Copies of Records Page2

---

[ Back ] [ Next ]

   

[73-1 USTC ¶9213] United States of America , Plaintiff-Appellee v. Sidney Rosenstein, Irving Braverman, Foremost Brands, Inc. and McInerney Sales Inc., Defendants-Appellants

(CA-2), U. S. Court of Appeals, 2nd Circuit, Docket Nos. 72-1092, 72-1190, 474 F2d 705, 1/26/73, Aff'g District Court, 69-1 USTC ¶9432, 303 F. Supp. 210

[Code Sec. 7201 and 18 U. S. C. §§ 2 and 371]

Crimes: Tax evasion: Conspiracy: Evidence: Documents: Admissibility: Other defenses.--The court affirmed the convictions of the taxpayers and their wholly owned corporations for tax evasion and conspiracy to defraud the government of income tax. Although the trial court erred in admitting certain documents under the business records exception to the hearsay rule, they could have been properly admitted as declarations of co-conspirators or as admissions of the taxpayers against their own interests. Moreover, use of the documents did not violate the attorney-client privilege because they were written as part of the business dealings of the taxpayers and their attorneys. The documents were not seized in violation of the taxpayers' Constitutional rights, and there was no undue delay in bringing the case to trial.

Whitney North Seymour, Jr., United States Attorney, Gary P. Naftalis, Gerald A. Feffer, John W. Nields, Jr., Assistant United States Attorneys, New York, N. Y., for plaintiff-appellee. Ronald P. Fischetti, James M. LaRossa, Gerald L. Shargel, 522 5th Ave., New York, N. Y., for S. Rosenatein and McInerney Sales, Inc., Norman S. Ostrow, James M. Ringer, James B. Weidner, Royall, Koegel & Wells, Pan Am Bldg., 200 Park Ave., New York, N. Y., for I. Braverman and Foremost Brands, Inc., for defendants-appellants.

Before SMITH, KAUFMAN and MULLIGAN, Circuit Judges.

MULLIGAN, Circuit Judge:

These are appeals by Sidney Rosenstein, Irving Braverman, Foremost Brands, Inc. and McInerney Sales, Inc. from judgments of conviction entered in the United States District Court for the Southern District of New York on January 11, 1972 after trial before Hon. Thomas F. Croake, United States District Judge, and a jury. Judgments affirmed.

The Indictment filed on December 4, 1968 contained 13 counts. Count 1 charged all defendants with conspiracy to defraud the United States of federal income taxes and to commit offenses against the United States in willfully evading income taxes in violation of Title 26, United States Code, Section 7201 and in violation of Title 18, United States Code, Section 2, by aiding and abetting such violations. The balance of the counts were for substantive violations of these sections by the individual and corporate defendants. All were found guilty of the conspiracy counts and the applicable substantive counts. On January 11, 1972, Judge Croake imposed the following sentences:

Sidney Rosenstein, 18 months in prison concurrently on each count, a total fine of $100,000 plus one-half the cost of prosecution;

Irving Braverman, 18 months in prison concurrently on each count, a total fine of $100,000 plus one-half the cost of prosecution;

McInerney Sales, Inc. and Foremost Brands, Inc. were each fined a total of $40,000;

Rosenstein and Braverman are presently enlarged on bail and payment of fines and costs has been stayed pending appeal.

I. The Facts

The investigation of this complicated case was commenced by Internal Revenue Service in 1964 and did not terminate until late in 1967. It involved interveiwing a great number of witnesses in the United States as well as foreign nationals in Switzerland and Liechtenstein . In a trial which lasted six weeks, the Government presented some 75 witnesses and over 1000 documents as exhibits. The defendants did not testify.

The Government's proof established without any doubt that from May, 1960 until 1967 Braverman and Rosenstein and their wholly owned corporations, Foremost and McInerney, brazenly and fraudulently evaded United States income taxes by creating a dummy Liechtenstein corporation, called Continental Trade Establishment (CTE), to which they diverted payments of $1.6 million in commissions from October 1, 1961 to January 31, 1965 and which, in turn, were deposited in a secret account at the Bank Leu, Zurich, Switzerland.

Braverman and Rosenstein and their corporate alter egos, Foremost and McInerney, acted as sales representatives for American manufacturers in the sale of their products to United States Military Post Exchanges throughout the world. In return for their services, they received commissions of about 6% on gross sales. In May, 1960, Braverman and Rosenstein created CTE in Liechtenstein and opened an account at the Bank Leu in Zurich . Their American clients were then asked to make all commission checks on sales to overseas PX's payable to CTE and to forward them to Dr. Herbert Batliner, Haupstrasse 22, Vaduz , Liechtenstein , instead of to Foremost or McInerney, the previous payees. Sometime in 1966 the instructions were changed and the checks were forwarded to Dr. Alfred Buehler at the same Liechtenstein address. Batliner and Buehler were both Liechtenstein attorneys and Haupstrasse 22 was a two-story building which housed Batliner's law office and a shoe store. Representatives of 42 American manufacturers testified at trial as to the payment arrangements and the Government produced checks, payable to CTE and deposited in the Swiss Bank, totalling $1,604,409.59 for foreign PX commissions from October 1, 1961 through January 31, 1965. It is not disputed that no United States income taxes have ever been paid by the appellants on these commissions.

The evidence of the Government that CTE was utilized as a shell and a device for the appellants and was not in fact a viable operating entity, was overwhelming. A dozen American manufacturers were advised by Rosenstein, Braverman or their employees that CTE was actually their company. All the activities performed by Rosenstein and Braverman prior to May, 1960, continued. The same cast of characters continued to travel to European PX's, displaying samples and catalogues and arranging appointments between buyers and sellers. PX representatives testified at trial and produced log books from Wiesbaden and Nuremberg , Germany , the buying centers for the military establishment where sales representatives were required to check in. This testimony and these documents establish that while Rosenstein and Braverman continued to appear for their American clients, no one ever heard of or met either Batliner or Buehler who apparently never appeared to represent their company. Only one of the 15 PX buyers who testified had even heard of CTE. Even more telling is the testimony of Peter Roussos and Robert Naar, exclusive resident representatives for Foremost in parts of Europe from 1960 to 1964. They testified that only Braverman and Rosenstein or themselves represented the 42 American manufacturers whose commission checks to CTE constitute the basis for this indictment. Neither was ever employed by CTE and in fact neither had ever heard of CTE. There is no indication that CTE ever performed any services. In fact there is evidence to establish that Braverman and Rosenstein had CTE stationery and cards printed. The correspondence and contracts, prepared on these letterheads, were signed by their employees, falsely identifying the employees as CTE officers. Rosenstein also directed that Batliner's signature be forged on these letters. When he learned of this, Batliner resigned as a CTE director to be replaced by Buehler. The evidence of the PX representatives, the American manufacturers and the employees of Foremost and McInerney, plus the obvious efforts of Rosenstein and Braverman to create an appearance of activity amply demonstrate the charade. The reading of a voluminous record compels the conclusions that CTE had only one function: it was the receptacle of the income earned by the appellants from their representation of American producers of goods sold to foreign post exchanges. It was created by the defendants in an elaborate but futile effort to avoid American income taxes.

The principal argument raised on appeal is that the admission into evidence of the records of CTE, Government Exhibits 1020-23 and 1025-29, constituted reversible error.

II. The Liechtenstein Documents

(a) The Business Records Exception

The exhibits in question were produced toward the close of its case, by a Government witness, Dr. Peter Monauni, one of three Liechtenstein attorneys, resident at Hauptstrasse 22, Vaduz , Liechtenstein . Dr. Batliner had refused to come to the United States at the time of the trial to testify. Instead he sent Dr. Monauni who had been associated with him for ten years. Dr. Monauni's direct testimony bolstered the other evidence in the case as to CTE's true character. He knew it simply as a client of his firm; to his knowledge it conducted no business of any description at the law office headquarters except for the forwarding of mail and checks.

Monauni produced a CTE file containing Exhibits 1020-23 and 1025-29. The Government offered the documents under the business records exception to the hearsay rule, 28 U. S. C. §1732. ¹ Essentially the statute provides that any writing or record, made as a memorandum of any act, transaction, occurrence or event, if made in the ordinary course of one's business and if it was the regular course of such business to make such record at the time or reasonably thereafter, is admissible as evidence of the act, transaction, occurrence or event. We agree with the appellants that the documents were not properly admissible under the statutory business record exception. The fact that Dr. Monauni did not personally keep the books and records would not render them inadmissible ( United States v. New York Foreign Trade Zone Operators, Inc., 304 F. 2d 792, 796 (2d Cir. 1962)), but someone who is sufficiently familiar with the business practice must testify that these records were made as part of that practice. United States v. Delgado, 459 F. 2d 471, 472 n. 5 (2d Cir. 1972); Cullen v. United States, 408 F. 2d 1178 (8th Cir. 1969); United States v. Dawson [68-2 USTC ¶9527], 400 F. 2d 194, 198-99 (2d Cir. 1968), cert. denied, 393 U. S. 1023 (1969). Dr. Monauni's testimony did not rise to this level of requisite knowledge. He not only did not keep the records, he did not even know from his own personal knowledge that they were kept in Batliner's office. He did not testify to the business practice of CTE or that it was the practice to keep the documents which were introduced.

Some of the Liechtenstein documents were letters from third parties who clearly were not working for CTE. They "were not made in the regular course of the business of the company in whose files they were found. . . ." Phillips v. United States, 356 F. 2d 297, 307 (9th Cir. 1965), cert. denied, 384 U. S. 952 (1966). The requirements of the Business Records Rule are not fulfilled by a showing that the addressee routinely kept a file of such correspondence. It must appear that the letter was written in the regular course of its author's business. See Johnson v. Lutz, 253 N. Y. 124 (1930).

While the records were not admissible as business records, we cannot agree with the appellants' contention that we cannot sustain their admission on the basis of some other exception to the hearsay rule. The rule stated by Wigmore is "[a]n offer of a fact for an inadmissible purpose A is properly excluded, though the same fact would have been admissible for purpose B." 1 J. Wigmore, Evidence §17, at 320 (3d ed. 1940) (emphasis in original, footnote omitted). (See People v. Zacknowitz, 254 N. Y. 192, 200 (1930)).

The Government now urges that these documents are admissible either as admissions by the defendants or as declarations by conspirators, which like the Business Records Rule are further recognized exceptions to the hearsay rule. Here there is no difference in the purpose for which the evidence is sought to be admitted on the alternative grounds. The purpose of admission under any such exception is to establish the truth of that which is contained in the declaration which otherwise would be hearsay. This distinguishes Shepard v. United States, 290 U. S. 96 (1933) and United States v. DeMasi, 445 F. 2d 251 (2d Cir.), cert. denied, 404 U. S. 882 (1971), relied upon by appellants.

Shepard was a case in which an army officer had been accused of murdering his wife by adding bichloride of mercury to her liquor. There was testimony that the sick wife made the statement "Dr. Shepard has poisoned me." She also inquired if there was enough of the liquor left to have tests made. These statements were offered as dying declarations, an exception of the hearsay rule. Since there was a lack of evidence that the declarant spoke without hope of recovery, the statements were held by the Supreme Court to be not admissible for their truth as dying declarations. The Government argued alternatively that the statements were admissible for a different purpose, to wit, they were admissible to rebut evidence of defendant's witnesses that the victim had suicidal tendencies since the statements indicated a will to live. The alternative purpose was clearly untenable since no limiting instructions had been given to alert the jury to the different purpose for which the evidence was offered. Had the conviction been sustained the prejudice to the defendant from the admission of the accusation now urged as simply indicative of a will to live and no more, is obvious. As Mr. Justice Cardozo observed in characteristic language "The reverberating clang of those accusatory words would drown all weaker sounds." Shepard v. United States, supra, 290 U. S. at 104.

DeMasi is like unto Shepard. There the Government offered certain statements made by a decedent to two witnesses. The statements were offered for their truth as exceptions to the hearsay rule. On appeal this court found that the declarant was not a conspirator and his statements were inadmissible hearsay. The Government's alternate argument that the statements were admissible for another purpose, was rejected: "The Government's alternate theory to justify the admissibility of the declaration, that the statement was relevant to prove the victim's state of mind, was not suggested at the trial, and the court did not instruct the jury with reference to it; therefore we will not consider it." United States v. DeMasi, supra, 445 F. 2d at 256 (emphasis added and footnote omitted).

