Bank Records and Net Worth Increases 4 Page3

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Guilty knowledge and willfulness may reasonably be inferred from such conduct as is revealed by this record. The defendant contended that he relied on his wife, and on his attorney one year and on his accountant the other. Yet in this two-year period he failed to record or deposit twenty-two checks aggregating more than $20,000 paid to his company by customers. Since these receipts did not appear on his bank statements neither defendant's wife nor the preparer knew of their existence. In United States v. Callanan [72-1 USTC ¶9111], 450 F. 2d 145, 148 (4th Cir. 1971), the court wrote that a defendant's "failure to record fees he personally received or to deposit them in his office bank account made it virtually impossible for his accountant to include them in his tax returns." A taxpayer who keeps no regular books but relies on his bank records to reflect his income engages in a deceptive practice when he fails to deposit payments from business customers.

The defendant relies on McCarty v. United States [69-1 USTC ¶9322], 409 F. 2d 793 (10th Cir.), cert. denied, 396 U. S. 836 (1969). Reliance on McCarty is misplaced. In that case the court found sufficient evidence to support a guilty verdict. As in the present case there was specific proof of unreported income and preparation of returns by an accountant who did not see any underlying records but relied on information furnished by the taxpayer. The defendant also argues that United States v. Pechenik [56-2 USTC ¶9888], 236 F. 2d 844 (3d Cir. 1956), supports his position. It does so only as an abstract statement of the proposition that good faith reliance upon the conduct of employees who prepare tax information is not a crime. However, Pechenik is readily distinguishable from the present case. There the government sought to hold a corporation president criminally liable for a false return of the corporation. The device used by the corporation to understate taxable income consisted of treating capital expenditures as operating expenses. The uncontradicted evidence was that a bookkeeper determined how various expenditures should be treated and there was no evidence linking the defendant with the erroneous entries. Here the defendant personally failed to record receipts which constituted business income.

The defendant also relies on the decision in Holland v. United States [54-2 USTC ¶9714], 348 U. S. 121 (1954), for the proposition that the government was required to investigate all "leads" supplied to the taxpayer to explain his increased net worth. The case against Garavaglia did employ the net worth method. However, the "leads" which the defendant supplied did not relate to his unexplained increase in net worth, but concerned his explanations of specific identified items of income which were omitted from his returns. The record discloses that leads relevant to unexplained net worth increases which were reasonably susceptible of being checked were investigated.

A taxpayer who relies on others to keep his records and prepare his tax returns may not withhold information from those persons relative to taxable events and then escape responsibility for the false tax returns which result. Willfulness may not be inferred from the understatement of income alone. However, when there is evidence of a consistent pattern of underreporting substantial amounts of income together with a failure to record all of the income, an inference of willfulness may be drawn. Holland v. United States, supra, 348 U. S. at 139.

The judgment of the district court is affirmed.

¹ §7201. Attempt to evade or defeat tax

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 and, upon conviction thereof, shall be fined not more than $10,000, or imprisoned not more than 5 years, or both, together with the costs of prosecution.

 

 

[78-1 USTC ¶9350] United States of America , Plaintiff-Appellee v. Anthony J. Giacalone, Defendant-Appellant

(CA-6), U. S. Court of Appeals, 6th Circuit, No. 77-5074, 574 F2d 328, 4/7/78 , Aff'g unreported District Court decision

[Code Sec. 7201--result unchanged by 1976 Tax Reform Act]

Crimes: Tax evasion: Net worth prosecution: Miscellaneous defenses.--The defendant was properly convicted of tax evasion by use of the net worth method. The opening net worth figure was not uncertain merely because the amount of cash on hand was represented by an algebraic constant. It was proper for the government to use a joint net worth statement, since joint returns had been filed. Pre-trial publicity and publicity during the trial did not preclude a fair trial. The jury instructions were adequate. Evidence of the existence of undisclosed wiretap evidence was not sufficient to require a post-trial hearing.

James K. Rob inson, United States Attorney, Detroit, Mich., Geoffrey A. Anderson, Richard E. Zuckerman, Department of Justice, Washington, D. C. 20530, for plaintiff-appellee. Joseph F. Dillon, Raymond, Fletcher, Dillon & Titcomb, 400 Renaissance Center, Suite 2370, Detroit, Mich. 48243, for defendant-appellant.

Before: LIVELY, ENGEL and MERRITT, Circuit Judges.

LIVELY, Circuit Judge.

The defendant appeals his jury conviction for income tax evasion. The indictment charged violation of 26 U. S. C. §7201 ¹ with respect to taxes due for the years 1968, 1969, 1970 and 1971. The jury returned guilty verdicts for the first three years but found the defendant not guilty with respect to 1971.

The defendant filed joint income tax returns with his wife and paid the taxes which the returns indicated were due. The government charged that the defendant understated his taxable income by substantial amounts in each of the indictment years. The government's evidence consisted primarily of a recomputation of the defendant's taxable income by "the net worth plus non-deductible expenditures method." (Government summary witness Rob ert Campbell, Tr. 9635). Under this method the government seeks to compute taxable income by determining a taxpayer's net worth (excess of assets at cost over liabilities) at the end of each year plus his nondeductible expenditures during the year. The difference between this figure and the net worth at the beginning of the year is treated as the taxable income received during the year. The government must show that it has ruled out the existence of non-taxable funds as the source of expenditures or increases in net worth. See United States v. Taglianetti [68-2 USTC ¶9479], 398 F. 2d 558, 562 (1st Cir. 1968), aff'd [69-1 USTC ¶9295], 399 U. S. 316 (1969); United States v. Goichman [76-1 USTC ¶9470], 407 F. Supp. 980, 986 (E. D. Pa.), aff'd [77-1 USTC ¶9115], 547 F. 2d 778 (3d Cir. 1976). The net worth method was approved by the Supreme Court for use in income tax prosecutions in Holland v. United States [54-2 USTC ¶9714], 348 U. S. 121 (1954), and in three other cases decided the same day: Friedberg v. United States [54-2 USTC ¶9713], 348 U. S. 142; Smith v. United States [54-2 USTC ¶9715], 348 U. S. 147; United States v. Calderon [54-2 USTC ¶9712], 348 U. S. 160.

The defendant raises numerous issues on appeal. We will discuss separately those which appear to be the most substantial.

Sufficiency of the Evidence

A. Accuracy of the Opening Net Worth Figure--The defendant has contended throughout that the government's evidence was not sufficient to sustain the verdict because it failed to establish the "opening net worth" with sufficient certainty. In Holland the Supreme Court wrote that "an essential condition in cases of this type is the establishment, with reasonable certainty, of an opening net worth, to serve as a starting point from which to calculate future increases in the taxpayer's assets." 348 U. S. at 132. A net worth statement prepared by government agents was received in evidence as exhibit #3517. The itemization of the defendant's opening net worth--i.e., net worth on December 31, 19 67, the last day before commencement of the indictment years--on the government's statement contained no dollar amount for cash. "Cash" was shown as an item, but was represented by a dash, and this representation was repeated for each year through 1971. Page 1 of exhibit #3517, reproduced below, shows the use of dashes:

United States v. Ciacalone

No. 77-5074

The defendant argues that since the dashes added noting to the totals they must be treated as zeros. He points out that the government's evidence showed numerous cash purchases by the defendant and his wife, thus proving the existence of cash. Since no cash was shown on the statement, it cannot reflect accurately or with "reasonable certainty" the opening net worth figure for each year, he contends. This argument is fallacious. The entire thrust of the case was that the cash expenditures in each of the prosecution years were made from current taxable income received in that year, not from cash on hand at the beginning of the year. The government witness Campbell conceded that the defendant possessed some cash, but testified that the dashes represented an unknown, presumably constant amount and were similar to "x" in an algebraic equation. The defendant is a "professional gambler" (appellant's reply brief, pp. 4 & 42). Campbell testified that the net worth statement assumed the existence of a "bankroll" of cash which remained approximately the same throughout the period covered. However, he asserted that as a constant it did not affect the accuracy of the net worth statement.

The defendant presented evidence that he had $300,000 in cash on December 31, 19 67 and that this fund was consumed at the rate of $50,000 per year thereafter. According to defendant's computations these funds approximately accounted for his increased net worth year by year. In anticipation of this defense the government presented a detailed analysis of the financial transactions of the defendant and his wife from October 17, 19 51 through December 31, 19 67. The analysis purported to show that during this 16-year period the Giacalones had spent approximately $81,000 more than was available to them according to their income tax returns. October 17, 19 51 was chosen as the starting point for the cash analysis because the defendant gave a statement to an agent of the Internal Revenue Service on that date in which he detailed all his assets and liabilities. The government argues that this evidence of a negative cash position on December 31, 19 67 was sufficient to justify the jury in finding that no cash hoard of $300,000 existed, as claimed by the defendant, and was sufficient to support the omission of any cash other than the unknown quantity representing the gambler's bankroll, shown by dashes, from the net worth statement.

Because of the danger of miscarriage of justice inherent in net worth prosecutions, we review each such case with great care. See Holland v. United States , supra, 348 U. S. at 129. The burden of proof is no different than in any other criminal case--the government must prove all material elements of the offense beyond a reasonable doubt. However, in these cases the evidence of guilt is largely circumstantial, and the net worth method is, at best, only an approximation. As an added measure of protection the government is required to demonstrate that it has investigated the existence of sources of net worth other than unreported taxable income. As the Supreme Court said in Holland , ". . . the cogency of its proof depends upon its effective negation of reasonable explanations by the taxpayer inconsistent with guilt." 348 U. S. at 135. Evidence which carefully traces the financial history of a defendant and discloses expenditures in excess of reported resources in the period immediately preceding the indictment years is sufficient to support a finding that there was no cash hoard. Friedberg v. United States, supra, 348 U. S. at 144.

The defendant did not claim that he had nontaxable sources of income during the indictment years. Instead, he relied upon witnesses who testified that the $300,000 cash hoard came from the defendant's father prior to that time. The government presented proof that the father had serious financial problems during the period it was claimed the gift money was being accumulated and that he left no probate estate. The evidence was clearly sufficient to support an inference that the defendant's father was not the source of funds which explain the increased net worth and expenditures of the defendant and his wife. See McGarry v. United States [68-1 USTC ¶9204], 388 F. 2d 862 (1st Cir. 1967), cert. denied, 394 U. S. 921 (1969).

Though we have found no case precisely on point we conclude that the use of dashes did not invalidate the net worth statement. The Supreme Court held in United States v. Johnson [43-1 USTC ¶9470], 319 U. S. 503, 517 (1943), that the government is not required to produce proof of the exact amount of unreported income of a large-scale gambler. The nature of the activities of a professional gambler virtually precludes such precision. The effect of using the dashes is no different from the use of zeros approved in United States v. Goichman, supra. It avoids the untenable assumption that a professional gambler could operate without any cash. The recognition of a cash benkroll treated as a constant, together with proof which would support a finding that no significant cash hoard existed, was a sufficient accounting for cash in the opening net worth computation.

B. Use of a Joint Net Worth Statement. The defendant also claims that the evidence was insufficient because the government used a joint net worth statement for the defendant and his wife. The defendant and his wife filed joint returns for the four years covered by the indictment and Mrs. Giacalone's occupation was listed on the returns as "housekeeper." The accountant who prepared the returns testified that all the information and figures for the returns were supplied by the defendant. Though the defendant presented evidence that his wife had a separate estate, or net worth, the government produced Social Security records which indicated that Mrs. Giacalone had no earned income between 1937 and 1971. Furthermore, the government proof traced a number of nondeductible expenditures by the wife to funds furnished by defendant. The jury was not required to believe the evidence that some of the expenditures were made from the separate estate of defendant's wife.

The district court did not commit error in holding that the use of a joint net worth statement was sufficient under the facts of this case. By filing joint returns the defendant and his wife recognized a single taxable unit. Rob ert A. Coerver [Dec. 24,824], 36 T. C. 252 (1961), aff'd per curiam [62-1 USTC ¶9236], 297 F. 2d 837 (3d Cir. 1962); Furnish v. C. I. R., 262 F. 2d 727 (9th Cir. 1968); cf. 8A MERTENS LAW OF FEDERAL INCOME TAXATION §47.10 (rev. 1971). The evidence was impressive that the defendant personally controlled and handled the finances, and he alone was charged with attempting to evade taxes owed by the taxable unit. Although Mrs. Giacalone was not charged with the criminal offense, her financial transactions were intertwined with those of her husband. As in United States v. Costello [55-1 USTC ¶9342], 221 F. 2d 668, 674 (2d Cir. 1955, aff'd, [56-1 USTC ¶9321] 350 U. S. 359 (1956), the evidence was sufficient to permit the government to treat expenditures by Mrs. Giacalone as having been made with her husband's money.

On the entire record we conclude that there was sufficient evidence to support the jury's verdict of income tax evasion for the years 1968, 1969 and 1970. Holland v. United States, supra; United States v. Newman [72-2 USTC ¶9719], 468 F. 2d 791 (5th Cir. 1972), cert. denied, 411 U. S. 905 (1973); McGarry v. United States , supra; United States v. Costello, supra; United States v. Goichman, supra. When the government shows by competent evidence an increase in net worth together with nondeductible expenditures and identifies a "likely source" of unreported income--in this case, gambling--it has carried its burden of proof. United States v. Costello, supra, 221 F. 2d at 672. The jury could infer willfulness from the evidence of a consistent pattern of understatement of income and proof which negated the existence of non-taxable sources of increased net worth.

Unfavorable Publicity

A. Pre-trial Publicity. The defendant also urges reversal on the ground that his trial was tainted by a "saturation" of unfavorable pre-trial publicity in newspaper articles and television broadcasts in the Detroit area, and on several occasions, in the national media. Though little of the publicity related to the case which was to be tried, defendant argues that it placed him in a bad light with the jury. Particularly objectionable, he maintains, were news accounts linking him with the disappearance of James Hoffa, an event which occurred approximately ten weeks before the commencement of the tax evasion trial. One month before the scheduled trial the district court denied a motion for a 120-day continuance based in part on extensive publicity. The defendant did not make a motion for change of venue.

Two weeks before the trial date the defendant submitted a list of six proposed voir dire questions for the prospective jurors which were related to adverse publicity. At a pre-trial hearing on the eve of the trial the District Judge stated that after asking certain questions he would "invite questions" from counsel for the defendant and the prosecution "as it relates to the voir dire examination of the jury panel." The court advised defense counsel that it declined to use four of the proposed voir dire questions because they related to matters of law and contained statements that should properly be incorporated in the final instructions to the jury. Before the trial began on October 7, 1975 counsel again moved for a continuance, stating that the TODAY show that morning had carried a report on the Hoffa case which discussed a book containing references to the defendant. In denying the motion for continuance the court advised counsel for the defendant, ". . . what we will have to do, if your client was referred to this morning on the TODAY show, in the last chapter of the book on Hoffa, perhaps during the voir dire you can help the court in terms of asking that question, whether or not any of the prospective jurors saw the TODAY show and the reference to to your client Mr. Giacalone."

