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[64-1 USTC ¶9316]United States of America v. Morris C. Goldberg, also known as Moe Goldberg and M. C. Goldberg, Appellant

(CA-3), U. S. Court of Appeals, 3rd Circuit, No. 14,148, 330 F2d 30, 3/17/64, Affirming District Court, 62-2 USTC ¶9638, 206 F. Supp. 394

[1954 Code Sec. 7201]

Criminal evasion: Admission of evidence: Books and records improperly taken by employees.--It was not error to admit in evidence books and records of the taxpayer which had been taken by two of his employees and later turned over to the government.

[1954 Code Sec. 7201]

Criminal evasion: Instructions to jury: Corporate distributions.--There was no error in the trial judge's failure to instruct the jury on the limitations on taxability of corporate distributions. It was not necessary to label the funds the taxpayer took from his corporation.

[1954 Code Sec. 7201]

Criminal evasion: Consistency of verdicts.--Verdicts on counts alleging individual liability of the taxpayer were not repugnant to verdicts on counts involving his corporations.

[1954 Code Sec. 7201]

Criminal evasion: Improperly qualified juror.--Motion for mistrial was properly denied where one unqualified juror was replaced by an alternate, since all jurors who passed upon the case were qualified.

[1954 Code Sec. 7201]

Criminal evasion: Jurisdiction: Situs of preparing return v. situs of filing.--Evidence indicated that returns were prepared in Pennsylvania , thus giving Pennsylvania District Court jurisdiction.

J. Shane Creamer, Assistant United States Attorney, 4042 U. S. Courthouse, Philadelphia , Pa. 19107 , for appellee. Thomas D. McBride, Wolf, Block, Schorr & Solis-Cohen, 12th Floor, Packard Bldg., Philadelphia, Pa. 19102, for appellant.

Before BIGGS, Chief Judge, MCLAUGHLIN and GANEY, Circuit Judges.

Opinion of the Court

GANEY, Circuit Judge:

The appellant here, Morris C. Goldberg, was convicted after a trial by a jury in the District Court [62-2 USTC ¶9638] for the Eastern District of Pennsylvania, under an indictment wherein he was jointly charged with Rudolph Csicsek (hereinafter known as "Rudy") with several offenses concerning income taxes, due from him personally, as well as from some corporations, thirteen in number, which he allegedly controlled. The indictment contained fifty-one counts and covered the years 1955 and 1956, pursuant to 26 U. S. C. Sec. 7201 (1954).

Rudy subsequently plead nolo contendere, later numerous counts were withdrawn, and the only ones submitted to the jury were one, two, three, four, five, seven, eight and nine. A verdict of guilty on all counts was rendered by the jury and later the court granted the appellant's motion in arrest of judgment as to count one. Accordingly, on this appeal we are concerned only with counts two, three, four, five, seven, eight and nine.

The respective counts are as follows: Count two charged the appellant, Goldberg, with wilfully and knowingly attempting to evade a large part of his individual taxes owing to the Government by filing and causing to be filed a false and fraudulent individual income tax return for the year 1955. Count three charged the appellant with the same offense for the year 1956. Count four charged the appellant, as President of the Pennsylvania Coat and Apron Supply Co. of New Jersey, with wilfully and knowingly attempting to evade a large part of the taxes owing by that corporation for the period January 1, to September 1, 19 55, by filing and causing to be filed a fraudulent tax return for that corporation. Count five charged the appellant, as President of the Pennsylvania Laundry Co., with the same offense for the calendar year 1955. Count seven charged the appellant, as President of the Pennsylvania Coat and Apron Supply Co., a Pennsylvania corporation, with the same offense for the calendar year 1956. Count eight charged the appellant, as President of Anderson's Empire Coat, Apron and Towel Supply, Inc., with knowingly and wilfully evading a large part of the taxes due and owing to the Government by that corporation, by causing to be prepared and causing to be filed in the District of Camden, Camden, New Jersey, a false and fraudulent return for that corporation for the calendar year 1955. Count nine charged the appellant, as President of Anderson's Empire Coat, Apron and Towel Supply, Inc., with the same offense for the calendar year 1956.

The record discloses that the appellant, as President of some thirteen corporations which were engaged largely in the linen supply business, directly or indirectly owned all of the stock in these corporations. In addition to the corporations here above mentioned, there must be included also the Keystone Coat and Apron Manufacturing Corp., the Keystone Mercantile Corp. and Gold Tex Fabrics Corp.

On December 31, 19 54, the Loans and Exchange Accounts in appellant's corporations showed that he was personally indebted to them in the sum of $387,390.14, largely carried on the books of the Keystone Coat and Apron Manufacturing Corp. and the Keystone Mercantile Corp., and as of June 22, 19 55, this amount had been reduced to the sum of $280,000.00. These Loans and Exchange Accounts were made up of checks issued by the corporations to the appellant for his personal use and deposited in banks to his personal account and, additionally, amongst other things, in connection with oil gas leases, race track betting, as well as checks made payable to other individuals or corporations at appellant's direction and included the years 1955 and 1956.

In order to meet expansion programs and to have a more efficient operation of his business, the appellant sought a long-term loan of $2,000,000 from the Jefferson Life Insurance Company early in 1955. The insurance company advised him, after making a survey of his various corporations, including visits to his plants, that they would grant the loan if his personal indebtedness to the corporations was reduced by $120,000, as of September 1, 19 55, and if the Pennsylvania Coat and Apron Supply Co. became merged with the Pennsylvania Laundry Co., as of that date. This seemed like an impossible requirement and the appellant attempted to borrow $280,000 in June of 1955 from a certain bank in Philadelphia, but being unable so to do, he undertook to meet the insurance company's requirement by proposing to it in a letter dated June 18th, that he reduce his indebtedness, as evidenced by his Loans and Exchange Accounts in 1955, by paying off $70,000 in July, $90,000 in August, and $10,000 a month as a minimum thereafter. As of September 1, 19 55, the merger of the Pennsylvania Coat and Apron Supply Co. with the Pennsylvania Laundry Co. was completed and the appellant's personal loans to his various corporations were reduced so that the loan from the Jefferson Life Insurance Company of $2,000,000 was granted, although his income was $50,000 from Keystone Coat and Apron Supply Co. and $9,766 additional income, making an adjusted income of $59,766 for the year 1955, and he made no resort to outside borrowing.

Through a series of financial operations tedious in nature, the lengthy record discloses a complex accounting practice, yet simple in the results sought to be achieved--the filing of fraudulent tax returns--which we shall briefly review. Rudy was employed by the appellant for the period from October, 1946, to June of 1956, and then from September or October of 1956, to June of 1958. He started as a bookkeeper with the appellant, later became an accountant, then became controller of all his corporations and finally admin istrative assistant to him, in which capacity he had supervision and control of all the books and records of the corporations covering the years set forth in the indictment, to wit, 1955 and 1956.

The record discloses that in January of 1955, Rudy was called into the appellant's private office and there appellant told him he should take the cash and sales journals of the Pennsylvania Coat and Apron Supply Co., beginning with January, 1955, and rewrite them by reducing the cash sales, as shown from the cashier reports, which reflected the cash collected by drivers of the appellant, in an amount that would be around $3,500 per week, not in the same amount, each and every week, but on an over-all period which would average out to $3,500 per week. After re-writing the original sheets, the amounts so reduced were to be credited to appellant's Loan and Exchange Accounts in his corporations showing, in effect, a repayment in the same amount by the appellant. Pursuant to these instructions, Rudy worked up the payment sheets which were rewritten on a weekly basis, whereas they had been written on a daily basis, and showed them to the appellant who told him that was the way he wanted the matter done. However, since it required a great deal of time to so do, the appellant suggested that it be turned over to someone else, and Rudy mentioned Dan Ferrari, who handled the books of the Pennsylvania Coat and Apron Supply Co., and appellant approved thereof and advised Rudy to instruct Ferrari as to how the cash and sales journals were to be written and the same amounts credited to his Loan and Exchange Accounts. The appellant gave specific instructions that after the cash and sales journals had been rewritten, the original records should be destroyed by both Rudy and Ferrari, who did all the rewriting of the sheets, which, as stated, showed reduced cash income and a corresponding credit to appellant's Loan and Exchange Accounts in the various corporations. However, they did not destroy them, but placed the originals in files in their offices under their custody and control, never advising the appellant of their so doing, the larger part of which Rudy gave to the Government.

An instance typical of the operation which was carried on by Rudy is that of the Pennsylvania Coat and Apron Supply Co. of New Jersey. Here, the original cash receipts and sales journals for this corporation showed a total income through sales for the month of January, 1955, of $147,599.50. When rewritten by him, pursuant to the appellant's instruction, the cash receipts and sales totaled sales of $133,599.50, or a reduction in cash sales of $14,000.00, and then this exact sum was shown as a repayment to the appellant's Loan and Exchange Account. For the same corporation for the month of February, 1955, the original receipts and sales journals showed total cash sales of $143,504.82, which cash sales were rewritten by Rudy, at the appellant's instruction, to show a total cash sales of $128,504.82, or a reduction in cash sales of $15,000.00, which was carried over to the appellant's Loan and Exchange Account as an alleged repayment by the appellant.

Ferrari carried on the operation, as directed by Rudy, by rewriting sales journals and crediting the amount to the Loan and Exchange Accounts and during an interim period when Rudy had left appellant's employ, out of an abundance of caution, he questioned appellant in June of 1956, and appellant told him to carry on as Rudy had previously told him, which he did, until he left appellant's employ in April of 1958. Typical of the operation carried on by Ferrari was Anderson 's Empire of Atlantic City for July, 1955. Here the original record showed total sales in the cash receipts and sales journal of that corporation for that month of $119,173.68 and the rewritten record by Ferrari showed total sales for that corporation of $79,173.68, or a difference of $40,000.00. On the front of the rewritten sheet was a notation in quotation marks, "A July 1955 M", which indicated to Ferrari that $40,000.00 was to be the amount of the sales reduction, as directed by Rudy, as the notation was in his, Rudy's, handwriting. Here, again, the $40,000.00 was credited to appellant's Loan and Exchange Account.

It would serve no useful purpose to recite the exceedingly numerous rewritten sheets during 1955 and 1956, showing reductions in cash sales and an identical credit to appellant's Loan and Exchange Account covering the years laid in the indictment. Suffice it to say the Government's contention is that the appellant by causing the repayments to his Loan and Exchange Accounts in the amounts of the falsely reduced sales were income to him in those years, if when he withdrew the funds, his intention was to repay them, and the trial court specifically so charged. The jury found an intent to repay these personal funds and thus was created income to him in those years.

[Admissibility of Records]

The admission into evidence of the rewritten sales sheets, on which the Government predicated the allegations in the indictment, that the appellant had defrauded the Government in the filing of his personal returns as well as those of the corporations--since both the personal and corporate returns were based on these sheets--while vigorously fought on other grounds, during the trial of the case, neither in argument nor in their briefs, did counsel deny that the comparison of the original sales records with them and on which the returns were made in Pennsylvania Coat and Apron Supply Co. of New Jersey for 1955, Pennsylvania Laundry Co. for 1955, Pennsylvania Coat and Apron Supply Co. for 1956, as well as Anderson's Empire for 1955 and 1956, had been substantially understated.

Ferrari was in the employ of the appellant, as an accountant from April, 1953, until April of 1958, and rewrote most of the records hereinabove adverted to, from March of 1955, until the end of December, 1956, the years in question. When he left in 1958, he took with him, without the permission of the appellant, records pertaining to the sales of Pennsylvania Coat and Apron Supply Co. of New Jersey, and Anderson 's Empire and turned them over to the Government on August 5th, 1958. He was the first person to contact the Government agents, which he did by telephoning the Internal Revenue Service on August 2nd, 1958, making an appointment with the Government agents for August 4th, 1958.

Raymond Dombkiewicz was an accountant and office manager for the appellant from October, 1954, until August, 1958, and during the year 1955, he was an accountant for Keystone Coat and Apron Manufacturing Corp. and for Gold Tex Fabrics Corp. In August, 1958, he left the appellant's employ, at which time he took with him records pertaining to the appellant's Loan and Exchange Accounts with Pennsylvania Coat and Apron Supply Co. of New Jersey, as well as the same corporation of Pennsylvania , and cashier reports concerning the sales of these corporations and those of Pennsylvania Laundry. These records covered the years 1955 and 1956. Dombkiewicz and Ferrari discussed the case with the agents on August 4th, 1958, and on August 5th, they both filed applications for informer's fees and after so doing, they turned over the records they had taken from the appellant to the Government agents. In the instance of Rudy, however, he had been indicted on February 16, 19 61, had changed his plea from guilty to nolo contendere on April 14, 19 61, and turned the records he had taken over to the Government agents on April 18, 19 61. However, previous to their being turned over, he had received definite assurance from the United States Attorney and, by a simile, from the court, that if he cooperated with the Government he would not go to jail. This cooperation envisaged, among other things, the turning over of any documentary evidence he might have, though it is clear that neither the United States Attorney nor the Government agents knew what the documents were, which he had in his possession and which he turned over, until they examined them.

It is clear beyond contradiction that in the instances of the three main Government witnesses, Rudy, Dombkiewicz and Ferrari, the Government had no part or knowledge that they were going to take the records they turned over. Rudy's own counsel or the United States Attorney knew nothing thereof, until after Rudy's plea was changed and, with respect to Ferrari and Dombkiewicz, the uncontradicted evidence discloses the taking of the records prior to any communication with any Government officials. The most that can be said for the appellant's case is that in the case of Rudy, he had the assurance that, by cooperating, he would not go to prison and, in the instances of Dombkiewicz and Ferrari, they were to receive an informer's reward. At best this went to the credibility of these witnesses whom the jury saw and heard and, by their verdict, finally believed, and, as the lower court phrased it, the Government was "the unwitting beneficiary" of their wrongful taking. Was their admission error?

We think the documents and records were clearly admissible under Burdeau v. McDowell, 254 U. S. 465. Here, certain of McDowell's business associates had taken from his safe, without his knowledge, certain documents and had turned them over to Government officials. McDowell then filed a petition seeking their return, as they were about to be presented to a Grand Jury. Here, the evidence established that no Government official had participated in or had been connected with the taking and that since the documents came into their possession without a violation of McDowell's rights by any Government authority, the Government could retain them and use them as evidence. In our instance, additionally, the records were not personal records of the appellant, but belonged to the various corporations concerned and since they were, the appellant had no basis on which to object to their admission. United States v. Guterma, 272 F. 2d 344; Lagow v. United States , 159 F. 2d 245.

The appellant contends the force and effect of Burdeau v. McDowell, supra, has been greatly weakened, if not changed, by Elkins v. United States, 364 U. S. 206. Here, state officers had seized certain tape recording and a recording machine as the result of an unlawful search and seizure which had, in no wise, been participated in by any federal officer and the court held that the evidence so seized could not be used in the trial of the case and set aside the defendant's conviction. This case reversed the trend of previous federal decisions by refusing to admit evidence offered as the result of an illegal search and seizure by state officials even where no participation was had by federal officers. However, here again the court was only concerned with state action and its ruling, in no wise, impaired Burdeau v. McDowell, supra. While the appellant contends that "The imperative of judicial integrity", coined in this case, would be violated in principle, just as much by a private individual, it is paradoxical that the appellant here should invoke that doctrine when the material offered in evidence against him was the true and actual records of his corporation's sales, which were to be destroyed at his specific direction, and in the face of this fraudulent scheme, to give him the cloak of its protection would be most unseemly.

The next error the appellant complains of was the admission by the court of Exhibit D7. D7 was first brought out on the cross-examination of Rudy by the appellant and consisted of a summary made in his handwriting, which the appellant contends was the actual closing inventories of the corporations here involved. The amount of the inventories shown thereon was substantially less than the closing inventories stated in the tax returns filed by the respective corporations and the contention of the appellant is that the difference shown on the inventories on D7 and the inventories reported in the tax returns were equal to the amounts by which the sales were understated. However, it was not brought out and the record does not disclose where Rudy got the figures, whether they were accurate or imaginary, whether he got them from the books of the corporations or from the firm which audited the books. In contained certain erasures, overwriting, marks crossed through, and additional figures written above the same. As has been stated, the summary was brought out during Rudy's cross-examination and yet counsel for appellant made no attempt to question him about it, and the physical condition of Rudy made it impossible for the Government to later recall him in rebuttal and make explanation in connection therewith.

It is submitted that there was no error in the admission of D7, inasmuch as the court charged that if the jury believed that D7 correctly stated the actual closing inventories and, as a result, the expenses of Pennsylvania Coat and Apron Supply Co. of New Jersey for 1955, Pennsylvania Coat and Apron Supply Co. of Pennsylvania for 1956, Pennsylvania Laundry Co. for 1955, and Anderson's Empire for 1955 and 1956, were understated in the returns to an amount equal to any understatement of sales, there would be no taxable income due the Government, in which event they should find the appellant not guilty on counts four, five, seven, eight and nine. It is submitted that his instruction is correct and that appellant was, in no wise, prejudiced. The appellant's contention is that it should have been accepted as accurate forthwith since the Government had the burden of investigating the truth or falsity of the closing inventories, citing Holland v. United States [54-2 USTC ¶9714], 348 U. S. 121. However, this case is, in no wise, apposite, since that was a tax evasion case in which the Government relied on certain net worth computations by it and the court held it was requisite, where certain leads were used to prove the defendant's guilt, that the Government had the burden of investigating them and, failing to so do, the Government's case was insufficient to go to the jury. Here, the appellant requested that the court charge that the Government had the burden of investigating the truth or falsity of the closing inventories in D7 and since they did not, the jury could conclude that the Exhibit D7 showed the actual closing inventories without proof of its correctness by the appellant. Here, however, as the court points out, the inventory figures on the tax returns filed were the corporate taxpayer's own figures, not the Government's, and it could not require of the Government the duty of determining which figures were correct, that of appellant's corporate returns or an entirely different set of figures compiled by the corporation's own accountant brought on the record by the appellant. Additionally, the record discloses that the Government agents made every attempt to check into the inventories and the condition of every one of the corporations here involved, by making repeated requests for inventory information, but they were unable to secure the same and they had nothing else to do but assume that the inventory returns were correct.