The situation we encounter here is clearly distinguishable. The alternative theories proposed are equally exceptions to the hearsay rule. ² The Government is asserting that the documents are admissible for the same purpose, to establish the truth of what they say. No different or other limiting instruction to a jury was necessary no matter what the theory of admission. The prejudice of the lack of such instruction, so clear in Shepard and DeMasi, is not at all present here.

(b) Declarations of Co-Conspirators

If the documents were admissible as declarations of a conspirator, appellants argue that the trial court would have had to find that the defendant's participation in the conspiracy had been established by a fair preponderance of the evidence aliunde. United States v. Geaney, 417 F. 2d 1116, 1120 (2d Cir. 1969), cert. denied, 397 U. S. 1028 (1970); Levie, Hearsay and Conspiracy: A Reexamination of the Co-conspirators' Exception to the Hearsay Rule, 82 Mich. L. Rev. 1159, 1176-78 (1954); Developments in the Law--Criminal Conspiracy, 72 Harv. L. Rev. 922, 987 (1959).

Since the documents were not offered as declarations of conspirators there was no occasion for Judge Croake to find on the record that each of the defendants was a member of the conspiracy. We believe that the evidence submitted by the Government prior to the admission of the disputed documents fully supported such a finding. The testimony of the representatives of the 42 American manufacturers clearly established by a fair preponderance of the evidence, the test here applicable, that Braverman and Rosenstein had jointly contacted all of their American clients requesting that commission checks theretofore payable to either Foremost or McInerney be made payable to CTE. Moreover, representatives of Ideal Toy, North Shore Sportswear, Genesco, Leeds Travelwear, Burlington Industries, Tobin-Hamilton, National Togs, Blue Bell, Inc., Prince Gardner Wallets, Adler Company, and My Toy Company testified that Rosenstein, Braverman or their employees advised them that CTE was Braverman's and Rosenstein's company. ³ The testimony of PX employees that despite the 1960 change to CTE, the same personnel continued to represent Foremost and McInerney and that Batliner, Buehler and CTE were unknown to them, was further proof that CTE was a shell devised by the defendants to siphon off commissions. In addition to all of this, some of the documents which will be discussed later in this opinion were admissible in any event as admissions. The fact that some of these exhibits might have been admitted after the co-conspirator documents is not material since it is well established that the determination as to whether the prosecution has laid the foundation for the admission of the co-conspirator's statements can be made at the close of the Government's case. United States v. Geaney, supra, 417 F. 2d at 1120; United States v. Sansone, 231 F. 2d 887 (2d Cir.), cert. denied, 351 U. S. 987 (1956).

In our view Judge Croake could have properly made the determination that the Government had laid a proper foundation for the admission of these documents as statements of co-conspirators made in furtherance of this continuing scheme to defraud the United States of taxes. The fact is that he made no such ruling and none was requested. We nonetheless hold that this court can make the post hoc determination on appeal.

We should emphasize that the function of determining whether or not the proper foundation for the admission of these documents has been made is judicial and that the jury may not properly reassess the propriety of the court's determination. ⁴ United States v. Regland, 375 F. 2d 471, 478-79 (2d Cir. 1967), cert. denied, 390 U. S. 925 (1963); Carbo v. United States, 314 F. 2d 718, 735-38 (9th Cir. 1968).

It is difficult to see what value the declarations could have as proof of the conspiracy, if before using them the jury had to be satisfied that the declarant and the accused were engaged in the conspiracy charged; for upon that hypothesis the declarations would merely serve to confirm what the jury had already decided. United States v. Dennis, 183 F. 2d 201, 230-31 (2d Cir. 1950) (L. Hand, J.), aff'd on other grounds, 341 U. S. 494 (1951).

In sum, the determination by an appellate court that the documents could appropriately have been found admissible by the trial judge, as statements of co-conspirators, does not in any way impinge upon any jury function. No instructions of the trial judge were necessary either to caution the jury as to any limited purpose for which the documents were received or that they might review his assessment that a proper foundation was laid. It is difficult therefore to see any impropriety in now accepting alternate bases for admission of the questioned documents, any objections sought to be levelled on the alternative grounds can and have been made here. ⁵

There is authority for our position. Orser v. United States, 362 F. 2d 580 (5th Cir. 1966), is directly in point. The trial court, over objection that statements made in the presence of the defendant were hearsay, admitted them on the theory that it was an accusation made against the defendant and since he had not denied them, they were admissible as implied admissions. On appeal, the court found them not to be admissible on this basis, but nevertheless admissible as declarations by co-partners in crime. Even though the trial court had made no finding that a conspiracy existed, the appellate court found that there was ample evidence of the conspiracy upon which the trial court could have predicated such finding, hence no prejudice could be found. 362 F. 2d at 585-86. ⁶

(c) Admissions

We further find that many of the documents which were admitted were admissible in any event as admissions. For example, many are letters containing directions to Batliner and Buehler to execute contracts, and establish that Rosenstein and Braverman were the operating executives of CTE. ⁷ Most incriminating is Exhibit 1025, a letter signed by both Rosenstein and Braverman addressed to Batliner in which they describe themselves as "equal partners and holders of the founder rights" of CTE.

After an examination of these exhibits we are convinced that the vast majority of the documents admitted were admissible either as admissions or statements in furtherance of the conspiracy. Those which were not do not in our view constitute prejudicial error in light of the overwhelming proof of the Government. ⁸ There is no real problem of authenticity here since the letters and documents which were admissible were signed by either Rosenstein or Braverman or both. That the signatures were those of the defendants was virtually conceded at trial. The argument now made that making an issue of their validity on trial would have increased the importance of these documents in the minds of the jury is not at all persuasive. In view of the admittedly inculpatory character of the documents, it is inconceivable that tactical considerations would have prevented defendants from controverting their authenticity. It is further relevant that the Government had handwriting experts available to establish that the signatures were genuine in the event that their validity was questioned.

III. Other Arguments

(a) Attorney-Client Privilege

The appellants have raised several other arguments on appeal which are of less substance. The claim is made that the use of the CTE documents and the testimony of Dr. Monauni constituted a violation of the attorney-client relationship. Although Batliner and Buehler were attorneys, the posture of the defendants has been decidedly ambivalent as to their true roles. The theory of their defense initially at least, was that Batliner and later Buehler were businessmen operating a bona fide successor firm to Foremost and McInerney, engaged in the business of representation of American firms selling goods to European PX's. The letters for the most part reveal that they were in fact puppets who were being directed by Braverman and Rosentein to sign contracts, forward checks to Bank Leu, order business cards and to arrange for letters of credit. Batliner's letters are routine responses and requests for authority to pay Liechtenstein taxes. "Where an attorney and his client are engaged in business dealings as was the case here the attorneyclient rule does not apply." Lowy v. Commissioner, 262 F. 2d 809, 812 (2d Cir. 1959).

Appellant Braverman argues that Ex. 1025 is privileged. This is the letter signed by both individual defendants in which they describe themselves as equal partners in CTE and advise Batliner of Buehler's appointment to the administrative board of CTE as well as naming another anstalt as the representative of CTE. Batliner is directed in the letter to make the necessary "decisions" concerning the change of residence and in the board and to have these "decisions" registered with the Trade Registry in Vaduz . Despite the use of the word "decisions" it seems evident that Batliner was in fact confronted with a decision previously made by the defendants and simply ordered to perform the ministerial task of amending corporate records.

Even if we make the assumption that the letter represents what would be a privileged communication and not a routine business arrangement, the privilege does not protect communications during the commission and in furtherance of the felony. United States v. Bob, 406 F. 2d 37, 40 (2d Cir.), cert. denied, 308 U. S. 589 (1939). The suggestion that since there was no crime committed in Liechtenstein , the attorney-client privilege remained intact, is not at all persuasive. The privilege is that of the client who in this case are American citizens whose scheme to evade United States income taxes is unquestionably criminal. The situs of their attorneys or of the documents produced here is irrelevant. The evidence of the criminal conspiracy here dehors this document is in any event substantial, as we have previously indicated.

(b) Constitutional Right of Privacy

Appellants argue that the Liechtenstein documents were improperly seized in violation of their Fourth and Fifth Amendment rights. We find that there was no "seizure" of corporate records here by governmental agents. Monauni appeared with the records Batliner had turned over to him and Government Agent Brozen, who accompanied him to the United States , testified that he was unaware of the fact that Monauni had even brought the file until he arrived. There is no showing here of "official misconduct" which would trigger Fourth Amendment rights and attendant exclusionary rules. Coolidge v. New Hampshire , 403 U. S. 443, 487-88 (1971). The request for an evidentiary hearing on this question was properly denied. Agent Brozen was thoroughly examined on this point in the trial. The defense motion to depose Batliner before trial under Fed. R. Crim. P. 15 was properly denied by Judge Tenney (United States v. Rosenstein [69-1 USTC ¶9432], 303 F. Supp. 210, 212 (S. D. N. Y. 1969)) since the only allegation made to support the motion was that counsel had "reason to believe" that Batliner would not attend any trial in the United States. This was deemed insufficient to establish factually that the witness could not be present. This determination was properly within the discretion of the judge. United States v. Birrell, 276 F. Supp. 798, 822 (S. D. N. Y. 1967). During the course of the trial when counsel for the defendant during his cross-examination of Monauni, indicated his interest in examining Batliner, the Government indicated that Batliner had stated that he would not testify at that time However, the Government twice offered, in the presence and out of the presence of the jury, to accompany defense counsel to Liechtenstein to take his deposition. The offer was not accepted. The argument that appellants were deprived of their right to confront Batliner is not supported by the record.

It is not disputed that a corporation has no Fifth Amendment privilege (Wilson v. United States, 227 U. S. 365, 384-85 (1911)); and in any event neither Rosenstein nor Braverman, even though they were the alter egos and sole owners of CTE, can assert Fifth Amendment privileges when corporate records are used against them. United States v. Fago [63-2 USTC ¶9576], 319 F. 2d 791 (2d Cir. 1963). Even viewed as personal papers rather than as corporate records, we find no Constitutional violation. The papers were in the possession of Batliner who surrendered them through Monauni without Government compulsion. The documents were not privileged and we find no legitimate expectation of privacy or confidentiality under the Fourth or Fifth Amendments. Couch v. United States , 41 U. S. L. W. 4107 (U. S. Jan 9, 1973).

(c) Pre-Trial Delay

The claim of Braverman and Foremost that there was such inordinate delay in the prosecution of this case so as to deny them due process of law is not tenable. Preindictment delay is premised on the fact that the conspiracy commenced in 1960 and terminated in 1967 with substantive violations committed from December 1962 through April 15, 1965. The indictment was returned on December 4, 1968. We find no merit in the argument that this delay was unreasonable. There is no suggestion of Government design to create delay and no showing of prejudice. In fact the investigation required here to produce the witnesses and documents in the United States and Europe , placed a tremendous burden on the Government which was dealing with a massive, albeit crude, scheme to defraud. The post-indictment delay from December 4, 1968 to October 26, 1971 was not excessive in our view within the criteria established in Barker v. Wingo, 407 U. S. 514 (1972). There was no demand by the defendants for a trial and no specific instances of prejudice resulting from delay. Again the complicated character of the case is an element to be considered (407 U. S. at 531). It is also noteworthy that although the Government had placed the case on the calendar in May, 1970, to secure a trial date, defense counsel requested adjournments until the Spring of 1971 because of his own trial schedule. At that time substituted counsel requested a delay until the Fall of 1971.

Finally, Judge Croake properly denied defendants' motions for discovery under Rules 16(a) and 16(b), Fed. R. Crim. P., as overbroad. United States v. Jordan , 399 F. 2d 610, 615 (2d Cir.), 343 U. S. 1005 (1968). Again we find no showing of prejudice in the denial of the discovery orders here where the Government voluntarily made available prior to trial most of its documentary evidence, i.e., the checks made payable to CTE by the manufacturers in payment of the sales commissions.

After reviewing all of the appellants' arguments on appeal, we affirm.

¹ 28 U. S. C. §1732 provides in pertinent part:

(a) In any court of the United States and in any court established by Act of Congress, any writing or record, whether in the form of an entry in a book or otherwise, made as a memorandum or record of any act, transaction, occurrence, or event, shall be admissible as evidence of such act, transaction, occurrence, or event, if made in regular course of any business, and if it was the regular course of such business to make such memorandum or record at the time of such act, transaction, occurrence, or event or within a reasonable time thereafter.

