Bank Records and Net Worth Increases
5 Page1
7203: Willful
Failure to File Return, Supply Information, or Pay Tax: Evidence: Bank
Records and Net Worth Increases
Part 5
[56-2
USTC ¶9804]The
United States of America
, Plaintiff-Appellee v. Sam Achilli, Defendant-Appellant
(CA-7),
U. S. Court of Appeals, 7th Circuit, No. 11575, 234 F2d 797, 7/31/56,
Denying rehearing of CA-7 opinion, 56-2 USTC ¶9638, 1956 CCH ¶9638
[1939 Code Secs. 41 and 145(b)--similar to 1954 Code Secs. 446(b) and
7201 respectively]
Criminal prosecution for tax evasion: New issue raised on appeal:
Felony v. misdemeanor under overlapping laws.--Taxpayer was
convicted on three counts of an indictment charging attempts to evade
the payment of income taxes for the taxable years 1946, 1947 and 1948 by
filing, or causing to be filed, false and fraudulent income tax returns
in violation of 1939 Code Sec. 145(b). He was sentenced on each count to
serve two years in prison, the sentences to run concurrently. On appeal,
the court reversed the conviction as to Count I and affirmed as to
Counts II and III. Taxpayer could not raise the question for the first
time that the charge alleging the felony defined in 1939 Code Sec.
145(b) contained the identical elements of the misdemeanor defined in
1939 Code Sec. 3616(a), and, hence, it was error for the trial court to
impose a sentence greater than that prescribed for the misdemeanor. The
overlapping of the two statutes was not a question of plain error
affecting substantial rights, and rehearing was denied.
Rob
ert Tieken, United States Attorney, John
Peter Lulinski, Anna R. Lavin, Leon Kupeck, Chicago, Ill., H. Brian
Holland, Joseph M. Howard, Washington, D. C., for plaintiff-appellee.
Carl J. Batter, Washington, D. C., Frank J. Gagen, 29 So. LaSalle,
Chicago
,
Ill.
, for defendant-appellant.
Before
MAJOR, LINDLEY and SWAIM, Circuit Judges.
LINDLEY,
Circuit Judge:
Upon
defendant's conviction on three counts of an indictment charging
attempts to evade the payment of income taxes for the taxable years
1946, 1947 and 1948 by filing, or causing to be filed, false and
fraudulent income tax returns in violation of 26 U. S. C. §145(b), (I.
R. C. 1939), he was sentenced, on each count, to serve two years in
prison, the sentences to run concurrently.
On
appeal, we reversed the conviction as to Count I and affirmed as to
Counts II and III. Defendant's petition for a rehearing is based, inter
alia, upon arguments addressed to the sufficiency of the evidence to
prove his guilt upon the net worth theory of proof. We think nothing is
added thereby to the points raised and argued on appeal. We adhere to
our judgment [56-2 USTC ¶9638] affirming the conviction as to the two
counts.
[Felony
v. Misdemeanor Under Overlapping Laws]
A
rather troublesome question raised by the petition is one upon which
defendant did not rely either in the trial court or before us on appeal,
namely, that the sentence is invalid. As we have previously stated, the
indictment charged three separate attempts to evade income taxes by
filing false and fraudulent returns, a charge which has been repeatedly
held to allege the felony defined in Section 145(b). 1 See e.g.
United States v. Beacon Brass Co., 344
U. S.
43 [52-2 USTC ¶9528]; United States v. Raub, 177 Fed. (2d) 312
(CA-7) [49-2 USTC ¶9422]; United States v. Rosenblum, 176 Fed.
(2d) 321 [49-1 USTC ¶9314], cert. denied 338
U. S.
893 (CA-7). Defendant now contends, for the first time, that the charge
contains the elements of the misdemeanor defined in 26 U. S. C. §3616(a),
(I. R. C. 1939), 2 that those
elements and those of the felony are in all respects identical and that,
therefore, it was error for the trial court to impose a sentence greater
than that prescribed for the misdemenor by §3616(a).