The next alleged error on the part of the court is its refusal to instruct the jury, as requested in appellant's Point for Charge 4, which reads as follows:

"Even if you are convinced beyond a reasonable doubt that there was a conspiracy between Goldberg and Csicsek which, as alleged in the indictment, began on or before January 1, 19 54, then such a finding would be inconsistent with the theory upon which the prosecution rests on the charges contained in Counts 2 and 3 of the indictment, and you must then find Goldberg Not Guilty on Counts 2 and 3."

It is the contention of the appellant under this proposed Point of Charge that the conspiracy count of the indictment charging Rudy and the appellant with conspiring, beginning on or before January, 1954, to evade and defeat appellant's income tax for the years 1955 and 1956, by making false and fictitious entries in the books and records of the corporations controlled by the appellant, was tantamount to averring that there never was any real indebtedness owed by the appellant to his corporations and if there ever was any realizable income, it was from the withdrawals of funds from them. The contention, more particularly set forth on page 33 of the appellant's brief, states, with reference to count one, "Thus, if this charge is correct, there never was any real indebtedness incurred by Goldberg, and if he had any income, it was realized when he withdrew funds from the corporations and not when credits were made to his Loan and Exchange Accounts. The inconsistency which the appellant asserts is that a finding of guilty on count one precludes the finding of guilty on counts two and three, the substantive counts. With this we disagree. All of the overt acts in the first count were withdrawn before the case was submitted to the jury, with the exception of overt acts Nos. 25 and 26, which charged the filings of fraudulent returns for the years 1955 and 1956. However, appellant here takes the position that since the conspiracy as alleged, began on or before 1954, when there was owing by the appellant more than $300,000, as of December 31, 1954, the withdrawals it represented were income to him at the time, which was for a taxable period previous to the years 1955 and 1956, as laid in counts two and three, and, accordingly, there is a contradiction therein. However, the false entries by which the conspiracy was to be accomplished, as alleged in count one, were not the withdrawals in 1954, nor at any later date, but the false entries on the sales sheets in 1955 and 1956, and there crediting to his Loans and Exchange Accounts.

As the case went to the jury, there was then no necessity for the trial court to give Point for Charge No. 4, since it did charge the jury with respect to Point No. 3.

"If you find that at the time defendant withdrew funds from any of the corporations involved in this case, he had no intent to repay the funds withdrawn, then such withdrawals constitute income to him in the year they were withdrawn, and the credits which he may have received subsequently do not constitute taxable income to him and are insufficient to justify a guilty verdict on Counts 1, 2 and 3 of the indictment."

Again the conspiracy in count one recites the receipt of income during 1955 and 1956, from Pennsylvania Coat and Apron Supply Co., a New Jersey corporation, Anderson's Empire Coat, Apron and Towel Supply Co., a New Jersey corporation, and Pennsylvania Laundry Co., a Pennsylvania corporation, which he failed to report in his returns for those years, by causing to make false and fictitious entries in the books of these corporations. These were the entries made by the rewritten sales sheets. Furthermore, the appellant's repeated contention that the withdrawals were income in spite of the charge in Point No. 3, and in the face of the appellant's own testimony that the withdrawals constituted an indebtedness, cannot be sustained and impels the definite conclusion that there was no error in failing to charge Point No. 4. It is to be remembered, however, that while the court granted the appellant's motion for arrest of judgment as to count one, it was after the verdict and has no bearing on the merits here discussed.

[Instructions to Jury]

The next error alleged by the appellant is that the trial judge failed to instruct the jury as to the limitations on the taxability of corporate distributions. The trial judge, during the course of his charge, had adverted to the inclusion of dividends in gross income, but later withdrew what had been said concerning it and told the jury to totally disregard it and that, in determining the ultimate taxable income, there was no necessity for the jury to consider the definition of dividends or the exceptions thereto. Here again, counsel repetitively urged that the credits received by the appellant when his Loan and Exchange Accounts were credited came to him as a corporate distribution in the nature of a dividend and that something necessarily had to be said with respect to the limitations of these distributions imposed under the Internal Revenue Code, 26 U. S. C. Sec. 316. It can only be repeated again that the Government's case, the indictment and the evidence introduced in proof of the charges had nothing to do with dividends, but that the income was only realizable to appellant when his indebtedness to the corporations, as shown in his Loans and Exchange Accounts, were repaid.

It is contended by the appellant that some authorities, in civil cases, denominate withdrawals as loans, and treat them in fact as dividends which constitute taxable income to the recipient at the time of the withdrawal, strongly relying on Spheeries v. Commissioner [61-1 USTC ¶9143], 284 F. 2d 928 and Roschuni v. Commissioner [59-2 USTC ¶9748], 271 F. 2d 267. The appellant can find no support in these cases, for his contention merely buttresses the position of the Government. In these there were findings of fact that the withdrawals were not borrowings, but dividends. However, in Spheeries v. Commissioner, supra, at p. 931, the court specifically stated that it used as a guide, in its determination thereof, the subjective intention of the parties which was exactly the same instruction which the lower court gave to the jury and they determined, by their verdict, that they were borrowings.

This view is pointed up in Davis v. United States [55-2 USTC ¶9685], 226 F. 2d 331, 335, where it is stated: It is not necessary to go into the legality of the so-called distribution by appellant's wholly owned corporation to himself, or his extraction of the cash from the corporation, as it clearly appears that through the fraudulent transactions in which he was engaged, he received the cash over which he had complete control, which he took as his own, treated as his own, which resulted in economic value to him, and for which he probably never would have been required to account, had it not been for the discovery of the fraud on the revenue which he was perpetrating. Briggs v. United States, 4 Cir., [55-2 USTC ¶9551] 214 F. 2d 699. . . . Appellant makes much of the fact that the government has not fixed a label of some kind on the funds that he took from his corporation. It is not necessary to describe them as additional salary, illicit bonuses, or commissions, or anything more than wrongful diversions, since, as above mentioned, substance controls over form, and taxation is concerned with the actual command over the property taxed. To the same effect is Cohen v. United States [62-1 USTC ¶9202], 297 F. 2d 760, 768. Accordingly, we see no error in the court's failure to instruct the jury concerning limitations on the taxability of corporate distributions.

[Consistency of Verdicts]

The next ground alleged as error is that the verdict on counts two and three and on counts four, five, seven, eight and nine are repugnant to one another and the evidence could not support the verdicts on the former and the latter. The contention of the appellant is that ". . . the money coming from the suppressed sales was either income to the corporation or to Goldberg, but could not be income to both." The argument runs that what appellant did constituted embezzlement and under the law as it existed at that time, embezzled funds were not income in that the appellant had no corporate authority for any of the withdrawals. Here, the appellant, in support of his view, cites Commissioner v. Wilcox [46-1 USTC ¶9188], 327 U. S. 404. If we examine the facts in that case, it shows that Wilcox was merely a salaried bookkeeper employed by a Transfer and Warehouse company and that various sums of money which he had collected from customers, which were owing to his own company, he took and converted to his own use making no record of the sums he had so taken on the books of the company. Here, the court held under 26 U. S. C. Sec. 22(a) that embezzled funds were not taxable.

In order to thoroughly appraise Wilcox, supra, we must consider Rutkin v. United States [52-1 USTC ¶9260], 343 U. S. 130, wherein it was held that extorted funds were taxable income. Here, the facts showed that Rutkin had failed to report in his income tax return $250,000 which the jury found he had extorted by threats from one Reinfeld. The court, referring to Wilcox, supra, stated specifically that it had confined its decision solely to the facts of that case. Accordingly, as stated in Marienfeld v. United States [54-2 USTC ¶9489], 214 F. 2d 632, 637, the line of demarcation between the two cases must be determined by the facts in the individual case and it is submitted the facts in this case more clearly favor Rutkin v. United States, supra, in conformity with a similar comparison in this court by Kahn v. Commissioner [54-1 USTC ¶9144], 210 F. 2d 247. Finally, in James v. United States [61-1 USTC ¶9449], 366 U. S. 213, 217, Wilcox, supra, was specifically overruled and in so doing the court stated: "Examination of the relevant cases in the courts of appeals lends credence to our conclusion that the Wilcox rationale was effectively vitiated by this Court's decision in Rutkin." Accordingly, since Rutkin was decided in 1952, we must now hold that even if appellant's conduct was embezzlement, the income was taxable, since Wilcox was decided in 1946.

The rule is well established that unlawful, as well as lawful gains, comprise taxable income whenever the person receiving it, as a practical matter, has such control over it that he derives realizable economic value from it, Burned v. Wells [3 USTC ¶1108], 289 U. S. 670, 678; Corliss v. Bowers [2 USTC ¶525], 281 U. S. 376, 378.

It is submitted the issue here concerns itself with whether money fraudulently taken by a person who owns and controls certain corporations and treats the same as an indebtedness intending to repay it, is an embezzler in the sense that he was so determined, under the facts in the Wilcox case. Appellant was not, in any sense, an employee, as Wilcox was, for in fact he was the real owner and an employer himself. Here, there was no such taking, as in the Wilcox case, where actual cash was taken by Wilcox and put in his own pocket without making any record thereof on the books of the company. Here was a scheme, fraudulent, deliberate and devious, persisted in for years, of taking from his corporations unreported income in excess of $300,000, as of December 31, 19 54, as well as large sums during 1955 and 1956.

Here, we must remember money actually came into the business of these corporations in the form of cash; it was under their custody and control and recorded on their books and this money so recorded was fraudulently diverted or taken from the corporations at the direction of the appellant by rewriting the records and showing their corporate income reduced by large amounts and authorizing the original corporate records to be destroyed, facts which no case cited by the appellant is comparable to. Further, it is not this Court's province to differentiate legal issues between the appellant and his corporations, yet even so, it has been held that a defendant cannot be guilty of embezzlement of funds from his wholly owned corporations as here, United States v. Augustine [51-1 USTC ¶9247], 188 F. 2d 359, Kann v. Commissioner, supra, for as said in Corliss v. Bowers, supra, ". . . taxation is not so much concerned with the refinements of title as it is with actual command over the property taxed--the actual benefit for which the tax is paid."

The appellant relies heavily upon J. J. Dix, Inc., v. Commissioner [55-2 USTC ¶9648], 223 F. 2d 436, as a comparable civil case. In that instance, the court upheld the taxation of the funds to the corporation but ruled, as to the stockholder, the monies received were the proceeds of his embezzlement and under the law existing was not taxable income. However, in the Dix case, supra, the Tax Court found that for the period in question $196,870.60 realized from corporate sales was secretly deposited in two banks and the amount so received was not recorded on their books nor included in their gross receipts on its tax returns. The corporation was controlled by one Jacob Dix, who through the domination of his son, fraudulently withheld the re-entry of these receipts from the corporation books and the Tax Court found that the gross income had been understated in the amount above described and fixed a tax deficiency of $62,054.23. As to Jacob Dix, the president of the corporation, he realized taxable income of some $56,000.00, which was the amount of the corporate funds he misappropriated, by simply drawing the money from the corporate bank account and diverting it to his own personal use which he, likewise, did not report as income. While the Tax Court held that diverted income from corporate sales was taxable, it relied on Wilcox v. Commissioner, supra, and held that mere withdrawal of the funds by the president of a one-man corporation was more similar to the Wilcox case than to Rutkin v. United States, supra, but, as we have pointed out above, little, if any, vitality remains in Wilcox. The holding of the Tax Court, with respect to the defendant, Dix, here again can be distinguished from our case, as the misappropriation by him of drawing funds from the bank is not, in any wise, like the devious, fraudulent scheme devised by the appellant. Additionally, while civil tax cases may be helpful under appropriate circumstances to draw analogies, they are to be distinguished from criminal cases especially with respect to the nature of the proof required. This is plainly stated in a civil tax case, Simon v. Commissioner [57-2 USTC ¶9989], 248 F. 2d 869, 876; "In criminal income tax evasion cases, the exact amount of the tax evaded is not an important consideration. In criminal cases, it is necessary to prove only that the tax on some income has been fraudulently evaded. On the other hand, in civil proceedings for the collection of tax, an accurate determination of the accumulated corporate earnings is necessary to determine the amount of tax liability."

Accordingly, the individual liability of the appellant, as alleged in counts two and three, is, in no wise, repugnant to counts four, five, seven, eight and nine, which taxed the corporate income, for the reduction of his Loan and Exchange Account was an economic benefit to him, income, since his indebtedness to his corporations was reduced, and the rewriting of sales sheets diminished corporate income, each being separate and distinct schemes, and the ends of justice require them to be treated as such.

The next ground for error alleged by the appellant concerns itself with the admission of several letters handed to appellant, addressed to the respective corporations which he owned and controlled. There were two letters, one addressed to the Pennsylvania Coat and Apron Supply Co. and the other addressed to the Pennsylvania Laundry Co., both dated November 19, 19 58, requesting permission to examine the books and records of the companies for the years 1954 and 1955. The trial court admitted the letters. Appellant's complaint is that they might possibly have been harmful to him since his cooperation in the investigation might have incriminated him under the Fifth Amendment. Here, again, the letters were addressed to the corporations and not to the appellant and, accordingly, as adverted to heretofore, he had no right to claim the Fifth Amendment with respect to the examination of the corporations' books and records. Furthermore, the trial court admitted the letters for the limited purpose of showing a request by the Government, addressed to both corporations, for the purpose of examining their books. This was the first occasion the Government agents had ever met appellant and they apprised him, orally, of the Government's desire to investigate both corporations, which was the sole content of the letters. We see no error in their admission.

[Unqualified Juror]

The next ground alleged as error is the denial of the appellant's motion by the trial court for a mistrial because one of the twelve jurors, Ida B. Rob inson, had not been properly qualified to serve as a juror.

Among those summoned for possible jury duty was one Ida B. Rob inson, who was No. 85 on the Petit Jury List, and one Lottie P. Rob inson, No. 86 on that List. After reporting for duty, Lottie Rob inson had been duly excused from possible service by the judge, then in charge of the criminal list, but by inadvertence her tag No. 86 remained in the box containing tags, bearing a number, each of which corresponded to a number before the name of a person on the Petit Jury List. When the first group from which twelve jurors would be chosen was in the process of being selected, the deputy clerk, on the twenty-third draw, drew tag No. 86 from the box, referred to the List and called No. 86 and the name of Mrs. Lottie Rob inson. Mrs. Ida B. Rob inson, No. 85 on the List, responded and seated herself in seat No. 20 of the first group. She occupied that seat because three of the previous twenty-two persons whose tabs were drawn had been excused for cause because their service on the jury at the time would have been a serious inconvenience to them. When twenty-eight out of thirty-five persons of the first group had been seated in succession, the presiding judge suggested that the persons whose tabs were thereafter drawn be seated in a second group from which the four alternates would be selected. Defendant made no objection to this suggestion. Omitting one that was excused for serious inconvenience, the tags of eight persons were then drawn from the box and the eight persons were directed to sit, in the order that they were called, in consecutively numbered seats.

After the voir dire examination of both groups had been completed, the remaining persons who had been summoned but whose tags had not been drawn were released for duty in another courtroom. Tag No. 85 was never drawn in this case. Thereafter, sixteen members of the first group were withdrawn as a result of their being challenged. This left exactly twelve persons seated in the first group occupying the following numbered seats: Nos. 2, 3, 4, 5, 8, 9, 11, 14, 15, 17, 20 and 23. At the request of the deputy clerk the person seated in No. 14 seat was asked to sit in No. 1, 15 in 6, 17 in 7, 20 (Mrs. Ida B. Rob inson) in 10, and 23 in 12. In so doing, the deputy clerk directed Ida, calling her Mrs. Lottie Rob inson, to take seat No. 10. Thereafter, the persons sitting in the 2nd, 4th, 5th and 7th seats of the second group were challenged and the remaining four persons were asked to take seats 13 to 16 in the order they were called. This group as a jury of twelve and four alternates were then sworn to try the appellant. Before the trial got underway, by agreement of counsel for both sides, with the approval of the trial judge, the person sitting in the No. 2 seat was replaced by the first alternate juror, No. 13, leaving three alternates. ¹

On the ninth day of the trial, a deputy clerk of court discovered No. 10 juror's true name and informed the trial judge of this fact. When he, in turn, notified counsel for both sides, appellant moved for a mistrial on the ground that juror No. 10 had not been properly qualified to take the oath and serve as a juror. The Government opposed the motion but left it to the trial judge whether to let Ida serve as a juror or replace her with an alternate. The trial judge denied the motion and directed that Ida be withdrawn and replaced by the then first alternate, No. 14. Appellant objected to the replacement. The trial then continued for another fourteen days. Immediately prior to the jury's withdrawal for deliberation after a twenty-three day trial, the two remaining alternates were excused from further duty in the case.

Under Article III, Section 2, and the Sixth Amendment of the Constitution, a defendant is entitled to be tried by a jury of twelve. Patton v. United States, 281 U. S. 276, 288-290; Capitol Traction Co. v. Hof, 174 U. S. 1, 13-16. Had Ida not responded to the calling of the name of Lottie, and since Lottie had been excused, juror No. 11 would have been juror No. 10 and No. 12 would have been No. 11. The first alternate, who became juror No. 2, would have been the 12th juror, and the second alternate, who became juror No. 10, would have been juror No. 2 instead. Thus the appellant was tried by the same combinations of twelve people as he would have been had Ida not answered to the name of Lottie. All of them were present during the testimonial portion of the trial and also when the trial judge delivered his instructions. And, as the trial judge pointed out: "The jurors who passed upon his plea were all properly qualified to serve as jurors, had been carefully examined on voir dire and found acceptable." ² The only difference being that the appellant was deprived of the services of an additional alternate for which he does not complain. Nevertheless, he argues that the jury was illegally sworn from the beginning because of the presence of Ida, and by reason thereof, there was in legal contemplation no jury in which a substitution could be made. The Government concedes that Ida, since she was never called to sit in the first or second group, was subject to being withdrawn from the jury box at the time of the trial judge's action. Did the Court's action require that appellant be awarded a new trial? We do not think so.