All other circumstances of the making of such writing or record, including lack of personal knowledge by the entrant or maker, may be shown to affect its weight, but such circumstances shall not affect its admissibility.

The term "business," as used in this section, includes business, profession, occupation, and calling of every kind.

² We note that the new Federal Rules of Evidence do not classify admissions or co-conspirators' declarations as exceptions to the hearsay rule, but rather as statements which are not hearsay. Fed. R. Evid. 801(d)(2). See United States v. Puco, slip. op. 1437, 1441 n. 3 (2d Cir., Jan. 11, 1973). In any event they are admissible to establish the truth of what is said. C. McCormick, Evidence §239, at 503-04 (1954).

³ For example, Abe Kent and Miriam Gittleson, employees of the Ideal Toy Corporation, testified that defendant Rosenstein had called and requested that Rosenstein's commission checks be sent to CTE, the "subsidiary" corporation.

Rubin Bass, president of North Shore Sportswear, testified in part:

Q. . . . Just what did Azzaro (an employee of McInerney) say to you and what did you say to Mr. Azzaro?

A. To mail the checks overseas.

Q. What did he say?

A. This would cover his commissions to McInerney Sales.

. . . .

Q. Do you recall whether or not Mr. Azzaro indicated anything about the nature of who owned the companies or who the companies were? . . .. (Objections of defense counsel)

A. All he said is that all these companies are one and not to worry what name we make it out, it will cover the commissions.

(Tr. 467)

Mr. Bass further testified that despite the payments to CTE, he continued to deal with the same people, Rosenstein and Azzaro, at McInerney. No one from Europe performed any services for him.

Francis Parker, an employee of Genesco, testified that his company's sales representative was Foremost Brands. At the request of defendant Braverman, Genesco employed CTE and began paying commissions to the latter. Braverman indicated to Parker that Foremost and CTE were the "same" organization.

⁴ This is in contrast to the rule with regard to confessions followed in some jurisdictions. Under the so-called "Massachusetts Rule" the trial judge initially determines whether the defendant's confession is voluntary. If the court admits the confession, the jury is instructed that they may ignore it if they disagree with the court and believe the confession to have been coerced. See Jackson v. Denno, 378 U. S. 368, 378 n. 9 (1964).

⁵ Standard Oil Co. v. Moore , 251 F. 2d 188, 217-18 (9th Cir. 1957), cert. denied, 356 U. S. 975 (1958), relied upon by appellants is distinguishable. In that case the documents held inadmissible under the Business Records Rule, were urged on appeal, as in this case, to be admissible as either admissions or declarations of co-conspirators. The appellate court had to remand for a new trial since for the most part the "admissions" consisted of inter-office memos of employees and agents of the corporation to their principals and not to third parties. They were intramural statements and there had to be some showing that they represented the position of the corporation. No such problem exists here. For the most part the letters here were signed by Braverman and Rosenstein who were of course, in fact, the alter egos of the corporation. Therefore no independent or collateral finding of authority was here required.

⁶ The charge of Judge Croake here was entirely proper with respect to the admissibility of one conspirator's statements or declarations made in furtherance of the conspiracy against other persons found to be members. Therefore no further instruction was necessary with respect to the theory of admissibility of the Liechtenstein documents. See United States v. Baker, 419 F. 2d 83, 88-89 (2d Cir. 1969), cert. denied, 397 U. S. 971, 976 (1970).

See also United States v. Ross, 321 F. 2d 61, 68-69 (2d Cir.), cert. denied, 375 U. S. 894 (1963), where Chief Judge Friendly observed: "[W]e should hardly be warranted in reversing for the admission of evidence simply because the judge did not place his ruling on the ground that would most readily have supported it."

⁷ For example, a letter dated June 20, 1963 from defendant Braverman to Dr. Batliner reads as follows:

I am herewith returning both contracts from Dan River International.

Please sign both copies for Continental Trade and return same to my attention.

. . . .

Comparable instructions appear in letters from Braverman, dated March 14, 1963, April 4, 1963, September 3, 1963 and May 28, 1964.

⁸ Appellants vigorously attack the admission of Government's Exhibit 1029 which was a list of expenses of CTE including the names of Braverman and Rosenstein. The expenses totalled $54 and the Government argued to the jury that such minimal expenses for CTE which purportedly was engaged in substantial business, was indicative of its mere "mail drop" function. Since the memo was unsigned, it was not admissible on the alternate grounds we have accepted. However, that this was the true function of CTE is so clearly established by the other evidence, witnesses' testimony as well as the admissible documents, that we do not consider its admission here prejudicial. It was merely cumulative to that properly admitted evidence.

 

[70-1 USTC ¶9213]Charles Marcus, Appellant v. United States of America , Appellee

(CA-5), U. S. Court of Appeals, 5th Circuit, No. 26281, 422 F2d 752, 2/3/70, Rev'g and rem'g an unreported District Court decision

[Code Sec. 7203]

Crimes: Failure to file returns: Trial: Evidence: Notes for refreshing memory: Expenditures: File copy of letter: Warning of rights.--The cumulative effect of the District Court's errors, when taken together, required taxpayer's conviction for failure to file individual tax returns for the years 1959 through 1961 be reversed and remanded for a new trial even though no single error, when viewed in isolation, necessarily required this disposition. The lower court erred in refusing to permit defense counsel to examine notes used by a government witness to refresh his memory and in allowing evidence of specific expenditures where there was no foundation that they were not made from prior accumulations, loans, gifts, etc. The court also erred in admitting into evidence a file copy of an IRS letter without a showing of its having been mailed to the taxpayer in the normal course of business. It was also error for the jury to examine copies of documents which contained figures that had been deleted from the original exhibits. It was not error, however, to receive admissions made by the taxpayer, even though he was not advised of his right to have an attorney present since the taxpayer was not in custody at that time.

W. B. West III, Clark, West, Keller, Clark & Ginsberg, 2424 First Nat'l Bank Bldg., Dallas, Tex., for appellant. Eldon B. Mahon, United States Attorney, Merrill L. Hartman, Assistant United States Attorney, Dallas Tex., Richard B. Buhrman, Mitchell Rogovin, Assistant Attorney General, Joseph M. Howard, Department of Justice, Washington, D. C. 20530, for appellee.

Before THORNBERRY, GODBOLD and MORGAN, Circuit Judges.

MORGAN, Circuit Judge:

This is an appeal from a conviction for failure to file individual tax returns for the years 1959, 1960 and 1961, as required by Section 6012(a)(1) of the Internal Revenue Code of 1954, 26 U. S. C. §6012(a)(1), ¹ in violation of Section 7203 of the Code, 26 U. S. C. §7203. ² We hold that the cumulative effect of the District Court's errors, which are discussed in detail below, when taken together, require that this case be reversed and remanded to the District Court for a new trial, even though no single error, when viewed in isolation, would necessarily require this disposition. See Getchell v. United States , 5 Cir., 1960, 282 F. 2d 681, 691.

Joseph Brandstetter, the Special Agent of the Internal Revenue Service who headed the investigation against Marcus and who was the Government's principal witness, used a set of notes in testifying which he had specially prepared for the purported purpose of refreshing his memory at the trial from the memoranda he had made shortly after each interview with Marcus. At the beginning of his cross-examination of Brandstetter, defense counsel asked to see the notes to which Brandstetter had been referring during the direct examination. The Government objected to this request on the ground that defense counsel had already been supplied with all the interview memoranda upon which the notes were based. The District Court, after examining the notes, sustained the objection. In response to a question posed to Brandstetter on cross-examination, the Government's counsel admitted that he had been in possession of a copy of the notes while examining Brandstetter. Defense counsel then asked Brandstetter if the Government's counsel "has been asking you the questions from those same notes and your answers are on the paper that you have in your pocket there". To this Brandstetter replied:

Well, the answers are not verbatim. They are answers--they are the items that we intended to get into the answers in my testimony. (Transcript 354).

Marcus contends that the District Court erred in refusing to permit defense counsel to examine the notes relied upon by witness Brandstetter. The Government counters by arguing that copies of all the interview memoranda had been turned over to the defense prior to trial and, since the notes were based on these memoranda, the defense had everything needed to test the accuracy of Brandstetter's testimony on cross-examination, so that, even if the denial was error, it did not affect the substantial rights of the parties and was harmless. See Rule 52, Federal Rules of Criminal Procedure, 18 U. S. C. A.

It is well settled that if a witness uses any paper or memoranda while he is on the stand to refresh his memory in giving his testimony, the opposing side, upon proper demand, has the right to see and examine that paper or memoranda and to use it in cross-examining the witness. Montgomery v. United States, 5 Cir., 1953, [53-1 USTC ¶9336] 203 F. 2d 887, 894. Accord, United States v. Socony-Vacuum Oil Co., 310 U. S. 150, 232, 60 S. Ct. 811, 84 L. Ed. 1129, 1173 (1940). It is also true, as the Government points out, that the Court in Montgomery stated that a conviction will not be reversed for denial of the right to examine such notes and memoranda if the error does not affect the substantial rights of the parties. However, it is important to note that the Court in Montgomery held that the denial of the right to examine notes with which it was confronted was reversible error because the witness had apparently relied on the notes to a great extent and his testimony was material and highly damaging.

There is no doubt that the District Court committed error in denying defense counsel's request to see Brandstetter's notes; the question is whether the error is sufficiently grievous to constitute reversible error. As in Montgomery, the witness apparently relied on the notes extensively and his testimony was material and highly damaging, but in this case the defense had copies of the memoranda upon which the notes were based and, supposedly, was thus in a position to test effectively the accuracy of Brandstetter's direct testimony on cross-examination. It is possible, however, that being unable to see the notes and examine Brandstetter with them, the defense was unable to effectively inquire into whether Brandstetter was testifying from present recollection or whether the notes were being used erroneously as past recollection recorded, see United States v. Riccardi, 3 Cir., 1949, 174 F. 2d 883, or whether the notes, being used by both the examining counsel and the witness, constituted a sort of script, see N. L. R. B. v. Federal Dairy Company, 5 Cir., 1962, 297 F. 2d 487, 489, and Jewett v. United States, 9 Cir., 1926, 15 F. 2d 955. These possibilities tend to lead to the conclusion that the error here affected the substantial rights of Marcus and demands reversal, but when taken cumulatively with the other errors in this case, this conclusion need not be reached. Upon the retrial of this case, the District Court should exercise great caution to see that these trial notes are not misused.

The Government introduced evidence of specific expenditures made by Marcus during the prosecution years, including a trip to Europe , the purchase of carpeting, the hiring of an interior decorator, bills from an exclusive department store, the purchase of an expensive wrist watch band, house payments, utility payments, household expenses and the purchase of a home. The purpose of this evidence was limited by the Government to show expenditures of sufficient size by Marcus so that he must have known he had over $600.00 a year in gross income during the years involved. The defense objected to the admission of this evidence on the ground that no foundation had been laid by the Government to show that such expenditures were not made from prior accumulations, loans, gifts or the separate estate of Mrs. Marcus by establishing an opening net worth as of January 1, 1959, and, consequently, the evidence was not relevant on the issue of wilfulness.

It was apparently the Government's hope that the jury would infer from the fact that Marcus spent in excess of $600.00 in each of the prosecution years that he had to be aware that he had a gross income in excess of $600.00. But this inference cannot logically follow unless, from the fact that these expenditures were made, it is shown that they were made out of taxable income, and not from prior accumulations, gifts, etc. The Government failed to lay any foundation to indicate that the expenditures came out of current income, and, for this reason, the jury could not infer that Marcus had a gross income in excess of $600.00 out of which the expenditures had been made, and further, that, by making the expenditures, he had to know he had a gross income in excess of $600.00. As was said in Dupree v. United States, 5 Cir., 1955 [55-1 USTC ¶9169] 218 F. 2d 781, 784: "If there is no established figure showing the source from which expenditures during the year can be made, or the complete lack of such source, then there is no relevance to proof of expenditures during the year, no matter how large they may be". See Blumberg v. United States, 5 Cir., 1955, [55-1 USTC ¶9437] 222 F. 2d 496, 499-500; Bryan v. United States, 5 Cir., 1949 [49-1 USTC ¶9322] 175 F. 2d 223.