The
government admits that both §145(b) and §3616(a) apply to income tax
returns and cover identical ground. It contends, however, that the
government has the authority to elect under which statute it will
proceed, or, alternatively, that the subsequent enactment, §145(b),
repeals §3616(a) by implication.
Before
reaching the merits of defendant's petition, we must determine whether
the question can properly be raised at this late date. We think that it
cannot. We say this advisedly, and do not purport to determine whether,
were the question an open one, we would construe the conceded
overlapping of the two statutes as a question of plain error
"affecting substantial rights" and therefore noticeable
"although * * * not brought to the attention of the trial
court." Fed. Rules Crim. Proc. 52(b). We think that a determination
that the question does not present such error is manifest in the recent
pronouncements by the Supreme Court in Berra v. United States,
351 U. S. 131 [56-1 USTC ¶9480], which, at least, imply that the
validity of a sentence under §145(b) must be challenged by an
appropriate proceeding in the trial court.
[Question
Raised for First Time on Appeal]
The
indictment in Berra was in all material respects identical to
that before us. At the close of all the evidence Berra requested an
instruction "that a verdict of guilty of the 'lesser crime' under
§3616(a) would be permissible." 351
U. S.
at 132. Although the Court's decision affirming Berra's sentence is
restricted to the narrow question whether that requested instruction was
properly refused, the Court concluding that the refusal did not
constitute error, the intendments of the opinion are much broader. The
Court assumed, arguendo, that both §145(b) and §3616(a) applied
and "covered the same ground." 351
U. S.
at 134. It held, however, that the implication of such overlapping was a
question of law for the court which had not been raised in the trial
court and that "no such questions are presented here." 351
U. S.
at 135 [56-1 USTC ¶9480].
Mr.
Justice Black filed a dissenting opinion, in which Mr. Justice Douglas
joined, stating that he would reverse the judgment, or at least remand
the case to the district court "for resentencing under the
misdemeanor statute, §3616(a)." 351
U. S.
at 140. The dissent is based upon the postulate that the case presented
an issue of plain error effecting substantial rights.
We
can only conclude that the majority opinion in Berra inherently
impels a determination that the question before us does not reflect
plain error. Rule 52(b) was designed to reach errors of such a
substantial nature that they would, if not corrected, result in a
manifest miscarriage of justice. Brotherhood of Carpenters v.
United States
, 330
U. S.
395;
United States
v. Vasen, 222 Fed. (2d) 3, cart. denied 350
U. S.
834 (CA-7). Inasmuch as errors within the comprehension of the
provisions of this rule are those of such a nature that they must be
corrected to prevent a manifest injustice, it is incumbent upon a
reviewing court to notice such error sua sponte although the
issue presented is not raised on appeal. Screws v.
United States
, 325
U. S.
91, 107; United States v. Dressler, 112 Fed. (2d) 972 (CA-7); Lash
v.
United States
, 221 Fed. (2d) 237 [55-1 USTC ¶9344], cert. denied 350
U. S.
826 (CA-1); Austin v. United States, 208 Fed. (2d) 420 (CA-5); Simmons
United States v. Kemble, 197 Fed. v.
United States
, 206 Fed. (2d) 427 (CA-DC); Jonikas, 187 Fed. (2d) 240, cert.
denied 344
U. S.
877 (CA-7).
In
the face of this pronounced duty upon federal appellate courts, see Screws
v. United States, supra, the Court in Berra took the position
that the issue of the implication of the overlapping of §§ 145(b) and
3616(a) was not preserved because Berra had presented no proper
challenge to the sentence to the trial court. As the dissenting Justices
aptly observed, 351
U. S.
at 137 [56-1 USTC ¶9480], the instruction which Berra requested advised
the lower court of "petitioner's contention that the offense
charged was not a felony but a misdemeanor." If the question was
not preserved for review under the circumstances of that case, it
certainly cannot be raised on this appeal in which there was no
intimation of error below in the imposition of sentence or on appeal
until the petition for rehearing was filed.
The
petition is denied.
1
"(b) * * *. Any person * * * who willfully attempts in any manner
to evade or defeat any tax imposed by this chapter or the payment
thereof, shall, in addition to other penalties provided by law, be
guilty of a felony and, upon conviction thereof, be fined not more than
$10,000, or imprisoned for not more than five years, or both, together
with the costs of prosecution."