The court conducted a preliminary voir dire examination. Addressing the entire array Judge Keith inquired as to pre-trial publicity as follows:

THE COURT: Now, does any prospective juror have any personal knowledge or information about or concerning the offense with which the defendant Anthony J. Giacalone, also known as Tony Giacalone, is charged in the indictment which the court has heretofore read to you--do you have any personal knowledge or do you know anything about it (no response)

Now, do any of you prospective jurors have any personal knowledge or information about or concerning the defendant Anthony J. Giacalone--do you know anything about him--have you heard anything about Tony Giacalone at all?

MALE JUROR: Read his name in the newspapers.

ANOTHER JUROR: I have, too. On TV. I have watched.

THE COURT: How many of you have read his name in the newspaper and have heard something about him on television, would you raise your right hand?

(show of hands)

THE COURT: That is everyone of you.

Now, do any of you, and I am speaking to all 12 of you, by reason of what you have read or heard in the newspapers or on television or on the radio believe that you could not be absolutely fair and impartial as it relates to this defendant, listen to the testimony that comes from the witness stand and look at the witnesses that testify and be guided by their testimony and the law as the court will subsequently charge you as it relates to this case--now, do any of you have such prejudice that it would be impossible for you to give this defendant the type of impartial trial that is guaranteed him by the 6th Amendment to the Constitution and clothe him and cloak him with the presumption of innocence that he has presently?

Now, do you think that you cannot be fair and impartial, if so, raise your hand.

(pause, evidently no hands raised)

Now, if you should unconsciously or unwittingly have any opinion, could you set aside that, without any reservation, and decide this case solely by the evidence that comes from the witness stand during the course of this trial?

Shortly thereafter the court asked all prospective jurors if any had seen the TODAY show that morning and received no response. After selection of jurors began each prospective juror was asked by the court if he or she had heard of the defendant. Every venireman acknowledged having heard of the defendant from television or newspaper accounts, and all answered that this recognition would not prevent them from being fair and impartial in the case. Following questioning by the court, counsel for both sides were given an opportunity to question each prospective juror. Counsel for the defendant asked a number of them if they could put out of their minds the things they had read or heard about the defendant and give him the benefit of the presumption of innocence. Each person so questioned answered in the affirmative. One prospective juror started to make some reference to the defendant's reputation and was interrupted by defendant's counsel. Shortly thereafter this person was excused for cause at the request of the defendant.

During voir dire consel for the defendant never suggested to the court that he wished to pursue the matter of pre-trial publicity beyond the questions which were asked. The defendant did not request an opportunity to question prospective jurors individually out of the presence of one another. In view of the questions which were actually asked and the responses received, we find nothing in the district court's refusal to ask the six voir dire questions submitted by the defendant which made it impossible to probe the prospective jurors properly on the effect of pre-trial publicity. There was no abuse of discretion in declining to use the questions offered by the defendant and no denial of an opportunity to conduct an appropriate voir dire. The record does not support the defendant's contention that he was prevented from conducting a meaningful voir dire. On the contrary, it is clear that defense counsel chose not to avail themselves of opportunities for further questioning.

B. Publicity During the Trial. In a related matter the defendant contends that he was prejudiced by continued unfavorable media publicity which appeared during the trial. The defendant brought to the court's attention the fact that a radio news program and a newspaper article had reported the testimony of a government witness during the trial. These accounts added information which the jury had not heard in court that implied some connection between the defendant and James Hoffa. The defendant moved that the testimony of the witness be stricken "for prejudice." No request was made to question the jury on whether any of them had heard the newscast or read the article.

Another occurrence during the trial also involved the Hoffa association. Defense counsel advised the court that the Justice Department had released a status report on an investigation into the disappearance of James Hoffa and that local media outlets had given wide publicity to the report. This occurred approximately one week before the present case went to the jury. No particular action was requested by the defendant. There is no record of any other discussion of publicity during the trial.

After the verdict the defendant made a motion to allow the questioning of jurors "concerning their exposure to any evidence not of record, such as news releases, publications, and articles mentioned above . . .." The motion referred to a number of articles and broadcasts and copies of many articles were appended to it.

The district court admonished the jury daily throughout the trial not to read about the case or listen to broadcasts concerning it, or to discuss the case with anyone. After giving the jury this admonition at the end of the first day's proceedings the court invited the attorneys to "speak to any of these points." Counsel for the defendant did not speak. There is no indication in the record that any juror violated the court's instructions.

In Rizzo v. United States, 304 F. 2d 810, 815 (8th Cir.), cert. denied sub nom. Nafie v. United States, 371 U. S. 890 (1962), the court cited many holdings to the effect that "[w]here a jury has been clearly admonished not to read newspaper accounts of the trial in which they are serving as jurors, it is not to be presumed that they violated that admonition." See also Estes v. United States, 335 F. 2d 609, 615 (5th Cir. 1964), cert. denied, 379 U. S. 964 (1965). Since the defendant did not seek to question the jurors during the trial while the allegedly prejudicial publicity was currently appearing, there was no abuse of discretion in denying the request to question them after the trial was over, in the absence of some showing of violation of the court's clear instruction. See United States v. Brumbaugh, 471 F. 2d 1128, 1130-31 (6th Cir.) (McCree, J., concurring), cert. denied, 412 U. S. 918 (1973).

There was a great deal of publicity concerning the defendant both before and during the trial. The District Judge took pains to see that the jury considered only the evidence presented in court in deciding the case. Defense counsel were not restricted in their attempts to determine whether any prospective jurors had been influenced by pre-trial publicity. When publicity during the trial was brought to the district court's attention the defendant made no attempt to establish contamination of the jury. Widespread publicity about a defendant is not enough, standing alone, to require reversal of a conviction. This is particularly true when the publicity is largely unrelated to the trial which is imminent or in progress. There was no showing of actual taint in this case and none will be presumed. The fact that the defendant was subjected to considerable notoriety, whether justly so or not, does not render the courts of the United States incapable of providing him with a fair trial. United States v. Medlin, 353 F. 2d 789, 792 (6th Cir. 1965), cert. denied, 384 U. S. 973 (1966).

[The Jury Instructions]

The defendant contends that the district court erred in failing to give requested instructions which were based on the evidence. In this court the defendant argues that the district court failed to instruct on his theory of the case. This argument was not made to the District Judge, nor was the decision in United States v. Garner, 529 F. 2d 962 (6th Cir.), cert. denied sub nom. Brown v. United States , 426 U. S. 922 (1976), cited to him. In Garner we held that it is reversible error for a trial judge to refuse to present adequately a defendant's theory in a criminal case. In the present case the defendant offered a large number of separate instructions, each of which embodied some defense theory. Many of the proposed instructions were abstract statements of legal principles which probably would have only confused the jury, since they had no clear application to the evidence presented. Though the substance of many of the offered instructions was included in the court's charge, it declined to give them as offered.

After all the evidence was in, the court held an eight-hour session with counsel devoted entirely to the matter of jury instructions. The trial judge presented his proposed instructions and counsel commented on them seriatim. A number of changes were made in the instructions during this conference. After the court's proposed instructions had been considered and the court had ruled on various objections, counsel were permitted to make further objections "to what the court has not given." Counsel for the defendant then objected to the court's refusal to give nineteen tendered instructions. The court again declined to give the offered instructions. No discussion of the substance of these offered instructions occurred at this time. Instead, a defense attorney merely referred to each of the nineteen by the "title" which he had previously assigned to it.

Among the instructions offered by the defendant and refused by the court was the following:

[Agency]

An agent is one who has the authority to act on behalf of another; called his principal, to transact what the principal may do, and to render an account of his activity to his principal. Stepherson v. Golden, 279 Mich. 710, 276 N. W. 849 (1937), on rehearing of 279 Mich. 493, 272 N. W. 881 (1937). It is not necessary that the principal be disclosed to the third party that the agent is transacting business with. In such a case, the principal is legally referred to as undisclosed principal. Dodge v. Blood, 299 Mich. 364, 300 N. W. 121 (1941).

The expenses incurred by the agent in the performance of handling his principal's affairs are attributable to the principal, and not the defendant. McKinnon and Mooney v. Fireman's Fund Indemnity Co., 288 F. 2d 189 (6th Cir. 1961); Bibb v. Allen, 149 U. S. 481 (1893).

Whereupon if you find that Mr. Anthony J. Giacalone was acting as an agent for others such as his brother, Vito Giacalone, then such expenses he incurred are attributable to those other parties and not to Anthony J. Giacalone.

Furthermore, if you find that Mr. Anthony J. Giacalone paid bills for others such as his brother and son and on doing so used their money then such disbursements are theirs and cannot be charged or attributed to Anthony J. Giacalone. McKinnon and Mooney v. Fireman's Fund Indemnity Co., supra; Bibb v. Allen, supra.

The jury was not concerned with the Michigan law of agency, and the district court properly declined to give the instruction as offered. However, the final paragraph of the proposed instruction related directly to testimony by defense witnesses that Anthony Giacalone was spending their money rather than his own in a number of instances where the government had attributed the expenditures to Giacalone as non-deductible items.

On several occasions during the trial the court acknowledged to defense counsel, in the presence of the jury, its understanding that the defendant claimed some of the expenditures charged to him by the government actually were made with other peoples' money and that some of the payments were made by persons other than the defendant. ² No limitations were placed upon the defendant's attempts to prove this claim. During closing argument defense counsel was permitted to argue at length that various expenditures involved funds of other persons for whom the defendant acted in some agency capacity. In the court's instructions the jury was directed to acquit the defendant if it found that the government had failed to establish the joint net worth of the defendant and his wife at the beginning of each of the indictment years or if it found that the evidence failed to reflect increased net worth and nondeductible expenditures substantially in excess of the income reported in each of the years; or if it had a reasonable doubt that any of these elements had been proven. Immediately following this portion of the charge the jury was instructed as follows:

On the other hand, if the evidence in the case does establish beyond a reasonable doubt the maximum possible amount of Mr. and Mrs. Giacalone's net worth as of the beginning of the calendar years 1968, 1969, 1970 and 1971, and further establishes beyond a reasonable doubt that funds reflected in any increased net worth, plus nondeductible expenditures during such years substantially exceed the income reported on the tax returns, you should then proceed to determine whether the evidence in the case also establishes beyond a reasonable doubt that such additional funds represented taxable income on which Authony J. Giacalone willfully attempted to evade or defeat the tax as charged in the indictment. (Emphasis added).

We believe from reading the entire charge that it is clear the jury was instructed that only those expenditures of funds constituting taxable income of Mr. and Mrs. Giacalone could be considered in determining whether the government had sustained its burden of proving the defendant guilty beyond a reasonable doubt. The court's instructions limited the jury's consideration of expenditures to those which represented taxable income of Mr. and Mrs. Giacalone. The instruction offered by the defendant was merely a converse statement--that the jury could not consider disbursements made by the defendant for other people, using their money. The jury was instructed to consider all the evidence in the case. This required it to take into account the testimony of defense witnesses that expenditures attributed by the government to unreported income of the defendant actually were made from other sources. Since the instructions previously quoted permitted consideration only of expenditures of taxable income of the taxpayers, the entire charge required the jury to consider the defendant's claim in reaching its verdict. See United States v. Herron, 551 F. 2d 1073 (6th Cir. 1977).

The instructions fully explained the net worth method as required by Holland and made it clear that the government had the burden of proving each element of the offense charged beyond a reasonable doubt. Read as a whole, the jury charge properly submitted the factual issues in the case. Other arguments made by the defendant concerning the instructions do not require discussion.

Due Process Issues

The defendant also seeks reversal on the ground that various actions of the prosecution violated his due process rights. It is charged particularly that the prosecution repeatedly brought to the jury's attention the fact that the defendant exercised his Fifth Amendment right to remain silent. The defendant did not testify and his silence when charged with income tax evasion was not disclosed to the jury by cross-examining him, as was done in Doyle v. Ohio, 426 U. S. 610 (1976), and Minor v. Black, 527 F. 2d 1 (6th Cir. 1975), cert. denied, 427 U. S. 904 (1976). Rather, several government witnesses testified that defendant's accountants and counsel failed to furnish certain requested information. No one testified for the defense that the requested information was withheld in the exercise of defendant's Fifth Amendment right to remain silent. In fact, the accountant testified that certain information was given to government agents in an attempt to assist them. In a net worth case the government is required to show that it has made a reasonable attempt to investigate any leads furnished by the taxpayer which suggest non-taxable sources of funds. It was not error to permit the prosecution to show that no such leads were furnished. An examination of the trial transcript reveals no effort by the government to create an inference of guilt from the silence of the defendant.

The other claims of due process violations relate to alleged failure by the government to disclose exculpatory evidence, prosecutorial misconduct and the receiption of evidence of unsupported prior understatements of income by the defendant. An examination of the record relating to these charges fails to support the claim that defendant was denied a fair trial. The trial lasted approximately seven months. It doubtless was not a perfect trial. However, there is no basis for a claim that the defendant was denied fundamental fairness. It was a hard-fought case, but there was no overreaching by the prosecution, and the presiding judge permitted the lawyers to "try their case" without undue interference by the court, while retaining control of the proceedings and guarding the rights of both parties.

The Wiretap Issue

In the early 1960's the government conducted a series of warrantless wiretaps at a Detroit business establishment owned by the defendant. Prior to trial the defendant made a motion under Rule 16, Fed. R. Crim. P., for disclosure of all the transcripts of the tapes made during this surveillance. Several deliveries of transcripts were made by government counsel, and at the time of the last delivery the prosecutor advised the court that the last of the transcripts of interceptions had been disclosed. The transcripts covered only 1963 and 1964. After the trial ended a series of articles appeared in a Detroit newspaper which stated that the interceptions had taken place from 1961 to 1964 and that a much larger volume of intercepted material existed than had been delivered to the defendant.

The defendant made a motion for rehearing on his previously denied motion for a new trial. He also sought an evidentiary hearing to take the testimony of three reporters who had worked on the series of articles. The defendant maintains it was an abuse of discretion to deny these motions. An affidavit filed by counsel for the defendant in support of the motions did not establish that pre-1963 tapes existed. Rather, it disclosed that one of the newspaper reporters had told defense counsel that "to the best of his knowledge" the information in the articles was accurate and that he had seen transcripts which were bulkier than those received by the defendant from the government. He also said he was uncertain whether he had read any transcripts of 1961 or 1962 interceptions. The affidavit quoted another reporter who was involved in preparing the series as saying his information had come from a "reliable source." A government attorney stated in open court that to the best of his knowledge the defendant had received all the transcripts.