The Government cites several cases which support the proposition that wilful intent to evade taxes may be shown circumstantially from the conduct of the defendant, such as keeping a double set of books and records, making false entries or alterations, concealing assets, covering up sources of income, and any other conduct, the likely effect of which would be to mislead or conceal. Graves v. United States, 10 Cir., 1951, [51-2 USTC ¶9431] 191 F. 2d 579, 582. See e.g. United States v. Zimmerman, 7 Cir., 1939, [40-1 USTC ¶9102] 108 F. 2d 370. But these cases are of no avail. Evidence of specific expenditures in a given year is not evidence of conduct the likely effect of which would be to mislead or conceal, nor, without further explanation, is it evidence of wilful intent. Likewise, it does the Government no good to argue that the evidence of expenditures is relevant to show that Marcus' financial condition was not desperate, as he later testified it was during the prosecution years, thereby attacking his credibility, because when the expenditures were admitted the Government was still putting on its case in chief, the defense was yet to be heard, and Marcus had testified to nothing. In such a situation, a foundation showing an opening net worth is still necessary to make the expenditure evidence relevant.

The District Court admitted into evidence over defense objection a letter from the Chief of the Intelligence Division to Marcus which Special Agent Brandstetter found in the Internal Revenue Service file on Marcus when he took over the investigation. The letter was dated April 15, 1963, and inquired as to whether Marcus had filed an income tax return in the years 1959, 1960 and 1961. In the space for the signature, the file copy of the letter bore a rubber stamp legend reading "(Signed) James M. Cooner", which was immediately followed by the initials "RLW". The next line read "Chief, Intelligence Division". In his testimony, Marcus denied ever receiving this letter.

The apparent purpose of this piece of evidence was to show that the Internal Revenue Service had inquired of Marcus why he did not file returns in the prosecution years and that Marcus had ignored the inquiry, which would go to show wilful intent. In laying a foundation for the admission of the file copy of the letter, under the business records exception to the hearsay rule, 28 U. S. C. §1732, the Government introduced testimony that the file copy was a record which the Internal Revenue Service kept in the regular course of its business over which Brandstetter had supervision and custody. Marcus contends that this foundation was insufficient because there was nothing to indicate that the original letter had in fact been mailed. We agree. The mere presence of a copy of a letter in a file kept in the regular course fo business is not sufficient to raise a presumption of mailing; the custodian of the file must testify as to what was the regular practice in the office as to mailing letters and filing carbon copies, such as marking or initialling copies of letters which have been mailed, and then indicate that the file copy shows that the regular course of mailing was followed with regard to the particular letter. Sheehan v. Municipal Light & Power Co., 2 Cir., 1945, 151 F. 2d 65, 69.

Marcus contends that there was multiple error in the handling of the summary testimony of Agent Brandstetter and in the introduction of related summary exhibits. Of these, the only contention serious enough to merit discussion is that the jury was permitted to examine copies of summary exhibits which contained figures which had been deleted from the original exhibits. Apparently, the jury was given copies of the Government's summary exhibits at the beginning of the summary testimony and that as certain items were deleted from the summary as not reflecting the state of the evidence, the original summary exhibits were altered to reflect the deletions, but the jury was merely instructed to disregard certain figures and columns on their copies and their copies were in no way altered to reflect the deletions. Needless to say, this is an inherently dangerous practice, because, as the Supreme Court said in Holland v. United States [54-2 USTC ¶9714], 348 U. S. 121, 128, 75 S. Ct. 127, 99 L. Ed. 150 (1954) "bare figures have a way of acquiring an existence of their own, independent of the evidence which gave rise to them". Cf. Lloyd v. United States , 5 Cir., 1955 [55-2 USTC ¶9665] 226 F. 2d 9, 16-17; Steele v. United States, 5 Cir., 1955, [55-1 USTC ¶9438] 222 F. 2d 628, 630-31.

Marcus makes much out of the fact that he was not given a Miranda warning nor expressly told of the criminal nature of the investigation against him until after he had supplied the Internal Revenue Service with his financial records and made damaging admissions to the investigating agents. There is testimony in the record, however, that at the first interview the Internal Revenue Service agents informed Marcus that they were Special Agents attached to the Intelligence Division, which handles only criminal investigations, that he had a right to remain silent, and that anything he said could be used against him. Likewise, it is undisputed that the agents failed to inform Marcus that he had the right to an attorney, as they were required to do if Marcus was entitled to a Miranda warning.

Marcus here contends that the safeguards of constitutional protections required by Escobedo v. Illinois, 378 U. S. 478, 84 S. Ct. 1758, 12 L. Ed. 2d 977 (1964), and Miranda v. Arizona, 384 U. S. 436, 86 S. Ct. 1602, 16 L. Ed. 2d 694 (1966), apply to non-custodial tax fraud investigations and that the trial court erred in refusing to exclude evidence obtained in violation of his privilege against self-incrimination and his right to assistance of counsel. In a criminal tax fraud case, this Court has recently held that the Miranda doctrine applies only to in-custody interrogation. Agoranos v. United States, 5 Cir., 1969 [69-1 USTC ¶9316] 409 F. 2d 833. Since Marcus was at no time in custody during the Internal Revenue Service investigation, the contention is without merit.

Marcus' remaining contentions are without merit and do not require discussion.

This case is reversed and remanded to the District Court for the Northern District of Texas for a new trial.

REVERSED AND REMANDED.

¹ Section 6012 provides:

Persons required to make returns of income

(a) General rule.--Returns with respect to income taxes under subtitle A shall be made by the following:

(1) Every individual having for the taxable year a gross income of $600 or more . . .

² At the time of Marcus' trial, Section 7203 provided:

Any person required under this title to pay any estimated tax or tax, or required by the title or by regulations made under authority thereof to make a return (other than a return required under authority of section 6015 or section 6016), keep any records, or supply any information, who willfully fails to pay such estimated tax or tax, make such return, keep such records, or supply such information, at the time or times required by law or regulations, shall, in addition to other penalties provided by law, be guilty of a misdemeanor and, upon conviction thereof, shall be fined not more than $10,000, or imprisoned no more than 1 year, or both, together with the costs of prosecution.

 

 

[66-2 USTC ¶9753] United States of America , Appellee v. Michael Myerson, a/k/a Meyer Meyersohn, Appellant

(CA-2), U. S. Court of Appeals, 2d Circuit, Docket No. 30427, 368 F2d 393, 11/16/66, Affirming an unreported District Court decision

[1954 Code Sec. 6531]

Statute of limitations: Criminal prosecution: Tolling of statute: Taxpayer's absence from United States.--Although returned after the 6-year period of limitations, an indictment for tax evasion was timely where the statute was tolled because the taxpayer was absent from the United States. The taxpayer's argument that the tolling of the statute was not to apply to absences for ordinary business or pleasure trips was rejected.

[1954 Code Sec. 7203]

Tax evasion: Conviction: Jury's physical and mental discomfort: Production of witness sheets.--In affirming the taxpayer's conviction for tax evasion, the court rejected the taxpayer's contention that the jury was unable to deliberate fairly or intelligently due to physical and mental discomfort caused by the general Northeast blackout of November 9, 1965. The record showed that the jury had been adequately provided for and that the taxpayer's attorney had consented to continued deliberations during the blackout. The court also held that at the trial the taxpayer was not entitled to examine a Government witness's "witness sheets" (papers prepared by the Government containing the witness's anticipated testimony), since such sheets were not signed, adopted or approved by the witness and were not a "substantial verbatim recital of an oral statement" by the witness.

Robert M. Morgenthau, United States Attorney, Charles P. Sifton, Daniel R. Murdock, Michael W. Mitchell, Assistant United States Attorneys, New York, N. Y., for appellee. Philip J. Ryan, Ryan, Temkin & Ginsberg , New York , N. Y., for appellant.

Before LUMBARD, Chief Judge, MOORE and KAUFMAN, Circuit Judges.

[Assignments of Error]

PER CURIAM:

Appellant was convicted on a one-count indictment of fraudulent evading and defeating a large part of the federal income tax due and owing by him and his wife for the calendar year 1956, in violation of 26 U. S. C. §7201. Upon the trial, the government introduced substantial evidence as to appellant's guilt and appellant raises no question here as to its sufficiency. Instead, appellant urges three assignments of error: (1) the six-year statute of limitations had run prior to the return of the indictment; (2) the jury's deliberations were infected by the physical and emotional strain imposed on its members by an electric power failure causing a city-wide blackout of substantial duration; and (3) the trial court erred in failing to compel the prosecution to turn over to the defense certain "witness sheets."

[Statute of Limitations]

Appellant filed his income tax return on February 5, 1957. The six-year period of limitations for the wilful evasion of tax, established by 26 U. S. C. §6531(2), commenced to run from the late date upon which the 1956 return was due, to wit, April 15, 1957. ¹ The indictment was returned on August 8, 1963, some 115 days after the expiration of six years. Section 6531 of 26 U. S. C., however, provides for a tolling of the limitations statute whenever a person committing an offense under the internal revenue laws "is outside the United States or is a fugitive from justice." It was established at trial that appellant had been "outside the United States " in excess of 115 days during the relevant period. Appellant argues that the section was not intended to apply to periods spent "outside the United States " unless the circumstances indicated flight, a substantial impediment to the investigation and enforcement of the internal revenue laws, an evasion of legal process or, at least, a change of residence. We disagree. The statute is unambiguous on its face and clearly covers appellant's absences. There is nothing unreasonable or arbitrary about the tolling of the statute of limitations during an offender's absence from the country. Appellant's claim that the statute, if applied to ordinary business or pleasure trips, is unconstitutional is without merit.

[Jury Deliberations]

We also reject appellant's contention that the jury was unable to deliberate fairly or intelligently due to the physical and mental discomfort caused by the fact that shortly after the jury retired the lights went out as a result of the general Northeast blackout of November 9, 1965. The record discloses that the jury was adequately provided for in that its members were permitted to make one phone call each in the presence of a marshal, were offered hotel accommodations (which were turned down on account of the substantial descending and climbing of stairs that would have been involved), and were provided with sandwiches and hot coffee. Moreover, appellant's attorney both consented during the trial to the jury's continued deliberations in spite of the blackout and failed to object at the end of the trial even though the trial judge invited comment when he read a summary of the night's events into the record.

[Witness Sheets]

Appellant's last point is that he was entitled to possession of certain "witness sheets." At the trial, a government witness testified on cross-examination that prior to taking the stand he had looked at some twenty pages of "witness sheets"--papers prepared by the government containing the witness's anticipated testimony. Appellant contends that these witness sheets embodied a "statement" by the witness within the meaning of 18 U. S. C. §3500 and thus should have been turned over to appellant's attorney on demand. We hold that the contested witness sheets are not §3500 material as they are neither a "statement made by . . . and signed or otherwise adopted or approved" by the witness, 18 U. S. C. §3500(e)(1), nor a "substantial verbatim recital of an oral statement" made by the witness. 18 U. S. C. §3500(e)(2).

Affirmed.

¹ Appellant argued below, but does not argue here, that the statute of limitations should begin to run from the day he actually filed his return (i.e., Febuary 5, 1957) rather than from the last due day for 1956 returns. We agree with the district court's conclusion that the choice of the last due date is compelled by the statute. See 28 U. S. C. §§ 6531, 6513.

 

 

[67-1 USTC ¶9222]United States of America v. St. Julian Harrison, also known as Harry Martin, also known as Harry Walters, also known as Harry Harrison, Defendant

U. S. District Court, So. Dist. N. Y., 65 Cr. 343, 265 FSupp 660, 2/2/67

[1954 Code Sec. 7203]

Tax evasion: Motion for bill of particulars: Net worth expenditures method.--The Government was required to furnish a bill of particulars stating the opening and closing net worth for each tax year in question and the date, payee, amount and manner of payment of any expenditures claimed.

[1954 Code Sec. 7203]

Tax evasion: Motion to inspect and copy records and statements.--Taxpayer's motion to inspect and copy records and papers in possession of the Government was denied as to those records which were not necessary to the preparation of his defense, but was granted as to certain records, including federal income tax returns and statements made by the taxpayer to the police.

