¶9563]United States of
, Plaintiff-Appellee v. Alfred Joseph Keig, Sr., Defendant-Appellant
(CA-7), U. S. Court of Appeals,
7th Circuit, No. 14417, 334 F2d 823, 6/16/64, Affirming unreported
District Court decision
Constitutionality of income tax statutes.--Taxpayer who had been
convicted of willful failure to file income tax returns did not sustain
his charges that the federal income tax statutes were unconstitutional.
He had charged that the taxing statutes were discriminatory and were
being used to violate the establishment of a religious clause of the
First Amendment and that the moneys derived therefrom were being used
for unconstitutional purposes. Acker, (CA-6) 58-2 USTC ¶9615,
258 F. 2d 568, cert. denied 358
940, 79 S. Ct. 346, followed.
[1954 Code Sec. 7203]
Criminal conviction: Failure to file returns: Sufficient evidence.--A
criminal conviction of a taxpayer for knowingly and willfully failing to
file income tax returns was upheld where the evidence was sufficient to
show that in each of the taxable years involved the taxpayer was the
recipient of income in sufficient amount to require his filing a tax
[1954 Code Sec. 7203]
Criminal conviction: Failure to file returns: Right to cross
examine.--Taxpayer was not prejudiced by the nonproduction "for
purposes of cross-examination" of a recommendation for prosecution
which an internal revenue agent filed with his superiors. Although such
recommendation contained references to interviews with the taxpayer, a
memorandum of these interviews had been made available to the taxpayer.
Furthermore, taxpayer was not unduly restricted in his cross-examination
of a government witness where he was not permitted to challenge the
competency and adequacy of the evidence which had been presented to the
[1954 Code Sec. 7203]
Failure to file returns: Criminal indictment: Sufficiency.--The
indictment upon which the taxpayer was convicted of willful failure to
file income tax returns was held sufficient. Although it was not signed
attorney for the government as required, it had been signed by an
attorney delegated to do so. Furthermore, the indictment was found to be
correct in listing separate counts for each year in which the taxpayer
failed to file a tax return, rather than in treating the multiple
actions as one count.
Hanrahan, United States Attorney, John Peter Lulinski, John Powers
Crowley, Assistant United States Attorneys, Chicago, Ill., for
plaintiff-appellee. Anna R. Lavin, 209 La Salle,
, for defendant-appellant.
SCHNACKENBERG, CASTLE and KILEY, Circuit Judges.
Keig, Sr., defendant, has appealed from his conviction and sentence,
entered September 27, 1963 upon a judgment of the district court, based
upon a five count indictment, charging knowing and willful failure to
make income tax returns to the District Director of Internal Revenue for
the years 1954 through 1958, in violation of 26 U. S. C. A. §7203. He
was fined $1,000 on each count and put on probation for a period of
three years. A condition of the probation is that he file his income tax
returns for the years in the probationary period. He is at liberty on
prior appeal, [63-2 USTC ¶9621] 320 F. 2d 634 (1963), we remanded the
cause to the district court with directions to hold an inquiry, pursuant
to the Jencks act and our opinion, and to supplement the record with new
findings. We directed that, if the district court should conclude that
the government should have been required to deliver any additional
statement or report to defendant's counsel for examination, it should
vacate the judgment of conviction and accord defendant a new trial. Campbell
85, 99 (1961). We further directed that, if, upon hearing on remand and
the making of such new findings, the district court concluded that the
government was not required to deliver any additional statement or
report to defendant's counsel for examination, the court should enter a
new final judgment based upon the record as supplemented by its new
findings, thereby preserving to defendant the right to appeal to this
court. Killian v.
231, 244 (1961).
[Nonproduction of Document]
1. On this
appeal, defendant contends that the district court erred in finding that
a report of special agent Carmen J. Marici, a government witness,
written on May 23, 1960, was not a "statement" under 18 U. S.
C. A. §3500. He further contends that he was prejudiced by the
nonproduction thereof "for purposes of cross-examination".
On the other
hand, the government argues that the document dated May 23, 1960 was a
recommendation for prosecution and that, while it contained references
to two interviews with defendant, the memoranda of those interviews,
which occurred on March 23 and 30, 1960, had been made available to the
defense, even though Marici had testified as to only the March 23
interview and not about the March 30 interview.
considered both the direct- and cross-examination of Marici. We have had
the opportunity of inspecting the memoranda relating to the March 23 and
March 30 interviews, as well as the May 23, 1960 document. We are
therefore able to and do confirm the correctness of the findings on
remand, especially in regard to the report of May 23, 1960. According to
these findings, there are brief references to the interviews of March 23
and March 30 in the May 23 report, which was apparently prepared in part
by reference to and direct quotation from the earlier memoranda, which
actually contained additional information not included in the May 23
We agree with
the finding of the district court that the May 23, 1960 document is not
a statement as defined by §3500.