2
"Whenever any person
"(a)
FALSE RETURNS. Delivers or discloses to the collector * * * any false or
fraudulent list, return, * * *, with intent to defeat or evade the * * *
assessment to be made;
*
* *
"He
shall be fined not exceeding $1,000, or be imprisoned not exceeding one
year, or both, at the discretion of the court, with costs of
prosecution."
[56-2
USTC ¶9638]
United States of America
, Plaintiff-Appellee v. Sam Achilli, Defendant-Appellant
(CA-7),
U. S. Court of Appeals, 7th Circuit, No. 11575, October Term 1955, April
Session 1956, 234 F2d 797, 6/5/56, Reversing in part, affirming in part,
unreported Dist. Ct
[1939 Code Secs. 41 and 145(b)--similar to 1954 Code Secs. 446 and 7201]
Tax evasion: Evidence of increase in net worth: Prejudicial conduct
of counsel.--In a prosecution for fraud Government counsel's
overzealous advocacy of his cause could not be classified as misconduct
requiring reversal of the conviction. Use of the net worth method of
reconstructing income was competent to establish tax evasion, without
determination by the Commissioner that use of such method clearly
reflected income. Evidence obtained from books of a partnership of which
the defendant was a member was not illegally seized, where the defendant
consented to examination of the books by an individual who did not
disclose that he was a Special Agent. The trial court did not err in
refusing to admit the defendant's proffered evidence that some of his
income consisted of funds embezzled from the partnership, since under
applicable state law a partner could not be guilty of the crime of
embezzlement because of his wrongful conversion of partnership funds.
Moreover, even if there had been an embezzlement, the Government had
allowed one-half of the partnership income as a deduction from net worth
and the defendant could not contend that he had embezzled his own
distributive share. Conceded error in the opening net worth statement
for one year resulted in reversal of the conviction of tax evasion for
that year.
Rob
ert Tieken, United States Attorney, John
Peter Lulinski, Anna R. Lavin, Leon Kupeck, Chicago, Ill., H. Brian
Holland, Assistant Attorney General, Joseph M. Howard, Washington, D.
C., for plaintiff-appellee. Carl J. Batter, Washington, D. C., Frank J.
Gagen, 29 South La Salle St., Chicago, Ill., for defendant-appellant.
Before
MAJOR, LINDLEY and SWAIM, Circuit Judges.
LINDLEY,
Circuit Judge:
Defendant
appeals from a judgment entered on a jury verdict finding him guilty on
three counts of an indictment charging willful evasion of income taxes
for the taxable years 1946, 1947 and 1948, in violation of Section
145(b) of the Internal Revenue Code of 1939, 26 U. S. C.
The
Government employed what is commonly referred to as the net worth method
of establishing deficiencies, proceeding on the theory that increases in
the taxpayer's net worth over that at the beginning of the taxable year,
plus nondeductible expenditures, constituted income to the taxpayer
during that period unless satisfactorily explained. Employing this
procedure the Government calculated the amount of defendant's net
taxable unreported income during the indictment periods at $13,803.94 in
1946, $36,958.63 in 1947 and $20,623.18 in 1948. It offered evidence
tending to prove that the income was derived from over-ceiling charges
for automobiles sold by a co-partnership composed of defendant and one
Gromer, doing business under the name and style of Highland Motor Sales,
and Barney's Snooker Hall, owned by defendant until the latter part of
1946, and in interest on loans to various persons.
With
respect to the operation of
Highland
, on the evidence the jury was justified in finding the following
pertinent facts. During the three years, defendant, or his agents, made
sales of automobiles at premium prices of about $600 per car above the
OPA maximum price. The ceiling price of each car was entered upon the
partnership books, and only this amount was reflected in the partnership
returns. The black market premium was not recorded or reported. These
premium sales seem to have been concealed from defendant's co-partner,
Gromer; they were not reported in his individual income tax returns.
