Bank Records and Net Worth Increases
4 Page5
[Proof
Under Net Worth Theory]
The
Government took as its starting point to prove the net worth of the
defendant on
January 1, 19
46, the first day of the crucial year, the balance sheet as of
August 14, 19
30 furnished the Bureau by the defendant on
January 18, 19
39, and estimated his net worth on
January 1, 19
46 as $64,606.56, a figure which will be discussed hereafter. It then
attempted to establish his net worth as of
December 31, 19
46, the last day of the crucial year, in the sum of $179,696.12, which
amount included admitted acquisitions of assets during the prosecution
year. Basically, the Government's case depended upon its proof of (1) no
cash resources at the start of the prosecution year; (2) the falsity of
certain loans alleged to have been made by the defendant in 1946 for the
purchase of securities, and (3) proof that an item which appeared in the
books of account of the Carson Packing Company, of which company
defendant was a partner, was taxable income. The tax due on these three
items when added together substantially constituted the deficiency in
tax which the Government contended had been willfully evaded.
It
is obviously impossible in a short opinion to recount in detail the
evidence adduced in fourteen days of trial. The theory of the
Government's case was that on the basis of its proof, the defendant's
net worth during the year 1946 increased some $120,000; that such
increase was not attributable to gifts, inheritances, loans, or other
nontaxable sources, and that the increase constituted a measure of
taxable income. To establish this the Government started, as stated
above, with the balance sheet of
August 14, 19
30 and attempted to show what funds had been available in the form of
income (taxable and nontaxable) to both the defendant and his wife
between
August 14, 19
30 and
December 31, 19
45. Outlining all known financial transactions in which either the
defendant or his wife participated between the years 1930 and 1945 and
making allowance for all investments and expenditures of which it had
knowledge during those years, the Government presented for consideration
a balance sheet showing the defendant to have a net worth of $64,606.56.
The net worth figure at the starting point for the crucial year of 1946
was calculated by the "net worth method" from income and
expenditures covering fifteen years. In other words, this case involves
really the determination of both the starting and final figures purely
by net worth computations.
In
its case in chief, specifically, the Government undertook to show that
claimed cash assets of $20,500 and loans of $86,500 set forth in
defendant's balance sheet for the year 1946 were substantially false and
fictitious. By its calculations in its "net worth"
computations for the years 1930-1945 the Government charged that not
only could there be no cash assets but actually there was a deficiency
of cash-on-hand on defendant's part on
January 1, 19
46.
[Increased
Net Worth in Prior Years]
In
the Government's case, primarily from cross-examination of Government
witnesses, there was elicited uncontradicted evidence that in 1924 the
defendant had a net worth of $28,000; in 1930 $49,000; and that he had
claimed an increased net worth in 1937 of over $80,000. The 1924 and
1930 figures were substantiated by written documents. The claim of
increased net worth of 1937 was made during the first investigation and
for a year for which the defendant was examined and audited by the
Bureau of Internal Revenue. No specific evidence was introduced by the
Government with respect to that figure and no calculation of net worth
of the defendant at that time was made in the Government's case.
Notwithstanding these circumstances and despite the fact that during the
succeeding years the defendant and his wife made substantial and
lucrative investments, all of which produced income, and during which
time the defendant was gainfully employed as a public official, without
attempting to show any extraordinary disbursements or loss of assets in
the intervening years, the Government asserted for the purposes of this
case that the net worth of the defendant, instead of increasing, had
substantially diminished on
January 1, 19
46 to the amount of $64,000.
There
was also uncontradicted evidence, again elicited primarily on
cross-examination, that the defendant had, and that the Government had
knowledge that he had, dealt in substantial cash sums during the
intervening years. The Government conceded that the defendant had
cooperated with it in its investigation. In support of his contention
that he did possess a substantial sum of cash, defendant permitted
Government agents during the course of the investigations to visit and
open his safety deposit box where, upon examination, the agents found
many thousands of dollars in cash. Further uncontradicted testimony also
established that as early as the year 1937, defendant's wife possessed
cash assets of at least $53,000 or $54,000, the disposition of which is
not clear from the record made in this case. Under such circumstances
the evidence, all adduced in the Government's case, falls far short of
the substantial proof necessary to establish a total lack of cash
resources on
January 1, 19
46.
[Negation
of Loans]
Another
important and substantial aspect of the Government's case rested in its
attempted negation of some $57,500 of the $86,500 in loans alleged by
the defendant to have been made for the purchase of stocks and bonds
during the year 1946. In the Government's investigation the agents made
some inquiries both of the defendant and his accountants as to the
source of the loans. All of the defendant's books and records were in
the possession of his accountants. From the defendant himself the agents
learned the source of two of the loans totalling $38,000. Additionally
the agents were informed by his accountants as to the source of loans
totalling $38,500.00, leaving a balance of $10,000 about which the
agents were not informed as to source. Certain of the sources were
checked by the agents and of those sources checked each verified the
loan as stated by either the defendant or his accountants. However, and
as a substantial part of the deficiency alleged, the Government
disallowed loans of $30,000; $10,000 and $17,500 which it charged
represented taxable income. The Government contended that this
disallowance was proper and that it could ask the jury to find that
these sums represented taxable income on the basis of the following
facts and inferences to be drawn therefrom.
One
loan of $30,000 was stated by the defendant to have been received from a
deceased jurist. No attempt was made by the Government to demonstrate
that the deceased jurist did not have resources from which such a loan
could have been made, or that there did not exist a friendship between
the defendant and the deceased jurist which might reasonably account for
such a loan. The Government merely argued that since the jurist was
deceased and could not substantiate or deny the allegation that
circumstance created a suspicion that the loan was not made and from
that fact alone the jury should be permitted to infer that the loan as a
matter of fact was not made. The Government had the burden of proving
that defendant's explanations were false in order to justify the
inference that the alleged loans were in fact taxable income, United
States v. Harold John Adonis, decided
March 28, 19
55, -- Fed. (2d) -- (C. A. 3) [55-1 USTC ¶9310]. The Government's proof
has fallen far short of the standard required in criminal cases. It has
failed to establish by competent legal proof that the loan actually was
not made and the Court could not permit a jury to guess that it was not
made simply on the circumstance that the alleged lender was deceased.
[Additional
Loans]
As
to the loan of $10,000, the only evidence presented was that there was a
discrepancy of that amount between the loans reflected on defendant's
books and the amounts of loans, the sources of which he disclosed. On
the other hand, there is nothing in the evidence to show that the
defendant or his accountants had that fact specifically brought to their
attention or were ever asked about it. At best, as to that item, the
Government has established a lack of explanation rather than a false
explanation. At worst, it has established a failure on its part to
follow out a possible lead as to source of nontaxable income.
As
to the loan of $17,500 stated by defendant's accountants to have been
made from one Herbert Perry in 1946, the Government's proof consisted of
this: in an action in the Court of Common Pleas of Philadelphia County
filed by Herbert Perry against defendant to recover to sum of $17,500
alleged to have been loaned to defendant in 1947 (not 1946), the
defendant filed a sworn answer alleging that he had not borrowed $17,500
from Herbert Perry in 1947 or at any other time. That evidence
established inconsistent statements of the defendant and his accountants
and creates grave suspicion, but it does not prove the vital fact for
which it was offered, i.e., that in 1946 Herbert Perry did not loan John
J. O'Malley $17,500. It would appear that one of the statements was
false, but which one? The jury should not have been permitted to
speculate. Perry might have been produced to shed light on the
situation, but he was not. There was no evidence that he had ever been
interviewed by Government agents, no showing that he was unavailable as
a witness, nor was any explanation given as to his absence at the trial.
Under the circumstances, defendant's answer in the civil action
instituted by Perry should not have been admitted for the purpose of
proving that the loan was not made.
[Partnership
Income]
One
of the items relied upon by the Government to establish an important
element of the alleged deficiency appeared in the books of the Carson
Packing Company wherein the capital account of O'Malley in that company,
a partnership, increased substantially during the year 1946, when one of
the partners withdrew. There was no attempt by any evidence whatsoever
on the part of the Government to prove that O'Malley paid one single
penny for his increased interest in the company. The Government,
however, contends from the book entries alone that it is entitled to
consider the increase there reflected as part of taxes willfully evaded.
As to this item I feel that the Government has misconceived the burden
placed upon it. In a criminal prosecution the burden of establishing a
willful tax evasion remains with the Government throughout the case and
never shifts to the defendant, Holland v. United States, 348 U.
S. 121, at pages 138, 139 [54-2 USTC ¶9714]. I do not feel that this
evidence, standing alone, is sufficient to permit the Court to allow the
jury to find beyond a reasonable doubt that as to this item defendant
was guilty under the standards of proof governing criminal prosecutions.
Adjustments made on accounting records of a company have often been the
subject of civil litigation between the Commissioner of Internal Revenue
and taxpayers, creating questions of tax liability which challenge the
ingenuity of accountants and attorneys skilled in tax techniques. It
would be extremely unfair to a defendant to permit him to be found
guilty based solely on a capital accounting adjustment made on the books
of a company. Particularly is this true where the Government offers no
evidence to prove that that adjustment was made as the result of an
actual expenditure of funds by the defendant in the prosecution year, or
that the adjustment was made with specific intent to defraud.
[Supreme
Court Views Controlling]
Since
the trial of this case the Court has had the benefit of the views of the
Supreme Court of the
United States
on the net worth theory of prosecutions in income tax evasion cases.
Certain rules governing net worth prosecutions have been laid down in
the opinions of Mr. Justice Clark in four cases decided
December 6, 19
54, to wit: Holland v. United States, supra; Friedberg v. United
States, 348 U. S. 142 [54-2 USTC ¶9713]; Smith v. United States,
348 U. S. 147 [54-2 USTC ¶9715], and United States v. Calderon,
348 U. S. 160 [54-2 USTC ¶9712]. The principles there enunciated
together with the decision of Circuit Judge Hastie of the United States
Court of Appeals for the Third Circuit in the case of United States
v. Harold John Adonis, cited above, are dispositive of this motion.
In
the
Holland
case, Mr. Justice Clark held that in net worth prosecutions the
Government has the burden of showing a likely source of unreported
taxable income but only with reasonable certainty. His language in that
regard is very specific and states:
"Increases
in net worth, standing alone, cannot be assumed to be attributable to
currently taxable income. But proof of a likely source, from which the
jury could reasonably find that the net worth increases sprang, is
sufficient. . . ."
As
to likely source of income, the
Holland
case posed no difficulty. The defendant there operated a hotel and bar
during the prosecution year. The Government alleged that only part of
the income was registered in the books and it was shown that the hotel
had produced, before the defendant became owner, profits substantially
in excess of those reported. There was also evidence in that case, to
disprove claimed accumulations of cash by the defendant over a period of
twenty years, that the defendant had been pressed by creditors in 1928
and 1929, lost his restaurant on a foreclosure in 1933, that his wholly
owned corporation became insolvent, leaving over $35,000 in debts, that
the defendant had left his family and worked for six years as a Chef in
another city at $175.00 a month, during which time his wife had been
forced to work to help support the family. These factors establish
beyond paradventure of doubt the hotel as the likely source. The
evidence in the instant case is directly contrary. The Government admits
in this case that it has no evidence whatsoever to show that defendant
John J. O'Malley had a likely source of income other than from the
sources reported in his income tax return filed for the prosecution
year. The Government further conceded that the information in the tax
return as to amounts reported from these revealed sources had been
verified by the Government's own investigation and that there was no
inaccuracy in the amounts reported.
[Likely
Sources of Income]
In
the Adonis case, supra, the Government did not prove a
likely source of taxable income, but it was held that deliberate
falsification as to alleged nontaxable sources of receipts to explain
large expenditures or accumulations was a legally acceptable
circumstantial showing that the funds were derived from current income.
In that case the Government proved that Adonis during the prosecution
year increased his assets some $45,000 over and about his income and
previous net worth. There was no explanation of the apparent increase in
net worth in that year. When the investigation of income tax liability
started Adonis elected not to talk with the investigators who sought to
interrogate him but the investigation did disclose that in his own
circle of friends and acquaintances he had made a detailed and complete
explanation of his ability to acquire these assets in an amount which
was completely out of line with his apparent circumstances which were
extremely modest. After proving the explanations of the defendant as
made to friends and acquaintances who testified at the time of trial,
the Government by clear and convincing evidence established the complete
falsity of the defendant's explanation of alleged sources of the money
necessary to acquire the assets. For example, it proved that Adonis'
mother from whom he was supposed to have received a substantial amount
of money was in fact indigent and the object of charity of her family;
that an amount of money obstensibly a loan evidenced by a mortgage had
in fact never been made; and finally, a statement that he had received a
very substantial sum of money from a woman acquaintance, a clerk earning
only a small salary and of modest circumstances, was entirely without
foundation. Circuit Judge Hastie in the Adonis opinion held that
the defendant's itemizing of supposed sources of nontaxable receipts was
a calculated misrepresentation designed to conceal current income.
The
facts of the instant case do not bring it within the ruling in the Adonis
case. Defendant here, either directly or through his accountants,
furnished the investigators with essential information to substantiate
his claim of receipt of funds from nontaxable sources. I have discussed
previously the facts involved as shown by the evidence in the case. In
the Adonis case the Government directly proved calculated
misrepresentation of source. In the instant case the nearest approach to
the facts of the Adonis case rests in the evidence relating to
the Perry loan. In that matter (the Perry loan) the Government has
proved inconsistent statements but it has not proved which statement is
false. In the Adonis case direct proof of falsity was offered. To
permit a jury in this case on the evidence presented to find as a fact
that the loan actually was not made would be an unwarranted and
undesirable extension of the principle enunciated by Circuit Judge
Hastie. A ruling in favor of the Government's contention would result in
a lowering of the standards of proof required and the weakening of the
safeguards prescribed by the Supreme Court in the
Holland
decision and by the Court of Appeals of this Circuit in the Adonis
case.
[Conclusion]
The
defendant may well have over a period of years substantially increased
his net worth and on a basis which may have involved understatement of
taxable income. However, in a criminal prosecution for income tax
evasion in a particular calendar year, the Government is not permitted
to allocate summarily such unaccounted-for accretions to a particular
year without meeting the requirements laid down in the
Holland
and the Adonis decisions. The Government has, in the opinion of
the Court, failed to meet such requirements in the instant prosecution.
My conclusion, therefore, is that the proof adduced is insufficient to
permit a jury to find beyond a reasonable doubt that defendant John J.
O'Malley for the year 1946 willfully evaded income taxes due the
United States
.
An
order for judgment of acquittal will be entered in accordance with the
foregoing opinion.
[55-1
USTC ¶9446]The
United States of America
v. Vincent Cefalu
In
the United States District Court for the Eastern District of Louisiana,
Criminal Docket No. 24,683,
May 18, 19
54
[1939 Code Sec. 145--similar to 1954 Code Secs. 7201-7203]
Evasion of taxes: Motion to dismiss indictment.--The defendant
filed a motion to dismiss an indictment for income tax evasion, because
the indictment, as amended by the bill of particulars, shows only an
estimate of the value of machines on hand at the beginning of the
taxable period without showing the actual number of such machines, in
the Government's attempt to establish, through use of the net worth
method, that a substantial amount of income had been fraudulently
evaded. The Court dismisses the motion as premature, since the
Government may be able to establish through evidence the amounts of
purchases and the value of machines on hand at the close of the tax
period without the necessity of showing the number of items on hand at
the beginning of the year.
George
R. Blue, United States Attorney, Federal Building, New Orleans, La., for
plaintiff.
Roland
C.
