by sufficient independent evidence. In so holding the Court stated at page 155:

"The negative implications of petitioner's opening net worth admission formed the cornerstone of the Government's theory of guilt. Without proof that assets on hand at the beginning of the prosecution period did not account for the alleged net worth increases, the Government could not succeed. * * * An admission which assumes this importance in the presentation of the prosecution's case should not go uncorroborated, and this is true whether we consider the statement an admission of one of the formal 'elements' of the crime or of a fact subsidiary to the proof of these 'elements.' It is the practical relation of the statement to the Government's case which is crucial, not its theoretical relation to the definition of the offense."

Similarly, we believe that in the case before us the statements of graft taking, made by appellant's attorney, "formed the cornerstone of the Government's theory of guilt," since without them there would be no proof of likely source. In the Smith case, the Court, after reviewing evidence, independent of the admissions, dealing with the defendant's assets, was satisfied that there was sufficient evidence corroborating the defendant's admissions as to net worth. Likewise, in United States v. Calderon, 348 U. S. 160 (1954) [54-2 USTC ¶9712], where the admissions of the defendant also concerned net worth, the Court found corroboration.

The Government, apparently influenced by the nature of the evidence reviewed by the Supreme Court in the above two cases in deciding the issue of corroboration, in its brief has set forth in great detail its independent evidence as to the appellant's assets and net worth increases. Then it urges that just as that type of evidence was held to be sufficient corroboration of the admissions in Smith and Calderon, it should be so held here. As additional evidence of corroboration it points to the fact that appellant was proved to have been a police officer as stated in his admissions.

We cannot agree with the Government on this point. We think that independent evidence of the defendant's expenditures, assets and bookkeeping techniques was held sufficient corroboration in Smith and Calderon, either as bolstering the admissions or as evidence tending to establish the crime independent of the admissions, by reason of the fact that the admissions in those cases concerned the net worth of the defendants. Here the admissions of graft as relating to likely source disclosed from where appellant's net worth increases likely came. Only independent evidence of some actual graft taking or, at least, opportunity for graft taking could serve as sufficient corroboration of such admissions. Evidence of unexplained net worth increases does not either bolster the admissions of likely source or establish this element of the crime independent of the admissions, for that evidence, independent of the admissions, does not tend to prove from where the net worth increases likely issued.

Nor does the fact that the Government, in addition, independently proved that appellant was a member of the police force during prohibition and a member of the vice squad prior to 1943 provide the necessary corroboration for the pre-indictment years. And certainly independent proof that appellant remained on the police force during the indictment years also falls short of the corroboration, especially since the appellant during the indictment years was performing duties different from those referred to in his admissions.

The Government had to present some evidence of actual graft taking or opportunity for such in order to establish the element of likely source independent of the admissions. Since it failed to do this, the district court should have stricken the evidence concerning the admissions from the record. And since without the admissions there was no evidence of likely source in the record, it should have granted appellant's motion for a verdict of acquittal.

Finally, we must turn to the Government's contention, which the district court adopted in its charge, that even without proof of likely source the appellant could be convicted under the indictment for the year 1949 under the holding of United States v. Adonis, supra. That case seems to hold that where a defendant has made a "calculated misrepresentation designed to conceal current income" [at p. 720] proof of likely source is not necessary. The Government would have us look upon the statement of appellant's attorney, made on May 20, 19 52 before Government attorney Isber, that appellant obtained "X dollars" from his father's estate in 1949, as such a "calculated misrepresentation."

Here, too, the Government's contention must fall. In the Adonis case the defendant had previously misrepresented the source of his income in a judicial proceeding so as to carefully explain away most all his income for the year under indictment. In the case before us appellant's attorney while urging against criminal prosecution presented the appellant's inheritance without even stating an amount. Since we do not believe this was a "calculated misrepresentation" within the meaning of the Adonis case, we believe that case is inapplicable.

While we have mentioned the Adonis case, above, and the Second Circuit Ford case, earlier in this opinion, we do not mean to infer that we either approve or disapprove of the exceptions to the necessity of proving likely source that these holdings seem to have established. Suffice it to say that we believe that constitutional guarantees of a defendant must be as zealously guarded in tax evasion cases based upon the net worth theory as they are in other criminal cases. Inroads upon the enunciated net worth safeguards can only result in forcing the accused to prove his innocence, an inherent danger of the net worth theory from inception.

A judgment will be entered vacating the judgment of the District Court, setting aside the verdict, and remanding the case for further proceedings not inconsistent with this opinion.

1 "§145. Penalties

* * *

"(b) Failure to collect and pay over tax, or attempt to defeat or evade tax. Any person required under this chapter to collect, account for, and pay over any tax imposed by this chapter, who willfully fails to collect or truthfully account for and pay over such tax, and any person who willfully attempts in any manner to evade or defeat any tax imposed by this chapter or the payment thereof, shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, be fined not more than $10,000, or imprisoned for not more than five years, or both, together with the costs of prosecution.

* * *"

2 We note in passing that "[w]hether there was sufficient proof of the agency to warrant the admission of the acts and declarations of the agent in evidence, was a preliminary question for the court to determine." Cliquot's Champagne , 70 U. S. 114, 140 (1865). However, the district court here submitted the question of agency to the jury only after holding voir dire hearings and presumably it would not have done so if it had not been convinced that there was sufficient proof of the agency. Under such circumstances we do not believe it was prejudicial error for the court to leave the question to the jury.

3 The Government states that the tax return history of appellant prior to the indictment years shows very little other income besides his police salary. Further, it urges that from the admission of receipt of graft previous to the indictment a jury could find that in the preindictment years Massei evaded his income taxes. Previous evasions constitute relevant evidence of present intent to evade. See Mitchell v. United States , 213 Fed. (2d) 951 (9 Cir. 1954) [54-2 USTC ¶9449], cert. denied 348 U. S. 912 (1955); United States v. Sullivan, 98 Fed. (2d) 79 (2 Cir. 1938) [38-2 USTC ¶9429]; Tinkoff v. United States, 86 Fed. (2d) 868 (7 Cir. 1936) [36-2 USTC ¶9487], cert. denied 301 U. S. 689 (1937).

[Dissenting Opinion]

WOODBURY, Circuit Judge, (Dissenting):

It seems to me that proof of position on a municipal police force, where everyone knows opportunities for graft exist, is as much proof of a likely source of unreported income as is proof of ownership of a business capable of producing income. Cf. Holland v. United States , 348 U. S. 121 (1954) [54-2 USTC ¶9714]. And this is especially true where there is evidence, which I think admissible, indicating that a position on the police force had been a bountiful source of unreported income in the form of graft in prior years.

The admissions made by the appellant's attorney were, I think, clearly within the scope of his authority to speak for the appellant. I cannot recognize the legitimacy of such a "special authority" as that contended by the appellant, whereby the authority for the admission depends on facts subsequent to the utterance, i. e., if the admission works out to the advantage of the principal it was authorized, but if ultimately disadvantage results, there was no authority. And the fact that the admissions constituted evidence of the commission of a crime other than the one for which the appellant was on trial does not necessarily render the admissions inadmissible. Relevancy is the test of admissibility of this kind of evidence. That is to say, the degree of probative force as weighed against the possibility of undue prejudice determines admissibility. Irrelevant testimony of the commission of some crime other than the one with which a defendant is charged is so highly prejudicial that it is not admissible for that reason. * But otherwise relevant testimony is not rendered inadmissible only because of its tendency to show the commission of another crime. Green v. United States , 176 Fed. (2d) 541, 543 (C. A. 1, 1949). Whether the prejudicial tendency of relevant evidence of the commission of some other crime outweighs its probative value in the case on trial is a matter committed to the discretion of the trial court. Here the evidence of prior graft as a police officer is so logically relevant to prove a continuing source of unreported income that I think the court not only did not abuse its discretion in admitting the evidence but was quite right in doing so. It seems to me that proof of substantial increases in net worth during the prosecution years, coupled with evidence of a through but fruitless search for a non-taxable source for those increases, served the dual purpose of providing adequate corroboration for the admissions of graft-taking during pre-prosecution years and in addition warrants the inference that the appellant continued to take graft during the years covered by the indictment. The fact that the appellant's assignments as a police officer during the prosecution years were different from his previous assignments does not indicate that he did not take graft during the indictment years. I think there can be little doubt that opportunities for graft exist whatever a police officer's assignments or rank may be. Indeed, with higher rank the opportunities probably would increase. I would affirm on the general line of reasoning followed by Judge Hinks in United States v. Ford, 237 Fed. (2d) 57 (C. A. 2, 1956) [56-2 USTC ¶9823].

* Evidence of the commission of another unrelated crime can not be admitted merely to prove the defendant a "bad man," and therefore more likely to have committed the crime alleged than a "good man" with a clean record. While such evidence may in some situations be of some remote relevance, the probability of undue prejudice to the defendant therefrom so far outweighs its probative force with respect to the particular crime alleged that it is universally excluded.

 

 

[58-1 USTC ¶9326] United States of America , Petitioner v. William V. Massei

Supreme Court of the United States , No. 98, 355 US 595, 78 SCt 495, 3/3/58, Affirming CA-1, 57-1 USTC ¶9434, 241 Fed. (2d) 895

On writ of certiorari to the United States Court of Appeals for the First Circuit.

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

Tax evasion: Net worth method: Proof of likely source of income.--A District Court had found taxpayer guilty of tax evasion. The First Circuit remanded the case for further proceedings and set aside the verdict, basing its remand in part on the absence of "proof of likely source," which it regarded as an indispensable element of the net worth method. The Supreme Court affirms the judgment of the First Circuit because a new trial is permissible under the terms of its order. However, it makes it clear that in Holland v. U. S., 348 U. S. 121, 54-2 USTC ¶9714, the court did not intend to imply that proof of likely source was necessary in every case. Should all possible sources of nontaxable income be negatived, there would be no necessity for proof of a likely source.

J. Lee Rankin, Solicitor General, Charles K. Rice, Assistant Attorney General, Earl E. Pollock, Assistant to Solicitor General, Joseph F. Goetten, John J. McGarvey, Department of Justice, for petitioner. Richard Maguire, 31 Milk Street , Boston , Mass. (Thomas J. Carens, Rob ert J. Sherer, of counsel), for respondent.

[Proof of Likely Source]

PER CURIAM:

The Court of Appeals [57-1 USTC ¶9434] has based its remand in part on the absence of "proof of likely source," which it regards as an "indispensable" element of the net worth method, citing Holland v. United States, 348 U. S. 121 [54-2 USTC ¶9714], in support of its conclusion. In Holland we held that proof of a likely source was "sufficient" to convict in a net worth case where the Government did not negative all the possible nontaxable sources of the alleged net worth increase. This was not intended to imply that proof of a likely source was necessary in every case. On the contrary, should all possible sources of nontaxable income be negatived, there would be no necessity for proof of a likely source. The above explanation must be taken into consideration in applying the Holland doctrine to this case. A new trial being permissible under the terms of the order of the Court of Appeals, we affirm its judgment.

JUSTICE DOUGLAS would affirm the judgment below on the opinion of the Court of Appeals, 241 Fed. (2d) 895, 900-901 [57-1 USTC ¶9434].

