Character Witness Page2

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During the course of the trial and particularly over a weekend the prosecution apparently examined the newly produced patient cards and at following court sessions called two questioned documents examiners, one from the Bureau of Criminal Apprehension in St. Paul , Minnesota , the other an employee of the Treasury Department from Washington , D. C. With enlarged photos, some taken with infra red rays, they gave evidence that as to 32 of the newly produced patient cards which they had examined, all had in fact been altered. For instance, a typical patient card where surgery had been done and some payment had been made in the year 1965 originally showed the final payment in full in 1967 as an entry then made "Balance 0." At some later date, however, with different ink and a discernible difference in style of writing, etc., the figure "1" was added before the "0" and another "0" added to show a balance of $100. The evidence of these alterations was forceful and the jury readily could find that they had been made at a later date and by the defendant himself. Further, many of the altered cards showed a notation of two or three collection letters presumably sent to the patient over a period of months or years with a final entry "Balance cancelled", the latter entry being made to appear in the year of 1969 or thereafter beyond the indictment years. The government located approximately 20 patients, subpoenaed them to the witness stand. Each was a patient who matched one of the altered cards. They verified the date of the final payment of their bills (in each instance during the prosecution years) and denied that they ever received any further bills or collection letters or were ever dunned by the doctor. On this evidence the jury well might--and apparently did--find that the doctor was not even faithful to and did not follow and in fact falsified his own unorthodox accounting and reporting method. This demonstration to the jury may well have taken the force out of the doctor's "busy man-prominent personage--ignorance of accounting method" arguments. No real challenge ever was adduced or attempted to be adduced by way of explanation for these altered cards and though the court instructed the jury that the burden of proof beyond a reasonable doubt always rests on the government and the defendant has no duty to produce any evidence or offer any witnesses, this evidence standing unexplained and unrebutted was sufficient to permit the jury to conclude fraud and criminal intent beyond a reasonable doubt.

[Accounting Defense Rebutted]

The above rather lengthy explanation has been made because on this motion for acquittal or for a new trial the defendant continues to make much of the defendant's method of accounting and the fact that under applicable internal revenue regulations for purpose of reporting civil income tax liability a taxpayer cannot change his method of accounting without specific authorization from the Internal Revenue Service. ¹ Of necessity counsel largely glosses over the altered patient cards and the fact that the doctor quite apparently did not even follow his own method. The government contends that the method of accounting is not involved here at all, but merely the method of reporting income to the government irrespective of whatever method of accounting is employed. This latter position seems to the court to have merit. The defense cites a brief excerpt from Fowler v. United States [65-2 USTC ¶9723], 352 F. 2d 100 (8th Cir. 1965):

"The government was bound to follow appellant's method of accounting in computing taxable income."

Fowler cities an earlier case of Morrison v. United States [59-2 USTC ¶9657], 270 F. 2d 1, (4th Cir. 1959), cert. denied 361 U. S. 894 (1959).

This argument can be put to rest by stating that in the court's opinion, even had the government attempted to stay meticulously by the doctor's own method, the jury could find beyond a reasonable doubt that defendant fraudulently falsified the patient cards which were not revealed until trial and disclosed that he did not adhere to his own method. Apart from such, however, the Fowler and Morrison cases are in an entirely different setting. There where a taxpayer for instance is on a cash basis--and this was the basis the doctor either erroneously or falsely checked on his income tax return as the one he used--the government cannot fairly put him on an accrual basis or vice versa, and claim more income because thereof and charge criminal responsibility. Though for civil tax purposes a change of accounting methods clearly does require an application to and permission to change from the Internal Revenue Service, such can hardly be said to apply in a criminal case to some hybrid, unrecognized, unorthodox and not faithfully followed method such as the defendant employed. From a pure accounting theory, of course the defendant's method was not sound because it fails to match expenses with income in the same year. His deductions were taken on a cash current basis each year but of course did not offset or match the resultant income reported some years later, and vice versa. The court left the issue of honesty and criminal intent in reporting income for the jury. Defense counsel without objection argued his accounting theory at some length, even citing the section of the Internal Revenue Code relative to requiring permission for a change of methods. The court did not feel obliged, however, to instruct the jury as defendant requested, for to have done so would have been to misstate the applicable law in the court's opinion.

[Claimed Deductions]

Error is charged in the way the court permitted evidence from the government of alleged fraudulent deductions and its failure fully to instruct the jury thereon.

As stated above the government adduced evidence of some 40 instances, more or less (many involving the same people in different years) of claimed unauthorized and fraudulent deductions. Defendant's counsel consistently took the position that where as in civil tax cases the taxpayer must substantiate the basis for his claimed deductions and without such they will be disallowed, yet in criminal cases no burden rests on the defendant to adduce any evidence nor produce any witnesses as to deductions or otherwise; that the government must produce evidence from which a jury might find beyond a reasonable doubt that any deduction is illegal. The court takes no real issue with this approach, see United States v. Bass [70-1 USTC ¶9311], 425 F. 2d 161 (7th Cir. 1970), and in general terms more than once instructed the jury that defendant had no burden to produce evidence, or call witnesses. It is not beyond the purview of the court's responsibility however to assume that jurors in this modern time have at least a minimal understanding of the income tax laws and concept and by the use of their common sense and experience know, for instance, that professional dancing lessons for defendant and his wife--characterized in his income tax return as "additional professional services, secretarial and maid help" --or payment to an animal hospital for treatment to the family cat "Tinkerbell"--characterized in the tax return as "drugs and pharmaceutical supplies"--are not a proper business expense or deductible items and are not properly characterized. Had the court decided to instruct on these and many other items rather than leave it to the jury's good judgment, general knowledge and common sense, it would have had to instruct that such clearly were not allowable deductions and in effect direct a verdict against defendant on these issues. The court did not feel at liberty to do this and so permitted both sides to argue the question and left the resolution to the jury's good judgment. The record will disclose many items of the nature above: purchase of wood for the home fireplace deducted under "additional professional, secretarial and maid help"; reproduction of a "family tree" painted on the wall of the kitchen in defendant's home and later in defendant's New York apartment deducted as the same; Walgreen's drug store for miscellaneous cosmetics, photographic film, etc., (eliminating actual prescriptions) deducted as "Drugs and pharmaceutical supplies"; lawn man and gardener at the home, who testified he never served food or tended bar as "additional professional, secretarial, and maid help"; an architect to redesign the defendant's kitchen at home as "legal fees $250"; a home repair of a television set as "Miscellaneous office supplies, disposable instruments and repairs". The list goes on to include deductions for children's piano lessons, household help, payment of fairly substantial amounts for children's tuition at the University of Minnesota and elsewhere, deducted as "Miscellaneous office supplies, disposable instruments and repairs" in at least one instance; interior decorator repairing, among other things, a spinning wheel; boat storage charges at a marina characterized at "attorney's fees"; wallpaper purchase for home, as "Depreciation credenza". All items are of course not so clear as the above. One substantial item of $739.89 was deducted as "entertainment for professional colleagues". This represented a golden wedding party for the defendant's parents held at the Town and Country Club, at which it was established that a number of doctors presumably who refer patients to defendant were present and entertained, though that obviously was not the main focus of the event. Defendant's counsel made no attempt to portion or pro rate this as to amount that could or should be allowed, consistently taking the position that it was up to the government to show beyond a reasonable doubt that the entire amount was not deductible or else it was error for the court to receive the evidence at all. A substantial amount of household help was from time to time over the five years here involved charged to and deducted as "entertainment", though the individual's testimony for the most part was to the contrary. Defendant did maintain an office in his home and might be or might have been, privileged to charge some percentage of overall home expenses, which amount defendant never attempted to establish however, but made reference only in general terms. This percentage in any event would not be large if measured against the total area of the home. In view of the government's showing generally on the question of deductions and what the jury could find to be deliberate masking and misstatement of them in his tax returns, the court does not perceive any error in the evidence that was received as to some few of the deductions where there might be some question about a portion thereof.

Particular complaint is made that the court admitted testimony from four women called by the government to whom the doctor had made payments by check and whose testimony indicated in at least three instances an intimate personal relationship with the defendant. The first called was a lady from Las Vegas , Nevada , who identified herself as a prostitute. The court's notes show that after this statement objection was made by defendant's counsel but no motion to strike this testimony was lodged. In any event, the defendant had given her a $100 check and deducted it in his income tax as "Additional professional, secretarial and maid help". She testified she never did any typing or office work for the defendant and had never seen him except the once. A former head nurse at the University of Minnesota Hospital testified to intimacies with the defendant and in 1968, two years after ceasing her nursing services, received a $500 check to assist her on a trip to Europe which went into the defendant's return as "Additional professional, secretarial and maid help". She testified she rendered no services for the $500. Another lady resided in Minneapolis and in the latter part of 1968 the defendant sent her a check for $126 to purchase a round trip airline ticket to New York , where the defendant then was staying. She testified she stayed with him in his apartment. This appeared in the income tax returns again as a deduction and had no real business purpose. A fourth lady from Ohio similarly testified to payments received from the defendant but not for "professional, secretarial or maid help" rendered as claimed in the income tax return. This feature of the case of course attracted the attention of and was featured in the press and news media and was brought out before the altered patient card evidence The government asserted it was designed to show intent on defendant's part. It seems to the court this was proper, that the government was entitled to so show and that no error occurred here. The court did prohibit the government from eliciting anything but the barest of facts from these four witnesses, one of whom at least was prepared to testify somewhat further. The court recognized that defendant was not on trial for a morals offense and that clearly evidence of this type generally could not be introduced merely to blacken a taxpayer's name or make the case sensational. But where the deductions are so patently false and are included in the return, certainly the government is entitled to show the true nature of the services and the person's relationship as evidence of a dishonest intention to cheat the government by including something as a deduction that no reasonable man could believe to be even remotely connected with business expense. This was not mere peripheral evidence of being involved in some questionable activity but went right to the heart of the question of whether the government should be permitted to collect a tax on such amounts or be thwarted by defendant's deliberate attempt to deceive. The court perceives no error here.

Defendant also claimed many charitable deductions totalling over $4,500 with which the government took issue. He so deducted the cost of tickets to the football games at the University of Minnesota; tuition for his children's education, in part evidence by many checks to the University of Minnesota; Concordia College Language Camp for one or more child, and some tuition at Cornell University. No great issue is made of these items on the motion for acquittal or new trial but they were further evidence for the jury's consideration as to defendant's intent.

[Income Items]

Evidence was adduced of honoraria and miscellaneous fees in the amount of some $10,000 which were omitted from defendant's income over the years. So far as $3,600 for writing and editing articles received from "Hospital Publications, Inc." there can be little question that the same was income for services rendered. The honoraria in amounts usually between $100 and $150 were received by defendant typically after delivering a lecture to a medical association or meeting somewhere in the United States . He claims these were gifts and not income and so not includable in his return, though on at least two or three occasions he wrote suggesting the amount of the honorarium or reminding that no check for the honorarium had been received. This question was argued to the jury and it seemed so clear to the court that such receipts were related to his professional activities and were paid for physical appearances actually made and thus services indigenous to his occupation that any reasonable person would have to consider such as income. Even of course if they were not income but true gifts, the amount in relation to the total involvement in the case is no small that it hardly augurs for a judgment of acquittal or new trial but would seem at best to be harmeless error. Again the court did not instruct the jury on this question, feeling that if it did it would have to couch it in such terms as virtually to direct a verdict against defendant on this issue; and this court declined to do. Defendant's counsel cites a number of cases going to the question of a gift as distinguished from income items. None are in the factual setting of this case however and to the court do not seem a precedent for honoraria received under these circumstances. The court believes the circumstances were such as fairly to indicate these items to be income within the meaning of Dillon v. United States [55-1 USTC ¶9131], 218 F. 2d 97 (8th Cir. 1955), and receipt of the evidence did not cast the burden of disproof on defendant.

As to excluded interest income of $5,594 where the returns said "none" there can be little doubt. It was open to defendant of course to explain ignorance or neglect on his part because some or perhaps all of the interest was not paid in cash but was accrued to savings and similar accounts; though defendant was mailed copies of the reporting forms 1099 sent by the payors to the government. A reference was made, but no real attempt to produce evidence to this effect. The government made a showing on which the jury could find beyond a reasonable doubt that interest items were not included in defendant's tax returns.