Kizer
,
Louisiana
National
Bank
Building
,
Baton Rouge
,
La.
, for defendant.
On
Motion to Dismiss Indictment
(Motion argued by Mr. Frank S. Craig, Jr.)
THE
COURT: The Court agrees with the law as expounded by counsel, and as
outlined in the Bryant case and also in the Demetree case
[53-2 USTC ¶9646]. There is no question that when the Government
determines to proceed on a net worth theory in proving an income tax
prosecution, it must prove beyond a reasonable doubt a beginning point,
and it must prove beyond a reasonable doubt an ending point. In other
words, it must prove the amount of net worth of the defendant at the
beginning of the tax period in question. It must prove beyond a
reasonable doubt the net worth of the defendant at the close of the tax
period in question.
[Opening
Net Worth]
Much
of this evidence by its very nature must necessarily be circumstantial,
and when the Government relies solely on circumstantial evidence to
prove a beginning net worth, or a net worth at the end of the tax
period, then of course, that circumstantial evidence must negative every
reasonable hypothesis of innocence. This statement of the law, and
counsel agrees, is in line with the Bryant case and the Demetree
case, and other cases that come from the Fifth Circuit, if not from
other circuits. Counsel's argument, however, fails on the fact that the
Government indictment shows, as amended by the bill of particulars, that
as of the date of the beginning of the first period,
December 31, 19
45, the defendant had on hand some $11,000.00 in machines. It is true
that the Government had admitted it could not show the number or the
kind of machines which the defendant had on hand at that time. The
Government in its indictment and bill of particulars asserts that it
will show that the value of the machines, whatever number (and this is
an important thing), will be in the vicinity of $11,000.00.
It
may well be that the Government merely added to that valuation of
$11,000.00 for machines on hand at the beginning of the tax period, the
amount of purchases of machines during the tax period in question.
Whether or not that is so, is a question of proof. However, the figure
cited by counsel indicating that addition, indicates the exact dollars
and cents valuation of the machines bought during the tax period. Those
figures indicate that that is possibly what the Government has done as
to that particular item.
However,
there is no way that the defendant can know at this time whether or not
the Government has made up for that calculation in some other
calculation. Further than that, assume, as the defendant possibly thinks
he can show, that some of the machines which made up the $11,000.00
valuation at the beginning of the tax period, were used in purchasing as
down payments or trade-ins on the machines purchased during the tax
period. That would not negative the Government's case, although it might
cut down the amount of tax which is alleged to have been evaded. In
other words, if the true amount of money spent by the defendant during
the tax year in question is something in the vicinity of $20,000.00,
just to take a figure, instead of $40,000.00 alleged in the indictment
and in the bill of particulars, then of course, while the defendant
could get some comfort from the fact that the Government has not proved
its case to the hilt, the fact is, and the law is that if the Government
proves a substantial part of its case, if the Government proves that a
substantial amount of income had been fraudulently evaded, improperly
unreported, then of course, the Government proved its case in spite of
the fact that the dollars and cents are not proved up to the full amount
shown in the bill of particulars, or in the indictment.
The
Court does not follow the argument at all that because the Government
can not show the exact number of machines in the defendant's possession
and ownership at the beginning of the tax period, that therefore the
Government can not show the net worth of those machines at that time. It
is completely possible, depending upon the type of evidence the
Government has to show that the defendant had on hand a certain
valuation in the machines without showing the number. For example, the
Government may be in a position to show that the defendant filed the net
worth statement with some bank, which would show that he had on hand and
owned by himself machines valued at $11,000.00, without itemizing the
number or kind of machines. Such evidence would be admissible and would
be rather persuasive as to the value of the machines on hand at the end
of the tax period.
[Motion
Is Untimely]
I
will say that the motion might well be made at the close of all the
evidence, but at this stage of the proceedings the motion must fail,
because it assumes that the Government is not going to undertake its
burden of proving its case as it is alleged in the indictment and in the
bill of particulars.
The
Government will not have to argue their case on this motion. The motion
is denied, and all rights of the defendant will be reserved in
connection with it.
MR.
KIZER: If your Honor please, we of course, would like to reserve our
exceptions and all of our rights under the motion and ruling of the
Court. At this time we would like to withdraw our formal plea of not
guilty in this case and enter a plea of nolo contendere, with your
Honor's permission.
MR.
SCOTT: The Government will not accept the plea of nolo contendere.
THE
COURT: The Court will accept the plea of nolo contendere. The Court will
now hear the evidence that the Government has with reference to the
case.
[55-1
USTC ¶9274]
United States of America
v.
Lawrence
L. Rice
In
the United States District Court for the Eastern District of Virginia,
Richmond Division, Criminal No. 5545,
January 14, 19
55
[1939 Code Sec. 145(b)--similar to 1954 Code Sec. 7201]
Tax evasion: Net worth increase: Failure of Government's proof.--The
evidence was lacking in support of the indictment for tax evasion
against taxpayer that he filed false and fraudulent returns by failing
to report income from his business in amounts greater than shown on the
books of the business over a period of four years. The books were found
satisfactory on their face. Furthermore, since the net worth set at the
beginning of the period is not determined with reasonable certainty, the
whole case of determination of net income on the basis of increase in
net worth falls.
L.
S. Parsons, Jr., United States Attorney, and William F. Davis, Assistant
United States Attorney, for plaintiff.
Rob
ert Ash and Carl S. Bauersfeld, both of Washington, D. C., and Tom
Stockton, Roanoke, Va., for defendant.
Before
HUTCHESON, District Judge.
Verdict
and Finding of the Court
THE
COURT: I have followed the evidence as closely as I could as it was
being introduced. I thank you for the argument. As I told you at the
beginning, I was anxious to hear full discussion of the evidence from
the viewpoint of counsel.
There
has been a great deal of evidence. I have undertaken to bear in mind as
we went along what I thought was the important part, or what appeared to
me as the most important.
[The
Facts]
It
is pretty well proven, I think, that Mr. Rice is a man who has had a
large amount of cash on hand for a good many years. As to the source of
that amount of cash and the precise amount, the evidence is vague in
some respects; at least, it is not lacking in haziness. It is rather
natural that it should be, over this period of time.
In
the net worth method of computing income, it is essential that the
starting point be established with reasonable certainty. It is clear
from the testimony here of witnesses whose testimony I accept as
credible--disinterested witnesses--that Mr. Rice did have a large amount
of money at that time; he was a man who dealt in a large amount of
money. Whether he had $160,000, $150,000, or $180,000, or a less amount,
I am not prepared to say and I am not called upon to determine the exact
amount which he had, that is, with absolute mathematical certainty. It
is certain that he did have a large amount of money which was not
considered by the Government in establishing his net worth. Where and
when he obtained it is not shown with certainty.
The
custom of having a large amount of personal cash in these plants is an
unusual arrangement. At first, it struck me as being significant that
these checks payable to the company should find their way into his bank
account, until the testimony concerning this personal cash in the plants
came in. It is an unusual way of doing business, but the case presents a
good many unusual features.
[Records
Satisfactory]
I
fail to see how he could have derived from the business any such amount
as is claimed by the Government. There are discrepancies, there are
errors in his accounting, no doubt about that, but the Government's
contention is that during this four-year period he diverted from this
business an amount greater than the income shown by the books of the
company. He did not keep the records himself; he relied upon bookkeepers
and accountants; and I just cannot believe that he could take from the
business an amount greater than the amount shown on the books of the
company. He could not have done it without the connivance of employees
of the company, and there is no suggestion that there was any such
connivance on the part of the employees. Their method of checking the
drivers in and out would seem to be a pretty close check on the sales. I
do not say it is impossible that he might have siphoned off this money,
but it is highly improbable; and it is not seriously contended that he
got any substantial amount from his farming operations. There were some
discrepancies regarding farm receipts, some omissions, and checks cashed
in
Florida
which, he said, were mailed to
Florida
and which he failed to enter on his records when he returned. That is
carelessness, but it is understandable and does not account for anything
like the difference here.
I
am not called upon to determine whether he owes additional tax or not.
That is a civil matter with which I am not concerned. The only question
before the Court is whether he willfully filed a false and fraudulent
return. The whole case hinges upon the question of intention. The books
on their face are satisfactory. The evidence relied upon by the
Government is the increase in net worth and the tax liability. They
contend that it came from the business, but, as I say, I do not see how
it could have come from the business, under the method of operation
which has been described. Consequently, there is a failure to show a
likely or probable source from which it can be reasonably inferred that
the net worth of the defendant increased in value materially during the
years covered by the indictment and thus represented currently taxable
income.
[Conclusion]
Without
going into further discussion, the evidence is not sufficient to show
with the degree of certainty which the law requires that this man is
guilty of attempting to defraud the Government. He had on hand a large
amount of money, it is obvious, but he is not being tried for having a
lot of money on hand, and the Court is not concerned with the source
from which it was obtained nor the precise amount, but only with whether
he did, in fact, possess it. The testimony of these witnesses, who
apparently are entirely disinterested, concerning the possession of
these large sums is such as to make me feel that the net worth set at
the beginning of the period is not determined with reasonable certainty,
and unless it is so determined the whole case falls so far as the
increase in net worth is concerned. Consequently, without discussing the
facts further, I find the defendant not guilty.
[55-2
USTC ¶9554]George W. Lewis, Appellant v.
United States of America
, Appellee
(CA-9),
In the
United States
Court of Appeals for the Ninth Circuit, No. 14,450, 227 F2d 561,
June 30, 19
55. Cert. denied,
October 10, 19
55
Upon appeal from the United States District Court for the Northern
District of California, Southern Division.
[1939 Code Sec. 145(b)--similar to 1954 Code Sec. 7201]
Tax evasion: Criminal prosecution: Understatement of income: Net
worth and expenditures method.--Defendant was convicted by jury
trial on charges of willfully attempting to defeat and evade income
taxes by understatements of income on returns filed for himself and wife
for 1947 and 1948. He either kept no books at all of his gambling
operations, loans, investments or other sources of income, or he
destroyed or concealed those which he had kept. In reconstructing the
income for those years under the net worth and expenditures method, the
Government introduced evidence tending to prove income by showing that
taxpayer had spent, invested or loaned $1,604,608.71 from 1942 to 1948,
and that he had available from earnings, gifts, repayment of loans and
all other disclosed sources a total of $771,615.65 during these same
years. There was also evidence which tended to show that he had net
taxable income greatly in excess of the amount disclosed on his tax
returns and those of his wife for each year from 1942 to 1948, both
inclusive. Taxpayer's objection that the Government failed to establish
a definitive starting point was held not substantiated by the evidence.
His claim that for several years he kept a million in currency in suit
cases was viewed with considerable doubt. Gambling activities pointed to
a source of inordinate income during the taxable years. The inference
that the expenditures were of money from unreported taxable income was
held to be one which a reasonable person could draw from the evidence.
James
E. Burns, Henry W. Howard,
111 Sutter Street
,
San Francisco
,
Calif.
, for appellant. Lloyd H. Burke, United States Attorney, John Lockley,
Jr., San Francisco, Calif., for appellee.
Before
ORR and FEE, Circuit Judges, and JAMES M. CARTER, District Judge.
FEE,
Circuit Judge:
Lewis
was indicted in three counts for attempting willfully and knowingly to
defeat and evade income taxes by filing in each instance a false and
fraudulent return: (1) understating his income in the amount of
$187,817.22 for the year 1947, the return showing a tax due of $2,018.10
when actually $145,761.90 was due, (2) understating the income of his
wife for the same year by $185,757.38, the return showing $2,884.55 due,
whereas $146,189.40 was actually due, and (3) understating income and
taxes of husband and wife for the year 1948, the return setting forth an
income of $115,153.66 and a tax due of $53,113.62, while the true income
was $308,099.51 and the tax due thereon $199,834.82.
[The
Facts]
The
trial was before a jury. Defendant made various motions, the gist of all
of which is that the government had not proved its case by evidence
relevant to net worth and expenditures. The government introduced
evidence tending to prove income by showing that defendant had spent,
invested or loaned $1,604,608.71 from 1942 to 1948, and that he had
available from earnings, gifts, repayment of loans and all other
disclosed sources a total of $771,615.65 during these same years. There
was also evidence which tended to show that, allowing all adjustments
for capital gains and other increases, defendant had net taxable income
greatly in excess of the amount disclosed on his tax returns and those
of his wife for each year from 1942 to 1948, both inclusive. The sources
of income were probed, namely: defendant's many legitimate businesses
and also his considerable involvement in gambling. It was also shown
that defendant kept no records of his gambling operations, loans,
investments or sources of income. Records of such transactions kept by
other persons for their own purposes tended to establish the accuracy of
the contentions of the government. The inference that the expenditures
were of money from unreported taxable income was one which a reasonable
person could draw from this evidence. The jury obviously did draw this
inference and convicted defendant. Their deliberations were probably
assisted by defendant's explanation of the discrepancy between
unreported income and established outgo. Defendant testified he had a
million in currency acquired prior to the years in question. He
explained he kept this hoard in suitcases.
The
criticism of the defendant is that the government did not attempt to
show either for the year 1947 or the year 1948, the two years in which
the defendant was charged with evasion, (1) that the records from which
his tax returns were prepared were inadequate for that purpose, (2) what
the net worth of defendant was at the beginning of both of those years,
or (3) that defendant had a source of income for those years other than
that reported.
[Opinion]
The
appeal seems to have been prosecuted in order to take advantage of any
change in the attitude of the Supreme Court upon the net worth and
expenditure approach in such cases. This matter has now been laid at
rest by the recent opinions announced by that court.
The
claim is made that the case at bar is to be distinguished from such
cases on the ground that the unreported income here does not come from
the "same disclosed sources as produced the taxpayer's reported
income". Holland v. United States, 348
U. S.
121, 126 [54-2 USTC ¶9714]. As we have been admonished, this case is
reviewed bearing constantly in mind the difficulties that arise when
circumstantial evidence is the chief weapon of a method which is in
itself only an approximation. In the past, such has been the policy of
this Court in relation to these cases.
In
this case at the outset, the absence of personal records is a
circumstance of considerable weight. Men who have large financial
interests do not normally in this day and age fail to have records. This
is one of the stock criteria which a jury may take into consideration
when determining whether the intent is fraudulent or no. The records
here were not appropriate to the business in which he was engaged. It
was not a case of inadequacy for defendant either kept no books at all
or destroyed or concealed those which he had kept. The "net
worth" method of approach was developed to meet just such a
situation, in order that skillful concealment should not present a
barrier to a different form of proof.
Defendant
makes a point about his co-operation with the investigative officers in
furnishing documents and records, including checks, and complains that
the record does not show intent or willfulness by the admitted omission
of certain items of income. The intent of defendant was in issue, and
the fact of specific fraudulent intent was found by the jury under
appropriate instructions which are not challenged. There was evidence to
support the finding.
The
difficulty of convincing a jury of the existence of substantial amounts
of cash not considered in the net worth computation is mentioned. But
here the explanation of defendant that for several years he kept a
million in currency in suitcases throws considerable doubt either on his
veracity or upon his common sense. Of course, the lack of records is of
great importance here. There were no documents to indicate that
defendant had acquired such a sum of money in years prior to his income
statements introduced in evidence, or even to show these returns were
false for years as to which the statute of limitations had passed. The
gambling activities of defendant point plainly to a source of inordinate
income. If there were not a complete absence of records, some evidence
might have been obtained showing these profits were obtained in some
other year. A phenomenon closely allied to this discussion is the
failure of defendant to prove the time and methods of acquisition of his
suitcase hoard.