 

 

[75-1 USTC ¶9278] United States of America v. William S. Terrell, a/k/a James Terrell and Goldfinger, Defendant

U. S. District Court, So. Dist. N. Y., 74 Cr. 1058, 390 FSupp 371, 2/20/75

[Code Secs. 7201 and 7203]

Criminal penalties: Evading or defeating collection of tax: Bank records and net worth increase: Fictitious names.--The taxpayer was convicted of willfully evading the payment of tax for the years 1968, 1969 and 1970. The evidence indicated that the taxpayer was unable to pay small sums in 1966 but he was able to make sizable cash payments in each of the years involved. The taxpayer used sham corporations and the names of other parties to conduct many transactions. There was evidence of his involvement in the illicit narcotics business. Since the taxpayer offered no evidence to show that the funds came from sources of nontaxable income, the court concluded that the government established beyond a reasonable doubt all the essential elements of the offense. The court did not reach the lesser offenses (under Code Sec. 7203), which were already included in the tax evasion offenses.

Paul J. Curran, United States Attorney, Steven A. Schatten, Assistant United States Attorney, New York, N. Y., for U. S. Nancy Rosner, 401 Broadway, New York, N. Y., for defendant.

Opinion, Findings of Fact

WEINFELD, District Judge:

The defendant, William S. Terrell, is charged with willful evasion of his individual income taxes for the years 1968, 1969 and 1970, under counts 1, 3 and 5, respectively, in violation of 26 U. S. C., section 7201.

[Charges Made]

The tax evasion charges are based upon a claim that in each year the defendant received substantial taxable income, knew that taxes were due thereon, and that his failure to file returns was deliberate, intentional and with the unlawful purpose of evading the payment of taxes due.

The indictment further charges that with respect to each of the years 1968, 1969 and 1970, the defendant willfully and knowingly failed to file tax returns, counts 2, 4 and 6, respectively, in violation of 26 U. S. C., section 7203. Thus as to each year the defendant is charged with the lesser included offense under section 7203.

The government urges that upon the totality of evidence it has fully sustained its burden of proof beyond a reasonable doubt as to the essential elements under counts 1, 3 and 5, the willful tax evasion counts: (1) that the defendant received substantial taxable income upon which substantial federal income tax was due and owing from the defendant for the year in question; (2) that the defendant made an attempt to evade or defeat the tax due; and (3) that he did so willfully.

The government contends that in each of the tax years the defendant had substantial income derived from extensive illicit narcotic activities. The evidence received on this subject was limited strictly to the issue of whether or not the defendant had a source of taxable income during this period.

[Admissions Established Income]

I. As to this first element, the government has met its burden that the defendant received substantial income as a result of his activities as a narcotics distributor. This was abundantly established by the defendant's admission to James Nauwens, a member of the Joint Task Force, that his largest income from narcotics activities was in the year 1969, when he made as much as $60,000 a day for about a four-month period. The defendant also acknowledged that he was good for more than $100,000 a week from a narcotics partnership operation in Detroit , Michigan . There was no evidence to impugh the integrity or the reliability of these admissions made by the defendant after he was fully advised of his constitutional rights. 1

In addition, Ferdinand Hunt testified that he made deliveries of half kilo and kilogram packages of narcotics for the defendant, for which he picked up $18-20,000 for each delivery, following which he left the moneys at designated premises. Hunt's testimony was received under a grant of immunity. He sought at this trial to limit his services with the defendant up to the year 1967 in contrast with his sworn testimony at another trial previously conducted in this district in which Hunt was a defendent. Hunt then testified that his dealings with the defendant took place from 1967 through 1969. It was evident to this court, based upon Hunt's demeanor, that he was trimming his testimony by dating his activities with the defendant prior to the income tax years at issue in an effort to help the defendant. However, his prior sworn trial testimony may be and is considered affirmative evidence. 2

[Activities' Existence Inferred]

Entirely apart from the foregoing, as already noted, the defendant admited that the largest income derived from his narcotics dealings was in the year 1969. This rationally permits an inference that his narcotics activities existed for a reasonable time both before and after that date, absent a showing of material change in circumstances, and none has been shown to exist. 3 An inference that defendant had income from narcotics dealings in 1968 and 1970, as well as in the year 1969, based upon his admission to Agent Nauwens, is warranted from his similar course of conduct in 1968 and 1970, discussed hereafter--large cash expenditures; continuous purchases of cars coupled with defendant's statements to Nauwens that he bought cars frequently to frustrate attempts by government agents at surveillance of his activities; the use of sham corporations and individuals as conduits for transactions in an effort to cover up that he was the true party in interest; and evidence that in 1968 and 1970, as in 1969, the defendant has no probable source of any other income except through his narcotics activities.

[Cash Expenditures Method]

To further support its claim, the government relies upon the specific cash expenditure method to demonstrate that in each of the tax years the defendant expended, directly or through nominees, substantial sums for the purchase of homes, improvements on one of them, and the purchase of expensive cars, and that these expenditures indicate that defendant has taxable income in these years. In support of this contention, the government effectively negated that prior to 1968, the defendant had sufficient funds or access to nontaxable funds to account for those expenditures.

The evidence establishes that the last time the defendant filed a personal income tax return was in the year 1960, when he obtained a refund of $84.30; that for the years 1961 through 1966 he filed no personal income tax returns with the Manhattan District of the Internal Revenue Service; and that for the years 1967 through 1970 he did not file any personal income tax return anywhere, and that the Social Security records show no earnings of the defendant beyond the first quarter of 1963. In 1967, defendant opened a bank account, the balance of which never exceeded $175. An investigation by an Internal Revenue Agent into various banks in the area of the defendant's residences and business addresses revealed no other bank accounts in the name of the defendant. Zula Terrell, (his mother), Frances Terrell (his wife), Olive Terrell, Olive McDonald, Teasla Taxi or Terrell Productions. 4

The evidence also establishes that for 1966-1971 Frances Terrell, his wife, and Olive McDonald, referred to hereafter whom he at one time described as a secretary and at another as a dependent, filed no personal income tax returns with the Brooklyn, Manhattan and Newark District Offices of the Internal Revenue Service. In a 1970 loan application the defendant represented that Frances Terrell was a housewife with no income.

[Unsufficient Funds in 1966]

In 1966 the defendant was arrested on two separate State charges and held in bail, which was reduced to $15,000 on each charge. He did not post bail for more than four months and remained in detention until bail was furnished upon collateral put up by a friend of his mother whose help had been solicited by the mother, 5 and others.

The defendant was a lessee of store premises in the Bronx, New York, and a dispossess proceeding for nonpayment of three months' rent totalling $375 was commenced in July 1967 and a judgment by default was entered on September 8, 19 67, awarding possession of the premises to the landlord. The inference is permissible that in 1966 the defendant was without funds to put up the bail required to effect his release or to pay the premium for bonds, and further that in September 1967 he was without funds to pay the modest three months rent of $375 for the store premises.

[Source of Income]

There is no contention that the defendant furnished any leads to the government as to any possible nontaxable source of income to account for his expenditures from 1968 through 1970. 6 Here the government proved a likely source of income. It was not required to negate all possible sources of nontaxable income, 7 particularly when defendant himself furnished no leads to the government, a matter within his peculiar knowledge. 8

Following the defendant's dispossess in early September 1967, he thereafter commenced to purchase expensive automobiles to the end of the year. Upon the evidence it appears likely that it was at or about this period that defendant commenced his illicit narcotics activities and that the income derived therefrom accounts for the purchase of those cars. The court finds that as of December 31, 19 67 the defendant did not have sufficient funds on hand to make the very substantial expenditures totalling almost $300,000 in the tax years in question.

Year 1968--Count 1

In the year 1968 the defendant purchased seven automobiles, six Cadillacs and a Lincoln Continental, for an approximate net cost of $37,000. 9 These purchases were made by the defendant either in his own name or in the name of Terrell Productions, Inc., a corporation dominated, controlled and wholly owned by the defendant, of which he described himself as "president and principal . . .." The evidence warrants a finding that Terrell Productions, Inc., as well as Teasla Taxi, Inc., also used by the defendant, were sham corporations used by him to cover up or conceal that he was the real party in interest in various transactions and that he was the individual making the payments for various acquisitions. In the instance of Teasla Taxi, Inc., he acknowledged he was the owner of a fleet of thirty cars operated under its name. The payment for cars was generally made in cash. While the defendant did not personally hand over cash for a number of these transactions, the evidence is overwhelming that he was the source of the funds and the purchaser of the cars. He ordered the cars, signed various purchase orders for the cars, had control of them, and acquired them for the purpose of throwing off surveillance agents.

In all, the evidence establishes by the required degree of proof that for the year 1968 defendant received substantial income, approximately $35,000, upon which substantial taxes were due.

Year 1969--Count 3

In August 1969, the defendant purchased a home at 445 North Woodland Street , Englewood , New Jersey , the title of which was taken in his name and one Olive Terrell. 10 The purchase was made by defendant through a George Brooks, a real estate broker, and the seller was told that all the money would be paid through the broker. Upon the signing of the contract the seller received from Brooks $20,000 cash in 100 and fifty dollar bills on account of the purchase price. The seller testified before the grand jury that at the closing of title he received approximately a $10,000 cash balance from the defendant himself, but at this trial he testified that this sum came from Brooks. However, the seller's testimony leaves no doubt that the defendant was the purchaser of the home and that he supplied the cash payments of $30,000, using Brooks as the intermediary. The defendant was present on each occasion, that is, at the contract and title closing, when the cash payments were made. The suggestion by defense counsel that Brooks may have made a gift of that sum flies in the face of substantial evidence. The seller's testimony is explicit that "Mr. Terrell bought the house through Mr. Brooks and all the transactions of the money was done [sic] through Mr. Brooks."

[Large Purchases]

Following the purchase of this home substantial alterations and improvements were made totalling $85,173 from October 1969 through August 1970, of which $38,490 was expended in 1969 and the balance in 1970. The contract for these improvements was signed by defendant as "owner." Of the total paid in 1969 on account of the improvements the contractor received $28,000 by checks from the George Brooks Realty Company, Inc., which acted on behalf of the defendant in disbursing the funds. Between 85 and 90% of the balance of $10,490 was paid directly by the defendant in cash to the contractor. A further expenditure of $2,000 was made for the installation of a TV surveillance and alaram system in the home.

In that same year, ten Cadillac cars were purchased at a total cost of $87,153. Two of these cars were customized at an additional cost of $9,080. In these instances, as in the prior years, the defendant was the negotiator for, and the purchaser of, the cars, title to which in nine instances was taken in the name of Teasla Taxi, Inc., the contracts for which, in six instances, were signed by him as an officer. Title to the other car was taken in the name of Sally Christopher, but the salesman for this transaction testified that all but $500 of the purchase price was paid for by Teasla Taxi. Payments for these ten purchases were made in cash. Two payments on account of eight cars were made in the amounts of $29,393 and $20,725 in twenty dollar bills or less; hours were required to count the currency.

In sum, the total expenditures by the defendant for the purchase of a home, improvements thereon and the purchase of ten cars, totalling $168,000, together with the direct evidence that the defendant had sizeable income from his narcotics activities, establish that in 1969 the defendant received substantial income on which substantial taxes were due.

Year 1970--Count 5

In 1970, payments were made in the amount of $46,683 on the balance due for the improvements of defendant's home at 445 North Woodland Street . Of this amount, $44,683 was paid in cash and the defendant personally paid 85 to 90% of this amount to the contractor.

In January of 1970, within four months after he acquired the North Woodland Street home in Englewood , New Jersey , the defendant bought a second home at 224 Tenafly Road , Englewood , New Jersey , and took title in his name and his wife Frances [sic]. He expended therefor $18,000 over and above the mortgages and he and his wife executed a purchase money mortgage. George Brooks Realty Company was also the defendant's agent in this purchase. Checks from Brooks Realty Company were used to make mortgage payments in 1970.