Defendant was reimbursed on many occasions for travel expense, principally for attending medical meetings, where he also claimed the amount as a deduction on his returns. Over the years defendant claimed more than 110 deductions as travelling expenses but was reimbursed some 86 times more or less--none or almost none of which reimbursements he reported. Probably the largest deduction was $1,241.50 travel and expense for attending a medical meeting and seminar in Capetown , South Africa . Uncontradicted evidence was introduced from the overseas airline that the airline ticket was purchased and paid for by the Capetown Provisional Administration in South Africa and was not paid by defendant. Further, there were charged off such items as a asking trip to Twin Falls , Idaho for defendant's wife and three children where the defendant was not in attendance and no medical meeting was held. Defendant charged off and deducted $458.08 as hotel expense at the time of the annual meeting of the American College of Cardiology, of which he was at one time president, when in fact the College paid the bill. The government has adduced as exhibits Z-5 through Z 8-4, some ten pages, detailing these items and a further recital of them is not necessary here. A witness from Cornell University testified to a long list of items of expense and travel paid by that University or charged by defendant to its air travel card, which expenses defendant nevertheless deducted as though he had paid them himself. He made no accounting if there was any reimbursement. A taxpayer can of course make a mistake, but the jury might it seems to the court reasonably believe that the frequency with which defendant failed to include reimbursements and/or deducted improper items that were not truly travel expense, foundationed a belief beyond a reasonable doubt that such was done deliberately and with intent to defraud the government and not by mistake or inadvertence.

[1971 Return]

Error is assigned to the court's refusal to admit into evidence defendant's 1971 income tax return, filed approximately six months after the return of the indictment in this case. The offer was designed apparently to show either or both that defendant was still following his singular method of accounting--though admittedly advised by his attorneys in 1969 that it was not a proper method for tax purposes--or that it included income on which a tax of some $84,000 was paid and which income the government had, on a cash basis, moved back into the period 1964 through 1968. The court was and is of the view that in most cases a consistent course of conduct in certain instances may be shown both before and after the indictable events; thus defendant's 1969 and 1970 returns were received in evidence. Anything filed post indictment however was self-serving, had no real probative value and at best would but confuse the jury. Obviously the payment of a large sum of money for taxes after the indictment has been returned is not relevant to the question of criminal intent or false returns during the indicted years. The court sees no error here.

[Professional Eminence]

Defendant sought in his own case, through a colleague professor in the medical school at the University of Minnesota, to introduce pictures of defendant operating on a heart patient appearing in LIFE magazine in 1954 and a collection of articles in HARPER'S and other magazines published from 1954 to 1958 proclaiming the virtues of defendant as a doctor and displaying the great work he was doing in the medical field and at the University of Minnesota. Also offered were defendant's Exhibits 60, 61, 61A, 61B, 65 and 66. The latter two were maganize publications in 1972, four years after the indictment years and Exhibits 60 and 61 were narratives written by someone other than defendant and apart from a hearsay objection, the same were excludable for reasons of relevancy in any event. The court excluded all these proffered exhibits first because they were remote from and long prior to the years involved in the indictment (or in two cases after the indictment years) and could not be relevant to establish a basis as to how busy the doctor was during the indictment years as an excuse for income tax aberrations and second because in any event such evidence could not constitute a real defense of any kind. Everyone, including the government acknowledged that the doctor is and was a pioneer in the field of so-called "open heart" surgery; that he trained many famous men around the world who are now carrying on this work as well as organ transplants; that he has savel perhaps hundreds of lives; that his citations and awards are legion; that his list of published articles and works comprise a catalogue in themselves (which the court admitted as defendant's Exhibit 59) and that he has been one of the world's 100 most outstanding men in the medical field. All of this however has no real relevance to whether or not he defrauded the government in his income tax filings. No man, no matter how great in his own field is above the law nor can he be excused merely because of prominence in business, the arts or a profession. The admission of such evidence as proffered would only go to appeal to the sympathy or passion and prejudice of the jury and not bear on the real issues.

The same reasoning caused the court to exclude from evidence after being shown to the court out of the jury's presence a 28 minute movie showing the doctor in an actual open heart operation and advertising the so-called Lillehei-Kaster heart valve. This could add nothing to the case and at best but leave the jury in awe of the wonders and complications of medicine, the human body and those who are able to understand it and conquer it and cure its ills; it may contain a great humanitarian appeal, but has no relevance to payment or non-payment of taxes.

[Charitable Contribution]

One ingenious point on which defendant's counsel lays great stress is a claimed charitable deduction in the amount of $500,000 which defendant did not take on his 1965 income tax return but which when utilized that year and carried forward for the next three indictment years would wipe out all tax owed by defendant to the government and according to defendant's argument would leave the government owing defendant money by way of a refund. Under the law, no amount more than 30% of total taxable income can be deducted in any one year as a charitable contribution, but if the amount exceeds such, the balance may be carried forward as a deduction on returns for a limited number of following years unless sooner exhausted. Defendant claims that if the deduction here were in fact only $130,667.76 it would be sufficient to leave defendant owing no tax for 1965 through 1968. He then argues that 1964, standing alone, would not warrant a conviction. This was elaborately argued to the jury but the jurors obviously rejected it. Defendant's Ex. 80 scheduled the results of this concept year by year and the court received it in evidence, although on reflection the court might well have excluded it and the entire concept without error. Again the court did not instruct as to what constitutes a charitable deduction because it saw no real merit in the contention.

The facts are substantially as follows: George W. Fornell was called as a witness by defendant and testified he was the patent admin istrator for the University of Minnesota; that his office keeps contact with various research programs being carried on at the University concerning patentability of discoveries; that if such have economic possibilities, the University will attend to securing a patent if possible and then will arrange licenses with private industry for manufacture and marketing. Defendant in 1961 invented a heart-lung machine which is now commercially manufactured and sold, yielding license fees or royalties of $14,000 to $17,000 per year to the University, of which it pays the inventor 25% under its then prevailing policy. Defendant thus could have received some income from this source but at least until the time he left the University to go to Cornell his share of royalities at his request went into the medical research fund.

Coming to the deduction here claimed, in 1965 a pivoting disc heart valve for insertion in a patient was invented, largely apparently by one Kaster an engineer working in the doctor's laboratory and under his direction. On inquiry, Fornell testified defendant acknowledged Kaster was the real and sole inventor, but that the defendant was willing to lend his name to the marketing of the invention so it could be known as the Lillehei-Kaster heart valve. A patent later was issued and assigned to the Regents of the University of Minnesota . After an abortive commercial attempt to put the invention into production, a license agreement was issued to Medical Manufacturing Company who some six years later and in 1971 began to market the product. Fornell gave his opinion that the permission to use the name Lillehei had a value of $500,000 considering his stature and reputation.

Defendant then called to the witness stand one Marshall Kriesel, President of Medical Manufacturing Co. who enthused about the product and its sales since 1971. He stated one-half million dollar gross sales had been effected to July 1972 since coming on the market. He similarly gave his opinion that the value of the Lillehei name was worth $500,000, though he pays the University of Minnesota but a five per cent royalty on gross sales (circa $25,000 to July 1972) and which of course if the defendant were the inventor he would receive 25%, i. e., $6,250 and this presumably, if Fornell's testimony as to the University policy were followed would in some way be divided between Lillehei and Kaster. Sales would have to reach astronomical proportions before it could be said that the value of the Lillehei name was anywhere near $500,000 or even the $136,666.67 claimed sufficient for tax deductible purposes by defendant. The claim was and is preposterous. The court did not however attempt to instruct the jury to disregard it but let it be argued in the final arguments and submitted in such fashion to the jurors. Again the court sought to avoid in effect directing a verdict against defendant on this issue.

The use of the name and its value it would seem to the court has to be rather directly in proportion to what the net financial return is and might reasonably be expected to be on the device to which the name is attached at the time of the alleged gift. It can have no greater value than what it will earn net. Further, at the time in 1965 when defendant consented to his name's use, it was entirely speculative and remote whether the product would ever be marketed or would ever sell or have any commercial value, be obsoleted by a later invention, etc. Certainly in any event, if the use of the name does have value, it would be so minimal in this case as not to affect materially the substantial amount of income omitted by defendant in his various tax returns. This court has recognized in a different context that a person does have a property interest in his name. Uhlaender v. Henricksen, 316 F. Supp. 1277 (D. Minn. 1970), and cases therein cited, but does not perceive for the reasons above stated that any error occurred in the way the court treated this matter, considering that at best it could not have had any reasonably determinable market value at time of the alleged gift. Finally, the jury did have all the evidence on this point before them, and mere failure to instruct would not prevent it from subscribing to defendant's theory if it were so impressed.

[Fair Trial]

In the broad and overall, the court believes defendant had a fair trial. There was no attempted defense sought to be raised which the court excluded from evidence. Counsel's quarrel is with a peripheral matter, namely the way the court handled the matter once the evidence was adduced. The court did its best not to deprecate nor impugn the possible defenses and they were fairly left to the jury for its consideration. The court admitted into evidence nearly everything defendant's counsel produced. In fact the government rarely objected. If errors occurred such were minimal, non-prejudicial and harmless considering the rather clearly admissible evidence which established overwhelming guilt. On balance in the court's judgment defendant had a fair trial. In judging a case such as this, a court should not look only at the individual trees, but must draw himself far enough away to be able to see the forest as a whole and make a judgment thereon. Combining the defendant's use of an unauthorized accounting method, the altered patients cards, the mischaracterization and false statement of deductions, the failure to include travel and expense reimbursement, interest and miscellaneous income and all of the circumstances of the case, the jury was warranted in finding that the evidence showed defendant guilty beyond a reasonable doubt.

Other errors assigned by defendant have been considered but in the court's opinion have no merit.

Defendant shall present himself with his counsel before the court for sentencing April 26, 1973 at Minneapolis , Minnesota at 9:00 A. M.

A separate order denying defendant's alternative motion for a judgment of acquittal or for a new trial has been entered.

¹ Revenue Regulation, §1.446-1(e)(2)(i), originating with TC 6282, approved December 19, 1957, and republished as TD 6500, November 9, 1969, stated:

"Except as otherwise expressly provided in Chapter 1 of the Code and the regulations thereunder, a taxpayer who changes the method of accounting employed in keeping his books shall, before computing his income upon such new method for purposes of taxation, secure the consent of the Commissioner. A change in the method of accounting includes a change in the over-all method of accounting for gross income or deductions, or a change in the treatment of a material item. Consent must be secured whether or not a taxpayer regards the method from which he desires to change to be proper. Thus; a taxpayer may not compute his taxable income under a method of accounting different from that previously used by him unless such consent is secured." [Emphasis added]

The regulation was amended in 1971 (after the years here involved) and continues to read much the same.

 

[73-2 USTC ¶9587] United States of America v. John B. Nicosia

U. S. District Court, No. Dist. Ind., Hammond Div., No. 72 H Cr 108, 360 FSupp 814, 6/20/73

[Code Sec. 7201]

Tax evasion: Failure to report bribes: Motion for acquittal: Proof of guilt beyond a reasonable doubt.--Taxpayer's motion for acquittal on the charge that he accepted and received bribes in 1966 and 1967 which he did not report on his returns for those years was granted since the evidence produced by the Government did not show that the taxpayer was guilty beyond a reasonable doubt. The sole evidence as to the taxpayer's receipt of the bribe payments was the testimony of an alleged accomplice and self-confessed giver of the bribes whose uncorroborated and impeached testimony was completely contradicted by the taxpayer, who was shown to be a person of excellent reputation and a public official who never accepted political contributions.

J. Frank Kimbrough, Assistant United States Attorney, Fort Wayne, Ind., Marshal J. Goldsmith, 3926 Main St., East Chicago, Ind., William A. Barnett, 135 S. LaSalle St., Chicago, Ill., for J. B. Nicosia.

Memorandum Opinion and Order

PERRY, District Judge:

This case grew out of an ingenious scheme by officials of the Northern Natural Gas Company to bribe public officials in order to speed and smooth the way for construction of a pipeline running from DuPage County through Cook County , Illinois and Lake County , Indiana to the lakefront at East Chicago , Indiana .