Until the passage of the Act of June 29, 19 32, c. 309, 47 Stat. 380, 28 U. S. C. (1940 Ed.) §417a, ³ there was no specific provision in the federal law for the selection of alternate jurors in criminal cases. Since September 1, 19 48, authority for selecting them is derived from Rule 24(c) of the Federal Rules of Criminal Procedure. This Rule provides as follows:

"(c) alternate Jurors. The court may direct that not more than 4 jurors in addition to the regular jury be called and impanelled to sit as alternate jurors. Alternate jurors in the order in which they are called shall replace jurors who, prior to the time the jury retires to consider its verdict, become unable or disqualified to perform their duties. Alternate jurors shall be drawn in the same manner, shall have the same qualifications, shall be subject to the same examination and challenges, shall take the same oath and shall have the same functions, powers, facilities and privileges as the regular jurors. An alternate juror who does not replace a regular juror shall be discharged after the jury retires to consider its verdict . . .."

Appellant maintains that the reference in this subsection of the Rule to "the regular jury" indicates that the alternates are in addition to a jury of twelve which has been properly selected. The jury need not be twelve in number, but may be of a lesser number. Patton v. United States, supra, at p. 299. This is apparently the reason why the subsection uses the expression "the regular jury" as a convenient reference to a group that is selected according to some prescribed rule or established usage.

Appellant also insists that, according to the subsection of the Rule, alternates may only replace jurors "who, prior to the time the jury retires to consider its verdict, become unable or disqualified to perform their duties." This language, appellant argues, clearly means that a regular juror may be replaced only when the reason for his disability or disqualification arises after his selection and before his retirement to deliberate. Had the framers of the subsection, the argument runs, been of the view that a juror could be replaced where the reason for his disqualification existed at the time of his selection, and went undiscovered, until after the jury was sworn and the trial commenced, they would not have used the words, "became unable or disqualified." Appellant appears to lose sight of the fact that the challenge of a juror for cause may be waived by the accused and the prosecutor. Here the appellant, after he learned of the real identity of Ida, could have consented to her serving on the jury. ⁴ Instead he objected to her doing so by asking for a mistrial. It was at this juncture that Ida became "unable or disqualified" to serve on the jury. This could not have been known until appellant raised his objection. That Ida was subject to being withdrawn upon being challenged from the time she responded to the name of Lottie cannot obliterate that fact. At least two Courts of Appeals have decided that Criminal Rule 24(c) does not prevent the replacement of a juror by an alternate after the jury has been sworn. In one, the existence of the disqualifying factor was discovered before testimony was taken. Gillars v. United States , 182 F. 2d 962. In the other, midway during the trial. United States v. Zambito, 315 F. 2d 266, 269, cert. den. 373 U. S. 924. Also see United States v. Gottfried, 165 F. 2d 360, 365, cert. den. 333 U. S. 860. Except for some provisions not material here, Rule 47(b) of the Federal Rules of Civil Procedure is identical to Criminal Rule 24(c). The latter Rule embodies the practice prescribed for civil cases by Civil Rule 47(b). See Note of the Advisory Committee on Rules to subdivision (c) to Criminal Rule 24. In Larson v. General Motors Corporation, 148 F. 2d 319, 322, cert. den. 326 U. S. 745, a case in which the construction of Civil Rule 47(b) was involved, the Court of Appeals for the Second Circuit could see no reason why the words "jurors who . . . become unable or disqualified to perform their duty" should not be construed so as to cover "an ineligibility on the part of a juror that is first discovered after the trial has begun." Accordingly, there was no error in the trial court's denial of the motion for mistrial.

Another alleged error was the admission of certain summaries into evidence, prepared by Government agents and taken largely from the records produced by Rudy, Ferrari and Dombkiewicz. Since we here hold these records admissible, there can be no objection to the summaries prepared from them and, therefore, there was no error in their admission.

[Jurisdiction]

An additional alleged error, although not presented at argument, asserts that the court had no jurisdiction to try the appellant on counts eight and nine, as his returns were filed in Camden , New Jersey . However, these two counts of the indictment are different from counts four, five, six and seven, in that they charge appellant with "causing to be prepared" and "causing to be filed with the Director of Internal Revenue at Camden, New Jersey." However, the record discloses ample testimony on which the jury could and did find that the appellant caused them to be prepared at Philadelphia in the Eastern District of Pennsylvania.

[Judgment of Court]

Accordingly, the judgment of conviction and sentence will be affirmed.

¹ The reason for the replacement does not appear in the record.

² 206 F. Supp. 394, at p. 399 [(E. D. Pa. 1962)].

³ Repealed by Act of June 25, 19 48, c. 645, §21, 62 Stat. 862, effective September 1, 19 48.

⁴ When he learned of the mix-up, counsel for the appellant stated: "I do not and cannot state now that had we been confronted with [Mrs.] Lottie Rob inson we would have challenged her . . .." (N. T. p. 984).

 

 

 

[62-2 USTC ¶9638] United States of America v. Morris C. Goldberg, a/k/a "Moe Goldberg" and "M. C. Goldberg"

U. S. District Court, East. Dist. Pa. , Criminal No. 20,663, 206 FSupp 394, 6/26/62

[1954 Code Sec. 7201]

Criminal evasion: Sufficiency of indictment: Single conspiracy covering separate taxable years.--A conspiracy court which charged a single conspiracy to evade taxes for two separate years was an improper count. Since taxes are due on an annual basis and taxpayers can have the required intent to evade only if they are aware of the existence of the tax obligation, it is impossible to conspire at one time to evade more than one year's taxes.

[1954 Code Sec. 7201]

Criminal evasion: Jurisdiction: Situs of preparation of return v. situs of filing.--The evidence was held to warrant an inference that the taxpayer's allegedly fraudulent returns were prepared in Pennsylvania even though the returns were filed in New Jersey . Hence the District Court for the Eastern District fo Pennsylvania had jurisdiction of the case.

[1954 Code Sec. 7201]

Criminal evasion: Error in selection of juror: Similar surnames.--It was not error to deny taxpayer's motion for a mistrial upon the discovery that one juror on the panel had been sitting in the place of another because of a similarity in surnames. The jurors who finally passed upon the case were all qualified.

[1954 Code Sec. 7201]

Criminal evasion: Admission of evidence: Books and records improperly taken by employees.--The court did not err in allowing the admission of books and records of the taxpayer which were taken by his employees without authorization and thereafter turned over to the government.

[1954 Code Sec. 7201]

Criminal evasion: Conviction: Sufficiency fo evidence.--There was sufficient evidence to support the verdict of the jury.

[1954 Code Sec. 7201]

Criminal evasion: Consistency of verdicts.--There was no merit to the taxpayer's argument that certain verdicts were repugnant to others. The taxpayer and his corporations were separate taxable entities. Both the corporations and the taxpayer had to account for income of the corporation which was credited directly to the taxpayer.

Drew J. T. O'Keefe, United States Attorney, 6 Penn Center Plaza, James McGirr Kelly, Assistant United States Attorney, Philadelphia , Pa. , for plaintiff. Thomas D. McBride, Raymond J. Bradley, 12th Floor, Packard Bldg., Philadelphia 2, Pa., for defendant.

Opinion

KRAFT, District Judge:

Defendant was tried to a jury and found guilty on eight counts of an indictment charging conspiracy and attempted evasion of income taxes due from defendant personally and from several corporations under defendant's control. His post-trial motions challenge the sufficiency of the indictment and the evidence, and assert various trial and procedural errors.

The facts, though somewhat complicated in the proof, are comparatively simple in the telling. Defendant, at all material times, was president and virtually sole owner of thirteen corporations, engaged for the most part in the laundry and linen supply business. These enterprises included Pennsylvania Coat & Apron Supply Co. (New Jersey); Pennsylvania Laundry Co.; Pennsylvania Coat & Apron Supply Co. (Pennsylvania); and Anderson's Empire Coat, Apron and Towel Supply, Inc.

Throughout 1955 and 1956, defendant was indebted to various of his corporations for money borrowed by him on open account, and those accounts appeared as assets on the respective corporate books under the caption "loan and exchange accounts." The oral and documentary evidence established that defendant caused the records of the four above-named corporations to be rewritten so that the cash sales of those corporations for 1955 or 1956, or for both years, would be understated in very substantial amounts. These reductions in sales were in turn offset by the entry of credits to defendant's loan and exchange account, which, of course, reduced defendant's indebtedness to his corporations.

[Single Conspiracy]

Court 1 of the indictment charges defendant with conspiring willfully to attempt to evade and defeat taxes due by defendant individually for 1955 and 1956. Counts 2 and 3, respectively, charge attempted evasion of taxes due by defendant individually for 1955 and 1956. Counts 4, 5, 7, 8 and 9, respectively, charge attempted evasion of taxes due by the four above-named corporations, as follows: Pennsylvania Coat & Apron Supply Co. (New Jersey) for the period January 1, 19 55, to September 1, 19 55; Pennsylvania Laundry Co. for 1955; Pennsylvania Coat & Apron Supply Co. (Pennsylvania) for 1956; Anderson's Empire Coat, Apron & Towel Supply, Inc., for 1955; Anderson's Empire Coat, Apron, & Towel Supply, Inc. for 1956.

Defendant's first complaint is that Count 1 does not sufficiently or properly charge an offense against the United States . Count 1, as already noted, charges a conspiracy willfully to attempt to evade defendant's individual income taxes "for the calendar years 1955 and 1956." Defendant has maintained throughout this case that there cannot be a single conspiracy pertaining to two separate taxable years. We denied defendant's motions to require the Government to elect between the two years, and submitted Count 1 to the jury with instructions that it could find defendant guilty thereon if it found a conspiracy to evade his taxes only for the year 1955, or only for the year 1956, or for both years. After mature consideration, we think this was error.

It is, of course, true as a general proposition that a single conspiracy may have as its purpose the commission of more than one offense. The conspiracy is the crime, and it is but one, however diverse its objects. Frohwerk v. United States , 249 U. S. 204, 210 (1919). However, because of the criminal intent necessary for the substantive offense of attempted tax evasion, we conclude that a single conspiracy embracing two separate taxable years is impossible. That criminal intent has been stated by our Court of Appeals in United States v. Martell [52-2 USTC ¶9541], 199 F. 2d 670, 672 (3d Cir. 1952):

"The rule concerning the state of mind required for conviction for this offense is discussed in United States v. Murdock, 1933, [3 USTC ¶1194] 290 U. S. 389, 394-396, 54 S. Ct. 223, 78 L. Ed. 381, and Hargrove v. United States, 5 Cir., 1933, [3 USTC ¶1192] 67 F. 2d 820, 823, 90 A. L. R. 1276. Willfulness is an essential element of the crime proscribed by §145 (b). It is best defined as a state of mind of the taxpayer wherein he is fully aware of the existence of a tax obligation to the government which he seeks to conceal. A willful evasion of the tax requires an intentional act or omission as compared to an accidental or inadvertent one. It also requires a specific wrongful intent to conceal an obligation known to exist, as compared to a genuine misunderstanding of what the law requires or a bona fide belief that certain receipts are not taxable."

Conspiracy to commit such a substantive offense cannot exist without at least the degree of criminal intent necessary for the substantive offense itself. Ingram v. United States [59-2 USTC ¶15,245], 360 U. S. 672, 678 (1959). It follows that persons can conspire to evade a tax only if they are fully aware of the existence of a tax obligation to the Government which they seek to conceal. Since income taxes become due and payable on an annual basis, it seems manifest that persons cannot at one and the same time conspire to evade more than one year's taxes.

A willful attempt to evade the tax for one year is a separate offense from a like attempt to evade for another year. United States v. Sullivan [38-2 USTC ¶9429], 98 F. 2d 79, 80 (2d Cir. 1938). We think the same holds true as respects a conspiracy to commit the substantive offense. Accordingly, defendant's motion in arrest of judgment upon Count 1 will be granted.

[Venue]

Defendant contends that the evidence was insufficient to prove that the offense charged in Counts 8 and 9 occurred within the territorial jurisdiction of this Court. These Counts deal with the attempted evasion of taxes for the years 1955 and 1956, respectively, of Anderson 's Empire, a New Jersey corporation, with its place of business in Atlantic City , New Jersey . Each of the Counts lays venue as follows:

". . . in the Eastern District of Pennsylvania, Morris C. Goldberg . . . did willfully and knowingly attempt to evade and defeat a large part of the taxes due and owing by the corporation to the United States of America . . . by causing to be prepared and causing to be filed with the Director of Internal Revenue for the Internal Revenue Collection District of Camden, at Camden, New Jersey, a false and fraudulent tax return . . .."

Each of these returns was filed in Camden , New Jersey . On that basis, venue would lie in the District of New Jersey. Holbrook v. United States [54-2 USTC ¶9640], 216 F. 2d 238, 239 (5th Cir. 1954); Kowalsky v. United States [61-1 USTC ¶9456], 290 F. 2d 161, 163 (5th Cir. 1961). On the other hand, if the returns were prepared in this District, this Court would have jurisdiction. United States v. Gross [60-1 USTC ¶9401], 276 F. 2d 816, 820 (2d Cir. 1960); Kowalsky v. United States , supra. We think the evidence was sufficient to establish that both of the returns were prepared in this District.

Rudolph Csicsek, one of the Government's principal witnesses, was controller and admin istrative assistant, exercising supervision over all of defendant's companies, during 1955 and 1956. His office adjoined the defendant's, in the headquarters or "main office" of all the companies, on North 12th Street , Philadelphia . Csicsek testified that, to the best of his recollection, the general ledgers for all 13 of defendant's corporations were kept at the 12th Street office; that all the books and records were under his supervision and control during 1955 and 1956; that "changes" made in the records at defendant's direction were made at the main office.

Mrs. Myers, bookkeeper for Anderson 's Empire, Atlantic City , in 1955 and 1956, stated that after the prepared the cash receipts and sales journals, they were sent to the main office in Philadelphia and that was "the last I saw of them."

The tax returns of Anderson 's Empire for 1955 and 1956 were prepared by a firm of accountants, one of whose offices was located in Philadelphia . Rob ert Ferst, a partner in the firm, testified that the returns were prepared from Anderson 's books and records.

Venue need not be proved by direct and positive evidence. If, upon the whole evidence, it may reasonably be inferred that the crime was committed where the venue was laid, that is sufficient. United States v. Jones, 174 F. 2d 746, 748-749 (7th Cir. 1949). We think the jury could reasonably infer from all the evidence that Anderson 's tax returns were prepared in this District. Defendant's motions with respect to Counts 8 and 9, therefore, will be denied.

[Selection of Jurors]

The substance of defendant's next complaint is that the jury was not properly constituted. The facts disclose an unusual situation. The panel of jurors which had been summoned included a Mrs. Ida B. Rob inson, a saleslady and No. 85 on the list, and a Mrs. Lottie P. Rob inson, a housewife and No. 86 on the list. When the entire panel of jurors convened in the jury assembly room, Mrs. Lottie P. Rob inson was excused because of a physical indisposition. However, no immediate record of this was made by the jury clerk, and consequently her number remained in the panel from which the jurors were to be drawn for this trial.

When the jury was selected for this case, the Clerk drew No. 86 from the box and called the name of Mrs. Lottie P. Rob inson. Mrs. Ida B. Rob inson responded and took her place in the group from which the jury of twelve was ultimately selected.

Mrs. Ida B. Rob inson was among the jurors examined on voir dire and was one of the twelve jurors remaining after the Government and the defendant had exercised their respective challenges. The Clerk then assigned these twelve to their proper places in the jury box, and, in doing so, he again announced the name of Mrs. Lottie P. Rob inson. Mrs. Ida B. Rob inson took the place designated by the Clerk. Four alternate jurors were selected, the jury was sworn and the trial began.

The error was discovered after several days of trial. After due consideration, we denied defendant's motion for a mistrial, and, over defendant's objection, substituted an alternate juror for Mrs. Ida B. Rob inson.

We think the Court's action was in accordance with F. R. Cr. P. 24(c), which provides in relevant part:

"The court may direct that not more than 4 jurors in addition to the regular jury be called and impanelled to sit as alternate jurors. Alternate jurors in the order in which they are called shall replace jurors who, prior to the time the jury retires to consider its verdict, become unable or disqualified to perform their duties. Alternate jurors shall be drawn in the same manner, shall have the same qualifications, shall be subject to the same examination and challenges, shall take the same oath and shall have the same functions, powers, facilities and privileges as the regular jurors . . ." (Italics added).

Defendant contends that the reference to "the regular jury" contemplates alternates in addition to a jury of 12 which has been properly selected; that the word "become" in the provision for the replacement of jurors "who, prior to the time the jury retires to consider its verdict, become unable or disqualified to perform their duties," compels the conclusion that a regular juror can be replaced only when his disability or disqualification occurs after his selection and before his retirement to deliberate, and not when his disqualification existed at the time of his selection but went undiscovered until after he had been sworn and the trial had commenced. The construction for which defendant contends may be a reasonable one, but the language of the rule is at least equally susceptible of the construction placed upon it by the trial Judge. The latter construction, we think, was in compliance with the direction of F. R. Cr. P. 2:

"These rules are intended to provide for the just determination of every criminal proceeding. They shall be construed to secure simplicity in procedure, fairness in admin istration and the elimination of unjustifiable expense and delay."

There is a singular dearth of authority on the question. However, in Gillars v. United States, 182 F. 2d 962 (D. C. Cir. 1950), a treason trial, it appeared that when the panel was examined on voir dire, they were asked whether any of them was opposed to the death penalty, and one of the jurors did not respond. After the jury was sworn, but before the opening addresses or the taking of testimony, the juror disclosed that she was opposed to capital punishment. It was held that the trial judge properly excused the juror and substituted an alternate in her place. The Court pointed out that the juror's disclosure of her opposition to capital punishment was the disclosure of a disqualification for which she should have been excused, and further stated (p. 980):

"This being so it was quite proper for the judge to substitute an alternate juror as provided in the Rule. No reason to the contrary has been suggested by appellant except that the jury had been sworn. But no proceedings had been taken except the selection of the jury and the substitution was timely."

In Larson v. General Motors Corporation, 148 F. 2d 319, 322 (2d Cir. 1945), the Court construed the language of Civil Rule 47(b), which, in relevant regard, is identical with that of Criminal Rule 24(c), and stated:

"We can see no reason for construing the above clause of Rule 47(b) narrowly and thus burdening the parties and the court with new trials caused by granting motions to withdraw a juror who is found to be incompetent to serve. The words 'jurors who * * * become unable or disqualified to perform their duties' certainly cover an ineligibility on the part of a juror that is first discovered after the trial has begun."