In February of this year, the defendant purchased in his individual name a Cadillac Eldorado demonstrator car for $11,500. The same company from whom he purchased this car also customized four other cars, title to which was in Teasla Taxi. The defendant personally directed how the cars were to be customized. A total cash payment of $20,000 was made for the demonstrator car and the customizing, delivered in a paper bag in denominations of primarily fives, tens and twenty-dollar bills. This cash payment was made in response to a phone call to the defendant after a check drawn on the joint account of William and Olive Terrell of 445 North Woodland, signed by Olive Terrell, was returned for insufficient funds. There is no doubt that the $20,000 came from the defendant.

The evidence abundantly establishes that in 1970 the defendant received substantial income in the amount of approximately $87,000 upon which substantial taxes were due.

As to the third and fifth counts, an additional finding is made. Assuming, as defendant argues, that the evidence is insufficient to establish that payments made by or in the name of other parties cannot be attributed to him, the evidence is beyond dispute that in the years 1969 and 1970 the defendant personally made 85-90% of the cash payments to the contractor for the balance of $54,000 (over and above the check payments by George Brooks Realty Company) for improvements on his home at 445 North Woodland Street. On this evidence alone, not considering other cash payments made directly and personally by defendant for cars purchased in his individual name, the court finds that in each of the years 1969 and 1970 the defendant had substantial income on which substantial taxes were due.

[Second Element of Evasion]

II. The government has also established beyond a reasonable doubt the second element of the offense charged under 26 U. S. C., section 7201, in counts 1, 3 and 5, namely, that for each of the years 1968, 1969 and 1970, the defendant attempted to evade and defeat the payment of taxes due. His failure to file returns in any of these years, when he had substantial income and substantial taxes were due, was deliberate, purposeful and intended to evade payment of the taxes due. The record further establishes beyond any question that defendant attempted to conceal his income in each year and evade payment of taxes due by purchasing automobiles in the names of sham corporations; by making payment in major transactions with large sums of cash in small denominations; by purposely avoiding making records in his own name in his expenditures; by using other persons to execute transactions and make payments on his behalf; and by falsely concealing the source and amount of his income as he did in a loan application in 1970.

This calculated conduct, repeatedly engaged in, was an attempt to mislead and conceal his income and to evade payment of substantial taxes due. 11

[Absence of Records]

III. As to the third element of the offense, that the defendant willfully attempted to evade the payment of taxes, the court finds overwhelming evidence of willful intent. The defendant was fully aware of his duty to pay taxes in his income and he deliberately attempted to evade payment thereof. 12

The defendant's willful intent is inferred from his use of large sums of cash in the major portion of his transactions, 13 his practice of placing his assets in the names of other persons, 14 his use of sham corporations, 15 and by his conduct in avoiding making records usual in transactions of the kind in which he was engaged. 16 Further evidence of his willful intent is found in the fact that he did file a tax return in the year 1960, thus demonstrating his awareness of his duty to pay taxes, and in his loan application of January 1970, wherein he falsely stated that on his income of $18,600 as a gas station mechanic he owed $2,300 in federal and state taxes for the past twelve months. What the Supreme Court said in Spies v. United States 17 is particularly appropriate here: "If the tax evasion motive plays any part in such conduct the offense may be made out even though the conduct may also serve other purposes such as concealment of other crime."

The court therefore finds that the government has established beyond a reasonable doubt all the essential elements of the offense charged under 26 U. S. C., section 7201, and finds the defendant guilty on each of counts 1, 3 and 5. In view of these findings, it is unnecessary to reach the lesser included offenses charged under 26 U. S. C., section 7203, in counts 2, 4 and 6. 18 However, were the court called upon to decide these counts, the evidence overwhelimingly establishes that the government also has sustained its burden of proof as to counts 2, 4 and 6 and that a verdict of guilty on each is warranted.

The foregoing shall constitute the Court's Findings under Rule 23(c) of the Federal Rules of Criminal Procedure.

1 Defendant argues that there is no independent evidence corroborating his admissions to Agent Nauwens as required by Smith v. United States [54-2 USTC ¶9715], 348 U. S. 147, 155 (1954). The independent evidence, however, need only establish either that the admissions were reliable or that the crime charged was in fact committed. United States v. Marcus [68-2 USTC ¶9599], 401 F. 2d 563, 565 (2d Cir. 1968), cert. denied, 393 U. S. 1023 (1969); United States v. Pawlak [72-2 USTC ¶9646], 352 F. Supp. 794, 797 (S. D. N. Y. 1972). As indicated later, in addition to Hunt's corroborative testimony, the record contains substantial independent evidence that the defendant had taxable income in these years, thus corroborating his admissions. United States v. Smith, 348 U. S. at 157; United States v. Calderon [54-2 USTC ¶9712], 348 U. S. 160, 166-67 (1954).

2 United States v. Klein, 488 F. 2d 481 (2d Cir. 1974); United States v. Pfingst, 477 F. 2d 177, 197-98 (2d Cir.), cert. denied, 412 U. S. 941 (1973); United States v. Briggs, 457 F. 2d 908 (2d Cir.), cert. denied, 409 U. S. 986 (1972); United States v. DeSisto, 329 F. 2d 929 (2d Cir.), cert. denied, 377 U. S. 979 (1964).

3 McFarland v. Gregory, 425 F. 2d 443 (2d Cir. 1970); Amalgamated Clothing Workers of America v. NLRB, 345 F. 2d 264 (2d Cir. 1965); Russell, Poling & Co. v. Conners Standard Marine Corp., 252 F. 2d 167 (2d Cir. 1958); 2 Wigmore on Evidence §435 (3d ed. 1940). See e.g., Government of Virgin Islands v. Williams, 438 F. 2d 1085 (3d Cir.), cert. denied, 404 U. S. 881 (1971).

4 See United States v. Penosi [72-1 USTC ¶9103], 452 F. 2d 217 (5th Cir. 1971), cert. denied, 405 U. S. 1065 (1972).

5 See United States v. Calles [73-2 USTC ¶9544], 482 F. 2d 1155, 1159 (5th Cir. 1973).

6 See Holland v. United States [54-2 USTC ¶9714], 348 U. S. 121, 138 (1954).

7 United States v. Massei [58-1 USTC ¶9326], 355 U. S. 595 (1958); United States v. Calles [73-2 USTC ¶9544], 482 F. 2d 1155, 1159 (5th Cir. 1973).

8 Holland v. United States [54-2 USTC ¶9714], 348 U. S. 121, 138 (1954). Cf. Fleichtmeir v. United States, 389 F. 2d 498, 503 (9th Cir. 1968); Talik v. United States [65-1 USTC ¶9163], 340 F. 2d 138, 140 (9th Cir. 1965); Kampmeyer v. United States [55-2 USTC ¶9779], 227 F. 2d 313 (8th Cir. 1955).

9 During the course of the trial, defense counsel made objections when a witness called by the prosecution could not make a positive identification of the defendant as the person with whom he dealt, but could only say that the defendant "looks like" or "resembles" the person. Passing for the moment the fact that some of these witnesses produced documents containing defendant's signature (a matter not disputed by the defense), there is no rule of law that identifications must be positive beyond any possible doubt. The sufficiency of an identification is generally for the trier of fact and testimony that the defendant "looks like" or "resembles" the person about whom the witness is testifying may be sufficient when considered with other evidence. United States v. Lewis, 485 F. 2d 236, 237 (5th Cir. 1973), cert. denied, 415 U. S. 980 (1974); United States v. Scarpellino, 431 F. 2d 475, 477 (8th Cir. 1970); United States v. Johnson, 427 F. 2d 957, 961 (5th Cir. 1970); Smith v. United States, 358 F. 2d 695 (5th Cir.), cert. denied, 384 U. S. 971 (1966); United States v. Kelley, 334 F. Supp. 435, 436 (S. D. N. Y. 1971), aff'd without opinion, 471 F. 2d 647 (2d Cir. 1973).

10 The record is not clear whether Olive Terrell was defendant's wife at this time or at any other time. A Frances Terrell, acknowledged to be the defendant's wife, was named as a grantee with respect to the purchase of a second home, referred to under 1970 count 5.

11 Spies v. United States [43-1 USTC ¶9243], 317 U. S. 492, 499 (1943).

12 United States v. Berger [71-1 USTC ¶9387], 325 F. Supp. 1297 (S. D. N. Y.), aff'd, [72-1 USTC ¶9329] 456 F. 2d 1349 (2d Cir. 1971), cert. denied, 409 U. S. 892 (1972).

13 Cannady v. United States , 354 F. 2d 849, 855 (8th Cir. 1966); United States v. Holovachka [63-1 USTC ¶9291], 314 F. 2d 345, 358 (7th Cir.), cert. denied, 374 U. S. 809, (1963).

14 United States v. Calles [73-2 USTC ¶9544], 482 F. 2d 1155 (5th Cir. 1973);United States v. Holovachka [63-1 USTC ¶9291], 314 F. 2d 345 (7th Cir.), cert. denied, 374 U. S. 809 (1963); United States v. Shipani, 293 F. Supp. 156 (E. D. N. Y. 1968), aff'd, 414 F. 2d 1262 (2d Cir. 1969), cert. denied, 397 U. S. 922 (1970).

15 United States v. Holovachika [63-1 USTC ¶9291], 314 F. 2d 345, 358 (7th Cir.), cert. denied, 374 U. S. 809 (1963); Remmer v. United States [53-1 USTC ¶9421], 205 F. 2d 277 (9th Cir. 1953), vacated on other grounds, [54-1 USTC ¶9274] 347 U. S. 227 (1954), reaff'd, [55-1 USTC ¶9500] 222 F. 2d 720 (9th Cir.), cert. denied, 350 U. S. 820 (1955). Cf. United States v. Rifkin [71-2 USTC ¶9751], 451 F. 2d 1149 (2d Cir. 1971).

16 Spies v. United States [43-1 USTC ¶9243], 317 U. S. 492, 499 (1943).

17 [43-1 USTC ¶9243] 317 U. S. 492, 499 (1943).

18 Sansone v. United States [65-1 USTC ¶9307], 380 U. S. 343, 349 (1965); United States v. Slutsky [73-2 USTC ¶9733], 487 F. 2d 832, 845 (2d Cir. 1973), cert. denied, 416 U. S. 937 (1974); United States v. Newman [73-2 USTC ¶9719], 468 F. 2d 791, 796 (5th Cir. 1972), cert. denied, 411 U. S. 905 (1973); United States v. Rosenthal [72-1 USTC ¶9205], 454 F. 2d 1252, 1255 n. 2 (2d Cir.), cert. denied, 406 U. S. 931 (1972).

 

 

[65-1 USTC ¶9328] United States of America , Plaintiff-Appellee v. Fred T. Mackey, Defendant-Appellant

(CA-7), U. S. Court of Appeals, 7th Circuit, No. 14584, 345 F2d 499, 4/1/65, Affirming unreported District Court

[1954 Code Secs. 446 and 7201]

Crimes: Evasion of tax: Net worth method.--A jury conviction of a taxpayer for willful evasion of income tax based on the net worth increase method was affirmed where the evidence was sufficient to support the Government's contention that an increase in the taxpayer's net worth was due to his operation of a policy wheel and not to additional income of several corporations owned by the taxpayer. A minor variance between the bill of particulars and the evidence introduced at the trial did not result in reversible error.

[1954 Code Sec. 7201]

Crimes: Evasion of tax: Jury conviction.--A jury conviction of a taxpayer for willful evasion of income tax was affirmed over the taxpayer's allegations that he was denied certain peremptory challenges, that a member of the jury was the secretary to the grand jury foreman, and several other objections.
[1954 Code Sec. 7201]

Crimes: Evasion of tax: Willfulness.--A jury conviction of a taxpayer for willful evasion of income tax was affirmed where certain actions of the taxpayer were sufficient to support a jury finding of willfulness.

