Bank Records and Net Worth Increases 5 Page3

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Q. Okay. Why is the question of value even relevant to the discussion of taxes?

A. Because if you receive less value than you give up, it's impossible for you in a transaction to have any income; i.e., profit or gain, which the government can tax as profit or gain, and that's all they can tax is profit or gain.

And that was held in the Eisner and Macomber case by--ruled on by the Supreme Court, what income is. Income is profit or gain. Profit or gain is the difference between your cost of acquisition plus your investment and your sale price. If your sale price exceeds what you had in it, you have realized some profit or gain. Like an example: If you buy a house for 20 thou--thousand, and you sell it later on for 50,000, well, maybe you put in 10,000 in improvements in it, so you got 30,000 in that house, but you have received 50 for it, so you net 20,000 and that's taxable gain. Possibly.

I mean it's--it's--profit can be subjected to the tax laws if you are a person who is subject to the tax laws in the first place.

Q. Okay. Did you and Mr. Davenport discuss that subject, whether or not Mr. Davenport was subject to the tax laws?

A. Yes. I did. I said, you know the way I--

Q. This is at the same meeting still.

A. Yeah, because this--because he was trying to get me to explain to him how the subject of money bore on taxes.

Q. Okay.

A. Actually that question of being subject is a little--is a different question, but we did discuss it.

And I told him the way I interpret the tax code--like in section--I think it's 3401(c)--it says that the persons liable for the tax are all government employees, employees and officers of the territories and states, and officers of corporations.

I said so, Dave, if you are not working for a government or you're not an officer of a corporation, then the tax laws don't apply to you. Unless somehow you have got other income that is that--other receipts that can be called profit or gain and thence income which might be subject to tax.

Because even if you got income, you're not necessarily subject to the tax law. Because under Section 6012 , you got to have--now--then you had to have a thousand dollars of extra income in '80 when I was talking to Dave. Today I think that you have got to have 3000 in profit or gain before you even have to file a return. And I said, Dave, if you don't--I think he was working at a steel mill at the time. I said, Dave if all you've got is compensation from the steel mill, you haven't got a blessed farthing of income. And you have to have at least a thousand dollars worth of income; i.e., profit or gain, before you're obligated to file a tax return.

Q. Were you telling Mr. Davenport that the compensation he received from his employer had no value?

A. Oh, not at all.

Q. What did you say in that regard?

A. Federal reserve notes--and then--since 1913, most of the currency, about 98 percent of the currency in circulation in this country has been bogus federal reserve notes. And they have value in the sense that you can swap them for things you need, but it does not follow that because you can swap them for things you need, you have realized income.

Now, David said, I don't follow you there. And I said, well, put it this way: If you sell your labor for ten bucks an hour, then you are making an even exchange with your employer. He is giving you ten bucks and you are giving him $10 worth of effort and experience and education and training and what not. That's an even swap.

Now, if by that--if that swap is going to result in profit or gain to the laborer, it has to be because he got the labor for less than $10.

Where did he get the labor? Well, from god he got the capacity to labor, and the intelligence to think. But that didn't make him worth a dime in the marketplace. He had to grow up first and acquire strength. He had to go to school and acquire education. He had to get a job or go out and get some training and acquire practical experience. In order to produce the labor which anybody would buy, he had to develop a skill so that there was some utility to what he could offer, otherwise, who would pay for it.

Q. Well, were you telling Mr. Davenport that those types of expenses were deductible?

A. I was telling him in my view--

* * *

Q. Okay. Do you recall anything else that you said to Mr. Davenport at that meeting in February or March of 1981?

A. Well, I told him that so that in order to derive a tax base for that labor, it was practically impossible to compute what he had invested. And that I recalled him the case of Rayathon versus Commissioner, where it said that if the basis for--the tax basis of an item was speculative, then any profit or gain by its exchange was conjectural and wouldn't be recognized.