[Definitive
Starting Point]
There
is objection because the government did not establish a definitive
starting point. But there is no doubt a point was chosen and, if
accepted by the jury, was sufficient. The weight of the objection was
that it was established only by admission of defendant in an attempt to
get the agents to make a compromise of a previous deficiency in tax.
However, this admission was corroborated by the circumstances under
which it was made. Defendant offered to settle a liability of
approximately $4,000.00 by payment of $1,500.00 in installments. He
accompanied this with an affidavit that his total assets amounted to
about $10,000.00. It seems this particular admission cannot be
reconciled with concern for quick settlement rather than an honest
search for truth. If he lied to avoid tax then with $1,000,000.00 in his
possession and now admits it, the jury could appraise his present
testimony accordingly. But it is said that about the same time he gave
the government agents a lead. While an investigation was being
conducted, which resulted from the receipt of a crank letter by the
Bureau of Internal Revenue, defendant stated he had a million in cash in
a suitcase in the room at the time. Even on the cold record, this sounds
fanciful. Its weight depends on the credibility of defendant, as it was
not otherwise corroborated.
Another
danger which has been suggested is that there may be confusion resulting
in conviction based upon bare figures alone computed by the government.
But in this case the minor amounts reported in prior years, while not to
be taken into consideration to find guilt in years other than those
charged in the indictment, had probative value when the tremendous
expenditures in the years for which he was indicted are considered.
There is difficulty in all such cases in allocating to the respective
indictment years the deficiency. But here the accounting of the
government showed the expenditures, and the tracing went back for
several years to show that there were no possible sources of the money
so spent. To the ordinary mind, this, coupled with the showing of lack
of sources, would indicate that the money was made within the year. In
fact, the circumstances of this case seem to point irrefutably to the
conclusion beyond a reasonable doubt. There was no shifting of the
burden. If defendant had had proof of sources in some year past which he
did not report, he could have brought in the proof and thereby the case
might have been destroyed. But he was either unwilling or unable to
produce the proof. The mere possibility that the figures of the
government might have been explained by sources of income proven in
prior years does not show that the burden of proof was shifted. The same
situation may develop in any criminal case. In this case, upon the
record it is plain there was proof beyond a reasonable doubt and the
question was whether the jury were to be convinced thereby. Of course,
there is always a possibility in a criminal case that a defendant may be
convicted upon counts of which he is innocent, but on this record the
Court can say with some assurance that it did not happen here. The
statements and attitude of defendant during the course of the
investigation may have been prompted by the hope that he would not be
prosecuted, but that is hardly a ground for acquittal.
[Conclusion]
In
any event, the trial court carefully instructed the jury in this case.
The jury found the defendant guilty on the facts shown by the evidence.
There was substantial evidence to support each essential element of the
finding.
The
judgment of conviction is affirmed.
[55-1
USTC ¶9443]Tony Legatos (True Name Antonio Legatos) and John Glynn,
Appellants v. United States of
America
, Appellee
(CA-9),
In the United States Court of Appeals for the Ninth Circuit, No. 14094,
222 F2d 678, May 12, 1955
Appeals from the United States District Court, for the Northern District
of California, Southern Division.
[All issues: 1939 Code Sec. 145(b)--substantially unchanged in 1954 Code
Sec. 7201]
Criminal prosecution: Sufficiency of indictment.--The count in
the indictment sufficiently stated the essential facts constituting the
crime charged, since it alleged that defendant attempted to defeat and
evade a large part of his income tax for the year 1944 by understating
his partnership and business receipts and by filing a false and
fraudulent tax return wherein he stated his net income to be $40,449.26,
and that the amount of tax due and owing thereon was the sum of
$20,903.47, whereas, as he well knew, his net income for that year,
computed on the community property basis, was the sum of $71,607.75,
upon which net income he owed the United States an income tax of
$45,150.51.
Criminal prosecution: Bill of particulars.--Since the counts
adopted the figures in the amended tax returns which were based upon the
recomputations made by an accountant employed by defendant after the
investigation had begun, defendant could easily have learned, by making
inquiry of his own accountant, the nature of the charges and the
character of the evidence which the Government would use. Therefore,
there was no abuse of discretion in the denial of a motion for a bill of
particulars.
Criminal prosecution: Voluntary disclosure.--The voluntary
disclosure was too late to afford defendant immunity from prosecution,
where the letter making the disclosure was sent to the Bureau of
Internal Revenue after the examination of defendant's books by a revenue
agent and investigations by a special agent had begun. The fact that
defendant instructed his office manager and bookkeeper to furnish the
revenue agent all books and records the agent might request and that
defendant's accountant fully cooperated with the agent could not bring
defendant within the Treasury Department's voluntary disclosure policy
(which policy has since been abandoned).
Criminal prosecution: Evidence: Constitutionality.--There was no
violation of defendant's constitutional rights under the Fourth and
Fifth Amendments where the documentary evidence used in the trial had
been given to the Government agent during the investigation and before
an effective voluntary disclosure was made.
Criminal prosecution: Admissibility of evidence.--It was proper
for the Government to show that defendant Legatos personally
participated in the operation of the establishment by the testimony of
defendant's partner that he and defendant discussed how they could get
rid of the brandy and rum and that defendant warned the witness not to
refill too many bottles at a time.
Criminal prosecution: Instructions to jury.--Appellant Legatos'
contention that the trial court did not make it sufficiently clear to
the jury that the special agent's testimony was to be considered only
against appellant Glynn was without merit, because the trial judge had
on two occasions cautioned the jury that they should consider against
each defendant only the evidence admitted as to that defendant.
Criminal prosecution: Use of net worth method: Evidence of books
being incomplete.--There was sufficient basis for the use of the net
worth method since a reasonable inference could be drawn from the
testimony of defendant's accountant that defendant's books were
incomplete and that substantial items of cash income were not entered in
the books. The accountant had testified that it was not feasible to
calculate defendant's income from his books and that it was advisable to
use the net worth method. Further, the trial court did not err in
refusing to give the requested instruction that, in using the net worth
method the Government had the burden of proving beyond a reasonable
doubt defendant's wealth at the starting point of the net worth period,
since the court in its instructions explained the net worth method and
stated the circumstances in which it properly could be employed and also
since the beginning net worth used by the Government was in accordance
with the amendment returns filed by defendant.
Criminal prosecution: Presumption of intent: Instructions to jury.--Appellant
complained of the instruction given to the jury stating that "the
presumption is that a person intends the natural consequences of his
acts, and with respect to the defendant Legatos, the natural presumption
would be that if a person consciously, knowingly, and intentionally,
with evil motive or bad purpose did not set up his full income and
thereby the Government was cheated or defrauded of taxes, he intended to
defeat the tax." Since the jury was also told that the intent was
an essential element of the crime and that it was to be determined by
the jury from consideration of all the facts and circumstances in
evidence, the court's instructions, considered as a whole, stated the
law correctly.
Criminal prosecution: Sufficiency of evidence.--Since most of the
evidence was admitted against Legatos and not against Glynn, there was
not sufficient evidence to convict appellant Glynn of having wilfully
attempted to defeat and evade a large part of the income tax due and
owing by Legatos.
Harold
C. Faulkner, Allan L. Fink, Melvin, Faulkner, Sheehan & Wiseman, San
Francisco, Calif., Grant G. Galhoun, Carlson, Collins, Gordon &
Bold, F. Walter French, Richmond, Calif., for appellants. Lloyd H.
Burke, United States Attorney,
Rob
ert H. Schnacke, Assistant United States Attorney, Macklin Fleming,
Special Assistant to Attorney General, San Francisco, Calif., for
appellee.
Before
DENMAN, Chief Judge, ORR, Circuit Judge, and DRIVER, District Judge.
DRIVER,
District Judge:
Tony
Legatos and John Glynn were indicted
April 4, 19
51. The first count of the indictment charged that defendants attempted
to defeat and evade a large part of Legatos' income tax for the year
1944 by understating the partnership and business receipts of Legatos
and, in the case of Legatos, by filing a false and fraudulent income tax
return in which the amount of his net income was substantially
understated, all in violation of Title 26, U. S. C. §145(b). The second
and third counts were similar to the first count in all respects except
that, they charged attempted evasion of Legatos' income taxes for the
years 1945 and 1946, respectively.
The
trial began
May 18, 19
53, and was concluded June 27, of the same year. 1 At the close
of the Government's case, Glynn moved for judgment of acquittal and
rested. He offered no evidence and did not cross-examine any witness
subsequently called. Legatos put on a defense. The jury by its verdicts
found each defendant guilty on each count. Thereafter the Court granted
Glynn's motion for judgment of acquittal as to count one and denied it
as to counts two and three. From judgments and sentences on the verdicts
Legatos and Glynn appealed.
During
the period covered by the indictment, appellant Legatos, a resident of
Sacramento
, owned numerous restaurants, bars and taverns in that city and
elsewhere in
Northern California
. In Vallejo, one of them, Hambers Cafe, was managed by Appellant Glynn,
and two others--the Casa Blanca and the States Club--were operated by a
partnership consisting of Legatos, Glynn, and one John Blanas, who
testified in the trial as a witness for the Government. During the war,
Legatos' enterprises were very profitable, the gross receipts mounting
to between $1,500,000.00 and $1,750,000.00 annually for 1944, 1945, and
1946. In the
Vallejo
establishments substantial portions of the gross income were not rung up
on the cash registers but were kept in the safe at Hambers Cafe and
distributed monthly to the partners in currency in separate envelopes
for each establishment. Such income consisted of monies from the juke
boxes and coin machines, certain miscellaneous items, and receipts from
private parties at the Casa Blanca on Wednesdays when it was closed to
the general public. There was also evidence that part of the gross
receipts of the Casa Blanca and States Club was concealed by
"cutting" or manipulation of the tapes on the cash register
machines. Tax returns of Legatos for the years 1942 through 1946 fell
far short of disclosing his true income in those years. Amended returns,
prepared by an accountant employed by him and filed in 1948, showed
unreported income in the original returns amounting in the aggregate to
approximately $244,000.00.
Appellant
Legatos asserts nine specifications of error. We group and rephrase them
as follows:
1)
The sufficiency of the indictment;
2)
Voluntary disclosure of tax liability by Legatos;
3)
Admission of testimony of the witness Blanas;
4)
Testimony of the witness Hubbard;
5)
Sufficiency of the evidence to make a net worth case;
6)
The instructions to the jury.
Appellant
Glynn adopts all of Legatos' specifications of error and advances
several of his own. They present, principally, the contention that the
evidence is not sufficient to support the verdict as to Glynn. We shall
first discuss Legatos' specifications and then consider the contention
urged by Glynn.
(1) The Indictment
Prior
to trial, Legatos moved to dismiss the indictment, and for a bill of
particulars, and the motions were denied. He complains that he was not
reasonably and fairly informed of the nature of the charges, or of the
methods which the Government proposed to use to establish them. The
indictment was in the form commonly used in tax prosecutions. The first
count, which we take as typical, alleged that Legatos attempted to
defeat and evade a large part of his income tax for the year 1944 by
understating his partnership and business receipts and by filing a false
and fraudulent tax return wherein he stated his net income to be
$40,449.26, and that the amount of tax due and owing thereon was the sum
of $20,903.47, whereas, as he well knew, his net income for that year,
computed on the community property basis, was the sum of $71,607.75,
upon which net income he owed the United States an income tax of
$45,150.51. The count sufficiently stated the essential facts
constituting the offense charged. 2 And we find
no abuse of discretion in the denial of the motion for a bill of
particulars. 3 After the
Government started to investigate Legatos' tax returns, he employed an
expert accountant who worked on his books and records for many months in
cooperation and collaboration with an agent of the Bureau of Internal
Revenue. The accountant recomputed his income for the years in
controversy on the net worth basis, and prepared amended income tax
returns which were filed in 1948. Count one adopted the figures in the
amended tax return as the correct net income and income tax of Legatos
for the year 1944. The same is true of counts two and three as to the
years 1945 and 1946. Legatos knew, or could easily have learned by
making inquiry of his own accountant, the nature of the charges against
him and, in general, the character of the evidence which the Government
would use.
(2)
Voluntary Disclosure
Legatos
contends that he was immune from prosecution because of his voluntary
disclosure of the understatement of his income and tax liability in
compliance with an announced policy of the United States Treasury
Department, which had not at that time been withdrawn. 4 Closely
allied to that contention is the additional one that, documentary
evidence used in his trial was procured from him by Government agents
after he had been misled into believing that no criminal action against
him was contemplated, in violation of his rights under the Fourth and
Fifth Amendments to the Federal Constitution. A taxpayer's rights upon a
claimed acceptance of the Treasury Department's offer (considering it as
such for the purpose of this discussion) can be no broader than the
plain, express terms of the offer. Such terms were that the taxpayer
make "a voluntary disclosure of omission or other misstatement in
his tax return . . . before an investigation is under way . . ."
Legatos, with the assistance of an attorney, made a formal voluntary
disclosure in the form of a letter to the Bureau of Internal Revenue on
July 9, 1947. Briefly and chronologically listed, the events leading up
to that disclosure were as follows: November 20, 1946, the Bureau of
Internal Revenue wrote to Legatos requesting an extension of time for
the examination of tax returns, and consent to the extension was
received November 24, 1946. On March 5, 1947, Internal Revenue Agent
Bakkan, in the course of his investigation of Legatos' tax returns,
called at Legatos'
Sacramento
office to examine his books. The examination was continued on March 7,
and March 11, but on none of those days was Legatos present. On April
15, 1947, Bakkan again visited the
Sacramento
office and was introduced to Legatos by the latter's office manager as
"the Revenue Agent that was working making the examination."
Bakkan was then inspecting some books which were spread out on a desk
before him and he told Legatos that he was making an examination of his
income tax returns. Bakkan continued his work on the books in Legatos'
office on April 16 and 17, 1947, and Legatos came in and out of the
office from time to time.
On
May 2, 19
47, Special Agent Hubbard of the Bureau of Internal Revenue was assigned
to investigate the Legatos case. On May 6, he interviewed Blanas
(partner of Legatos and Glynn in
Vallejo
enterprises as stated above) and took a sworn statement from him on May
14. June 5, Legatos, on advice of an attorney, employed accountant
Swigard, and on June 9, Swigard called on Bakkan and offered to
cooperate with him fully and to furnish him detailed information of
Legatos' financial affairs. June 13, Hubbard asked Glynn for books and
records of the
Vallejo
establishments and Glynn gave him some of them on June 16, and more
within two weeks thereafter.
From
the foregoing recital, it is apparent that the voluntary disclosure made
by Legatos on July 9, came long after investigation was under way, and
was insufficient to afford him immunity from prosecution. 5 Legatos
calls attention to his directions to his office manager and bookkeeper
to furnish agent Bakkan any and all books and records he might request,
and the conduct of his accountant Swigard in working in full cooperation
with agent Bakkan; but aiding and facilitating a government tax
investigation after it has been started manifestly does not bring the
taxpayer within the Treasury Department's voluntary disclosure policy.
Legatos further complains that he was misled into believing that only a
routine, civil liability investigation was being made of his tax returns
and that he was not informed until after his voluntary disclosure that
criminal prosecution was contemplated. No case has been called to our
attention which holds that a taxpayer may obtain immunity by making
voluntary disclosure of error or omission in his tax return at any time
before a criminal investigation, as distinguished from a civil one, has
been instituted. Usually, when an investigation is started, it is not
possible to predict where it will lead or whether or not evidence of
fraud sufficient to justify prosecution will be uncovered. In Bateman
v. United States, supra, (footnote 5) this Court held that, after
the collector had forwarded tax returns to a deputy collector with
directions to initiate an investigation, a request by government agents
that the taxpayers sign a waiver of statute of limitations upon
assessment of income taxes (a civil liability), was sufficient to put
them on notice that they were under investigation. It is our conclusion
that Legatos' disclosure came too late. He did not go to the Government.