[Prejudicial
Conduct of Counsel]
Defendant
complains of some 19 remarks of counsel excerpted from the record,
contending that misconduct of the United States Attorney requires a
reversal of the judgment. The first was made during the course of
reception of government testimony. Defendant's attorney objected to the
use of certain records in the examination of a Government witness,
asserting that they were admittedly false. The Government's attorney
remarked, "And we are going to show they are false because you made
them false." On objection, this remark was stricken.
The
other 18 instances occurred during the course of final argument to the
jury. Of these, objection was made to only two. "Counsel for the
defense cannot as a rule remain silent, interpose no objections and
after a verdict has been returned seize for the first time on the point
that the comments to the jury were improper and prejudicial."
United States
v. Socony Vacuum Oil Co., 310
U. S.
150, 238. That principle must govern the sixteen asserted instances of
misconduct, unless the remaining contentions disclose misconduct of a
flagrant nature resulting in a pattern of prejudicial impropriety. We
think no such pattern is shown.
We
do not condone the prosecutor's unqualified statement that all defense
witnesses were unwilling witnesses, responding only to subpoena.
However, defendant's objection to the remark was sustained and the
remark was stricken. And in addition to such curative action, the court
instructed the jury that oral summation was no part of the evidence and
was not to be considered in arriving at a verdict.
The
second remark to which objection was taken related to the terms of a
purchase contract. The Government introduced evidence showing that
defendant had bought the entire interest of one Turpin, including the
realty, equipment and stock of goods in the Red Lion, a local restaurant
and bar, in 1945. In his closing argument the United States Attorney, in
summing up defendant's beginning net worth, referred to this transaction
as including a transfer of the capital stock of Red Lion, Incorporated,
when, in fact, the agreement between Turpin and defendant included no
reference to capital stock. Defendant's objection to this statement was
overruled.
Although
counsel's reference to the capital stock was unwarranted, it was an
invited response to defense counsel's assertion and argument to the jury
that the value of the corporate stock had been omitted from defendant's
opening net worth statement. The record discloses the existence of a
corporation known as Red Lion, Inc., of which defendant was an officer,
and shows that the board of directors, in February, 1948, authorized and
directed the officers of the corporation to enter into a lease with
defendant of the premises on which Red Lion was located. We are directed
to nothing of record which indicates when or by whom Red Lion, Inc., was
incorporated, or who owned its corporate stock.
The
Red Lion transactions are silent in this respect. Defendant's purchase
agreement of the property recited that the seller, Turpin, agreed to
convey the real estate, fixtures and stocks of liquors and goods to
defendant in consideration of $18,400. In 1948, defendant transferred to
one Fritzel an undivided 1/2 interest in all the chattels, fixtures,
liquor and licenses. An attached schedule showed that the value of the
stock of merchandise was $10,796.71 and that the sale price of 1/2
thereof was $5,398.30. Neither transaction alluded to corporate
ownership of any of the property and each item was fully reflected in
the Government's net worth computation.
Upon
the capital gains schedule of defendant's 1948 tax return, notations as
follows were entered with respect to an item listed as "Sales of
stock in Red Lion": acquired 1945, at a cost basis of $4,673.18;
sold 1948 at a sales price of $5,894.85. In cross-examination of
Government's witness Weber, defense counsel interpolated
"capital" into this entry immediately preceding the word
"stock", and questioned him as to where the value of the
"capital stock" was reflected upon the Government's
computation of net worth at the beginning of the taxable periods.
Counsel took the same approach in his summation to the jury, arguing
that the cost base of this item, $4,673.18, should be set up as an asset
omitted from the opening net worth computation. The context of the
United States Attorney's argument shows conclusively that his reference
to the value of the corporate stock as included in the $18,400 purchase
price paid to Turpin was in response to the argument by defense counsel.
Each
party was arguing for an inference not supported by the record. The
accountant who prepared the 1948 return testified that the capital gains
entries thereon were based upon the transaction between defendant and
Fritzel. The word "stock" in that entry, therefore, takes its
meaning from the contract of the parties to the transaction which, in
this respect, purports to convey only a stock of merchandise in
inventory. If counsel for the Government went outside the record in the
respect noted, the excursion was in response to an opposing venture de
hors the record by the defense. The error, in overruling the
objection was inconsequential, especially in view of the instructions to
which allusion has previously been made that oral summation is no part
of the evidence.