[Illegal Conspiracy]

In September 1972 the Northern Natural Gas Company, two of its subsidiaries and two corporate officers were indicted in the United States District Court for the District of Nebraska at Omaha in connection with the scheme and charged with engaging in an illegal conspiracy. Also named in the same indictment were several public officials in the area through which the pipeline ran. They were charged with accepting bribes for using their influence to smooth the way for the pipeline's construction. All were charged in Count I of the indictment with violations of Title 18, United States Code, Sections 1952 and 1341, and Title 18, Sections 7201 and 7206(1).

Among the public officials named in the indictment at Omaha was John B. Nicosia, a physician who served as Mayor of East Chicago, Indiana from 1964 to 1971 and during the period in question. He was not brought to trial at Omaha as some of the other defendants were. Defendant Nicosia was tried before this court in May 1973 at Hammond in case numbered 72 H Cr 108. The conspiracy indictment numbered 72 CR 105 was transferred from Nebraska and consolidated with two other counts under 72 H Cr 108 for trial. In this case the Government alleged Nicosia accepted and received one bribe of $9,500 in 1966 and another of $5,000 in 1967. Nicosia was also charged, under Title 26, United States Code, Section 7201, in counts II and III of said consolidated cases with omitting and failing to report these two cash payments which he allegedly received as bribes as taxable income on his 1966 and 1967 Federal income tax returns.

[Motion for Acquittal]

A jury found Nicosia not guilty of the charge of conspiracy in Count I and guilty as to Counts II and III involving his income tax returns. Defendant Nicosia made a motion for a judgment of acquittal at the end of all the evidence. The court did not rule upon the motion but took it under advisement and sent the case to the jury. The court has now heard further argument of counsel for the parties on the motion.

[Existence of Criminal Conspiracy]

It is undisputed that a criminal conspiracy did exist and that certain of the individuals and corporations named in the Omaha indictment were involved. It was a sordid affair, conceived prior to 1966 and continuing through 1969, and the scheme to bribe public officials was cynically undertaken.

The gas company and its subsidiaries hired Rochester , Goodell, Moldovan and Spain, Engineers, Inc. of Salem , Illinois to plan the pipeline and to make the necessary acquisitions and arrangements for easements and to perform all necessary services. An account, the "R. G. M. & S. Escrow Account", was set up at a bank in Salem , Illinois . Its agents were Frank M. Rochester, Warren B. Goodell, Earl Moldovan and William L. Spain, individually, of the engineering firm bearing their names. The stated purpose of the escrow was to provide cash for acquisition and approval of rights of way, licenses and permits for the pipeline and to pay all costs. Morrison Construction, Inc. of Hammond , Indiana was employed to construct the pipeline. James R. Morrison, the principal owner and president of Morrison Construction, supervised and carried out the construction work under the direction of Rochester and Spain , officers of the engineering firm.

The evidence before this court revealed that the actual purpose of the escrow was not only to pay for lawful acquisitions of rights of way but was to provide money for a fraudulent scheme whereby Rochester, Goodell, Moldovan and Spain would each individually render statements for alleged services not actually rendered, obtain payment of money from the escrow account, include the amount in his Federal income tax return, pay the tax thereon, and instead of retaining the remainder turn it over to Frank Rochester, who then converted it into old $20 U. S. bills and delivered same to James R. Morrison for use in bribing whatever public officials he chose to bribe. The undisputed evidence is that the conspiracy was carried out in the manner just described to the extent of $60,000 being delivered in old $20 bills to Morrison by Rochester and Spain . The disputed evidence concerns whether Morrison actually bribed public officials with the money, or kept some part or all of it, or whether he did in fact use the $60,000 or some part thereof to bribe public officials and, if so, how much and to whom such bribes were paid.

Trial of defendants Northern Natural Gas Company and its subsidiaries, Northern Gas Products Company and Hydrocarbon Transportation, Inc., and two corporate officers, Delbert William Calvert and James C. Smith, began in Omaha , Nebraska on April 2, 193. After three days of trial the case was terminated by an agreement between counsel for the Government and counsel for said defendants. The three corporate defendants and James C. Smith were permitted to plead nolo contendere Nebraska on April 2, 1973. After three days other counts of the indictment against them were dismissed. All counts were dismissed against defendant Delbert William Calvert. All of these defendants agreed to cooperate with and to testify for the Government in the trial of all the other indicted defendants. Before the conspiracy indictment was returned some of the defendants died. Frank M. Rochester of the engineering firm died in April 1967. John J. Kavanagh, a permit engineer for the Cook County, Illinois Department of Highways, and James L. Dent, an East Chicago councilman, died. George C. Lamb, also a member of the City Council of East Chicago, committed suicide a few days after he was indicted.

[Bribing of Public Officials]

Defendants Calvert and Smith testified at the Hammond trial of Nicosia . So did co-conspirators James R. Morrison and William L. Spain, who had been granted immunity. Earl Moldovan, who also was granted immunity, testified. They told of a complex scheme to bribe public officials with money which had been co-mingled with money intended for lawful purchases of rights of way, permits and licenses out of the R. G. M. & S. Escrow Account in the bank at Salem . As aforesaid, the money was paid out to Messrs. Rochester, Goodell, Moldovan and Spain upon receipt of vouchers for services which were in fact never rendered. Each of these individuals then accounted for the funds received in his Federal income tax returns and paid taxes thereon. The sizeable amount left over in the possession of each was then given to Rochester who in turn employed Morrison. It was Morrison who decided who should receive the money and when and where the payments should be made. Rochester did not even know the names of the persons who received payments. The names and the amounts paid were known only to Morrison. Morrison simply called Rochester who either brought money as requested or sent it by Spain .

Morrison confessed in his testimony that Rochester and Spain turned over to him a total of $60,000 to deliver to public officials. Spain 's testimony and the records of the deceased Rochester confirmed this. Rochester relied on Morrison to make the payments because of Morrison's long experience in the contracting business in the area involved and because of his long contract and intimate acquaintance with many of the public officials in Lake County , Indiana and Cook County , Illinois . Morrison had received $60,000 when Rochester died in April 1967 but he had not paid out all of it. He had approximately $40,000 from which he continued to make payments until, he said, the amount was exhausted in 1969.

Morrison testified in detail as to how, when and where and to whom he said he paid the money. Morrison said that in each case he told the public official to whom he gave money that he was making a political donation to him. Upon cross-examination he admitted that he did not report any of the $60,000 he received from Rochester and Spain as political contributions in accordance with Indiana law, although he did report a number of other political contributions of sizeable amounts he made during the same period of time in which he paid out the $60,000. He testified that he had been in the habit of making political contributions in Lake County , Indiana for many years.

The Government contends that all of the payments made out of the $60,000 fund which Morrison controlled were bribes paid out under the guise of political contributions.

After the Government traced the $60,000 to Morrison, an I. R. S. agent came to see him. The agent informed Morrison the Government had traced the $60,000 to him and knew he had paid no income tax on it. The agent informed Morrison the Government was conducting a criminal investigation of him. Morrison was informed of his right to refuse to make a statement by the agent. On cross-examination Morrison admitted that he then made no statement at that time. Thereafter he conferred with a lawyer who specialized in tax matters and he learned that if he could show that he merely acted as an agent and kept none of the $60,000 himself but delivered it as political contributions to third persons, he would not be liable for filing fraudulent income tax returns.

Morrison made a statement to the I. R. S. agent in which he stated he kept none of the $60,000 himself but gave it out to eight different persons in various sums, ranging from $500 to $9,500. Morrison then agreed to testify for the Government before the Grand Jury and at the trial of each person he named as receiving payments, and he did in fact testify before the Grand Jury and in this trial. In return for his testimony before the Grand Jury and in this case and other cases, he was not indicted and only named as an unindicted co-conspirator.

[Alleged Payment of Bribes to Taxpayer]

Morrison testified in this case that on September 30, 1966, after calling Nicosia earlier in the day, Nicosia came to Morrison's office at 9 P. M. and Morrison gave Nicosia $9,500 in old U. S. $20 bills in an ordinary-size envelope. Morrison further testified that on September 11, 1967, at dusk in the evening, he went to Nicosia 's home and gave him $5,000 in old U. S. $20 bills.

On cross-examination, Morrison admitted that in an earlier statement given to the I. R. S. agent he had stated under oath that Nicosia came to his office in the late afternoon of September 30, 1966 and not at 9 P. M. as he testified at the trial. He said his office kept a complete record of all persons who came to his office during business hours. He admitted that the log in his office shows no visit from Nicosia on the afternoon of September 30, 1966, though the log does show visits of East Chicago councilmen James L. Dent and George C. Lamb, both of whom he testified he knew well and to whom he testified he gave part of the $60,000 about September 1966 and afterwards. He also testified he made other contributions to them.

Morrison's records were brought into court and he admitted that nowhere was there any notation concerning Nicosia, not even in the small notebook which he used to refresh his memory at the trial and in which, he said, he made pencilled notes indicating when, how much and to whom he paid out the money.

Although Morrison testified he gave Nicosia the first payment of $9,500 in an ordinary-size envelope, upon cross-examination defendant's counsel handed him an ordinary long size-envelope and $9,500 in cash and demonstrated that such an envelope could not contain $9,500 in $20 bills but that it took three such envelopes to contain the money.

When cross-examined about his visit on September 11, 1967 to Nicosia 's home, Morrison became vague. He told a story of finding Nicosia alone doing a masonry job on his patio, which testimony was completely refuted by the testimony of the contractor who actually constructed the patio.

[Income Tax Returns]

Defendant Nicosia testified on his own behalf. Nicosia 's income tax returns show that he paid no income tax on either of the alleged payments to him. He testified that he paid no tax on these alleged payments because he did not receive them. Nicosia categorically denied that he visited Morrison in his office on September 30, 1966, or on any other occasion, or that Morrison had visited him in his home on September 11, 1967, or on any other occasion, or that Morrison had delivered $9,500 to him on September 30, 1966 or $5,000 on September 11, 1967, or that Morrison had delivered any sum of cash or money to him at any time. Nicosia testified that he had only met Morrison on one or two occasions at public affairs and had no political, social or personal relations with Morrison. Morrison's own testimony revealed that he had a very limited acquaintanceship with Nicosia and that he never had any extensive conversations or dealings with Nicosia except on the two occasions when he claimed he made the contributions to Nicosia .

Nicosia 's wife testified that she had never seen Morrison before the trial. She said she has not gone out of the Nicosia house of evenings and that she has not left her husband alone of evenings for at least 10 years, except for two Spring banquets each year, and that Morrison could not have visited Nicosia alone in the Nicosia home on September 11, 1967. Nicosia 's secretary, during the time he was Mayor, testified that she screened all telephone calls for Nicosia while he was Mayor and that he never called Morrison and never had a call from him. She also served as receptionist and testified that Morrison never visited Nicosia in Nicosia 's office.

[Reputation]

Numerous witnesses testified not only concerning Nicosia 's good reputation for truth and veracity but as to his reputation as a law-abiding citizen and concerning his activities in innumerable good causes without compensation. The evidence also showed that Dr. Nicosia's $15,000 annual salary as Mayor of East Chicago did not compensate him for the loss of income from seeing individual patients in his medical practice which he gave up during the time he served as Mayor.

The record revealed, but not before the jury, that one I. R. S. agent reported Nicosia did not live beyond his means. Another agent stated that he would have closed the investigation of Nicosia except that he was ordered not to do so, apparently because of a magazine article concerning alleged policy wheel operations in East Chicago . That evidence was not before the jury either.

Morrison testified that he graduated from college as an engineer more than a quarter of a century ago and that for more than 20 years he was engaged with his father and now with his son in the contracting business in Hammond . He has been president and general manager of the construction firm for many years. He hires from 1,000 to 2,500 people annually and engages in large scale construction projects and deals in millions of dollars annually. Morrison is indeed an engaging personality and and a successful "go-getter type" of business man. He is one knowledgeable in the affairs of the business world as such affairs are conducted both above and under the table.