The Government came to him. No government agent made any promise of
immunity from prosecution to appellants, or gave them any good reason to
believe that prosecution would not be instituted. And since appellant
Glynn gave the challenged documentary evidence to a government agent
before any effective voluntary disclosure had been made, no
constitutional rights of appellants were violated. Bateman v. United
States, United States v. Lustig, and United States v. Weisman,
cited above in footnote 5.
(3)
Testimony of Witness Blanas
Legatos,
in partnership with Glynn and Blanas, operated the States Club in
Vallejo
. Blanas, a witness for the Government, testified, over objection,
regarding a conversation with Legatos in that establishment sometime
during the year 1945. Blanas testified they discussed how they could get
rid of the brandy and rum "that wasn't moving fast"; that
Blanas said he would refill the bottles a few at a time and get rid of
them; and that Legatos told him to be very careful and not to fill too
many. The Court admitted the testimony for the limited purpose of
showing "the connection of Mr. Legatos with the Club." It is
now argued that, since it was not disputed that Legatos, as one of three
partners, was part owner of the club, the testimony was not material to
any contested issue and was prejudicial in that it tended to show
commission by Legatos of an offense not charged in the indictment.
Legatos did not question his being a partner in the States Club, it is
true, but he did strenuously contend that he was not criminally liable
for his partners' acts in connection with its operation in the absence
of a showing of personal participation or knowledge on his part.
Legatos' residence and main office were in
Sacramento
. There was evidence that he did not take an active part in the
management or operation of the States Club and that he was seldom seen
there. It was material and proper for the Government to show by the
challenged testimony that Legatos personally participated in the
operation of the establishment to the extent of aiding in the solution
of the problem of disposing of slow-moving liquor stocks. Relevant
evidence is admissible even though it incidentally shows commission by
the accused of another crime. 6
(4)
Testimony of Witness Hubbard
Beltran
C. Hubbard, an agent of the Bureau of Internal Revenue, testified at
length as an expert witness for the Government concerning the books and
records which Glynn had given him, and with reference to numerous tapes
from the adding machines in Hambers Cafe, the Casa Blanca, and the
States Club. The purport of his testimony was that the tapes had been
cut and manipulated so that they did not show all of the receipts taken
in through the machines. He voiced the conclusion that other receipts
had been withheld from the books. It was the position of the Government
that, since Legatos was a partner of Glynn and Blanas and they were
shown to have been acting in concert, Hubbard's testimony was admissible
against both Legatos and Glynn. The Court, however, rejected that theory
and in the presence of the jury ruled that the testimony would be
admitted only against Glynn, but remarked that the Government could
again offer it against Legatos or move to have it apply to him later on
in the trial. With some few exceptions, all of the evidence, both oral
and documentary, offered by Hubbard was admitted on that basis. A
considerable volume of other evidence was admitted as to Legatos only
and, after both sides had rested, Government counsel moved that all of
the evidence be considered admitted against both defendants. The Court
heard the argument of counsel and denied the motion in the absence of
the jury. Legatos now complains that the Court did not make it
sufficiently clear to the jury that Hubbard's testimony for the most
part was to be considered only against Glynn. In view of the large
number of instances throughout the protracted trial in which evidence
was admitted against one defendant and not against the others, and the
number of documents and the volume of testimony involved, it would have
been a Herculean, if not an impossible task, for the trial judge to give
the jury detailed instructions as to just what evidence was to be
considered against which defendant. During argument to the jury by
Government counsel, when Legatos' attorney made the objection that
testimony of Blanas admitted only as to Glynn was being improperly
applied to Legatos, the Court interrupted the argument to give the
jurors a cautionary instruction to the effect that they should consider
against each defendant only the evidence admitted as to that defendant. 7 The same
instruction was again given to the jury in the Court's final charge. In
the circumstances presented, that was about all the Court could do.
Perhaps too much was expected of the jury, but the same may be said of
almost every protracted jury trial involving complex issues and more
than one defendant.
(5)
Sufficiency of Evidence on Net Worth Basis
In
his brief, Legatos argues that the evidence was not sufficient to
warrant submission of a net worth case to the jury for the reason that
there was no showing that the taxpayer's books were incomplete or
inadequate. On oral argument, Legatos' counsel announced that he was
abandoning the contention. He could well do so without detriment to his
client's interests. Both the Government agent, Bakkan, and Legatos'
accountant, Swigard, concluded that it was not feasible to calculate
Legatos' income from his books and that it was advisable to use the net
worth method. Swigard testified that it would take "a matter of
maybe years" to completely audit Legatos' books for income tax
purposes. A reasonable inference could be drawn that the books were
incomplete and that substantial items of cash income were not entered
therein. There was sufficient basis for employment of the net worth
method of computation of Legatos' income. 8
(6)
The Court's Instructions to the Jury
Legatos
specifies as error the Court's omission to give his requested
instruction that, in using the net worth method the Government had the
burden of proving beyond a reasonable doubt the wealth of Legatos at the
starting point of the net worth period. The Court in its instructions
explained the net worth method and stated the circumstances in which it
properly could be employed. The Court further fully and correctly
instructed the jury as to the elements constituting the crime charged
and informed the jury that the Government had the burden of proving
every element of the crime beyond a reasonable doubt. It was not
necessary for the Court to repeat his instructions as to the
Government's burden of proof in explaining the methods of proof open to
the Government. Here, particularly, there was no call for such emphasis
in view of the fact that the wealth of Legatos at the starting point
which the Government used was in accordance with the amended tax returns
filed by Legatos and sworn to be correct both by him and by his
accountant.
Legatos
also complains of the following instruction which the Court gave to the
jury:
"The
attempt to evade and defeat the tax must be a willful attempt. That is
to say, it must be made with the intent to keep from the Government a
tax imposed by the income tax laws which it was the duty of the
defendant Legatos to pay to the Government. The attempt must be willful,
that is, intentionally done with the intent that the Government should
be defrauded of the income tax due from the defendant Legatos. The
presumption is that a person intends the natural consequences of his
acts, and with respect to the defendant Legatos, the natural presumption
would be that if a person consciously, knowingly, and intentionally,
with evil motive or bad purpose did not set up his full income and
thereby the Government was cheated or defrauded of taxes, he intended to
defeat the tax."
The
contention that the instruction was prejudicially erroneous is based
principally upon Morissette v. United States, 342
U. S.
246, and Wardlaw v. United States, 5 Cir., 203 Fed. (2d) 884
[53-1 USTC ¶9335]. The instruction held to be erroneous in the latter
case was as follows:
"The
presumption is that a person intends the natural consequences of his
acts, and the natural presumption would be if a person consciously,
knowingly, or intentionally did not set up his income and thereby the
government was cheated or defrauded of taxes, that he intended to defeat
the tax." (p. 887)
The
Court reasoned that the intent, which is an element of the offense, is
not inherent in the act itself but is a specific intent involving
"bad purpose and evil motive." Wardlaw v. United States
had been called to the District Court's attention in the course of the
trial in this case, and it seems likely that in order to meet what he
regarded as its requirements, he fashioned the instruction quoted above
to read that, the jury might presume the intent if the accused
consciously, knowingly, and intentionally, with "evil motive or bad
purpose," did not set up his full income and thereby the government
was cheated or defrauded of the taxes. Legatos argues that the addition
of the language from the Wardlaw case did not cure the error,
since the vice of the instruction is not the language with which it may
be clothed, but its submission to the jury of the presumption of guilt,
condemned by the Supreme Court in Morissette v. United States, supra.
In
the Morissette case the defendant picked up some spent bomb
casings on a government practice bombing range and was convicted of
theft of government property. His defense was that he believed the
casings had been abandoned and that he did not intend to steal them. The
trial court in effect rejected the proffered defense and instructed the
jury:
"That
if this young man took this property (and he says he did), without any
permission (he says he did), that was on the property of the United
States Government (he says it was), that it was of the value of one cent
or more (and evidently it was), that he is guilty of the offense charged
here. If you believe the government, he is guilty. . . . The question on
intent is whether or not he intended to take the property. He says he
did. Therefore, if you believe either side, he is guilty."
Defendant's
counsel contended that the taking must have been with a felonious
intent, but the trial court ruled, "That is presumed by his own
act". A considerable portion of the Supreme Court's opinion is
taken up with a discussion of the question whether specific intent was
an essential element of the offense charged. Having reached the
conclusion that it was, the Court observed that the case was tried on
the theory that "if criminal intent were essential its presence (a)
should be decided by the court (b) as a presumption of law, apparently
conclusive, (c) predicated upon the isolated act of taking rather than
upon all the circumstances." The Court regarded each of the three
assumptions, (a), (b), and (c), as erroneous. Where intent of the
accused is an ingredient of the crime charged, it said, its existence is
a question of fact which must be submitted to the jury, and the question
may not be withdrawn or prejudged by instruction that the law raises a
presumption of intent from an act. And a presumption which would permit
but not require the jury to assume intent from an isolated fact, would
prejudge a conclusion which the jury should reach of its own volition.
The essence of the Morissetti case, then, is that, the existence
of criminal intent is a question of fact to be determined by the jury
from all the attendant circumstances, and the jury should not be
instructed that such intent must or may be presumed as a matter of law
from an isolated fact.
On
April 11, 19
55, after the instant case was submitted, this Court decided Bloch v.
United States, No. 14,266, 221 Fed. (2d) 786 [55-1 USTC ¶9364].
Based upon the authority of the Wardlaw and Morissette
cases, it held that the giving of the following instruction constituted
plain error which the court should notice on its own motion under Rule
52(b) of the Federal Rules of Criminal Procedure:
"The
presumption is that a person intends the natural consequences of his
acts, and the natural inference would be if a person consciously,
knowingly and intentionally did not set up his income, and thereby the
government was cheated or defrauded of taxes, that he intended to defeat
the tax."
There
the instruction in which the trial court defined the term
"wilfully" for the jury also was held to be erroneous. 9
On
the other hand, in Bateman v. United States, 212 Fed. (2d) 61
(decided
April 15, 19
54) [54-1 USTC ¶9341], this Court came to the conclusion that an
instruction in a tax evasion case that "the law presumes that every
man intends the natural and probable consequences of his own voluntary
acts" was not prejudicially erroneous for the reason that,
considered as a whole the trial court's instructions on intent
"correctly stated the law, were plain and understandable, and left
no room for doubt in the minds of the jurors."
We
think the same reasoning may be applied to the instant case. In the
first place, directly contrary to the trial court's position in the Morissette
case, here the judge instructed the jury that, "The question
whether, under the indictment, there existed an intent to defraud the
government of the United States is solely a question of fact to be
determined by the jury." The jury was also told that intent was an
essential element of the crime; that it was to be determined by the jury
from consideration of all the facts and circumstances in evidence; and
that guilty knowledge and specific wrongful intent on the part of the
taxpayer to evade payment of the tax must be established. 10
It
is our conclusion that, considered as a whole the Court's instructions
on intent and wilfulness clearly and correctly stated the law and were
not such as to mislead the jury. We conclude, therefore, that the
present case is governed by Bateman v.
United States
, supra, and is distinguishable from Wardlaw v.
United States
, supra, and Bloch v.
United States
, supra, where the effect of the court's instructions considered as
a whole was not discussed. 11
Sufficiency
of the Evidence as to Glynn
No
conspiracy between the defendants was charged in the indictment and the
District Court consistently ruled that concert of action between them
was not established by the evidence. During the protracted trial,
evidence was admitted on a separate, individual basis, and only evidence
with which a defendant was shown to be connected was admitted against
that defendant. Glynn rested at the conclusion of the Government's case
in chief and the Court ruled that all evidence thereafter introduced,
including the testimony of Legatos and his other witnesses was not
admitted as to Glynn. The only evidence received against Glynn was the
testimony of Blanas and Hubbard, which covered the operation and
disposition of the receipts of the
Vallejo
establishments, and the partnership tax returns. The original and
amended tax returns of Legatos, the net worth evidence, and other
evidence that Legatos understated his income in his income tax returns,
are not in evidence at all so far as Glynn is concerned. He is accused
and convicted of wilfully attempting to defeat and evade a large part of
the income tax due and owing by Legatos to the United States for the
calendar years 1945 (second count) and 1946 (third count), but there is
no supporting evidence which properly may be considered against him that
Legatos had any taxable net income in 1945 or 1946; or that Legatos in
either of those years owed any Federal income tax. So far as the
evidence against Glynn is concerned, Legatos may have filed returns in
1945 and 1946 in which he correctly reported his income and made timely
payment of all of his tax due and owing to the
United States
. Glynn's conviction cannot stand without substantial evidence that he
had the specific intent stressed as essential in the Wardlaw and Bloch
cases, to evade or defeat the payment of income tax which Legatos was
obligated to pay the
United States
. The Government had the burden of proving that some income tax was due
from Legatos for the years involved. 12 It did not
carry that burden as to Glynn.
Appellee
argues that the evidence is sufficient to support Glynn's conviction as
an aider and abettor of an attempt to evade Legatos' income tax. That
may have been the theory on which Glynn's case was submitted to the jury
as the trial court gave an instruction to the effect that, persons who
knowingly and with criminal intent aid and abet in the commission of an
act constituting an offense, or who advise and encourage its commission,
are regarded in law as principals and are equally guilty with those who
directly and actively commit the offense. The evidence was not
sufficient, however, to support conviction of Glynn as an aider and
abettor. To justify conviction on that basis, it must appear that the
offense charged was committed by someone other than Glynn. If no crime
has been committed, no one can be convicted as an aider and abettor. 13
There
is no evidence admitted against Glynn that Legatos attempted to evade
payment of his income tax.
Affirmed
as to Legatos and reversed as to Glynn.
1
The record on appeal consists of 8 volumes, aggregating 3580 printed
pages.
2
Fed. Rules Cr. Proc. rule 7(c), 18
U. S.
C. A.
3
Wong Tai v.
United States
, 273
U. S.
77; United States v. Skidmore, 7 Cir., 123 Fed. (2d) 604 [41-2
USTC ¶9716]; Maxfield v. United States, 9 Cir., 152 Fed. (2d)
593 [46-1 USTC ¶9115]; Himmelfarb v. United States, 9 Cir., 175
Fed. (2d) 924 [49-1 USTC ¶9313].
4
The voluntary disclosure policy relied upon was stated by then Secretary
of the Treasury, Fred Vinson in the Washington Post,
August 21, 19
45, as follows: "The Commissioner of Internal Revenue does not
recommend criminal prosecution in the case of any taxpayer who makes a
voluntary disclosure of omission or other misstatement in his tax
return. Monetary penalties may be imposed for delinquency, for
negligence, and for fraud, but the man who makes a disclosure before an
investigation is under way protects himself and his family from the
stigma of a felony conviction. And there is nothing complicated about
going to a Collector or other revenue officer and simply saying 'there
is something wrong with my return and I want to straighten it
out.'"
5
United States v. Lustig, 2 Cir., 163 Fed. (2d) 85 [47-2 USTC ¶9325];
Bateman v. United States, 9 Cir., 212 Fed. (2d) 61 [54-1 USTC ¶9341];
Lapides v. United States, 2 Cir., 215 Fed. (2d) 253 [54-2 USTC ¶9497];
United States v. Weisman, 78 Fed. Supp. 979 [49-2 USTC ¶9404]; In
re White, 98 Fed. Supp. 895 [51-2 USTC ¶9382]; United States v.