The evidence of the existence of undisclosed wiretap evidence was not sufficient to require a post-trial hearing. Even if such materials existed at one time the district court was justified in concluding that the government did not fail to disclose them in violation of its Rule 16 order. There was nothing in the affidavit of defense counsel which indicated that tapes or transcripts of 1961-1962 interceptions were in existence at the time the Rule 16 motions were made or that information from such interceptions formed any part of the government's case in this prosecution. The district court did not abuse its discretion in denying the motions to rehear the motion for new trial and to conduct an evidentiary hearing with respect to the newspaper accounts of pre-1963 electronic surveillance. See United States v. Aiuppa, 440 F. 2d 893, 895 (10th Cir.), cert. denied, 404 U. S. 871 (1971).

The judgment of the district court is affirmed.

¹ §7201. Attempt to evade or defeat tax

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 and, upon conviction thereof, shall be fined not more than $10,000, or imprisoned not more than 5 years, or both, together with the costs of prosecution.

² Examples are:

THE COURT: No, the Court knows the position the Government has taken. The government has taken the position that this lady who was in charge out there received a certain amount of cash money from your client, Anthony Giacalone. It's your position that if Mr. Giacalone, that is if Mr. Anthony Giacalone took the money to this lady he was taking it as an agent of his brother who owned the boat well. The Court knows your position.

(Transcript, page 12,150)

and

THE COURT: Yes, yes, brought in cash and paid the marina bills. And you asked her, did she know whose cash that was and she said no, she didn't, but she just said that she knew Mr. Giacalone, Mr. Anthony Giacalone brought it in.

It is your position that Mr. Anthony Giacalone did not own the boat well and that he was acting as an agent for his brother Vito Giacalone.

The Government's position is that Mr. Anthony Giacalone paid this money to this lady and it was his money.

It is a question of fact that has to be determined by the jury.

Now, if the Court has misstated your position or misstated the Government's position, please correct the Court and we will make this adjustment so that we can move on.

MR. DILLON: I believe the Court has stated the position correctly. My only point is that the Government introduced an exhibit today saying or suggesting that the boat well was owned by the Giacalone brothers.

(Transcript, pages 12,303-04)

 

[76-2 USTC ¶9804] United States of America , Plaintiff-Appellee v. Karl J. Bray, Defendant-Appellant

(CA-10), U. S. Court of Appeals, 10th Circuit, No. 75-1932, 546 F2d 851, 12/6/76, Rev'g and rem'g an unreported District Court decision

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

Crimes: Attempt to evade or defeat tax: Reconstruction of income: Bank deposit method: Evidence.--The Court held that the utilization of the bank deposit method of reconstructing taxpayer's income was proper where the evidence demonstrated the existence of substantial unreported income.

[Code Secs. 7203 and 7205--result unchanged under the '76 Tax Reform Act]

Criminal penalties: Failure to file return: False returns: Willfulness: Evidence: Conviction: Motion for new trial.--The Court of Appeals granted taxpayer's motion for a new trial from a jury conviction of willful failure to file an income tax return and willful falsification of a tax withholding statement. The Court granted the motion since the case was tried before the same judge twice and, under the totality of facts and circumstances of the case, there was a real likelihood that the same trial judge's impartiality might reasonably be at issue under the terms of 28 U. S. C. 455(a), which disqualifies any judge from presiding in any proceeding in which his impartiality might reasonably be questioned.

[Code Sec. 7602--result unchanged under the '76 Tax Reform Act]

Examination of books and records: Administrative summons, enforcement of: Records not in taxpayer's possession: Tax liability investigation: Proper purpose: Taxpayer's right to intervene in summons proceedings: Self-incrimination.--An admin istrative summons may be issued in aid of an income tax investigation if it is issued in good faith to determine the tax liability of any person for any internal revenue tax. The taxpayer was without standing to challenge their issuance since the summonses were issued to taxpayer or aimed at individuals doing business with taxpayer, and none were issued to taxpayer or aimed at records in taxpayer's possession. Furthermore, the Court held that the taxpayer could not assert the Fifth Amendment privilege since compelled production of such documents, no matter how incriminating, was not violative of whatever Fifth Amendment privilege against self-incrimination the taxpayer might have enjoyed if the summons had been directed against him, because the act of disclosing such records does not constitute the giving of incriminating testimony.

Ramon M. Child, United States Attorney, Max D. Wheeler, Assistant United States Attorney, Salt Lake City, Utah 84110, for plaintiff-appellee. James N. Barber, Meredith, Barber and Day, 455 S. 3rd E., Salt Lake City , Utah , for defendant-appellant.

Before SETH, BREITENSTEIN and BARRETT, Circuit Judges.

BARRETT, Circuit Judge:

Karl J. Bray (Bray) appeals from a jury conviction of violating 26 U. S. C. A. §7203 (wilful failure to file an income tax return) and 26 U. S. C. A. §7205 (wilful falsification of a tax withholding statement).

Bray is a tax protester. He authored a booklet entitled "Taxation and Tyranny," which is, allegedly, "the complete guide to the tax rebellion." It "describes the tactics that particular Americans are using to stop the unjust, unconstitutional, and tyrannical practices of the I. R. S."

Bray's 1972 federal income tax return did not contain any relevant information of his earnings. Rather, the return was inscribed: "5th Amendment. Go to Hell; do not pass go; do not collect $200 dollars." On appeal Bray admits that he did not comply with the general filing requirements of the Internal Revenue Code (Code) and that he claimed 15 exceptions, even though he was entitled only to one.

The Government introduced an overwhelming quantity of evidence relative to Bray's taxable income for the year 1972. The parties stipulated that $2,050 was the amount of gross income required as a precondition of Bray's duty to file. In proving Bray's 1972 income the Government introduced payroll records, bank account identification cards, bank account statements and numerous copies of cancelled checks. These records and documents were utilized to reconstruct Bray's income in accordance with the "bank deposits and cash expenditures" method of proof.

Bray testified in his defense. He contended that he was justified in not filing a proper return and in inflating the number of his exemptions because: he thought he was under investigation for criminal violations of the Code and that filing a return would tend to incriminate him in violation of his Fifth Amendment rights; he was not satisfied that he had taxable income in excess of $2,050; he felt that the only way he could require the United States Government to stop withholding taxes was to inflate the number of his claimed exemptions; his personal filing with the Internal Revenue Service "had been designed as political protests designed as good faith challenges" of that which he view as unconstitutional and "bad laws."

On appeal Bray contends that the Court erred in: (1) refusing to suppress evidence secured by admin istrative summons; (2) permitting the Government to establish his 1972 income by the "bank deposits and cash disbursements" method of proof; and (3) in refusing to disqualify itself for personal bias and prejudice.

I. Bray contends that the Court erred in refusing to suppress evidence procured by the Internal Revenue Service (IRS) by admin istrative summonses issued pursuant to 26 U. S. C. A. §7602, which provides in pertinent part:

For the purposes of ascertaining the correctness of any return, making a return where none has been made, determining the liability of any person for any internal revenue tax or the liability at law or in equity of any transferee or fiduciary of any person in respect of any internal revenue tax, or collecting any such liability, the Secretary or his delegate is authorized . . .

(1) To examine any books, papers, records, or other data which may be relevant or material to such inquiry;

(2) To summon the person liable for tax or required to perform the act . . . or any person having possession, custody, or care of books of account containing entries relating to the business of the person liable for tax or required to perform the act, . . .

Bray concedes that Section 7602 may be properly utilized for the joint purpose of acquiring information for the establishment of civil tax liability or collection as well as the possibility of criminal prosecution. Bray contends, however, that in this case the sole purpose of the summons was aimed at the procurement of evidence against him for purposes of criminal prosecution. On this predicate, Bray argues that the summons is not enforceable. We agree that an admin istrative summons may not be enforced if the sole purpose therefor is that of obtaining evidence for purposes of criminal prosecution. We hold, however, that based upon the facts presented in this record, the summonses were properly employed. No abuses occurred.

The record clearly demonstrates that the IRS investigation of Bray and the Service's related use of admin istrative summonses were not undertaken for the sole purpose of obtaining evidence for criminal prosecution of Bray. Bray's cross-examination of Special Agent Harkness is significant to this dispute:

Q. What is the purpose of your job?

A. Well, my purpose of my job is to determine the tax liability of an individual and also determine if there are possible criminal violations of the Internal Revenue Code.

Q. It is a fact, is is not, that these two aspects of your job are integrally related and that the purpose of determining tax liability as far as your job is concerned, is to determine criminal liability, is that true?

A. I have to determine tax liability before I can determine whether there is a criminal violation, yes.

Donaldson v. United States [71-1 USTC ¶9173], 400 U. S. 517 (1971), supports our holding that the summonses were properly utilized in the case at bar:

We note initially that . . . the courts of appeals in opinions . . . appear uniformly to approve the use of summonses in an investigation that is likely to lead to civil liability as well as to criminal prosecution. . . . On the other hand, it has been said, . . . that where the sole objective of the investigation is to obtain evidence for use in a criminal prosecution, the purpose is not a legitimate one and enforcement may be denied. This, of course, would likely be the case where a criminal prosecution has been instituted and is pending at the time of the issuance of the summons.

400 U. S. , at 532-533.

* * *

We hold that under §7602 an internal revenue summons may be issued in aid of an investigation if it is issued in good faith and prior to the recommendation for criminal prosecution.

400 U. S. , at 536.

Although not directly raised by Bray, the Government contends that not only were the summonses properly authorized and executed, but that Bray was without standing to challenge their issuance and usage. The Government contends that inasmuch as the summonses were issued to corporations or individuals doing business with Bray, and that none were issued to Bray or aimed at records in Bray's possession, that Bray has no standing to assert the Fifth Amendment privilege. The proposition that the Fifth Amendment prevented compelled production of documents over the objection of the rightful claimant that such production might incriminate him had its origin in Boyd v. United States, 116 U. S. 616 (1886). The application of the Boyd rule was laid to rest in the recent United States Supreme Court opinion entitled Fisher, et al. v. United States, et al.; United States, et al. v. Kasmir and Candy [76-1 USTC ¶9353], Nos. 74-18 and 74-611, 44 U. S. L. W. 4514 (April 21, 1976) where the Court upheld admin istrative summonses directing attorneys for the respective taxpayers to deliver over certain documents such as accountants' analyses of the taxpayers' income and expenses, work papers, retained copies of prior income tax returns, reports, correspondence, and other records of the accountants which had been delivered to the respective attorneys by the accountants employed by the taxpayers, at the specific direction of the taxpayers. In each case, the Internal Revenue Service had interviewed the taxpayers in connection with an investigation of possible civil or criminal liability under the federal income tax laws before the documents were delivered to the taxpayers' attorneys. The taxpayers invoked the Fifth Amendment privilege against self-incrimination and the attorney-client privilege. The Supreme Court rejected both contentions in holding that the subpoenae are enforceable and that directing a taxpayer to produce his accountant's documents, etc. relating to his tax affairs would not involve incriminating testimony within the protection of the Fifth Amendment because (a) under such circumstances the taxpayer-accused is not compelled to make any testimonial communication and (b) the accountants' documents, etc., are not the "private papers" of the taxpayers but are the contents of the accountants' work papers and do not, therefore, involve testimonial self-incrimination, however incriminating the contents may be.

By analogy, we have held that there is no violation, per se, of one's Fifth Amendment privilege against self-incrimination by reason of the proper execution by special agents of the IRS of a valid search and seizure warrant seeking fiscal and business records relating to income and expenses in the possession of taxpayers in the course of an IRS investigation of their income tax liabilities before any criminal charges had been filed. Shaffer v. Wilson , 523 F. 2d 175 (10th Cir. 1975). In Shaffer we referred with favor to United States v. Blank, 459 F. 2d 383 (6th Cir. 1972), cert. denied, 409 U. S. 887 (1972), where the Court made these observations relative to the element of "compulsion" in relation to records, etc. obtained from the taxpayer by admin istrative summons (subpoena) as distinguished from those obtained via a valid search warrant:

. . . The subpoena compels the person receiving it by his own response to identify the documents delivered as the ones described in the subpoena. The search warrant involved no such element of compulsion upon an actual or potential defendant.

459 F. 2d, at 385.

The summonses were properly issued and executed herein. See also United States v. Hansen Niederhauser Co., Inc., 522 F. 2d 1037 (10th Cir. 1975) and United States v. Richardson, [72-2 USTC ¶9765] 469 F. 2d 349 (10th Cir. 1972).

II. Bray contends that the court erred in permitting the Government to prove his 1972 income by the "bank deposit and cash disbursements method of proof" (bank deposit). The "net worth method of proof" approved in Holland v. United States [54-2 USTC ¶9714], 348 U. S. 21 (1954) preceded the bank deposit method of proof approved in United States v. Lacob [69-2 USTC ¶9616], 416 F. 2d 756 (7th Cir. 1969), cert. denied 396 U. S. 1059 (1970) and re-affirmed in United States v. Stein [71-1 USTC ¶9209], 437 F. 2d 775 (7th Cir. 1971), cert. denied 403 U. S. 905 (1971). Bray acknowledges that the court properly stated the rule in instructing the jury.

Bray argues that the bank deposit method of proof is no longer proper under the dictates of Mullaney v. United States, -- U. S. -- (1975). He specifically contends that the method is not proper herein because some of the information utilized in the implementation of the method should have been suppressed. Mullaney, supra, struck down as unconstitutional a Maine statute which shifted the burden of proving that a homicide was committed in the heat of passion under sudden provocation to the accused, in order to reduce a criminal homicide from murder to manslaughter. By analogy, Bray contends that the bank deposit method of proof unconstitutionally shifts the burden of proof to defendants in tax cases. We hold that the utilization of the bank deposit method of proof was proper and was not violative of Bray's constitutional rights.

Independent of the evidence introduced by the bank deposit method of proof, the Government introduced direct evidence that Bray had earned commissions of $5,580.00 in 1972.

Bray contends that the bank deposit type of evidence creates a presumption that must be rebutted. However, the court properly instructed that simply an inference could be drawn that certain figures constitute income. We recognize that the bank deposits method of proof is not an exact science. In our judgment, however, its utilization has established a substantial degree of certainty which might otherwise be unknown. In United States v. Stein, supra, the court upheld the exclusive use of the "bank deposit" method to establish a wilful attempt to evade and defeat income taxes. The court observed:

In tax evasion cases, a not uncommon attribute seems to be a lack of precise and clear recordation and documentation. . . . Whether the scarcity, murkiness, or ambiguity of supporting data in any particular case is purposeful or merely inadvertent is no doubt often a matter to which the trier of fact gives some determinative consideration.

* * *

Defendant first argues that the government's use of the bank deposit method was insufficient to show substantial unreported income in 1963. While unexplained deposits in excess of reported income is not alone proof of unreported income, it is "a rather convincing circumstance in support of the charge." . . . "Of course, proof under the bank deposit theory is circumstantial in nature, but we know of no reason why such deposits may not be considered in determining income when there is no evidence they represent anything other than income."