So I said, since the tax base of labor is so speculative and difficult of reasonable ascertainment, then the tax base of labor has to be equal to the item for which it was exchanged. So if you exchange your labor for ten bucks, your basis is $10 and you--the receipt do [sic] not exceed the basis; therefore, you can't realize income.

On that transaction, now that--now, you have sold your labor, you have got some currency in your hand. What can you do with it? The currency has value because Congress has legislated that this paper, which has no intrinsic value, is legal tender. In other words, they have certified that this worthless paper is--has the same value as gold. I said, Congress has lied in doing this, Dave. And you better realize this.

That every Congressman that has--okays that law is guilty of malfeasance in office.

So I said, nevertheless, they have said it's legal tender. So that everybody has to take this paper, whether they want it or not. If it weren't legal tender, they wouldn't touch it with a ten foot pole. But since it is legal tender, now that you have sold your labor and you have got this legal tender in your hand, you can take it out and spend it for what you need.

But, does this mean that you have got income? No way.

And he says, how is that, John? I said, remember that in order to determine if you have got profit or gain, you have got to--the transaction in which you acquired this paper and the transaction in which you spend the paper.

Now, unless you can get more value when you spend the paper, than the value you gave up to get the paper, you can't possibly have income profit that could be taxed. Even though you get a four-door automobile, you haven't got income. Because each exchange is equal.

Now, let's compare the exchange when you gave your $10--your work and you got ten dollars or a thousand dollars of [sic] ten thousand dollars, doesn't make any difference, those pieces of paper have a certain buying power. Ten thousand of them would buy a new Ford.

However, I said, when you spend that paper, it doesn't have that same buying power because for the last 591/2 out of the 60 years, we have had inflation. Sometimes we have had raging inflation. And I think in '80 or in '81, we were having raging inflation.

And I think inflation was 12, 15 percent then, if my mind serves me correctly.

So if you take a paper in on day one, and on day ten you spend it, it has decreased in buying power because inflation cheapens the purchasing power or the buying power of money.

Therefore, when you spend that money on day ten, you cannot--it has less buying power than it had when you got it. So you aren't going to get as much value on day ten as you gave up on day one.

So in your equation for computing profit and gain, the same house deal, I spent 20,000 for the house, I put 10,000 in it, and then the market dropped out of real estate and I only could get 25 for it. I had a loss. You had a loss when you spent that ten--that money to buy that Ford.

So that although this paper may work as a medium of exchange so that we can continue trading, when it comes to computing a tax, a profit, or laying a tax on a profit, the profit is nonexistent. So there can't be any liability for tax.

Q. Okay. So did Mr. Davenport say anything with regard to what you were telling him?

A. Well, he indicated, I thought, then, that he understood what I was talking about.

¹ The defendant was sentenced to four years imprisonment on Count One, and to three years probation on Counts Four, Five, Six, Seven, and Eight, to run concurrently with one another, but consecutive to the sentence imposed on Count One.

² A few selections from the testimony of Mr. Hyde, the off-again, on-again lawyer defense witness, about his tax discussions with the defendant are set forth in the Appendix to this opinion. This distorted analysis fully illustrates what should be rejected by would-be tax protestors in the future.

³ The pertinent parts of 28 U.S.C. §1867 (1982) provide:

(a) In criminal cases, before the voir dire examination begins, or within seven days after the defendant discovered or could have discovered, by the exercise of diligence, the grounds therefor, whichever is earlier, the defendant may move to dismiss the indictment or stay the proceedings against him on the ground of substantial failure to comply with the provisions of this title in selecting the grand or petit jury.

* * *

 

(f) The contents of records or papers used by the jury commission or clerk in connection with the jury selection process shall not be disclosed, except pursuant to the district court plan or as may be necessary in the preparation or presentation of a motion under subsection (a), (b), or (c) of this section, until after the master jury wheel has been emptied and refilled pursuant to section 1863(b)(4) of this title and all persons selected to serve as jurors before the master wheel was emptied have completed such service. The parties in a case shall be allowed to inspect, reproduce, and copy such records or papers at all reasonable times during the preparation and pendency of such a motion. Any person who discloses the contents of any record or paper in violation of this subsection may be fined not more than $1,000 or imprisoned not more than one year, or both.