Government
counsel may, at times, have been an overzealous advocate. In most of
these instances, his remarks went in without objection, as we have
noted. When his argument to the jury is considered as a whole, we think
that the excerpts extracted from context for our attention present for
the most part nothing more than zealous advocacy, see Di Carlo v.
United States, 6 Fed. (2d) 364, cert. denied 268
U. S.
706 (CA-2), and, in any event, that they can not be classified as
misconduct requiring reversal. As we said in United States v. Doyle,
No. 11528, decided
May 23, 19
56 [56-1 USTC ¶9553], quoting from Malone v. United States, 94
Fed. (2d) 281, 288 [38-1 USTC ¶9032], cert. denied 304 U. S. 562
(CA-7): "Counsel have a right to make any argument based upon
evidence proven in the case, or which may be reasonably inferred
therefrom, and to make reply to that made by opposing counsel, and, in
doing so, statements may be made which otherwise would be improper.
Defendant's trial counsel evidently did not regard the argument as
vicious or unfair as objection was made to one statement only * *
*." We think the situation wholly unlike the instances of
misconduct appearing in the cases relied upon by defendant. Berger v.
United States, 295 U. S. 78; N. Y. Central R. Co. v. Johnson,
279 U. S. 310; Pierce v. United States, 86 Fed. (2d) 949 (CA-6); Volkmor
v.
United States
, 13 Fed. (2d) 594 (CA-6).
[Net
Worth Method of Reconstructing Income]
Defendant's
contention that the net worth evidence was incompetent and inadmissible
misconceives the purpose of the provisions of Section 41 of the Internal
Revenue Code of 1939, 26 U. S. C. (1952) §41. He insists that, before
the net worth method may be employed in any income tax case, Section 41
requires a determination by the Commissioner of Internal Revenue that
use of that method "does clearly reflect the income" of the
accused taxpayer; that the Commissioner did determine defendant's income
for the indictment years by adjustments to the income reported, and that
therefore, the net worth method of proof may not be employed in this
prosecution, absent proof that the Commissioner has made the alleged
requisite determination.
We
think it clear that Section 41 has the limited purpose of insuring that,
in an
admin
istrative deficiency assessment, the taxpayer's accounting method shall
be employed by the Commissioner in the allocation of income and expense
items between taxable years. Holland v. United States, 348
U. S.
121, 131 [54-2 USTC ¶9714]. But that section can have no application in
a criminal proceeding which is not based and does not depend upon an
admin
istrative determination. Therefore, the cases dealing with the validity
of
admin
istrative orders upon which defendant relies are inapposite. See e.g., Morgan
v. United States, 298
U. S.
468; Brown v. Helvering, 291
U. S.
193 [4 USTC ¶1223]; Lucas v. American Code Co., 280
U. S.
445 [2 USTC ¶483]; Willapoint Oysters, Inc., v.
Ewing
, 174 Fed. (2d) 676, cert. denied 338
U. S.
860 (CA-9); Southern Garment Mfg. Assn. v. Fleming, 122 Fed. (2d)
622 (CA-DC).
These
cases obviously have no application to this proceeding, based upon three
counts of an indictment returned by a grand jury. It is wholly
immaterial that the indictment was preceded by an
admin
istrative tax deficiency determination against defendant. Such
proceeding was a civil matter, the validity of which must be determined
civilly. Here the Government had the burden of proving the charges made
in the indictment beyond a reasonable doubt, and, for this purpose, as
in any other criminal prosecution, the admissibility of tendered
evidence was to be determined by established rules of evidence. The
question of admissibility is not affected by the fact, nature, or
validity of a prior
admin
istrative determination touching the same subject matter.
The
contention now made is not unlike that urged in Holland v. United
States, 348 U. S. 121 [54-2 USTC ¶9714], that Section 41 restricts
the Government's use of the net worth method of proof in criminal
prosecutions to those cases where it is shown that the taxpayer has no
books or that his books are inadequate, a contention rejected in this
language at page 132: "To protect the revenue from those who do not
'render true accounts' the Government must be free to use all legal
evidence available to it in determining whether the story told by the
taxpayer's books accurately reflects his financial history." The
legality of the net worth evidence is not affected by what the
Commissioner has, or has not, done in a civil matter. To read such a
restriction into Section 41 would thwart the intent of Congress.