437 F. Supp., at 778.

We have consistently approved the principle underlying the bank deposit method of proof theory. In United States v. Ramsdell [71-2 USTC ¶9627], 450 F. 2d 130 (10th Cir. 1971) we held that circumstantial evidence, including complete failure to maintain adequate records, was sufficient to establish a defendant's wilful intent to evade and defeat income taxes owing. We have held that the existence of unexplained funds in the hands of a taxpayer establishes a prima facie case of understatement of income rendering if incumbent on the taxpayer to overcome logical inferences to be drawn from such facts. United States v. Garcia [64-2 USTC ¶9600], 412 F. 2d 999 (10th Cir. 1969); Graves v. United States [51-2 USTC ¶9431], 191 F. 2d 579 (10th Cir. 1951). We have recognized proof of tax evasion by the "specific items method" under which it is shown that contrary to usual practices a defendant received certain payments in cash from particular customers which were not in turn reported on income tax returns. United States v. Merrick [72-2 USTC ¶9572], 464 F. 2d 1087 (10th Cir. 1972), cert. denied 409 U. S. 1023 (1972). By these standards we hold that the Government properly utilized the "bank deposit and cash disbursement method of proof" to reconstruct Bray's income for 1972.

III. Bray alleges that the district court judge erred in refusing to disqualify himself, and that he should have disqualified himself prior to trial. Bray's brief on appeal argues that "Judge Ritter's conduct of this trial was atrocious." However, he recanted, at least in part, when he observed ". . . the court's conduct in the presence of the jury during October 16th was not only free of substantial error, but almost exemplary."

Bray moved for disqualification pursuant to 28 U. S. C. A. §144 which provides, in part:

Whenever a part to any proceeding in a district court makes and files a timely and sufficient affidavit that the judge before whom the matter is pending has a personal bias or prejudice either against him or in favor of any adverse party, such judge shall proceed no further therein, but another judge shall be assigned to hear such proceeding.

The simple filing of an affidavit does not automatically disqualify a judge. United States v. Townsend, 478 F. 2d 1072 (3rd Cir. 1973). A trial judge has as much obligation not to recuse himself when there is no reason to do so as he does to recuse himself when the converse is true. United States v. Ming [72-1 USTC ¶9449], 466 F. 2d 1000 (7th Cir. 1972), cert denied 409 U. S. 915 (1972); United States v. Diorio, 451 F. 2d 21 (2nd Cir. 1971), cert. denied 405 U. S. 955 (1972). An affidavit must comply with §144 before it can effectively disqualify a judge. United States v. Anderson , 433 F. 2d 856 (8th Cir. 1970). And although a court must pass on the legal sufficiency of an affidavit, [Wolfson v. Palmieri, 396 F. 2d 121 (2d Cir. 1968)], all factual allegations must be taken as true [Action Realty Co. v. Will, 427 F. 2d 843 (7th Cir. 1970)], notwithstanding a judge's desire to challenge the validity of the affidavit. Wounded Knee Legal Defense/Offense Committee v. Federal Bureau of Investigation, 507 F. 2d 1281 (8th Cir. 1974).

Bray's affidavit of prejudice alleged, inter alia, that he had obtained 2000 signatures of persons desiring the removal of the judge; that he had written an article calling for the impeachment of the judge; that he had a prior case dismissed by the judge; that he had written a protest telegram against the judge; and that he had filed a brief with the court accusing the judge of bribery, conspiracy, and the obstruction of justice. Bray argues that these actions prejudiced the judge against him or that they "must have" so prejudiced the judge.

Affidavits of disqualification must allege personal rather than judicial bias. United States v. Thompson, 483 F. 2d 527 (3rd Cir. 1973), cert. denied 415 U. S. 911 (1974). They must contain more than mere conclusions. They must show facts indicating the existence of a judge's personal bias and prejudice. Knoll v. Socony Mobil Oil Company, 369 F. 2d 425 (10th Cir. 1966), cert. denied 386 U. S. 977 (1967); Inland Freight Lines v. United States, 202 F. 2d 169 (10th Cir. 1953). Motions alleging bias and prejudice on the part of a judge which establish simply that the affiant does not like a particular judge are not adequate to require disqualification. United States v. Goeltz, 513 F. 2d 193 (10th Cir. 1975), cert. denied -- U. S. --.

We hold that Bray's affidavit in support of his motion to disqualify the judge was insufficient. The mere fact that a judge has previously expressed himself on a particular point of law is not sufficient to show personal bias or prejudice. Antonello v. Wunsch, 500 F. 2d 1260 (10th Cir. 1974). Nor are adverse rulings by a judge grounds for disqualification. Martin v. United States, 285 F. 2d 150 (10th Cir. 1960), cert. denied 365 U. S. 853 (1961). Prior written attacks upon a judge are likewise legally insufficient to support a charge of bias or prejudice on the part of a judge toward an author. In United States v. Garrison, 340 F. Supp. 952 (E. D. La. 1972), the Court observed:

Movant's second ground alleged to support the motion for recusal--his own press release denouncing the federal judiciary and this court's opinion in the Shaw case--is similarly inadequate. It is well settled that prior written attacks upon a judge are legally insufficient to support a charge of bias or prejudice on the part of the judge toward the author of such a statement. In re Union Leader Corp., 292 F. 2d 381, 389 (1st Cir.), cert. denied, 368 U. S. 927, 82 S. Ct. 361, 7 L. Ed. 2d 190 (1961), noted in 8 Utah L. Rev. 75 (1962); United States v. Fujimoto, 101 F. Supp. 293, 296 (D. Hawaii 1951), motion for leave to file petition for writ of prohibition or mandamus denied, Fujimoto v. Wiig, 344 U. S. 852, 73 S. Ct. 102, 97 L. Ed. 662 (1952).

The reasoning behind these decisions is not difficult to ascertain. As one jurist in a similar case stated:

"Only a psychic pleader could allege that because a defendant has published uncomplimentary statements concerning a judge, the latter will be unable to give his critic a fair and impartial trial. If such a fantastic procedure were permitted, a defendant could get rid of a judge by the simple expendient of publishing a scurrilous article, truthfully alleging that the article was published, and clinching the matter by asserting the bald conclusion that, since the article was uncomplimentary, the judge must of necessity be prejudiced against the publisher!"

United States v. Fujimoto, supra, 101 F. Supp. at 296. The mere fact that a defendant has made derogatory remarks about a judge is insufficient to convince a sane reasonable mind that the attacked judge is biased or prejudiced, the standard used to test the sufficiency of an affidavit for recusal under section 144. Berger v. United States, supra, 255 U. S. at 33-35, 41 S. Ct. at 233, 65 L. Ed. at 485; United States v. Hoffa, 245 F. Supp. 772, 778 (E. D. Tenn. 1965). To allow prior derogatory remarks about a judge to cause the latter's compulsory recusal would enable any defendant to cause the refusal of any judge merely by making disparaging statements about him. Such a bizarre result clearly is not contemplated in section 144.

340 F. Supp., at 957.

We hold that Bray's affidavit was inadequate to establish prejudice and bias warranting recusal by the trial judge.

Bray refers to certain colloquies which took place out of the presence of the jury ¹ which he contends show that the judge was prejudiced and should have recused himself and that by reason of his participation, he was denied a fair trial. The comments cited, although admittedly not models of judicial restraint and decorum, do not give rise to reversible error. A trial court has the power to direct a trial along recognized lines of procedure in a manner reasonably thought to bring about a just result; and nonprejudicial comment may be made by the court during trial. Lowther v. United States, 455 F. 2d 657 (10th Cir. 1972), cert. denied, 409 U. S. 857 (1972). Even though not condoned and certainly not encouraged we have nevertheless held: that a judge's remark characterizing defense counsel's statement as "ridiculous" did not give rise to reversible error, Cooper v. United States, 403 F. 2d 71 (10th Cir. 1968); that a judge's comment on the "pathetic" nature of a witness was not prejudicial, Whitlock v. United States, 429 F. 2d 942 (10th Cir. 1970); and that a judge's request that counsel examine his witness "without beating around the bush" did not constitute plain error or prejudice the defendants. United States v. MacKay, 491 F. 2d 616 (10th Cir. 1973), cert. denied, 429 U. S. 1047 (1974). The complaints made by Bray do reflect the judge's attitude and reactions to specific incidents occurring at trial. They involve comments by the judge, when goaded, which were unjudicial. To sustain disqualification under §144, supra, there must be demonstrated bias and prejudice of the judge arising from an "extrajudicial source" which renders his trial participation unfair in that it results in an opinion formed by the judge on the merits on some basis other than that learned from his participation in the case. United States v. Grinnell Corporation, 384 U. S. 563 (1966); Davis v. Cities Service Oil Company, 420 F. 2d 1278 (10th Cir. 1970).

While the trial court's comments in the cases cited above, made in the presence of the jury, were generally deemed improper, they were not seen as plain error requiring new trial or reversal. See: 34 A. L. R. 3d 1313; 14 A. L. R. 3d 723; 62 A. L. R. 2d 166; 84 A. L. R. 1172; 65 A. L. R. 1270.

We hold that the appendixed colloquies did not deny Bray a fair trial.

IV. Bray contends that the court erred in setting his bail in the presence of the jury at the conclusion of the first day of trial. The Government "agree[s] that this conduct in front of the jury was improper." The entire colloquy relating to the matter is:

THE COURT: Is this fellow, Bray, in custody?

MR. BARBER: He is not, your Honor.

THE COURT: Why isn't he?

MR. BARBER: At this time he is at liberty on his own recognizance on this charge, your Honor.

MR. WHEELER: He was brought in pursuant to a summons, your Honor. Bail was never set at that time.

THE COURT: Well, bail is set now. $50,000 bail. If you can put up 10 percent of that with the clerk, you can be released. Otherwise, lock him up.

[R., Vol. I, pp. 93, 94.]

We hold that the court committed plain error in setting Bray's bail in the presence of the jury. The record is devoid of any justification for conducting the bail proceeding in the presence of the jury. There is nothing to indicate that the action was necessary to avoid "the danger of significant interference with the progress or order of the trial." The proceedings lent nothing to the truth finding function. By setting bail within the jury's presence and admonishing the marshals to "lock him up" if bail was not met, the court effectively vitiated the presumption of innocence. We are unaware of any reported decision upholding such proceedings in the presence of the jury. A trial judge has both great responsibility and discretion in conducting the trial of a case. He should be the exemplar of dignity and impartiality. He must exercise restraint over his conduct and statements in order to maintain an atmosphere of impartiality. We are cognizant of the strain and emotional stress imposed upon a trial judge who is endeavoring to conduct the trial in a firm, dignified and restrained manner when he is confronted by a litigant who, like Bray, treats him with disrespect and who openly insults and humiliates him. Even so, it is prejudicial error for the judge to make remarks that clearly import his feelings of hostility toward the defendant. The remarks of the trial judge relative to Bray's bond, with the inferences which must be drawn, cannot be justified or rationalized as fair and impartial. These remarks constitute plain error. Fed. Rules Crim. Proc., Rule 52(b), 18 U. S. C. A.; United States v. MacKey, supra; United States v. Wheeler, 444 F. 2d 385 (10th Cir. 1971). Bray's motion for mistrial, filed the day following the first day of trial, complains of prejudicial remarks of the trial judge made during the course to the first day of proceedings. That motion was ignored by the trial court. We hold that it should have been heard and granted.

The standard for revocation of bail is set forth in Britten v. United States, 389 U. S. 15 (1967):

A trial judge undisputably has broad powers to ensure the orderly and expenditious progress of a trial. For this purpose, he has the power to revoke bail and to remit the defendant to custody. But this power must be exercised with circumspection. It may be invoked only when and to the extent justified by danger of significant interference with the progress or order of the trial. ^* . . .

* * *

* It does not appear whether defendant was at large on bail at the time of the order remitting him to custody. But the same principle would apply if he had been at liberty on his own recognizance.

389 U. S. , at 16.

This case has been before the same trial judge twice. We do not challenge or question the integrity of the judge. However, under the totality of the facts and circumstances of this case, there is a real likelihood that the same trial judge's impartiality might reasonably be at issue under the terms of 28 U. S. C. §455(a) which, as revised in 1974, disqualifies any judge from presiding in ". . . any proceeding in which his impartiality might be reasonably questioned." We conclude that the demands of justice require that the cause be retried before another judge.

Reversed and remanded for new trial in accordance with the foregoing views with direction that the cause be retried before another judge.

¹ See Appendix.

Appendix

The following colloquy occurred prior to trial, out of the presence of the jury:

MR. BRAY: Excuse me, your Honor. May I address the Court?

THE COURT: No, you may not.

MR. BRAY: Have you read my motions, your Honor?

THE COURT: You bet.

MR. BRAY: Thank you.

THE COURT: I also read the charge you have against me that I accepted a $20,000 bribe.

MR. BRAY: Did you?

THE COURT: Yes.

MR. BRAY: Accept the bribe?

THE COURT: Keep that jury out there. You're a damned impertinent bird. You come forward. You have just gotten yourself in contempt of this court.

MR. BRAY: I didn't mean any disrespect, your Honor.

THE COURT: No, you didn't mean any disrespect saying that I received a $20,000 bribe?

MR. BRAY: I truly believe that you did, your Honor. And that is why I made the allegation.

THE COURT: Yes, all right.

MR. BRAY: That is also why I filed an affidavit of prejudice. And I wish you had recused yourself in this matter.

THE COURT: Oh, you did.

MR. BRAY: Yes.

THE COURT: Let me tell you, you are in contempt of this court. And moreover, I am going to sue you now on the criminal side of the court and have somebody else try it. And I am going to sue you for criminal contempt. But I am going to have a civil contempt against you right here and now. As soon as this case is over, I am going to give you the business on that.

It is about time that somebody took this fellow, Karl Bray, and put him where he belongs. And I am going to do it. He has the effrontery to come here in my own courtroom and repeat it, repeat it.

MR. BRAY: Well, I would respectfully move that--

THE COURT: You just don't talk to me about respect. You take your seat over there, and we will try it. You, too.

MR. BARBER: Thank you, your Honor.

THE COURT: Bring that jury in.

Don't hold any conference there about that matter.

MR. BARBER: We are not, your Honor. We are talking about other matters.

THE COURT: I have had about enough of you, too, Barber. While I am cleaning up the situation around the federal courthouse here, I want to take you with it.

All right.

The following colloquy occurred after trial out of the presence of the jury and prior to verdict:

THE COURT: All right. Motion denied to both the close of the government's proof and the other. I don't think you are entitled to a judgment of acquittal. I do think the evidence is overwhelming. I don't think he has a defense. If this had been a civil case, I would have directed the verdict on the subject. I don't think he has any defense.

Now this is an unfortunate young man, going around raising Hell the way he has been doing one way and another.

Now I direct the United States Attorney to proceed to prosecute this man for criminal contempt based upon his charge that this judge accepted a $20,000 bribe from somebody.

You see, he puts his foot in his mouth. He stated that again in front of me in the presence of the court here yesterday. That is what we will base it upon. That is contemptuous conduct of a criminal character in the presence of the court.