⁴ The motion sought grand jury as well as petit jury records, but no issue about grand jury records has been raised on appeal.

⁵ The government does not challenge the defendant's standing to make this claim even though the defendant is white and does not fall within any of the groups he alleges are typically under-represented. United States v. Gometz, 730 F.2d 475, 478 (7th Cir.) (en banc), cert. denied, 469 U.S. 845 (1984).

⁶ If we had found any merit to defendant's claim then we would have had to decide whether to remand to permit the defendant to examine other documents, while leaving his conviction undisturbed, United States v. Studley [86-1 USTC ¶9390 ], 783 F.2d 934, 938 (9th Cir. 1986), or as defendant would prefer to set aside his conviction. Government of Canal Zone v. Davis , 592 F.2d 887, 889 (5th Cir. 1979), but we need not reach that remedy selection.

⁷ The defendant until 1980 had claimed only three exemptions to which he was entitled. In the context of this case it is clear that if there was any doubt the trial judge gave the defendant full benefit of it in allowing the motion as to Counts Two and Three.

⁸ In addition the jury was instructed that "knowingly" means that the defendant realized what he was doing and was aware of the nature of his conduct and did not act through ignorance, mistake, accident, or negligence, any of which would not support a finding of willfulness or knowledge.

⁹ The instructions in full stated:

It is the defendant Mr. Davenport's theory that he did not report his wages as gross income for the years 1980, 1981, 1982, 1983 and 1984 because Mr. Davenport relied upon the legal advice of attorney John Hyde in good faith. And such reliance precludes a finding of wilfullness [sic] so that the defendant is not guilty of any of the charges.

Absence of wilfulness maybe [sic] shown by evidence showing that the defendant did not report the income in question on the advice of his attorney, but this is not a defense to the crimes charged unless you find that the defendant:

1) made a full disclosure of all the facts to his attorney; and

2) relied in good faith on his attorney's advice.

¹⁰ See United States v. Foster [86-1 USTC ¶9327 ], 789 F.2d 457, 461 (7th Cir.), cert. denied, 107 S. Ct. 273 (1986); United States v. Thomas [86-1 USTC ¶9354 ], 788 F.2d 1250, 1255 (7th Cir.), cert. denied, 107 S. Ct. 187 (1986).

 

 

[57-1 USTC ¶9398]The United States of America , Plaintiff-Appellee v. James D. Irving, Defendant-Appellant

(CA-7), U. S. Court of Appeals, 7th Circuit, No. 11849, 241 F2d 306, 2/12/57, Judgment of conviction affirmed

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

Income tax evasion: Excess of expenditures over assets and reported income: Evidence in record sustaining government's burden of proof.--Upon a review of the trial court's record, the U. S. Court of Appeals for the Seventh Circuit found substantial evidence in support of the taxpayer's conviction under 1939 Code Sec. 145(b). The taxpayer, a former policy-wheel operator, had an excess of expenditures over his assets and reported income for the year in question. The evidence did not support the taxpayer's claim that the excess had been given to him by a friend as a loan to enter into a legitimate business.

Rob ert Tieken, United States Attorney, John Peter Lulinski, F. William Reeb, Chicago , Ill. , for plaintiff-appellee. Charles K. Rice, Joseph M. Howard, Washington, D. C., for defendant-appellant.

Before FINNEGAN, LINDLEY and SWAIM, Circuit Judges.