"The existence of unreported income may be proved by any practical
method available in the circumstances of the particular case."
United States
v. Doyle, No. 11528, decided
May 23, 19
56 (CA-7) [56-1 USTC ¶9553]; Davis v. United States, 226 Fed.
(2d) 331, 336, cert. denied 350
U. S.
965 (CA-6) [55-2 USTC ¶9685].
Defendant
argues also that the net worth method, as here employed, lacked
probative value and should not have been presented to the jury.
Government exhibit 280, the summary of the relevant net worth
computations, showed an understatement of income for each of the taxable
years as follows: for 1946, $13,803.94, for 1947, $36,958.63, and for
1948, $20,623.18. The probative value of this evidence is attacked,
defendant asserting that certain specific assets were omitted by the
Government in computing defendant's opening net worth and that other
specific items were improperly included as assets in the net worth
computation for the year 1948. To the extent that these contentions
represent merely a suggestion that we weigh conflicting testimony, they
fall within the postulate stated in United States v. Winston, 222
Fed. (2d) 323, 325 (CA-7), that "we must consider the evidence in
the light most favorable to the Government and in the light of all
reasonable inferences which the [jury] might draw from the
evidence."
United States
v. Iacullo, 226 Fed. (2d) 788, 795, cert. denied 350
U. S.
966 (CA-7); United States v. Yager, 220 Fed. (2d) 795, cert.
denied 349
U. S.
963 (CA-7). We can only conclude that the evidence supports the verdict;
that we cannot say that the challenged evidence, as a matter of law,
lacked probative weight sufficient to take the case to the jury.
The
Government concedes the merit of defendant's contention that the value
of a brick residence, which was sold by defendant in 1946, was
erroneously omitted from the opening net worth computation. The capital
gains schedule of defendant's tax return for the latter year states that
that property was acquired by defendant in 1945 at a cost basis of
$11,000. Since this is the only evidence of record with respect to the
time when defendant acquired this property, the sum should, as the
Government concedes, have been included as an asset in the computation
of defendant's net worth as of
December 31, 19
45. This omission, however, affects only Count I. Since the total
unreported income for the year 1946 by the computation most favorable to
the Government is an amount of approximately $13,800, only, we feel that
this omission must have resulted in serious prejudice to defendant as to
the charges of Count I. When employing the net worth method, the
Government must prove, beyond a reasonable doubt, "that a
substantial amount of tax liability has been willfully evaded." United
States v. Doyle, 11528, decided
May 23, 19
56 (CA-7) [56-1 USTC ¶9553]; Sasser v. United States, 208 Fed.
(2d) 535 (CA-5) [54-1 USTC ¶9118]. The result of this omission was to
interject into the proof as to Count I an erroneous figure which would
reduce the evidence tending to prove "a substantial" evasion
of tax liability to that which would support a maximum finding of
willful evasion in an amount only slightly exceeding $2,800. The error
accounts for almost 80% of the deficit shown by the Government's
computation. We can only speculate as to whether the jury would have
found a substantial evasion for that year. We think an error of this
magnitude in a computative total of less than $14,000 necessarily
prejudiced defendant. The judgment as to Count I is reversed.
The
last mentioned item was fully reflected in the net worth computations
going to the proof of the charges of Counts II and III; consequently, we
think the other contentions of error in this respect are without merit.
Defendant
asserts that certain oil well investment in the amount of $5,000, and
the value of the capital stock of Red Lion, Inc., in the amount of
$4,673.18 were erroneously omitted from the opening net worth
computation. What we have said with respect to the Red Lion stock in
reviewing the contention as to misconduct of Government counsel disposes
of this item. The entries upon defendant's 1946 tax return which are
said to support the assertion that defendant acquired "Capital
stock" in 1945 were an obvious reference to a stock of goods in
inventory. The record is silent as to the existence or ownership of Red
Lion corporate shares. With respect to the oil well investments, the
evidence is in conflict. The record contains positive testimony that
defendant acquired these assets in 1947, and the jury could have
resolved this question against defendant. The review of conflicting
evidence is beyond the scope of our function.