Now, I want that done. And that isn't all that is going to be done. He had the effrontery to say to me yesterday, "You took a bribe; didn't you?" Well, I have not felt it worth denying. I let the Tribune editorial take care of that. I was kind of pleased with that. I didn't invite it, none of my friends invited it.

The Salt Lake Tribune ran a nice editorial and said, "Not Judge Ritter. He didn't accept any money or bribe."

And you are damn right he didn't. And you are going to have an opportunity to talk about your Constitutional rights. You are not only going to have an opportunity, you are going to have to.

MR. BRAY: That is all I ever wanted was an opportunity to get into court.

THE COURT: Well, all right. You will get into court. You are damn right you will get into court. And if you could fly to the moon on your toothpick, you will succeed in proving that I took a bribe of 20 cents from anybody, anytime, anywhere.

I have been on this bench 27 years, and to have a whipper-snapper like you come along and make a groundless charge of that kind, an utterly groundless charge, you won't be in court soon, however. I will take care of that as soon as I get this jury's verdict. You are going to be in the penitentiary for as long as I can give you, I will tell you that.

MR. BRAY: Why don't we go to court before I go to jail and get it over with?

THE COURT: Thank you very much for such a generous suggestion. Young man, you would be damn well advised to keep your mouth shut. Just damn well advised to keep your mouth shut. Now, you are getting some other people in trouble, too. I am going to join everybody that published that in any way. So you can count on that. Chew on that for awhile.

Take that fellow into custody.

 

 

[74-1 USTC ¶9332] United States of America , Plaintiff-Appellee v. Dr. Marion Ray Windham, Defendant-Appellant

(CA-5), U. S. Court of Appeals 5th Circuit, No. 73-2883, 2/20/74 , Affirming an unreported District Court decision

[Code Secs. 446 and 7201]

Tax evasion: Criminal prosecution: Proof by net worth increase: Physician: Failure to report fees.--Taxpayer's conviction for knowingly and wilfully attempting to evade tax was upheld. It was not error to permit the taxpayer's former partner to testify that the taxpayer had performed certain operations and did not report the fees therefrom in income. The Government proved a likely source from which the net worth increase could have originated through the testimony of the former partner and two government witnesses who testified that the taxpayer had performed operations in an apartment and failed to report the income. Nor did the trial judge comment unfairly on the evidence and endanger the credibility of the taxpayer's witnesses. Even if the trial judge's comments were improper any harmful effect was cured by the instructions to the jury.

Rob ert Hauberg, United States Attorney, Donald Strange, Assistant United States Attorney, Jackson, Miss., Scott P. Crampton, Assistant Attorney General, Meyer Rothwacks, Richard B. Buhrman, William D. Hyatt, Department of Justice, Washington, D. C. 20530, for plaintiff-appellee. W. S. Moore, Julie Ann Epps, 514 Burnett Bldg., Jackson , Miss. , for defendant-appellant.

Before BELL , SIMPSON and MORGAN, Circuit Judges.

SIMPSON, Circuit Judge:

This appeal is from conviction and sentence to pay fines totaling $10,000 for two counts of a two-count indictment charging violations of Title 26 U. S. C. Sec. 7201 by knowingly and wilfully attempting to evade and defeat a substantial portion of income taxes owed by appellant for the years 1967 and 1968. ¹ The appellant, Dr. Marion Ray Windham, was a physician engaged in general practice in Jackson , Mississippi for a number of years including the tax years involved. The government in keeping with advice to the defendant prior to trial, proved its case by the net worth expenditures method. The guilty verdict was returned June 20, 1973.

The defendant on June 27, 1973 filed a lengthy motion for acquittal, or in the alternative, for a new trial, as to which a hearing was held July 6, 1973, exhibits in affidavit form were received, and oral testimony was taken. The trial judge denied this alternative motion by a lengthy opinion-order on July 20, 1973.

On appeal Dr. Windham does not contest the sufficiency of the government's proof of his guilt. Instead he raises three points of claimed error occurring at his trial which he asserts prejudiced his right to a fair trial. We find no merit in any of the errors asserted and affirm.

The first contention is that it was error to permit Dr. Rob ert P. Myers, Windham 's former partner, to testify that Windham performed certain operations and did not report the fees therefrom as income. The trial counsel for the government indicated in a pre-trial conference that the government would not prove specific items of unreported income in proving its case. The defense was on notice that Dr. Myers would testify as a prosecution witness, but that since he was away and not available for a statement, no Jencks Act material as to his testimony was available.

In compliance with the requirement of Holland v. United States, 1954, [54-2 USTC ¶9714] 348 U. S. 121, 75 S. Ct. 127, 99 L. Ed. 150, that the government prove a likely source from which the net worth increases could have originated, Dr. Myers was first asked on direct examination whether Dr. Windham performed abortions during the tax years in question and failed to report the income. An objection was raised, and after a colloquy between court and counsel with the jury absent, the trial judge indicated that the question might be put using the words "certain operations" in place of "abortions". The witness answered affirmatively. ² Although defense counsel moved for a mistrial, which was denied, he agreed with the court that the "abortion" question had been asked so casually that it was best not to accentuate the incident in the jury's mind by further allusion to it.

Appellant urges that the testimony was so highly prejudicial as to outweigh its relevance, and that failure to exclude it was prejudicial, citing Ford v. United States, 5 Cir. 1954, [54-1 USTC ¶9233] 210 F. 2d 313, where we reversed a police chief's tax evasion conviction because of testimony as to graft payments by prostitutes. We read Ford as having been reversed because of the speculative, hearsay nature of the testimony, not because of its content. We think the evidentiary purpose of Dr. Myers' testimony was clear, and we do not find that it was introduced or alluded to in a manner calculated to inflame the jury. United States v. Tunnell, 5 Cir. 1973, [73-2 USTC ¶9560] 481 F. 2d 149 is a recent tax evasion net worth case in which we approved proof of criminal activity (prostitution pay-offs) as a likely source of funds. In this case the trial judge's jury instructions were clear to the point that the defendant was on trial for tax evasion and for no other crimes.

Somewhat the same considerations govern our rejection of the defendant's claim of prejudice from the rebuttal testimony of two government witnesses to circumstances permitting the inference that he had performed operations at his apartment. During his testimony in his own defense Windham categorically denied on cross-examination that this had ever occurred. ³ One of the witnesses, a maid at the apartment house where appellant lived, testified that she had at times found syringes and bloody towels and sheets in his apartment and on one occasion found a large sum of cash hidden in his bed. The other witness, the apartment house manager, testified that one of the appellant's mattresses was so blood-soaked it had to be destroyed.

This testimony was relevant, it was material in impeachment of Windham 's credibility and it was proper rebuttal. No error occurred when the jury was permitted to consider it.

The testimony of these two witnesses is linked with that of Dr. Myers in appellant's brief as the basis for contending that the government misled him by not disclosing the nature of this testimony prior to trial. As indicated above, Dr. Myers' name was furnished, although the nature of his expected testimony was not available and this was stated. That the government's witness list, gratuitously furnished the appellant without any court order requiring it, did not contain the names of the two rebuttal witnesses is not surprising. Rebuttal witnesses are a recognized exception to all witness disclosure requirements. Prejudice may not be successfully asserted in this connection; Harris v. New York , 1970, 401 U. S. 222, 225, 91 S. Ct. 643, 645, 646, 28 L. Ed. 2d 1.

The final contention advanced is that the trial judge commented unfairly on the evidence and damaged the credibility of defendant's witnesses before the jury on two occasions. The point is without arguable merit.

The first instance occurred when the defendant's mother took the stand. The main purpose in calling her as a defense witness was a elicit testimony as to substantial direct loans exceeding $50,000, to her son as an explanation of increased funds in his possession and at his disposal during the crucial tax years. She took the stand with her old family Bible under her arm, from which she extracted records and testified as to them. She said she had used the Bible regularly for more than 30 years to record her savings. At this point the trial judge apparently in an attempt at levity interjected a rather innocuous comment:

THE COURT: "That's funny place to keep a record in my way of thinking. It is certainly not very favorably impressing."

MR. KENDALL (appellant's counsel):

"These are the facts, Sir."

THE COURT: "All right."

This is the entire incident. No objection to the comment was made prior to the motion for new trial. In the course of his full, fair and complete jury instructions the able trial judge told the jury:

"Any comments made by the court during the course of the testimony is not in any way to be considered as evidence by the jury. The jury must determine its verdict solely upon the evidence that it has heard from the witness stand consisting of testimony and exhibits, and the verdict of the jury must be derived from no other source.

And from any comments that the court has made during the course of the trial, if the jury believes that any comments made by the court is to determine the outcome of this lawsuit, then please disregard any such comments and return a verdict solely on the evidence and testimony introduced during the course of this trial.

I'm not aware of any comments, but I have nothing to do with facts in the case. I am supreme on the question of what the law is in this case, but you are supreme on the question of what the facts are as shown by the evidence, and if I have made any comment which you regard as having any bearing on what the facts are, you may disregard that."

Assuming arguendo that the trial judge's comment was improper it is clear to us beyond peradventure that any harmful effect engendered by it was cured by these instructions.

There is even less substance to the second and last complaint of this nature. The defendant on trial produced an expert witness to summarize the evidence. During his testimony a dispute arose between opposing counsel as to whether the expert witness was about to testify to facts which were not in evidence. In making his evidentiary ruling in the jury's presence the trial judge told defendant's counsel that the witness could not testify as to facts not in the record, but that he could "put any slant he cared to" on facts in the record. This was an accurate statement of the law, explaining the settled function of such an expert witness, to interpret the facts in evidence in a manner favorable to his side's theory of the case. The case cited by appellant in this regard, Bursten v. United States, 5 Cir. 1968, [68-1 USTC ¶9400] 395 F. 2d 976, 983, is totally inapposite to this situation, as well as to the comment about the Bible during the testimony of appellant's mother.

We find no merit in this appeal. The judgment appealed from is

Affirmed.

¹ The appellant was also placed on probation for five years conditioned upon payment of the fines and settlement of his civil income tax liability for the two years in question.

² We note in passing that while Dr. Myers was never cross-examined by the defense as to this point, defense counsel alluded to "abortion" frequently and freely in his closing argument to the jury.

³ Interestingly enough, despite these denials, Dr. Windham testified in detail in connection with his motion for new trial as to numerous treatments of patients, usually first aid, by him at his apartment. He denied charging a fee for these procedures. They did not include any abortion.

 

 

[71-1 USTC ¶9175] United States of America , Appellee v. Hom Ming Dong, Appellant

(CA-9), U. S. Court of Appeals, 9th Circuit, No. 23,940, 436 F2d 1237, 1/18/71 , Aff'g District Court, 69-2 USTC ¶9308, 293 F. Supp. 1249

[Code Secs. 446 and 7201--Result unchanged by '69 Tax Reform Act]

Tax evasion: Net worth method computation: Likely source of income: Taxpayer's explanation investigated: Evidence.--Conviction of taxpayer on tax evasion charges was justified in light of net worth method computation of income. The Government established a likely source of the taxpayer's income, and his books were inadequate to disprove this finding. And it investigated the alleged sources provided by the taxpayer.

Richard K. Burke, United States Attorney, Morton Sitver, Assistant United States Attorney, Phoenix, Ariz., for appellee. Henderson Stockton, Stockton & Hing, 234 N. Central Ave. , Phoenix , Ariz. , for appellant.

Before BARNES, DUNIWAY, and ELY, Circuit Judges:

BARNES, Circuit Judge:

Appellant was indicted in 1966 by a federal grand jury on six counts of tax evasion in violation of 26 U. S. C. §7201. He waived his right to a jury trial and was found guilty by the trial judge on all six counts of the indictment. ¹ Sentence of a fine of $1,000 for each count was imposed and this appeal followed. Our jurisdiction rests upon 28 U. S. C. §1291.

I. Facts

Appellant, a United States citizen by virtue of his father's citizenship, came to this country in 1938. He was inducted into the United States Navy and, during a tour of duty in the Pacific, was married in Hong Kong . Appellant and his wife came to the United States in 1946 and settled in Phoenix in 1947. In 1948, he purchased a grocery facility, which he has operated since that date under the name of Tom's Grocery Store.

In September, 1964, appellant was contacted by the Internal Revenue Service in Phoenix and asked to make his business records available for inspection. At a meeting with agent Frank Barndt, appellant, who was accompanied by his accountant, produced one small undetailed journal and several bank statements from the year 1962 for which agent Barndt was doing an audit. Although other bank statements were made available to the IRS, no other records of the business of the grocery were produced.

The agent's preliminary audit showed that (1) appellant's bank deposits exceeded the amount of income reflected in the journal by $30,000; (2) the income shown in the journal coincided with the amount reported on appellant's 1962 federal income tax return. In an attempt to explain the discrepancy between the bank deposits and his reported income, appellant stated that he had inherited a large sum of money from his father and that he originally did not trust banks, and had slowly deposited it in his banking accounts so as not to arouse suspicion of his wealth. ² No other source was mentioned and the appellant would not state the specific amount of the inheritance from his father.

At a later interview at the Phoenix office of the IRS on December 8, 19 64, appellant, who was accompanied by counsel, explained that his wife had inherited over $100,000 in American money after the death of her parents in Hong Kong . He claimed that he had brought this sum of cash to the United States in a seabag just before he was discharged from the Navy in 1946. He also reiterated his explanation that he had received an inheritance--specifically $55,000--from his father in 1938, which he had entrusted to a Mr. Eng in San Francisco while he was serving in the Navy. However, he could not remember Eng's first name nor his address. It was appellant's contention, on the basis of the foregoing explanation, that he had come to Phoenix in 1947 with almost $200,000 in cash, which he had slowly deposited in his checking and savings accounts.

[Net Worth Method]

On the basis of information from appellant concerning the day-to-day operation of Tom's Grocery Store and other information concerning his visible assets in the form of bank accounts, savings bonds and depreciable assets, a computation of approximate yearly income was made by the "Net Worth and Expenditures Method." In using the net worth method of computation for estimation of yearly income, it is essential to establish an accurate net worth approximation at the beginning of the period for which the calculation is made. The IRS computed appellant's net worth on January 1, 19 59 by aggregating the value of all his known assets including bank account balances, savings bonds, merchandise inventory and depreciable assets. (Ex. 3, 13, 15, 28, 29, 36, 53). In so doing they arrived at a starting figure of $115,421.82, which represented appellant's total net worth on January 1, 19 59. They then computed appellant's net worth in each succeeding taxable year from 1959-1964 in the same manner. ³ By subtraction they approximated appellant's increase in net worth for each year.

Through this method of computation the IRS determined that appellant's income had been understated in the following amounts:

                      Understatement         Understatement

                     of Adjusted Gross                 of Tax

Year                            Income             Liability

1959 .......                $15,840.29              $3,894.95

1960 .......                 22,163.32               5,941.55

1961 .......                 14,615.75               3,346.31

1962 .......                 17,978.47               4,415.58

1963 .......                 21,509.32               6,078.04

1964 .......                 11,558.41               2,540.87

 

The six count indictment was based on this table. ⁴

II. The Findings and Conclusions of the District Court.

At trial appellant attempted to prove that this grocery business could not possibly have been the source of the sharp increases in his net worth, which were reflected in the government's computations. Two grocery store owners in the vicinity testified that the net rate of return on operations similar to appellant's could not exceed 7-10% of gross sales. ⁵ However, neither of the witnesses based their testimony on actual knowledge of the operation of appellant's grocery.