In any event, the defendant claims no actual prejudice and it is difficult to perceive how the Court's action did prejudice defendant's rights in any degree. The jurors who passed upon his plea were all properly qualified to serve as jurors, had been carefully examined on voir dire and found acceptable. We find no real merit in defendant's contention.

[Admission of Evidence]

Defendant urges that the Court erred in its rulings on the admissibility of evidence.

Csicsek testified that late in 1954 or early in 1955, defendant ordered him to rewrite the corporate sales records of Pennsylvania Coat and Apron of New Jersey so as to understate its cash sales by an "average" of $3500 a week and to make corresponding credits to defendant's loan and exchange accounts. Later in 1955, according to Csicsek, defendant stated that the loan accounts should be further reduced, and instructed him to increase the amount of the understatement of Pennsylvania Coat and Apron's cash sales and to rewrite the sales records of Anderson 's Empire so as to understate its cash sales. Csicsek stated that he personally rewrote the records for the first two months and then instructed another employe, Ferrari, to do the rewriting, and the latter carried on from there. Ferrari testified at length concerning his part in the rewriting of the records.

Csicsek testified that defendant "advised" him to destroy the original sales records, but that he placed them in a filing cabinet in his office and took them to his home when he left defendant's employ in 1958. He also took certain other records which, according to his testimony, he had prepared for defendant's use, and which related to and analyzed the status of defendant's loan and exchange accounts. Csicsek later delivered these records to the Government which placed them in evidence. There was extensive testimony from Csicsek and other witnesses concerning these documents.

Ferrari and Dombkiewicz worked under Csicsek's direction in the accounting department of defendant's enterprises. They likewise left defendant's employ in 1958, and also took with them, without authority, certain corporate records which they turned over to revenue agents assigned to the case. The Government introduced these records into evidence, and Dombkiewicz, Ferrari and other witnesses testified at length concerning their contents.

The trial Judge admitted in evidence the records taken by Csicsek, Ferrari and Dombkiewicz over defendant's objection, and later denied defendant's motion to strike the exhibits.

Since there is no evidence whatever that any Government official, State or Federal, has participated in, or had any knowledge of, the taking of these documents, they were clearly admissible under the authority of Burdeau v. McDowell, 256 U. S. 465 (1921). In that case, McDowell filed a petition seeking the return of documents in the possession of a Government official, alleging that these documents were about to be presented to a grand jury. Certain of McDowell's business associates had taken the documents from his safe and turned them over to Government officials. The evidence established that no Government official had participated in or been connected with the taking of the documents. A majority of the Court held that, since the documents had come into the Government's possession without a violation of McDowell's rights by Governmental authority, the Government could retain them for use as evidence.

The dissenting opinion pointed out that the Court would restore the documents to McDowell if they were still in the possession of those who had taken them, and that the Court had power to control their disposition even though they had passed into the possession of a law officer. Conceding that no provision of the Constitution required their surrender, and that the papers could have been subpoenaed, the opinion writer nevertheless concluded (p. 477):

"Still I cannot believe that action of a public official is necessarily lawful because it does not violate constitutional prohibitions and because the same result might have been attained by other and proper means. At the foundation of our civil liberty lies the principle which denies to government officials an exceptional position before the law and which subjects them to the same rules of conduct that are commands to the citizen. And in the development of our liberty insistence upon procedural regularity has been a large factor. Respect for law will not be advanced by resort, in its enforcement, to means which shock the common man's sense of decency and fair play."

Defendant contends that the principle of the Burdeau dissent was accepted as law in Elkins v. United States, 364 U. S. 206 (1960). We disagree. In Elkins, tape and wire recordings and a recording machine, which had been seized by state law enforcement officers as the result of an unlawful search and seizure, had been admitted in evidence in a Federal criminal trial. No Federal officer had participated in the unlawful search and seizure. A majority of the Court held that evidence so obtained could not be used and set aside the conviction. The Court's ruling condemned lawless official action, not private wrongdoing, in the procuring of evidence. Briefly stated, the decision in Elkins abolished the so-called "silver platter doctrine" and held that evidence obtained by State officers during a search which, if conducted by Federal officers, would have violated the defendant's immunity from unreasonable searches and seizures under the Fourth Amendment is inadmissible over the defendant's timely objection in a Federal criminal trial, even when there was no participation by Federal officers in the search and seizure. So far as our rather exhaustive research has disclosed, the principle of the Burdeau case remains intact.

Defendant argues that, in any event, the circumstances in which the Government received delivery of the records distinguishes the case from Burdeau. Again, we are compelled to disagree. We shall relate those circumstances with as much brevity as is consistent with perspicuity.

Csicsek was jointly indicted with defendant, and originally pleaded not guilty. Following conversations between Csicsek's counsel and the then United States Attorney, it was agreed, in effect, that if Csicsek changed his plea and thereafter fully cooperated with the Government in its case against Goldberg, whatever that cooperation might encompass, the Government, if asked by the sentencing judge, would state the extent and degree of Csicsek's cooperation and would recommend leniency in the form of absence or suspension of a jail sentence. Csicsek then changed his plea to nolo contendere. Thereafter, he delivered the records to the Government.

The uncontradicted evidence establishes that none of the Government officials connected with the case had any knowledge whatsoever that Csicsek had these records--or, indeed, any records--until he delivered them to the revenue agents. The then United States Attorney testified: "My only insistence time after time was that this be a full disclosure, whatever that embodied, but I had no knowledge about what Mr. Csicsek would say or what he had in his mind or anything about records, documentary evidence or otherwise." He testified that he stated to Csicsek's counsel that, "If . . . we are to say that he is cooperating, then it must be understood that he makes a full disclosure, that he will make himself available for question and answer, and any kind of documentary evidence he might have." As we read his testimony, Csicsek's own counsel did not know of these records until after the change of plea.

In light of the evidence, we disagree with defendant's contention that, by its actons , "the government both condoned Csicsek's methods and adopted those methods for its own benefit." The legal and moral implications of the Government's actions here, so far as we can discern, are no different than in Burdeau, supra. In both cases it was merely the unwitting beneficiary of a third person's wrongful acts; and in this case, to a large extent, the unwitting beneficiary of the acts of defendant's own confederate.

In the case of Ferrari and Dombkiewicz, the uncontradicted evidence discloses that they took the corporate records prior to any communication with Government officials. They delivered the documents to the Intelligence Division of the Internal Revenue Service on August 5, 19 58. The officer who received delivery testified that "right before they left the office," Dombkiewicz inquired concerning rewards for information given in such situations, and that after some discussion both men signed "Claims for Reward" forms. Ferrari and Dombkiewicz were accountants, and admittedly knew before then took the records that informers were entitled under the law to a fee based upon the amount recovered from the taxpayer upon whom they informed. Defendant argues from this that the Government not only a receiver of the documents "stolen" by these men, "but it is also in the position of holding out to them the hope of a reward for delivering that which these men illegally obtained." If the defendant means by this that the Government is thereby rendered a participant in the original taking, so as to exclude the documents as evidence, we emphatically disagree. The Government is not bound at its peril to know that the offer of a reward for information will induce a violation of the law.

We hold, therefore, that the documents which Csicsek, Ferrari and Dombkiewicz delivered to the Government were properly admitted under Burdeau v. McDowell, supra. It follows that the summaries and computations prepared by the revenue agents, and the testimony relating to them, based on the documents, were likewise properly admitted.

[Instructions]

Defendant alleges effor in the charge, and in the refusal to charge as requested, concerning defendant's Exhibit 7, which was among the documents which Csicsek turned over to the Government officers following his change of plea. This paper, so far as here material, contained pencil notations in Csicsek's handwriting, purportedly relating to the closing inventories for 1955 and 1956 of Pennsylvania Laundry, Anderson 's Empire and Keystone Coat and Apron. The amounts shown were substantially less than the actual closing inventories stated in the tax returns filed by the respective corporations, and the difference might equal the total amount by which the sales were understated. Revenue Agent Raines noted during his investigation of the case that the inventories "may have been inflated by same amount that sales were knocked down."

We denied defendant's request to charge that, since the Government had the burden of investigating the truth or falsity of these closing inventories, the jury might conclude that what the exhibit showed with respect to actual closing inventories was in fact the actual closing inventories, without proof of its correctness by defendant. Defendant relies entirely on Holland v. United States [54-2 USTC ¶9714], 348 U. S. 121 (1954), a tax evasion prosecution in which the Government based its case on the net worth method of proof. The Court held in relevant part (135-136):

"When the Government rests its case solely on the approximations and circumstantial inferences of a net worth computation, the cogency of its proof depends upon its effective negation of reasonable explanations by the taxpayer inconsistent with guilt. Such refutation might fail when the Government does not track down relevant leads furnished by the taxpayer--leads reasonably susceptible of being checked, which, if true, would establish the taxpayer's innocence. When the Government fails to show an investigation into the validity of such leads, the trial judge may consider them as true and the Government's case insufficient to go to the jury."

We think the Holland rule is inapposite here. The inventory figures on the tax returns were the corporate taxpayer's own figures--not the Government's. It seems a curious inversion of logic, to say the least, for the defendant to produce an entirely different set of figures, compiled by the corporations' own accountant, and then to attempt to thrust on the Government the duty of determining which figures are conrect. Moreover, Exhibit 7 "explains" nothing. It certainly does not explain the deliberate and systematic rewriting of corporate records to understate sales in substantial amounts and to show corresponding credits to defendant's loan accounts. As we stated in the charge, the origin and purpose of the exhibit is something of a mystery. It came into the case during Csicsek's cross-examination. Yet counsel made no attempt to question him about it. Csicsek's physical condition made it impossible for the Government to call him in rebuttal.

Apart from other considerations, Anderson 's Empire, according to Raines' testimony, did not take inventories into account in computing income.

Finally, the evidence establishes that the Government made every reasonable effort to check into the inventory situation. Raines testified: "At the repeated requests by me for inventory information I gave up and I had to accept the figures that were shown on the returns as being the correct inventory figures." Agent Tiberino testified that, "Mr. Ferst stated that physical inventories were taken and as far as he was concerned they were fairly stated."

We think the instructions to the jury gave defendant all he was entitled to, and possibly more:

"I read and affirm defendant's point 8.

"If you conclude that defendant's Exhibit 7 correctly states the actual closing inventories and that as a result the expenses of Pennsylvania Coat & Apron Supply Company of New Jersey for 1955, of Pennsylvania Coat & Apron Supply Company of Pennsylvania for 1956, of Pennsylvania Laundry Company for 1955, and of Anderson's Empire Coat, Apron & Towel Supply Inc., for 1955 and 1956 were understated to an amount equal to any understatement of sales there would be no taxable income. In that event you must find the defendant not guilty on counts 4, 5, 7, 8 and 9 of the indictment.

"Now, that said, if you conclude that the Defendant's Exhibit 7 correctly states the closing inventories and that as a result the expenses for the companies were understated in an amount equal to the understatement of sales.

"Much has been said about Defendant's Exhibit 7. I am leaving to you, because I cannot remember every jot, title of the evidence--you have 12 minds which may be 12 or maybe 24 times as much mental capacity as I have, but you are to review the evidence and determine whether Defendant's Exhibit 7 does correctly state actual closing inventories.

"I say to you my only recollection, and you are to follow your recollection and not mine, is that Exhibit D-7 was established to be in Csicsek's handwriting. I recall nothing more about it and nothing less. I recall no evidence of when it was prepared, from what it was prepared, how it was prepared, why it was prepared, or whether what it purports to state is wholly true, wholly false, or partly true and partly false. You will have to review the evidence carefully and make your own determination from your recollection of the evidence whether or not Exhibit D-7 is shown by the evidence correctly to state the actual closing inventories of those companies for those dates. If you find that they do correctly state actual closing inventories, and you so find from the evidence, and if you find that as a result of that the expenses of those companies for the years I have mentioned were understated to an amount equal to any understatement of sales, then there would be no taxable income and the defendant would have to be acquitted on Counts 4, 5, 7, 8 and 9."

We conclude that defendant's complaints as to the Court's action in respect to his Exhibit 7 are altogether wanting in merit.

[Sufficiency of Evidence]

Defendant's next contention is that the evidence was not sufficient to support the verdict. His argument on this aspect of the case is somewhat difficult to follow, and seems to fly in the face of admitted facts.

The evidence shows that defendant's so-called loan and exchange accounts in his various corporations were what might be called "running" accounts, and fairly active. Defendant frequently withdrew corporate funds for his personal use and such withdrawals were charged to his various loan accounts. These accounts were, of course, corporate assets, and neither defendant, his accountants, nor anyone else concerned ever regarded them as anything else. The evidence discloses that at the beginning of 1955 the debit balances in defendant's loan accounts totalled in excess of $387,000. Throughout 1955 and 1956, defendant continued to withdraw corporate funds for personal use, and such withdrawals were duly charged to his loan accounts.

The Government's theory of the case was that the credits to defendant's loan accounts in 1955 and 1956--which offset the reductions in income from cash sales--were income to defendant individually in those years, since his indebtedness to his corporations was thereby diminished. That is the basis for Counts 2 and 3. Defendant now makes the surprising assertion that his admitted borrowings from his corporations were not borrowings at all, but were income. He now reasons that since there was never any corporate action authorizing the withdrawals, and since he paid no interest thereon and executed no instruments as evidence of his indebtedness, he must have realized income when the money was withdrawn, if, indeed, he realized any income. In consequence, he says, the verdict on Counts 2 and 3 cannot stand, since the case was not submitted to the jury on the theory that defendant's withdrawals of corporate funds constituted income. Defendant's contention seems strangely inconsistent with his own sworn testimony on direct examination:

"Q. Mr. Goldberg, there has been frequent reference here to what has been described as your Loans and Exchange Account. I want to ask you about that. Did you from time to time borrow money from the corporations?

A. Yes, sir.

Q. For what purpose or purposes?

A. For many different purposes, many different reasons.

Q. Yes; how were those advances to be handled on the books?

A. As far as I am concerned, any monies that were advanced to me were charged to me and I was responsible for the repayment of them, and I insisted that at any time I would ever get any monies that they shall be charged to my account, and I understand they were.

Q. Were any of those sums used for purely personal matters?

A. Yes, sir.

* * *

Q. Have you used some of the money for business reasons connected with the corporations?

A. Yes, sir.

Q. But in any event, whether it was used for business or for routes or personal expenses, was it your direction that it be charged to your personal account?

A. Yes, sir.

Q. Have you any knowledge of a single penny that was so used that was not charged to your personal account?

A. I do not know of one single penny in that respect.

Q. Now, whose job was it to keep account of the loan account?

A. Mr. Csicsek and his assistants, but as far as I am concerned, Mr. Csicsek is the man who was responsible.

Q. Now, did you from time to time make repayments either in cash or in turning over to the corporation--

A. Yes, sir.

Q. --business purchased, and so forth?

A. Yes, sir.

Q. Whose job was it to give you credit for any credit that you were entitled to?

A. Well, I presume that it was Mr. Csicsek's job to see that things were allocated properly, particularly my personal account, Loans and Exchanges. Everything is to be properly allocated on the books and since he was head man there he is responsible to me for all these things.

Q. Do you have any knowledge of any credit ever having been given to you to which you were not entitled?

A. Yes, sir.

Q. Did you ever receive any statement or memorandum from Mr. Csicsek concerning the status of your Loans and Exchange Account at any time?

A. From--like a six-month period when we would get the order I maybe would have an inkling of what it was about."

Citations from defendant's own testimony to the same effect might be multiplied. For example, he made strenuous efforts to borrow money from a Philadelphia bank to pay off his indebtedness on his loan accounts in order to clear the way for a long-term loan from an insurance company. Certainly, if defendant's withdrawals of corporate funds constituted borrowings, they were not income.

In the light of the admitted facts, it is pointless for defendant to argue that, since there was no corporate authority for either the withdrawals or the credits, the evidence shows that what defendant did constituted embezzlement. We are not called upon here to adjudicate legal issues between defendant and his corporate creatures. Moreover, defendant could not embezzle funds from his wholly owned corporations. United States v. Augustine [51-1 USTC ¶9247], 188 F. 2d 359 (3rd Cir. 1951); Davis v. United States [55-2 USTC ¶9685], 226 F. 2d 331 (6th Cir. 1955); Kann v. Commissioner of Internal Revenue [54-1 USTC ¶9144], 210 F. 2d 247 (3d Cir. 1953).

Defendant contends that the verdicts on Counts 4, 5, 7, 8 and 9 cannot stand because of the Government's failure to investigate defendant's Exhibit 7,--relying on Holland, supra. We have concluded earlier that Holland has no application in the circumstances of the case at bar, and can add nothing to what has been said on the point.

Our review of the evidence persuades us that it amply supports the verdicts on Counts 2, 3, 4, 5, 7, 8 and 9. Our disposition of Count 1, supra, makes it unnecessary, of course, to consider the evidence with relation thereto.

[Consistency of Verdicts]

Defendant's next point is that the verdicts on Counts 2 and 3, and on Counts 4, 5, 7, 8 and 9, are repugnant to one another and cannot stand together. He says that "the money coming from the suppressed sales" of the corporations was income either to those corporations or to defendant, but that it could not be income to both. His argument is, in effect, that if defendant and his corporations are one in the sense that he cannot embezzle corporate funds, then they must likewise be one in respect of corporate income credited to defendant's account on the corporate books; that the Government "may not have it both ways." Defendant overlooks the well-established principle that a corporation and the aggregate of individuals constituting it may be one, or separate entities, as the case may be, for one purpose and not for another. The general rule in all jurisdictions seems to be as stated in Tucker v. Binenstock, 310 Pa. 254, 263 (1933):

"The fiction of a corporation as an entity distinct from the aggregate of individuals comprising it was designed to serve convenience and justice. There is consequently an exception recognized wherever the rule is known, namely, that the fiction will be disregarded and the individuals and corporation considered as identical whenever justice or public policy demand it and when the rights of innocent parties are not prejudiced thereby nor the theory of corporate entity made useless."