Levy, 99 Fed. Supp. 529 [51-2 USTC ¶9388].
6
Wharton's Criminal Evidence (11th ed.), Vol. 1, p. 486, §343;
United States
v. Sebo, 7 Cir., 101 Fed. (2d) 889; Weiss v.
United States
, 5 Cir., 122 Fed. (2d) 675; Bracey v.
United States
, D. C. Cir., 142 Fed. (2d) 85.
7
The Court's instruction was as follows: "It may be difficult for
you, when considering the case for or against any one certain defendant,
to disregard completely any evidence that was admitted only as to
another, but that is your plain duty with respect to evidence not
admitted by the Court as against a certain defendant, you must try
conscientiously to so treat such a situation."
8
26
U. S.
C. A. §41; Remmer v.
United States
, 9 Cir., 205 Fed. (2d) 277, 286 [53-1 USTC ¶9421].
9
The instruction was as follows: "Willfully in the statute, which
makes a willful attempt to evade taxes a crime, refers to the state of
mind in which the act of evasion was done. It includes several states of
mind, any one of which may be the willfulness to make up the crime.
"Willfulness
includes doing an act with a bad purpose. It includes doing an act
without a justifiable excuse. It includes doing an act without ground
for believing that the act is lawful. It also includes doing an act with
a careless disregard for whether or not one has the right so to
act."
10
As to intent and knowledge, and the meaning of "wilful", the
trial court instructed:
"Intent
is an essential element in the perpetration of the offenses charged
against the defendants in the indictment. Intent may be shown by proof
of facts and circumstances from which it may be reasonably and
satisfactorily inferred. In determining whether a defendant had such
intent, you should take into consideration all the facts and
circumstances in evidence, the acts and conduct of such defendant, and
his motives, if any, disclosed by the testimony, for doing or not doing
the act or acts charged in the indictment as shown by the evidence; and
if from all the facts and circumstances in the evidence there is no
other reasonable conclusion than that he is guilty, you should so find.
"One
of the essential elements of the proof of attempt to evade income tax or
the payment thereof is knowledge on the part of the taxpayer of the
existence of the obligation; that is, of the tax due and a specific
wrongful intent to evade the payment thereof. If you find from all the
evidence that the defendant Legatos did not have actual knowledge of the
existence of an obligation on his part to pay any income tax in addition
to the income tax reported by him in his original income tax returns,
and that said defendant did not have a specific wrongful intent to evade
such obligation, then you should find the defendant Legatos not guilty.
"Fraud
is an actual intentional wrong-doing and the intent required is a
specific mental determination or purpose to evade a tax known or
believed to be owing. Before you can convict the defendant Legatos, you
must find from the evidence beyond a reasonable doubt that any income
tax return involved in this indictment was not only false and
fraudulent, but that by such false and fraudulent return said defendant
committed an actual, intentional wrong-doing and that the filing of said
return was with the intent on his part to evade a tax owing or believed
to be owing to the United States.
"The
word 'wilful' when used in a criminal statute generally means an act
done with a bad purpose, but the word is also employed to characterize a
thing done without ground for believing it is lawful, or conduct marked
by disregard whether one has the right so to act.
"The
word 'wilfully,' as used in this Statute, means more then [sic]
intentionally or voluntarily, and includes an evil motive or bad
purpose, so that evidence of an actual bona fide misconception of the
law, such as would negative knowledge of the existence of the obligation
would, if believed by the jury, justify a verdict for a defendant. It is
for the jury to say whether a defendant had the requisite criminal
intent, that is whether he wilfully and knowingly attempted to defeat
and evade the income tax."
11
The Bateman case was not mentioned nor cited in Bloch v.
United States
.
12
Gleckman v.
United States
, 8 Cir., 80 Fed. (2d) 394, 399 [35-2 USTC ¶9645]; United States
v. Schenck, 2 Cir., 126 Fed. (2d) 702, 704 [42-1 USTC ¶9363]; Rose
v.
United States
, 10 Cir., 128 Fed. (2d) 622, 626 [42-2 USTC ¶9500]; United
States v. Rosenblum, 7 Cir., 176 Fed. (2d) 321, 329 [49-1 USTC ¶9314].
13
14 Am. Jur. 832, §93; 22 C. J. S. Criminal Law, §100, p. 171; Yenkichi
Ito v.
United States
, 9 Cir., 64 Fed. (2d) 73; Morgan v.
United States
, 10 Cir., 159 Fed. (2d) 85;
United States
v. Horton, 7 Cir., 180 Fed. (2d) 427;
United States
v. Zerbst, 111 Fed. Supp. 807.
[69-2
USTC ¶9462]Balistrieri v.
United States
Supreme
Court of the United States, No. 1070, 395 US 710, 89 SCt 2032, 6/16/69,
vacated and case remanded to District Court, CA-7, 68-2 USTC ¶9641, 403
F. 2d 472
On Petition for Rehearing.
[Code Sec. 7201]
Crimes: Evasion: False and fraudulent returns: Evidence: Illegal
search and seizure: Electronic surveillance.--On rehearing, the
taxpayer's petition for writ of certiorari was granted and his
conviction for tax evasion remanded to the district court for
consideration in the light of Alderman v. U. S., (Sup.
Ct.
) 394
U. S.
165, and Giordano v.
U. S.
, (Sup.
Ct.
) 394
U. S.
310. The two cited cases set forth appropriate standards and procedures
for determining whether sufficient evidence to support a conviction
exists apart from evidence illegally obtained by electronic
surveillance.
Edward
Bennett Williams, Harold Ungar, 1000 Hill Bldg., Washington, D. C., for
petitioner. Erwin M. Griswold, Johnnie M. Walters, Assistant Attorney
General, Joseph M. Howard, Charles A. McNelis, Richard B. Buhrman,
Department of Justice, Washington, D. C. 20530, for respondent.
Mr.
Justice Black dissented without opinion.
PER
CURIAM:
The
petition for rehearing is granted and the order denying the petition for
a writ of certiorari is vacated. The petition for a writ of certiorari
is granted and the judgment of the United States Court of Appeals for
the Seventh Circuit is vacated. The case is remanded to the United
States District Court for the Southern District of Illinois for further
proceedings in light of Alderman v. United States, 394
U. S.
165, and Giordano v. United States, 394
U. S.
310.
MR.
JUSTICE BLACK dissents.
MR.
JUSTICE MARSHALL took no part in the consideration or decision of this
case.
[68-2
USTC ¶9641]
United States of America
, Plaintiff-Appellee v. Frank Peter Balistrieri, Defendant-Appellant
(CA-7),
U. S. Court of Appeals, 7th Circuit, No. 16639, 403 F2d 472, 11/7/68,
Affirming unreported District Court opinion
[1954 Code Sec. 7201]
Crimes: Evasion: False and fraudulent returns: Suppression of
evidence.--Evidence sufficient to support the taxpayer's conviction
for tax evasion was not so closely connected with other evidence (or
leads obtained therefrom) which had been obtained through illegal search
or seizure as to render it inadmissible. The illegal evidence was
properly suppressed and the taxpayer was not entitled to a reversal of
his conviction based upon other, properly admitted, evidence.
[1954 Code Sec. 7201]
Crimes: Evasion: False and fraudulent returns: Net worth
reconstruction of income.--The government properly established a
prima facie case against a taxpayer convicted of evasion by use of the
net worth theory. The taxpayer's attacks upon the government's use,
including (1) a failure to show a net worth starting point, (2) a
failure to account for borrowings, (3) an impropriety in including in
income amounts deposited in a joint account, (4) a failure to prove that
net worth increases were attributable to taxable sources, and (5) that
defense evidence had rebutted the government's evidence, were rejected.
[1954 Code Sec. 7201]
Crimes: Evasion: False and fraudulent returns: Trial:
Cross-examination: Statements to jury: Jury instructions.--There was
no prejudicial error, requiring a reversal of the taxpayer's conviction,
in denying a motion for mistrial based on improper cross-examination of
defense witnesses. Defense objections were sustained and the jury was
explicitly instructed to disregard the questions. Thus, the error was
not prejudicial. Further, a statement made by the prosecutor in his
summation to the jury did not require that the motion for mistrial be
sustained; the statement, relating to the possible source of unreported
income, was permissible since the taxpayer's connection with such source
had been shown. Further, there was no error on the part of the trial
judge in sending the jury back for further deliberation when it
expressed some confusion regarding the instructions. The jury was
advised that any problem could be submitted to the court in writing; no
objection was made to such instruction.
[1954 Code Sec. 7201]
Crimes: Evasion: False and fraudulent returns: Evidence:
Accountant-client privilege.--There is no accountant-client
privilege, barring an accountant's testimony, in a federal criminal tax
prosecution. Thus, there was no error in allowing the taxpayer's
accountant to testify for the government.
Richard
B. Buhrman, Charles A. McNelis, James B. Brennan, Mitchell Rogovin,
Joseph M. Howard, Lee A. Jackson, Department of Justice, Washington, D.
C. 20530, for plaintiff-appellee. Maurice J. Walsh,
29 S. LaSalle St.
,
Chicago
Ill.
, Carl M. Walsh,
Chicago
,
Ill.
, for defendant-appellant.
Before
CASTLE, Chief Judge, KNOCH, Senior Circuit Judge, and FAIRCHILD, Circuit
Judge.
CASTLE,
Chief Judge:
Defendant
appeals from his conviction on Counts II and III of a three-count
indictment charging him with crimes against the revenue. Count I charged
defendant and Jennie Alioto with conspiring to defraud the Government by
impeding the lawful functions of the Internal Revenue Service in the
assessment and collection of income taxes. Counts II and III charged
defendant with income tax evasion for the years 1959 and 1960 by filing
false and fraudulent tax returns, in violation of 26 U. S. C. §7201.
Defendant
and Miss Alioto, as co-defendants, filed motions for relief from
prejudicial joinder, to dismiss Count I of the indictment, for a Bill of
Particulars on Counts II and III, and to suppress certain evidence,
copies thereof, leads derived therefrom, and information secured thereby
resulting from a search and seizure of Miss Alioto's apartment,
conducted under an illegal search warrant. 1 After the
Government filed a Bill of Particulars, defendant's motion for a further
Bill of Particulars was denied. The trial was then transferred from the
Eastern District of Wisconsin to the Southern District of Illinois,
Southern Division, for trial as to Balistrieri only. An amended Bill of
Particulars was filed shortly after the trial began, reducing the
alleged beginning and end net worth figures, and thus the increases in
the net worth of defendant and his wife during the relevant period by
over 50%.
[Net
Worth Theory]
The
Government's case was presented on the "net worth theory"
whereby income for the relevant period is proved by showing that the
defendant's net worth increased during the period. Thus, rather than
having to prove the exact source or sources of the income, the defendant
may be convicted of income tax evasion upon a showing that his net worth
was unaccountably higher at the end than at the beginning of the tax
period, and that the increase was not due to nontaxable sources, such as
gifts, loans, or inheritance. In the instant case, the Government sought
to bolster its net worth evidence with evidence of the likely sources of
income.
Shortly
before trial, defendant moved to suppress evidence obtained by
electronic eavesdropping of defendant's office, after defendant had
discovered a hidden microphone installed behind his office paneling. On
the date when the trial was scheduled to begin, the Government attorneys
disclosed to the trial judge that the Government had three categories of
F. B. I. reports obtained by admittedly illegal electronic
eavesdropping. These reports concerned conversations overheard from
devices placed in Miss Alioto's apartment from
October 3, 19
61 through
June 8, 19
62, in defendant's office from
March 9, 19
64 through
June 3, 19
65, and in the office of Dominic Frinzi, one of defendant's attorneys,
from
April 22, 19
63 through
October 2, 19
63.
A
substantial amount of testimony on this matter was heard by the court
outside the presence of the jury. Defendant moved to dismiss the
indictment on the ground that it was obtained through use of the
information acquired by means of the illegal electronic eavesdropping,
and this motion was denied. The court also denied motions for acquittal
and motions that the eavesdropping information was inflammatory and
deprived defendant of a fair grand jury. The court did, however, compel
election by the Government to proceed on Counts II and III, and not on
Count I, apparently in recognition of tainted evidence used in the first
count.
Upon
a verdict of guilty of Counts II and III, defendant was sentenced to two
years imprisonment and fined $5000 on each count, the prison terms to
run concurrently.
On
appeal, defendant attacks the adequacy of the Government's evidence in
meeting its burden of proving that the trial evidence was free from
taint, the sufficiency of the evidence used to prove the "net worth
theory" of tax evasion, the trial court's denial of defendant's
motion for mistrial based upon the prosecutor's improper
cross-examination of a witness, the trial court's refusal to answer the
request of the jury for clarification of instructions, alleged improper
arguments to the jury by the prosecutor, and an alleged breach of the
attorney-client and accountant-client privilege.
[Tainted
Evidence]
I.
The main contested issue concerns the Government's proof that its
evidence was free from taint of the illegal searches and seizures and
electronic eavesdropping.
During
1961, in the initial stages of the Internal Revenue Service
investigation of defendant, the I. R. S. had, through the Postal
Inspector in Milwaukee, requested that "mail covers" 2 be conducted
on defendant's address and on various corporations which the I. R. S.
believed were connected with defendant. Among these were the Downtowner
(a tavern) and Gallagher's Steak House (a restaurant). On
July 7, 19
61, the I. R. S. received a mail cover report which disclosed that a
first class letter addressed to Midwest Scrap Metal Company at the
address of the Downtowner was delivered. The return address--Post Office
Box 1205--was later determined to be the First Wisconsin National Bank
of
Milwaukee
. On
August 7, 19
61, another mail cover report showed that a letter from Altex
Corporation, a scrap metal dealer, was sent to Gallagher's Steak House.
Lead cards were made and filed for each of these leads.
Contrary
to the findings made by the district court at the close of the testimony
regarding the alleged tainted evidence, defendant contends that the
evidence relating to Midwest Scrap Metal Company, upon which the
Government relied as establishing a source of unreported income, was
discovered only as the result of information extracted from the records
illegally seized in Miss Alioto's apartment and as the result of the
subsequent search by the F. B. I., and not by the independent leads
obtained by the exploitation of the information extracted from the mail
covers and lead cards by the I. R. S. On all issues regarding the
alleged tainted evidence, the Government conceded that it had the burden
of proving that its evidence was free from taint. 3
[Independent
Leads]
With
respect to the Midwest Scrap Metal Company evidence, the Government
sought to meet his burden by demonstrating that the lead was discovered
independently of and prior to the searches, as the result of the mail
covers conducted in the summer of 1961. In following up the mail cover
leads, the Government contends that it was led to the Altex Corporation.
From the records of Altex followed other leads and evidence regarding
Midwest
and its connection with defendant. We find that the district court did
not err in holding that the
Midwest
leads were obtained independently of the searches. The two lead cards
disclosed that the address of
Midwest
, a dealer in scrap metal, was the same as the address of a business in
which defendant was known to have an interest (the Downtowner), and that
Altex, a seller of scrap metal, sent a letter to another business in
which defendant had an interest (Gallagher's). It is reasonable to
conclude that these two leads were logically tied together by the
revenue agents, before the searches took place, to link Altex with
Midwest
and thus provide an important step in the investigation. Therefore,
although the evidence obtained in the illegal searches would have led to
the same link between Altex and Midwest which in turn led to the other
evidence, some of which was admitted into evidence at trial, the initial
lead was obtained independently of and prior to the search.