Charles A. McNelis, Department of Justice, Washington, D. C. 20530, Alfred W. Moellering, United States Attorney, Ft. Wayne, Ind., for plaintiff-appellee. Rob ert J. Downing, William M. Ward, Edward B. Stroh, 105 S. LaSalle St. , Chicago , Ill. , for defendant-appellant.

Before HASTINGS, Chief Judge, and KILEY and SWYGERT, Circuit Judges.

HASTINGS, Chief Judge.

Defendant Fred T. Mackey was indicted in March, 1963 in five counts for "willfully and knowingly attempt[ing] to evade and defeat a large part of the income tax due and owing by him and his wife for the calendar year[s] of 1956 [through 1960] by willfully preparing and causing to be prepared * * * false and fraudulent income tax return[s] * * * [i]n violation of Section 7201 Internal Revenue Code; 26 U. S. C. Section 7201."

A jury verdict and judgment entered thereon found defendant guilty on all five counts. Defendant was fined $10,000 and costs and sentenced to five years in prison on each count, the prison sentences to run concurrently. Defendant paid the fine and costs which totaled $65,000. The district court stayed the judgment pending appeal and defendant appealed.

Government used the net worth method to prove its case. Government's theory at the trial was as follows. The net worth of defendant and his wife at the starting point, December 31, 19 55, was $361,461.52 and their net worth at the end of 1960 was $1,519,744.05. These amounts included assets held in the names of the Gibraltar insurance companies (discussed infra) and other nominees for the benefit of defendant. During this five-year period defendant and his wife reported $143,339.24 of taxable income.

Government contended that the Gibraltar Industrial Life Insurance Company (Gibraltar Industrial), Gibraltar Mutual Life Insurance Company (Gibraltar Mutual) and the M. W. E. & S. Investment Company, Inc., 1 were entirely under defendant's dominion and control. It asserted these companies had three safes into which flowed an average of about $4,000 per week in currency during the five prosecution years, in excess of the sums which could be accounted for by the combined gross receipts of the companies, plus the income reported by defendant and his wife, and that defendant helped himself to this excess at will.

[Policy Wheel Operation]

Government's theory was that the source of defendant's excessive net worth increases was a policy wheel operation which defendant admitted conducting and that the excess of $4,000 per week, supra, was from profits earned by defendant on this operation.

Government, in its brief, states that the main issue at the trial was whether this excess $4,000 per week was from the policy wheel operation or from unrecorded and unreported premium income earned by the Gibraltar companies.

On appeal, defendant lists seventeen issues and states:

"The principal errors relied upon are: the court refused to grant defendant ten peremptory challenges as provided in Rule 24(b), Federal Rules of Criminal Procedure, and was granted only eight such challenges; numberous errors in the admission of evidence, both oral testimony and documentary; failure to strike an admittedly incorect and inaccurate net worth summary, Gov. Ex. 800 (consisting of 50 pages) and related exhibits 801, 802 and 803; failure of the government to meet the standards set down for net worth cases and the unconstitutionality of such method as applied to this case; failure to grant many defendant motions to suppress and strike evidence and for mistrial; denial of motion for acquittal made at conclusion of the government's case and after the jury verdict; in certain instruction given and refused and in repeating certain instructions to the jury during its deliberation; prejudicial remarks of the court; and the failure to hold a post-trial hearing upon the allegation that a petit juror was secretary to the foreman of the grand jury."

[Peremptory Challenges]

I. Defendant contends the district court committed reversible error by invoking a rule which limited him to eight peremptory challenges rather than permitting him ten as provided by Rule 24(b), Federal Rules of Criminal Procedure, 18 U. S. C. A.

On the first day of the trial, the district court announced that Government would first have opportunity to exercise peremptory challenges and that upon exercising these challenges no further challenges would be allowed except as to new jurors who might come into the jury box as a result of challenges made by defendant. The court said the same rule would apply to defendant. The effect of this rule was to permit each side one opportunity to challenge each prospecitive juror. Defendant objected to this rule.

Government did not exercise any challenges on its first opportunity. Defendant exercised eight peremptory challenges and tendered the panel back to Government. Government challenged one of the eight new members of the panel, accepted the juror who replaced this member and accepted the jury as then constituted. Defendant expressed the desire to exercise one or two of his remaining two peremptory challenges as to prospective jurors other than the one who replaced the member challenged by Government. The court ruled that defendant could only peremptorily challenge the new juror. Defendant objected to this ruling and did not challenge the new juror.

The manner in which peremptory challenges are exercised is within the sound discretion of the trial court, see Pointer v. United States, 151 U. S. 396, 410 (1894), and in the absence of violation of settled principles of criminal law, federal statutes or constitutional rights of defendant, such discretion is not abused. See Id. at 407, 408.

Defendant complains he was given only one opportunity to challenge each juror and that while he had the opportunity to exercise all ten of his peremptory challenges, the court's rule denied him the effective use of two challenges.

[One Challenge per Person]

The Supreme Court approved a rule which gave each party only one opportunity to peremptorily challenge each juror. St. Clair v. United States , 154 U. S. 134, 147-148 (1894). The Supreme Court also approved a method which could deny a party the effective use of some of his peremptory challenges. In Pointer v. United States, supra, the trial court used a method of peremptory challenge by which all jurors were examined, thirty-seven found qualified to sit and each party given a list of these thirty-seven jurors. From these lists Government could strike five and defendant twnety names. Defendant argued, in essence, that Government may have struck some of the same names which he struck and that Government should have been required to strike names before the list was tendered to him so that he would not waste his challenges on names struck by Government. The Supreme Court in upholding this method stated:

"It is true that, under the method pursued in this case, it might occur that the defendant would strike from the list the same persons stricken off by the government. But that circumstance does not change the fact that the accused was at liberty to exclude from the jury all, to the number of twenty, who, for any reason, or without reason, were objectionable to him. No injury was done if the government united with him in excluding particular persons from the jury. He was not entitled, of right, to know, in advance what jurors would be excluded by the government in the exercise of its right of peremptory challenge. He was only entitled, of right, to strike the names of twenty from the list of impartial jurymen furnished him by the court." Pointer v. United States , supra at 412.

Defendant places primary reliance on Avila v. United States, 9 Cir., 76 F. 2d 39 (1935). The majority opinion, which held that defendant was denied the constitutional right of trial by jury because the court denied him a peremptory challenge on the ground he had waived this challenge, appears to be based upon the trial court's failure to follow Rule 51 of the District Court for the Southern District of California. To the extent that the majority opinion does not rely on Rule 51, we disagree with it. We agree with the dissent filed in that case, to the effect that the trial court did not abuse its discretion by invoking a rule similar to the one in the instant case. 76 F. 2d 43.

In the instant case, the panel of prospective jurors was examined on voir dire by the trial judge in the presence of defendant; defendant understood that he would have but one opportunity to challenge each juror; and defendant challenged eight jurors the first time the panel was tendered to him. He had an opportunity to challenge one juror the second time the panel was tendered but chose not to do so. We conclude defendant has not been denied any statutory or constitutional right and hold the district court did not abuse its discretion in the rule it invoked for the use of peremptory challenges.

[Foreman's Secretary]

We disagree with defendant's contention that a new trial is required because petit juror Dolores Watkins did not state upon voir dire examination that she was employed by Leslie Ross Bain, the foreman of the grand jury which returned the instant indictment against defendant. There is no evidence that Watkins concealed this fact. She testified on voir dire that she was a secretary for the insurance firm of Guffin, MacLennan & Bain.

[Net Worth Method]

II. Defendant urges that the manner in which the net worth method was applied in this case denied him due process of law and was unconstitutional. His reasons are as follows:

"(a) assets allegedly owned by the defendant, his wife, and three separate corporate entities are mixed together in the government's net worth statement; (b) starting point (Dec. 31, 1955) not correct; (c) assets included with no evidence connecting them to defendant or Mrs. Mackey; (d) amounts arbitrarily determined; (e) evidence does not establish ownership of asset by defendant or Mrs. Mackey as of December 31 for each of the years; (f) the net worth statement is based in part on a 13th juror; (g) failure to investigate; (h) lack of proof of current taxable income from a likely source for each year; and (i) willfulness not established."

In substance, defendant's assertions are that the evidence was insufficient to support the verdict and that evidence was admitted which was irrelevant and should have been excluded.

We have carefully reviewed the evidence in the light most favorable to Government and conclude that the net worth method was applied to defendant within the standards established in Holland v. United States [54-2 USTC ¶9714], 348 U. S. 121 (1954) and there was sufficient evidence to support the jury's verdict.

Inclusion by Government of assets of three separate corporate entities in defendant's net worth statement.

Defendant's argument on this point is primarily concerned with Gibraltar Industrial. M. W. E. & S. conducted limited operations and defendant was given full credit in Government's net worth reconstruction for all income reported by M. W. E. & S. The exclusion from the net worth summary of the assets held in the name of Gibraltar Mutual would have reduced the total unreported income by only about 8%.

Gibraltar Industrial was chartered by the State of Indiana in 1920 and had offices in Indianapolis and Gary . The corporation had no stockholders. Defendant acquired an interest in it in 1947 and was chairman of the Board of Directors during the years named in the the indictment (1956 through 1960). Defendant's sister, Mrs. Fannye Benford, was treasurer of Gibraltar Industrial during these years. She was responsible for the corporation's financial transactions. She received money coming into the corporation, paid all claims and bills, supervised employees and checked the bookkeeping.

During these years the president of Gibraltar Industrial was Bruce Mackey, Jr., a brother of defendant and the vice-president was Marion Davis, a son of defendant's uncle. The secretary from 1956 through 1957, William Mackey, is a brother of defendant. The secretary from 1958 through 1960, Ardie Jenkins, is defendant's nephew.

Gibraltar Mutual, like Gibraltar Industrial, was chartered by the State of Indiana , had offices in Indianapolis and Gary , did not have stockholders and had defendant's above-named five relatives as officesr during the years in question.

M. W. & E. Investment Co., Inc., was incorporated in Indiana in August, 1957. Early in 1959, the name was changed to M. W. E. & S. Investment Co., Inc. Until April, 1959, defendant and the three members of his immediate family (see footnote 1, supra) were the sole owners and officers of this corporation. On April 4, 19 59, the corporation's minute book bore an entry indicating that 49% of the stock was being issued to certain named friends and relatives of defendant, including Benford, Jenkins, Marion Davis and Odie Davis (Marion Davis's father).

[Preparation of Returns]

Harry Pettrie, a public accountant, testified that he prepared for Gibraltar Industrial the annual statements which are required for the Indiana Department of Insurance and federal income tax returns. He prepared these from Gibraltar Industrial's books and records which included the cash journal, bank statements and canceled checks. The assets held in the name of Gibraltar Industrial which were included in Government's reconstruction of defendant's income did not appear on the corporation's books and records and were not listed on the annual statements or federal income tax returns. Pettrie testified he was never informed the corporation was acquiring assets in the form of real estate and securities.

Benford (defendant's sister) testified on direct examination that the corporation's books and records from which the statements and returns were prepared were complete as to the corporation's income and financial transactions. On cross-examination, she testified the corporation received substantial premium income which was not recorded on the books and records and which was used to buy the assets listed in Government's statement of defendant's net worth. Government's prosecutor told the jury at least three times during his argument that if the jury believed Benford's testimony to the effect that these assets were purchased by unreported premium income of Gibraltar Industrial and Gibraltar Mutual, then the jury must find defendant not guilty.