[Bribe Payor's Testimony]

During the time he had the $60,000 in his possession, Morrison admitted that his company was having severe financial difficulties and that he himself was having a drinking problem. One of the Internal Revenue agents who interviewed him told of one occasion when Morrison was too drunk for him and another agent to get any sense out of the interview. Morrison in his testimony admitted that on occasion he was "smashed", meaning drunk. Under all the circumstances, Morrison's testimony that without prior conversation or arrangements, directly or through liaison, he called up Nicosia and got him to come to Morrison's office where he gave him $9,500 in old U. S. $20 bills, taxes the belief of a reasonable person. The same is true of Morrison's story of the $5,000 contribution he said he made when he claims he visited the Nicosia home.

Every defendant in a criminal case is presumed to be innocent until proven guilty beyond a reasonable doubt and no defendant is required to prove himself innocent. In the case at bar the sole evidence against defendant Nicosia is the uncorroborated testimony of Morrison who said that at 9 P. M. on September 30, 1966 he gave Nicosia $9,500 in old $20 bills in Morrison's office, after calling Nicosia earlier in the day, and that on September 11, 1967 at dusk in the evening he went to Nicosia's home and gave him $5,000 in old $20 bills.

[Guilt Beyond Reasonable Doubt]

The court has considered the evidence against defendant in the light most favorable to the Government. The testimony of Morrison is unsupported. He was an alleged accomplice, named as a co-conspirator in the conspiracy indictment. Before this court he has admitted that part of his business is the making of political contributions on a wholesale basis in exchange for favors, which amounts to bribery under the guise of political contributions. His testimony about payments to Nicosia is contradicted by the surrounding circumstances and is impeached by his own sworn contradictory statements to the Internal Revenue agent when first interviewed. In this case the sole evidence as to Nicosia 's receipt of payments is the testimony of Morrison, an alleged accomplice and self-confessed giver of bribes.

In Morrison's testimony he entirely absolved himself and shifted all the incriminating conduct to Nicosia . This is flatly and completely contradicted by defendant Nicosia who was shown by uncontradicted evidence to be a person of excellent reputation and to be a public official who never accepted political contributions. Such affirmative evidence, together with the evidence of defendant's lifetime of good works and excellent reputation, refutes the uncorroborated and impeached testimony of the Government's lone witness against defendant as to the alleged payments. Morrison would be guilty of defrauding the United States of income taxes by his own testimony except for his testimony against the defendant.

The evidence produced by the Government does not constitute proof beyond a reasonable doubt that would satisfy a reasonable man as is required by the Constitution. That is the law of the land as announced in the decisions hereinafter cited.

The duty of a trial judge when a motion is made for a judgment of acquittal in a criminal case, pursuant to Rule 29 of the Federal Rules of Criminal Procedure, was clearly set forth by the Court of Appeals for the Seventh Circuit in the case of United States v. Yeoman-Henderson, Inc. [52-1 USTC ¶9155], 193 F. 2d 867, 869, There the court in 1952 stated:

When a motion for judgment of acquittal is made, the sole duty of the trial judge is to determine whether substantial evidence, taken in the light most favorable to the government, tends to show the defendant is guilty beyond a reasonable doubt. . . .

The court there cited with approval similar language in Bell v. United States [50-2 USTC ¶9499], 185 F. 2d 302 (4th Cir. 1950).

In 1954 the Court of Appeals for the Seventh Circuit, in affirming this court in United States v. Aman, 210 F. 2d 344, repeated its language verbatim as set forth in United States v. Yeoman-Henderson, Inc., supra. Other cases supporting this view are United States v. Thayer, 209 F. 2d 534; United States v. Bardin [55-1 USTC ¶9488], 224 F. 2d 255; United States v. Morris, 225 F. 2d 91; United States v. Marshall, 266 F. 2d 92; United States v. Taylor, 266 F. 2d 310; United States v. Williams, 311 F. 2d 721; and United States v. Eley [63-1 USTC ¶9264], 314 F. 2d 127.

The leading case on the whole scope of the motion for a judgment of acquittal is Curley v. United States, 160 F. 2d 229, 232 (D. C. Cir. 1947), cert. denied, 331 U. S. 837 (1947). In that case the Court of Appeals for the District of Columbia stated:

The true rule, therefore, is that a trial judge, in passing upon a motion for directed verdict of acquittal, must determine whether upon the evidence, giving full play to the right of the jury to determine credibility, weigh the evidence, and draw justifiable inferences of fact, a reasonable mind might fairly conclude guilt beyond a reasonable doubt. If he concludes that upon the evidence there must be such a doubt in a reasonable mind, he must grant the motion; . . .

In Yeoman-Henderson, supra, Judge Duffy, speaking for the Court of Appeals for the Seventh Circuit in 1952, approved the language in the following words, ". . . The rule is well stated in Curley v. United States . . ." The Curley decision has been followed in the following cases: Cooper v. United States, 218 F. 2d 39 (D. C. Cir. 1954); Bates v. United States, 219 F. 2d 30 (D. C. Cir. 1955); Borum v. United States, 380 F. 2d 595 (D. C. Cir. 1967). In this last case the court, as if to emphasize the rule, in note 5 on page 596 in referring to the motion for acquittal says, "The motion must be granted 'if there is no evidence upon which a reasonable mind might fairly conclude guilt beyond reasonable doubt * * *'." Other cases are: United States v. Haderlein, 118 F. Supp. 346; Lyda v. United States, 321 F. 2d 788; Tillery v. United States, 411 F. 2d 644; United States v. Hibler, 463 F. 2d 455.

There are no cases contrary to the views set forth in these cases. Therefore it is well settled in American jurisprudence.

[Conclusions]

If there ever was a case in which there is no evidence upon which a reasonable mind might fairly conclude guilt beyond reasonable doubt, it is in the case at bar.

Accordingly, the court does hereby grant the motion of defendant for a judgment of acquittal, and, inasmuch as the jury verdict of guilty rendered herein is not supported by proof of guilt beyond a reasonable doubt, the verdict of the jury finding Nicosia guilty as charged in Counts II and III, the income tax counts, is hereby vacated, set aside and declared null and void.

A judgment of acquittal of Dr. John B. Nicosia is hereby entered and he is hereby discharged from custody and acquitted of all charges for which he was indicted herein

 

 

[71-1 USTC ¶9356]Unitd States of America v. Stanley J. Polack, Appellant

(CA-3), U. S. Court of Appeals, 3rd Circuit, No. 18,424, 442 F2d 446, 4/5/71, Aff'g an unreported District Court decision

[Code Sec. 7203--Result unchanged by '69 Tax Reform Act]

Willful failure to file return: Trial: Prejudicial remarks and testimony: Character witnesses: Instructions to jury.--The taxpayer, a county judge, was convicted of willful failure to file returns for several years. Held, remarks made in summation and questions asked of character witnesses bearing on the taxpayer's occupation were not prejudicial. Held further, the court's charge to the jury on the element of willfulness was not erroneous.

Stephen M. Greenberg, Assistant United States Attorney, Newark , N. J., for appellee. Nicholas Martini, 663 Main Ave., Suite 1101 , Passaic , N. J., for appellant.

Before KALODNER, STALEY and GIBBONS, Circuit Judges.

Opinion of the Court

STALEY, Circuit Judge:

Appellant, a county judge for Passaic County, New Jersey, was convicted of willfully failing to file Federal Income Tax returns for the years 1962, 1963, 1964, 1965, and 1966, in violation of Title 26 U. S. C. §7203. ¹ This appeal followed.

Appellant contends that he suffered ineradicable prejudice and a miscarriage of justice as a result of comments made in the Government's summation, which emphasized that he was a county judge. Appellant further contends that the district court committed plain error in permitting irrelevant and prejudicial questions of appellant's character witnesses on cross-examination and that the court erred in its charge to the jury on the element of willfullness.

Appellant's argument concerning the comments made during the Government's summation is without merit. We note at the outset that appellant did not raise timely objection to the summation. This standing alone, except in case of flagrant abuse not present here, will bar him from raising this point on appeal. United States v. Socony Vacuum Oil Co., 310 U. S. 150, 238-239 (1940); United States v. Murphy, 374 F. 2d 651, 655 (C. A. 2), cert. denied, 389 U. S. 836 (1967). Even assuming that objections had been timely raised, we fail to see how references to the appellant's judicial position can be said to be prejudicial and inflammatory. The Government, for instance, referred to the appellant as "the man who donned the black robe," "the lawgiver," and "a dispenser of justice." These references were not part of a persistent and calculated attack on the character of the defendant. This court has stated in United States v. Sober, 281 F. 2d 244, 250 (C. A. 3), cert. denied, 364 U. S. 879 (1960), "Every defendant is of course jealously protected against inflammable statements, against prejudicial statements not based upon the evidence or fair and reasonable deductions from it. . . ." Statements of this nature, however, are not present in the instant case. Appellant raised at trial the fact that he was a judge, that he heard civil and criminal matters, and that he had a reputation for honesty in the community. We cannot agree that the Government's reference to facts raised by appellant during the course of trial are improper and constitute reversible error. "To say that this remark would have a prejudicial effect on a jury which had listened throughout a long trial to the unfolding of the testimony is to attribute a stupidity and absence of common sense which is incredible in a federal jury." United States v. Kravitz [60-2 USTC ¶9649], 281 F. 2d 581, 586 (C. A. 3, 1960), cert. denied, 364 U. S. 941 (1961).

Appellant next contends that the district court erred in permitting cross-examination of his character witnesses on matters that were irrelevant. He specifically takes issue with questions such as whether one witness, a lawyer, was shocked by the news that a local judge had failed to file returns and whether this news was a blow to and shocked the witness and other lawyers; whether another witness believed that a judge's conduct should be free from impropriety, from the appearance of impropriety, and from infractions of the law; and whether the latter witness, a former State senator, would have moved for confirmation of the appointment of appellant as a judge, putting him on the bench "with the black robe around his shoulders, sitting in judgment in criminal cases," "returning that kind of a man to the bench." It is a fundamental principle of law that the scope of the Government's cross-examination of defense character witnesses is determined by the trial court as a matter of discretion and the ruling of the trial court will be disturbed only "on clear showing of prejudicial abuse of discretion." Michelson v. United States , 335 U. S. 469, 480 (1948). We do not find an abuse of discretion in the instant case. Defendant had voluntarily put his reputation in issue and had thus made it a proper area for cross-examination, Michelson v. United States , supra. The Government's cross-examination of these character witnesses went to their knowledge of the appellant's reputation and to the witnesses' standard of good repute. The facts upon which these witnesses were cross-examined were relevant to issues raised by the appellant. ²

Appellant further contends that the district court erred in its charge to the jury on the element of willfullness. The instructions given adequately stated the law governing the element of willfullness and were in accord with this court's holding in United States v. Vitiello [66-2 USTC ¶9480], 363 F. 2d 240 (C. A. 3, 1966); and United States v. Palermo [58-2 USTC ¶9850], 259 F. 2d 872 (C. A. 3, 1958). Even assuming arguendo that the instructions as given were incorrect, no objection was made to them by appellant as required by Rule 51, F. R. Civ. P., 28 U. S. C. ³ Rule 51 thus precludes him from raising this objection for the first time on appeal. We cannot say that the charge was so fundamentally unfair as to have resulted in a gross miscarriage of justice. United States v. Atkinson, 297 U. S. 157 (1936); McNello v. John B. Kelly, Inc., 283 F. 2d 96 (C. A. 3, 1960).

We have carefully considered all of appellant's other arguments and find them to be without merit. The judgment of the district court will be affirmed.

¹ The statute provides that "any person . . . required by this title . . . to make a return . . . who willfully fails to . . . make such return . . . shall . . . be guilty of a misdemeanor. . . .

² An examination of the record shows that the Government's cross-examination of appellant's character witnesses was a proper inquiry into testimony voluntarily elicited from the witnesses on direct examination. Three of these witnesses either voluntarily or in response to questions by appellant's counsel offered testimony upon which the Government had a right to cross examine.

³ The district court twice instructed the jury on the element of willfullness; once in its initial charge, and again in a supplemental charge given in response to a question by the jury. Following each of these instructions, appellant's trial counsel specifically did not take exception to the instruction given by the court.