Tax evasion: Motion to suppress evidence.--Taxpayer's motion to suppress recorded statements made to the police, gambling material seized from his store, and oral statements given to an IRS agent while in custody was granted since the taxpayer was never advised of his constitutional rights prior to making such statements and since the seizure of the gambling material was a direct result of the unlawful questioning.

Tax evasion: Motion to dismiss indictment.--Motion for dismissal of indictment for income tax evasion was denied since it was possible that the Government had ample evidence with which to prove tax evasion.

Robert M. Morgenthau, United States Attorney, New York , N. Y., for plaintiff. Louis Bender, 170 Broadway, New York , N. Y., for defendant.

Memorandum

TYLER, JR., District Judge:

In April, 1965, an indictment was returned against St. Julian Harrison charging him with income tax evasion. The indictment charges that his tax returns for the years 1958 and 1959 understated his income and alleges a total evasion of over $11,000 for the two tax years in question. Harrison now makes three motions addressed to the indictment: (1) for the suppression of certain materials and statements and dismissal of the indictment, (2) for a bill of particulars; and (3) for discovery and inspection.

I. The Motion to Suppress

The charges in the indictment grow out of the following sequence of events as related in large part by the prosecutor in his opposing affidavit. On February 8, 1960, at approximately 8:00 in the evening, some New York City police officers came to Harrison 's home and suggested that he accompany them to the station house for questioning. Harrison 's name apparently had been found in the possession of a police officer who had been charged with a narcotics violation. The police wanted to question Harrison about his possible involvement in narcotics violations. Harrison, who was then a parolee of the State of New York , accompanied the officers to the station house as requested.

In response to some preliminary questions, Harrison denied any knowledge of or participation in the narcotics traffic. When asked to produce some identification, Harrison produced a driver's license and registration bearing the name "Harry Walters". He then answered further questions which, with his answers thereto, were stenographically recorded. Specifically, Harrison was asked questions relating to his possible involvement in narcotics and policy operations; his ownership of cars and real estate; his filing, and failure to file, income tax returns; and his failure to include his policy earnings in his reported income. At no time was he advised of his rights to remain silent and to consult with a lawyer.

After the questioning, at about 1:00 in the morning, Harrison was taken to his candy store; the store was searched, and a number of policy slips and other gambling materials were found hidden behind a radiator. He was then taken back to the police station, arrested and charged with false statements on his driver's license and registration, and with a policy violation.

These charges were subsequently dismissed; the recorded statement and the gambling material were turned over to the Internal Revenue Service by the New York City police. Thereafter Harrison was confined in Dannemora State Prison for violation of the conditions of parole imposed upon an earlier conviction and sentence for an unrelated offense.

In March, 1961, while at Dannemora, Harrison was interviewed by an agent of the Internal Revenue Service. He was asked and apparently freely answered questions about his income, assets and expenditures, about his filing of tax returns and about what income was or was not recorded. Again, however, he was not advised of his constitutional rights prior to the questioning.

Harrison, therefore, moves to suppress the recorded statements made to the New York City police, the gambling materials seized from his candy store and the oral statements given to the Internal Revenue agent while in custody at Dannemora.

A. The Recorded Statements and Wagering Materials Obtained by the New York City Police

Although federal agents concededly played no part in obtaining these items, the statement and the policy slips are inadmissible in a federal criminal trial if the method by which they were obtained violated Harrison 's constitutional rights. See Elkins v. United States , 364 U. S. 206 (1960).

The government's contention that the statement was properly taken and the wagering materials were legally seized breaks down into two major premises. First, it is said that Harrison voluntarily appeared in the station house and submitted to questioning. Second, the prosecution urges that information gleaned largely, if not entirely, from the interview engendered "probable cause" for the officers' search of Harrison 's store. Unfortunately, I am unconvinced by the first premise or argument; rather, I find that the totality of circumstances as stated in the prosecution's version of what transpired at the station house amounted to "custodial interrogation", as that term is defined in Miranda v. Arizona, 384 U. S. 436 (1966). Custodial interrogation was there said to be:

". . . questioning initiated by law enforcement officers after a person has been taken into custody or otherwise deprived of his freedom of action in any significant way." at p. 444.

The government concedes that Harrison was never advised of his constitutional rights prior to the taking of the "Q and A" statement. Since defendant was not warned, the recorded statement obtained as a result of the interrogation of February 8, 1960, may not be used against him at trial. Miranda v. Arizona, supra, at 479.

In respect to the materials seized at Harrison's store, there can be no doubt, and the government here effectively concedes, that the police officers were impelled to search the apartment as a result of the questioning of Harrison at the station house. The seizure is thus the direct result of the unlawful questioning; everything that was taken, therefore, is inadmissible at trial. Wong Sun v. United States , 371 U. S. 471, 485 (1963).

B. The Statements to the Internal Revenue Service Agent

As indicated, Harrison was in Dannemora State Prison when interviewed by an Internal Revenue Service agent. Although perhaps not a usual and typical post-arrest situation, the interview in my opinion, cannot be sensibly viewed as anything but another instance of "custodial interrogation". (See p. 7 supra.) As no warnings were given by the agent to Harrison , no evidence obtained from the questioning may be used against him. Miranda v. Arizona, supra, at 479.

II. The Motion to Dismiss the Indictment

In spite of the foregoing rulings, it may well be that the government has ample, independent evidence with which to prove the charges in the indictment. Therefore, the motion to dismiss the indictment is denied.

III. Demand for Particulars

In appraising defendant's numerous demands for particulars, it is significant to note that the government in its answering papers has disclosed its intention to proceed upon a net-worth theory of prosecution. It must also be recognized that, so far as is known, defendant kept no significant "business records" for the tax years in question. In the light of these two considerations, defendant's

Demand for particulars is disposed of as and for the reasons hereinafter indicated.

1. Request No. 1 is granted--In addition the Government will here be required to set forth

(a) The opening and closing net-worths for each tax year in question, and

(b) The date, payee, amount and manner of payment of any expenditures claimed.

2. Requests Nos. 2 through 6 are denied as being irrelevant and unnecessary.

3. Requests Nos. 7 and 8 are denied as being answered sufficiently by the indictment allegations.

4. Request No. 9 is denied because it requests matters outside of the scope of a proper bill of particulars.

5. Request No. 10 is granted except to the extent that it seeks "the items claimed to constitute said net worth at each such period, the additions and subtractions claimed to have occurred during each such year".

6. Requests Nos. 11 through 14 are denied. In view of the ruling of this court respecting Request No. 1, most of the information sought in Requests Nos. 11 through 14 becomes unnecessary. The remaining particulars requested are largely evidentiary in nature and, as such, are not properly to be disclosed prior to trial.

IV. Motion to Inspect and Copy

Defendant, pursuant to Rules 16 and 17(c), F. R. Cr. P., has moved for leave to inspect and copy voluminous records and papers allegedly in the possession or control of the government. Most of these materials are described with particularity in a subpoena duces tecum served upon the United States Attorney by counsel for defendant. See Rule 17(c), F. R. Cr. P.

In view of this court's rulings hereinabove on defendant's motion to suppress and the prosecution's declared intention to proceed upon a net-worth theory, Harrison is in a poor position to show that inspection and copying of most of the documents described in his papers are material to the preparation of his defense. Without extended discussion, therefore, the motion is denied and the subpoena duces tecum is quashed, except with respect to the following books and records:

(1) Those records described in subparagraphs (a) through (c) of paragraph 6 of the affidavit of J. Edward Meyer III, Assistant United States Attorney, verified on November 21, 1966;

(2) The 1958 and 1959 tax returns of defendant, which may be inspected and copied; and

(3) The "Q and A" statement taken from defendant by the New York City Police Department on or about February 8, 1960. See Rule 16(a)(1), F. R. Cr. P.

Inspection and copying of the above-described records shall take place at the office of the United States Attorney at a date and time to be agreed upon by counsel within thirty (30) days of the date of this memorandum.

One remaining item of defendant's demand for inspection deserves special consideration under the somewhat unusual circumstances presented by this case. In paragraphs "7" and "10" of his subpoena, defendant has asked for any statements obtained from him and any recordings or transcripts of "conversations" to which he was a party. The government has opposed these items; specifically, the government responds by admitting that it has in its control or possession only two "records" which fit in the described categories. One, of course, is the "Q and A" transcript of February 8, 1960, which has been ruled upon heretofore. The second is described by the government as "an interview sheet" prepared by the Internal Revenue agent when he questioned Harrison at Dannemora in March, 1961. I cannot agree that this document is "irrelevant" to this prosecution, nor do I regard as dispositive the government's representation that it does not intend to offer this document into evidence at trial. The serious question is whether or not this interview sheet falls within the exclusionary language of Rule 16(b), F. R. Cr. P. In other words, the government may be on firmer ground when it suggests that this document fits within the unavailable category of ". . . reports, memoranda or other internal government documents . . ." made by government agents in connection with investigation and prosecution of a criminal case. On the other side of the coin, however, the peculiar circumstances of the prison interview and the other unusual features of this case constrain me to surmise that the interview sheet in question might more fairly and appropriately be considered a written statement of the kind permitted for inspection by the provisions of Rule 16(a)(1), F. R. Cr. P.

To resolve this remaining issue, I regard it necessary and desirable for the court to inspect the interview sheet in camera. Accordingly, the United States Attorney is directed to deliver this document to me for such inspection and final ruling within five (5) days of the filing of this memorandum.

It is so ordered.

 

 

[56-2 USTC ¶10,077]Milton H. Olender, Appellant v. United States of America , Appellee

(CA-9), U. S. Court of Appeals, 9th Circuit, No. 14,916, 237 F2d 859, 11/8/56

[1939 Code Sec. 145(b)--substantially unchanged in 1954 Code Sec. 7202]

Crimes: Willful evasion of income taxes: Net worth method: Petition for rehearing denied.--Taxpayer's conviction by the net worth method of willful evasion of income taxes was affirmed by the Court of Appeals. In denying a petition for rehearing, the court clarified its holding under the Calderon case, 348 U. S. 160, 54-2 USTC ¶9712, that the evidence as a whole must show a deficiency for each of the prosecution years.

Leo R. Friedman, San Francisco , Calif. , for appellant. Lloyd H. Burke, United States Attorney, John Lockley, Assistant United States Attorney, San Francisco, Calif., for appellee.

Before HEALY, CHAMBERS and BARNES, Circuit Judges.

PER CURIAM:

The Petition for Rehearing consists primarily of an endeavor to rediscuss and re-weigh the sufficiency of the evidence [see 56-2 USTC ¶9936]. On this point, our view remains unaltered.

The sole issue of substance raised by the petition for rehearing relates to an alleged misapplication of the Calderon case, [348 U. S. 160, 54-2 USTC ¶9712], to the instant facts. Appellant asserts that we have cited and relied upon Calderon as authority for the proposition that there need not be evidence of a tax deficiency for each of the years in question, 1945 and 1946. The precise language of the case as we quoted it justifies that position.

Obviously, Calderon does not stand for that proposition, nor was it referred to for such purposes. In order to correct appellant's misconception as to the nature of our reliance on the Calderon case, we now clarify our reference thereto.

The quotation of the Calderon case, should read as follows:

"But one problem remains. The $17,000 hoard of cash could have absorbed the computed income deficiency for one or more of the prosecution years, and respondent was convicted on all four counts. It might be argued that independent evidence showing a $30,000 deficiency is not enough--that there must be evidence that this sum resulted in a deficiency for each of the years here in issue. There is no merit in this contention. In the first place, this evidence is merely corroborating respondent's cash-on-hand admissions and need not comply with the niceties of the annual accounting concept. While the evidence as a whole must show a deficiency for each of the prosecution years, the corroborative evidence suffices if it shows a substantial deficiency for the over-all prosecution period."

We are aware of, and we are bound by the Supreme Court's statement that "the evidence as a whole must show a deficiency for each of the prosecution years."

We affirm that the government must establish some deficiency for each of the years. Otherwise, there could be no violation. However, it seems equally plain that it is not incumbent upon the government to prove the amount of the deficiency with mathematical exactitude for each year in a prosecution involving consecutive years. A contrary rule would enable the guilty to say, "Yes, I am guilty, but since you cannot allocate the deficiencies to each particular year with exactness, although there was some deficiency in each year, I must go free." We reject the idea that surreptitious dealings which inhibit the prosecution's ability to make a precise allocation for each year can furnish a cloak of immunity to tax evaders. We do not feel that Justice Clark's words were designed to erect an artificial barrier to tax enforcement. The evidence clearly supports the jury's finding of a tax deficiency in both 1945 and 1946.