In
Silverthorne Lumber Co. v. United States, 251
U. S.
385, 392 (1920), Mr. Justice Holmes, speaking for the Court, stated the
policy behind the Fourth Amendment:
"The
essence of a provision forbidding the acquisition of evidence in a
certain way is that not merely evidence so acquired shall not be used
before the court but that it shall not be used at all. Of course this
does not mean that the facts thus obtained become sacred and
inaccessible. If knowledge of them is gained from an independent source
they may be proved like any others, but the knowledge gained by the
Government's own wrong cannot be used by it. . . ." 251
U. S.
at 372.
In
Wong Sun v. United States, 371
U. S.
471, 487-488 (1963), the Supreme Court cogently held:
"We
need not hold that all evidence is 'fruit of the poisonous tree' simply
because it would not have come to light but for the illegal actions of
the police. Rather, the more apt question in such a case is 'whether,
granting establishment of the primary illegality, the evidence to which
instant objection is made has been come at by exploitation of that
illegality or instead by means sufficiently distinguishable to be purged
of the primary taint.' Maguire, Evidence of Guilt, 221 (1959)."
We
hold that the evidence relating to
Midwest
was not "come at by exploitation" of the information obtained
in the illegal searches and seizures, but "by means sufficiently
distinguishable to be purged of the primary taint."
We
reach the same conclusion regarding the evidence allegedly obtained by
the illegal electronic eavesdropping. The Government met its burden in
proving that its evidence was free from this taint by disclosing to the
court and the defendant all information in the Government's possession,
including summaries of the tapes which had been erased in the ordinary
course of re-use, 4 undestroyed
tapes, and by making available the agents who participated in the
eavesdropping. The district court ordered suppressed all the information
obtained as the result of the electronic surveillances and the searches
and seizures and all leads developed therefrom. Defendant contends,
however, that the Government failed to meet its burden since it had
destroyed the best evidence of what had been heard through erasure of
the recordings on some of the tapes by their re-use. However, the
Government tendered proof to the district court showing independent
sources for the leads to each of the items of evidence introduced at
trial. The trial judge displayed a high degree of prudence and
deliberation in hearing extensive testimony from each side before
concluding that the evidence offered by the Government was free from
taint. We agree with his conclusion.
Mr.
Justice Frankfurter, speaking for the Supreme Court in Nardone v.
United States, 308 U. S. 338 (1939), stated the guidelines to be
used by federal courts in determining issues of tainted evidence. After
stating the quotation from Silverthorne, cited above by us, he
said:
"In
practice this generalized statement may conceal concrete complexities.
Sophisticated argument may prove a causal connection between information
obtained through illicit wire-tapping and the Government's proof. As a
matter of good sense, however, such connection may have become so
attenuated as to dissipate the taint." 308
U. S.
at 341.
Therefore,
although some causal connection could, by sophisticated argument, be
shown between the electronic eavesdropping and the Government's proof,
we find that "such connection has become so attenuated" in the
instant case as to dissipate the taint. The trial judge gave defendant
the opportunity to show that a substantial portion of the case against
him was the fruit of the poisonous tree, and we conclude that the
decision of the district court that the Government met its burden of
proving its evidence free from taint is supported by substantial
evidence and not erroneous.
Judge
Learned Hand's comment in United States v. Nardone, 127 F. 2d
521, 523 (1942) cert. den. 316
U. S.
698, is particularly appropriate to the issues discussed above:
The
question therefore comes down to this: whether a prosecution must show,
not only that it has not used any information illicitly obtained, either
as evidence, or as the means of procuring evidence; but that the
information has not itself spurred the authorities to press an
investigation which they might otherwise have dropped. We do not believe
that the Supreme Court meant to involve the prosecution of crime in such
a tenebrous and uncertain inquiry, or to make such a fetich of the
statute [47
U. S.
C. §605] as so extreme an application of it would demand. On the last
appeal the court made it abundantly clear that it did not contemplate a
chase after will-O'-wisps. "Tenuous claims" are not
"sufficient to justify the trial court's indulgence of inquiry into
the legitimacy of evidence." The "claims * * * must satisfy
the trial court with their solidity." We are not "to
subordinate the need for rigorous
admin
istration of justice to undue solicitude for potential and, it is to be
hoped, abnormal disobedience of the law." [308
U. S.
338, 60
S. Ct.
269, 84 L. Ed. 307.] Such expressions indicate no disposition towards
the refinements inevitable in deciding how far the illicit information
may have encouraged and sustained the pursuit. We hold that, having
proved to the satisfaction of the trial judge that the [electronic
surveillance and searches and seizures] did not, directly or indirectly,
lead to the discovery of any of the evidence used upon the trial, . . .,
the prosecution had purged itself of its unlawful conduct.
Defendant's
contention that the eavesdropping evidence used to obtain Count I of the
indictment was prejudicial as to him affords no basis for reversal since
he was never prosecuted on the first count. An illegal search and
seizure "does not serve to immunize" the defendant from
prosecution.
United States
v. Ruffin, 389 F. 2d 76, 79 (7th Cir. 1968);
United States
v. Hoffman, 385 F. 2d 501, 503-504 (7th Cir. 1967).
Defendant
further contends that the eavesdropping conducted on the law office of
Mr. Frinzi constituted an intentional interference by the Government
with defendant's Sixth Amendment right to counsel. As with the other
electronic eavesdropping, the Government proved its evidence was free
from any taint as the result of this illegal surveillance. Defendant's
Sixth Amendment claim is no more than speculation. We find nothing in
the record supporting the allegation that the purpose of conducting the
surveillance was to interfere with defendant's right to counsel, nor
does it appear that such right was infringed as the result of the
Government's conduct.
Defendant
also contends that the overhearing of his telephone conversation with
Mr. Walsh, who represented the defendant both below and on appeal, was a
purposeful denial of his right to counsel. Again, there appears in the
record no indication that the Government obtained any evidence from the
overhearing of this call, or that it interfered with defendnt's right to
counsel.
Defendant
relies heavily on O'Brien v. United States, 386
U. S.
345 (1967), in his Sixth Amendment claims. That case is quite
distinguishable, however, in that, unlike the instant case, the
eavesdropping was not disclosed until after the defendant's conviction.
It was this fact which required reversal, since the undisclosed
intrustion on the attorney-client relationship deprived defendant of his
right to an adversary proceeding.
Defendant
argues that, even though we hold that the above violations were
sufficiently divorced from the evidence presented at trial to free them
of taint, we should reverse in the exercise of our supervisory power
"because the indictment was procured by use of inflammatory and
grossly illegal evidence." The argument is based on the allegation
that so many violations occurred in the investigation that the only
remedy is reversal. Such is not the law.
The
decisions of the Supreme Court have consistently held that the remedy
for illegally obtained evidence is suppression of such evidence and all
leads derived therefrom. 5 This remedy
was fully accorded to defendant by the district court, and we find no
authority for the proposition that the defendant is further entitled to
reversal, after the illegally obtained evidence was suppressed and the
jury returned a verdict of conviction upon the other evidence which had
been properly admitted.
[Net
Worth Evidence]
II.
The next general contention by defendant is that the evidence used to
prove the net worth theory of tax evasion was legally insufficient, and
therefore that his motions for acquittal at the close of the
Government's case and at the close of all the evidence should have been
granted. Defendant cites Holland v. United States, 348
U. S.
(1954), as the leading case on the "net worth method." That
case held that this method of proving income tax deficiency "is so
fraught with danger for the innocent, that the courts must closely
scrutinize its use." 348
U. S.
at 125. The Court went on to say:
"While
we cannot say that these pitfalls inherent in the net worth method
foreclose its use, they do require the exercise of great care and
restraint. The complexity of the problem is such that it cannot be met
merely by the application of general rules. Cf. Universal Camera
Corp. v. Labor Board, 340
U. S.
474, 489. Trial courts should approach these cases in the full
realization that the taxpayer may be ensnared in a system which, though
difficult for the prosecution to utilize, is equally hard for the
defendant to refute. Charges should be especially clear, including, in
addition to the formal instructions, a summary of the nature of the net
worth method, the assumptions on which it rests, and the inferences
available both for and against the accused. Appellate courts should
review the cases, bearing constantly in mind the difficulties that arise
when circumstantial evidence as to guilt is the chief weapon of a method
that is itself only an approximation." 348
U. S.
at 129. Cf.
United States
v. Tolbert, 367 F. 2d 778 (7th Cir. 1966).
With
these words of the Supreme Court fully in mind, we nevertheless find no
error below which would justify reversal. In dealing with this general
contention, we find that careful scrutiny leads us to the conclusion
that the Government established a prima facie case against
defendant, and that defendant's five-pronged attack on the Government's
case is without merit.
[Defense
Position]
(1)
Defendant first contends that the Government failed to show a solid net
worth starting point. However, the starting point in defendant's net
worth, as used by the Government and placed before the jury for its
decision, was based upon a net worth statement which was signed by
defendant and his wife and submitted to the Wisconsin Department of
Taxation in 1954. This statement included cash on hand as of
December 31, 19
53, in the amount of $1,000. The propriety of including this figure in
the net worth starting point was upheld by this Court in United
States v. Mackey [65-1 USTC ¶9328], 345 F. 2d 499, 506 (7th Cir.
1965), cert. den. 382
U. S.
824, where the Government's case did not have the advantage of a signed
statement concerning the defendant's cash on hand.
Added
to the amount claimed by the statement were certain visible assets
belonging to defendant which had been disclosed by the Government's
investigation, and which were not included in the statement. 6 After
arriving at a net worth of $73,780.62 as of
December 31, 19
53, the Government traced defendant's net worth at the end of each year,
through the prosecution years of 1959 and 1960, proving that defendant's
reported income could not account for any increases in cash on hand
significantly larger than the $1,000 for which he was given credit.
Certain accrued liabilities were properly eliminated in the Government's
computations since defendant reported income on the cash basis. Thus, as
the Government points out in its brief (at p. 33), "the gap between
the starting point and the beginning of the first prosecution year,
1959, was bridged by carefully reconstructing appellant's net worth as
of the end of each intervening year, adding non-deductible expenditures,
and demonstrating that no additional cash on hand could have been
accumulated from income reported in the intervening years."
(2)
Defendant further argues that the Government failed to account for
borrowings in arriving at its net worth figures. After carefully
scrutinizing the record, however, we find that the loans were taken into
account as liabilities and that defendant was given proper credit for
them.
(3)
Defendant also attacks the propriety of including in his net worth as of
December 31, 19
59, $10,000 of cash on hand which had been deposited in the Marshall and
Ilsley Bank in the name of Joseph Balistrieri or Frank Balistrieri, the
defendant, on
January 25, 19
60. Joseph is defendant's son, who was a 19-year-old minor and was
claimed as a dependent by defendant, at the time the joint account was
opened. The jury had ample grounds to believe that this money was in
fact the defendant's since the Government proved that defendant
controlled the account and withdrew a substantial amount from it on
March 23, 19
61. We therefore find that the evidence was sufficient to support such a
conclusion.
(4)
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., 7 and Midwest
Scrap Metal Company. In Holland v. United States [54-2 USTC ¶9714],
348
U. S.
121, 138 (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.
(5)
Defendant contends that the evidence produced by the defense
conclusively rebutted the Government's case and required the granting of
the motion for acquittal at the close of all the evidence. However,
defendant's evidence consisted of testimony which the jury was justified
in disbelieving as the result of their view of the demeanor of the
witnesses and the cross-examination. Surely we can neither place
ourselves in the unique position of the jury nor can we hold that they
were compelled to believe the testimony of the defense witnesses they
viewed, especially when much of the testimony conflicted with the
evidence properly introduced by the Government.
For
the foregoing reasons, we hold that both motions for acquittal were
properly denied.
[Improper
Cross-Examination]
III.
Defendant contends that the trial court's denial of his motion for
mistrial based upon the prosecutor's improper cross-examination of
defense witness Klein constitutes reversible error. The Government
agrees that the two questions complained of constituted improper
cross-examination, but contends that it was not prejudicial. Our review
of the facts present in the instant case leads us to the same
conclusion, that the error here was not prejudicial and does not call
for reversal. First, the objections made by defense counsel were
sustained and the jury was explicitly instructed to disregard the
questions.
Moreover,
the fact that witness Klein's testimony concerned only one of the
indictment years and involved only a relatively small amount further
demonstrates the lack of prejudicial effect of the improper
cross-examination. It does not follow, as contended by the defendant,
that improper impeachment of the first defense witness destroys the
testimony of later witnesses called by the defense. To so hold, in view
of the trial court's sustaining defendant's objections and the immediate
instruction to disregard the improper questions, would involve an
unwarranted assumption denying to the jury any degree of intelligence or
discretion. Consequently, we do not view the denial of the motions for
mistrial as erroneous.
[Improper
Summation]
IV.
Defendant contends that the trial court committed error in overruling
his objection and denying his motion for mistrial, based on the
prosecutor's statement, in his summation to the jury, that there were
possible sources of income other than Midwest Scrap Metal Company, and
his naming a number of such possible sources with which defendant was
connected. Defendant seems to ignore the fact that this statement by the
prosecutor was made in reply to defense counsel's statement in his
summation that
Midwest
was the only proven source and that that source was not nearly large
enough to account for the unreported income shown by the Government's
proof. Moreover, in a net worth case the Government need not prove a
specific source of income to account for the increases in net worth, but
need only show some "likely" source. Holland v. United
States [54-2 USTC ¶9714], 348
U. S.
121, 138 (1954); Armstrong v. United States [64-1 USTC ¶9216],
327 F. 2d 189, 194 (9th Cir. 1964); United States v. Mackey [65-1
USTC ¶9328], 345 F. 2d 499, 506-507 (7th Cir. 1965). Defendant's
connection with the companies mentioned having been shown, the
prosecution was allowed to argue the possibility of these companies as a
possible source of income.
[Jury
Instructions]
V.
Defendant further contends that the trial court committed error when it
sent the jury back for further deliberations after the jury expressed
some confusion regarding the instructions. We hold that no error was
committed. When the jurors failed to make clear their problem, the trial
judge advised them that if they had a problem they could submit it to
the court in writing. Neither counsel objected, and defense counsel
initiated the suggestion regarding the written inquiry. The jury then
retired and later returned a verdict of guilty. To hold that these
events compel reversal in this case would be entertaining the vaguest of
speculations as to what was in the minds of the jurors. Rather than
engage in such speculation himself, the judge refused to put words into
the jurors' mouths and instead, upon suggestion of defense counsel,
asked them to submit any problems they had in writing. Such conduct was
correct and does not constitute error.
[Accountant-Client
Privilege]
VI.
Defendant's last contention posits a violation of the attorney-client
and accountant-client privilege in the trial court's allowing
defendant's accountant to testify for the Government over defendant's
objection. This contention is without merit for three reasons: (a) the
accountant was not an attorney at law and thus no attorney-client
privilege is involved; (b) the Illinois statute creating an
accountant-client privilege--Chap. 1101/2, §51, Ill. Rev. Stat.--may be
invoked only by the accountant, not the client. Dorfman v. Rombs
[63-2 USTC ¶9629], 218 F. Supp. 905, 907 (N. D. Ill. 1963); and (c) in
a federal criminal tax prosecution, federal law applies, Colton v.
United States [62-2 USTC ¶9658], 306 F. 2d 633, 636 (2d Cir. 1962),
cert. den. 347
U. S.
960, and there is no accountant-client privilege in the federal system. Petition
of Borden Co., 75 F. Supp. 857, 859-860 (N. D. Ill. 1948); United
States v. Culver, 224 F. Supp. 419, 434 (D. Md. 1963) and cases
cited. Palmer v. Fisher, 228 F. 2d 603 (7th Cir. 1955), cited by
defendant, was a diversity case in which the Government was not a party,
and is therefore inapplicable.