 

 

[75-1 USTC ¶9231] U. S. of America , Plaintiff-Appellee v. Rob ert Gray, Defendant-Appellant

(CA-5), U. S. Court of Appeals, 5th Circuit, Nos. 74-2282, 74-2283, 507 F2d 1013, 2/7/75, Aff'g unreported District Court decision

[Code Secs. 7201 and 7206(1)]

Crimes: Tax evasion: False returns: Defenses.--The owner of a petroleum company was properly convicted of tax evasion and filing a false return. The trial court did not commit reversible error in restricting the number of character witnesses to three, nor was it improper in permitting a revenue agent to testify as a summary witness and to introduce a summary chart of his calculations. The owner was properly cross-examined as to acts of attempted tax evasion similar to the ones of which he was convicted. The court's instructions to the jury were adequate.

Sydney B. Nelson, 720 Commercial National Bank Bldg., Shreveport , La. , for plaintiff-appellee. Donald E. Walter, United States Attorney, L. Edwin Greer, Assistant United States Attorney, Joseph S. Cage, Jr., Assistant United States Attorney, Shreveport, La., for defendant-appellant.

Before RIVES, WISDOM and COLEMAN, Curcuit Judges.

RIVES, Circuit Judge:

After a six-day trial by jury, Rob ert Gray was convicted of income tax evasion in violation of 26 U. S. C. §7201 and of filing a false and fraudulent income tax return in violation of 26 U. S. C. §7206(1). The calendar years 1967 and 1968 constitute the period covered. Two judgments of conviction were entered with sentences totaling six months' imprisonment to serve, five years on probation, and a requirement that, within twenty-four months, he pay taxes due with penalties and interest.

On appeal, Gray makes no claim of insufficiency of the evidence to support the jury's verdict, but contends that in the course of his trial the district court committed reversible errors. We find no reversible error and hence affirm.

The Facts

Gray had some school training as an accountant. He had been employed as bookkeeper for a construction company, then for nine years as comptroller of an independent oil drilling company. In 1966 he had formed a self-owned corporation, Tennky Petroleum Company. He testified that, "I drilled twelve or fifteen wells myself" (App. 427). He also testified to "quite a bit" of activity in the stock market. In 1968 his purchases and sales had amounted to $206,747.72 (App. 485).

For the calendar year 1967 he reported the taxable income of himself and his wife as $9,499.19, a figure less than half of their true taxable income. For 1968 he reported taxable income of $14,125.16, when it was actually nearly four times that amount. The discrepancies were accounted for by items of income not reported and deductions reported to which he was not entitled. He admitted making profits in the stock market which he forgot to report (App. 580, 581). He admitted also that in 1968 he had received from Southwest Production Company a salary totaling $9,750.00 which he forgot to report (App. 507). That $9,750.00 was paid by thirteen checks for $750.00 each. At Gray's request Southwestern made those checks payable to his corporation, Tennky Petroleum Company. Gray testified that he picked up a check twice a month, deposited it to the Tennky account and then wrote a check to himself "presumably the same day" and deposited that check to his personal account. He reported as income from Southwest only the amount received on its W-2 tax form (App. 512). Tennky in turn issued no 1099 tax form in the name of Rob ert Gray (App. 513).

"Q. Nothing at all went to the Government to indicate Rob ert Gray received $9,750.00, did it?

"A. That is correct." (R. 513.)

Gray testified that he filed an amended return on September 2, 1969, and paid the tax due on the $9,750.00, but he could not recall whether the Examination Agent had discussed that with him prior to his filing the amended return. He testified further on cross-examination:

Q. You are saying you do not recall today whether Agent Farrar had discussed these omitted checks with you prior to filing that amended return?

"A. No, sir, I don't.

"Q. You said you did hear Agent Caldwell say you admitted that to him?

"A. That is correct. I don't remember admitting it to him. I remember him testifying about it.

"Q. Your interview with him was January 8, 1970, wasn't it?

"A. Somewhere in there." (R. 516.)

It was after the foregoing part of the cross-examination of Gray that counsel for the government received permission to approach the bench.

"(Whereupon there was a discussion at the bench between the Court and counsel out of the hearing of the jury).

"MR. GREER [Government Counsel]: Your Honor, I intend to introduce evidence and cross examine the defendant on additional items of income which he received and did not report on his tax returns for the years 1967 and 1968. These are both relevant and admissible inasmuch as it is very much a part of this trial. These are similar acts and they are the identical crime for which the defendant is on trial here today.

"THE COURT: Mr. Nelson objects, I suppose, because they are not alleged in the indictments. Since they are similar crimes the ruling is they are admissible to show intent." (R. 523.)

Mr. Nelson, counsel for Gray, did indeed most strenuously object but the court adhered to its ruling with the caveat:

"I will have to charge the jury this is admissible only to show criminal intent. In other words, if they are not to convict him on this as a separate crime mentioned in the indictment, but they are allowed to consider it." (R. 525.)

The court did adequately so instruct the jury. Nonetheless, the ensuing vigorous cross-examination was, in all probability, extremely prejudicial to the defendant Gray. The result of the trial really turned on criminal intent vel non.

Restriction on Number of Character Witnesses

At the beginning of the trial the government submitted to the court a brief containing the following paragraph:

"The Government anticipates that the defendant will offer the testimony of character witnesses in his behalf. Courts in the past have been faced with the problem of where to draw the line on limiting the number of character witnesses. A limitation of character witnesses to three (3) has most frequently been found appropriate and has been approved by the Courts of Appeal. See United States v. Squella-Avendano [478] F. 2d [433] (C. A. 5th, April 13, 1973); United States v. Jacobs, 451 F. 2d 530 (C. A. 5th, 1971), certiorari denied, 405 U. S. 955 [92 S. Ct. 1170, 31 L. Ed. 2d 231]. The limitation of character witnesses is, of course, in the Court's discretion."

After Gray's third character witness had testified, a colloquy between Gray's counsel and the court occurred.

"MR. NELSON: If it please the Court, we have several other character witnesses--

"THE COURT: It has been the unvarying rule of this Court long before my time and upheld by the Fifth Circuit Court of Appeals that character witnesses are limited to three. We apply that rule here.

"MR. NELSON: For the record, because the character and reputation is of such importance in the type of crime charged here, we respectfully object to the Court's ruling." (R. 403.)

On appeal, Gray insists that the district court applied no discretion but arbitrarily used a fixed and unvarying rule. Since the leading case on "character evidence," Michelson v. United States, 1948, 335 U. S. 469, 69 S. Ct. 213, 93 L. Ed. 168, it has been well settled that trial courts are vested "with discretion to limit the number of such witnesses and control cross-examination." 335 U. S. at 480, 69 S. Ct. at 220. See also 6 Wigmore on Evidence, 3d ed. §1908(2), pp. 580, 581; 2 Wright Federal Practice & Procedure, Criminal §409. However, this Court has not upheld any "unvarying rule" and we agree with the annotation in 17 A. L. R. 3d 327, at 335, that,

"The number of witnesses allowed to testify should not be arbitrary or unreasonably restrictive, and prejudicial error in those respects will entitle the injured party to relief. A general rule of limitation applicable to all cases without regard to the particular circumstances has been held to exclude discretion and to be, therefore, unreasonable and unlawful." (Footnotes omitted.)

Professor Wigmore calls attention that the limitation of the number of witnesses applies not only to reputation or character but may be enforced "upon any point whatever" (emphasis in text). 6 Wigmore on Evidence, 3d ed. §1908(3), p. 581. Especially pertinent to this case are Professor Wigmore's further remarks:

"It is sometimes required that the trial Court (with or without the parties' motion) announce before any witnesses on the point are offered, that a limitation of the witnesses upon the particular fact will be enforced, and a failure to do this is said to prevent the enforcement of any limitation; on the theory that, unless the party is thus advised of the intended limit, he may be obliged to omit his most valuable witnesses through not having known of the necessity of choosing the best of the lot at his disposal. This requirement has a plausible fairness in it, and is usually proper when feasible. But it is not always feasible, because the judge may not know of the party's intention as to number of witnesses; and it is not always proper for the judge to commit himself to such a fixed limit before hearing any of the witnesses. The trial Court's discretion should be left to determine whether such a prior notice was feasible and desirable under the circumstances." (Emphasis in text.) (Footnote omitted.)

At pp. 585, 586. We think it clear that the district judge meant no more than to recognize such a long-standing practice which should "apply here"; that in fact he exercised a sound and reasonable discretion in this particular case.

Permitting a Revenue Agent to Testify as a Summary Witness and Introducing a Summary Chart or Schedule of his Calculations

In his opening statement to the jury, counsel for the government called attention to the necessity of introducing many documents and corporate records, and further said:

"The law recognizes in this case no juror can be expected to retain all this information and put it in the proper slot. For that reason, the government is entitled to bring in an expert to testify in the case. The law permits the expert to listen to the testimony, examine the documents and testify to his expert opinion as to what these documents mean and what tax, if any, should have been paid by the defendant.

"You, as jurors, are entitled to give that expert's opinion the weight you believe it deserves. What I am saying is for you to bear with us because a tax case is like a jigsaw puzzle and at the end we will put it all together." (R. 7-8.)

In accord with that announced strategy, the government called as its last witness a revenue agent for the purpose of summarizing the evidence and making the resulting tax computations. Similarly, the defendant called as his last witness a certified public accountant who testified at length as to his qualifications and as to a schedule summarizing the evidence.

The propriety of that practice in income tax cases was clearly established by the Supreme Court in United States v. Johnson, 1943, [43-1 USTC ¶9470], 319 U. S. 503, 519, 63 S. Ct. 1233, 87 L. Ed. 1546. Since Johnson, the practice has been accepted and followed in cases too numerous to mention, some of which are listed in the margin. ¹ The opinions in many of those cases quote from the opinion in Johnson, supra, written by Mr. Justice Frankfurter:

"* * * The worth of our jury system is constantly and properly extolled, but an argument such as that which we are rejecting tacitly assumes that juries are too stupid to see the drift of evidence. The jury in this case could not possibly have been misled into the notion that they must accept the calculations of the government expert any more than that they were bound by the calculations made by the defense's expert based on the defendants' assumptions of the case. So long as proper guidance by a trial court leaves the jury free to exercise its untrammeled judgment upon the worth and weight of testimony, and nothing is done to impair its freedom to bring in its verdict and not someone else's we ought not be too finicky or fearful in allowing some discretion to trial judges in the conduct of a trial and in the appropriate submission of evidence within the general framework of familiar exclusionary rules."

319 U. S. at 519-520, 63 S. Ct. at 1241.

On the trial, defendant avoided making a frontal attack upon a practice so well settled. Instead, his first insistence was that a summary witness was not needed in a case no more complicated than this, that "there is an extreme in our case," and "a real danger of a person who purports to be an expert invading the province of the jury." (R. 291.) The district court disagreed, recounted the many exhibits and expressed its view that "the jury could not possibly understand or correlate them without the assistance of an expert." (R. 291.) The judge stated further that the evidence would be admitted, "* * * we think in the proper exercise of our discretion and in order to assist the jury, but with a cautionary instruction, conclusions reached by the expert as to whether or not there was a deliberate, willful understatement of income is the function of the jury rather than the expert." (R. 291.) Defendant's counsel then stated: "[W]e would like to point out the defendant is not by and large disputing the fact that he earned the income asserted by the government. It is a matter of intent and willfulness almost solely. The cases indicate there is a little danger that the jury in hearing an expert testify will conclude by the expert saying there is tax due that there is guilt." (R. 291, 292.)

After further colloquy, the jury was excused from the courtroom pending a voir dire examination of the witness, Malcolm L. Johnson. He had 171/2 years' experience as a revenue agent with the Internal Revenue Service, and had testified in two other criminal tax evasion cases. He was not a graduate accountant, had little experience in oil and gas law, and was not familiar with a "carried" working interest in an oil well, nor with three Fifth Circuit cases dealing with the income tax effects of a "carried" interest, viz., C. I. R. v. J. S. Abercrombie Co., 1947 [47-2 USTC ¶9301], 162 F. 2d 338; Prater v. C. I. R., 1959, 273 F. 2d 124, United States v. Cocke (en banc), 1968, [68-2 USTC ¶9502], 399 F. 2d 433. The court was recessed overnight to permit Mr. Johnson to read those three opinions and also for the Judge to study and analyze those cases.