The Petition for Rehearing is denied.

 

 

[56-2 USTC ¶9936]Milton H. Olender, Appellant v. United States of America , Appellee

(CA-9), U. S. Court of Appeals, 9th Circuit, No. 14,916, 237 F2d 859, 9/24/56, Aff'g unreported DC

[1939 Code Sec. 145(b)--substantially unchanged in 1954 Code Sec. 7202]

Crimes: Willful evasion of income taxes: Net worth method: Admission of testimony.--The Government used the net worth method to reconstruct income for the taxable years 1945 and 1946. Conviction for tax evasion was affirmed on the grounds that the Government's evidence established with "reasonable certainty" the taxpayer's net worth as of December 31, 1944 and that whatever evidence there was on the point was for the determination of the jury. Since the Government's figure was not completely corroborated, the jury was properly instructed to consider only the taxpayer's statements under oath as to the amount of cash in his safe deposit box. Furthermore, the admission of the testimony of a witness was not error where his testimony that clothing was sold and shipped to the taxpayer was based on shipping records made simultaneously with the sale and shipment in the regular course of business.

Leo R. Friedman, San Francisco , Calif. , for appellant. Lloyd H. Burke, United States Attorney, John Lockley, Assistant United States Attorney, San Francisco, Calif., for appellee.

Before: HEALY, CHAMBERS and BARNES, Circuit Judges.

BARNES, Circuit Judge:

This is a criminal prosecution for income tax evasion. Appellant was convicted on four counts charging him with wilfully attempting to defeat and evade federal income taxes by filing false and fraudulent returns. Counts 1 and 3 had reference to his own 1945 and 1946 income tax returns; counts 2 and 4 to his wife's 1945 and 1946 income tax returns, which he prepared.

[Net Worth Method]

The government relied on the "net worth method" of establishing guilt. This required the government to show "with reasonable certainty" the opening net worth of appellant as of December 31, 1944, his net worth as of December 31, 1945, and his closing net worth as of December 31, 1946, Holland v. United States, 348 U. S. 121 [54-2 USTC ¶9714], and that appellant and his wife realized taxable income which they failed to report. According to the government's computations, appellant and his wife should have reported net taxable income of $87,999.24 in 1945, and $43,212.00 in 1946. Appellant had returned $41,067.61 in 1945, and $23,514.62 in 1946. The figures included the income of both the husband and the wife, who reported their income on a community propety basis.

The defense attempted to show that the net worth of appellant and his wife, as of December 31, 1944, was higher than that computed by the government, that the increase in their net worth was less, and that the greater part of this increase did not represent taxable income because it belonged to someone else, or was obtained through nontaxable gifts.

Most of the facts on which the government based its calculations were contained in a stipulation between the parties and an amendment thereto. There were 1,000 pages of record, and many exhibits.

Appellant urges the conviction must be reversed because of insufficiency of the evidence as to net worth, and because the testimony of witness John Sanchirico was improperly admitted.

Insufficiency of Evidence

Appellant specified the evidence was insufficient to establish the offenses charged in that his net worth at the three critical dates was not established to a reasonable certainty. This was because:

(a) Appellant had $70,000 plus, in cash, in a safe deposit box on December 31, 1944, and not $50,000, as the government contended.

(b) The $20,000 in par value of government bonds in appellant's possession at the end of both 1945 and 1946 were the property of and had been purchased by appellant's mother, Mollie Olender, and were not his property, as the government contended.

(c) Appellant had $20,550 in merchandise (sailor suits) on hand at the end of 1944, which were not included by the government as assets.

(d) Appellant should not have been credited with $7,724 on hand at the end of 1945, which the government computation included.

In the previous appeal the decision of this court, Olender v. United States, 210 Fed. (2d) 295 [54-1 USTC ¶9254], emphasized that there was a decided conflict in the evidence, and "since the defense case rested primarily upon the testimony of appellant, it was his credibility which was principally at issue." The same may be said of the second trial.

A reading of the transcript quickly indicates that the methods used by appellant to keep track of his financial affairs, did little to inspire confidence in either his integrity or his truthfulness. Appellant was no untutored son of the soil. He was a university graduate with a bachelor of science degree, "with honors", in economics. He had studied principles of accounting, statistics, money and banking, cost accounting, corporation finance, business organization and administration, factors in industrial efficiency, and other comparable subjects. He was sufficiently well versed in income tax procedure to make out income tax returns for himself, his wife, his mother, and his friends. His memory of business transactions involving many thousands of dollars was, to put it charitably, not good.

Mr. Ringo, a certified public accountant hired by appellant, attempted to prepare a net worth statement for his client but ran into numerous difficulties. When one set of figures furnished by appellant had been worked out, some new expenditure would come to light, and throw the proposed statement "out of balance." As an example, Ringo, after coming to preliminary conclusions, discovered records showing appellant's purchase, theretofore undisclosed to the accountant, of a single premium, fully paid, life insurance policy costing $15,833.46, in 1945. It was then that appellant, for the first time, told his accountant about $10,500 in cash moneys his mother allegedly had given him. Appellant suggested to his accountant that no mention be made of a $5,000 investment in Asturia Export Corporation, made in 1944, because it was then worthless; that Ringo should "leave this out." His accountant explained this could not be done, because its then worthlessness bore no relationship to the net worth issue upon which the government's case was based.

On many other factual matters the appellant could not be considered a convincing witness. He could give no estimate of what his living expenses were in 1945; had no record of such expenses; no idea of what food cost for three people in 1945; no idea nor estimate as to such matters in 1946. He also testified that in 1945 he received $2,500 or $3,000 from his wife's mother, Mrs. Foote, although she had been on old age assistance for seven years.

Appellant claimed he lived frugally in 1945. The stipulated personal expenses deductible, i.e., the appellant's cost of living for himself, his wife and daughter for that year, was $2,739.38. This was some $230 less than the deduction he claimed that year for donations to charity.

Before trial appellant supplied certain information to his accountant, Ringo, explaining the extent of cash moneys kept by him in his safe deposit box. These were appellant's estimates only. These estimates showed (United States Exhibit 19) $50,000 on hand on December 31, 1944; $7,000 on hand on December 31, 1945; and zero on hand on December 31, 1946. But these estimates were not haphazardly arrived at:

"Q. Did you go over that net worth statement with Mr. Olender after it was prepared?

"A. (By Mr. Ringo) Very much so, yes."

At the trial appellant claimed he had over $70,000 in cash on hand in his safe deposit box on December 31, 1944. There is corroboration that in May of 1944 appellant did have $70,000 or $71,000 cash in his box. This corroborated evidence raised the preliminary question of the worth of United States Exhibit 10--the final product of appellant's accountant's efforts to establish valid net worth statements--and the subsequent question as to whether or not the government's evidence had been corroborated.

Appellant remembered with certainty that he had in the box in cash in the beginning of 1945, "over $70,000." At the end of 1945 he could approximate no figure. It was more than $5.00. But he had no positive recollection. At the beginning of 1946, defendant's answer was the same, and at the end of 1946, he couldn't approximate it, "it would only be a guess." "There was some money in there, I don't remember how much."

In the original net worth figures prepared by appellant's auditor from information supplied by the appellant (though only as estimates), appellant was hard put to explain how he accumulated large sums of cash he thereafter expended. So that appellant might rebut any inference that his expenditures in 1945 and 1946 were from unreported taxable income, appellant submitted to the government, through his auditor, an analysis of his net worth January 1, 1942, to December 31, 1947. (Olender's Exhibit 7, attached to his Exhibit 1, which was United States Exhibit 10 in this trial.) Appellant's Schedule A, attached to such Exhibit 7 (part of United States Exhibit 10), read as follows:

"MILTON H. OLENDER,

Gifts from Mrs. J. Olender--Mother (per Books of Mrs. J. Olender--Information from M. H. Olender)

"WITHDRAWALS FROM SAVINGS ACCOUNT IN FRESNO :

Date                                 Amount

February 3, 1942 .....           $ 1,000.00

March 31, 1943 .......             1,000.00

January 6, 1944 ......             2,000.00

July 5, 1944 .........             2,500.00

December 15, 1944 ....             1,000.00

January 2, 1945 ......             3,000.00

                               $10,500.00"

 

At the first trial, appellant testified that these moneys were given him by his mother in cash. At the second trial, the government produced important testimony bearing on these alleged gifts. United States Exhibits 40 through 48, inclusive, were photostats of the records of the Bank of America, Fresno Branch. They showed Mollie Olender's savings accounts No. 3941 and No. 2146 (deposits and withdrawals) and Mollie Olender's commercial accounts. These records show that Mrs. Mollie Olender:

(1) Withdrew $1,000 from savings account No. 3941 on February 3, 1942, and that she deposited the same in her savings account No. 2146 on the same day. She withdrew $200 of it from No. 2146 that day.

(2) Withdrew $1,000 from savings account No. 3941 on March 31, 1943, and deposited it to her commercial account.

(3) Withdrew $2,000 on January 6, 1944, from account No. 3941, and deposited it to savings account No. 126 of Terry Olender Gamborg. This had not been withdrawn up to June 30, 1952.

(4) Withdrew $1,000 on December 15, 1944, from No. 3941, and deposited it on the same day in her commercial account. No withdrawals of any similar sums had been made from the commercial account up to June, 1945.

(5) Withdrew $3,000 on January 2, 1945, from No. 3941 and deposited it to Terence [sic] Olender Gamborg.

(6) Withdrew $2,500 on July 5, 1944, from the First National Bank in Fresno . There was no evidence of redeposit of this money, and appellant testified it was given to him. See "some corroboration" in defendant's Exhibit Q, although appellant's oral testimony was unprecise.

Thus, as to five of the six gifts testified to by appellant under oath, this documentary evidence proved the falsity of his testimony.

A lack of certainty or an utter lack of recollection on the part of the taxpayer cannot tip the scales against the government, for "skillful concealment cannot be an invincible barrier to proof." United States v. Johnson, 319 U. S. 503, 517 [43-1 USTC ¶9470].

An inadequate system of recording income hardly places the taxpayer in a different class than one who keeps no book at all. "Both are receiving unrecorded amounts of income." United States v. Calderon, 348 U. S. 160 [54-2 USTC ¶9712]. In the Calderon case, where defendant relied on a "hoard" in his safe deposit box, a lesser increase in assets ($48,000 in four years) over and beyond income, plus receipt of unrecorded amounts of taxable income, was sufficient variance, compared to reported income, to support an inference of tax evasion. We think the same inference clearly exists here. That same case (Calderon) disposes of appellant's claim that each year's figures must be established to avoid fatal uncertainty. In Calderon, taxpayer's hoard was alleged to have been $16,000 or $17,000; the government's net worth computation started with $500.

"But one problem remains, the $17,000 hoard of cash could have absorbed the computed income deficiency for one or more of the prosecution years and respondent was convicted on all four counts. It might be argued that there must be evidence of a deficiency for each of the years here in issue. There is no merit in this contention. The evidence need not comply with the niceties of the annual accounting concept." Calderon v. United States, 348 U. S. 160, 168 [54-2 USTC ¶9712].

The $20,000.00 in Bonds

Appellant relies heavily on his contention that $20,000 of bearer bonds in his safe deposit box were purchased by him for his mother, with her money. Appellant had two safe deposit boxes, one in his name; one in the joint names of himself and his mother. The bonds were kept in the former box. In 1947, appellant returned as his own property the income from these bonds. In other years, his mother returned the interest, on returns prepared by appellant. Appellant testified he kept these bonds in an envelope at the time of the first trial, with his mother's name on the envelope. Appellant did not produce the envelope at either trial, although he had it at the time of the first trial, nor did he know what happened to it after the first trial, nor whether it had been destroyed, nor when he had last seen it.

On August 23, 1946, appellant wrote in answer to a letter of inquiry from the government that the $20,000 in bonds were "purchased for the account of my mother, * * * on written instructions from her, which I have in my possession." Appellant apparently referred to two letters written by his mother. The first letter, dated November 23, 1945, states:

"If you do buy the bonds, just put them in our box for safekeeping."

and the second letter, dated December 14, 1955, reads:

"I have been forgetting to mention those bonds you bought for me last week." ¹

No evidence was advanced to show any withdrawals from Mrs. Mollie Olender's bank accounts, with which the $20,000 in cash could have been advanced to appellant, which was the procedure appellant followed when the government questioned the $10,500 he claimed in gifts from his mother.