It has been the law until very recently ¹ that embezzled money does not constitute taxable income to the embezzler. Commissioner v. Wilcox [46-1 USTC ¶9188], 327 U. S. 404 (1946). Courts have held consistently that one cannot embezzle funds from his wholly owned corporation,--probably for the reason that if a regularly-declared dividend is taxable income, informal withdrawals or diversions of corporate income should also be taxable income. Such holding may involve a disregard of the theory of separate entities. As our Court of Appeals stated in Kann v. Commissioner, supra [54-1 USTC ¶9144], 210 F. 2d 247, 251:

"Indeed, under the Pennsylvania and Ohio codes, supra Note 6, and bearing in mind the principles of corporate entity, it would seem to be possible for the proprietor of a one-man corporation to be guilty of embezzlement if he diverted corporate monies to his own pocket without the formality of declaring dividends. Such local law concept of embezzlement, while it may be useful to deter those in control of a corporation from defrauding creditors and minority stockholders, should not, in our opinion, be used as a vehicle for tax avoidance, absent a clear mandate to the contrary."

It follows that there is nothing inconsistent in the Government's position. It is merely asserting settled principles of law based on justice and public policy.

In the course of his oral argument, defendant's learned counsel stated: "Now, I concede, that if a corporation gets money and has it and then the officer gets payment improperly, there may arise some question as to whether or not the company doesn't have to account for that and Goldberg has to account for it." The situation disclosed by the evidence here is no different in effect than the case supposed by counsel. However, instead of withdrawing cash and then paying it back to the corporation to be credited to his loan account, defendant shortened the operation by taking the credit directly.

We find no inconsistency or repugnancy in the verdicts on the Counts in question.

Defendant's final contention is that the trial Judge erred in refusing to charge as to the taxability of corporate distributions, as requested.

In defining gross income, we read to the jury a portion of §61 of the Internal Revenue Code of 1954, 26 U. S. C. 61, which, of course, lists dividends among many items of income. Defendant's counsel submitted no point on the subject, but stated at the close of the charge that we "did not go into the limitation upon dividends with respect to the earnings and profits available therefor, which is also contained in the Internal Revenue Code." We instructed the jury to disregard what we had said concerning the inclusion of dividends in gross income. This did not meet counsel's suggestion for he then stated that, since part of the Government's theory must be that there was a corporate distribution in the nature of a dividend received by defendant, the jury must be instructed with respect to "the limitations in the Code dealing with the funds."

Counsel misunderstood the Government's theory of the case. It was the Government's contention that defendant received income by reason of the discharge of his indebtedness to his corporations. We pointed out to counsel that when we read to the jury the portion of §61, we were attempting merely to define generally what was meant by gross income. We granted defendant an exception to our refusal further to charge on the subject of dividends.

Counsel now contends that if the credits received by defendant did not constitute "embezzlement," then they had to be corporate distributions to him; and that under §316(a) of the Code, "a corporate distribution may be taxed as a dividend only if made out of accumulated earnings and profits or earnings and profits of the taxable year in question." He argues that the question should have been submitted to the jury with appropriate instructions. A very similar argument was advanced in the analogous case of Davis v. United States [55-2 USTC ¶9685], 226 F. 2d 331 (1955). The Court's answer is conclusive here (334-335):

"Appellant contends in this case that, whether the cash which he took from his wholly owned corporation was a 'taxable gain,' depends upon whether the corporation had sufficient surplus to cover a dividend distribution, as otherwise there would be no way in which he could receive such cash as a gain taxable to him and, since there is no proof of such a surplus, he is only a holder of the cash for the benefit of the corporation. However, it does not make any difference whether he received it as a legal distribution of cash as the result of a dividend, or whether he took it fraudulently, using his wholly owned corporation with its false bookkeeping methods and concealment of sales and receipts to hide the fact that he was secretly acquiring from this source the cash, over which he exercised command, control, and dominion, and from which he realized economic gain and benefit. For 'taxation is not so much concerned with the refinements of title as it is with actual command over the property taxed--the actual benefit for which the tax is paid.' Corliss v. Bowers [2 USTC ¶525], 281 U. S. 376, 378, 50 S. Ct. 336, 74 L. Ed. 916."

We think, under the evidence, that the only issue properly before the jury on this facet of the case was whether defendant received income by reason of the discharges of his indebtedness to the several corporations by the application to his "loans and exchange accounts" of the credits entered there in amounts offsetting the differences between the actual cash sales income and the cash sales income as understated in the rewritten books.

Order

NOW, June 26, 19 62, it is ordered and decreed that:

1. Defendant's motion in arrest of judgment as to Count 1 of the indictment is granted, and judgment on that Count is arrested.

2. Defendant's motions as to Counts 2, 3, 4, 5, 7, 8 and 9 of the indictment are denied.

3. Defendant is ordered to appear for sentence on July 10, 19 62, at 11 A. M.

¹ James v. United States [61-1 USTC ¶9449], 366 U. S. 213 (1961), expressly overruling Wilcox, has, of course, no bearing here.

 

 

 

[55-1 USTC ¶9494] United States of America , Appellee v. Philip Albanese and Rosario Albanese, Defendants, Philip Albanese, Defendant-Appellant

(CA-2), In the United States Court of Appeals for the Second Circuit, Nos. 273, 274. October Term 1954, Docket Nos. 23426, 23427, 224 F2d 879, June 2, 1955

Appeal from judgments of the United States District Court for the Southern District of New York.

[1939 Code Sec. 3748--similar to 1954 Code Sec. 6531]

Criminal prosecutions: Statute of limitations.--The trial judge properly ruled that a charge of alleged conspiracy to violate 18 U. S. C. Sec. 371 was barred by the three-year statute of limitations, but that a charge of alleged conspiracy to violate 1939 Code Sec. 145(b) was not barred because of the special six-year limitations period. The judge also properly ruled that the indictment need not be dismissed and re-submitted to the jury merely to delete the reference to the inapplicable statute, since the latter should be regarded as surplusage.

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

Criminal prosecution: Venue: Returns prepared in one district and filed in another.--The District Court properly ruled that venue was in the court of the district in which taxpayer's act of preparing false records and mailing false returns took place, as such conduct came within the ambit of 1939 Code Sec. 145(b) forbidding an "attempt in any manner to evade or defeat any tax." The actual act of filing was not an essential element of the offense.

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

Criminal prosecution: Failure to sign returns: Effort to introduce memorandum: Correct copy of bill of particulars.--In affirming the jury's finding that taxpayer was guilty of attempting to evade federal income taxes and of conspiring to evade federal taxes and to file false statements, the appellate court held that it was of no import that taxpayer did not personally sign any of the returns filed in his name, since there was sufficient evidence to show that he caused the false returns to be filed. Also, there was no error in the trial court's rulings denying the government's motions to introduce a memorandum made in connection with a meeting between government agents and taxpayer. A slight variance between the bill of particulars and the proof offered at the trial was not prejudicial, where taxpayer had been given a correct copy of the bill.

J. Edward Lumbard , United States Attorney for the Southern District of New York (Peter M. Brown, of counsel), for appellee. Archibald Palmer, for appellant.

Before CLARK, FRANK and STALEY, Circuit Judges.

Appellant was tried by a jury, and found guilty, upon two indictments, consolidated for trial, charging wilful attempts to evade federal income taxes in 1947-1950 and conspiracy to commit said offenses and to file false statements. A co-defendant, Rosario Albanese, was named by the indictments as an aider and abettor, and tried together with the appellant, but the jury disagreed as to his guilt. Judge Bicks entered judgments of conviction on both counts. Appellant has appealed.

FRANK, Circuit Judge:

1. Viewing the facts, as we must, on appeal, most favorably to the prosecution, the evidence showed the following: Philip Albanese was the owner of a profitable truck-loading business at several piers along the Manhattan waterfront. He operated behind a paper wall of false and fictitious records to disguise his own financial interests. The two truckers of fruits and vegetables, who were his sole customers, paid appellant's fees to a collection agency which, in turn, paid cash to Albanese or his agents. The collection agency maintained no records and those records which they supplied to Albanese were destroyed. Ostensible owners of the business, as listed on identification papers required by government agencies, were Rosario Albanese for a part of the period covered by the indictment and Rocco Guarino during much of the remainder of the period. Actually neither was owner and, during a part of the period for which Guarino was listed as one, he had no connection whatever with the business. The real owner at all times was Philip Albanese who, however, was listed during most of the period in question on the payroll records as a dock worker. The prosecution introduced many details of the various unorthodox business practices which disguised the extent of the profits and the identity of the owner.

Tax returns for Philip Albanese were prepared by G. Joseph Moscarella, an accountant, on the basis of false information supplied to him by Albanese's agents. The information, and therefore the returns, considerably understated Albanese's income. For three of the four tax years in question, the tax returns were signed with Albanese's name by the accountant, and in the fourth year signed in Albanese's name by Rosario Albanese, who stood trial with him. There was ample evidence that appellant knew of, and directed, all of these activities.

2. Appellant moved, before Judge Goddard, to dismiss Count I of this second indictment which charged a conspiracy to violate 28 U. S. C. Section 145(b) and 18 U. S. C. Sec. 371, as barred by the statute of limitations. Judge Goddard held the alleged conspiracy to violate 18 U. S. C. Section 371 barred by the three-year period applicable to crimes enumerated by the criminal code, but held the alleged conspiracy to violate 26 U. S. C. Section 145(b) not barred because governed by the special six-year limitation statute applicable to certain crimes arising under the Internal Revenue laws. United States v. Albanese 123 Fed. Supp. 732 [54-2 USTC ¶9647]. The judge concluded that the indictment need not be dismissed and re-submitted to the jury merely to delete the reference to the statute now inapplicable, since the reference should be regarded as surplusage and ignored. We think this ruling proper. Prussian v. United States , 282 U. S. 675. See also United States v. Hutchison, 312 U. S. 219, 229; Pruett v. United States, 3 Fed. (2d) 353 (C. A. 9); Ford v. United States , 273 U. S. 593, 602.

3. Before trial, the defendants made a motion to dismiss two counts of the indictment for improper venue, which Judge Kaufman denied. United States v. Albanese, 117 Fed. Supp. 736 [54-1 USTC ¶9178]. The counts, dealing with different years, alleged that the defendants knowingly attempted to evade a part of the taxes owed to the government by preparing, causing to be prepared, and causing to be mailed in the Southern District of New York, and by filing and causing to be filed with the Collector of Internal Revenue in Albany, a false and fraudulent return. The appellant contends that, since the returns were filed in Albany , proper venue is in the Northern District of New York. But the crime specified by 26 U. S. C. Section 145(b) is an "attempt in any manner to evade or defeat any tax." The actual act of filing is not an essential element of the offense. The defendant's entire course of conduct in the Southern District of New York, from preparing false records to the mailing of false returns, came within the ambit of the "attempts" statute, and venue was thus proper.

4. It is of no import that Albanese did not personally sign any of the returns filed in his name. Both direct and circumstantial evidence, viewed favorably to the government, show that he caused the false returns to be filed. Treasury Agent Dugan testified that Albanese had admitted to him that the returns were his, and that he had given permission to the others to sign them for him. Quite apart from the filing, Albanese pursued a line of conduct--listing himself as an "employee" on the records of the business, causing false statements to be sent to government agencies, permitting the destruction of usual business records, etc.--which the jury might reasonably have inferred a violation of 26 U. S. C. Section 145(b). See Spies v. United States, 317 U. S. 492, 499 [43-1 USTC ¶9243].

5. The appellant challenges various rulings in regard to Government Exhibit 37, a contemporaneous memorandum of Treasury Agent Dugan made in connection with a meeting between Dugan, the appellant and his attorney. After Dugan had given contradictory evidence of the date of the meeting, the memorandum, marked by the prosecution for identification, was shown to Dugan to refresh his recollection. When the prosecution then sought to introduce the memorandum in evidence, the defense objected on the ground that it was being offered to corroborate the government's own witness, and this objection was sustained. Again when the attorney who had been present at the conference testified on behalf of the defense, the prosecution, during cross-examination showed the paper to the witness, despite some protest from the defendant, and inquired whether it refreshed his recollection. The witness responded that his recollection required no refreshment. The government then again sought to introduce it in evidence, the defense again objected, and the court again sustained the objection. In none of these rulings was there any error or any prejudice.

6. A slight variance, between the bill of particulars and the proof proffered at the trial, was not prejudicial. Nor is there substance to the assertion of variance between the bill of particulars furnished appellant and the bill furnished the court, since the record shows that, whatever discrepancy there may have been, appellant and his attorneys had a correct copy of the bill. Other alleged errors are similarly insubstantial and do not merit discussion.

Affirmed.

[54-2 USTC ¶9647] United States of America , Plaintiff v. Philip Albanese and Rosario Albanese, Defendants

In the United States District Court for the Southern District of New York, C 142-126, C 143-289, 123 FSupp 732, April 7, 19 54

[1939 Code Sec. 145--similar to 1954 Secs. 7201-7203]

Criminal penalties: Sufficiency of indictment: Charge.--Taxpayers' motion to dismiss the indictment because specific offenses were not charged was denied, as particularity of time, place and circumstances in stating the manner and means of a conspiracy is not essential to an indictment.

[1939 Code Sec. 145--similar to 1954 Secs. 7201-7203]

Criminal penalties: Sufficiency of indictment: Conspiracy.--Taxpayers' motion to dismiss the indictment, on the ground that the charge of conspiracy to defraud and commit offenses against the United States was the same as the charge in another indictment of attempted evasion of income taxes, and aiding and abetting in evasion of income taxes, was dismissed, since a conspiracy is a distinct offense from the substantive crimes charged.

[1939 Code Sec. 3748--similar to 1954 Sec. 6531]

Criminal penalties: Statute of limitations.--A charge of conspiracy to violate Title 18 U. S. C. A. §1001 was barred by the three-year statute of limitations, even though it was in connection with a tax matter, but a charge of conspiracy to violate Title 26 U. S. C. A. §145(b) (1939 Code) was subject to the six-year statute of limitations and was not barred in this instance. In this case both charges were incorporated in the same count of the indictment, and the Court held that where an indictment charges a conspiracy to commit offenses against the United States , one of which is not an offense, the latter may be regarded as surplusage and ignored without resubmission to the grand jury. The government agreed to the motion to dismiss one count of the indictment on the ground that it was identical with another indictment outstanding.

J. Edward Lumbard , United States Attorney, (by Peter M. Brown, Assistant United States Attorney, of Counsel), for plaintiffs. Archibald Palmer, for defendants.

GODDARD, District Judge:

This is a motion by the defendants, Philip Albanese and Rosario Albanese,

a) To dismiss Count 1 of indictment C 143-289 on the ground that it fails to charge offenses under Title 18 U. S. C. A. §1001 and Title 26 [18] U. S. C. A. §371 [sic]

b) To dismiss the said Count 1 on the ground that insofar as it charges a violation of Title 26 U. S. C. A. §145(b), it is identical with the 4 counts charged in indictment C 142-126 outstanding against these defendants

c) To dismiss said Count 1 on the ground that any violation of Title 18 U. S. C. A. §371 is barred by the three year statute of limitations

d) To dismiss Count 2 of indictment C 143-289 on the ground that it is identical with the crime charged against these defendants in Count 2 of indictment C 142-126.

The government has consented to part (d) of this motion.

Indictment C 143-289 in Count 1 charges these defendants with conspiring to "defraud the United States and commit offenses against the United States, to wit, to violate Title 26, Section 145(b), United States Code and Title 18, Section 1001, United States Code."

It is clear from reading this indictment, Count 1, that it charges the essential elements of the offense charged and that it sufficiently informs the defendants of the charge against them. Particularity of time, place, circumstances, etc. in stating the manner and means of effecting the object of a conspiracy is not essential to an indictment. Glasser v. United States , 315 U. S. 60. Part (a) of the motion is denied.

Indictment C 142-126 charges Philip Albanese in 4 counts with attempted evasion of his income taxes, in violation of Title 26 U. S. C. A. §145(b), and charges Rosario Albanese in two of the counts with aiding and abetting. Count 1 of indictment C 143-289 charges Rosario and Philip Albanese with conspiring with each other, and with one, Rocco Guarino, a co-conspirator, to violate Title 26 U. S. C. A. §145(b) and Title 18 U. S. C. A. §1001. Defendants allege that Count 1 of C 143-289 is identical with the counts of C 142-126 and so Count 1 of C 143-289 should be dismissed.

[Separate Offenses]

In Pinkerton v. United States, 328 U. S. 640, the court stated, at 643, that "it has been long and consistently recognized by the Court that the commission of the substantive offense and a conspiracy to commit it are separate and distinct offenses." It is also true that the crime of conspiracy is a separate and distinct offense from aiding and abetting the commission of the substantive offense. Louie v. United States , 218 Fed. 36. Aiding and abetting "makes a defendant a principal when he consciously shares in any criminal act whether or not there is a conspiracy." Nye & Nissen v. United States , 336 U. S. 613, 620.

Although the defendants rely on United States v. Zeuli, 137 Fed. (2d) 845, C. C. A. 2, 1943, as the court stated in United States v. Loew, 145 Fed. (2d) 332, C. C. A. 2, 1944:

"The appellant misunderstands the doctrine to which we referred in United States v. Zeuli, 137 Fed. (2d) 845. It is limited to cases in which the substantive crime involves the mutual cooperation of two or more persons and cannot be committed by a single individual. All of the substantive crimes contemplated by the conspiracy charged in the indictment at bar could have been committed by one person."

There is no doubt but that Count 1 of indictment C 143-289 charges a conspiracy which is a distinct offense from the substantive crimes charged in C 142-126. Cf. Colosacco v. United States , 196 Fed. (2d) 165, 10 Cir., 1952. Part (b) of the motion is denied.

The defendants allege that Count 1 of the indictment C 143-289 is barred by the three year statute of limitations provided in Title 18 U. S. C. A. §3282. ¹

The last overt act alleged, is said to have occurred in March, 1950, and the indictment C 143-289 was handed down in March, 1954. In a charge of conspiracy, the statute of limitations begins to run from the date of the last overt act properly alleged. Brown v. Elliott, 225 U. S. 392; Pinkerton v. United States , 145 Fed. (2d) 252, C. C. A. 5, 1944; United States v. Flynn, 103 Fed. Supp. 925. It is thus clear that if the three year statute applies this charge of conspiracy is barred. The government urges that Title 26 U. S. C. A. §3748, which provides a six year limitation, governs. ²

In Braverman v. United States, 317 U. S. 49 [42-2 USTC ¶9731], the defendants were charged with conspiracy to violate certain provisions of the internal revenue laws. The court held that a conspiracy charged under the general conspiracy statute, to evade the payment of federal taxes, was controlled by the six year limitation provided in Section 3748. Clearly, in the case at bar, insofar as Count 1 charges a conspiracy to violate Section 145(b) of the Internal Revenue Code, a six year limitation applies. Cf. Putman v. United States , 162 Fed. (2d) 903, 5 Cir. 1947.