hold that there was no error committed in the failure of the trial court
to turn over that report to the defense.
proceeding to dispose of this appeal, we now consider the contention
personally briefed by defendant. 1 That is:
"the Income Tax Laws, including Section 7201[ 2] * * *
considered as a whole is [sic] unconstitutional on its face in the light
of the fact that ordinary individuals cannot meet the requirement of
making an honest return; in view of the fact that it is so
discriminatory as to denounce it * * * that moneys derived by it are
used for unconstitutional purposes; and * * * that it is being used to
violate the establishment of a religion clause of the First
In the course
of his argument he makes the point that one thing about the income tax
law is certain and that is that it is incomprehensible. In arguing on
the question of unconstitutionality, defendant personally appeared
before the bar of this court. His zealous and militant attack upon the
constitutionality of the income tax laws left no doubt in anyone's mind
that he considers that he has a right to refuse to obey the law in this
respect. Weighing the legal basis for his charges of invalidity under
the first and fifth amendments, we are unable to agree with him. He
states, "No one reading this Brief can doubt the integrity with
which it is written." However we doubt whether he is realistic in
taking the position that he has a right to refuse to contribute to the
support of the federal government until such time as a taxing system,
palatable and constitutional according to his lights, has been created.
meeting his contention that the income tax law is unconstitutional, we
quote the language of the court of appeals for the sixth circuit in a
1958 decision, where a similar attack was made upon the internal revenue
Code of 1939. In Acker v. Commissioner of Internal Revenue [58-2
USTC ¶9804], 258 F. 2d 568, at 575 that court said:
Code is unquestionably a taxing statute in substance as well as in name.
The constitutionality of progressive tax rates is long settled. [Knowlton
v. Moore, 1900, 178
41, 20 S. Ct. 747, 44 L. Ed. 969; Brushaber v. Union Pacific R.,
supra, [1 USTC ¶4] 240
1, 36 S. Ct. 236, 60 L. Ed. 493.] The classifications drawn in question
here do not appear to be either arbitrary or unreasonable in any
constitutional sense. To the contrary, in large part they represent 'the
record of the government' s endeavor to keep pace with the fertility of
invention whereby taxpayers had contrived to keep the larger benefits of
ownership and be relieved of the attendant burdens.' [Burnet v.
Wells, 1933, [3 USTC ¶1108] 289
670, 676, 53 S. Ct. 761, 763, 77 L. Ed. 1439.]
we say that the rates of tax, admittedly high, have reached confiscation
or a 'taking' in the constitutional sense. All in all, much as we may as
men sympathize with petitioner's arguments about our tax plight, as
judges we must say that he has addressed them to the wrong forum; they
are for the Congress, and not for the courts."
It has been
held that, even if a taxpayer believes that by filing his income tax
return he may incriminate himself in violation of the provisions of the
fifth amendment to the constitution of the
, he still must file a return. United States v. Sullivan [1 USTC
We find that
defendant has not sustained his charges of unconstitutionality.
It may well be
that he is entirely within his right of expression in his concluding
statement in his brief, which is "The current Income Tax Laws ought
to be denounced". His brief in this court is a mighty long step in
that direction. But no court is a forum for defendant's denunciation of
the tax laws. If he seeks such a forum, it must be elsewhere, either in
the halls of congress, on public platforms, or in the general media of
In the brief
filed by defendant's counsel in this court prior to the order for
remandment, several points are raised. We shall now discuss them seriatim.
[Improper Signing of Indictment]
3. It is argued
by defendant that the indictment upon which he was convicted is
insufficient, because, in violation of rule 7(c) of the Rules of
Criminal Procedure, it was not signed by the attorney for the
government, and a motion to dismiss it on that account was timely filed.
However the record contains an affidavit of assistant
attorney John J. Quan, who was acting for and by designation of the
attorney, which averred that he was delegated to sign the latter's name
to indictments filed on behalf of the
cites, as the source of authority to sign indictments, 28 U. S. C. A.
507(a) and particularly 507(b) which provides that the attorney general
shall direct all assistant United States attorneys in the discharge of
their respective duties.
v. United States, 4 Cir., 159 F. 2d 599, 600 (1946), the court said:
also urged that the indictment is defective because it was not signed by
United States Attorney for the Northern District of West Virginia. It
was in fact signed by one of the assistant
attorneys for the District who signed the name of the United States
Attorney without indicating that it was not signed by that official
himself. Rule 7(c) of the Federal Rules of Criminal Procedure provides
that an indictment shall be signed by the attorney for the Government.
It has been held that the signature of the prosecuting attorney is no
part of the indictment and is necessary only as evidence of the
authenticity of the document; and it has also been held that the
improper signing of an indictment is not such a defect as would
invalidate the instrument; In re Lane, 135 U. S. 443, 449, 10 S.