For
the foregoing reasons, the judgment of conviction is affirmed.
AFFIRMED.
1
The search warrant obtained by the Internal Revenue Service was quashed
in an action brought by Miss Alioto and the owners of the materials
seized in the search. Alioto, et al. v.
United States
[63-2 USTC ¶9552], 216 F. Supp. 48 (E. D. Wis. 1963). It also
appears that the F. B. I., subsequent to the above search, unlawfully
searched Miss Alioto's apartment and photographed certain documents
belonging to defendant which were kept therein.
2
A "mail cover" is conducted by furnishing the Government with
the information appearing on the face of the envelope addressed to the
particular address: i.e., addressee, postmark, name and address
of sender (if it appears), and class of mail. The actual mail is
delivered to the addressee and only the letter-carrier's notation
reaches the Government agency which requests the mail cover.
3
See
United States
v. Wade, 388
U. S.
218, 240 (1967); Murphy v. Waterfront Commission, 378
U. S.
52, 79 (1964);
United States
v. Coplon, 185 F. 2d 629, 636 (2d Cir. 1950), cert. den. 342
U. S.
920.
4
The recent Omnibus Crime Control and Safe Streets Act of 1968, 18 U. S.
C. §2518, which requires all recordings made pursuant to it to be kept
for ten years, has no application to the instant case in which the
investigation took place prior to its passage.
5
E.g., Hoffa v.
United States
, 387
U. S.
231 (1967);
United States
v. Wade, 388
U. S.
218 (1967); Gilbert v.
California
, 388
U. S.
263 (1967); Hoffa v.
United States
, 385
U. S.
293 (1966); Silverthorne Lumber Company v.
United States
, 251
U. S.
385 (1920).
6
The largest item in this category included the stock of Tower Tavern,
Inc., amounting to $31,062.67, which defendant claimed was bought in
large part through a loan from his mother.
7
There was evidence that defendant operated and served as president of
these two companies.
[68-1
USTC ¶9217]Armand C. Feichtmeir, Appellant v.
United States of America
, Appellee
(CA-9),
U. S. Court of Appeals, 9th Circuit, No. 20,931, 389 F2d 498, 2/6/68,
Aff'g an unreported District Court decision
[1954 Code Sec. 7201]
Criminal prosecution: Tax evasion: Evidence: Net worth: Intent:
Statements made to revenue agent.--Taxpayer's conviction on two
counts of tax evasion was affirmed where (1) the evidence was sufficient
to support an inference that taxpayer's net worth increases were
attributable to currently taxable income from a likely source and were
not derived from nontaxable sources, (2) the record had ample evidence
from which the trial court could infer wilfulness, and (3) taxpayer's
statements to a revenue agent were properly received in evidence,
notwithstanding the agent's failure to advise him of his constitutional
rights.
Olva
C. Baird (argument) of Baird, Holley, Baird & Galen,
Los Angeles
,
Calif.
, for appellant. Jo Ann Dunne (argument), Assistant United States
Attorney, Manuel Real, United States Attorney, and
Rob
ert L. Brosio, Assistant United States Attorney, Chief of Criminal
Division,
Los Angeles
,
Calif.
, for appellee.
Before
DUNIWAY and ELY, Circuit Judges, and PECKHAM, District Judge.
PECKHAM,
District Judge:
Appellant
was charged in a four count indictment with wilfully attempting to evade
or defeat payment of his income tax for the calendar years 1958, 1959,
1960, and 1961 in violation of 26 U. S. C. 7201, entered a plea of not
guilty and waived a jury; and was found guilty by the Court on Count Two
for the year 1959 and Count Four for the year 1961, and acquitted on the
other two counts for the years 1958 and 1960. The appellant did not
testify at the trial. He appeals to this Court under the provisions of
Title 28 United States Code, sections 1291 and 1294.
The
Government proceeded on the net worth theory 1 and
introduced evidence from which the following understatements of income
and tax liability were computed:
1958
Per Return Corrected
Taxable Income .......... $50,472.53 $ 58,962.10
Income Tax Liability .... 20,509.84 25,727.55
1959
Taxable Income .......... 38,522.15 134,477.56
Income Tax Liability .... 13,661.86 79,857.62
1960
Taxable Income .......... 48,188.06 57,501.91
Income Tax Liability .... 18,494.04 23,410.77
1961
Taxable Income .......... 64,126.25 95,299.23
Income Tax Liability .... 28,612.25 49,547.73
Appellant
makes a three-pronged attack upon his conviction. First, he argues that
the trial court improperly treated the increases in net worth as being
from unreported taxable income, when the Government did not (a) prove a
likely source of unreported taxable income, and/or (b) did not negative
all possible nontaxable sources. Second, he contends that the Government
did not make a prima facie case on the issue of wilfulness; and
third, he maintains that the trial court erroneously admitted evidence
which had been obtained from the appellant in violation of his rights
under the Fourth, Fifth, and Sixth Amendments.
After
a careful review of the evidence and authorities, we cannot agree and
therefore affirm.
I.
The evidence was sufficient to support an inference that appellant's net
worth increases were attributable to currently taxable income from a
likely source and were not derived from nontaxable sources. Appellant's
economic history from December 21, 1950, to December 21, 1961, reflected
a proliferation of business interests and a continuous increase in net
worth and expenditures. In 1950 he was an insurance broker and agent
operating a sole proprietorship. In 1951 he commenced an insurance
program for bracero and agricultural laborers, and by 1961 he insured
all but two growers using such labor in the State of
California
. During this expansion he incorporated his insurance business, owned
the controlling stock interest, and served as president. In addition to
his insurance brokerage, he had other ventures: (a) he owned the
majority of stock in the Fuller Commissary Company (later called San
Luis Rey Properties) incorporated in 1956 and operating a farm camp for
farm laborers in San Diego County; (b) appellant's family owned a
majority of stock from 1953 until 1956 when they acquired the total
ownership in Maps, Incorporated, which engaged in the business of
housing and feeding farm laborers at Blythe, California, from 1953 to
1956 when the corporation became inactive until 1959; (c) the entities
described in (a) and (b) formed in 1959 a partnership known as Mission
Acres to purchase unimproved land; (d) appellant was president and owner
of the controlling stock interest of Pan American Underwriters,
Incorporated, which was incorporated in 1955 and engaged exclusively as
an insurance agency handling health and accident insurance for
agricultural laborers; (e) Rancho Armando, a ranch in Imperial Valley,
was incorporated in December 1961 with all its stock owned by Pan
American Underwriters, Incorporated; (f) Pan American Underwriters of
Arizona was a corporation principally owned by appellant to handle
health and accident insurance for agriculture workers in Arizona; (g)
Spa Limited created as a sole proprietorship in 1953 operated as a
lending institution specializing in chattel mortgages and was actively
engaged from its inception until 1961; (h) P. A. F. was a shell
corporation which maintained a commercial checking account from 1957 to
1959 in which appellant deposited his personal funds.
Numerous
substantial investments contributed to appellant's financial ascendency
during the relevant period.
On
September 3, 19
59, appellant purchased an apartment house in
Beverly Hills
with a $60,350.00 deposit in escrow; $40,350.00 from the bank account
maintained by P. A. F., an inactive corporation; and $20,000.00
comprised of four cashier's checks, each in the amount of $5,000.00
purchased on four consecutive days at four different banks with
currency.
In
1960, appellant invested over $40,000.00 in Ellis Middlefield
Associates, a joint venture engaged in land development in northern
California
. In 1961, appellant increased his investment by $25,000.00. This sum of
money was comprised of five cashier's checks for $5,000.00 each,
purchased at five different banks on the same date. The applications
therefor show that four of said cashier's checks were purchased with
currency.
In
December, 1961, appellant paid $35,000.00 for a half interest in a trust
deed on property known as the Kobayshi Ranch,
Westmoreland
,
California
.
Commencing
in 1957, appellant began buying municipal bonds and as of
December 31, 19
61, his investment in municipal bonds totaled $100,589.51.
Corresponding
with appellant's increases in his net worth were his investments in
stocks other than his closely-held businesses. His investments increased
in value from $1,786.60 as of
December 31, 19
50 to $93,775.81 as of
December 31, 19
61. Appellant's funds on deposit started at $3.42 on
December 31, 19
50, and increased to $19,320.31 as of
December 31, 19
61.
Substantially
all the facts concerning appellant's net worth for the relevant years
were established by stipulation. Appellant and the government agreed to
what assets he owned at the end of each year commencing December 31,
1957, and ending December 31, 1961; that the amounts shown for each
asset represented the appellant's actual cost; and that the liability of
$80.56 was actually owed a brokerage house in 1960. The only exception
to the stipulation was that appellant did not agree to the value of the
common and preferred stock other than closely held corporations. 2 The number
of shares and actual cost of these stocks were adequately proved by the
government, which produced evidence from eight separate brokerage firms
and seven transfer agents. In light of the stipulation the trial judge
did not feel it necessary for the government to prove independently the
items agreed as true in the opening net worth statement; however, he
indicated the stipulation did not preclude the appellant from offering
evidence to show that there were additional liabilities or from trying
to establish that there was additional cash or other assets. The
appellant did not offer any evidence in this regard. The Government
commenced its investigation of appellant's financial history on December
31, 1950, and showed his annual increase in net worth and nondeductible
expenditures during the seven year preindictment period.
In
support of its case the Government commenced with appellant's net worth
as of
December 31, 19
50 when he had assets less liabilities worth $24,585.84. By
December 31, 19
57 appellant's net worth had grown to $266,470.58 for an increase of
$241,885.00. During this seven year period, he had expended $393,475.33,
3 and this
amount of cash expended exceeded his total income reported on his income
tax returns by $98,716.62.
During
1958 (the year covered by the first count) his net worth increased from
$266,470.58 to $268,794.47 for $1,823.89 gain. This latter sum added to
his nondeductible expenditures less the nontaxable receipts, exclusions,
and non-cash deductions totaled $62,562.10. 4
During
1959 (the year covered by the second count) appellant's net worth
increased from $268,794.47 to $396,153.45 for an additional amount of
$127,858.97. This latter amount added to appellant's nondeductible
expenditures less nontaxable receipts, exclusions, and non-cash
deductions totaled $138,077.56. After subtracting the six personal
exemptions of $3600.00 to which appellant was entitled, he had a taxable
income of $134,477.56 compared to the $38,522.15 reported in his 1959
tax return.
During
1960 (the year covered by the third count) appellant's net worth
increased $65,627.37 from $396,153.45 to $461,780.82, and when the
nontaxable receipts, exclusions, and non-cash deductions are subtracted
from the total of the net worth increases and the nondeductible
expenditures, the net income for 1960 was $60,501.91. Appellant was
charged by the Government after deducting his five personal exemptions
in the sum of $3000.00 with a taxable income of $57,501.91 as against
$48,188.06 or $9,313.85 less than he reported. The trial Court had
sufficient doubt as to defendant's wilfulness and acquitted on this
court.
During
1961 (the year covered by the fourth count) appellant's net worth grew
from $461,780.82 to $513,955.50 for an increase of $52,177.68. This
amount and his nondeductible expenses less his nontaxable receipts,
exclusions, and non-cash deductions totaled $98,299.29. When the five
personal exemptions are deducted, in sum of $3000.00, he had a taxable
income of $95,299.23 compared to the $64,125.25 which he reported on his
return.
To
recapitulate, the computations show that appellant understated his
income for 1959 $95,955.41 and underpaid his income tax by $66,195.76,
and understated for 1961 his income by $31,172.98 and underpaid his
income tax by $20,935.48.
The
evidence showed that during the years 1958-1961 the appellant had
interests in eight operating businesses and in addition had investments
in real estate, a trust deed, a joint venture, and stocks and bonds. His
account at the Hill Richards brokerage house indicates that $5,500.00 in
currency paid for securities consisted of $100 notes traced from the San
Antonio Federal Reserve Bank through a commercial San Antonio Bank to a
Mexico City Bank. Within a few months of each bank transaction appellant
had in his possession in
Los Angeles
some of these notes that had been delivered to the Mexico City Bank. The
trial court could draw an inference that he had an undisclosed Mexican
source of income.
U. S.
v. Johnson (1943) [43-1 USTC ¶9470] 319
U. S.
503. While no falsity was disclosed in the books of the corporations, he
had no personal books of record except check stubs, some deposit slips,
and a looseleaf book relating to his stock sales and purchases. Of great
significance is that the appellant's currency transactions totaled
$194,725.56 during the indictment years. On one occasion he gave
$41,000.00 in currency in an envelope to a business associate at an
airport to deposit in escrow to acquire land. Thus, the Government did
make a sufficient showing that appellant's disclosed businesses were
capable of producing more income than he had reported and that there
were irregularities in the bookkeeping.
Holland
v.
U. S.
, (1954) [54-2 USTC ¶9714] 348
U. S.
121. From this evidence in the instant case the trier of the facts could
infer a likely source for ". . . it is well established that the
Government need not prove the specific source of proved increases in net
worth in order to demonstrate their tax character as income; it is
sufficient for it to prove a 'likely source from which the jury could
reasonably find that the net worth increase sprang.'" United
States v. Sclafani [59-1 USTC ¶9357], 265 F. 2d 408, 413 (2nd Cir.
1959), cert. denied in 1959, 360
U. S.
918; Whitfield v. United States [67-2 USTC ¶9646], 383 F. 2d 142
(9th Cir. 1967).
The
Government produced considerable evidence to negative gifts and
inheritances as nontaxable sources. Appellant's brothers were shown to
have received loans from appellant, and not have given him any money;
his father died leaving no estate; and an uncle bequeathed him $190.00
in 1950. During the indictment period appellant supported his mother.
From 1940 to 1950, appellant's wife received $20,000.00 in gifts and 50
shares of American Telephone and Telegraph stock and inherited $3,000.00
from an aunt in 1948. The possibility that these gifts and inheritances
of his wife were the nontaxable source was negated by the Government's
proof that from 1950 to 1958, appellant expended over $98,000.00 more
than reported funds available. Further, appellant never maintained that
he saved or accumulated these funds.
Appellant
complains that assets of a trust whose beneficiary is his mother were
included as part of his net worth within the category of common and
preferred stocks other than closely-held corporations. All of such stock
was purchased by appellant with his own funds with the exception of
$499.22. Furthermore, appellant reported capital gains transactions for
trust stock in his 1961 income tax return. Since the appellant used his
personal funds to purchase the stock, the stocks are properly includible
in the Government's net worth computation as either an asset or a
nondeductible expenditure (gift). The effect on his unreported income in
the same.
Appellant
complains about the insufficient investigation into his possible
liabilities as a source of nontaxable proceeds. The Government showed
his indebtedness of $13,474.31 incurred in 1950 for the purchase of a
residence and its payment in full in 1954; a note made payable to GMAC
in the sum of $510.02 in 1951 was liquidated the same year; and 1960 a
liability of $80.54 was liquidated the same year. No leads of loans were
furnished by appellant.
Even
if all possible nontaxable sources were not negated, the Government
would not be required to have done so in light of appellant's
"lead" concerning his large expenditures. During the course of
the investigation appellant sought in response to Internal Revenue
inquiries to furnish an explanation of a nontaxable source of the large
sums of currency which were used in his various financial transactions.