However, Count 1 charges a conspiracy to violate Section 145(b) and also to violate Title 18 U. S. C. A. §1001. Section 1001 makes it a crime to wilfully falsify any statement in any matter within the jurisdiction of any agency of the United States . A violation of Section 1001 is generally governed by the three year statute of limitations. Marzani v. United States , 168 Fed. (2d) 133, D. C. Cir., 1948. Even where that false statement was in connection with a tax matter, it was said that a three year limitation governed Section 1001. United States v. Beacon Brass Co., 106 Fed. Supp. 510 [52-1 USTC ¶9273], reversed on other grounds 344 U. S. 43 [52-2 USTC ¶9528]. The Supreme Court, in reversing on the ground that such a false statement was also a violation of Section 145(b) of the Internal Revenue Code, also recognized that a three year limitation applied to a violation of Section 1001.

Section 3748 is incorporated in the Internal Revenue Code and by its terms applies to "offenses arising under the internal revenue laws of the United States ". It provides that a charge of conspiracy, under the general conspiracy statute, is governed by a six year limitation "where the object of the conspiracy is to attempt in any manner to evade or defeat any tax". But the violation of Section 1001 does not arise under the internal revenue laws, nor is the proof of an attempt to evade taxes any part of the proof required to establish a violation of Section 1001. Cf. United States v. Beacon Brass Co., 344 U. S. 43, at 45 [52-2 USTC ¶9528]. The court there recognized that they are distinct offenses, although the two may "overlap in a narrow area".

[Application of Statute]

As the court stated in Bridges v. Wixon, 346 U. S. 209, at 223:

"A charge of conspiracy to commit a certain substantive offense is not entitled to a longer statute of limitations than the charge of committing the offense itself."

I hold that Section 3748 of the Internal Revenue Code does not apply to a charge of conspiracy to violate Title 18 U. S. C. A. §1001, even though its violation involves a tax matter. It is governed by the general three year statute of limitations and therefore the charge in the case at bar of conspiracy to violate Section 1001 is barred.

Were there two separate counts here it would be simple to dispose of the matter by dismissing the count charging conspiracy to violate Section 1001, while leaving the charge of conspiracy to violate Section 145(b) outstanding, because, as to the latter, it is valid in every respect. The difficulty is that both are incorporated in the same count.

Ex Parte Bain, 121 U. S. 1, held that the court may not amend an indictment without resubmission to the grand jury, even where the trial court regarded the words deleted as surplusage. Cf. United States v. Krepper, 159 Fed. (2d) 958, 3 Cir., 1946, cert. denied 330 U. S. 824. But where an indictment charges a conspiracy to commit offenses against the United States , one of which is not an offense, the latter may be regarded as surplusage and ignored, and this is not a forbidden amendment of the indictment. Ford v. United States , 273 U. S. 593; Bailey v. United States , 5 Fed. (2d) 437, C. C. A. 5, 1925. Mere surplusage or unnecessary allegations will not vitiate an indictment which contains sufficient matter to charge a crime. If the indictment can be supported without them, they will be regarded as surplusage. United States v. Drawdy, 288 Fed. 567.

Where an indictment charges several offenses, or the commission of one offense in several ways, the withdrawal from the jury's consideration of one offense, or one alleged method of committing it, does not constitute a forbidden amendment of the indictment. Salinger v. United States, 272 U. S. 542; United States v. Krepper, supra; United States v. Segelman, 86 Fed. Supp. 114.

Since Count 1 of the indictment in every respect properly charges a conspiracy to violate Section 145(b), I am reluctant to dismiss the indictment and have it resubmitted to the grand jury to amend it merely by deleting the reference to Section 1001, as an object of the conspiracy. I do not believe that it is necessary to dismiss it. I interpret the abovementioned cases to permit the indictment to be tried as it stands, so long as the matter of the conspiracy to violate Section 1001 is not attempted to be proved as such, or submitted to the jury. The indictment clearly informs the defendants of the charge that they must meet, and I do not believe that this course of action will prejudice the defendants.

Motion denied, except as to part (d), which is granted.

Settle order on notice.

¹ Title 18 U. S. C. A. §3282 provides:

"Except as otherwise expressly provided by law, no person shall be prosecuted, tried, or punished for any offense, not capital, unless the indictment is found or the information is instituted within three years next after such offense shall have been committed." [Italics added.]

² Title 26 U. S. C. A. §3748 provides:

"(a) Criminal prosecutions. 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, except that the period of limitation shall be six years--

(1) for offenses involving the defrauding or attempting to defraud the United States or any agency thereof, whether by conspiracy or not, and in any manner,

(2) for the offense of wilfully attempting in any manner to evade or defeat any tax or the payment thereof, and

(3) * * *

For offenses arising under section 37 of the Criminal Code, March 4, 19 09, 35 Stat. 1096 (U. S. C., Title 18, §88), where the object of the conspiracy is to attempt in any manner to evade or defeat any tax or the payment thereof, the period of limitation shall also be six years. * * *

(b) Scope of limitations. * * *

(c) Civil suits

* * *." [Italics added.]

 

[57-2 USTC ¶9912] United States of America , Appellee v. Hyman Harvey Klein, Maurice Haas, and Morris O. Alprin, Defendants-Appellants

(CA-2), U. S. Court of Appeals, 2d Circuit, Docket No. 23905, 247 F2d 908, 9/3/57

[1939 Code Secs. 45 and 145--substantially unchanged in 1954 Code Secs. 482 and 7201]

Tax evasion: Corporations used as shams to escape taxation: Concealment of source and nature of income.--Conviction obtained by the Government on the basis of the remaining 5th count of the indictment (acquittals having been directed with respect to the first 4 counts of the indictment) which alleged generally a conspiracy to obstruct the Treasury Department in its collection of the revenue, was affirmed, evidence of specific transactions introduced at the trial being held sufficient to sustain the general allegations, which were held not to be too broad to acquaint the defendants with the nature of the charges against them. Under the broad conspiracy allegations of the indictment, it was proper for the Court, in its charges, to refuse to limit the Government's case to specific acts of concealment or particular theories, so long as it properly emphasized, as it did, that a common unity of purpose among the defendants had to be established.

Theodore Kiendl, Davis, Polk, Wardwell, Sunderland & Kiendl, New York City (William R. Meagher, John A. Reed, Philip C. Potter, Jr., Davis, Polk, Wardwell, Sunderland & Kiendl, New York City, on the brief), for defendant-appellant Hyman Harvey Klein. Louis Bender, New York City , for defendant-appellant Maurice Haas. F. Joseph Donohue, Abraham S. Goldstein, Washington, D. C. (Michael Kaminsky, New York City, Harold Ungar, Washington, D. C., on the brief), for defendant-appellant Morris O. Alprin. Maurice N. Nessen, Joseph DeFranco, Assistant United States Attorneys, New York City (Paul W. Williams, United States Attorney, New York City, on the brief), for appellee.

Before CLARK, Chief Judge, and SWAN and POPE, Circuit Judges.

CLARK, Circuit Judge:

This appeal presents issues of income tax evasion arising out of extensive and involved transactions disclosed to a jury in a trial of almost five months' duration. The prosecution was difficult because the case arose out of concealed business affairs of both great magnitude and unusual complexity. This is indicated by the fact that defendants had organized no less than seventeen foreign corporations to carry on their business operations and, according to the Government's claim, to hide income and evade taxes. Representing the defendants were able and resourceful counsel who succeeded in procuring directed judgments of acquittal on the charges of specific tax evasions; and the trial had to proceed in somewhat dismembered form until a verdict was reached on a single separate count charging conspiracy to obstruct the Treasury Department in its collection of the revenue. Defendants have continuously attacked this count for a variety of reasons, generally centering on the point that it is too vague and general to afford a proper basis for a felony trial and conviction. The emphasis on this point is so strong that, as will appear, this appeal largely turns upon issues of federal criminal pleading.

The count upon which conviction was had is often termed "Fifth," since it appeared as such, though in slightly different form, in the original indictment. Of the other four original counts, three charged substantive evasions of Klein's income taxes, while the fourth charged conspiracy to evade the taxes of Klein and associates. On these counts acquittal was directed by the trial court, as stated in United States v. Klein, supra, D. C. S. D. N. Y., 139 Fed. Supp. 135 [56-2 USTC ¶9628]. Earlier there had been pretrial attacks on the indictment and particularly on the Fifth Count. Though these were unsuccessful, United States v. Klein, D. C. S. D. N. Y., 124 Fed. Supp. 476 [54-2 USTC ¶9604], the Government was moved to procure a superseding indictment on September 17, 19 54, of which the Second Count took the place of the original Fifth Count. Originally indicted were nine persons, including the three present appellants, three Canadian residents who were never apprehended, a seventh defendant who died before trial, and two remaining defendants named only in the first four counts and freed when these counts ended in the acquittal judgments. After those judgments were entered on June 28, 19 55, the trial, which had started on April 4, 19 55, proceeded on the Fifth Count (in its superseded form) until the three appellants were convicted by the jury on August 22, 19 55. The judgments entered on this verdict provided for substantial penalties of imprisonment and fine, the heaviest being assessed against Klein, the principal defendant.

We shall proceed to a statement of the facts as the jury could fined them in deciding for conviction.

1. The Persons Involved. The crucial Fifth Count named seven defendants and two co-conspirators. H. H. Klein was the principal defendant, a United States citizen, whose alleged evasion of immense amounts of income tax due in 1944, 1945, and 1946 was the crux of the first four counts in the indictment. He made tremendous amounts of money during the period when OPA was in effect in this country by manufacturing and selling "Harwood's," a brand of whiskey manufactured in Canada by himself and the three nonappearing Canadian residents--Isidor J. Klein, Albert McLennan, and George Norgan. Three lesser defendants were Morris O. Alprin, Maurice Haas, and Ellis Rosenberg, attorneys who served H. H. Klein in distributing Harwood's in this country. Rosenberg, Klein's most intimate lawyer, died before trial. Alprin, a personal friend of Klein's, gave legal advice and performed various odd chores. Haas, who is primarily an accountant, gave legal advice and did some accounting. Irving A. Koerner, named as a co-conspirator, but not a defendant, in the Fifth Count, was the manager of the New York City wholesale division of R. C. Williams & Co., which imported Harwood's into the United States . Albert Roer, not named as either a co-conspirator or defendant in the Fifth Count, was very active in selling Harwood's in this country and was in the same firm as Koerner at one time. William Rokoff, a co-conspirator, was H. H. Klein's personal secretary and ran Klein's office in Baltimore . Harry Silver, the remaining co-conspirator, played no significant part in the case. Thus the present appellants are H. H. Klein, one of the four owners of the enterprise; Maurice Haas, his acountant; and Morris O. Alprin, his attorney.

2. The Background Events. Prior to the start of the conspiracy H. H. Klein and the three Canadians employed the other named persons to assist them in running an immense whiskey selling business in a fashion calculated to minimize the amount of United States income tax they would have to pay. The whiskey was manufactured in Canada by a Canadian corporation and was billed f.o.b. Canada , so that title did not pass in the United States . The Canadian manufacturing corporation did not bill the whiskey direct to R. C. Williams & Co. in this country; Agencias, a Cuban corporation controlled by Klein and the three Canadians, was inserted in the chain of title, though the whiskey itself was sent directly from Canada to the customers in the United States designated by Williams.

During the very profitable years, 1944-1946, the intercorporate manipulation and complexity were carried to a great length to obtain tax advantages. The basic theory of the prosecution's first four counts was that these corporations were sham and that Klein and his three associates were actually doing business as joint venturers. While the judge below eventually held that the corporations were bona fide, there was considerable doubt in the minds of Klein and his friends at the time they were selling Harwood's that the corporate entities would be respected by the United States Treasury and several legal opinions were solicited. Having thus learned that the Treasury would be more inclined to ignore the Cuban corporation device if it discovered that the corporate officers were directing operations from the United States , Klein and his associates took steps to hide such facts. There was a second secret contract between Agencias and R. C. Williams & Co., the importer; and this gave Klein considerable control over the details of merchandising in this country. Alprin, Haas, Rosenberg, and Roer all performed services for the Harwood's syndicate in the United States; and Rokoff conducted much of the bookkeeping and billing of Agencias from Baltimore, while making it appear that the corporation operated out of Cuba. Contemplating an impending end to price controls, which were a large factor in the success of the enterprise, Klein and his companions introduced several new nonoperating foreign corporations into the intercorporate structure, arranging the bookkeeping so as to draw off the enterprise's profits into them. Among them was Tivoli Trading Co., S. A.

3. The Conspiracy Before September 18, 19 51. Since the indictment upon which the appellants were prosecuted was filed September 17, 19 54, the three-year statute of limitations here applicable, 18 U. S. C. §3282, requires proof of a conspiracy continuing after September 17, 19 51. The indictment charged that the conspiracy began in June 1946, and we turn now to the events between June 1946 and September 1951. Klein, Alprin, Roer, Koerner, and Rosenberg decided to form a new batch of Cuban corporations which could be used as personal pocketbooks by key Harwood's employees who were to receive large sums upon the imminent breakup of the syndicate. The corporations were eventually formed, Rosenberg receiving one, and Koerner, Roer, and Alprin four apiece. Later Roer transferred one of his--LaRibera--to Haas.

On February 24, 19 47, Klein, who then controlled Tivoli Trading Co., caused Tivoli to pay $35,000 to Haas' LaRibera corporation by check. On March 27, 19 47, Klein caused Tivoli to purchase three Canadian bank drafts in large amounts. Two were identical: made out in favor of one of Alprin's Cuban corporations in the amount of $264,162.70 apiece. A third was in favor of one of Roer's corporations in the sum of $272,423.62. Klein instructed Haas to deposit his $35,000 check in a Canadian bank, and not to use it until instructed. He delivered Roer's draft to him with similar instructions about nonuse. Klein gave Alprin the two identical drafts, explaining that one was for him and one for Koerner and that Alprin should deposit his own in a Canadian bank and hold onto Koerner's.

The recipients of the drafts had many reasons for accepting payment in that fashion, but one of them was a desire which they shared with H. H. Klein to keep from the United States Treasury information which might lead it to conclude that he and the three Canadians had erroneously reported their income for the years 1944-1947. Their fear was this: If the Treasury found the drafts, they might be construed as payment for services rendered to Klein's corporations in the United States during the years 1944-1947; the Treasury might then be more inclined to disregard the corporate veil; if the corporations--which were Canadian, Cuban, and Panamanian--were disregarded, immense profits from whiskey sales were earned by Klein personally; in that event they would be taxable as ordinary income, for a United States citizen must pay tax on his earnings abroad. H. H. Klein, the benefactor and employer of these people, was in effect paying Roer, Koerner, and Alprin large sums, and Haas a lesser amount, for past services rendered, but was asking them to hold up use of the funds until his income tax liability was safely resolved.

Klein had Rokoff record the drafts in Tivoli 's books as "commissions" paid by Tivoli , and the loan or gift to Haas was put in the Tivoli books the same way. This enabled Tivoli falsely to deduct the sums as business expenses. On the same day that Klein purchased the bank drafts he sold out the assets of Tivoli to Hannes & Co., another corporation wholly owned by Klein. Klein later filed his return for 1947 with the assistance of Haas, and in a rider he stated that Tivoli had large "contingent liabilities" which were assumed by Hannes.

Roer held his draft and did not deposit it until 1950. Alprin split up his draft into three parts and deposited them in three Canadian bank accounts in the names of three of his Cuban corporations. Alprin held onto Koerner's draft, on instructions from Klein, despite Koerner's desperate efforts to obtain it. Haas deposited his check in Canada . For a while the accounts in Canada were frozen by the Canadian Government, and during the same general period H. H. Klein's long difficulties with the United States Treasury began. They started with a jeopardy assessment in March 1948 and have led in ultimate course to the present appeal. When Klein succeeded in unfreezing the Canadian accounts he instructed Alprin to put his money together again in the form of a single draft in favor of a Cuban corporation and to hold onto it until given further instructions. Later an escrow arrangement was worked out, involving Klein, Haas, Koerner, and Alprin, to appease Koerner, who still wanted his draft.

In 1949 Klein was asked some interrogatories by Treasury agents, and Haas helped him with the answers. Klein falsely stated that he was "not in a position to answer" questions about the nature and amount of funds paid over by Tivoli to certain named Cuban corporations--those controlled by Haas, Roer, and Alprin--or to identify the beneficial owners of these companies. He also claimed that all the books of account of his foreign corporations were maintained at the corporations' Cuban office, although he knew that the chief set of books had been kept by Rokoff in Baltimore .

4. The Events between September 18, 19 51, and September 17, 19 54. On November 3, 19 51, Klein signed the interrogatories which he had submitted to Treasury officials in 1949, leaving his answers unchanged and swearing to the truth of what he had said. On February 29, 1952, Klein and Alprin held the telephone conversation which constitutes the first overt act in the Fifth Count of the indictment. Klein told Alprin that he could use his own draft and could release Koerner's. Klein said: "Yes, you can use your check. Get a good tax man." Alprin asked, "What do you mean?" The reply: "I can't talk on the telephone. Rosenberg will be in to see you on Monday. Don't do anything until Monday, when Mr. Rosenberg will come to see you."

The attempt to hide the existence of the drafts came to an end the following fall when first Alprin, then Koerner and Roer, then Haas, and finally Klein told Treasury agents about the drafts. Alprin, Koerner, and Roer had a consistent story, explaining the whole transaction; Klein told a different story; Haas straddled the two versions.