Mollie Olender died June 2, 1951. Nothing had been done by appellant prior to her death to obtain her version of this transaction, beyond his retaining the letters above described.

The federal estate tax return (United States Exhibit 52) filed December 15, 1952, (by appellant's sister, not by appellant) shows that decedent, Mollie Olender, had purchased over $25,000 par value in government bonds and had them issued in joint tenancy with her daughter, and over $17,000 par value in government bonds, and had them issued in joint tenancy with her son, the appellant. The estate tax return further stated:

"The decedent may have had an interest in $20,000 United States Treasury Bonds * * * as for the past few years interest of $450 on bonds of this type was included as income in decedent's income tax returns Decedent's son was her accountant and prepared her income tax returns."

On March 30, 1953, after the first trial, a supplemental inventory was filed by this appellant, as co-executor, in the estate of Mollie Olender, deceased, listing the $20,000 in bonds as part of the estate. On July 13, 1953, the $20,000 were sold on order of "Estate of Mollie Olender, by Milton Olender," and the proceeds credited to the estate. Again, on the issue of his mother's ownership of $20,000 in bonds, there was ample conflicting evidence from which the trier of fact could come to a conclusion either way as to whether the appellant had used his mother's money or his own, to purchase these bonds.

The Sailor Suit Inventory

Although appellant claims he should be credited with having purchased $20,550 worth of sailor suits from one Goodman in 1945, he could, in 1947, remember but one transaction with Goodman, involving $1,380 and had no recollection of the $20,550 transaction involving the issuance and transmission of nine cashier's checks. Even after being shown the checks, and the applications therefor, bearing his signature, appellant "could not recall the circumstances" under which he had issued such checks and acquired this merchandise. This merchandise, though kept in the store and later sold, was never listed as a part of appellant's inventories, never entered on appellant's books as having been purchased or sold, and never insured, because it was "worthless" or "was to be returned" or because "no profit was made on it." When appellant's own auditor, Mr. Ringo, attempted to ascertain the facts about this merchandise, Ringo was told to take the matter up with appellant's lawyer. It was not until after the first trial of this matter that Mr. Ringo was told by appellant of "merchandise on hand, not included in inventories."

The $7,724 Item

Should $7,724 have been included as an asset of appellant at the end of 1945?

According to one interpretation of the evidence, the $7,724 represented a part of the $20,550 figure commented upon above. This was the transaction concerning which, at first, the appellant had no memory. But he testified that after he had received the suits from Goodman, through Levy, Levy in 1945 sold 200 suits for $5,000 which went into the Army and Navy books as a capital investment. But, in 1945 when 280 more suits were sold for $7,000, Levy kept the money. This, Levy gave to Moe Saraga, a dealer in New York . Appellant then gave Saraga $24,500 from his "store account". Saraga could not deliver all the suits wanted, and so returned the $7,000 plus $725 for 49 suits undelivered from the $24,800 advance, which amount, less $1 for a bank charge, represents the $7,724 claimed.

Obviously, if the trier of fact were to credit the appellant with the $20,500 in sailor suits, it should not again credit the $7,000 representing cash received through sale of some of those suits. And, whether or not the $7,724 were included as an asset of appellant at the end of 1945, it would have increased or reduced the amount of undeclared income, but it would not have done so appreciably, nor to a degree decisive of the issues herein.

The foregoing recital of certain of the evidence is not exhaustive. It is merely to highlight the reasons why the conclusion of the appellate court, after the first trial, is equally pertinent after the second trial--that the credibility of the appellant was the principal issue in the case. We cannot say that the government did not establish "with reasonable certainty" appellant's net worth as of December 31, 1944. When the government introduced proof of likely taxable sources from which a jury can reasonably find that the net worth increases sprang, it need not negative all possible non-taxable sources.

In criminal prosecutions for federal income tax evasion, evidence corroborative of defendant's admissions need not prove the offense beyond a reasonable doubt, or by a preponderance of the evidence, but there must exist substantial evidence, independent of the alleged admission, that the offense has been committed, and the evidence as a whole must prove defendant's guilt beyond a reasonable doubt. Smith v. United States, 348 U. S. 147, 156 [54-2 USTC ¶9715]; United States v. Calderon, 348 U. S. 160 [54-2 USTC ¶9712].

The care with which the trial judge instructed the jury on this subject is of importance. Among other instructions the jury received was this:

"In order to safeguard the defendant, the law requires that these statements (of defendant) relating to vital links in the government case be corroborated. In this connection, the $50,000 cash item and $7,000 cash item, used by the government in Exhibit 50 (i.e., amount of cash in safe deposit box) cannot be considered by you in determining the opening or closing net worth, because the government did not corroborate that. You can use, however, whatever amounts the defendant said he had while he was on the witness stand here under oath."

We conclude the jury was properly and carefully instructed, and we will not interfere with their decision on issues of fact, in view of the conflicting testimony in this case.

This brings us to the alleged error in admitting the testimony of John Sanchirico.

It should be said that much of the criticism of the introduction of this testimony goes to its weight, and not to its admissiblity. The witness, as executive vice president of Seagoing Uniform Corporation, was capable of identifying the records of that business. He had worked with the company over 25 years, had been active in management of it over 15 years. His firm had an account with the Army & Navy Store at 1926 Broadway, Oakland , the appellant's place of business. Sanchirico did not know appellant, but did know Goodman, the man to whom defendant sent several thousand of dollars with which to buy sailor's uniforms. Goodman paid the invoices. Sanchirico's plan shipped uniforms in accordance with Mr. Goodman's instructions, to the ultimate consignee. A shipping clerk would hand-write a shipping memorandum which would indicate how many garments were involved, and where they were shipped to, name of customer, and the street number or city. Exhibits 66 to 71 inclusive, all indicated, according to the witness, shipments of sailor suits to Olender. These documents were kept by the company and were made simultaneously with the transaction, in the regular course of business.

The only objection made to Exhibits 66 to 71 was that they were "not proper rebuttal." This objection was not well taken; nor, had an objection been made upon grounds of hearsay, would it have been valid. Part of each document did not purport to involve the appellant, but part of each written document did. The objection on grounds of hearsay, not having been made before the trial court, cannot be urged here as reversible error. Sekinoff v. United States , 283 Fed. 38; Bank of Italy v. Romeo & Co., 287 Fed. 5.

We recently ruled on this same evidentiary point in civil litigation, Batelli v. Kagan et al., 9 Cir., No. 14,803, decided August 6, 1956. In this criminal prosecution, Rule 26 of the Rules of Criminal Procedure (Title 18 U. S. C. A.) applies, rather than Rule 43 of the Rules of Civil Procedure (Title 28 U. S. C. A.). The "Act of Congress" necessary to make the principle of the "Uniform Business Records in Evidence Act" applicable is Title 28 U. S. C. A. §1732. The very purpose of this section is to relax the common law evidentiary rule, and permit introduction into evidence those contemporaneous business records which once were inadmissible. Hartzog v. United States , 1954, 217 Fed. (2d) 706 [55-1 USTC ¶9128]. And even if such business records, such as bills of lading, are hearsay as to the appellant, they are admissible as records made in the regular course of business. Intermondale v. North River , 1951, 100 Fed. Supp. 128. Evidence disclosing a manufacturer's practice relating to invoices establishing the contents of clothing cartons, was held admissible in United States v. Garvey, 1945, 150 Fed. (2d) 767.

The judgment of conviction on all four counts should be, and is, affirmed.

¹ The pertinent portions of this letter, in appellant's opinion expressed on the stand, continue as follows:

"When you get them, keep them up there for me; as I wrote you previously before, I still prefer that you put your money into government bonds instead of stocks. I realize the Bank of America dividends are higher and what you say about them is true. When you make your next payment to me, I may let you convince me, but I still think the bonds are the safest investment."

This reference to "your money" is more consistent with the appellant buying bonds with his own money than it is that the money belonged to his mother.

 

 

[56-2 USTC ¶9713] United States of America v. Gerard Hartzog

U. S. District Court, East. Dist. S. C., Charleston Div., No. 19,724, 141 FSupp 232, 5/16/56, Dismissing after remand by CA-4, 55-1 USTC ¶9128

[1939 Code Sec. 145(b)--changed in 1954 Code Secs. 7201, 7202]

Case dismissed.--After reversal by the Fourth Circuit of the conviction of taxpayer on charges of tax evasion under 1939 Code Sec. 145(b) and a remand of the case for a new trial (reported at 55-1 USTC ¶9128), the trial court now dismisses the indictment against taxpayer on motion of the U. S. Attorney.

N. Welch Morrisette, Jr., United States Attorney, Arthur G. Howe, Assistant United States Attorney, for plaintiff.

Order

WILLIAMS, District Judge:

Upon motion of N. Welch Morrisette, Jr., Esquire , United States Attorney, by Arthur G. Howe, Esquire, Assistant United States Attorney, it is

ORDERED that the indictment in this case be, and the same is, hereby dismissed.

 

 

[55-1 USTC ¶9128]Gerard Hartzog, Appellant v. United States of America , Appellee

(CA-4), In the United States Court of Appeals for the Fourth Circuit, No. 6847, 217 F2d 706, December 21, 1954

Appeal from the United States District Court for the Eastern District of South Carolina, at Columbia. Criminal.

[1939 Code Sec. 145(b)--changed in 1954 Code Secs. 7201, 7202]

Criminal tax evasion: Trial: Admission in evidence of worksheets as prejudicial error.--In the trial on charges of tax evasion against taxpayer under 1939 Code Sec. 145(b), secondary evidence was admitted on behalf of the Government in the form of worksheets prepared by a Deputy Collector who was deceased at the time of the trial and by a special agent of the Internal Revenue Service who based his own worksheets in large part on those of the decedent. They purported to show the contents of taxpayer's records. Since there was no evidence to support the requirement that the worksheets were the product of an efficient clerical system or that they were prepared under the supervision and control of the witness, their admission in evidence was improper and constituted prejudicial error.

Elden McFarland for appellant. Irvine F. Belser, Jr., Assistant United States Attorney (N. Welch Morrisette, Jr., United States Attorney, on brief), for appellee.

Before PARKER, Chief Judge, and SOPER ANDDOBIE, Circuit Judges.

DOBIE, Circuit Judge:

Gerard Hartzog (hereinafter called Hartzog) was convicted of criminal evasion of federal income taxes, in violation of 26 U. S. C. §145(b), by the United States District Court for the Eastern District of South Carolina. Hartzog was indicted on three counts, one count for each of the years 1946, 1947 and 1948. He was acquitted on the 1946 count but found guilty on each of the other two counts. After the jury had returned its verdict and before judgment, Hartzog made a motion for a new trial; this motion was denied, and Hartzog was sentenced to five years' probation.

Hartzog has appealed to us and presents two questions: (1) whether certain worksheets were properly admitted in evidence against him; and (2) whether certain loans received by Hartzog from the Commodity Credit Corporation on cotton were properly included in the Government's computation of his 1948 income.

We need express no opinion as to the merit of Hartzog's second issue, since we hold that it was prejudicial error for the lower court to admit the worksheets in evidence, and the case must be reversed and remanded for a new trial pursuant to Hartzog's motion.

[The Facts]

The worksheets in question were put into evidence as a substantial part of the Government's proof of Hartzog's income for 1947 and 1948. There were two sets of worksheets introduced in evidence, and an objection was made by Hartzog's counsel to the introduction by either set as proof of the contents of Hartzog's records for the years 1947 and 1948, since, it is contended, both sets are hearsay evidence.

One set of worksheets was prepared in 1951 by a Deputy Collector of Internal Revenue named Baynard, who died before this case came to trial. The second set was prepared in 1951 by Berlin , a special agent of the Internal Revenue Service. Baynard's worksheets list and classify checks, check stubs and other records into the various categories of income, the various categories of allowable deductions, the category of personal or other non-deductible expenses, the category of non-taxable receipts, and the categories of capital or ordinary gains and losses, and long and short term capital gains and losses.