The importance of those cases to Gray's defense was claimed because of the terms of his employment by Southwest. Under a letter agreement dated August 15, 1967, Gray was employed by Southwest Production Company. The agreement provides:

"My beginning salary shall be $1500 per month, payable on the 1st and 15th days of each month. In addition I shall receive 5% of the economic interest retained by Southwest Production Corporation and the related companies in all oil and gas properties acquired after August 15, 1967, plus 5% of the economic interest retained by those companies in any leases presently owned on which leases wells are drilled in the future. Economic interest is defined to include working interest, overriding royalty, oil payment, production payment, etc.

"After November 15, 1967, either party wishing to terminate this agreement may do so on 90 days written notice."

(Gov't Exh. 22.) In practice, Southwest and Gray were in accord that Gray's "economic interest" was free and clear of any liability for intangible drilling expenses. As to current operating expenses of a producing well, Southwest contended that Gray should pay a proportionate share, while Gray claimed that he did not owe any such costs. No drilling costs or operating costs were actually paid by Gray.

After the overnight recess for consideration of the three cases (Abercrombie, Prater and Cocke), the district judge stated to counsel his analysis of those cases and his conclusion that they were inapplicable to the case on trial, except for their possible bearing on the question of Gray's good faith in taking deductions for intangible drilling costs and for depreciation upon the equipment necessary for production. We agree. ²

The district court did not err in overruling the defendant's objection to the competency of Johnson as an expert summary witness. Nor did the court err in allowing Johnson's testimony to be introduced with the court's caveat to the jury: in effect, that Johnson's opinions were not binding upon the jury but were meant to be helpful and were entitled to such weight as the jury might see fit to accord them; that the jury was bound by the judge's instructions as to the law, while the questions of criminal intent, willfulness, good faith and other questions of fact were left for the jury to determine. We find no reversible error in the district court's rulings on the testimony of the government's expert summary witness.

Cross-examination of Defendant

On trial, as has been stated, Gray's main defense was that he acted in good faith and had no criminal intent. In refuting that defense, the government could properly cross-examine Gray as to similar acts of attempted income tax evasion committed during the calendar years of 1967 and 1968, in addition to the acts charged in the indictments. United States v. Jernigan, 5 Cir. 1969, [69-1 USTC ¶9397] 411 F. 2d 471; United States v. Waller, 5 Cir. 1972, [72-2 USTC ¶9721] 468 F. 2d 327; accord Ahrens v. United States, 5 Cir. 1959, 265 F. 2d 514; Wright Federal Practice & Procedure, Criminal §410.

We find no reversible error committed in the cross-examination of the defendant. His cross-examination was thorough and vigorous but nonetheless fair.

The Court's Instruction to the Jury

The Court properly refused defendant's requested jury instruction No. 10, which concluded:

"Under court decisions by the United States Court of Appeals for the Fifth Circuit, which includes Louisiana , a carried party could, between the years 1947 and 1968, deduct his proportionate share of the cost of development and operation of the well even though he did not spend any of his own funds to pay for these costs. Commissioner of Internal Revenue v. [J. S.] Abercrombie Co. [47-2 USTC ¶9301], 162 F. 2d 338 (5th Cir., 1947); Prater v. Commissioner of Internal Revenue [60-1 USTC ¶9124], 273 F. 2d 124 (5th Cir., 1959); United States v. Cocke [68-2 USTC ¶9502], 399 F. 2d 433 (5th Cir., 1968)."

As has been developed, the cited cases had no relevance to Gray's tax liability. They might possibly bear upon the question of whether he acted in good faith and without criminal intent.

The court refused also defendant's requested jury instruction No. 7 concerning willfulness and particularly charging:

"There must be specific wrongful intent to conceal an obligation known to exist as compared to a genuine misunderstanding of what the law required."

The court's general charge included an instruction to the same effect (R. 740). The court fully and properly instructed the jury that Gray could not be convicted because of mistake, inadvertence or other innocent reason, but that willfulness and specific criminal intent must be proved.

Finding no reversible error, the judgment is

Affirmed.

¹ Cave v. United States, 8 Cir. 1947, [47-1 USTC ¶9171] 159 F. 2d 464, 468; United States v. Daisart Sportswear, 2 Cir. 1948, 169 F. 2d 856, 863; Kirsch v. United States, 8 Cir. 1949, [49-1 USTC ¶9274] 174 F. 2d 595, 601; Graves v. United States, 10 Cir. 1951, [51-2 USTC ¶9431] 191 F. 2d 579, 584; Gross v. United States, 9 Cir. 1953, 201 F. 2d 780, 787; Wardlaw v. United States, 5 Cir. 1953, [53-1 USTC ¶9335] 203 F. 2d 884, 885; Banks v. United States, 8 Cir. 1953, [53-1 USTC ¶9402] 204 F. 2d 666, 670: Beaty v. United States, 4 Cir. 1954, [54-2 USTC ¶9466] 213 F. 2d 712, 720; White v. United States, 5 Cir. 1954, [54-2 USTC ¶9575] 216 F. 2d 1, 5; Steele v. United States, 5 Cir. 1955, [55-1 USTC ¶9438] 222 F. 2d 628, 629-630; Smith v. United States, 6 Cir. 1956, [57-1 USTC ¶9242] 239 F. 2d 168; Blackwell v. United States, 8 Cir. 1957, [57-1 USTC ¶9644] 244 F. 2d 423, 431; United States v. Kiamie, 2 Cir. 1958, [58-2 USTC ¶9817] 258 F. 2d 924, 933; Barber v. United States, 6 Cir. 1959, [59-2 USTC ¶9784] 271 F. 2d 265; United States v. Willis, 3 Cir. 1963, 322 F. 2d 548, 551; Wirtz v. Turner, 7 Cir. 1964, 330 F. 2d 11, 14; Barsky v. United States, 9 Cir. 1964, [65-1 USTC ¶9109] 339 F. 2d 180; United States v. Mackey, 7 Cir. 1965, [65-1 USTC ¶9328] 345 F. 2d 499, 507.

² On appeal, counsel does not seriously argue that Gray was entitled to the deduction of $8,700.00 shown on his 1967 Tax Returns as "intangible drilling and dry hole expenses." Gray's good faith vel non in claiming that deduction was left to the jury.

 

 

[63-2 USTC ¶9684]Mario Sanseverino, Appellant v. United States of America , Appellee

(CA-10), U. S. Court of Appeals, 10th Circuit, No. 7265, 321 F2d 714, 8/22/63, Affirming unreported District Court decision

[1954 Code Sec. 6531]

Statute of limitations: Sufficiency of complaint: Prosecution for tax evasion.--The filing of a complaint within the six-year period of limitations effectively tolled the statute of limitations under Code Sec. 6531. It was not necessary for the government to introduce formal proof that the statute had been tolled.

[1954 Code Sec. 7201]

Evidence: Admissibility: Character witnesses: Transactions in prior years.--Admission of evidence of the defendant's transactions in prior years was not prejudicial and the trial court's limitation of the number of character witnesses was not erroneous. Miscellaneous assignments of error in the trial court's instructions were overruled.

Gus Rinehart, Suite 2320, First National Bldg., Oklahoma City, Okla. (S. Morton Rutherford, Thompson Bldg., Tulsa, Okla., on brief), for appellant. John M. Imel, United States Attorney, Tulsa , Okla. , for appellee.

Before PHILLIPS, PICKETT and LEWIS, Circuit Judges.

LEWIS, Circuit Judge:

Appellant was found guilty by a jury of wilfully and knowingly attempting to evade payment of income tax in violation of 26 U. S. C. A. 7201. ¹ The two-count indictment charged the taxpayer with having concealed income and assets in the years 1955 and 1956 and with having understated his income returns for those years by $26,586.95 and $22,912.56. He appeals the judgments of conviction asserting numerous errors in the admission of evidence and the instructions of the court and specifically contending that the statute of limitations had run as to Count I of the indictment.

[Statute of Limitations]

The indictment was filed May 17, 1962, and charged in Count I the filing of a false return upon April 9, 1956, for the taxable year 1955. The government offered no affirmative proof that the normal six-year period of limitation set by 26 U. S. C. A. 6531(2) had been tolled but the files and records of the District Court show that a complaint was filed in that court on March 30, 1962. The filing of such complaint, when made by the examining agent and affirmatively stating that the complaint is based upon his personal investigation, effectively tolls the statute under the proviso of Sec. 6531 which provides in part:

". . . Where a complaint is instituted before a commissioner of the United States within the period above limited, the time shall be extended until a date which is 9 months after the date of the making of the complaint before the commissioner of the United States ."

The government had no burden to offer formal proof of that which appears in the case record of the court for such is the cornerstone of judicial notice. Appellant's reference to White v. United States, 5 Cir., [54-2 USTC ¶9575] 216 F. 2d 1, and Flemister v. United States, 5 Cir., [58-2 USTC ¶9904] 260 F. 2d 513, is guideless for in each of those cases the trial court relied, through judicial notice, upon something that did not appear in its record.

[Evidence of Transactions in Prior Years]

Appellant urges that the admission of irrelevant evidence of transactions in years prior to the years under investigation was error and prejudiced his defense. The trial court instructed the jury as to the reasons for the admission of such evidence:

"You are instructed that although the defendant is herein charged with attempting to evade his income taxes for the years 1955 and '56, the Court nevertheless permitted evidence of like or similar transactions by the defendant in prior years. Such evidence is to be considered by you only insofar as you may find it bears upon or relates to the intent of the defendant, if you find that he failed to pay all of his taxes for a year or years involved in this indictment. In other words, such evidence was admitted for the purpose of throwing light upon the state of mind or intent of the defendant when he filed tax returns for the years 1955 and '56 and to show that the charged attempts to evade were part of the pattern or course of conduct which had been followed in former years."

Appellant protests that the transactions which were shown, i.e. a stock sale in 1953, large cash transactions and bank deposits, were not similar to his activities in the years under investigation, United States v. Accardo, 7 Cir., [62-1 USTC ¶9170] 298 F. 2d 133, and indeed, implied to the jury that defendant had not paid proper taxes in prior years. We see no error in nor prejudicial effect to the admission of such testimony for it was consonant with the defense that his failure to pay the full tax required of him was a misconception of the law and a laxity in his business habits. The appellant was afforded ample opportunity to refute the implications which he now finds in the evidence and in fact offered evidence showing his entire life in this country and Italy , including its financial aspects. Whether or not the evidence to which he now objects demonstrated a pattern of tax evasion or a pattern of excusable negligence in money matters became a matter for the jury to decide. It was not, at any rate, inadmissible as irrelevant. Continuity of motive and intent may be shown by evidence of the conduct of a defendant at times proximate to that charged in the indictment. Morlan v. United States , 10 Cir., 230 F. 2d 30; Jones v. United States , 10 Cir., 251 F. 2d 288; Doty v. United States , 10 Cir., 261 F. 2d 10; Tandberg-Hanssen v. United States , 10 Cir., 284 F. 2d 331. And such evidence may still be proper though capable of arousing suspicion of the commission of a different crime than the one specifically charged if motivated by the same intent pertinent to the then present inquiry. Morlan v. United States, supra.

Appellant also objects to the use of a government summary showing an accounting of his income and tax liability for the years 1955 and 1956 and again to the permitted enlargement of that summary. The trial court was explicit in its instructions that the exhibit was not evidence as such but merely constituted an argumentative tool which the prosecution contended supported its case. Thus, the errors found in such an exhibit in Flemister v. United States, 5 Cir., [58-2 USTC ¶9904] 260 F. 2d 513, were avoided. The jury was informed by all the evidence of the government's method of investigation and of the use of bank deposits as demonstrating taxable income and of the defendant's explanations and denials of the various items and was instructed to make its own determinations as to the validity of the various charges to income. No error appears in the use of the exhibits.