The annual statements prepared by Pettrie for Gibraltar Industrial disclosed that during the years 1956 through 1960, Gibraltar Industrial averaged $55,000 per year in net premiums. The statements further showed that during these years the corporation paid out in death benefits and sick and accident benefits to policyholders an average of $16,352.06 per year. Thus, according to the corporation's books and statements, it was annually paying out to policyholders an average of about 30% of its premium income. Defendant's argument that the assets in question were purchased by unreported premiums received by the corporation, if correct, would mean that policyholders were receiving in benefits approximately only 11% of the money they were paying as premiums.

This issue was properly submitted to the jury and there was ample evidence from which it could reasonably find that the assets in question were not purchased with income of the three corporations.

Defendant's net worth at staring point.

Government used the income tax returns of defendant and his wife from 1929 through December 31, 19 55 as a guide in determining defendant's net worth at the starting point. The total income reported by defendant and his wife during these years was $181,465.77. Government did not deduct personal living expenses from this amount but did deduct the income taxes paid during this period, $22,306.04, leaving a balance of $159,159.73. Defendant's contentions that these income tax returns had no probative value, were irrelevant and were too remote, are without merit. The net worth of defendant and his wife at the starting point, December 31, 19 55, including assets held in the names of nominees, was computed by Government to be $361,461.52.

Defendant argues that "[t]he evidence conclusively established that the December 31, 19 55 starting point (net worth) of $361,461.52 was understated by at least $62,721.65" and no amount of cash of hand was included for defendant.

Defendant states that the simple net worth statement which Government furnished defendant before trial established his net worth at the starting point to be $398,691.57 and that this figure properly includes $37,230.05, of which Government had knowledge, yet failed to include in its starting point net worth.

This net worth statement, which was introduced into evidence as Government's Exhibit 8, was, in essence, a bill of particulars. There is no merit in defendant's assertion that these items must be included in the starting point. There were several items contained in this statement, some of which favored defendant and some Government, which were not substantiated during the trial by admissible evidence. Government's starting point must be based upon items which are supported by evidence introduced during trial. It is certainly not unusual in cases of this type for the starting point as proved during the trial to vary from the bill of particulars or indictment which are prepared prior to trial.

[Stocks Purchased]

Defendant asserts the following three assets were proved during trial, yet excluded from the net worth starting point:

"James Lees & Sons Stock ....           $ 2,841.76
W. F. Hall Stock .............             1,886.53

Central Indiana
 Gas Stock ....             7,187.70
Total ........................         $11,916.99"

 

As to the first two items (Lees and Hall stock), evidence was introduced at trial that defendant bought them on November 30, 19 54, but there was no evidence as to the purchase price or whether the stock was sold at any time. In the absence of such evidence, it was not error to exclude these items from the starting point.

The third item (gas stock) was an asset of defendant at the beginning and end of the prosecution years and could not have affected unreported income. Thus, exclusion of this asset would not be prejudicial error. Government's net worth summary did include 190 of these shares at a cost of $3,063.95. The other 550 shares were excluded due to the absence of evidence as to their purchase price.

Defendant argues that Government's Exhibit 805 demonstrates Gibraltar Industrial had $25,491.60 in cash at the starting point and this amount should have been included in defendant's net worth at the starting point. We disagree. It appeared that this amount had been invested in assets of Gibraltar Industrial by the end of 1955 and thus could not have been in the form of cash. Further, Gibraltar Industrial's annual statement showed that as of December 31, 19 55, the "Cash in Association's Office" was $4,379.44. The burden of proving that Gibraltar Industrial's cash was more than this amount was on defendant. See United States v. Hornstein, 7 Cir. [49-2 USTC ¶9326] 176 F. 2d 217, 220 (1949).

Defendant also argues there was evidence to show that Gibraltar Industrial had $590,506.12 in cash at the starting point. This argument is based upon testimony of Benford, defendant's sister, and Jenkins, defendant's nephew. The jury was entitled to disbelieve this testimony.

[Cash on Hand]

Government did not include any cash on hand in defendant's net worth at the starting date or at any point throughout the years in issue. Defendant claims this is prejudicial error.

Treasury agent Edward Harrington testified that investigation had not revealed any cash on hand at any time in the net worth period and that if he had included a figure for cash at the starting point such figure would have been purely arbitrary.

During the investigation, a treasury agent asked defendant if he had substantial amounts of cash on hand but defendant's attorney advised him not to answer the question.

Whether defendant had substantial sums of cash at the starting point is a matter within defendant's knowledge. Under circumstances such as those in this case, where Government conducted a thorough investigation and failed to uncover evidence of cash on hand, the burden is on defendant to come forward with evidence of cash and he remains quiet at his peril. See Holland v. United States [54-2 USTC ¶9714], 348 U. S. 121, 138-139 (1954) and United States v. Holovachka, 7 Cir. [63-1 USTC ¶9291], 314 F. 2d 345, 354 (1963).

Sufficiency of the evidence to support the inclusion by Government of certain assets in defendant's net worth.

Defendant's brief lists several items which Government included in defendant's net worth. Defendant argues these should not have been included. Defendant urges exclusion of these items because of insufficient evidence to connect these assets to defendant or his wife, arbitrary evaluation of the value of some of these items by Harrington and lack of evidence that defendant or his wife owned certain property at the end of the indictment years.

We have carefully examined each item listed and the contention made by defendant and find no prejudicial error in including these assets at their listed value in defendant's net worth. It would not serve any useful purpose to further lengthen this opinion by setting out the evidence pertaining to each item challenged by defendant.

Some of these items appear in defendant's net worth at the end of each year and thus could not affect any unreported income by defendant. Government's treasury agent Harrington testified concerning these items and explained why the assets were included and how their value was arrived at. While in some instances there was evidence contrary to Government's evidence and Harrington's explanations, the issue of whether a specific asset was properly included in defendant's net worth was one of fact and properly submitted to the jury. Defendant makes the mistake of viewing the evidence in the light most favorable to him.

Defendant complains that Government did not offer evidence to show that he owned certain properties at the end of the years in question and argues that he may have sold these properties. He does not contend that he did sell them and his federal income tax returns did not list the sale of these properties. We find no error in the inclusion of these items in defendant's net worth.

Sufficiency of Government's investigation, establishment of likely source of income and establishment of willful evasion of income tax.

Defendant states Government is required to determine whether he and his wife received any loans, inheritances or gifts during the indictment years and whether defendant and his wife used a prior accumulation of funds during such years. He contends Government did not offer evidence that the above possibilities were investigated and that this constitutes prejudicial error.

Government is required to investigate and negate "reasonable explanations by the taxpayer inconsistent with guilt" in order to establish its proof in a net worth theory case. Holland v. United States [54-2 USTC ¶9714], 348 U. S. 121, 135 (1954). (Italics added.) However, defendant in this case did not furnish any explanation which would attribute his increased net worth to other than taxable income. Defendant had the right to remain silent but he did so "at his peril." Id. at 139.

Defendant stated "[t]here was no direct evidence of * * * a likely source of current taxable income for each of the years 1956 through 1960." Defendant concedes that he was a policy wheel operator during the years in question. There was no direct evidence that any of the defendant's alleged unreported income was obtained from his policy wheel operation. Direct evidence is not required. "[P]roof of a likely source, from which the jury could reasonably find that the net worth increases sprang, is sufficient." Id. at 138. The following language in United States v. Costello, 2 Cir., [55-1 USTC ¶9342] 221 F. 2d 668, 671-672 (1955), affirmed, 350 U. S. 359 is applicable: "There was no difficulty in the case at bar in pointing to such a [likely] source. By his own admission * * * [defendant] was a gambler * * *. * * * Gambling is an occupation with indeterminate possibilities * * *."

[Willfulness]

Defendant argues in the alternative that assuming, arguendo, he failed to report taxable income for the indictment years, Government did not prove such failure to be willful.

The Supreme Court in Spies v. United States [43-1 USTC ¶9243], 317 U. S. 492, 499 (1943) said that "willful attempt may be inferred from conduct such as keeping a double set of books, making false entries or alterations, or false invoices or documents, destruction of books or records, concealment of assets or covering up sources of income, handling of one's affairs to avoid making the records usual in transactions of the kind, and any conduct, the likely effect of which would be to mislead or to conceal." In light of this language and evidence introduced at the trial, e.g., recording of defendant's personal transactions on the books of Gibraltar Industrial and defendant's acquisition of property and putting title in the name of Gibraltar Industrial, we hold there was sufficient evidence from which the jury could reasonably find willfulness.

Harrington's Testimony

Defendant asserts that Government's expert witness, treasury agent Harrington, "usurped the exclusive function of the jury by weighing the evidence and determining its credibility" and he was, in effect, a "13th juror."

He testified at length concerning, inter alia, the assets which Government included in defendant's net worth at the starting point and end of each indictment year. Such evidence and explanatory testimony is admissible in cases of this type to aid the jury in understanding a complex fact situation. United States v. Johnson [43-1 USTC ¶9470], 319 U. S. 503, 519 (1943). See United States v. Doyle, 7 Cir., [56-1 USTC ¶9553] 234 F. 2d 788, 794 (1956), cert. denied, 352 U. S. 893. We have read Harrington's testimony and do not find its admission to constitute prejudicial error.

[Other Errors Alleged]

III. Defendant raises various issues, inter alia, whether the indictment was defective; whether the trial judge improperly admitted certain evidence; whether the jury was prejudiced by defendant's brother being called as a witness when Government allegedly knew he would plead the Fifth Amendment; whether the court erred in charging to defendant the cost of the court's copy of the transcript; and whether certain instructions were erroneous. We have carefully considered these and all other issues raised by defendant and find no prejudicial error.

[Conclusion]

In sum, Government introduced evidence from which the jury could reasonably find that defendant and his wife reported $181,465.77 on their income tax returns from 1929 through 1955; that their net worth as of December 31, 19 55, including assets held in the names of nominees, was $361,461.52; that their net worth five years later was $1,519,744.05; that during this five-year period they reported only $143,339.24 of taxable income on their returns; that a likely source of this unreported income was defendant's policy wheel operation and that failure to report this income was willful.

We hold there was sufficient evidence to support the jury's verdict and no prejudicial errors were committed before or during the trial as would require a reversal of the judgment of conviction. Defendant received a fair trial.

The judgment of conviction appealed from is affirmed.

AFFIRMED.

1 The initials for this corporation apparently were derived as follows: "M" from defendant's name (Mackey), "W" from the middle name of defendant's son (Wardell), "E" from defendant's wife's first name (Ella) and "S" from defendant's daughter's first name (Sesame).

 

 

[86-1 USTC ¶9231] United States of America v. Joseph E. Todaro, Sr

U.S. District Court, West. Dist. N.Y. , CR-83-29E, 6/6/85, 610 FSupp 923, (610 FSupp 923.)

[Codes Secs. 446 , 7201 and 7206 ]

Crimes: Attempt to evade or defeat tax: Fraud and false statements: Evidence: Reconstruction of income: Bank records and net worth increases: Sufficiency of indictment: Separate counts: Motion to sever.--A taxpayer charged with three counts of willfully evading income tax and four counts of willfuly filing false income tax returns was denied a motion for dismissal premised on the contention that the government failed to discharge its obligation to investigate all possible leads when using the net worth method of reconstruction of income. A district court reasoned that to rule on the motion would be premature, since it presupposes that the government will fail to establish at trial that it had discharged its obligation to investigate such leads. However, the court granted the taxpayer's motion to sever count seven for willful filing of false statements from the other six counts, since the government utilized a different theory of proof, the specific item deduction method, which might unfairly prejudice the taxpayer's case as to that issue. Furthermore, in an unrelated motion involving the same parties, the court denied the government's motion to require the taxpayer to provide written objections to the authenticity of certain designated records before trial to expedite the proceedings, because the government was not entitled to the advantage of pretrial rulings on its proposed exhibits.