Ct. 760, 34 L. Ed. 219; Miller v. United States, 6 Cir., 300 F.
529, 536, certiorari denied, 266 U. S. 624, 45 S. Ct. 123, 69 L.
Ed. 474; King v. United States, 5 Cir., 279 F. 103, 104; United
States v. McAvoy, C. C. N. Y., 26 Fed. Cas. (No. 15,654) 1044, 1045.
These rulings are in harmony with the statutory provision contained in
18 U. S. C. A. §556 which provides that no indictment in a federal case
shall be deemed insufficient, nor shall the judgment be affected by
reason of any defect or imperfection in matter of form only which shall
not tend to the prejudice of the defendant. * * *"
We agree with the reasoning in Wheatley
and therefore hold that the indictment is sufficient as against the
attack of defendant on the aforesaid ground.
think that, even if there were error here, it was harmless, within the
meaning of 18 U. S. C. A. rule 52(a) which reads:
defect, irregularity or variance which does not affect substantial
rights shall be disregarded.
further argues, presumably with seriousness, that the charges contained
in five separate counts, covering five successive years for each of
which defendant allegedly failed to file a return, means that the
indictment fails because all should have been charged in one count.
This argument is based upon an unreasonable construction of 26
C. A. §7203, which reads:
Any person * *
* required * * * to make a return * * * who willfully fails to * * *
make such return, * * * at the time or times required by law * * *
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 * * *.
C. A. §6012(a) requires every individual having for the taxable year a
gross income of $600 or more to make a return. 26 U. S. C. A. §6072(a)
provides that such return, when made on the basis of the calendar year,
shall be filed on or before the subsequent 15th day of April.
It is apparent
that the indictment conforms with the applicable statutes. If
defendant's contention were to prevail it would mean that he could
require multiple misdemeanors to be treated as one for the purpose of
sentencing. This contention is not well-taken.
[Proof of Criminal Intent]
defendant relies on United States v. Cirillo, 3 Cir., [58-1 USTC
¶9164] 251 F. 2d 638, 639 (1957), cert. den. 356
949, which actually seems to afford strong support for the judgment of
the district court in the case at bar. Cirillo was a lawyer who was
convicted of failing to file income tax returns. On appeal he raised the
question of proof of criminal intent and the court held that, where the
evidence showed that he had in two successive years received a
substantial amount of taxable income from which no tax had been withheld
and of which the government was likely to be uninformed unless he filed
a tax return, the jury was entitled to reason--
"* * *
that a member of the bar, in the nature of his profession, has some
general understanding that the United States requires persons who earn
substantial income to file periodic income tax returns. * * *"
Cirillo, evidently in support of his contention that "Only
an intent motivated to the specific and that the government would not
know the extent of the defendant's tax liability will support the
charge." However, we prefer to be guided by the fact that the
indictment in the case at bar charges a crime within the meaning of the
statute and is therefore sufficient, as held in United States v.
Ansani, 240 F. 2d 216 (1957), cert. den. 353
936, sub. nom. Milner v. U. S., where we said, at 223:
"* * * The
charge of the indictment in the instant case followed substantially the
ording of the statute, which embodies all the elements of the crime and
such charge clearly informed the defendants of that with which they were
accused, so as to enable them to prepare their defense and to plead the
judgment in bar of any subsequent prosecution for the same cause. Under
these circumstances defendants' contention must fail. * * *"
The indictment is not vulnerable
for the wording of the statute, which embodies
insists that the government failed to prove that he received sufficient
income in the taxable years to require his filing returns. Many
witnesses testified as to payments of money to him. Some was
compensation in the form of fees and some was for reimbursement for
various expenses incurred. We have examined in detail the evidence
bearing upon this phase of the case. It shows that in each taxable year
defendant was the recipient of income in sufficient amount to require
his filing a return.
7. As numerous
government witnesses, who testified on the subject of payment of money
to defendant in the taxable years, were cross-examined by his counsel,
they were systematically asked whether or not they had appeared before
the grand jury and they answered in the negative. However, on direct
examination, government witness special agent Marici testified that he
did appear before the grand jury and testify as to the facts revealed in
It is now urged
that the district court erred in sustaining an objection of the
government to this question asked Marici: "Did you testify that the
income of Mr. Keig was as stated in the indictment in this cause?"
The defense poined out that it could not show a disparity of testimony
until it was determined what the witness had testified before the grand
It is argued
that this constituted a limitation on exploration which foreclosed the
possibility of conclusively showing that no evidence had been offered to
rationally establish the facts [before the grand jury] in accordance
with Costello v. United States [56-1 USTC ¶9321], 350 U. S. 359.
Reliance is also placed upon the same case in the second circuit, [55-1
USTC ¶9342] 221 F. 2d 668, 677 (1955).