5. The Prosecution's Alternative Patterns of Facts Concerning the Nature of the Tivoli Drafts: (a) The Drafts as Liquidating Dividends. The jury could have found that in 1945 before the commencement of the conspiracy H. H. Klein had invited Roer, Alprin, and Koerner to enjoy the profits of his fabulous enterprise, feeling grateful to them for their services performed in less mellow years. Accordingly they had paid him several hundred dollars for stock in Tivoli . The entire arrangement was very informal and they never received any certificates or subscription receipts. Subsequently there was some curious paper shuffling, but it was always recognized that these men were part owners of Tivoli , with their shares held in trust by Klein. When Klein delivered their drafts in 1947 it was with the explanation that Tivoli had been liquidated and that the drafts represented liquidating dividends.

The conspiracy to defraud the Treasury, under this version of facts, was carried out by Klein and Rokoff, who, in the period before September 1951, rewrote the books of Tivoli to cover up the fact that Alprin, Roer, and Koerner were shareholders and to make it appear that the drafts were commissions. As part of the plot, in 1949 Klein gave false answers to Treasury interrogatories, claiming that the original owners of Tivoli were himself and the three Canadians and that he had bought out the Canadians in 1947 for $375,000. The criminal concealment was carried into the period covered by the indictment when in 1952 Klein signed his previous interrogatories and later reiterated his false story to Treasury agents. Rokoff in 1953 continued the concealment by being vague and evasive in an affidavit concerning his role in rewriting the Tivoli books.

(b) The Drafts as Compensation. The other version is this: The original plan to have Roer, Koerner, and Alprin subscribe to stock in Tivoli was not favored by Rosenberg, Klein's personal attorney. On Rosenberg 's advice Klein returned the relatively small amounts paid by those three employees and explained that he was buying back their subscriptions. At this time Klein had all the stock in his name, but he was holding three-quarters of it in trust for three Canadians. Klein had promised Roer, Koerner, and Alprin that they would eventually receive a commission of a certain number of cents per case of Harwood's; and the drafts paid in 1947 represented such a commission, as these men well knew.

But on the last day before the period covered by the indictment, September 17, 19 51, Roer filed a false personal income tax return claiming that he sold 1,000 shares of Tivoli in 1950 for the price of $272,923.62 and a net gain of nearly that amount. Subsequently Alprin and Koerner filed similarly false returns claiming that their drafts, too, represented sales of stock to Tivoli in liquidation. The three men and Haas persisted in this story when questioned by Treasury agents in 1952. H. H. Klein first learned of Roer's intention after Roer had filed his 1950 return, when he came to Klein and unsuccessfully sought a letter that would support the false story that the draft was in liquidation of Tivoli . Klein learned of Alprin's claim that his draft, too, was in liquidation of Tivoli , only after Alprin had told that story to the Treasury. It is undisputed that Klein's statements to the Treasury in 1949 and 1952, the Tivoli books whose entries he controlled and possibly altered, and his personal income tax return filed in 1948 all contradict the story that Alprin, Koerner, and Roer received liquidating dividends. Hence on the record here Klein, in the period after 1948, could not be considered a party to a scheme by Roer, Koerner, and Alprin--to make tax returns on the basis that their drafts were in liquidation of Tivoli . On the other hand, they could still be parties to Klein's plot to conceal the payments.

6. Miscellaneous Facets of the Conspiracy. There was credible testimony that on September 16, 19 46, the New York agent of the Royal Bank of Canada telephoned Klein to tell him that the OPA had subpoenaed the records of the Harwood's companies. Klein instructed the bank agent to send all his Dominion of Canada bonds then in New York to Montreal immediately, and not to produce the records requested by the OPA. The agent promised to send the bonds, but asked for written confirmation of his instructions. They came in a letter from Klein predated to appear as if it had been sent prior to the OPA subpoena. Eight million dollars of bonds were thus transferred to Canada from the United States .

Another incident, or series of incidents, which figured prominently in the case concerned the dealings between Klein's Tivoli Trading Co. and Regan Potter, one of the companies controlled by Klein and the three Canadians. The jury could have found that Klein decided to transfer $1,500,000 from Tivoli to Regan Potter by this device: the books of both corporations originally showed that Regan Potter had paid well over that amount in commissions to Tivoli . Klein instructed Haas and Rokoff to alter the books of Regan Potter and Tivoli to make it appear that $1,500,000 which had passed to Tivoli was only a loan. Subsequently Tivoli transferred that amount of money to Regan Potter in the form of bonds and recorded the transaction as the repayment of a loan. After September 1951 Klein falsely told Treasury agents that there had been a loan to enable Tivoli to buy a Scotch distillery, and that the money was paid back when the plan fell through. In the alternative, the Government claims, and the jury could have found, that the story of the loan was true. If the jury believed this, it could find an inconsistency between Klein's various stories and it could conclude that Klein lied to the Treasury in his 1947 return and in his statements to the agents in 1949 and 1952 concerning his acquisition of Tivoli from the three Canadians. The latter lie was within the period covered by the indictment.

7. Summary of Acts of Concealment. We summarize the acts of concealment of income which the jury might have found, pointing out that, as indicated, some of these are alternatives: (1) alteration of the books of Tivoli to make liquidating dividends appear as commissions; (2) alteration of those books to make a gratuitous payment of $1,500,000 from Tivoli to Regan Potter appear as repayment of a loan; (3) a false entry in the Tivoli books to disguise as commissions paid what was actually a dividend paid to Klein which he diverted to Cuban corporate nominees of his personal friends; (4) a false entry in the Tivoli books to disguise as a commission paid the $35,000 paid to Haas' LaRibera corporation; (5) the removal of $8,000,000 in bonds from New York to Canada; (6) the false statement in Klein's personal income tax return for 1947 to the effect that he purchased stock in Tivoli from the three Canadians for $375,000; (7) the false statement in the same return to the effect that Tivoli had "contingent liabilities" when it sold its assets to Hannes; (8) Klein's false answer in 1949 to Treasury interrogatories seeking him to identify the owner of various Cuban corporations and to state the nature and amount of funds paid to them by Tivoli; (9) Klein's false answer at the same time regarding his purchasing Tivoli from the three Canadians; (10) Roer's false return for 1950 in which he claimed that he sold Tivoli stock in that year for an immense profit; (11) Alprin's false statement to Treasury officials in 1952, claiming that his draft was in liquidation of his interest in Tivoli; (12) Koerner's false statement at the same time to the same effect; (13) Roer's similar statement; (14) Haas' corroborating statement; (15) Klein's signing his 1949 interrogatories in 1952; (16) Klein's statement in 1952 clinging to his earlier position and denying that the drafts were in liquidation of Tivoli; (17) Klein's 1952 implication to the Treasury that the true value of Regan Potter could be obtained without treating as one of his assets the $1,500,000 due to Regan Potter from Tivoli in repayment of a loan; (18) Rokoff's evasive affidavit in 1953 denying that he remembered altering the Tivoli books; (19) Koerner's 1952 income tax return which falsely claimed a sale of Tivoli stock in 1953; (20) Alprin's 1952 income tax return, which made an identical false claim. The first ten events occurred before September 18, 1951; the last ten occurred within the more recent period.

We shall not trace the appellants' versions of the facts, since the jury presumably did not credit them. Suffice it to say that Klein and Rokoff told one tale, while Alprin and Haas told another. By and large each person clung to the version of the events he first reported to the Treasury, and the stories remained as conflicting at trial as they had been previously. The Government's case consisted in part of playing the various versions against one another and asking the jury to take pieces from each to form the more sinister composite version just described. So much for the salient facts; it is evident from this still incomplete recital that there was ample evidence to convict if the indictment will stand up and the judge's charge is adequate. Hence we turn next to an analysis of the crime charged.

8. The Pleadings. In its final form as reached in the superseding indictment, the Fifth Count in its paragraph marked 1 charged the conspirators with conspiring "to defraud the United States by impeding, impairing, obstructing and defeating the lawful functions of the Department of the Treasury in the collection of the revenue; to wit, income taxes." Paragraph 2 then charges:

"It was a part of said conspiracy that the defendants would conceal and continue to conceal the nature of their business activities and the source and nature of their income."

Three succeeding paragraphs charge as "further a part of said conspiracy" the acts of Alprin, Koerner, and Roer respectively in claiming net income as capital gains in stated years, referring obviously to the Tivoli drafts mentioned above. The final paragraph 6 charges as further a part of the conspiracy "that the defendants would make and cause to be made entries in certain books and records of Tivoli Trading Co., a Panamanian corporation, for the purpose of concealing the nature and source of the income received by the defendants herein." Then follow the "Overt Acts," of which only the first, the telephone conversation of February 29, 1952, between Klein and Alprin, went to the jury.

It is clear from this wording that the indictment is framed to make a general charge of impeding and obstructing the Treasury Department in the collection of income taxes, with the allegations of concealment, of misreporting of the Tivoli drafts, and of misstating the Tivoli book entries as particular instances, rather than as substitute and complete allegations of the substantive crime itself. This is made doubly clear by reference to the original count it superseded, which was attacked because a broad allegation of conspiring to defraud the United States in the collection of taxes was said to be limited by the addition of twenty-five words which would supersede all that precedes them and be insufficient to charge a crime, viz., "in that the defendants attempted to conceal and continued to conceal the nature of their business activities and the source and nature of their income." Although Judge Palmieri, on pre-trial motion to dismiss, specifically rejected this contention, United States v. Klein, supra, D. C. S. D. N. Y., 124 Fed. Supp. 476, 480 [54-2 USTC ¶9604], nevertheless the Government took pains to clear up the matter in this way.

In view of this background we find no merit in the oft-repeated contentions that the prosecution and the trial court "expanded" the count in question to cover matters not originally intended and changed the theory of the case from time to time. There was considerable chitchat between court and counsel during the long trial containing expressions which, apart from the general context, might be taken as referring only to the charge of concealment; but certainly there were never a definitive interpretation restricting the broad allegations as stated or suggesting a stricter interpretation than that of Judge Palmieri, those conclusions were accepted in the later trial. Mere failure to disclose income would not be sufficient to show the crime charged of defrauding the United States under 18 U. S. C. §371. The statute, however, not only includes the cheating of the Government out of property or money, but "also means to interfere with or obstruct one of its lawful government functions by deceit, craft or trickery, or at least by means that are dishonest." Hammer-schmidt v. United States , 265 U. S. 182, 188. The evidence recounted above appears directly in line with the crime thus outlined.

It is true that the emphasis shifted during the trial from charges of direct tax evasion to the broader claim thus envisaged. But this was due to defendants' success in obtaining dismissal of these specific claims on the court's acceptance of their theory that the admitted vast income produced by the business operations under scrutiny was actually owned by the foreign corporations nominally in possession. When the court sustained the Fifth Count, it became necessary for the Government to broaden its attack, and the defendants cannot well complain of that which they brought about. True, they now claim prejudice because what was excluded by reason of the decision on the first four counts was so inextricably mingled with what was retained as to make impossible a fair trial based only on admissible evidence. But they did not seek a mistrial at the time; obviously they expected to press the advantage they had obtained to the point of securing judgment from either the court or the jury on the whole case. Possibly there may have been error in the court's favorable ruling; at any rate we do not think the defendants are in a position to complain or that the Government's case should be held totally destroyed by this merely partial decision against it.

The defendants' real objection has to be, therefore, not so much to a shift in position as to the generality of allegation relied upon. It is to be noted that Judge Palmieri also passed upon their motions for bills of particulars and denied them in the decision above referred to after the United States Attorney had submitted certain particulars, including the portions of the tax returns of Alprin, Koerner, and Roer alleged to be false. He held that the defendants had obtained all the information to which they were properly entitled and that a premature disclosure of the Government's case or evidence or its theory of prosecution could not be had. He referred to the desire disclosed by the defendants "to avoid the inconvenience incident to the preparation for trial of a criminal tax case involving very large sums of money and covering a period of several years" and added appositely: "But if the prospect of trial appears burdensome, it is attributable to the defendants themselves and to their methods of doing business. The defendants are familiar with their own transactions." 124 F. Supp. 476, 479. There is nothing in the trial record to indicate any error in this diagnosis or any essential prejudice to defendants in the preparation of their case. Before they testified in late July and August at a trial beginning in April and after a five weeks' gap in presentation of evidence to the jury while the parties were deciding upon the evidence to be preserved after the excision of the four counts, they knew the prosecution's case quite thoroughly. And of course they knew the detail of facts better than the prosecution could hope to know them. Any defects in allegation must therefore rest on strictly legal principles, rather than practical lack of information.

The generality of allegation now permitted is well settled, see, e.g., United States v. Classer, 315 U. S. 60, 66; United States v. Achtner, 2 Cir., 144 Fed. (2d) 49, and cases cited. The defendants are in substance contending for what has been referred to as the "baleful" theory-of-the-case doctrine, which has been repudiated in the civil rules and which is said to have no place in criminal procedure. United States v. Pape, 2 Cir., 144 Fed. (2d) 778, 781, certiorari denied 323 U. S. 752, upholding submission of alternate theories of fact to the jury; United States v. Groopman, 2 Cir., 147 Fed. (2d) 782, 785, 786, certiorari denied 326 U. S. 745. If this is so in the ordinary criminal cause, it seems peculiarly so here both legally and practically. Legally and logically the specific detail in the evidence supports the broad charge made. And practically the defendants, who caused the problem by their business ingenuity, if not criminal intent, have all the knowledge at hand. To hold otherwise is to offer a premium to prospective tax evaders in making their business operations so complicated that the Government cannot unravel them sufficiently to make allegations of purely factual detail.

The situation is well illustrated by the problem raised by the various versions as to the Tivoli drafts. We have detailed the versions presented by the prosecution of the drafts as either liquidating dividends of the corporation or as commissions paid the three men: Roer, Koerner, and Alprin. The issue eventually came to the question which set of witnesses was to be believed: the three or against them Klein and Rokoff. This was not a choice for the prosecution; it was for the jury. And since either way would contribute to the scheme for obstructing the Government's knowledge and collection of revenue due, the prosecution was entitled to the alternative submission to the jury. United States v. Pape, supra, 2 Cir., 144 Fed. (2d) 778, certiorari denied 323 U. S. 752. Actually the court presented the matter to the jury, allowing it to find that the drafts were either a liquidating dividend or compensation or a gift, but with a condition attached, that they were to be given the appearance of a legitimate corporate expenditure until Klein's tax difficulties were over. In effect the court thus provided for the additional contingency that the jury might find both sets of witnesses lying. But it stressed the ultimate fact to be found of concealment and misleading and thus correctly made the proper submission. The defendants claim that this was a shift to the theory of three conflicting conspiracies. But the over-all purpose remained the same, even though there may have been divergencies in intent and purpose among the conspirators in the carrying out of some details. Nor did the split in view among the conspirators constitute an end of the conspiracy, for the concealment was not disavowed; it was the same conspiracy and there was no new one merely to hide the past, as in Grunewald v. United States, 353 U. S. 391 [57-1 USTC ¶9693]. A limitation of the prosecution to one only of the theories advanced by the parties would have been an unfair limitation on proof of the ultimate fact in issue where the defense, and not the prosecution, had the evidence at command. For the income whose source and nature were being concealed was not primarily the drafts, but the Harwood's profits received much earlier by Klein and the three Canadians.

We shall not try to lay down any broad principles of criminal pleading, but, since a practical purpose is being subserved, cf. United States v. Lamont, 2 Cir., 236 Fed. (2d) 312, 317, shall hold that, under the circumstances here disclosed, the defendants were fully and adequately informed by the indictment of the crime which they were called upon to answer. And the evidence being adequate to convict, the next question must be whether or not the judge's charge was fair and adequate.

9. The Judge's Charge. The lengthly charge to the jury by the trial judge dealt in unexceptional manner with the necessary basic elements, such as the burden of proof and the presumptions. The attack upon it comes as a further step and natural corollary to the contentions we have already discussed with reference to the indictment. The trial judge refused to depart from the position he had taken that the over-all general charge was obstruction of the Treasury Department in the collection of the revenue, and hence he declined to make specific acts of concealment the basis of the Government's case or instruct the jury that the prosecution was limited to certain theories. In this we think he was correct for the reasons we have already stated. The scope of the prosecution was broader than the defendants' contentions assume, and the judge committed no error in so holding.

Since we support this conclusion of the trial court we think it not incumbent upon the judge or perhaps even wise for him to discuss in more detail the possible theories permissible under the evidence, or, as the defendants would have it, the separate conspiracies which might have been found to exist. There was a very real danger of over-emphasis of the parts to hide the whole. He did make clear that the jury must find a common design with unity of purpose. Thus his exact words at one point were:

"When the Government relies upon circumstantial evidence to establish the conspiracy, as here, the circumstances must be such as to warrant your finding that the alleged conspirators had some unity of purpose, some common design and undertaking, some meeting of minds in an unlawful arrangement and the doing of some overt act to accomplish its object."

And again:

"The Government must have proved beyond a reasonable doubt that a defendant was knowingly associated in the unlawful common enterprise; that he participated in it wilfully with intent to further the common purpose or design."

Since the defendants were arguing strenuously for the separate purposes, this is a clear direction that conviction required more than such separate conspiracies. Of course it would have been improper to charge that the existence of separate purposes necessarily negatived a common design. The course the judge took quite neatly avoided that trap.

Again the court charged expressly that there must be a finding that the conspiracy charged did exist in fact, that a defendant to be found guilty must have knowingly participated in it, and that he did not withdraw from it on or before September 17, 19 51. This was reiterated later when the jury was again required to answer affirmatively the query "was an overt act in furtherance of the conspiracy committed after September 17, 19 51?" This disposes of the claim of error based upon the statute of limitations particularly stressed by defendant Haas.

The difficult nature of the case presented some obvious problems for the court in fashioning a proper charge. It could easily stress details which had become prominent in the course of trial and thus give them an importance that they did not deserve. And such a course could easily lead to unfairness to one or more defendants. We think that on the whole the judge walked warily amid the dangers and gave a charge which was fair and adequate. That it covered activities of wide scope was in the nature of the case as fashioned primarily by the defendants themselves. Defendants say rather plaintively that the charge was as long as the jury's deliberations and complain because the jury took only some three hours to reach its verdict. But the ultimate fact was simple and the judge succeeded in keeping it from being concealed by the multitudinous details.

10. Miscellaneous Objections. We may dismiss somewhat more briefly certain further claims of error, although these, too, were pressed with their customary vigor by defendants' able counsel.