On
June 12, 19
62, a Revenue Agent questioned appellant about the source of some of his
currency expenditures. Particular reference was made to a $40,000.00
currency transaction in which currency was deposited to P. A. F., Inc.,
account at the Security First National Bank and also about four
$5,000.00 cashier's checks which were purchased with currency by
appellant at four different banks on four diffent days. Appellant
explained that he had accumulated currency by withdrawing $500.00 a
month from his commercial account at the main branch of the Bank of
America in
Los Angeles
and putting the money monthly in his safe deposit box. The Government
refuted this explanation by showing that durthe eleven-year period from
January 1, 19
51, through 1961, the appellant made only twelve withdrawals in the sum
of $500.00 for a total of $6000.00. The the Government produced evidence
that appellant's currency expenditures were over $90,000.00 in 1957;
over $20,000.00 in 1958; over $100,000.00 in 1959; over $19,000.00 in
1960; and over $43,000.00 in 1961. The trial court could clearly find
that appellant's explanation of a nontaxable source for large currency
transactions was false.
In
April 1963 appellant again offered an explanation for his expenditures
particularly with reference to the same two currency transactions. The
special agent then conducting the investigation was given a "funds
statement" prepared by appellant's accountant to establish that
appellant's accumulated funds from prior reported earnings constituted a
cash reserve which was the source of the later expenditures. For this
purpose the statement contained itemizations of receipts and
expenditures for the years 1953 through 1957. However, the Government
introduced contradictory evidence from which the trial court could find
that the "fund statement" was likewise untruthful. Whereas
here the taxpayer advances a specific explanation of the sources of
funds expended, the Government need not pursue possible nontaxable
sources when the one given is proved false.
U. S.
v. Holovachka, (7th Cir. 1963), [63-1 USTC ¶9291] 314 F. 2d
345, cert. denied 1963, 374 U. S. 809; Gatling v.
Commissioner, (4th Cir. 1961) [61-1 USTC ¶9198] 286 F. 2d 139; Ferris
v. Commissioner, (2nd Cir. 1963) [63-1 USTC ¶9486] 317 F. 2d 333.
II.
The record in the instant case has ample evidence from which the trier
of fact could infer wilfulness. The buying of four $5,000.00 cashier's
checks at different banks on different days, the furnishing of false
explanations regarding the source of cash reserves to the agents, the
buying of five $5,000.00 cashier's checks at five different banks on the
same day, the irregularities in the keeping of personal books, and the
large volume of currency transactions comprising approximately
$194,725.56 during the indictment period--these circumstances viewed in
light of the entire record are sufficient to uphold the trial court's
finding of wilfulness and intent to evade and defeat the income taxes
due for the years 1959 and 1961.
III.
Finally appellant's statements to the Revenue Agent on
June 12, 19
62 explaining his currency transactions were properly received in
evidence without violation of the Fourth, Fifth, and Sixth Amendments
notwithstanding the Agent's failure to warn him of his right to counsel,
right to remain silent, and of the possibility that anything he said
might be used against him in a criminal proceeding. This issue was
resolved in Kohatsu v. United States [65-2 USTC ¶9715], 351 F.
2d 898 (9th Cir. 1965) cert. denied 384
U. S.
1011, rehearing denied 385
U. S.
891 (1966), followed in Selinger v. Bigler [67-1 USTC ¶9420],
377 F. 2d 542 (9th Cir. 1967). Appellant's trial commenced
December 7, 19
65, well before Miranda requirements became effective
June 13, 19
66. Miranda v.
Arizona
, 348
U. S.
436 (1966); Johnson v.
New Jersey
, 384
U. S.
719 (1966).
Appellant's
attempt to distinguish Kohatsu by his reference to Section 7602
of Title 26 5 United
States Code is without merit; for the Agent was not invoking his powers
to compel appellant to appear, to produce records, or give testimony.
Here appellant and his accountant voluntarily met in his office with the
Revenue Agent.
Nor
does the fact that the Internal Revenue Service had an informant's
letter suggesting appellant's underpayment of federal income taxes
distinguish the instant case. Appellant was not restrained or in custody
at the time. Further the examination was made by a Revenue Agent whose
responsibilities were concerned with civil tax liability. Not until
later was the case referred to a special agent in the intelligence unit
for criminal investigation, and after the reference appellant obtained
counsel who was present at subsequent conferences. Appellant's
specification as error the admission of exhibits obtained by the special
agent from appellant with his counsel's permission is groundless.
Accordingly
we affirm.
1
"The Supreme Court (In Holland v. United States (1954) [54-2
USTC ¶9714] 348 U. S. 121, 99 L. ed. 150, 75 S. Ct. 127, reh den 348 U.
S. 932, 99 L. ed. 731, 75 S. Ct. 334), has described this pattern as
follows: in a typical net worth prosecution, the government, having
concluded that the taxpayer's records are inadequate as a basis for
determining income tax liability, attempts to establish an opening net
worth, that is, the total net value of the taxpayer's assets at the
beginning of a given year. The government then proves increases in the
taxpayer's net worth for each succeeding year during the period under
examination and calculates the difference between the adjusted not value
of the taxpayer's assets at the beginning and end. The taxpayer's
non-deductible expenditures, including living expenses, are added to
these increases, and if the resulting figure for any year is
substantially greater than the taxable income reported by the taxpayer
for that year, the government claims that the excess represents
unreported taxalbe income, asking the jury to infer wilfulness from the
taxpayer's understatement taken in connection with direct evidence of
conduct the likely result of which would be to mislead or to
conceal." ANNOTATION. Use of net worth in prosecution for evasion
of federal income tax. 99 L. ed. 167-168.
2
When the stipulation was first presented at the trial, the appellant
also took exception to the amount of municipal bonds; however, he
subsequently agreed with the government as to this item also.
3
This cash expended for acquisition of assets and income tax for
1951-1957 and personal living expenses for 1953-1957.
4
In 1958 appellant had six personal exemptions totaling $3600.00 which
when deducted from the $62,562.10 resulted in the sum of $58,962.10 as
taxable income. He reported $50,472.53 or $8,489.52 less.
The
trial judge questioned the Government's treatment of a $10,000.00 gift
to a trusted employee as a nondeductible item instead of a deductible
bonus and expressed a reasonable doubt as to this appellant's guilt on
the First Count.
5
§7602. Examination of books and witnesses.
For
the purpose 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 officer or employee of such person, 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, or
any other person the Secretary or his delegate may deem proper, to
appear before the Secretary or his delegate at a time and place named in
the summons and to produce such books, papers, records, or other data,
and to give such testimony, under oath, as may be relevant or material
to such inquiry; and
(3)
To take such testimony of the person concerned, under oath, as may be
relevant or material to such inquiry.
[67-2
USTC ¶9646]Martha G. Whitfield, Appellant v.
United States of America
, Appellee
(CA-9),
U. S. Court of Appeals, 9th Circuit, No. 21,465, 383 F2d 142, 9/11/67,
Affirming an unreported district court decision
[1954 Code Sec. 7201]
Crimes: Tax evasion: Admission of evidence: Right to counsel:
Criminal investigations.--Evidence of information which a taxpayer
had supplied and statements she had made after an Internal Revenue
Service agent warned her of her right against self-incrimination were
admissible at her tax evasion trial even though the agent failed to
notify the taxpayer of her right to have counsel present at the time of
the interview. The warning given satisfied all the requirements which
were thought to exist at that time (1961), and her trial began prior to
the Miranda decision in which the Supreme Court required that an
individual be advised of his right to have counsel present at a criminal
investigation.
[1954 Code Secs. 446 and 7201]
Fraud: Reconstruction of income: Net worth method.--A conviction
for criminal tax evasion involving the reconstruction of a taxpayer's
income through the net worth method was upheld. The taxpayer maintained
inadequate records, destroyed certain business records which might have
either supported or undermined her contention that her business could
not have produced the amounts of unreported income claimed by the
Government, and failed to prove the existence of any cash hoard. The
Government showed a likely source of the claimed unreported income.
Donald
A. Jackson, Kimble, MacMichael & Runner, Suite 904 Guarantee Saving
Bldg.,
Fresno
,
Calif.
, for appellant. William M. Byrne, Jr., U. S. Attorney, Ron Morrow,
Assistant U. S. Attorney, Los Angeles, Calif., John Huland, U. S.
Attorney, Sacramento, Calif., for appellee.
Before
JOHNSEN, * BARNES, and
ELY, Circuit Judges.
[Facts]
ELY,
Circuit Judge:
In
a jury trial, appellant was found guilty of having fraudulently
attempted to evade or defeat the payment of federal income taxes, an
offense proscribed by 26 U. S. C. §7201. She appeals from the judgment
of conviction, invoking the power of review conferred upon us by 28
U. S.
C. §1291.
The
indictment consisted of two counts. The Government undertook to prove
its case by the "net worth" method. It contends that the proof
established that the appellant's taxable income was $32,253.77 in 1958
and $13,373.49 in 1959. In her tax returns, appellant had reported that
there was no taxable income in 1958 and that there was only $5,115.02 in
taxable income for the year 1959.
The
taxing authorities had been informed of the possibility that appellant
had not been forthright in meeting her tax responsibilities to the
United States, whereupon, on
February 10, 19
61, appellant was interviewed by an agent of the Internal Revenue
Service. The interviewing agent displayed his credentials and advised
appellant, in part, as follows:
".
. . according to the federal laws of these United States, 'you cannot be
required to furnish any information that may incriminate you in any way'
. . . 'It is my duty to warn you that in the event that any action is
taken against you in a Federal Court that any information or documents
you furnish can be [used] against you in any such proceedings' . . .
[You can] refuse to answer any or all . . . questions. . . ."
[Right
to Counsel]
The
Government admits that its agent did not advise appellant of her right
to have counsel in attendance during the interrogation. The district
judge admitted evidence of information which appellant had supplied and
statements which she made to the agent following the admonition. She now
contends that this evidence was inadmissible because of the agent's
failure to communicate advice pertaining to the right to counsel and
that her motion to suppress it should have been granted. She challenges
the soundness of our decision in Kohatsu v. United States [65-2
USTC ¶9715], 351 F. 2d 898 (9th Cir. 1965), cert. denied, 384
U. S.
1011, rehearing denied, 385
U. S.
891 (1966), followed in Selinger v. Bigler [67-1 USTC ¶9420],
377 F. 2d 542 (9th Cir. 1967). While our opinion in Kohatsu has
been criticized (see United States v. Turzynski [67-2 USTC ¶9489],
268 F. Supp. 847 (1967)), we do not here find it necessary to reexamine
it. The advice, including a warning which the agent communicated to the
appellant, most assuredly met with all requirements which, in 1961, were
thought to exist. While it did not completely and precisely measure up
to that required by Miranda v. Arizona, 384 U. S. 436, 16 L. Ed.
2d 694, 86 Sup.
Ct.
1602 (1966), its only deficiency, failure to include information as to
the right of counsel, affords appellant no valid basis for relief. Her
trial commenced on
October 26, 19
65, before the absent warning became required by the opinion issued in Miranda
on
June 13, 19
66. In the light of this sequence of events, appellant's contention is
foreclosed by Johnson v.
New Jersey
, 384
U. S.
719, 16 L. Ed. 2d 882, 86 Sup.
Ct.
1772, rehearing denied, 385
U. S.
890 (1966).
Appellant's
principal argument is related to her contention that the Government's
evidence was insufficient to support conviction. We have reviewed the
record, as we are obliged to do in "net worth" cases,
"bearing constantly in mind the difficulities that arise when
circumstantial evidence as to guilt is the chief weapon of a method that
is itself only an approximation." Holland v. United States
[54-2 USTC ¶9714], 348
U. S.
121, 129, 99 L. Ed. 150, 75 Sup.
Ct.
127 (1954). The appellant urges that, under
Holland
, the Government was required to prove, with certainty, that all
income which it claimed was unreported was derived from a certain
source. Appellant and her deceased husband were the owners of a 14-unit
motel to which was added eight units in 1951 or 1952 and a swimming pool
and cocktail lounge in 1958 and 1959. This facility was the source from
which the Government claimed it likely that the alleged unreported
income was earned. If, as contended by appellant, the prosecution was
compelled to relate all the unreported income precisely to the motel
operation, the employment of the "net worth" method of proof
would have been unnecessary. In
Holland
, the Supreme Court remarked, "Also requisite to the use of
the net worth method is evidence supporting the nference that the
defendant's net worth increases are attributable to currently taxable
income." 348
U. S.
at 137. (Emphasis supplied.) It added, "But proof of a likely
source, from which the jury could reasonably find that the net
worth increases sprang, is sufficient." 348
U. S.
at 138. (Emphasis supplied.) 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. 1 Her
credibility was accounts shaken. The records of her bank accounts were
irreconcilable and, after her first interview with the revenue agent,
she destroyed motel reservation cards which might have either supported
or undermined her contention that her business enterprise could not have
produced the amounts of unreported income claimed by the Government to
have been earned in 1958 and 1959. 2 In the
beginning, the appellant told the investigating agent that there had
been no large amounts of cash on her premises during the period from
1948 through 1955 and that, if there had been any cash whatsoever on
hand during that period, the amount would have been no more than
nominal. She stated that her only inheritance was from her husband, and
she expressed her opinion that it was "unsafe" to keep large
amounts of cash on hand. Afterward, when she knew that the investigation
was underway and had consulted with her accountant, she first revealed
her contention as to the existence of a cash hoard, stated that her
deceased father had made large monetary gifts to her during his
lifetime, and remarked that her husband had been distrustful of banks.
In refutation, the Government offered proof that appellant's father had
been supported by his county's relief fund throughout the period from
1946 to 1958, that he had no assets in those years beyond $125, and
that, in a 1947 application for welfare benefits, he had represented
that his income was $60 per month. 3 Moreover,
the Government proved that appellant visited her bank two or three times
each week, exchanged small checks and currency of small denominations
for $20, $50, and $100 bills, and seldom made a bank deposit. A bank
teller testified that the appellant, as she made these exchanges,
departed from the bank each week with between $900 and $1500 in bills of
the larger denominations. Opposing appellant's representation that her
deceased husband had distrusted banks, the Government presented bank
statements revealing that he did in fact maintain bank accounts during
his lifetime and that the deposited amount in one of his savings
accounts had reached $10,000.
We
think we have reviewed so much of the evidence as is necessary to
demonstrate that the jury was entirely justified in rejecting the
factual defense which was presented. In a case such as this, wherein the
prosecution proceeds under the "net worth" method of proof,
the district judge is also required to scrutinize the evidence with the
utmost care. In submitting the case to the jury and in fixing
punishment, he was apparently convinced, as we are convinced, that the
appellant undertook to cheat her Government and that the jury
ascertained the truth.
Affirmed.
*
Senior Judge,
United States
Court of Appeals for the Eighth Circuit, sitting by designation.
1
The appellant conceded that the Government's computations of her net
worth were accurate, although she, of course, disputed the Government's
opening figure of cash on hand.
2
Several witnesses testified as to their observations relating to the
extent of the motel's occupancy during certain periods of the years in
question. One such witness, offered by appellant, had been a guest at
the motel on one occasion during 1958 and on two occasions in 1959. His
observation of the presence of from three to ten automobiles on these
rare occasions, while material, does not, in our view, significantly
enlighten the whole picture. Neither does similar testimony presented by
the Government.
3
In 1958 the appellant had made a statement that she was unemployed and
unable to assist her father in securing nursing care. She had also
represented that she was unable to contribute toward her mother's
support because she had no income with which to do so. In view of her
representation that her father had given her large amounts of money,
appellant is in no position to contend that this damaging evidence was
uninvited, and she has not done so.