It is contended
by the government, however, that the decision in Costello when it
reached the United States Supreme Court, [56-1 USTC ¶9321] 350 U. S.
359, 363, supports the action of the district court in this matter.
points out that Marici testified in the district court that he began an
investigation of the taxpayer in March of 1958 and in June of 1958
caused a search to be made of the Internal Revenue records for the
returns of the defendant. He also testified that the defendant admitted
to him that he didn't file income tax returns and that he (Marici)
testified before the March 1961 grand jury as to the facts revealed in
the Supreme Court stated, at 363:
"* * * If
indictments were to be held open to challenge on the ground that there
was inadequate or incompetent evidence before the grand jury, the
resulting delay would be great indeed. The result of such a rule would
be that before trial on the merits a defendant could always insist on a
kind of preliminary trial to determine the competency and adequacy of
the evidence before the grand jury. This is not required by the Fifth
Amendment. An indictment returned by a legally constituted and unbiased
grand jury, like an information drawn by the prosecutor, if valid on its
face, is enough to call for trial of the charge on the merits. * *
We hold that
the district court did not err in sustaining an objection to the
questioning of Marici as aforesaid.
[Objection to Cross-Examination]
states that on the same cross-examination, inquiry was made of Marici as
to whether he had signed an affidavit attached to an information
relating to the facts involved in this cause and that the court
sustained an objection to the question on the ground that it was
irrelevant. We have referred to the page of the transcript of record as
cited by defendant's brief and fail to find that such a question was
asked of Marici. The only question on that page of the transcript
relating to an information and its disposition follows:
Q. Mr. Marici,
there was an information filed prior to this indictment relative to this
case, was there not?
The Court: I
don't see the relevance of that, Miss Lavin. Sustained.
At no place in
his direct testimony did the witness Marici testify to the amounts of
gross income received by defendant in the indictment years. We cannot
say as a matter of law that the district court abused its discretion in
ruling upon these objections. Our position has been well-stated by the
late Judge Lindley of this court. United States v. Lawinski, 195
F. 2d 1, where he said, at 7:
"* * * It
is for the presiding judge to exercise a wise discretion in determining
whether, considering the examination in chief, it is fit and proper that
the questions presented be permitted or excluded. Storm v.
76, 24 L. Ed. 42. All the decisions
agree that the latitude allowed should be great enough to subserve ends
of justice; but once fixed by the trial court it can not be deemed
erroneous except where it is clear that that discretion has been abused,
even though the discretion is necessarily vague in extent. It is a
'sound, though undefined, judicial discretion, depending upon the
circumstances of the particular case'. * * *
* * *
consideration of this record, remembering that the trial court was bound
to exercise a sound discretion, examining the questions to which
objections were sustained, the testimony of the respective witnesses on
direct examination, the latitude extended by the court, we are unable to
say as a matter of law that the court abused its discretion in its
limitation on the cross-examination of any of the witnesses. * * *"
brief contends that the district court improperly interfered with and
deprecated the defense, invading the province of the jury and preventing
the making of a full and complete defense. We will not burden this
opinion with a recital of a proceeding which was certainly not like a
quiet brook on a sleepy summer afternoon, but which was obviously a
tempestuous affair due to the forceful and unorthodox participation by
defendant in the presentation of his defense. It does not affirmatively
appear from the record how near to physical exhaustion the court itself
came at times during the proceeding, although it does appear from the
record that defendant himself stated at different times that he was
getting tired, or that he was tired, although he only once admitted that
he was a little bit dull.
confident that the district court performed as well as it could have
been expected to do under all of the unusual circumstances of this
trial. Certainly nothing that it said or did in this respect is ground
for reversal here.
10. Lastly, we
find no error in the court's instructions on the words
"knowingly" and "willfully," as used in the
indictment. See Yarborough v. United States, 4 Cir., [56-1 USTC
¶9295] 230 F. 2d 56 (1956), and Cirillo v.
, supra; also United States v. Litman, 3 Cir., [57-2 USTC ¶9820]
246 F. 2d 206 (1957).
For all of
these reasons the judgment, conviction and sentence entered by the
district court are affirmed.
His brief admits that he did not file any income tax returns for the
relevant taxable years; in fact, that except for the year 1938, he never
filed such a return. This course of conduct was based upon his belief
that the internal revenue laws and regulations cannot intelligently be
complied with and because of the other reasons assigned by him in
support of his argument of unconstitutionality of the law. All of these
views he expressed to treasury officials before testifying in this case.
C. A. §7201 provides:
Any person who
willfully attempts in any manner to evade or defeat any tax imposed by
this title or the payment thereof shall, in addition to other penalties
provided by law, be guilty of a felony * * *.
¶9306]James G. Ryan, Appellant v.