Anthony M. Bruce, Department of Justice, Washington , D.C. 20530 , for plaintiff. Joseph Latona, John W. Condon, Jr., 300 Statler Bldg., Buffalo , N.Y. , for defendant.

Memorandum and Order

ELFVIN, District Judge:

In this prosecution charging three counts of willfully and knowingly attempting to evade federal income tax liabilities in violation of 26 U.S.C. §7201 and four counts of willfully and knowingly making and subscribing false tax returns in violation of 26 U.S.C. §7206(1) , the abovenamed individual ("the defendant") has moved to dismiss the Indictment and, alternatively, for a severance of the trial of Count Seven of the Indictment from the other six counts.

The government has indicated, with respect to the tax evasion counts, that it intends to demonstrate at trial the existence and extent of defendant's unreported taxable income in each year by utilization of the "net worth plus non-deductible expenditures" method of proof. See Holland v. United States [54-2 USTC ¶9714 ], 348 U.S. 121 (1954). Defendant's dismissal motion is premised upon the government's alleged failure to have investigated adequately certain "leads" that he had provided to it regarding three substantial loans which he has claimed had been made to him during the periods in question.

Under Holland v. United States, supra, when income tax evasion is sought to be established by use of the net worth method, the government has an obligation to investigate all leads provided to it be the defendant when and to the extent that such leads are reasonably susceptible of being checked. "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." Id. at 136.

Although the government has submitted affidavits and documentation with respect to the nature and scope of its investigation of the provided leads, consideration of such is not necessary to the determination of defendant's dismissal motion inasmuch as this Court finds that such motion is premature. The government has correctly contended that the motion presupposes that the government will fail to prove at the trial of this case that it had discharged its obligation to investigate the leads. Should the government thus fail at trial, this Court could, with legal propriety, prevent the govenment's case from going to the jury. See Holland v. United States , supra, at 135-136; United States v. Scott [81-2 USTC ¶9663 ], 660 F.2d 1145, 1167 fn.42 (7th Cir. 1981), cert. denied, 455 U.S. 907 (1982). Defendant's additional contentions that the government had failed to exhaust the leads during the Grand Jury's investigation and should have presented informant evidence to that body regarding one of the claimed loans have been considered and have been found insufficient to warrant dismissal of the Indictment. Accordingly defendant's request for dismissal shall be denied without prejudice.

Defendant's motion to sever Count Seven from the other six counts, is bottomed on the assertion that such count had been improperly joined with the other six under Fed.R.Crim.P. rule 8(a). He has further contended that severance of said count from the others is appropriate under Fed.R.Crim.P. rule 14 due to the separate transaction upon which Count Seven is premised, the dissimilar theory of proof that will be utilized by the government regarding such count and the possible jury confusion and unfair prejudice to him of a trial of this count jointly with the others.

The parties are in basic agreement that: (a) Counts One through Six charge defendant with willfully evading income tax liability (Counts One, Three and Five) and willfully filing false tax returns (Counts Two, Four and Six) for fiscal years ending in 1976, 1977 and 1978 respectively; (b) the government's evidence regarding these charges will be presented according to the net worth/non-deductible expenditures method of proof; (c) Count Seven charges defendant with willfully filing a false income tax return for the fiscal year ending June 30, 1979 due to his alleged fraudulent deduction of the payment of a personal gambling debt as a business expense; and (d) the government will utilize a "specific item" method of proof regarding Count Seven. The government has also indicated the substantial correctness of defendant's prediction that, with one or two possible exceptions, different witnesses will be called by the government in attempting to prove Counts One to Six than with respect to Count Seven.

Rule 8(a) of the Federal Rules of Criminal Procedure permits joinder of two or more offenses in the same indictment where the crimes charged "are of the same or similar character." In the case at bar the offense charged in Count Seven--namely, the willful filing of a false income tax return with respect to the fiscal year ending June 30, 1979 in violation of 26 U.S.C. §7206(1) --is sufficiently similar to the violations of 26 U.S.C. §7206(1) charged in Counts Two, Four and Six--and even to Counts One, Three and Five--to warrant joinder under rule 8(a). Cf. United States v. Sciandra, 529 F.Supp. 316, 318 (S.D.N.Y. 1981).

"Moreover, Rule 8(a) is not limited to crimes of the 'same' character but also covers those of 'similar' character, which means '[n]early corresponding; resembling in many respects; somewhat alike; having a general likeness.' " United States v. Werner, 620 F.2d 922, 926 (2d Cir. 1980).

However, the propriety of the joinder of distinct offenses under rule 8(a) does not preclude the granting a severance under Fed.R.Crim.P. rule 14 "if it appears that the defendant is prejudiced by the joinder." Id. at 928. In United States v. Halper [79-1 USTC ¶9127 ], 590 F.2d 422, 430-431 (2d Cir. 1978), it was explained:

"When all that can be said of two separate offenses is that they are of the 'same or similar character,' the customary justifications for joinder (efficiency and economy) largely disappear. Whereas the joinder of offenses 'based on the same act or transaction' or of offenses based 'on two or more acts or transactions connected together or constituting parts of a common scheme or plan' is reasonable and desirable both from the government's and the defendant's perspective, the same cannot be said for joinder of offenses of the 'same or similar character.' "

The Court in Halper (wherein two separate indictments had been joined for trial) noted the potential dangers to which a defendant is exposed by joinder of offenses of the "same or similar character"--e.g., the jury might view the government's evidence cumulatively or improperly utilize the evidence regarding one offense to infer a criminal disposition on the part of defendant regarding another offense--and announced a rule requiring

"a severance of offenses that are purportedly of the 'same or similar character' unless evidence of the joined offenses would be mutually admissible in separate trials or, if not, unless the evidence is sufficiently 'simple and distinct' to mitigate the dangers otherwise created by such a joinder." Id. at 431.

In the instant criminal action application of this rule justifies a separate trial of Count Seven. The government's assertion that "evidence that the defendant committed any one of the first six counts might be admissible in a separate trial of Count Seven" is too speculative to deny the sought severance in view of the possible unfair prejudice to defendant and is not persuasive in view of the absence of any contention by the Government of a common scheme or plan by defendant to have evaded taxation regarding all of the charged offenses. Such assertion is, in all probability, not going to be fulfilled on trial. In view of the numerous documents and witnesses that the government is expected to utilize regarding Counts One through Six, as well as the complexity of the net worth theory of proof, the expected relative simplicity of the government's case with respect to Count Seven does not warrant denial of defendant's motion. While it might not be an abuse of this Court's discretion to deny the severance, it most certainly can not be deemed improper to grant such relief. The latter course will not enable the government to adduce evidence of the defendant's gambling activities, if any there be, with its unfair influence upon the jury to the substantial adverse interest of the defendant on the trial of Counts One through Six.

For these reasons it is hereby

ORDERED that defendant's motion for dismissal of the Indictment is denied without prejudice; and it is hereby further

ORDERED that defendant's motion for a severance and a separate trial of Count Seven of the Indictment is granted; and it is hereby further

ORDERED that the government shall, within fifteen (15) days of the entry of this Memorandum and Order elect in writing whether it will go to trial September 10, 1985 on Counts One through Six or on Count Seven. 1

Memorandum and Order

In this prosecution charging defendant with willfully attempting to evade federal income tax liabilities in violation of 26 U.S.C. §7201 and willfully subscribing false tax returns in violation of 26 U.S.C. §7206(1) , the government has moved pursuant to Fed.R.Cr.P. rule 12(d)(1) to require defendant to file written objections to the authenticity of certain designated records and for a pretrial hearing for the purpose of ruling on any objections filed by defendant. Defendant has opposed such motion, asserting that the government is not entitled to the relief sought.

Fed.R.Cr.P. rule 12(d)(1) permits the government to provide a defendant with notice of "its intention to use specified evidence at trial in order to afford the defendant an opportunity to raise objections to such evidence prior to trial" in the form of a motion to suppress evidence under rule 12(b)(3). In the case at bar the government seeks to compel defendant to make his position known prior to trial with respect to the authenticity vel non of some 568 exhibits that the government intends to offer at trial. Although this Court recognizes that the granting of the instant motion would conserve its time, would reduce the length of what is expected to be a prolonged trial by eliminating certain witnesses and/or testimony and possibly would diminish confusion of the jury which can arise when attorneys argue about and witnesses testify as to the authenticity of records, rule 12(d)(1) does not authorize the procedure sought by such motion and the government has not cited any other rule or authority which would permit such procedure. In addition, although this Court certainly would favor a stipulation by the parties as to the authenticity of any exhibits the genuineness of which is not disputed, I shall not order defendant to file specific objections inasmuch as such procedure could serve to provide the government with notice of problem as to a specific exhibit and an opportunity to rectify such prior to trial. Absent the requested order the government might find at trial that it is unable to introduce into evidence a certain exhibit or exhibits for lack of having established adequately its or their authenticity. Accordingly, I find that the government is not entitled to the advantage of pretrial rulings on the authenticity vel non of its exhibits.

For these reasons it is hereby ORDERED that the government's motion is denied.

1 The government had indicated, tentatively, that it would opt to try the defendant on Count Seven initially and then on Counts One through Six. Inasmuch as the unfair prejudice works in but a single direction--viz., from Count Seven into the disposition of Counts One through Six--it would appear that, if the government were to try the latter first, the same jury could be utilized. In a sense, there would be a bifurcated trial with a single jury.

 

 

[82-1 USTC ¶9271] United States of America , Plaintiff-Appellee v. Frederick G. Raymond, Defendant-Appellant

(CA-6), U. S. Court of Appeals, 6th Circuit, No. 80-1664, 11/13/81

[Code Sec. 7201]

Crimes: Income tax evasion: Evidence: Net worth reconstruction of income: Wilfulness.--A taxpayer's conviction for income tax evasion based on a reconstruction of income using the net-worth increase method was affirmed. Leads furnished by the taxpayer were either followed up by Internal Revenue Service agents or not beneficial to the taxpayer and a parcel of real estate which the taxpayer held in joint tenancy with his nephew was not includible in the taxpayer's net worth. Wilfulness was proven even though some of the items the government included in the taxpayer's net worth involved areas of uncertainty in the tax laws.

James K. Rob inson, United States Attorney, Detroit, Mich. 48226, M. Carr Ferguson, Assistant Attorney General, Rob ert E. Lindsay, James P. Springer, Department of Justice, Washington, D. C. 20530, for plaintiff-appellee. Erwin A. Rubenstein, Rubenstein, Isaacs, Lax and Borden, 17220 West 12 Mile Road, Southfield, Mich. 48076, John K. Lynch, 315 Williamson Building, Cleveland, Ohio 44114, for defendant-appellant.

Before EDWARDS, Chief Judge; LIVELY, Circuit Judge; and HOLSCHUH, District Judge. *

PER CURIAM:

The defendant appeals from his jury conviction of willfully attempting to evade the payment of income taxes due for the years 1973, 1974 and 1975, 26 U. S. C. §7201. The government's case was based on a "net worth" reconstruction of taxable income for the years in issue.

The primary argument for reversal is that the government failed to follow leads beneficial to the defendant and improperly excluded certain assets in determining net worth. Our examination of the record fails to reveal an instance in which the government failed to follow leads beneficial to the defendant. When analyzed these leads either were never given during the government's investigation or, if given, were checked out by IRS agents.

The claim that the government wrongfully failed to include assets in the net worth statement refers principally to a parcel of real estate described as "9261 Field." This real estate was mortgaged for $25,000 by the defendant and on the same date he transferred the property to himself and his nephew as joint tenants with right of survivorship. In investigating these transactions the government determined that the nephew was making all the mortgage payments, though defendant was the sole obligor on the mortgage note. We conclude that it was reasonable to omit the property from the assets on the net worth statement and to omit the mortgage from the liabilities, given the ambiguous nature of the transaction with respect to "9261 Field." The jury heard the witnesses for both sides on the issue, including the defendant and his nephew, and found defendant guilty for 1973, the year in which the "9261 Field" transactions took place. We find no error in this determination. Other claims of omitted assets are not supported by the record.