FINNEGAN, Circuit Judge:

There is substantial evidence in this record to support the defendant Irving's conviction under §145(b), Internal Revenue Code of 1939, 26 U. S. C. §145(b). Numerous ¹ stipulations of defense counsel coupled with the government's evidence eliminates any question of whether the prosecution sustained its burden of proof. The judgment of conviction must be affirmed. United States v. Aman, 210 Fed. (2d) 344 (7th Cir. 1954); Holland v. United States, 348 U. S. 121 (1954) [54-2 USTC ¶9714]; Spies v. United States, 317 U. S. 492 (1943) [43-1 USTC ¶9243]. In this instance the government's investigation and proof eliminates any substance for an effective argument about "leads." The short of it is that Irving reported taxable income of $8,750.00 from the Panama Finance Company, $3,524.71 from the Irving Music Company and $37,450.00 from speculations for the calendar year 1952. Defendant explained to a government agent that "speculations" were gambling "wins" and denied he had any records to support that figure. Admittedly, defendant operated a policy wheel prior to November 1951. There is absent any evidence that Irving ceased such operations after 1951. Investigations disclosed expenditures in excess of assets owned by defendant on January 1, 1952, plus all income reported, by him, as received in 1952. A revenue agent was told by Irving, or his representative, that the "bulge" in expenses of about $150,000 [Holland v. United States, 348 U. S. 121, 125 (1954) [54-2 USTC ¶9714]; United States v. Calderon, 348 U. S. 160 (1954) [54-2 USTC ¶9712]], arose out of money given him by a Rob ert Mays to invest in a ligitimate business. No receipts for that sum were produced or found and no claim has been made against Irving by Mays' estate. A government witness testified that Irving 's income tax for 1952 was understated by $139,605.40.

Two other points require attention in this opinion, though we have carefully studied all other matters brought to our attention in this appeal. The defendant filed an affidavit of bias and prejudice pursuant to 28 U. S. C. §144, as follows:

"James D. Irving, being duly sworn, deposes and says:

"1. That I am the defendant in the above-entitled cause.

2. That I verily believe that the Honorable William J. Campbell, Judge of the court in which this action was commenced, and is now pending, and before whom it is to be tried, has a personal bias and prejudice against me by reason of the fact that Daniel D. Glasser is my attorney. Judge Campbell has stated his prejudice against my attorney Mr. Glasser in open court and has further stated that Mr. Glasser would never be permitted to try a case before him.

"I retained Mr. Glasser to represent me in connection with the matters and things set forth in the indictment numbered as above set forth, some time before the return of the said indictment and therefore long before the case was assigned to the Honorable Judge Campbell for trial. James D. Irving, defendant."

Tucker v. Kerner, 186 Fed. (2d) 79 (7th Cir. 1950) contains our delineation of statutory requirements necessary for disqualification of a trial judge. Adhering to those views necessitates rejection of defendant's argument from the face of his affidavit already quoted. In any event the Executive Committee (Appellant's App. 6) found no personal bias or prejudice against the defendant or of any adverse party. We think the commendable fairness of the district judge in referring the affidavit to the District Court's committee hardly a legalistic basis for overturning the jury's verdict.

Of equal shallowness is defendant's contention over the grand jury's life. See Rule 6(g), Federal Rules Criminal Proc., 18 U. S. C.

The judgment of the district court brought here for review is affirmed.

JUDGMENT AFFIRMED.

¹ When arguing to the jury the defense attorney said: ". . . we stipulated to a lot of things in this case. Frankly, in a practice of about thirty years, I have never, never stipulated to so many things as I did in this case.

I did it because I felt that it would hasten the trial, and I felt that the basic issue here was not pencils and papers and records and accountants. The question is: Did Irving get this money from Mays and from other sources he spoke about, or didn't he?" (App. Gov. Brief p. 13)

The government called John Mays, the brother of Rob ert Mays, deceased, and the defense did not examine John after his direct testimony. (App. 220).

 

 

[55-1 USTC ¶9518]Martin Hoyer, Appellant v. United States of America , Appellee

(CA-8), In the United States Court of Appeals for the Eighth Circuit, No. 15,289, 223 F2d 134, June 21, 19 55

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

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

Tax evasion: Jury trial: Prior years' returns as evidence of intent: Reconstruction of income: Motion for acquittal.--Taxpayer, engaged in farming on a large scale, was convicted of attempting to defeat and evade a part of his income taxes for 1946, 1947, and 1948 in violation of 1939 Code Sec. 145(b). He kept no regular books of account. The Government reconstructed his income for those years by the receipts and disbursements method of proof. It was held that the trial Court did not err in admitting into evidence (1) taxpayer's returns for prior years to show intent and (2) summarizations prepared by the Government's accountants after testimony was introduced establishing their sources. Taxpayer's motion for acquittal was properly denied, since the introduction of evidence in his own defense was a waiver of his motion at the close of the Government's evidence in chief. The evidence in the case was held sufficient to sustain the verdict.