Earl Nass, Field Director of Retail Grocers Association of Arizona, testified that in his opinion appellant's sales figures (Ex. F) were "About right. Knowing the other stores in these areas." (R. T. 601.) However, his further testimony showed that he had little actual knowledge of appellant's grocery operation. Appellant's accountant testified that appellant had explained the disproportionate increases in his bank accounts by stating that he cashed customers' checks with funds that were not connected with the business.

In an attempt to discredit appellant's alleged fear of banks, the government introduced evidence showing that appellant had numerous savings accounts dating back ⁶ as far as 1941; that defendant had purchased his store and equipment on conditional sales contracts; and that he had cashed twenth-eight United States Savings Bonds in 1946, which was prior to their maturity dates.

The government also introduced evidence of its attempts to verify appellant's explanation of the source of his greatly increased net worth. It was shown that the government had checked the immigration records concerning the wealth of appellant's father when he had entered the country. Moreover, there was evidence that inquiries had been made of fellow servicemen of appellant on the ship that brought him to the United States when he allegedly returned from Hong Kong with $100,000 hidden in his seabag. ⁷

The trial judge found that the inadequacy of appellant's records made appropriate the use of the net worth method of computation, as approved by the Supreme Court in Holland v. United States [54-2 USTC ¶9714], 348 U. S. 121 (1954). He also found the net worth computation for each of the years in question, including the base figure for January, 1959, to be accurate. He found the government had pursued the leads concerning the taxpayer's explanation of his weath with due diligence. Furthermore, he found that the actions of appellant in cashing numerous checks and holding large savings accounts cast doubt on the credibility of his testimony.

The trial court concluded that the government had established a likely source of income from which increases in net worth could reasonably be inferred. As to the opinion evidence proffered by appellant, the court was of the opinion that:

"[t]here was no showing made that the opinion accurately reflected a true or actual knowledge of the operation, sales, income, overhead, and any other information that would provide the foundation necessary to give such opinions weight and creditability [sic]." (C. T. 115)

Viewing all the evidence before it, the trial court concluded that:

"[t]he Government having established the likely source of taxable income which was unreported, and the failure to keep adequate records which concealed the action income, this Court infers a wilfulness to defraud the Government of taxes rightfully owing, and finds Hom Ming Dong guilty . . ." (C. Ct. 115)

III. Issues on Appeal

We think it clear from the evidence that the inadequacy of the appellant's business records made a net worth computation the appropriate method of determining the accuracy of appellant's federal tax returns. Holland v. United States, supra at 125. Moreover, we think that the absence of business records established wilfulness if the following evidentiary legal issues are resolved against the appellant as we hold they must be. First, was there sufficient evidence to prove a likely source of income from which it could reasonably be inferred that appellant's increase in net worth arose? Second, did the government establish that it had diligently investigated leads supplied by the appellant concerning his explanation of the nontaxable source of increase in his net worth? We think the government met its burden on both issues and thus we affirm the decision of the trial court.

A. Appellant's Grocery Store Was A Likely Source of Income From Which It Could Be Inferred That His Increase In Net Worth Arose

In recognizing the necessity for applying the net worth method of computation with great care in Holland v. United States , supra, the Supreme Court, nonetheless, stated the fundamental policy for approving its continued use:

"One basic assumption in establishing guilt by this method is that most assets derive from a taxable source, and that when this is not true the taxpayer is in a position to explain the discrepancy." 348 U. S. at 126.

In Whitfield v. United States [67-2 USTC ¶9646], 383 F. 2d 142 (9th Cir. 1967) we discussed the standard for proving a likely source of income:

"In Holland , the Supreme Court remarked, 'Also requisite to the use of the net worth method is evidence supporting the inference that the defendant's net worth increases are attributable to currently taxable income.' (Emphasis supplied [by the court]) It added, 'but proof of a likely source, from which the jury could reasonably find that the net worth increases sprang, is sufficient. (Emphasis supplied [by the court]) From the emphasized words, it seems clear to us that in the presentation of its evidence of a likely source of income which should have been reported, the Government met the burden required by Holland . In defense, the appellant, who testified in her own behalf, contended that her business was incapable of producing the income which the Government charged to have been unreported. She insisted that her husband had concealed $100,000 in a tin box and that, upon his death in 1948, the money had come into her possession. Her credibility was severely shaken." 383 F. 2d at 144.

See also Armstrong v. United States [64-1 USTC ¶9216], 327 F. 2d 189, 194 (9th Cir. 1964).

The trial judge found it significant that neither of appellant's witnesses had any direct knowledge of the operations of appellant's grocery. It is clear from his opinion that he thought their testimony did not negate the reasonable inference that was established by the government that appellant's net worth increased as a result of the grocery operations.

Moreover, the court was impressed with the weakness of appellant's explanation of the rapid increase in net worth. This undoubtedly gave added weight to the circumstantial evidence that the increase in net worth sprang from the grocery. ⁸ We agree with the reasoning of Moore v. United States, 271 F. 2d 564, 568 (4th Cir. 1959) as quoted in United States v. Mancuso [67-2 USTC ¶9487], 378 F. 2d 612, 617 (4th Cir. 1967) in which the government's net worth computation was upheld as resting upon substantial evidence ⁹ and negating the cash hoard theory beyond a reasonable doubt.

This, even though it has been said:

"If [circumstantial evidence] be sufficient to support an inference of guilt and the defendant fails to offer a reasonable explanation consistent with innocence, such failure may be considered by the trier of fact. It is not necessary, in appraising the sufficiency of the evidence, that this court be convinced beyond a reasonable doubt of the guilt of the defendant. The question is whether the evidence, construed most favorable for the prosecution, is such that a jury (or trial judge) might find the defendant guilty beyond a reasonable doubt." Moore v. United States, supra.

Viewing the evidence in the light most favorable to the government, as we must (Lustiger v. United States, 386 F. 2d 132 (9th Cir. 1967), cert. den. 390 U. S. 951), we do not think the trial judge erred in inferring that the increase in net worth was attributable to the grocery store, a likely source of the unreported income (293 Fed. Supp. at 1257) ¹⁰

B. The Government Made Reasonable Efforts To Investigate Appellant's "Cash Hoard" Explanation of Increased Net Worth

The Holland opinion recognized that the net worth method of tax computation, resting as it does on circumstantial evidence and approximation, might create the danger

"[t]hat the jury may assume that once the Government has established the figures in its net worth computations, the crime of tax evasion automatically follows." 348 U. S. at 127, 128.

To lessen this danger, the Holland court placed the burden upon the government to investigate leads given by the taxpayer as to nontaxable sources of increased net income. Specifically, the Court said:

"When the Government rests its case solely on the approximations and circumstantial inferences of a net worth computation, the cogency of its proof depends upon its effective negation of reasonable explanations by the taxpayer inconsistent with guilt. Such refutation might fail when the Government does not track down relevant leads furnished by the taxpayer--leads reasonably susceptible of being checked which, if true, would establish the taxpayer's innocence." 348 U. S. at 135-6 [Emphasis added.]

We think the government did all it reasonably could have been expected to do in checking the leads given by appellant, which were, at best sketchy. We think this is particularly true in view of appellant's explanation of his increase in net worth. The Holland opinion specifically referred to the "cash hoard" defense as a favorite in net worth cases.

"This favorite defense asserts that the cache is made up of many years' savings which for various reasons were hidden and not expended until the prosecution period. Obviously, the Government has great difficulty in refuting such a contention." 348 U. S. at 127

Although the use of such an explanation does not relax the requirement that the government investigate all leads pertaining to the existence of undeposited cash reserves, it does seem to place at least a minimal burden upon the taxpayer, once he chooses to furnish leads to the government, to aid in the investigation of the purported nontaxable source. As is clear from the earlier discussion, the appellant, who was in the best position to do so, gave little useful information to the government. We think the trial judge rightly concluded that the government did all it could under these circumstances.

The decision of the District Court is Affirmed.

¹ The Opinion of the trial court is reported at [69-1 USTC ¶9308] 293 F. Supp. 1249 (D. Ariz. 1968).

² Appellant's first meeting with the IRS was recounted under direct and cross-examination by agent Barndt. (R. T. 30-42).

³ The government determined that appellant's net worth at the end of 1964 was approximately $290,744.29, an increase of over $185,000 from the 1959 figures.

⁴ The following tables reflecting information gathered from appellant's income tax returns were also compiled during the investigation of appellant's financial activities for the years in question.

                   Reported Adjusted         Correct Adjusted

                                 Gross                    Gross

Year                            Income                  Income

1959 .......                 $5,357.13               $21,197.42

1960 .......                  4,901.29                27,064.61

1961 .......                  4,708.63                19,324.38

1962 .......                  4,685.00                22,663.47

1963 .......                  6,802.46                28,311.78

1964 .......                  7,648.32                19,206.73

 

Year               Reported Tax            Correct Tax

1959 .......             $ 124.28             $ 3,919.23

1960 .......                47.00               5,988.55

1961 .......                11.00               3,357.31

1962 .......               $ 2.00              $4,417.58

1963 .......               384.44               6,462.48

1964 .......               420.95               2,961.82

 

⁵ One of the witnesses, Gene Ong, testified that the gross sales from his own grocery had never exceeded "60 some thousand dollars a year" (R. T. 731) during the periods for which appellant was being prosecuted.

⁶ By the end of 1964, appellant and his wife had five savings accounts in Phoenix banks with initial deposits in excess of $24,000. (C. T. 106)

⁷ In all fairness, it should be noted that it is probably doubtful that appellant would have communicated the fact of his possession of such a large amount of money to anyone else on the ship.

⁸ In the case of Kasper v. United States [55-2 USTC ¶9576], 225 F. 2d 275, 278 (9th Cir. 1955) this Court addressed itself to a similar factual situation:

"The government, in the instant case, established that appellant was in an income-producing business. We must assume from the jury's verdict that they did not believe appellant's story that he came to Fresno in 1942 with $40,000 that he had received in cash from his mother and from professional fees, which he had kept hidden in a hollow tile in his cellar; and that, accordingly, he did not have such a cash reserve to start with."

⁹ Compare United States v. Rully [56-2 USTC ¶9714], 143 F. Supp. 283 (D. Conn. 1956) (acquittal ordered on basis of insufficient evidence).

¹⁰ Since we find against the appellant on the issue of likely source of income, we need not discuss the issue raised in his reply brief that the government conceded that appellant had no other source of income besides the grocery store. (Ap. Rep. Br. 1)

 

 

[71-1 USTC ¶9217] United States of America , Plaintiff-Appellee v. Frank Peter Balistrieri, Defendant-Appellant

(CA-7), U. S. Court of Appeals, 7th Circuit, No. 18223, 436 F2d 1212, 1/14/71

[Code Sec. 7201--Result unchanged by '69 Tax Reform Act]

Crimes: Tax evasion: Evidence: Extent of surveillance: Newly discovered evidence.--The taxpayer's conviction for tax evasion was affirmed. He did not prove that the Government had not fully disclosed the entire amount of its unlawful surveillance of his premises. Moreover, evidence that his brother operated a tavern that the Government had mentioned to the jury as a likely source of taxpayer's income, and evidence that the brother received some income in a later year from a company of which the jury may have assumed that the taxpayer was sole owner during the years in question, was not newly-discovered evidence. Thus, the District Court did not abuse its discretion in not granting a new trial.

Frank J. Violanti, United States Attorney, Springfield , Ill. , Johnnie M. Walters, Assistant Attorney General, and Joseph M. Howard and Richard B. Buhrman, Department of Justice, Washington , D. C. 20530, for plaintiff-appellee. Maurice J. Walsh and Carl M. Walsh, 29 S. LaSalle St. , Chicago , Ill. , for defendant-appellant.

Before SWYGERT, Chief Judge, CASTLE, Senior Circuit Judge, and PELL, Circuit Judge.

CASTLE, Senior Circuit Judge:

Defendant-appellant Frank Peter Balistrieri, was convicted following a jury trial on two counts of an indictment charging him with income tax evasion for the years 1959 and 1960 by filing false and fraudulent returns in violation of 26 U. S. C. A. §7201. He was fined $5,000 on each count and was sentenced to two concurrent two-year prison terms. On appeal this Court affirmed. United States v. Balistrieri, 7 Cir. [68-2 USTC ¶9641], 403 F. 2d 472. The Supreme Court initially denied certiorari (394 U. S. 985). In response to a petition for rehearing filed by the appllant, which petition asserted that there may have been illegal electronic eavesdropping of appellant's conversations on premises at 645 North Michigan Avenue, Chicago, Illinois, the Solicitor General stated that after investigation it had been determined that appellant was overheard during the course of an electronic surveillance of those premises, and suggested that the case be remanded to the District Court for further proceedings. The Supreme Court granted the petition for rehearing, vacated its order denying certiorari, vacated the judgment of this Court, and remanded the case to the District Court for further proceedings [69-2 USTC ¶9462] in the light of Alderman v. United States, 394 U. S. 165 and Giordano v. United States, 394 U. S. 310 (395 U. S. 710).

Subsequent to the remand by the Supreme Court but prior to the District Court hearing conducted pursuant thereto, the appellant filed a motion for a new trial based on allegedly newly discovered evidence favorable to the appellant which it is asserted the prosecution concealed or failed to produce although its existence was known to the government.

After a hearing on both phases of the matter, and the making and entering of findings of fact and conclusions of law, the District Court denied the motion for a new trial; concluded that the appellant's conviction was not tained by evidence or other fruits stemming from the unlawful surveillance conducted while he was present and participated in a conversation at 645 North Michigan Avenue, Chicago, Illinois, on January 13, 19 65; and entered a new final judgment of conviction and sentence, reimposing the original fines and concurrent two-year prison terms.

[Extent of Sunveillance]

The record discloses that during the period between October 2, 19 64 and April 17, 19 65 the government conducted an unlawful electronic surveillance of certain premises located at 645 North Michigan Avenue , Chicago , Illinois . The court examined, in camera, the logs relating to this surveillance and found that they reflect that during the entire period thereof the appellant was present on only one occasion, i. e., January 13, 19 65. The court also examined, in camera, the complete "airtel" relating to the surveillance on January 13, 19 65. The portion of the log for January 13, 19 65 which reflects the appellant's overheard conversation, and the portion of the "airtel" dated February 12, 19 65 which relates to such conversation, were made available to the appellant.