It is also argued that willfulness was not proved because some of the items and transactions upon which the government based its case involved areas of legal uncertainty. The short answer to this contention is that the government is required to make a total reconstruction of taxable income and a total recomputation of tax due in a net worth case. The fact that some features of such a case relate to clear cut issues of tax law while some involve contested issues does not vitiate the entire case for the prosecution by foreclosing a finding of willfullness. The question of willfullness was submitted to the jury under instructions to which no objection was made.

The court has also considered the contentions of the defendant that the court committed reversible error by denying both of his attorneys an opportunity to participate in closing argument and that he was deprived of a fair trial by reason of comments contained in the argument for the government. We conclude that there was no reversible error in either respect.

The judgment of the district court is affirmed.

* The Honorable John D. Holschuh, Judge , U. S. District Court for the Southern District of Ohio, sitting by designation.

 

 

[80-1 USTC ¶9109] United States of America , Appellee v. Ben Klein, Appellant

(CA-10), U. S. Court of Appeals, 10th Circuit, No. 73-1923, 12/13/79

[Code Sec. 7201]

Crimes: Attempt to evade or defeat tax: Willful evasion of tax: Evidence: Mental competency: Conviction affirmed.--A taxpayers conviction of wilful attempt to evade or defeat tax was affirmed. Challenges made, based on the government's alleged failure to prove the taxpayer's mental competency, the use of the net worth method of proof, and the admissibility of various pieces of evidence, were rejected by the court of appeals.

James L. Treece, United States Attorney, Richard J. Spelts, John W. Madden III, Assistant United States Attorneys, Denver, Colo., for appellee. Herbert W. Delaney, Jr., 50 S. Steels St. , Denver , Colo. for appellant.

Before LEWIS, Chief Judge, SETH, and BARRETT, Circuit Judges.

SETH, Circuit Judge:

Ben Klein appeals from his conviction on five counts of violating 26 U. S. C. §7201. This section reads in part: "Any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony . . ." The jury found that Klein had violated the section as to his income tax liability for the years 1966 through 1970.

Klein's returns for all the indictment years were prepared by accountants. He based his defense on a combination of theories to meet the Government's net worth case. The major defense was that Klein had been mentally ill for a number of years, and was so incompetent that he could not have formed the intent to willfully evade his taxes. He also relied on a generally contemptuous attitude toward money and claimed that mistakes in his returns were made by his accountants. Klein further contended that increases in his net worth which the Government listed as unidentifiable taxable income could be explained and traced to specific sources, including large gifts of cash from his father, Sam Klein. He also argued that the use of the net worth method of proof was improper. These defenses were resolved against him by the jury in reaching its verdict. Many grounds for reversal are asserted on this appeal.

First, it is argued that the trial judge erred in refusing to grant a judgment of acquittal at the close of the Government's case on the grounds that the Government had not met its burden of proof on the issue of defendant Klein's competency. The record shows that Klein was hospitalized shortly after he learned that the investigation into his taxes was being referred to the United States Attorney for prosecution. He was thereafter found competent to stand trial on two separate occasions after hearings, one held in April 1973, and the other in September 1973 on the first day of the trial. We find no error as to these determinations.

At trial the defense was urged that Klein was also not legally competent at the time of the commission of the offenses in that he was too ill to have been capable of forming the specific intent to "willfully evade" his taxes at the times the five returns involved were filed. The test for criminal responsibility in this Circuit is stated in Wion v. United States, 325 F. 2d 420 (10th Cir.):

". . . [T]hat at the time the accused committed the unlawful act, he was mentally capable of knowing what he was doing, was mentally capable of knowing that it was wrong, and was mentally capable of controlling his conduct."

Two psychiatrists and two psychologists testified that Klein was not legally competent at the time of the offense. Their general diagnosis was that he was an obsessive-compulsive, paranoid schizophrenic. In addition, twelve lay witnesses and a handwriting expert gave testimony of erratic behavior and other incidents to support a finding of incompetency. This, of course, rebutted the presumption of sanity and the burden was on the Government to prove competency, which it undertook to do. Competency thus became an element of the offense as it had been for all practical purposes from the outset. United States v. Bettenhausen [74-2 USTC ¶9544], 499 F. 2d 1223 (10th Cir.); Wion v. United States, 325 F. 2d 420 (10th Cir.).

Three psychiatrists and one psychologist testified as part of the Government's case that while Klein was possibly mentally ill, he was competent at the times the offenses were committed. This testimony was supported by that of several lay witnesses. What Klein asserts is that the evidence in favor of incompetency was so overwhelming that it was error to allow the question to go to the jury. We cannot agree. This court held in United States v. Coleman, 501 F. 2d 343 (10th Cir.):

"In order to hold that the court below erred in denying the motion for judgment of acquittal we must be persuaded that, viewing the facts before us and the reasonable inferences to be drawn therefrom in the light most favorable to the government, reasonable men must necessarily possess a reasonable doubt as to defendant's sanity. . . ."

Summarizing the evidence presented here would serve no purpose, and it is sufficient to state that the issue was properly presented to the jury, and there was ample evidence from which the jury could have concluded that Klein was competent. The standard indicated in Coleman was followed. Furthermore, matters of credibility were resolved in the trial court. United States v. Smaldone, 485 F. 2d 1333 (10th Cir.). The attempted reliance on Hartford v. United States, 362 F. 2d 63 (9th Cir.), is misplaced as the evidence here was clearly conflicting.

The psychiatrists and psychologist who testified during the Government's case had been appointed by the court under 18 U. S. C. §4244 to examine Klein to determine his competency to stand trial. Klein now urges that it was error to allow these doctors to also testify as to his competency to commit the offense, relying on a Second Circuit decision, United States v. Driscoll [68-2 USTC ¶9500], 399 F. 2d 135 (2d Cir.). This objection was not raised during the trial, and Klein's attorneys had ample opportunity to cross-examine the Government's doctors concerning their examinations of him. Driscoll has been limited to its facts by the Second Circuit. United States v. Matos, 409 F. 2d 1245 (2d Cir.). The law in this Circuit under United States v. Julian, 469 F. 2d 371 (10th Cir.), is that:

"Numerous cases recognize that examinations pursuant to §4244 embrace also the question of capacity to commit the offense. So, therefore, both reason and authority distate that the dual examination is valid."

No error is involved in allowing the Government's doctors to testify as to Klein's competency to commit the offense, even though they were initially appointed to determine his competency to stand trial. Their examinations were within Julian, and the competency issue in all its ramifications was in the case from the outset.

Klein next argues that his conviction must be reversed because of error in the instruction given to the jury on the issue of his competency. The trial judge instructed the jury:

"A person is not criminally responsible for his conduct if, at the time of the conduct, as a result of mental disease or defect, he lacked substantial capacity either to appreciate the wrongfulness of his conduct, or to conform his conduct to the requirements of the law.

"As applied to this case, the test for criminal responsibility on the part of the defendant means that before you may return a verdict of guilty, you must be convinced beyond a reasonable doubt that the defendant committed the act with which he is charged, if you find he did commit the act, he was mentally capable of knowing what he was doing, was mentally capable of knowing it was wrong, and was mentally capable of controlling his conduct." (Emphasis added.)

Klein agrues that the phrasing of the emphasized portion in effect requires the jury only to find that Klein committed the act, and that the other requirements follow from that finding. Klein's attorneys made no objection to the above instruction when and as given. Without such objection, the instruction will not be reviewed on appeal unless there is "grave error infringing upon the fundamental rights of the accused." Coffman v. United States , 290 F. 2d 212 (10th Cir.); United States v. Williams, 440 F. 2d 1300 (10th Cir.); Fed. R. Crim. P. 30. We find no such error. Also, since no objection was made at the proper time, the apparent meaning, rather than the construction urged on appeal by defendant, must have been accepted. The instructions as a whole make it quite clear to the jury that the question of competency was a separate and essential element of the offense charged. We cannot hold that the phrasing of this one portion of the instructions constitutes plain error, or grave error infringing fundamental rights. The instruction satisfies the standard in Wion, even though it does not follow Wion verbatim. Kitchens v. United States [60-1 USTC ¶9178], 272 F. 2d 757 (10th Cir.).

The propriety of the use of the net worth method of proof in this case is raised on appeal. The record shows that during the indictment years, Klein was a practicing attorney and a member of the Colorado legislature. He claims, as part of his defense, that he was contemptuous of money and paid little attention to it. There was much testimony to the effect that his office was a "pigpen," with files, money, and checks scattered everywhere. Checks would be used as bookmarkers, and frequently would not be cashed for months or years after receipt. Office and personal bills were paid out of the same checking account, and what records were kept were inadequate. Klein was also involved in numerous other business ventures which had poor records. These circumstances provide a basis for use of the net income method when considered with the testimony of the agents. We are mindful of the dangers inherent in the net worth method of proof as expressed in Holland v. United States [54-2 USTC ¶9714], 348 U. S. 121, but after a careful review, we are convinced that the net worth method of proof was properly used. Proper starting figures were arrived at, including the cash figure. The "likely source" under Holland was apparent.

Holland established a duty for the Government when using the net worth method of proof to investigate "leads" which are "reasonably susceptible of being checked, which, if true, would establish the taxpayer's innocence." The opinion also states 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."

The leads involved here include asserted gifts from defendant's father which were developed, dealings with a person named Redd, and a partnership with Dr. Thomas. The latter was an investment venture and the income tax returns for the partnership showed Klein as having an ordinary loss of $439.45 and a capital loss of $24,020.36 in 1966, and an ordinary loss of $2,691.25 in 1967. Agent Grimes testified that, although he was aware of the returns, he gave Klein no credit for this "loss." Grimes said this was because the records for the partnership were confused, and further because Dr. Thomas had lent Klein the money for his initial contribution into the partnership. Grimes stated that partnership losses in excess of basis are not deductible [26 U. S. C. (I. R. C. 1954) §752], and that Klein's contribution of money loaned from Dr. Thomas was insufficient to provide Klein a basis in the partnership under the tax law. Klein's contributions to the partnership through 1966 totaled about $1,500.00; his total through 1970 was $1,670.00. Klein signed a promissory note to Dr. Thomas in 1972 to settle what he would Dr. Thomas for contributions to the partnership venture. Klein now argues that the failure of the agent to investigate the Klein-Thomas venture further resulted in an incorrect net worth figure for 1966 and the succeeding years since the loss was not allowed. The trial judge denied a motion for a judgment of acquittal on this ground and submitted the issue to the jury.

The "leads" point was fully developed by the evidence, and the trial attorneys for Klein accepted the instructions relating to the Thomas matter. After carefully reviewing the facts, we conclude under the prevailing authorities that the Government's asserted failure under Holland to follow the "leads" concerning the Klein-Thomas partnership and others were properly submitted to the jury as part of the overall case. See United States v. Ramsdell [71-2 USTC ¶9627], 450 F. 2d 130 (10th Cir.); United States v. Hom Ming Dong [71-1 USTC ¶9175], 436 F. 2d 1237 (9th Cir.); Lenske v. United States [67-2 USTC ¶9631], 383 F. 2d 20 (9th Cir.); Mighell v. United States [56-2 USTC ¶9630], 233 F. 2d 731 (10th Cir.). The Thomas matter, and also the cash gifts, in the final analysis, ceased to be "leads" in the Holland sense as the matters were fully developed at trial, and the tax aspects were explored by both sides. The Government's failure to give credit for a "loss" was based on its determination of the applicable tax laws as to the Thomas matter.