Berlin supervised the making of Baynard's worksheets but never examined any of the information and materials upon which Baynard based his figures, except upon one occasion when he saw Hartzog's farm ledgers for about two minutes. Berlin 's worksheets are based primarily on information obtained from Baynard's worksheets and were prepared with Baynard's collaboration, although Berlin also used some information obtained from outside sources such as bank statements and Hartzog's clients. Berlin 's worksheets were prepared when it became apparent that the information obtained by Baynard would not give a sufficient picture of Hartzog's income.

Both sets of worksheets were made in preparation for this prosecution, after Hartzog had refused the agents permission to see the bulk of his records, Baynard was permitted to see a small portion of Hartzog's records and information obtained from these sources is the basis of his worksheets. We shall first consider the admissibility of the Baynard worksheets.

[Secondary Evidence Rule]

In a criminal prosecution, the right of the Government to introduce these worksheets as secondary evidence of the contents of Hartzog's record is uncontradicted, provided such evidence is otherwise admissible. See Paschen v. United States , 70 Fed. (2d) 491 [1934 CCH ¶9234]; Lisansky v. United States, 31 Fed. (2d) 846 [1929 CCH D-9277]. As then Circuit Judge Parker stated for this court in theLisansky case, supra, at page 850:

"But evidence as to the contents of books and papers is not lost to the government because the defendant has them in his possession and their production cannot be ordered or the usual basis laid for the introduction of secondary evidence. In such cases, the rule is that, when they are traced to his possession, the government, without more ado, may offer secondary evidence of their contents."

This rule does not, however, give the Government carte blanche to introduce any type of evidence merely because it may be relevant and material as secondary evidence of the contents of a defendant's records. Such secondary evidence may not be admitted for the purpose of such proof if it is hearsay. Clearly, the worksheets prepared by Baynard before his death, and introduced without his testimony, are hearsay in so far as they tend to indicate the existence of the records and checks upon which the worksheets are based; they are also hearsay as to the amounts and classifications of these checks and other records.

The Government contends, however, that Baynard's worksheets, even though hearsay, are admissible as proof of the truth of their contents, under the provisions of 28 U. S. C. §§ 1732; 1733. These sections read as follows:

"1732. Record made in regular course of business.--In any court of the United States and in any court established by Act of Congress, any writing or record, whether in the form of an entry in a book or otherwise, made as a memorandum or record of any act, transaction, occurrence, or event, shall be admissible as evidence of such act, transaction, occurrence, or event, if made in regular course of any business, and if it was the regular course of such business to make such memorandum or record at the time of such act, transaction, occurrence, or event or within a reasonable time thereafter.

"All other circumstances of the making of such writing or record, including lack of personal knowledge by the entrant or maker, may be shown to affect its weight, but such circumstances shall not affect its admissibility.

"The term 'business' as used in this section, includes business, profession, occupation, and calling of every kind.

"1733. Government record and papers;--copies.--(a) Books or records of account or minutes of proceedings of any department or agency of the United States shall be admissible to prove the act, transaction or occurrence as a memorandum of which the same were made or kept.

"(b) Properly authenticated copies of transcripts of any books, records, papers or documents of any department or agency of the United States shall be admitted in evidence equally with the originals thereof."

Section 1733 obviously has no application here. Baynard's worksheets are not books or records of account of a department or agency of the Government, nor are they minutes of any proceeding.

[Statutory Rule Construed]

The wording of Section 1732 raises quite a different problem. Its language is broad and inclusive, and a literal reading of its provisions may suggest that Baynard's worksheets are admissible evidence. This section has not been given such a literal interpretation by the Supreme Court.

Mr. Justice Douglas in the leading case of Palmer v. Hoffman, 318 U. S. 109, pointed out the evils inherent in a strict application of this section (318 U. S. at pages 113-114):

"Any business by installing a regular system for recording and preserving its version of accidents for which it was potentially liable could qualify those reports under the Act. The result would be that the Act would cover any system of recording events or occurrences provided it was 'regular' and though it had little or nothing to do with the management or operation of the business as such. Preparation of cases for trial by virtue of being a 'business' or incidental thereto would obtain the benefits of this liberalized version of the early shop book rule. The probability of trustworthiness of records because they were routine reflections of the day to day operations of a business would be forgotten as the basis of the rule. * * * Regularity of preparation would become the test rather than the character of the records and their earmarks of reliability * * * acquired from their source and origin and the nature of their compilation. We cannot so completely empty the words of the Act of their historic meaning. If the Act is to be extended to apply not only to a 'regular course' of business but also to any 'regular course' of conduct which may have some relationship to business, Congress not this Court must extend it. Such a major change which opens wide the door to avoidance of cross-examination should not be left to implication. Nor is it any answer to say that Congress has provided in the Act that the various circumstances of the making of the record should affect its weight, not its admissibility. That provision comes into play only in case the other requirements of the Act are met.

"In short, it is manifest that in this case those reports are not for the systematic conduct of the enterprise as a railroad business. Unlike payrolls, accounts receivable, accounts payable, bills of lading and the like, these reports are calculated for use essentially in the court, not in the business. Their primary utility is in litigating, not in railroading." ^*

The legislative history of Section 1732 gives ample support to this construction of the section. See Sen. Rep. No. 1965, 74th Cong. 2d Sess. (1936). This section was enacted to provide a relaxing of the strict common-law rule requiring identification of book entries by all parties making them. It is clear that Congress did not intend to do away with the requirement that the record, to be admissible, must carry with it some guarantee of trustworthiness. See Gordon v. Robinson, 210 Fed. (2d) 192; Hoffman v. Palmer, 129 Fed. (2d) 976, affirmed, 318 U. S. 109.

On the record presented to us, it does not appear that the worksheets prepared by Baynard were prepared under such circumstances as will provide a guarantee of trustworthiness. These worksheets were made in preparation for this prosecution; they were Baynard's personal working papers, were the product of his judgment and discretion and not a product of any efficient clerical system. There was no opportunity for anyone, especially Berlin , to tell when an error or misstatement had been made. These worksheets were no more than Baynard's unsworn, unchecked version of what he thought Hartzog's records contained. Applying the criterion of theHoffman case, that admissibility is to be determined by "the character of the records and their earmarks of reliability * * * required from their source and origin and the nature of their compilation," 318 U. S. at page 114, we hold that these worksheets were inadmissible as evidence of the truth of their contents. See, e.g., United Mine Workers of America v. Patton, 211 Fed. (2d) 742; Chapman v. United States , 194 Fed. (2d) 974; Masterson v. Pennsylvania R. Co., 182 Fed. (2d) 793; Gilbert v. Gulf Oil Corp., 175 Fed. (2d) 705, 709-710; New York Life Ins. Co. v. Taylor, 147 Fed. (2d) 297. But see Korte v. New York, N. H. & H. R. Co., 191 Fed. (2d) 86.

The Government places great reliance upon the case ofUnited States v. Mortimer, 118 Fed. (2d) 266. In this case a number of charts were admitted in evidence on the testimony of one Karcher, an accountant who had supervised their preparation. Objection was made to the charts since one of Karcher's assistants in the preparation of the charts did not take the stand. The Second Circuit quite properly held that the testimony of a supervisory agent alone is sufficient where he has had complete supervision and direction of preparation of the evidence which he offers. We do not think that such supervision and control existed in the instant case. Baynard was not a mere tool of Berlin . He exercised his own discretion and judgment as to classification of information which he alone saw. While Berlin may have been his "supervisor," in fact the two parties were operating on the same level in this investigation. Moreover, the Mortimer case is founded on the assumption that the evidence was compiled "according to a method at once practicable and offering reasonable guaranty of accuracy * * *." 118 Fed. (2d) at page 269. We do not think that Baynard's worksheets were prepared by such a method.

Since we hold that Baynard's worksheets are inadmissible as being mere hearsay, it necessarily follows that Berlin 's worksheets are also inadmissible in so far as they are based on Baynard's worksheets. See United States v. Grayson, 166 Fed. (2d) 863. Such a holding is not necessary for reversal of this case, in view of the prejudice in admitting Baynard's worksheets. Since the case must go back for a new trial, however, we feel that an expression of our opinion on this point is necessary.

For a like reason, we must state our view that the amount of the cotton loans made by the Commodity Credit Corporation was not income to Hartzog for the year 1948.

[Admission Prejudicial]

The Government further contends that any error in admitting the Baynard worksheets was harmless. There is no merit in this contention. Proof of Hartzog's income was based substantially on these worksheets. Practically all of the Government's figures for deductions were determined from Baynard's worksheets. Without this evidence, the jury might well have reached an entirely different result.

For the reasons stated above, the judgment of the District Court is reversed and the case is remanded to that court for a new trial.

Reversed and Remanded.

^* This case construed the provisions of 28 U. S. C. §695 which is the predecessor of Section 1732 and the same as Section 1732 except that Section 1732 embodies some minor amendments of §695 that are not important here.

 

 

[35-1 USTC ¶9258]John E. Delaney, Defendant-Appellant, v. United States of America , Plaintiff-Appellee

(CA-3), United States Circuit Court of Appeals, for the Third Circuit, No. 5528. October Term, 1934, 77 F2d 916, Decided March 27, 1935

Upon appeal from the District Court for the District of New Jersey.Taxpayer had been convicted and sentenced by the District Court for failing to file a return in 1927 and for willful evasion in 1928 and 1929. On appeal, it is held that the refusal of the trial court to charge upon the effect of a prior conviction on the credibility of a witness is reversible error. Permitting a witness, over objection by the defendant, to testify directly from photostatic copies of records which had not been made by him or under his direction is reversible error. Reversing, with a venire de novo, District Court decision.

Before BUFFINGTON, DAVIS and THOMPSON, Circuit Judges.

Opinion

THOMPSON, Circuit Judge:

This is an appeal from a judgment of the District Court for the District of New Jersey. The defendant was charged, convicted and sentenced upon three indictments: the first of which charged him with willfully failing to file an income tax return for the year 1927 in violation of 26 U. S. C. A. 1266; and the other two with willfully attemping to evade and defeat an income tax for the years 1928 and 1929 in violation of 26 U. S. C. A. 2146(b).

The defendant was assistant business agent of a labor union. In 1927, 1928 and 1929 certain steel organizations paid him large sums of money to use his influence to avoid labor trouble. He admitted the receipt of these sums but testified that he did not include them in his income tax returns because he gave them to one Theodore Brandle, his superior in the labor union. In rebuttal, Brandle denied receiving any money from the defendant. When cross-examined, Brandle admitted that he had pleaded guilty and been sentenced upon an indictment charging him with failure to report and pay an income tax. A plea of guilty under New Jersey law is equivalent to a conviction. Stewart v. Stewart, 93 N. J. Eq. 11. The defendant requested the court to instruct the jury that, in determining the credibility of the witness, it take into consideration the fact that he had previously pleaded guilty to the commission of a crime. The court refused this request. Since the defense was that the defendant had paid to Brandle all the money received from the steel organizations, Brandle's contradiction was of the utmost significance in its bearing upon the question whether the money received was income to the defendant. In New Jersey the refusal of a trial court to charge upon the effect of a prior conviction on the credibility of a witness is reversible error. State v. Mussikee, 101 N. J. L. 268. State v. Sandt, 95 N. J. L. 49. In an appeal from the District Court of New Jersey, we held that, in the absence of a rule of law in the federal courts of this Circuit, a rule of the New Jersey courts controls. Mansbach v. United States , 11 F. (2d) 221, 224. We apply this rule to the instant case and conclude that the refusal of the court to charge as requested was reversible error.

We think there is further ground for reversal. A witness for the government testified that he had made payments to the defendant but that he could not recall the amounts. Over objection by the defendant, the witness was allowed to use photostatic copies of records which had not been made by him or under his direction. It is apparent that what the witness did was to testify directly from the photostatic copies of records made by another and not from his recollection, refreshed by the memoranda. This, we think, was reversible error. While a witness may use memoranda made by another to refresh his memory so as to enable him to testify from his own recollection, he may not testify directly from those memoranda. This distinction has been clearly drawn in Jewett v. United States, 15 F. (2d) 955, and differentiates the instant case from Goodfriend v. United States, 294 Fed. 148, relied upon by the government. In our opinion, the court erred in overruling the defendant's objection to this testimony.

The judgment of the court below is reversed with a venire de novo.