(a) The defendants raise the issue, stressed particularly by Alprin, of what they term "double jeopardy." They say that the Fourth Court--one of those which resulted in a judgment of acquittal by order of the court--being a charge of conspiracy to conceal the income taxes of Klein and his Canadian associates, was the same as the Fifth Count, upon which conviction was later had. It is obvious that evidence in support of the Fourth Count would be admissible also under the Fifth Count, though the latter was of substantially wider scope. Whether or not this would have afforded sufficient ground of distinction we need not consider, since it is clear that there is no double jeopardy from differing dispositions of counts of a single indictment at a single trial. The prosecution may allege the same charge in different counts with the protection that only a single penalty is permitted. When there are double penalties we reverse one, not both; and, as is well settled, a jury acquittal on one count does not require reversal of conviction on another count, even though there may seem a surface inconsistency. See, e.g., United States v. Nickerson, 7 Cir., 211 Fed. (2d) 909, 911; Barsock v. United States , 9 Cir., 177 Fed. (2d) 141, 143; Dunn v. United States, 284 U. S. 390, 80 A. L. R. 161; Dealy v. United States, 152 U. S. 539. While the trial judge here spoke in terms of acquittal (following the motions), his action was no different than had he awaited the conclusion of the trial and then declined to submit the particular count to the jury for lack of proof.

(b) Klein asserts error in the admission in evidence against him of statements made by coconspirators Koerner and Roer to Treasury officials in the fall of 1952. These had to do with the Tivoli drafts and attempted to justify the capital gains treatment of these drafts. At the trial the two men claimed their privilege against self-crimination and could not be examined. The prosecutor, when asked by defense counsel whether he offered the statements as true or false, refused to say and was upheld by the trial judge. It is now asserted that the prosecutor argued later that they were true and that at most the statements could be received only against co-conspirators as false.

We see no error in the rulings affecting these exhibits. The statements were clearly admissible as those of conspirators during the conspiracy and as to its scope and purpose; even though the conspirators had somewhat fallen out by this time (1952), yet the conspiracy could be held to continue--as we noted above--and the jury so found. If admissible, the exhibits are a part of the evidence for whatever assistance they may be to the triers in ascertaining the truth. We do not see why or how they are to be discredited unless they are false and so claimed by the prosecutor; this again smacks of forcing a theory of the case upon the parties or the court where the ultimate decision is for the triers of fact. Nor, in any event, do we see any problem. The Government now quite properly points out that it was claiming all the protagonists to be liars and that the court's charge limited use of the statements only if the jury found them to be made in furtherance of the conspiracy, i. e., logically either false or misleading.

(c) Haas claims a variance between indictment and proof by attempting a differentiation between the functions of assessment and of collection of the revenue; the first, so he says, is that of the Treasury Department as alleged, while the second is only that of the Collector of Internal Revenue. His highly technical argument and citations do not really impugn the over-all responsibility of the Treasury for the entire task of securing the revenue. Further, there is no possibility that he was at all misled by the allegation. His additional contention that, like the earlier counts, the Fifth Count should be based on a conspiracy to violate the substantive offense of tax evasion defined in the revenue laws, Internal Revenue Code of 1939, §145(b) or 3616(a), rather than one to defraud the United States under 18 U. S. C. §371, we also find without merit. For the prosecution was obviously aiming at a broader charge, as is permissible on the authorities. Kobey v. United States , 9 Cir., 208 Fed. (2d) 583; Benatar v. United States , 9 Cir., 209 Fed. (2d) 734 [54-1 USTC ¶9174], certiorari denied, 347 U. S. 974; Rumely v. United States , 2 Cir., 293 Fed. 532, certiorari denied, 263 U. S. 713.

(d) Alprin and Haas claim that the indictment should have been dismissed against them, since they were compelled, in violation of their rights under the Fifth Amendment to the Constitution, to give incriminating testimony before the Grand Jury which later indicted them. They were warned by the prosecutor through their counsel, who told them of the warning, that he had information upon which there was a possibility of an indictment; but there was no indictment at the time, and they raised no objection and testified with apparent willingness, although of course under subpoena. They raised this issue before trial and Judge Palmieri ruled against them, United States v. Klein, D. C. S. D. N. Y., 124 Fed. Supp. 476 [54-2 USTC ¶9604], as did Judge Weinfeld with respect to a perjury indictment brought against Haas by this same Grand Jury, United States v. Haas, D. C. S. D. N. Y., 126 Fed. Supp. 817. We have found some difficulty in establishing a clearcut rule as to the necessity of a warning of constitutional rights under these circumstances, see United States v. Scully, 2 Cir., 225 Fed. (2d) 113, certiorari denied Scully v. United States , 350 U. S. 897, and cf. United States v. Giglio, 2 Cir., 232 Fed. (2d) 589, 594 [56-1 USTC ¶9484], certiorari granted 352 U. S. 865. But as Judge L. Hand has said, "the relevant inquiry ought always to be whether the testimony was freely given, all things considered." United States v. Block, 2 Cir., 88 Fed. (2d) 618, 621, certiorari denied Block v. United States, 301 U. S. 690. Here the defendants were lawyers of training and experience; they were represented throughout these earlier proceedings, as later, by resourceful counsel; they made no sign of unwillingness. We find no error in Judge Palmieri's rulings.

In summary we find that defendants had a rigorously fair trial wherein their rights were sedulously guarded. The convictions were amply justified. Here tremendous American profits were skillfully concealed from the collectors' eyes until they were uncovered by this patient investigation and trial. The result should be salutary.

Convictions affirmed.

 

 

[54-2 USTC ¶9604] United States of America v. Hyman Harvey Klein, Isidor J. Klein, Albert McLennan, George Norgan, Ellis Rosenberg, Maurice Haas, Irving A. Koerner, Morris O. Alprin and Albert Roer, Defendants

In the United States District Court for the Southern District of New York, C 144-144, 124 FSupp 476, September 30, 1954

[1939 Code Sec. 145--similar to 1954 Secs. 7201-7203]

Criminal penalties: Incrimination before grand jury.--Taxpayers' motion to dismiss an indictment was overruled when they failed to show that, in testifying as witnesses before the grand jury which later indicted them, they should have been informed by the United States attorney of their privilege under the Fifth Amendment. Taxpayers were not ignorant of the privilege, two of them being lawyers, and the Court refused to dismiss the indictment upon their tardy assertion of the privilege.

[1939 Code Sec. 145--similar to 1954 Secs. 7201-7203]

Criminal penalties: Denial of bill of particulars.--The government complied with taxpayers' demand for details of the nature, source and amount of the income on which the indictment alleged tax was due the United States . The District Court denied taxpayers' further demand for a bill of particulars on the grounds that disclosure of many of the items sought would be tantamount to compelling a premature disclosure of the government's case and would constitute an encroachment upon the functions of the trial court.

[1939 Code Sec. 145--similar to 1954 Secs. 7201-7203]

Criminal penalties: Miscellaneous defenses.--The District Court denied taxpayers' motion to strike as prejudicial certain allegations in the indictment because the allegations, concerning Office of Price Administration controversies in which taxpayers were previously involved, were relevant to the criminal tax violations charged in the indictment.

[1939 Code Sec. 145--similar to 1954 Secs. 7201-7203]

Criminal penalties: Language of the statute.--Taxpayers' argument that the allegations were vague and uncertain was overruled. The District Court ruled that concealment of business activities and the source and nature of income constitutes a defrauding of the government under the very broad meaning of the words of the statute relating to conspiring and/or defrauding the United States .

[1939 Code Sec. 145--similar to 1954 Secs. 7201-7203]

Criminal penalties: Conspiracy.--Taxpayers' motion to dismiss a conspiracy count on the grounds that it was the same as the first substantive counts in the indictment was overruled. The District Court ruled that substantive and conspiracy charges are separate and distinct even though both may relate to the same transaction or stem from the same facts.

J. Edward Lumbard , United States Attorney for the Southern District of New York, (Thomas W. Hill, Jr., Assistant United States Attorney, of Counsel), for United States . E. Gayle McGuigan, 233 Broadway, New York 7, N. Y., for defendant, Hyman Harvey Klein. Michael Kaminsky, 122 East 42nd Street, New York City, N. Y., F. Joseph Donohue, 503 D Street, N. W., Washington, D. C. (Abraham S. Goldstein, of Counsel), for defendants Morris O. Alprin and Maurice Haas. Samuel Becker, 595 Madison Avenue , New York 22, N. Y., for defendant Irving A. Koerner. Greenman, Shea, Sandomire & Zimet, 20 Pine Street, New York 5, N. Y. (Frederick F. Greenman, of Counsel), Barr & Barr, 20 Pine Street, New York 5, N. Y. (Jerome H. Barr, of Counsel), for defendant Albert Roer.

Opinion

PALMIERI, District Judge:

Defendants Hass, Alprin, Roer and Koerner were subpoenaed to appear and testify before a grand jury that subsequently indicted them. They were charged in a five count indictment with three substantive attempts to evade taxes and two conspiracies, one to evade tax, and the other to defraud the Government in the exercise of a governmental function, namely, the assessment and collection of income taxes. The United States Attorney who questioned them before the grand jury did not inform them that the Fifth Amendment to the Constitution of the United States gave them the privilege to refuse to answer questions which might incriminate them. Although Government counsel states that these defendants appeared before the grand jury without any compulsion whatever because none of them was served personally, I shall assume, for the purposes of the motions before me, that they appeared and testified before the grand jury under the compulsion of subpoenas. All of the named defendants claim that because of the foregoing facts their rights under the Fifth Amendment were violated; Haas and Alprin claim further that their rights under 18 U. S. C. §3481 were violated; and on these grounds the named defendants move to dismiss the indictment.

Defendants seek to bring themselves within the compass of the cases that state that a defendant in a criminal case cannot be compelled to testify before a grand jury on matters pertaining to that case. See United States v. Lawn, 115 Fed. Supp. 674 (S. D. N. Y. 1953) [53-1 USTC ¶9288]. But these cases are not applicable because defendants were not charged with the commission of any offense against the United States when they appeared before the grand jury. At that time defendants were witnesses, and although it was probable that the grand jury would, as it did, subsequently indict them, they are not entitled to the protection that is afforded a defendant. United States v. Scully, 119 Fed. Supp. 225 (S. D. N. Y. 1954). Therefore, defendants' rights were not violated when they were subpoenaed to appear and testify before a grand jury; United States v. Scully, supra; United States v. Wilson, 42 Fed. Supp. 721 (D. Del. 1942); and if they desired the protection of the privilege, they should have claimed it. See United States v. Monia, 317 U. S. 424, 427 (1943); United States ex rel. Vajtauer v. Commissioner, 273 U. S. 103 (1927).

[Grand Jury Witnesses]

Defendants urge upon the Court that when persons who are likely to be indicted are called as witnesses before a grand jury, the United States Attorney should be required to inform them of their privilege under the Fifth Amendment. Cf. Federal Rules of Criminal Procedure 5(b) and 40(b)(2). However, defendants (two of whom are lawyers and all of whom were represented by counsel) do not claim that they were ignorant of the privilege, and that if they had known of it they would not have answered the questions put to them. They have failed to make any showing of fraud, duress, or deception on the part of the Government which they contend resulted in their testifying before the grand jury. It is clear that under such circumstances, a United States Attorney is not required to inform a grand jury witness who is under suspicion of his privilege. Powers v. United States, 223 U. S. 303 (1912); United States v. Scully, supra; United States v. Wilson, supra; see Wilson v. United States, 162 U. S. 613 (1896); Pulford v. United States, 155 Fed. (2d) 944, 947-948 (6th Cir. 1946); 8 Wigmore on Evidence §2269 (3d ed. 1940). The defendants have placed great emphasis upon the statement of the Assistant United States Attorney, made upon the argument of these motions, to the effect that at the time of the grand jury proceedings, he believed that there was a strong possibility that information the Government then had in its possession would lead to the indictment of the defendants Haas and Alprin. But it is quite apparent that the defendants and their counsel were well aware of this possibility. Moreover, the applicable rules of law are not affected by the state of mind of Government counsel.

Nor can I conclude on the basis of the affidavits before me that the defendants were in any way overreached or that substantial justice was frustrated. It would seem that, far from being deprived of their rights, the defendants have sedulously availed themselves of their rights at every stage of the proceedings. Having failed to invoke the privilege under the Fifth Amendment in good time, they cannot be heard to say that they would now decide otherwise and that the indictment should be dismissed upon their tardy assertion of privilege.

With respect to the defendants' motions for bills of particulars, they must, except to the extent consented to by the Government, be denied. The defendants have made a large number of demands pursuant to Rule 7(f) of the Federal Rules of Criminal Procedure. These demands are in many instances repeated by the five named defendants whose motions are before me. No useful purpose can be served by reciting the numerous demands.

All five named defendants seek to compel the Government to disclose the nature and source of income and computations of tax. The Government has already complied with this demand. In accordance with my direction upon the oral argument of the motions for bills of particulars, the United States Attorney has submitted to me the details of the nature, source and amount of the income on which it is alleged in the indictment a tax was due to the United States; the amount of the tax is set forth; and there is also furnished that portion of the Federal income tax return of the defendant Hyman Harvey Klein which is alleged to be false. Furthermore, the Government has set forth those portions of the 1952 Federal income tax returns of defendants Alprin and Koerner and of the 1950 return of Roer which are alleged to be false. This information has been communicated to the defendants.

[Bill of Particulars]

It is my opinion that by this disclosure, the defendants have obtained all the information to which they are properly entitled. I am mindful that the purposes of a bill of particulars are (1) to obviate surprise at a trial and enable the defendant to prepare his defense and (2) to permit him to plead double jeopardy in the event of subsequent prosecution for the same offense. United States v. Foster, 80 Fed. Supp. 479, 486 (S. D. N. Y. 1948). But the admin istration of justice does not require the Government to disclose its evidence prior to trial in a bill of particulars, United States v. Flynn, 103 Fed. Supp. 925, 932 (S. D. N. Y. 1951). To compel disclosure of many of the items sought by the defendants would be tantamount to compelling a premature disclosure of the Government's case and would constitute an encroachment upon the functions of the trial court. Cf. United States v. Krulewitch, 145 Fed. (2d) 76 (2d Cir. 1944), United States v. Cohen, 145 Fed. (2d) 82, 92 (2d Cir. 1944). Moreover, many of the requests for disclosure made by the defendants are, in effect, requests to ascertain the theory of the prosecution's case. But I know of no authority permitting an exploration of the theory of the Government's case in advance of trial. Many of the statements made by the defendants in their oral arguments and in their numerous briefs are based, essentially, upon the desire to avoid the inconvenience incident to the preparation for trial of a criminal tax case involving very large sums of money and covering a period of several years. But if the prospect of trial appears burdensome, it is attributable to the defendants themselves and to their methods of doing business. The defendants are familiar with their own transactions. Upon all of the facts and circumstances alluded to upon the arguments and in the affidavits, it is my opinion that the defendants are not entitled to any disclosures other than the ones already provided pursuant to my direction. See Wong Tai v. United States , 273 U. S. 77 (1927).

Defendants' motions under Rule 7(d) of the Federal Rules of Criminal Procedure, to strike as prejudicial surplusage certain allegations and overt acts under the Fourth Count of the indictment, must be denied. A motion made pursuant to this rule will be granted only where it is clear that the allegation complained of is not relevant to the charge contained in the indictment and is inflammatory and prejudicial. See United States v. New York Great Atlantic & Pacific Tea Company, 137 Fed. (2d) 459 (5th Cir. 1943). In the instant case the allegations concerning Office of Price Administration controversies in which the defendants were previously involved are relevant because the Government charges that the defendants were engaged in manipulating OPA regulations for the purpose of perpetrating the criminal tax violations charged in the indictment.

The motion to dismiss Count Five of the indictment, the second of the two conspiracy counts, must also be denied. This count charges that the defendants ". . . did unlawfully, wilfully and knowingly combine, conspire, confederate and agree together and with each other . . . to defraud the United States in the exercise of its governmental functions in the assessment and collection of income taxes imposed by law and in the management of the revenue, in that the defendants attempted to conceal and continued to conceal the nature of their business activities and the source and nature of their income."

The defendants argue that facts sufficient to constitute an offense against the United States have not been alleged, that the allegation is duplicitous and uncertain, and that the allegation is so vague as to violate the Sixth Amendment of the Constitution.

This count is based upon Title 18 U. S. C. §371, which makes it a crime to ". . . conspire either to commit any offense against the United States , or to defraud the United States . . .". The second part of this disjunctive phrase is of broad import and contemplates wrongs other than conspiracies to commit offenses against the United States which are defined by statute. See Hammerschmidt v. United States , 265 U. S. 182, 188 (1924); Haas v. Henkel, 216 U. S. 462, 479-480 (1910); Curley v. United States , 130 Fed. 1, 8-9 (1st Cir. 1904).

The defendants conceded upon oral argument that an offense is sufficiently alleged in Count Five if the last twenty-five words of the first paragraph were omitted. But, the argument runs, since these words--"in that the defendants attempted to conceal and continued to conceal the nature of their business activities and the source and nature of their income"--were added, the entire count is rendered insufficient and must be struck down because they supersede all that precedes them and are not sufficient in themselves to constitute a charge of conspiracy. I think the argument is based upon a distortion of plain language.

In view of the very broad meaning given to the words of the statute "or to defraud the United States", it is clear that a concealment of business activities and the source and nature of income by the defendants as part of their conspiracy can be deemed to constitute a defrauding of the Government in the exercise of an important and essential government function, namely, the assessment and collection of taxes. See Curley v. United States , supra, at p. 9; United States v. Stone, 135 Fed. 392 (D. N. J. 1905).

Finally, the motions to dismiss the Fourth Count on the ground that it charges the same offense as that charged by the First, Second and Third Counts of the indictment or, in the alternative, to compel the United States to elect between the first three counts and the fourth count, must be denied. The first three counts, as has been already indicated, charge substantive offenses whereas the fourth count charges a conspiracy. A substantive offense is separate and distinct in law from a conspiracy offense even though both may relate to the same transaction or stem from the same facts. They can form part of the same indictment and a defendant cannot, on that account, complain of duplicity or compel an election by the Government. Pereira v. United States , 347 U. S. 1, 11-12 (1954).

The Clerk of the court will be directed to place this case upon the Criminal Trial Calendar for October 11, 19 54, so that a suitable trial date can be fixed.