Klein's next point on appeal concerns several items admitted into evidence. The major objection is to the admission into evidence over strenuous objection of his 1971 income tax return. This was for the first year following the last indictment year. For the indictment years, Klein paid the following amounts of income tax: $3,279.90 in 1966; $1,853.58 in 1967; $2,408.23 in 1968; $689.00 in 1969, and $319.00 in 1970. The 1971 return shows $55,096.00 in taxable income, with $23,269.00 due in taxes. This reflects a $36,000.00 profit from the law firm. Klein argues that it is unduly prejudicial and improper to allow the jury to see the 1971 return and infer that if he had paid $55,000.00 of taxable income in 1971, he must have had more than he reported in 1966 through 1970. There is support for his position in the case law: United States v. Baum [71-1 USTC ¶9130], 435 F. 2d 1197 (7th Cir.); United States v. Stoehr [52-1 USTC ¶9299], 196 F. 2d 276 (3d Cir.).

Counsel for the Government argues that the 1971 return was admitted for a limited purpose. There is no indication, however, in the transcript of the trial that it was so limited by the court, and we must conclude that the return was admitted generally. See United States v. McClain, 440 F. 2d 241 (D. C. Cir.).

The standard for review as to the return and other items here questioned is set out in United States v. Twilligear, 460 F. 2d 79 (10th Cir.):

". . . The materiality and relevance of proffered evidence, and introduction of same, resides in the sound discretion of the trial court; absent a clear abuse of discretion, an appellant [sic] court is bound to uphold the decision of the trial court. . . ."

The 1971 return indicates a likely source of taxable income, if more proof is needed, to explain the increases in net worth for 1966 to 1970. Also Klein had theretofore introduced his 1971 books and records to substantiate a defense which was actively advanced that some of the income attributed to 1970 by the Government should be allocated to 1971. The 1971 returns were relevant to this issue also. Returns for years subsequent to those under indictment are not per se improper evidence. Lisansky v. United States [1929 CCH D-9277], 31 F. 2d 846 (4th Cir.). We find that the trial judge did not abuse his discretion in admitting Klein's 1971 income tax return.

The Government concluded its case with a "summary witness" who presented, with the aid of a summary chart, a synthesis of the evidence from the witnesses. Klein did not object at trial to the introduction of the summary chart, and was allowed full cross-examination of the summary witness. The jury was properly instructed on the function of a summary chart both at the time of its introduction and in the final instructions.

During cross-examination of the Government witnesses concerning their work papers for the summary chart, some minor differences were developed among them, and discrepancies between the Government's figures and Klein's figures. These matters were explored, and there was no showing that all of these were "mistakes," and not matters of interpretation. Klein's objection to the summary chart is not completely clear, but he seems to claim that it was error to allow the chart to be used without correcting it to reflect these "mistakes" which he claims were "flatly conceded." He also claims that the summary witness misrepresented that his summary chart covered all of the evidence introduced to that point. (Some of the defense exhibits had been introduced at the beginning of the trial pursuant to a stipulation.) The witness was put on the witness stand to summarize the Government's case, and not all of the evidence then in. It does not appear from the transcript that the jury could have been misled in any way concerning the summary chart. The differences among the witnesses were developed but the objections raised on appeal were not raised at trial. The jury was instructed on the proper use of the summaries, and, as indicated, there was adequate opportunity to cross-examine the summary witness. The use of the chart here is proper, and within the rule we announced in Swallow v. United States, 307 F. 2d 81 (10th Cir.). See also United States v. Michals [72-2 USTC ¶9737], 469 F. 2d 215 (10th Cir.); Hedrick v. United States [66-1 USTC ¶9269], 357 F. 2d 121 (10th Cir.).

Several other items of evidence are asserted to be prejudicial and improperly admitted, and so providing grounds for reversal. These include campaign literature of Klein circulated during the indictment years and which urged reduced taxes, and tax reform; suspension of Klein from the practice of law, in 1972; the failure of Klein's father, Sam Klein, to file gift tax returns for the alleged cash gifts to the defendant; evidence of numerous purchases made by defendant Klein which were added to his increase in net worth as nondeductible expenses (Klein argued that there was insufficient evidence to identify whether the purchases were personal or business items). Under the standard in United States v. Twilligear, 460 F. 2d 79 (10th Cir.), there was no abuse of discretion in the admission of this evidence.

Finally, Klein claims that there was insufficient evidence to support the jury's finding that he willfully evaded taxes. We said in United States v. Ortiz, 445 F. 2d 1100 (10th Cir.):

". . . The evidence--both direct and circumstantial, together with the reasonable inferences to be drawn therefrom--is sufficient if, when taken in the light most favorable to the government, the fact finder may find the defendant guilty beyond a reasonable doubt. . . ."

The arguments and evidence used by appellant to support this point are essentially the same as those used in the contention that there was insufficient evidence of competency to allow the issue to be presented to the jury. Proof of willfullness may be accomplished by circumstantial evidence. United States v. Ramsdell [71-2 USTC ¶9627], 450 F. 2d 130 (10th Cir.). The issue of willfullness may be resolved by the jury. United States v. Dowell [71-2 USTC ¶9642], 446 F. 2d 145 (10th Cir.). There is sufficient evidence from which the jury could have concluded that Klein acted willfully in evading his income taxes for the years 1966 through 1970.

We have considered the other points and issues raised by the appellant and find no error.

AFFIRMED.

 

 

[78-1 USTC ¶9132] United States of America , Plaintiff-Appellee v. Paul F. Garavaglia, Defendant-Appellant

(CA-6), U. S. Court of Appeals, 6th Circuit, No. 77-5115, 566 F2d 1056, 12/16/77 , Affirming unreported District Court decision

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

Crimes: Evasion of taxes: Intent.--The taxpayer was found guilty of willful evasion of taxes where his only records of gross receipts were his bank deposits, which did not include all his income, and he instructed his wife to discard all records of income but to save all purchase invoices and supplier's bills, some of which were listed twice.

Philip M. Van Dam, United States Attorney, Steven W. Rhodes, Assistant United States Attorney, Detroit, Michigan 48226, Myron C. Baum, Acting Assistant Attorney General, Gilbert E. Andrews, James A. Bruton, Department of Justice, Washington, D. C. 20530, Wynette Hewett, for plaintiff-appellee. William J. Weinstein, Weinstein, Kroll & Gordon, 1935 First National Bldg., Detroit, Mich. 48226, for defendant-appellant.

Before PHILLIPS, Chief Judge; CELEBREZZE and LIVELY, Circuit Judges.

LIVELY, Circuit Judge:

Paul F. Garavaglia was convicted of attempting to evade income taxes for 1966 and 1967 in violation of 26 U. S. C. §7201. 1 A jury was waived and the trial judge entered findings of fact and conclusions of law after a trial which lasted ten days. On appeal it is asserted that the evidence at the trial was insufficient to support the district court's conclusion that "the Government has proved each of the essential elements of this offense beyond a reasonable doubt."

Conviction under §7201 requires proof of three essential elements: (1) willfulness; (2) the existence of a tax deficiency; and (3) an affirmative act constituting an evasion or attempted evasion of a tax. Sansone v. United States , 380 U. S. 343, 351 (1965). At trial the defendant admitted that his tax returns understated taxable income by $22,484 for 1966 and $26,366 for 1967. Filing such false returns satisfied the §7201 requirement of an affirmative act. Sansone, supra, at 352. The existence of significant income tax deficiencies for the two years was conceded. The only issue in the trial court, and on appeal, is whether the government proved beyond a reasonable doubt that defendant willfully understated his income with intent to evade or defeat taxes which were due. Garavaglia contends that the evidence showed that the errors were made by his wife, his attorney and an accountant, and that he took no part in recordkeeping or preparation of the tax returns.

During 1966 and 1967 the defendant operated Paul Garavaglia Trucking as a sole proprietorship in Detroit . Starting with one truck in 1955 he had acquired additional equipment and was operating a substantial business by 1966. The defendant testified that he had a seventh grade education and did not understand bookkeeping or taxes. Mrs. Garavaglia kept the "haul tickets" reflecting payments due from customers and the bills and invoices in paper sacks in the dining room of their home. The haul tickets for each customer were totalled from time to time and duplicate invoices were prepared. When the invoice was paid Mrs. Garavaglia threw away her only copy, though the haul tickets were kept for about one year. There was no regular billing procedure and no regular pay period for the truck drivers who worked for the defendant.

Though the admitted gross receipts of the business exceeded $100,000 in 1966 and $200,000 in 1967, no books were kept. Mrs. Garavaglia testified that she determined gross receipts by adding the year's deposits in the only bank account which she or her husband maintained. The defendant told investigating agents that the receipts of his business were determined from the record of bank deposits. Mrs. Garavaglia testified that she added the monthly totals of deposits from the bank statements and that she furnished the sum of these twelve totals to the preparer. The defendant's wife testified also that she determined the business expenses by adding up all bills and invoices, and contacting certain suppliers. These totals were furnished to an attorney who prepared the 1966 return in a few hours.

Beginning in May or June 1967 an independent accountant was employed to do the bookkeeping at $25.00 per month. Mrs. Garavaglia testified that she took the bank statements and bills to the accountant at the end of each month. Nothing related to customer billing was ever furnished the accountant. The accountant testified that after he had prepared the 1967 return, Mrs. Garavaglia told him that she could prove much larger expenses, particularly for contract labor. He acknowledged that he then increased the total of business deductions without ever being furnished documentation.

The defendant admitted that twenty-two checks which were received during 1966 and 1967 representing payments from customers were never deposited in his bank account, though he endorsed them. He maintained that these checks were used to pay bills of the trucking company, purchase tires, pay for contract hauling and to repay a "loan shark." Since business expenses were computed from bills and invoices as well as cancelled checks, if some bills were paid with third-party checks representing payments from customers, the effect was that defendant received a double deduction--the amount shown on the bill and the undeposited payment. In addition to the undeposited receipts there were significant discrepancies each year between the actual deposits and the amounts reported as gross receipts. These understatements were explained as resulting from failure to list one month's deposit in 1966 and failure to account for entire receipts on various occasions in 1967 where only part of a check from a customer was deposited and the remainder was taken in cash.

Defendant's brief and oral argument in this court presented only the evidence favorable to him. However, there are many conflicts in the evidence and we are required to view it, after conviction, in the light most favorable to the government. The record fully justifies a finding that Paul Garavaglia was much more involved in the finances of his company than his statements to IRS agents and testimony on direct examination might indicate. He received many payments personally and wrote most of the checks which were introduced in evidence. He made out most of the deposit slips including all of those where only part of a payment was deposited and the rest was taken in cash. He computed the pay of the drivers and told Mrs. Garavaglia when to pay bills and purchase invoices. Furthermore, he instructed his wife to destroy invoices to customers after they had been paid, thus virtually precluding any accurate determination of whether all payments were in fact deposited in the bank. The court was not required to accept the innocent explanation which he and Mrs. Garavaglia offered for this irregular practice. This is particularly true when it was shown that all purchase invoices and suppliers' bills were retained and some were listed several times in computing business expenses.

The extensive testimony about loans and their payment is contradictory, and to a great extent, irrelevant. If in fact there were some deposits which represented loan proceeds rather than income, this did not justify defendant's repaying the loans with checks from customers which represented income, but which were never recorded or deposited. The defendant testified that he kept no record of the amounts he borrowed from an alleged "loan shark," and his estimates of the amount varied on different occasions. We conclude that the testimony concerning loan transactions does not negate the inferences which may reasonably be drawn from other evidence in the record.

 

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