United States of America
(CA-10), U. S. Court of Appeals,
10th Circuit, Number 7073, 314 F2d 306, 2/25/63, Affirming an unreported
District Court decision
[1954 Code Sec. 7203]
Failure to file employer's returns: Wilfulness: Sufficiency of
evidence: Jury instructions.--The evidence was sufficient to support
a jury finding that the manager of a corporation wilfully failed to file
required quarterly tax returns of the corporation, withholding tax
returns, and FICA returns. There was no error in instructions to the
Morley, 1st National Bank Bldg.,
, for appellant. Merle R. Knous, Assistant United States Attorney,
Denver, Colo. (Lawrence M. Henry, United States Attorney, Denver, Colo.,
with him on brief), for appellee.
BREITENSTEIN, HILL and SETH, Circuit Judges.
[Wilful Failure to File
James G. Ryan, was tried and convicted before a jury, in the United
States District Court for the District of Colorado, upon an information
containing six counts, all brought under 26 U. S. C. §7203. Each count
charged a wilful failure to file the required employer's quarterly tax
return. Counts I, III and V concerned employees' income taxes withheld,
and, Counts II, IV and VI concerned Federal Insurance Contributions Act 1 taxes.
Motions for new trial and for judgment of acquittal pursuant to Rule 29,
F. R. Crim. P., 18 U. S. C. A., were filed and denied, and this appeal
appellant urges error because of insufficiency of the evidence and also
attacks the instructions of the trial court.
1955, Ryan, Earl B. Martin and Marjorie C. Smith entered into a business
venture, for the purpose of purchasing, clearing and subdividing a tract
of land near
, and thereafter selling the subdivided lots. At the inception, they
operated as a partnership but on December 19, 1955, filed their articles
of incorporation as Timberline Corporation. Ryan became president and
secretary of the corporation with a monthly salary of $150.00, for the
supervisory work he performed for the corporation from an office in the
. This office was also used by Ryan to carry on other business ventures.
Another other office was maintained on the project from which Martin, as
vice president and treasurer of the company, supervised the actual
development of the project, with a salary of $400.00 per month. Work on
the project continued under this arrangement until July, 1956, when
Martin left the employ of the corporation after a disagreement with
Ryan. Soon thereafter, Martin tied up the corporate bank account by
inception of the venture, by corporate action, the signatures of both
Ryan and Martin were required for all banking transactions. In January,
1956, one of the bookkeepers was also authorized to transact banking
business for the corporation. On December 10, 1955, Janice LaBounty went
to work in the
office as a bookkeeper, at a gross salary of $325.00 a month. Income and
social security taxes were withheld from her salary for the last quarter
of 1955, as well as during her employment with the corporation for the
first and second quarters of 1956, these three quarters being the ones
covered by the information.
[Accounting System Established]
1955, an accounting firm was employed to set up books and records for
Timberline Corporation. Ryan told the accountant that Timberline was a
corporation and corporate books and records were set up, including
employment records, and records reflecting salaries of employees,
withholding taxes and social security taxes.
On December 23,
1955, Ryan at the suggestion of the accountant, signed the regular
Internal Revenue Form of Employers Application For Identification Number
under the Federal Insurance Contributions Act. He therein showed the
employer to be "Timberline Corporation"; gave its
office address as the principal place of business; under type of
organization checked "corporation"; gave December 3, 1955, as
the first date employer paid taxable wages to one or more employees; and
stated the number of employees was 10. This application was filed with
the Internal Revenue Service on January 9, 1956.
had received instructions from the accountant about the bookkeeping, on
January 19, 1956, prepared the Employer's Quarterly Federal Tax Return
(Form 941) covering the last quarter of 1955, for the corporation,
together with a corporation check in the amount of $706.58, in payment
of both withholding and social security taxes due. The signatures of
both Ryan and Martin were required on the check. Martin signed the same
but Ryan refused to sign it that day and on several subsequent
occasions. On April 10, 1956, LaBounty prepared for Ryan's signature
Form 941 covering the first quarter of 1956, and thereafter a check, in
payment of the taxes shown to be due from the corporation for that
quarter. Ryan refused to sign this return and check. In June, 1956,
LaBounty quit her job and Freida Teeter took her place. Conversations
between Ryan and the several bookkeepers were had about the filing of
these tax returns but the substance of those conversations is in
dispute. Jean Raycraft succeeded Teeter as bookkeeper in August, 1956,
and she prepared a Form 941 return for the corporation covering the
taxes due for the second quarter of 1956. She talked with Ryan about
this return but he did nothing about it. Helen Duvall became an office
employee in the summer of 1956 and testified that she was present on one
occasion when Raycraft advised Ryan that Form 941 needed to be filled
out and filed.