John F. Lord (Lord, Ulmer & Murphy were with him on the brief), for appellant. Ralph B. Maxwell, Assistant United States Attorney ( Rob ert Vogel, United States Attorney, was with him on the brief), for appellee.

Before GARDNER, Chief Judge, and JOHNSEN and VAN OOSTERHOUT, Circuit Judges.

GARDNER, Chief Judge:

This is an appeal from a judgment convicting appellant on two counts of an indictment which charged him with the crime of attempting to defeat and evade a large part of the income taxes due and owing by him in violation of Section 145(b) of Title 26, U. S. C. In the course of this opinion we shall refer to appellant as defendant. This indictment contained three counts, the counts referring respectively to the calendar years 1946, 1947 and 1948 and also jointly indicted one Chester Ferguson who at the time covered by the indictment was employed by defendant as bookkeeper and accountant. Count One of the indictment reads as follows:

"That on or about the 15th day of January, 1947, in the District of North Dakota, one Martin Hoyer and one Chester Ferguson did wilfully and knowingly attempt to defeat and evade the income tax due and owing by the said Martin Hoyer to the United States of America for the calendar year 1946 by filing and causing to be filed with the Collector of Internal Revenue for the Internal Revenue Collection District of North Dakota, at Fargo, North Dakota, a false and fraudulent income tax-return wherein they stated that the business operations of the said Martin Hoyer for said year resulted in a loss in the sum of $3,103.33, and that the said Martin Hoyer owed no income tax for said year, whereas, as they then and there well knew, his net income for the said calendar year was the sum of $10,347.61, upon which said net income he owed to the United States of America an income tax in the sum of $1,818.57."

So far as here pertinent Count Two was substantially identical with Count One except as to the year covered and the amount of alleged income and income tax involved.

[The Facts]

Defendant at the times here involved was engaged in farming on a large scale, producing potatoes, grain and cattle. For the year 1946 he reported as the result of his farming operations a loss of $3,103.33, and for the year 1947 as the result of these operations he reported a loss of $9,973.63. At the trial government accountants testified that for the year 1946 he had a taxable income of $10,347.61 and for the year 1947 he had a taxable income of $20,866.76. Defendant kept no regular books of account and the government witnesses based their testimony upon an investigation of defendant's bank accounts, cancelled checks and other documentary evidence, employing the so-called receipts and disbursements method.

At the close of the government's evidence in chief and again at the close of all of the evidence produced, defendant challenged the sufficiency of the evidence by interposing a motion for acquittal. These motions were overruled and the case was submitted to the jury on instructions to which no exceptions were saved. The jury found both defendants guilty on Counts One and Two and not guilty on Count Three.

From the judgment entered defendant prosecutes this appeal, in which defendant Ferguson does not join, seeking reversal on substantially the following grounds: (1) the trial court erred in receiving in evidence the government's Exhibit 1, and the government's Exhibit 31; (2) the trial court erred in receiving in evidence the government's Exhibits 32, 33 and 34; (3) the trial court erred in receiving in evidence the government's Exhibit 35; (4) the trial court erred in denying the motions of the appellant to dismiss the case at the close of the government's case and at the close of the entire case.

[Disregard of Court Rules]

At the very outset it should be observed that the brief of appellant has been prepared in total disregard of the rules of this court so far as reversal is sought on the ground of alleged errors in the reception of evidence. Rule 11(b), referring to what the brief shall contain, provides among other things as follows:

"A concise statement of the case in so far as is necessary for the court to understand and decide the points to be argued in the brief, giving the pages of the printed record where each fact stated can be found and verified. If a point relates to the admission or exclusion of evidence, the statement shall quote the evidence referred to, and any objections or other equivalent action taken relative thereto, together with the rulings of the court thereon, giving the pages of the printed record on which the quotations appear."