[Items
Included as Assets]
Defendant
also objects to items included as assets in the closing net worth which
allegedly were liabilities. There is, however, conflicting testimony
with respect to each of them. We might well conclude our review on this
note, but we think it wise to refer briefly to the evidence as to these
transactions.
The
first is a $12,000 item which grew out of a $35,000 cashier's check held
by defendant at the end of the taxable year 1948. This check, issued by
the Union National Bank and Trust Company of
Elgin
, was payable to defendant, his wife and one Gordon. The named persons
signed a promissory note payable to
Union
in the amount of $23,000. In computing defendant's net worth at the
close of 1948 the $35,000 check was included as an asset and the $23,000
note as a liability. Defendant contends that this computation does not
reflect a related transaction in which defendant borrowed the $12,000
representing the difference between the Union note and the check from
the First National Bank. The record includes positive testimony that
Union
issued the check on consideration of the $23,000 loan and $12,000 cash
paid by defendant. Gordon testified that he supplied none of the funds
for the purchase of the check and that the latter was used to relieve
the obligation of the note. One witness testified that First National
was a participant in this transaction to the extent of $12,000. The
record clearly shows that
Union
recorded the transaction as a $23,000 obligation. Gordon testified that
he had not executed a note in favor of First National, and no record of
such a transaction was produced.
There
was also a conflict of testimony with respect to a $7,500 transaction
between defendant and one Affeld and another in which Gromer purchased a
$15,000 cashier's check payable to defendant, which the latter endorsed
and delivered to Gordon as a loan. Both transactions occurred in 1948.
With respect to the Affeld transaction, there was a dispute as to
whether the $7,500 represented a loan actually made or whether it was a
mere commitment to pay on Affeld's account sums to the extent of $7,500
upon proper demand. This figure was set up as a closing net worth asset
without a corresponding liability. With respect to the $15,000 check
Gromer testified that he purchased it for defendant and delivered it to
him. Defendant insists that there is no evidence that the check was
purchased with defendant's funds. We have examined the record and
believe there was sufficient evidence to submit to the jury upon each of
these matters. There was substantial evidence which, if believed,
supported the requisite finding that defendant willfully understated his
income by substantial amounts in both 1947 and 1948, and that black
market receipts received by him in the sale of automobiles were the
likely source of his enhanced net worth.
[Evidence
Illegally Seized]
Defendant
insists further that the evidence obtained from the partnership books of
Highland Motor Sales should have been excluded from evidence as
illegally seized in violation of the Fourth Amendment. When the
investigation began, Special Agent Weber and Revenue Agent Auld
presented themselves at the office of
Highland
where they met defendant and asked that they be permitted to examine the
partnership books. Defendant does not deny that he consented to their
examination of the books, but argues that the evidence obtained should
have been suppressed because Weber did not reveal that he was a Special
Agent or disclose the purpose of the investigation. In this respect,
Weber testified that when he met defendant at Highland, he identified
himself as a Special Agent, displayed his credentials and asked to
examine the books of the partnership; that defendant consented to the
examination and directed his bookkeeper to supply any books and records
which the agents wanted, and, that, thereafter, he sought and received
the consent of defendant's co-partner that he might examine the books.
This
argument is not essentially different from that advanced in Turner v.