[Representations to IRS]
Early in 1957,
Ryan was interviewed by an agent for the Internal Revenue Service and he
advised the agent that corporate tax returns had not been filed because
the corporation had no employees, thus, nothing had been withheld. Ryan
further stated that nothing had been withheld for even the office held
because the bookkeeping was subcontracted to a
accounting firm. The agent was also advised by Ryan that the corporate
books were not available because they were in the hands of an attorney.
About the time
of this interview, the corporation received some Forms 941 through the
mail, and they were discussed between Ryan and Duvall. Ryan told Duvall
to go ahead and fill them out, but Duvall said she did not know how to
do it. A short time later Ryan gave Duvall the filled-out forms and told
her to sign and file them, which she did on March 29, 1957. These
returns covered the first and second quarters of 1956. No return has
ever been filed for the last quarter of 1955. During 1959 all of the
taxes under the two returns filed were paid, either by levy upon
corporation funds or by Ryan from his personal funds.
[Sufficiency of Evidence]
first point relates to the sufficiency of the evidence. In our
consideration of this issue, we must view the evidence and the inference
to be drawn therefrom in the light most favorable to the prosecution. Swallow
, 10 Cir., [62-2 USTC ¶9693] 307 F. 2d 81, cert. denied, 371
950. When so considered, we find little merit to any of appellant's
there is no proof that the corporation had a duty or was required to
make and file the tax returns. No witness was asked to state whether the
corporation was required to file the returns, but that is not the proper
method of proving a violation of the tax law. The basic facts bringing
the corporation within the purview of the requirements of the law must
be proved and the record discloses all of those basic facts. The
evidence clearly shows, by the oral testimony of employees themselves,
that the corporation was an employer during each quarter in question,
that the employees were paid wages, that both income and social security
taxes were withheld by the employer and that the quarterly tax returns,
as required by law, were not filed when due.
before us does not disclose any real issue as to the existence of the
corporation, although Ryan says that the evidence was not sufficient to
prove a corporation existed. It is true the government did not introduce
a copy of the articles of incorporation, but, by other competent
evidence the existence of the corporation was proven. This evidence
consisted of admissions on the part of Ryan, the testimony of Martin,
one of the incorporators, and statements contained in the various
exhibits offered and received. As the government points out, the
question of the existence of Timberline, as a corporation, was only a
collateral issue in the case.
[Manager Had Duty to File
argues that there is no evidence he owed any tax for the periods in
question. We agree with that contention, but that is not the gist of the
offenses charged. It was not claimed that he owed a tax. The contention
of the government was that the corporation owed the tax and Ryan, as the
managing officer of the corporation, had the obligation to make the
returns, which he did not do.
contends the evidence is insufficient to prove that he had a duty to
file the corporate tax returns. It is true Ryan testified Martin was
hired to run the affairs of the corporation and that he, Ryan, did not
take over the supervision until Martin left his position with
Timberline. However, there was an abundance of evidence from which they
jury could, as it did, find that Ryan was the one running the venture
and, as such, he had the duty to make or cause to be made the corporate
returns. All of the employees in the Denver Office, where the books and
records were kept, testified that Ryan employed and supervised them in
his capacity as president of the concern. There is evidence showing that
Ryan hired an accounting firm to set up the corporate books and records
and advised the accountant what books and records he wanted. Thereafter,
at the instance of the accountant, Ryan signed and caused to be filed an
Employers Application For Identification Number under the Federal
Insurance Contributions Act. On the application he gave his
office address as the principal place of business of the corporation. We
think this evidence is clearly sufficient to establish such a duty on
raises several questions concerning the giving or failure to give
instructions. It is settled law, under Rule 30, F. R. Crim. P., 18 U. S.
C. A., that questions pertaining to instructions may be raised on appeal
only if objections were timely and properly made to the instructions. Burns
v. United States, 10 Cir., 286 F. 2d 152; Sells v. United States,
10 Cir., 262 F. 2d 815, cert. denied, 360
913; Corbin v. United States, 10 Cir., 253 F. 2d 646. The only
exception to this rule is the authority of an appellate court under Rule
52, F. R. Crim. P., 18 U. S. C. A., to notice "plain errors
affecting substantial rights." Wright v. United States, 10
Cir., 301 F. 2d 412; McMurray v. United States, 10 Cir., 298 F.
2d 619, cert. denied, 369
860; Fischer v. United States, 10 Cir., [54-1 USTC ¶9370] 212 F.
2d 441. The record discloses only one statement by defense counsel after
the instructions were given, which could be considered as an objection. 2 That
objection, if it be so considered, is not in compliance with Rule 30, in
that it does not, as required by the rule, state "distinctly the
matter to which he objects and the grounds of his objection." Burns
, 10 Cir., 286 F. 2d 152, 157. Counsel for appellant, who was not
defense counsel at trial, argues here that such objection relates to the
court's failure to instruct on the definition of a "person" as
used in §7203. Government counsel has a different view, contending the
objection was intended to cover the court's failure to give defendant's
requested instruction Number 2, which distinguished between employees
and independent contractors, and contained the word "control"
in several places. This argument is supported by the fact that the word
"control" was used in the questioned objection. The
disagreement on the point demonstrates that the objection did not
distinctly state the matter to which objection was being made.