The appellant does not urge that he is entitled to a new trial because of the January 13, 19 65, overhearing. He concedes that "this material apparently does not bear upon any charge of tax evasion". What appellant does contend with respect to the unlawful eavesdropping issue is that because of the nature of the government's activities and conduct in the premises this Court in the exercise of its supervisory power over the admin istration of criminal justice in the federal courts should reverse appellant's conviction and dismiss the indictment. In this connection the appellant seeks to impeach the integrity of the government's representation that it has now made a full and complete disclosure of all of its unlawful eavesdropping conducted against appellant. To this end appellant points to the government's re-use of the tapes used to record the unlawfully overheard conversation, with the result that the government has thereby made unavailable the best evidence of what was actually overheard. He contends that this, coupled with what he characterizes as a partial and edited version of the overhearing represented by the portion of the log and the portion of the "airtel" to which he was given access, and the piecemeal disclosures of the eavesdropping, demonstrates that there has been no adequate showing on the part of the government that this is the total of the eavesdropping and that the evidence presented on trial is untainted. We disagree.

Appellant's argument based on the erasure of the original tape recording of overhearings by re-use of the tapes after logs had been prepared therefrom was also made on the earlier appeal herein, and it was rejected by this Court. United States v. Balistrieri, 7 Cir. [68-2 USTC ¶9641], 403 F. 2d 472, 476-477. Such an argument was again rejected in United States v. Mirro, 7 Cir., -- F. 2d -- (No. 18158, Opinion filed December 15, 1970 ) where the following observation, here pertinent, was made:

"Neither does the fact that the original tapes were destroyed render the available evidence on the transcribed logs inadequate. It is the general practice of the F. B. I. to use logs rather than tapes in its investigations. The tapes are usually erased or destroyed after their transcription into logs. There was no evidence at the hearing that this method of transcription lacked authenticity."

And, the additional consideration to which appellant makes reference--the piecemeal disclosures ¹--attests to the government's sincerity in making a full and complete disclosure rather than an attempt to frustrate appellant in obtaining a total truthful discovery of the extent and substance of unlawful eavesdropping with respect to which he has standing to object. Moreover, when the Supreme Court remanded this case for further proceedings in the light of Alderman and Giordano it did not, in our judgment, extend an invitation to the District Court, or to this Court, to fashion and apply a more drastic remedy--reversal of conviction and dismissal of the indictment--for unlawful eavesdropping. As we observed in United States v. Mirro, supra, "We are bound to follow . . . and will not expand . . ." Alderman and Giordano.

[Motion for New Trial]

We turn to consideration of appellant's contention that the District Court's denial of his motion for a new trial requires the reversal of his conviction. Motions for new trial are addressed to the sound discretion of the trial judge. United States v. Bruni, 7 Cir., 359 F. 2d 802, 806. Our review of the exercise of that discretion is a limited one. United States v. Bolden, 7 Cir., 355 F. 2d 453, 459. Absent a clear showing of abuse of discretion, the action of the trial judge in determining the probable effect of newly discovered evidence in changing the result of the trial must stand. Cf. United States v. Lewis, 6 Cir., 338 F. 2d 137, 139.

In the trial which culminated in appellant's conviction of income tax evasion the government presented its case on the "net worth theory". The three most likely sources of unreported taxable income for the years involved as disclosed by the evidence adduced, pointed to by the prosecutor in argument to the jury, and relied upon by this Court in affirming the appellant's conviction, are Hotel Roosevelt, Inc., Ben-Kay, Inc.--both tavern enterprises--and Midwest Scrap Metal Company. In United States v. Balistrieri, 7 Cir., [68-2 USTC ¶9641], 403 F. 2d 472, 480, we said in this connection:

"As a final attack on the denial of the motion for acquittal at the close of the Government's evidence, defendant contends that the prosecution failed to prove that the increases in net worth arose from taxable sources. However, the Government fulfilled its burden under the net worth method by: (a) giving defendant credit for all loans and for the proceeds of a life insurance policy received in 1958; (b) proving that the increases did not arise from gifts or inheritance; and proving three 'likely' sources of taxable income--Hotel Roosevelt, Inc., Ben-Kay, Inc., and Midwest Scrap Metal Company. In Holland v. United States [54-2 USTC ¶9714] 348 U. S. 121, 138, 75 S. Ct. 127, 136, 99 L. Ed. 150 (1954), the Court held that '[i]ncreases in net worth, standing alone, cannot be assumed to be attributable to current taxable income. But proof of a likely source, from which the jury could reasonably find that the net worth increases sprang, is sufficient.' Cf. United States v. Mackey [65-1 USTC ¶9328], 345 F. 2d 499, 507 (7th Cir. 1965). The record, therefore, clearly indicates that the evidence presented to the jury was sufficient to support its verdict."

Appellant operated and served as president of Hotel Roosevelt, Inc. and Ben-Kay, Inc. Another business in which the appellant had a substantial interest was Tower Tavern. Like Hotel Roosevelt, Inc. and Ben-Kay, Inc. it also was a tavern business. In his summation to the jury the prosecutor after pointing to other likely sources of unreported income, including the three primary likely sources to which we have made reference, referred also to Tower Tavern. He observed that the tavern business is a cash business and argued to the effect that unreported income might have been derived from one of these businesses.

[New Evidence]

The evidence which appellant asserts is newly discovered and which he claims the prosecution concealed or failed to produce, although its existence was known to the government at the time of the trial, falls into two categories.

The first category is evidence, acquired by the government in the course of an investigation with respect to unpaid employee withholding tax due from Tower Tavern, that Peter F. Balistrieri, a brother of the appellant, was the operator of Tower Tavern, the responsible officer of that corporation, and had general supervision over its affairs. Insofar as the appellant is concerned the facts with respect to the actual operation of Tower Tavern can hardly be regarded as newly discovered evidence. He had a substantial interest in Tower Tavern. It would strain credulity to assume that he did not know the business was actually operated by his brother, rather than himself. Moreover, that fact would in no way foreclose the likelihood that the business could have been a source of unreported income to the appellant. Thus, the evidence with respect to the operation of Tower Tavern neither qualifies as newly discovered evidence which warrants consideration on a motion for a new trial, nor does it passess any probative value which might change the result of the trial.

The second category of evidence relied upon by the appellant in connection with his motion for a new trial relates to information contained in the income tax returns for the year 1961 filed by Peter F. Balistrieri, ² appellant's brother, and by Jennie Alioto, appellant's bookkeeper and sister-in-law. These returns disclose that each of these taxpayers reported 1961 income received from Midwest Scrap Metal Company. The amounts so reported when combined approximately equal the amount of net profit from Midwest which the government's trial evidence indicates was the annual amount of unreported income received by appellant from Midwest in the years 1959 and 1960. There was evidence at trial showing that appellant was sole owner of Midwest in 1959 and 1960, the only tax years involved. The disposition made of Midwest's receipts in 1961 does not, on the record before us, bear such relevance to the likelihood of Midwest having been a source of unreported income received by the appellant in 1959 and 1960, that the probable effect of this tax return evidence would be to change the result of the trial. This is especially so in view of evidence contained in the record with respect to alternative likely sources of unreported income.

We perceive no basis for concluding that the District Court's denial of the motion for new trial constituted an abuse of discretion.

In view of the foregoing, the judgment order appealed from is affirmed.

AFFIRMED.

¹ This appeal involves a disclosure of an instance of unlawful electronic eavesdropping additional to that which had been disclosed at the commencement of the trial in which appellant was convicted, and which was considered by this Court on the earlier appeal (403 F. 2d 472, 474-475 and 476-477).

² This return was filed jointly by Peter F. Balistrieri and Mary Balistrieri.

 

 

[55-1 USTC ¶9508]Maurice D. Scanlon, Defendant, Appellant v. United States of America , Appellee

(CA-1), In the United States Court of Appeals for the First Circuit, No. 4877, 223 F2d 382, June 13, 1955

Appeal from the United States District Court for the District of New Hampshire.

[All issues: 1939 Code Sec. 145(b)--substantially unchanged in 1954 Code Sec. 7201]

Criminal prosecution: Admissibility of evidence: Net worth statement procured by revenue agent.--A net worth statement signed and sworn to by defendant at the request of a revenue agent but without coercion or trickery on the agent's part was admissible, even though defendant was not warned that his tax liability was being investigated.

Criminal prosecution: Defendant's right to inspect pre-trial statements: Accountant's report in Government's possession.--Defendant's counsel had no right to inspect a report made by an accountant who had prepared defendant's returns, which was in the Government's possession and was referred to by the accountant while testifying as the Government's witness, since the witness stated that his testimony was not different from what was contained in his report and defendant did not otherwise prove that the accountant had signed a statement competent to contradict his oral testimony.

Criminal prosecution: Failure to instruct jury.--The trial court allowed the Government to introduce an affidavit of a witness for the purpose of impeaching him and also for the purpose of showing the truth of the statements contained therein. A general objection was made by defendant's counsel, which was overruled. Failure of the trial court to instruct the jury that the affidavit was not to be utilized as substantive evidence was harmless error, since the entire payment made to the witness by defendant which was sought to be included as an expenditure amounted to slightly over 10% of defendant's unreported net income as alleged by the Government.

Criminal prosecution: Admissibility of evidence: Summaries copied from records of corporate successor.--A special agent testified from summaries which were introduced as evidence purporting to be copied from the records of the corporate successor to defendant's sole proprietorship. The Government maintained that the value of the assets of the successor was properly included in defendant's net worth statement. Defendant contended that the summaries were constructed from the books of the corporate successor with which he had no connection and that therefore the summaries were inadmissible hearsay. The Appeals Court agreed with the Government that since the original records of the proprietorship were unavailable, the summaries were admissible as secondary evidence.

Criminal prosecution: Net worth method: Inclusion of wife's bank accounts in defendant's net worth.--Defendant urged that the Government improperly attributed his wife's bank accounts to him and included them in its estimate of his net worth. The Appeals Court held that failure on the part of the Government to investigate this lead would require acquittal had the Government's case turned upon the increase in net worth revealed in the bank accounts, but the Government's other evidence was sufficient to convict since the increase in the bank account amounted to about 13% of the alleged unreported income.

Criminal prosecution: Net worth method: Cash basis taxpayer: Liabilities not includible in net worth.--Defendant contended that the Government's proof of net worth of his investment in the sole proprietorship did not include liabilities of the enterprise. The Appeals Court held that it was not improper to exclude accounts receivable and accounts payable since both the defendant and the proprietorship used cash basis accounting and inclusion of these items in the net worth of the current year would not accurately reflect defendant's income for that year.

Criminal prosecution: Net worth method: Likely source of income: Gambling activities.--Defendant was a bookie and kept no records of income from his bookmaking operations. It was not necessary for the Government to prove by direct evidence the extent of defendant's income from bookmaking since the jury could reasonably find that the bookmaking was a likely source for defendant's increases in net worth.

Criminal prosecution: Admissibility of evidence: Opinion evidence: Testimony of special agent.--A special agent testified that on a certain day he showed defendant that according to the Government's net worth figures it was obvious that there was unreported income. After objection by defendant that this was opinion evidence, the trial court did not abuse discretion in admitting the special agent's statement on the ground that it was a statement made to defendant and that as such it was not an inadmissible opinion of a witness on an issue to be decided by the jury.

Criminal prosecution: Admissibility of evidence: Government's net worth statement and tax computation.--There was no abuse of discretion by the trial court in admitting the Government's net worth statement and tax computation since both were merely summaries of evidence that had been offered by the Government and could have been disbelieved by the jury in whole or in part.

Criminal prosecution: Net worth method: Sufficiency of evidence.--Defendant contended that the Government did not provide sufficient evidence for the jury to infer with reasonable certainty that the Government's net worth figure as of December 31, 1946, was accurate representation of his net worth on that date. The contention was dismissed on the ground that there was a net worth statement signed by defendant himself and prepared by his accountant as well as other admissions made by him to the special agent during the course of investigations.

Criminal prosecution: Government's comments on defendant's nonpresentation of witnesses.--The Government's comments on defendant's failure to bring in witnesses who could testify as to giving or loaning to defendant such sums of money as would justify defendant's net worth increases resulted in no prejudicial error.

Criminal prosecution: Instructions to jury.--Defendant had objected to the trial court's instruction that if defendant's net worth statement was voluntarily given the jury must consider its contends. This instruction is not objectionable because the jury was to consider the contents of that statement and the weight to be given to them only if they dicided the statement was obtained voluntarily. Defendant had also objected to the instruction: "The prosecution in this case has taken December 31, 1946, as a base or starting point and has determined the amount of the excess of his assets over his liabilities at that time. This constitutes his net worth as of that date." Upon defendant's objection the trial judge further charged the jury on this point in an attempt to correct any misunderstanding. In the opinion of the Appeals Court the jury should have understood from the amended instruction that it was their duty to determine whether or not defendant's net worth was substantially identical to the Government's figure.

Stanley M. Brown (McLane, Carleton, Graf, Greene & Brown, Manchester , N. H., was with him on brief), for defendant, appellant. Maurice P. Bois, United States Attorney (Burton L. Williams, Trial Attorney, Internal Revenue Service, Boston, Mass., 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 of the United States District Court for the District of New Hampshire entered April 14, 19 54, sentencing the defendant to imprisonment for a period of fifteen months on each of two counts of an indictment for violations of §145(b) of the Internal Revenue Code of 1939, ^* said prison sentences to run concurrently, and to a fine of $2,500.00 on each count. The first count of the indictment refers to an individual return for calendar year 1947 and the second count to a joint return for calendar year 1948. The trial was before a jury, and, following the Government's presentation of its case, which was based on the net worth and expenditures method, the defendant moved to strike certain evidence and for judgment of acquittal. Both motions were denied. The defendant chose not to present any evidence following the denial of these motions.

The defendant bases his appeal on several grounds. We shall deal first with his objections to the admission of certain evidence during the course of the trial.

[Defendant's Net Worth Statement]

Prior to the trial the defendant unsuccessfully sought to have suppressed a net worth statement signed and sworn to by him on August 20, 19 52. He later objected to its admission during the trial on the same grounds as were advanced by him at the hearing on the motion. It seems from the record of the hearing on the defendant's motion to suppress evidence, which is somewhat confusing on this point, that the defendant was not warned during the pre-trial investigation that any statements made by him might be used against him. This net worth statement was signed at the request of Edward M. Vytal, an Internal Revenue agent, but there is no evidence that there was any duress, coercion, fraud or trickery employed by the Government in obtaining it and the trial court so found.