Neither in the statement of the case as printed in the brief nor in the points to be argued will be found a quotation of the evidence objected to, nor the objections thereto, nor the ruling of the court thereon, nor a reference to the pages of the record where the quotations appear. The points to be argued contain no references to the printed record but at best constitute an invitation to search the record for error.

This is an appellate court and criminal cases are not here tried de novo and alleged errors sought here to be reviewed should be pointed out and traced to concrete rulings of the trial court in the manner provided by the rules of this court. Anderson v. Federal Cartridge Corporation, 8 Cir., 156 Fed. (2d) 681; Cohen v. United States , 8 Cir., 142 Fed. (2d) 861; Zumwalt v. Gardner, 8 Cir., 160 Fed. (2d) 298. The record is such as to warrant us in declining to consider in detail the various rulings of the court on the admissibility of evidence here complained of but in view of the importance of the case we have concluded to consider counsels' arguments to the extent of satisfying ourselves that the trial of the defendant has not resulted in a manifest miscarriage of justice.

[Evidence of Intent]

The government offered in evidence defendant's income tax return for the year 1945 and it was admitted in evidence over the objection that it was immaterial, being without the period covered in the indictment, that it was an attempt "to prove something incorrectly which it cannot prove correctly", and that it was prejudicial. At the time of admitting the exhibit the court admonished the jury that the defendant was not charged with any offense connected with his income tax return for the year 1945, and again in his instructions to the jury the jury was very emphatically advised to the same effect as follows:

"You will recall that Exhibit No. 1, being the defendant Hoyer's tax return for the year 1945, was admitted in evidence, although the defendants are not charged in this indictment with having committed a crime with reference to the income tax return covering the defendant Hoyer's business operations for the year 1945. It was offered for two purposes:

"First, that the income tax return for 1945 showed a business loss of $766.60, and that this loss was carried over into the year 1946 and was used as a deduction therein, whereas the Government claims that during the year 1945 the defendant Hoyer did not sustain a loss. That is one of the claimed errors by the Government with reference to the 1946 tax return.

"The second theory upon which Plaintiff's Exhibit No. 1 was admitted is that it might have some bearing upon the intent of the defendants. Evidence of other occurrences or acts of a similar nature are only admissible in criminal cases where motive, intent or guilty knowledge is in issue, such as it is in this case. You are to consider the evidence with reference to the year 1945 only on the element of intent insofar as the charges in the three counts in the indictment are concerned and should disregard such evidence for all other purposes excepting insofar as it may be applicable to the alleged business loss. You must keep in mind that the defendants are on trial only upon the charges set out in the three counts in the indictment; that is, with reference to the income tax returns for the years 1946, 1947 and 1948."

Defendant chiefly relied upon the fact that he was uneducated, that he kept no regular set of books and that if there were errors in his income tax returns they were due to ignorance or mistake rather than to any purpose on his part to defeat or evade any part of his income taxes. It was incumbent upon the government to prove that defendant wilfully and knowingly attempted to defeat and evade a substantial part of the income taxes justly due from him, and it proposed to prove not only that he had committed the offense charged in the indictment but that he had committed an identically similar offense for the year 1945. Insofar as the exhibit tended to show a false return made in 1945 it was competent as bearing upon the question of fraudulent intent. Neff v. United States , 8 Cir., 105 Fed. (2d) 688; Leeby v. United States , 8 Cir., 192 Fed. (2d) 331 [51-2 USTC ¶9497]; Lisansky v. United States, 4 Cir., 31 Fed. (2d) 846 [1929 CCH D-9277]. The exhibit was therefore admissible on the question of intent. It was also admissible on the further ground that it was necessary to prove that a claimed loss from defendant's operations in 1945 was false because that claimed loss was carried forward and claimed in the years covere