[Element of Wilfulness]
issue with the trial court's instruction to the jury on the necessary
element of wilfulness. 3 He further
contends that the instruction approved by this Court in Haskell v.
United States, 10 Cir., [57-1 USTC ¶9553] 241 F. 2d 790, cert.
denied, 354 U. S. 921, does not meet the test laid down in United
States v. Murdock [3 USTC ¶1194], 290 U. S. 389. We do not agree.
The instruction under objection in Haskell was approved because
the Court considered that instruction, not standing alone, but in
connection with all of the instructions given in the case. By applying
that test to the instructions the Court was able to conclude that all of
the necessary elements of the crime charged had been presented to the
jury. Likewise, viewing all the instructions given in this case we feel
that the jury was adequately instructed on the elements of the offenses
also urges that the trial court erred in refusing to give his requested
instructions differentiating between an employee and an independent
contractor. The evidence in the case, as set out above, is
uncontradicted. It conclusively shows that Timberline Corporation did
have employees and Ryan's contention to the contrary was without
evidentiary support. Under these circumstances the court was not
compelled to give such an instruction. The instructions should be
confined to the issues in the case and the pertinent facts developed by
the evidence. Even though a requested instruction may be a correct
statement of abstract law, it should be refused if it is directed to a
matter outside the issues presented and the evidence adduced. Velasquez
, 10 Cir., 244 F. 2d 416.
[Evidence Supports Verdict]
consideration of this appeal, we have carefully reviewed the entire
record and conclude that Ryan had a fair trial, that there is an
abundance of evidence to support the jury verdict and there are no
"plain errors affecting substantial rights" in the record that
we should take note of under Rule 52.
26 U. S. C. §§ 3101, et seq.
"It is the Court's belief that all of the exhibits will be in the
jury room. Are there any objections?
Knous: I have no objections.
Berger: No objections. Your Honor, in chambers we asked the Court to
make an instruction on control, I believe.
Doyle: I didn't tender one. Do you want the record to show that the
Court didn't tender an instruction?
Berger: Yes, sir. If the action was not within the control of the
Defendant then the jury should have been instructed not to find him
guilty as a responsible party.
Doyle: I will note that you made the request and that you had mentioned
it in chambers."
"In order to find the Defendant guilty, the jury must establish
beyond a reasonable doubt that he failed to file a return as described
in the information, and two, and it was of a wilful and knowing nature.
If the jury establishes this beyond a reasonable doubt, then they shall
find the Defendant guilty. However, if the jury entertains a reasonable
doubt that the Defendant was not required to file a social security or
tax return because of a good faith belief that these people were not in
his employ but were independent contractors, then the jury must find the
Defendant not guilty.
jury establishes beyond a reasonable doubt the elements of knowledge and
intent on the part of the Defendant, then they shall find the Defendant
guilty, but if they establish that the Defendant entertained a
reasonable belief that he was not required to file a return, then the
element of intent is not established and the jury will have to say not
"An act is
done knowingly if it is done voluntarily and purposely, not because of
mistake or inadvertence. An act is done wilfully if done voluntarily and
purposely and with the specific intent to do that which the law forbids.
That is to say, an act done with bad purpose either to disobey or
disregard the law. The requirement that the failure to make and file a
return be done wilfully exists so that the accused will not be convicted
of failing to make or file such return because of mistake or
inadvertence. If the jury entertains a reasonable doubt as to whether
the man made a mistake, and the act was not intentionally and knowingly
done, then the jury shall find him not guilty."
¶9502]Charles Samuel Martin, Appellant v.
United States of America
(CA-9), U. S. Court of Appeals,
9th Circuit, No. 18,434, 317 F2d 753, 5/24/63, Affirming unreported
District Court decision
[1954 Code Sec. 7203]
Failure to file returns: Willfulness: Evidence.--Taxpayer's
failure to file tax returns was found to be willful where the evidence
was sufficient to show that he did not have reasonable cause for his
belief that persons with his income were not obliged to file. Each year
the taxpayer received a W-2 form from the Army Reserve showing the
amount withheld for federal income tax purposes, and each month his
brokerage firm sent him a statement and cautioned him to retain it for
income tax purposes. His failure to inquire in light of these warnings
amounted to a careless disregard of his tax liabilities.
[1954 Code Sec. 7203]
Failure to file returns: Imprisonment: Severity.--Taxpayer's
sentence of four weeks' confinement for willful failure to file tax
returns is not cruel and unusual punishment since it falls within the
limits allowed by statute. The fact that he might suffer possible loss
of his Army Reserve status is not a matter within the jurisdiction of
the Court of Appeals. It may, however, be brought to the attention of
the District Court by filing a timely motion for reduction of sentence.