The defendant has cited two cases as recognizing a duty imposed on the Government to warn a person whose taxes are being investigated of his right against self-incrimination. However, in the first of these cases, Montgomery v. United States, 203 Fed. (2d) 887 (5 Cir. 1953) [53-1 USTC ¶9336], although the court reversed the conviction of the appellant because of certain errors in the conduct of the trial, it held that even though a Special Agent of the Government testified that no warning at any time was given to the appellant that a Government exhibit based upon statements and admissions made to the Special Agent by the appellant and documents surrendered to the Special Agent by the appellant were admissible. The court further held that such documents were admissible as evidence themselves, stating at p. 893: "We do not think that the circumstances under which the statements of the defendant and of his wife, and the cancelled checks and documents, were obtained were sufficient of themselves to require that that evidence be excluded on the ground of being involuntary as a matter of law, or to require that the Government's Exhibit No. 20 based in part upon such testimony be not admitted in evidence. All of those circumstances were matters which went to the weight or credibility of the testimony thus obtained. * * *" It is to be noted that in the Montgomery case a Special Agent obtained the questioned documents but that in the instant case it was a Revenue Agent, Vytal, who procured the defendant's signature on the net worth statement. From the testimony before us it appears that a Special Agent at least in some cases carries on the investigation originally begun by a Revenue Agent. It is not improbable that in the Montgomery case the questioned documents were obtained at a stage of the investigation much nearer to actual criminal prosecution than in the instant case.

The second case cited by the defendant in support of his contention that the net worth statement was inadmissible is United State v. Guerrina, 112 Fed. Supp. 126 (E. D. Pa. 1953) [53-1 USTC ¶9369], which held that certain evidence sought to be used by the Government in a prosecution for income tax evasion should be suppressed. This evidence had been obtained voluntarily from the defendant by a Special Agent who at the time of the investigation "* * * had reason to believe that the defendant had been guilty of fraud and that his purpose in making the examination of his papers was to obtain evidence for contemplated criminal prosecution.", id. p. 130, and who did not warn the defendant of his constitutional right to decline to produce these incriminating documents. However, upon reargument of the motion to suppress, Judge Clary in United States v. Guerrina, 126 Fed. Supp. 609 (E. D. Pa. 1955) [55-1 USTC ¶9143], admitted that his earlier opinion with respect to the evidence voluntarily produced by the defendant was erroneous and that such evidence was admissible, stating at p. 610 "The import of the decisions in the Burdick and Montgomery cases * * * is that failure to warn the defendants of their constitutional rights before questioning them as to their potential tax liability does not per se and as a matter of law render their admissions involuntary. The circumstances of the investigation and the failure to warn the defendants of their constitutional rights were matters which went only to the weight and credibility of the evidence thus obtained and not to its admissibility." We hold that the trial judge in the instant case did not err in denying the defendant's motion to suppress his net worth statement and that his denial was in accord with the weight of judicial opinion. United States v. Burdick, 214 Fed. (2d) 768 (3 Cir. 1954) [54-2 USTC ¶9475] vacated and remanded 348 U. S. 905 (1955) [55-1 USTC ¶9139]; Hanson v. United States, 186 Fed. (2d) 61 (8 Cir. 1950) [51-1 USTC ¶9118]; United States v. Wolrich, 119 Fed. Supp. 538 (S. D. N. Y. 1954) [54-1 USTC ¶9276].

[Accountant's Report]

The defendant contends that his counsel should have been allowed to inspect a document referred to in the testimony of the Government's witness, Edward S. Samara, an accountant who had prepared the defendant's tax returns for 1947 and 1948. The particular document sought to be inspected by defendant's counsel was a report in the Government's possession signed by Samara and which he had reexamined in the United States Attorney's office before testifying. Samara stated that as far as he could recollect, his testimony on the witness stand was not different from that contained in the report. The defendant's contention that the trial court committed error in its refusal to order production of the document is based on United States v. Krulewitch, 145 Fed. (2d) 76 (2 Cir. 1944). In that case the principal Government witness had signed a written statement for an agent of the Federal Bureau of Investigation which completely exculpated the accused. The court said at p. 78: "During the course of her cross-examination, the accused's counsel, who has apparently learned of this paper, demanded the privilege of inspecting it with a view to cross-examining her upon it and presumably of putting it in evidence to impeach her." Apparently, despite the trial court's refusal to allow accused's counsel to inspect the document, the principal Government witness upon cross-examination swore that the statement she had given the Government was false throughout. Thus, the competence of the document to contradict the testimony of this witness was clear and the defendant had properly laid a foundation for the inspection of this statement. The court appears to imply that inspection may be proper if the competence of the document to impeach the witness is apparent without inspection as otherwise the defendant could not ask those questions which are necessary for admission of the statement itself. In the Krulewitch case the defendant had already established that the Government's witness has made a prior contradictory statement. Once this was established the defendant had a right to inspect the statement. In the instant case, however, the defendant did not prove that Samara had signed a statement competent to contradict his oral testimony. In United States v. Remington, 191 Fed. (2d) 246 (2 Cir. 1951), cert. denied 343 U. S. 907 (1952), it is again implied that it is necessary that it first be established that the pre-trial statement is inconsistent with the witness' present testimony before such statement will be made available to the defense. In Gordon v. United States, 344 U. S. 414 (1953), Justice Jackson clearly expresses certain principles to be followed by the trial court in determining whether the defense shall be given the right to inspect pre-trial statements made by Government witnesses. It is clear that the defense must lay a foundation before the court must order the production of documents. In the Gordon case this requirement had been met for it was expressly stated at p. 418 that "By proper cross-examination, defense counsel laid a foundation for his demand by showing that the documents were in existence, were in possession of the Government, were made by the Government's witness under examination, were contradictory of his present testimony, and that the contradiction was as to relevant, important and material matters which directly bore on the main issue being tried: the participation of the accused in the crime." In the instant case there is no evidence that Samara's pre-trial statement was inconsistent in any respect with his trial testimony and, therefore, there is no evidence that it contained contradictions on relevant, important and material matters bearing on the defendant's guilt or innocence.

The defendant maintains that he did everything possible to establish a foundation which would require the production of Samara's statement but that he could not show inconsistencies unless he had the document itself to compare with Samara's oral testimony. But if we hold that the trial court must require the production of such documents which the defendant alleges could be used not only to attack the credibility of the witness but also to establish the truth of the facts included in the statement, if inconsistent with the witness' oral testimony, without any preliminary showing of competence to impeach, it is not at all unlikely that this would lead to frequent fruitless and time wasting "fishing expeditions" on the part of the defense. The defense is not without protection against the possibility of not being able to utilize pre-trial contradictory statements for if it is able to establish that the Government witness has given contradictory written statements on relevant matters to the Government as was done in the Krulewitch case, it has a right to inspect such statements.

[Tuttle's Affidavit]

The defendant further contends that the trial court committed reversible error when it allowed the Government to introduce an affidavit signed by the witness Tuttle, for the purpose not only of impeaching Tuttle but also for the purpose of showing the truth of the statements contained therein. The decision of the trial court if it allowed this affidavit as substantive evidence was erroneous. Bridges v. Wixon, 326 U. S. 135 (1945). However, defendant's counsel did not state the ground of his objection and there is considerable authority holding that if a general objection, as was made here, is overruled, such general objection cannot avail the defendant upon appeal if that evidence was admissible for any purpose. Bucher v. Krause, 200 Fed. (2d) 576 (7 Cir. 1952), cert. denied 345 U. S. 997 (1953), rehearing denied 346 U. S. 842; 1 Wigmore, Evidence §18 (3rd ed. 1940). Moreover, the trial judge was under the impression that Tuttle's affidavit was admitted "on the basis of his credibility" and not as affirmative evidence of the statements contained therein. We note that the defendant did not request instruction from the court on the purpose of which the jury could consider Tuttle's affidavit. It is doubtful that the failure of the trial court to make entirely clear that the affidavit was not to be utilized as substantive evidence was anything more than a harmless error which did not affect the substantial rights of the defendant. Fed. R. Crim. P. 52(a). The entire payment made to Tuttle by the defendant which was sought to be included as an expenditure in 1948 was $2,696.24, whereas the Government alleged that the defendant's unreported net income in 1948 was $23,466.22. If we decrease the latter amount by $2,696.24 there would be left $20,769.98 in expenditures and increase in net worth in 1948, which the jury could find t be attributable to unreported 1948 income. See United States v. Costello (2 Cir. April 5, 19 55) [55-1 USTC ¶9342].

[Testimony From Summaries]

The defendant further contends that the Government's main witness, Roger Charpentier, a Special Agent with the Intelligence Division of the Bureau of Internal Revenue, was erroneously allowed to testify from summaries, which were introduced as evidence purporting to be copied from the records of the J. Scanlon and Company. This company was a crane operating enterprise which the Government sought to prove was wholly owned by the defendant. The Government maintains that the value of its assets was rightfully included in the defendant's net worth statement. Evidence was presented which tended to prove that these assets consisted of two cranes, a truck, a welding machine and tools and that these assets had been purchased by the defendant in 1947 and 1948. This enterprise was conducted as an individual proprietorship until March 7, 1949 when it was incorporated as J. Scanlon and Company, Incorporated. It appears that the records copied were the records of the corporate successor to the defendant's individual proprietorship. There was testimony to the effect that the only records kept for J. Scanlon and Company in 1947 and 1948 when it was owned by the defendant were a check book and pay roll record. Charpentier testified that his summary which purported to show the accounts receivable and accounts payable of J. Scanlon and Company on January 1, 1949 and also the existence of a tool asset item was copied from a "combination journal, ledger and cash receipt and cash disbursement record." Although the president of J. Scanlon and Company, Incorporated, brought all the records which he possessed relating to the company both in 1947 and 1948 when the company was owned by the defendant and in 1949 when the company was incorporated, Charpentier testified that these records did not include the journal entries from which he prepared his summaries. The essence of the defendant's challenge to the admissibility of Charpentier's summaries is that they were reconstructed from the books of a corporate successor of the defendant's individual proprietorship with which corporation the defendant had no connection and that therefore the corporate books or any summary of them were inadmissible hearsay. The Government's theory is that the corporate records were relevant and as they were not in the possession of J. Scanlon and Company, Inc., therefore they could logically only be in the possession of the defendant, who had denied the existence of such records, and under the authority of Lisansky v. United States, 31 Fed. (2d) 846 (4 Cir. 1929) [1929 CCH D-9277], cert. denied 279 U. S. 873, Charpentier's summaries as secondary evidence were then admissible. The Government established to the satisfaction of the trial judge that the original records were destroyed, mislaid or otherwise unavailable and that Charpentier's summaries were admissible as secondary evidence. We agree with the Government in this regard and assuming the original records were competent evidence, then under the circumstances the secondary evidence of these records was properly admissible. Whether or not the original records from which Charpentier copied his summaries were relevant to the issue of the defendant's income in 1948 is the primary question that must have been considered by the trial court in deciding whether the summaries were admissible. There is no doubt that the earliest date on which the particular entry as to these asset and liability items could have been made was January 1, 1949. It could also be inferred by the jury that these entries were made in March, 1949 when the assets formerly owned by the defendant were acquired by J. Scanlon and Company, Inc. However, the jury could have found that the defendant very well could have had an interest in the corporation in 1949 when the assets and liabilities were entered in the corporate records, as Cowette, president of J. Scanlon and Company, Inc., testified that the defendant had not had any interest in the business since January, 1951 which would certainly not negative the probability that the defendant did have such an interest in 1949. Moreover, Charpentier testified that the defendant admitted that he had withdrawn from the business in 1951. The value given to assets and liabilities on January 1, 1949, including the tool asset item, by a corporation in which the defendant had an interest and which purchased the defendant's assets in March, 1949 does have some rational probative value as to the extent of the defendant's net worth on December 31, 1948. It was the function of the jury to determine how much weight it would give this evidence and the court did not err in admitting it for consideration by the jury.

[Wife's Bank Accounts]

Another point urged by the defendant is that this case must be reversed because of the insufficiency of proof relating to the defendant's wife's two banking accounts which were claimed by the Government to be wholly attributable to the defendant and thus includible in the Government's estimate of his net worth. It is argued that the defendant on March 2, 19 53 told Charpentier, the Internal Revenue Special Agent, that $2,900 or $3,000 of the money in one of his wife's banking accounts had belonged to her father and this money had been returned to her father in 1950 or 1951. While under cross-examination Charpentier testified that he had not checked further on this item other than asking the defendant for further information which was not forth-coming. The Special Agent also testified that the defendant had gone over every item in a later conference and that he had not objected to the apparent inclusion of his wife's bank accounts. However, the agent testified that he could have "easily found out" in what years the money had been deposited but had not done so because "It appeared at the time that the money in question related to later years * * *." The defendant contends that this case should not have gone to the jury because the evidence relating to these bank accounts was insufficient to meet the standards laid down by the Supreme Court in Holland v. United States, 348 U. S. 121 (1954) [54-2 USTC ¶9714]. In that case the Court said at pp. 135, 136:

"* * * When the Government rests its case solely on the approximations and circumstantial inferences of a net worth computation, the cogency of its proof depends upon its effective negation of reasonable explanations by the taxpayer inconsistent with guilt. Such refutation might fail when the Government does not track down relevant leads furnished by the taxpayer--leads reasonably susceptible of being checked, which, if true, would establish the taxpayer's innocence. 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. This should aid in forestalling unjust prosecutions, and have the practical advantage of eliminating the dilemma, especially serious in this type of case, of the accused's being forced by the risk of an adverse verdict to come forward to substantiate leads which he had previously furnished the Government. It is a procedure entirely consistent with the position long espoused by the Government, that its duty is not to convict but to see that justice is done."

In view of the fact that a bank account of the defendant's wife increased from $1,624.32 to $5,336.35 in 1948, which would indicate a deposit of over $3,000 in that year, thus supporting the defendant's explanation, the Government's failure to investigate this lead would require acquittal of the defendant if the Government's case turned upon the increase in net worth revealed in this bank account. However, the defendant's explanation would account for only $3,000 of a totalled alleged unreported net income in 1948 of $23,466.22. Thus, even if this lead were assumed to be true, the Government's evidence was sufficient to convict. See United States v. Costello, supra.

[Company's Liabilities]

The defendant further contends that the Government's proof of the net worth of the defendant's investment in J. Scanlon and Company consisted of the value of the depreciable assets of J. Scanlon and Company only both in 1947 and 1948 and did not include the liabilities of that enterprise and therefore such net worth figure did not accurately reflect the true value of the defendant's investment. This contention would at first seem plausible for it is obvious that the value of one's investment in an enterprise is certainly affected by the extent of the liabilities of that enterprise. That is to say, if the defendant had purchased $50,000 worth of equipment and had contributed this to an enterprise solely owned by him and, assuming no other assets were purchased and that this enterprise had in some manner incurred a liability of $50,000, it would seem grossly illogical to say that the value of the defendant's enterprise was still $50,000. The Government maintains, however, that as the defendant and J. Scanlon and Company were both on the so-called cash basis accounting, which does not recognize liabilities that have not resulted in the payment of cash by the taxpayer, to recognize such liabilities would produce a net worth figure that would not accurately reflect the defendant's income picture during the current year but would rather take into account in the current year a loss that would be taken advantage of, insofar as taxes are concerned, in the following year. Thus, in the example above, assuming the $50,000 liability was an account payable which had been incurred in 1948 but was not paid until 1949, the defendant's income tax return for 1948, because he and his company were on a cash basis, would not reveal the existence of the $50,000 account payable but his 1949 return would reflect the cash payment of $50,000.