[Character Witnesses]

Appellant was allowed to present seven witnesses who testified as to his good character. He complains that the testimony of two more character witnesses was stricken after it appeared that their testimony was more in the nature of a personal endorsement than based upon a familiarity with appellant's reputation. Knowledge of reputation is, of course, the basis of materiality for such testimony, Michelson v. United States, 335 U. S. 469, 69 S. Ct. 213, 93 L. Ed. 168, and, in any event, it lies within the trial court's discretion to limit the number of character witnesses. Petersen v. United States, 10 Cir., [59-2 USTC ¶9538] 268 F. 2d 87. No error or abuse of discretion here appears.

[Judgment of the Court]

Appellant's remaining assignments of error pertain to the court's instructions upon a number of subjects and the failure of the court to give appellant's requested instructions upon such subjects. We are satisfied that the instructions adequately, in fact, artfully, informed the jury fo the complications of the applicable law. The trial court is under no obligation to use the words of a submitted instruction even though the proposed instruction may be both a correct statement of the law and (as here) artfully expressed. United States v. Alker, 3 Cir., [58-2 USTC ¶9829] 260 F. 2d 135, 152. We find no error in the instructions.

The judgment is affirmed.

¹ 26 U. S. C. A. 7201: "Any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $10,000, or imprisoned not more than 5 years, or both, together with the costs of prosecution."

 

 

[61-1 USTC ¶9413]Chaifetz v. United States

Supreme Court of the United States, No. 695, 366 US 209, 81 SCt 1051, 5/1/61, Rev'g in part CA of DC, 60-2 USTC ¶9786

On Petition for Writ of Certiorari to the United States Court of Appeals for the District of Columbia Circuit.

[1954 Code Sec. 7201]

Tax evasion: Criminal procedure: Conviction of misdemeanor included in felony count.--A jury found the taxpayer guilty of the felony of willfully attempting to evade income tax by filing a false return for 1953. Count IV of the indictment charged willful attempt to evade income tax for 1954, and on this count the jury found him guilty of the misdemeanor of "failing to supply information required by law." The Supreme Court granted certiorari as to the conviction of the misdemeanor (the Government had contended that it was error for the trial court to submit the misdemeanor because it was not necessarily included in the felony charge) and reversed the judgment on this point. In all other respects the petition for writ of certiorari was denied.

I. William Stempil, Warner Bldg., Washington, D. C., and Abraham Chaifetz, 532 Cedar St., N. W. Washington, D. C., for petitioner. Archibald Cox, Solicitor General, Louis F. Oberdorfer, Assistant Attorney General, Meyer Rothwacks, and Richard B. Buhrman, Department of Justice, Washington, D. C., for respondent.

PER CURIAM:

Upon consideration of the entire record and the suggestion of the Solicitor General, the petition for writ of certiorari is granted limited to that part of the judgment concerned with Count IV of the indictment and that part of the judgment is reversed and the cause remanded to the District Court with directions to vacate the conviction on that Count. In all other respects the petition for writ of certiorari is denied.

 

 

[60-2 USTC ¶9786]Abraham Chaifetz, Appellant v. United States of America , Appellee

(CA-DC), U. S. Court of Appeals, D. C. Circuit, No. 15662, 288 F2d 133, 11/10/60, Affirming the District Court, 60-1 USTC ¶9280, 181 F. Supp. 57

[1954 Code Sec. 7201]

Crimes: Income tax evasion: Limitations: Instruction on lesser, barred offense.--
When an accused is on trial for a felony, he cannot be convicted of a lesser offense if the latter is barred by the statute of limitations. There was no error, therefore, in the trial court's refusal to give the jury an instruction pertaining to the lesser offense.

I. William Stempil, Warner Bldg., Washington, D. C. (Abraham Chaifetz, 532 Cedar N. W., Washington, D. C., with him on brief), for appellant. John D. Lane, Assistant United States Attorney, Washington, D. C. (Oliver Gasch, United States Attorney, Carl W. Belcher, Assistant United States Attorney, Washington, D. C., with him on brief), for appellee.

Before PRETTYMAN , WASHINGTON and DANAHER, Circuit Judges.

PRETTYMAN, Circuit Judge:

Our appellant Chaifetz was indicted and tried on five counts for willfully attempting to evade federal income taxes for the calendar years 1951 through 1955, one count for each year. He was found not guilty on three counts and guilty on the third and fourth counts, relating to 1953 and 1954, respectively. He was given concurrent sentences on those convictions [60-1 USTC ¶9280]. This appeal followed.

[First Issue: Possible Conviction for Lesser, Barred Offense]

In count three of the indictment, relating to the year 1953, Chaifetz was charged with the felony of willfully attempting evasion of income tax by filing a false and fraudulent income tax return. ¹ Rule 31(c) of the Federal Rules of Criminal Procedure provides: "The defendant may be found guilty of an offense necessarily included in the offense charged or of an attempt to commit either the offense charged or an offense necessarily included therein if the attempt is an offense." Chaifetz contends the trial court erred in failing to submit to the jury as a lesser included offense the misdemeanor of willful failure to supply information required by law. ²

Chaifetz asked the trial court to instruct the jury that, if it found he was not guilty of the felony but was guilty of the misdemeanor of failing to supply required information, it should find him guilty of the lesser offense. The entire requested instruction is in the margin. ³ Conviction on the lesser offense was barred by the statute of limitations. The judge denied the request.

The applicable statute of limitations read:

"No person shall be prosecuted, tried, or punished, for any of the various offenses arising under the internal revenue laws of the United States unless the indictment is found or the information instituted within three years next after the commission of the offense, * * *." ⁴

When this indictment was returned three years had elapsed since the commission of the alleged offense. So Chaifetz could not then be prosecuted, tried or punished for the lesser offense. We are of clear opinion that the trial judge was correct and that he should not have instructed as Chaifetz requested him to do.

The rule is well established that, when an accused is on trial for a felony (not barred by limitations), he cannot be convicted of a lesser included offense if the latter offense is barred. There are many cases on the point. References to a few, with their citations, will suffice. In State v. King ⁵ the Supreme Court of Appeals of West Virginia held that a person tried upon a felony indictment could not be convicted for an included misdemeanor barred by limitations. The defendant was indicted and tried for felonious assault. He was convicted of the misdemeanor of assault and battery. The trial court sentenced him. The appellate court set aside the verdict. It cited many cases in support of its view. And, to give another example, the Appellate Division of the Supreme Court of New York, in People v. Di Pasquale, ⁶ set aside a conviction for an attempt to commit murder, barred by limitations, when the trial was for murder, not barred. To the same effect is Letcher v. State, ⁷ in which the Supreme Court of Alabama remarked that "The law is well settled on the subject." Flatly, but without citations, the Supreme Court of Florida, in Perry v. State, ⁸ held that a trial court did not err in refusing to instruct a jury on lesser included offenses barred by limitations, where the indictment was for a felony not so barred. In Spears v. State ⁹ the Supreme Court of Alabama held:

"The rule providing that every lesser offense is included in the one charged in the indictment applies and has reference only to every actionable offense and not the offenses which upon the face of the proceedings are barred by the statute of limitations, the operation of which rendered the court without jurisdiction to try and determine the so-called lesser offenses."

With many cases cited in support the rule is stated as follows in American Law Reports Annotated:

"The rule supported by the overwhelming majority of cases is that one cannot be convicted of a lesser offense upon a prosecution for a greater crime which includes the lesser offense, commenced after the statute has run on the lesser offense." ¹⁰

In cases in Texas ¹¹ and Florida ¹² it was held correct for the trial judge to instruct explicitly that the jury could not return verdicts of guilty to lesser offenses, ordinarily included, if convictions for those offenses were barred by limitations. The Supreme Court of Utah took a different view in State v. Crank ¹³ and held it to be error for the trial court even to mention to the jury lesser included offenses barred by limitations. Under either of these views the trial judge in the case presently at bar was correct.

As was pointed out by the Court of Appeals for the Sixth Circuit in Benes v. United States, ¹⁴ a statute of limitations in a criminal case, unlike such a statute in civil matters, is not merely a statute of repose but creates a bar to prosecution. Cases are cited in that opinion.

We had this problem in Askins v. United States, ¹⁵ and our present holding is in accord with that one. There the indictment was for first degree murder and the conviction was for murder in the second degree, the latter being then barred by limitations. We held the conviction to be barred, citing several of the cases hereinabove discussed.

It is true that the foregoing rule was developed as a response to efforts of zealous prosecutors to avoid the bar of a statute of limitations against lesser offenses. Faced with that bar, the Government upon occasion secured an indictment for a greater offense not so barred and then sought from court and jury a conviction of the lesser included offense. But the fact that in many of the cited cases the Government was seeking the instruction which would permit a verdict on the lesser offense, whereas in the case at bar the defendant is seeking that instruction, is immaterial. Instructions are the directions of the court as to the law in the case. They are the court's own directions. They are to be correct as to the applicable law. Who requests a given instruction makes no difference upon the problem of propriety. Of course a defendant can sometimes waive an instruction to which he is entitled, or fail to claim one; but a requested instruction must truly reflect the applicable law, no matter who requests it.

Since Chaifetz could not, at the time of his trial, have been convicted of the misdemeanor of failing to file required information for the year 1953, he was not entitled to have the trial judge tell the jury it could, or should, find him guilty of that offense.

As we have noted, Rule 31(c) of the Rules of Criminal Procedure provides that an accused is entitled to instructions on "necessarily included" offenses. But that rule is not to be read as conferring a blanket right without qualification. Quite clearly it refers to offenses for which convictions might be had upon the proof adduced. Otherwise it would run counter to all accepted rules as to what a trial judge should or can charge a jury concerning permissible verdicts.

In the view which we take of this part of the case we do not reach the question whether the misdemeanor of failing to file required information was an offense "necessarily included" in the felony of willfully attempting to defeat or evade an income tax.

[Second Issue Need Not Be Considered]

In count four the indictment charged willful attempt to evade income tax for 1954. The misdemeanor of willful failure to supply required information was not barred by limitations and was submitted to the jury by the trial court. They jury returned a verdict of "guilty of failing to supply information required by law". Chaifetz argues here that the verdict, omitting as it did the word "willful", was in effect a verdict of acquittal. The Government says that the conviction on this fourth count cannot stand, the premise for its conclusion being that this misdemeanor was not "necessarily included" in the felony charged. Therefore, the Government says, it was error for the trial court to submit the misdemeanor. The sentence on count four is less than, and concurrent with, that imposed on count three. Since we have found the conviction on the third count must be sustained, under familiar principles it is unnecessary for us to consider the questions raised with respect to the fourth count. We do not consider them.

[No Error on Third Issue]

It is further alleged that appellant's cause as to all counts was prejudiced by the conduct of the prosecutor and the deputy marshal, by the jury's failure to comply with certain admonitions from the court, and by the conduct of the court itself. We have carefully examined these and the other arguments presented. We find no error requiring reversal.

Affirmed.

¹ Int. Rev. Code of 1939, §145(b), 53 Stat. 63.

² Int. Rev. Code of 1939, §145(a), 53 Stat. 62 (amended by 57 Stat. 144 (1943)).

³ The jury is instructed that with respect to the indictment alleging, for the years 1951 through 1955, a willful attempt to evade and defeat the payment of income taxes by the willful filing of a false and fraudulent return, there is within this charge a lesser included offense, namely, a violation of Section 145a of Title 26, 1939 Code, or Section 7203, Title 26 of the 1954 Code. This statute reads as follows:

"Any person required under this title to pay any estimated tax or tax, or required by this title or by regulations made under authority thereof to make a return (other than a return required under authority of section 6015 or section 6016), keep any records, or supply any information, who willfully fails to pay such estimated tax or tax, make such return, keep such records, or supply such information, at the time or times required by law or regulations, shall, in addition to other penalties provided by law, be guilty of a misdemeanor and, upon conviction thereof, shall be fined not more than $10,000, or imprisoned not more than 1 year, or both, together with the costs of prosecution."

The jury is instructed that if from the evidence they believe that the defendant was not guilty of a felony or greater charge, but was guilty of the misdemeanor, namely, that he willfully failed to supply "any information" upon which his proper tax could have been computed and you find it was done willfully, as this Court has defined the term to you, then it would be your duty to find him guilty of the lesser offense, and in your verdict you should say "guilty of violating the lesser included offense."