United States, 222 Fed. (2d) 926 [55-1 USTC ¶9489], cert. denied
350 U. S. 831 (CA-4), wherein defendants contended that evidence
obtained from their books and records should have been suppressed,
despite their consent to an examination of the books, for the reason
that the investigating agents had not warned them that the evidence
might be used in a criminal prosecution. The court there aptly stated,
222 Fed. (2d) at 931: "The agents made no investigation to which
defendants did not consent. The bookkeeper was ordered by the defendants
to show the books and records of the business to the agent; * * *. The
evidence is silent as to whether Agent Forbes began the investigation as
a routine examination to ascertain the civil liability of the defendants
or intended from the beginning to search for evidence of crime. But even
if the latter assumption be made, there was no violation of the
taxpayer's constitutional rights. The relevant inquiry is always whether
the taxpayer freely gives his consent, and as to that there is no
dispute in this instance." This principle is cited with approval in
Zacher v. United States, 227 Fed. (2d) 219 [55-2 USTC ¶9745],
cert. denied 350
U. S.
993 (CA-8), and Eggleton v. United States, 227 Fed. (2d) 493
(CA-6) [56-1 USTC ¶9108], both evasion cases.
We
note briefly defendant's charge that the trial court erred in denying,
without a hearing, his motion to suppress this evidence, which was made
prior to trial and supported by defendant's affidavit. We think,
however, the duty of a trial court to afford a hearing upon such a
motion is limited by the prayer of the motion. In this respect,
defendant, in his affidavit, did not deny, but rather, at least tacitly,
admitted that he consented to examination of the books, but says he did
not know of Weber's official title of Special Agent. The only hearing
requested was the production of manuals prescribing the duties of
special agents. There was no showing to warrant the granting of a
hearing, inasmuch as there was no offer to prove that the evidence was
submitted to the agents other than with defendant's consent. Cf. Smith
v.
United States
, 348
U. S.
147, 151.
The
case is unlike United States v. Wolrich, 129 Fed. Supp. 528, in
which there was evidence that the treasury agents secured defendant's
consent upon the assurance that the investigation was merely routine,
when in fact, they were seeking evidence of fraud for a criminal
prosecution. There is no suggestion of deception such as the court
condemned in Gouled v. United States, 255
U. S.
298. There is no suggestion of lack of consent as appeared in Fitter
v. United States, 258 Fed. 567 (CA-2), and
United States
v. Brasley, 268 Fed. 59. The case of In re Subpoena Duces
Tecum, 81 Fed. Supp. 418, involved compulsory acquisition of
partnership records which were used in evidence against one of the
partners. Here, both partners consented to the examination. Upon this
record, we must conclude the evidence obtained from
Highland
's books was properly admitted.
[Income
from Embezzlement]
Defendant's
remaining argument relates to the alleged defense of embezzlement. He
contends that Gromer, his co-partner, filed a suit in 1951 for
dissolution of the
Highland
partnership charging that defendant had embezzled partnership funds
arising out of overceiling sales of automobiles. He asserts that the
court erred in refusing to admit in evidence the stipulation of the
parties settling that suit and in refusing to give defendant's tendered
instructions relative to the defense of embezzlement. Argument on this
phase of the appeal rests on the decision in Commissioner v. Wilcox,
327
U. S.
404 [46-1 USTC ¶9188], that moneys obtained by embezzlement do not
constitute income to the embezzler. We think that decision is
inapplicable to the case at bar and that the rulings of the court below
were correct both as to the admission of evidence and as to
instructions.
Defendant
sought to introduce the stipulation in the course of the
cross-examination of plaintiff's witness Gromer, and to cross-examine
the witness with respect to the 1951 lawsuit. The court ruled that this
evidence was beyond the scope of proper cross-examination. Gromer was
not called as a defense witness, and no attempt was made to introduce
evidence as to a defense of embezzlement in defendant's case in chief.
This, we believe, brings this question within our holding in United
States v. Bender, 218 Fed. (2d) 869 [55-1 USTC ¶9142], cert. denied
349
U. S.
920, that the control over the orderly presentation of evidence resides
in the sound discretion of the trial judge.
In
any event, the defense of embezzlement, under the Wilcox rule,
has no application to the case at bar, since under
Illinois
law defendant cannot be guilty of the crime of embezzlement because of
his wrongful conversion of partnership funds to his own use.
I.
R. S., c. 38, §208. The postulate, supported by the
Illinois
decisions interpreting this statute, is that one having a property
interest in funds in his possession is not guilty of embezzlement if he
wrongfully appropriates the whole fund to his own use. People v.
Ehle, 273
Ill.
424, 112 N. E. 970; People v. O'Farrell, 247
Ill.