⁴ Int. Rev. Code of 1939, §3748(a), 53 Stat. 461.

⁵ 140 W. Va. 362, 84 S. E. 2d 313 (1954).

⁶ 161 App. Div. 196, 146 N. Y. Supp. 523 (1914).

⁷ 159 Ala. 59, 48 So. 805 (1909).

⁸ 103 Fla. 580, 137 So. 798 (1931).

⁹ 230 Ala. 316, 160 So. 727 (1935).

¹⁰ 47 A. L. R. 2d 888 (1956).

¹¹ McKinney v. State, 96 Tex. Cr. R. 342, 257 S. W. 258 (1923).

¹² Blackmon v. State, 88 Fla. 188, 101 So. 319 (1924).

¹³ 105 Utah 332, 142 P. 2d 178 (1943).

¹⁴ 276 F. 2d 99 (1960) [60-1 USTC ¶9348].

¹⁵ 102 U. S. App. D. C. 198, 251 F. 2d 909 (1958).

 

 

[60-1 USTC ¶9280] United States of America v. Abraham Chaifetz.

U. S. District Court, Dist. of Col., Criminal No. 118-59, 181 FSupp 57, 2/12/60

[1954 Code Sec. 7201]

Crimes: Income tax evasion: Net worth prosecution: Willfulness essential element: Effect of "not guilty" verdict of charge in base year.--Since "willfulness" is an essential element in a net worth prosecution for income tax evasion, a jury could properly find on the evidence that taxpayer was guilty as charged for one of the years involved even though it returned a verdict of "not guilty" of income tax evasion in the base (opening) year.

[1954 Code Sec. 7201]

Crimes: Income tax evasion: Running of statute of limitations on misdemeanor charges: Failure to submit misdemeanor charge.--In an income tax evasion prosecution, error was not committed by the court in refusing to submit to the jury a misdemeanor charge on one of the counts, in addition to the felony count, where the statute of limitations had run as to the misdemeanor, since submission of the misdemeanor count would have given the jury an unlawful invitation to compromise.

[1954 Code Sec. 7201]

Crimes: Income tax evasion: Number of character witnesses limited.--The defendant in a prosecution for income tax evasion was not prejudiced by the court's ruling limiting the number of character witnesses to four, where the defendant indicated that it would call certain judges as character witnesses and the record indicated that a failure to call any judge rested entirely with the defense.

Frederick Smithson, Department of Justice, Washington , D. C., for plaintiff. James J. Laughlin and Albert Ahern, National Press Building , Washington , D. C., for defendant.

Memorandum

YOUNGDAHL, District Judge:

Abraham Chaifetz, an attorney, resident of the District of Columbia , was indicted for income tax evasion by the grand jury for the District of Maryland on January 7, 1958. ¹ The indictment contained five counts, covering the five-year period of January 1, 1951 through December 31, 1955 and charged that Chaifetz had willfully attempted to evade income tax by failing to report net income totalling $43,167.31 and, therefore, federal income taxes of $13,173.84. ² After a trial which took more than a month, the defendant was found guilty by the jury of the felony charged in the third count, ³ and of the misdemeanor included within the fourth count. The jury acquitted on the first, second and fifth counts. ⁴

The defendant has now moved for judgment of acquittal and, alternatively, for a new trial.

[Net Worth Prosecution]

The defendant contends that there was insufficient evidence upon which the jury could have based its verdicts of guilty on the third and fourth counts. The argument runs: this was a net worth prosecution; ⁵ the jury acquitted the defendant on the first count which covered the "base year"; since the Government did not prove its contentions regarding the base year, as is evidenced by the jury's verdict, all succeeding years--bottomed as they are on the closing net worth of the preceeding year--must fall.

[Willfulness Essential Element in Criminal Income Tax Evasion]

The argument must be rejected. There was sufficient evidence in this case for the jury to have found the defendant guilty on each of the felony counts. The jury was not compelled to find the defendant guilty on count one in order to find him guilty on any of the succeeding counts. The jury was carefully instructed that willfulness is an essential element in the charge of tax evasion. ⁶ Quite conceivably, the jury was convinced that the Government's presentation of the defendant's net worth during 1951, 1952 and 1953 was correct; was not convinced that the defendant had acted willfully with regard to 1951 and 1952, but was convinced of the defendant's willfulness with regard to his 1953 return. Therefore, the jury acquitted the defendant on counts 1 (1951) and 2 (1952) and found him guilty on count 3 (1953). This hypothesis is especially plausible when one considers that the Government showed the greatest number of specific omissions from income on the 1953 return.

[Jury's Verdict Inconsistent]

Moreover, even if it is assumed that the jury's verdicts on the counts were inconsistent, the short answer to the defendant's contention is simply that there is no requirement for consistency. ⁷

[Statute of Limitations on Misdemeanors]

It has also been argued that the Court should have submitted the misdemeanor charge on the first three counts, as well as the last two, even though, as to the first three counts, the statute of limitations had run on the misdemeanor charges. ⁸ Defendant's motions papers read:

"The reasoning of the Court that because the statute of limitations had run it thus barred the submission of the lesser offense to the jury in effect deprived the jury of convicting the defendant of the misdemeanor for the year 1953 if in fact they believed he only committed a misdemeanor."

But if the jury believed the defendant "only committed a misdemeanor" it would have found the defendant not guilty of the felony charge for 1953. This it did not do. The defendant's contention, if accepted, would result in giving the jury a patent and unlawful invitation to compromise. It needs hardly be added that no persuasive authority was cited to support this novel proposition. Furthermore, counsel for the defendant conceded during the trial that it would be improper. ⁹

[Number of Character Witnesses Limited]

Defendant also argues that the Court's ruling, limiting the number of character witnesses to four, prejudiced the defendant by causing the jury to believe the defense could not make good on its statement during voir dire that certain judges would be called on behalf of the defendant, ¹⁰ whereas, actually the judges could not be called because of the Court's ruling. Here, too, during the trial, counsel for the defendant agreed with the Court's ruling. ¹¹ Aside from this, it readily can be seen from an examination of the transcript that the failure to call Judge Letts, or any other judge, rested entirely with the defense. ¹² It knew of the limitation of four before any of the character witnesses were called. All the discussion regarding "prejudice" centered around the "inability" to call Judge Letts. Yet the defense named three judges during voir dire and no effort appears to have been made to call either of the other two. Even assuming, therefore, that the jury could remember what had been said on voir dire (one month earlier), no explanation was profferred at any time regarding the absence of those two judges. Under the circumstances, it remains the opinion of the Court that four character witnesses was a sufficient number for the defendant to establish his reputation without becoming oppressive. ¹³

The defendant also contends that the Court erred in its instructions regarding the obligation of the Government to check into leads or plausible explanations concerning the defendant's financial history (tr. pp. 2366-67); and in its instructions regarding the use, by the Government, of fraud, misrepresentation, or deceit to obtain records from the defendant (tr. pp. 2369-70). The Court has reviewed its charge and is of the opinion that it is correct under the authorities. See, e.g., Holland v. United States, 348 U. S. 121, 135-136 (1954) [54-2 USTC ¶9714]; Smith v. United States, 348 U. S. 147, 150-51 (1954) [54-2 USTC ¶9715]; United States v. Frank, 245 F. 2d 284, 285-86 (1957) [57-1 USTC ¶9675], cert. den. 355 U. S. 819 (1957).

The Court has carefully considered the remaining contentions of the defendant and finds them to be without merit.

Accordingly, the motion for judgment of acquittal and the motion for a new trial are denied.

¹ On February 3, 1959, upon the defendant's motion, Judge Watkins ordered the case transferred to this Court. See 18 U. S. C. Sec. 3237(b). The records were filed here on February 6, 1959.

² The breakdown in the indictment is as follows:

                            Income Reported         Actual Income         Tax Reported         Actual Tax Due

Count 1 (1951) ....              $ 4,259.34            $18,027.51             $ 510.89             $ 5,412.03

Count 2 (1952) ....                1,954.16              8,052.91                34.22               1,601.99

Count 3 (1953) ....                2,019.50             13,299.47                48.73               3,585.78

Count 4 (1954) ....                3,760.89             11,801.86               376.35               2,624.88

Count 5 (1955) ....                3,244.79              7,224.24               250.09               1,171.44

                                 $15,238.68            $58,405.99            $1,220.28             $14,396.12

 

³ 26 U. S. C. sec. 145(b) (1939 Internal Revenue Code).

⁴ Failing to supply information required by law, 26 U. S. C. Sec. 7203 (1954 Internal Revenue Code).

⁵ The Supreme Court has explained this method of prosecution 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' or total net value of the taxpayer's assets at the beginning of a given year. It 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 net values of the taxpayer's assets at the beginning and end of each of the years involved. The taxpayer's nondeductible 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 the excess represents unreported taxable income. In addition, it asks the jury to infer willfulness from this understatement, when taken in connection with direct evidence of 'conduct, the likely effect of which would be to mislead or to conceal.' Spies v. United States , 317 U. S. 492, 499 [43-1 USTC ¶9243]." (Clark, J. in Holland v. United States, 348 U. S. 121 at 125 (1954) [54-2 USTC ¶9714].

And see United States v. O'Connor, 237 F. 2d 466, 472-74 (2d Cir. 1956) [56-2 USTC ¶9956].

⁶ Stated at several different times during the charge. Defined at p. 2844 as: "An act * * * done voluntarily and purposely and with a specific intent to do that which the law forbids. It must be done with bad faith and evil motive."

⁷ Silverman v. United States, (D. C. Cir. February 4, 1960), slip opinion at p. 5, citing United States v. Deigle, 149 F. Supp. 409 (D. D. C.), aff'd, 101 U. S. App. D. C. 286, 248 F. 2d 609 (1957), cert. denied, 355 U. S. 911 (1958):

"Where inconsistent verdicts of conviction and acquittal are returned, it has been said: 'While the verdict as to each count must be consistent in itself, the verdicts on the several counts need not be consistent with each other. The question * * * is not whether the verdict of guilty * * * is consistent with the verdict of acquittal on the other counts. It is whether it is consistent with the evidence, that is whether the evidence supports the verdict, and this is true even though the inconsistency can be explained upon no rational considerations.'" (149 F. Supp. at 413-14).

⁸ 26 U. S. C. Sec. 3748 (1939 Internal Revenue Code).

⁹ Tr. pp. 2758-59:

"THE COURT: Let me ask you this for the record. Do you concede that as far as this misdemeanor charge under 7203 that the statute of limitations has run on the first three years?

"MR. AHERN: Yes.

"THE COURT: So that it could not possibly be any lesser offense under the first three years?

"MR. AHERN: That's right.

"THE COURT: It could only be a lesser offense on '54 and '55 on 7203, and on the specific phase of 7203 in willfully failing to supply information, isn't that right?

"MR. AHERN: "Yes."

¹⁰ Tr. p. 16:

"MR. LAUGHLIN: * * * There will also be called a number of character witnesses. Included in these character witnesses, we are advised by Mr. Chaifetz, will be Judge Letts, a Judge of this court: Judge Munter of the Domestic Relations Court; and Judge Scalley of Municipal Court. * * *"

¹¹ Tr. pp. 2503-04:

"THE COURT: How many (character witnesses) are you going to have?

"MR. AHERN: Maybe--well, we put in calls for a great number but suppose, your Honor, if we get five would that be--

"THE COURT: Yes. Well, it shouldn't be over five.

"MR. SMITHSON: I don't see why five. It seems to me five is a great number but that is up to your Honor.

"THE COURT: Well, of course, one of the things the court points out in these opinions is that the Court should limit the number so it doesn't become the trial of an issue of reputation rather than the particular charge.

"Why don't you limit it to four?

"MR. LAUGHLIN: All right.

"THE COURT: I will say four.

"MR. LAUGHLIN: All right, your Honor."

¹² Tr. pp. 2527-31.

¹³ See Burgman v. United States, 68 U. S. App. D. C. 184, 188-89; 168 F. 2d 637, 641-42 (1951), cert. den., 342 U. S. 888 (1951); United States v. Bayack, 212 F. 2d 446, 447 (3d Cir. 1954), cert. den. 345 U. S. 836 (1954); Hauge v. United States , 276 F. 111 (1921).