Martin, Honolulu, Hawaii, per se. Herman T. F. Lum, United States
Attorney, T. S. Goo, Assistant United States Attorney, Honolulu, Hawaii,
for the appellee.
HAMLIN and DUNIWAY, Circuit Judges.
[Issues on Appeal]
in four counts was filed in the United States District Court for the
District of Hawaii charging appellant, Charles Samuel Martin, with
violating section 7203 of the Internal Revenue Code of 1954 (26 U. S. C.
§7203) by willfully and knowingly failing to file income tax returns
for the years 1955 through 1958. 1 Appellant
waived his right to a jury and tried the case in propria persona
before the court. The court found appellant guilty on all four counts,
fined him $1000 and sentenced him to one week in jail on each count, the
jail sentences to run consecutively. Appellant filed a timely notice of
appeal and we have jurisdiction under the provisions of 28
raises several points for the first time on appeal concerning, inter
alia, the conduct of the trial, which we do not feel merit
discussion. 2 Suffice it
to say that a careful review of the record reveals that appellant did an
excellent job of representing himself and that the court was solicitous
throughout the course of the trial to protect his rights. The issues
that we shall consider are (1) whether the evidence supports the
verdict, and (2) whether the sentence was cruel and unusual.
[Failure Was Willful]
It is clear
that appellant had reportable income in the years in question and failed
to file returns in those years. Appellant contends, however, that there
was insufficient evidence to show that his failure to file was
"willful." In this regard, "willful" for the purpose
of section 7203 3 means
"with a bad purpose or without grounds for believing that one's act
is lawful or without reasonable cause or capriciously or with a careless
disregard whether one has the right so to act." 4 We feel that
there was ample evidence to support the district court's finding that
appellant's failure to file was "willful," within the meaning
of that term as so defined.
born on December 10, 1911. He graduated from
in 1940, majoring in psychology, and has done substantial post-graduate
work at the
since that time. Prior to 1960 he had never filed a federal income tax
return. There can be no doubt that he was aware of the existence of such
a tax, but he claims that it was his belief that a person with such a
low income was not required to file income tax returns. In each of the
years here in question, however, he received Internal Revenue Service
W-2 forms from the Army showing how much he had been paid by the Army as
a result of his service as a reserve officer and how much had been
withheld for federal income tax purposes. 5 It was
stated on each form (with the exception of the 1955 form) that the form
was not an income tax return, but was to be filed with a Form 1040 or
1040A. Each W-2 form received from the Army reported less than $1000 in
income. Appellant also received a monthly statement from a brokerage
firm which contained an instruction to retain the statement for income
tax reporting purposes. Assuming for the moment that appellant was in
fact unaware of the exact amount of income one must have before
reporting is required, we can only wonder why in the light of these
warning signs he made no effort to find out. We conclude that the
evidence was sufficient to establish that he did not have reasonable
cause for believing he was not subject to the reporting requirements and
acted with a careless disregard of whether he was subject to those
[No Cruel and Unusual
contends that his sentence of four weeks confinement is cruel and
unusual punishment, because it will result in possible loss of his Army
reserve status. The sentence, however, was within the terms of the
statute. That as an incident of his sentence the Army may take
administrative action to divest him of his commission has no effect on
the validity of the statute or the sentence rendered thereunder. Since
it is well settled that a sentence that falls within the terms of a
valid statute cannot amount to a cruel and unusual punishment, 6 appellant's
contention is without merit. Further, it is clear that this court has no
control over a sentence which is within the limits allowed by statute. 7 While we are
not unsympathetic with appellant's plea that he faces possible loss of
Army reserve retirement pay benefits built up over many years, this is
not a matter within our province. Appellant still may bring this to the
attention of the district court by filing a motion therein for reduction
of sentence within the time prescribed by Rule 35, Federal Rules of
Criminal Procedure. 8
of the entire record discloses that appellant was fairly tried and that
he was accorded all rights to which he was entitled.
His gross income for those years was as follows:
1955 .... $2,330.91
1956 .... 1,989.21
1957 .... 1,900.42
1958 .... 1,525.05
Typical of the lack of merit in these points is the contention that
appellant should have been allowed to read to the court Exhibits A1
through A35, which were letters and files offered in evidence by
appellant. The district court admitted these exhibits in evidence, but
stated to appellant that it was not necessary for appellant to read them
to the court. The court said, "I will read them." We see no
error in this procedure.
Section 7203 of the Internal Revenue Code of 1954 provides:
required . . . to make a return (other than a return required under
authority of section 6015 or section 6016) . . . who willfully fails to
. . . make such return . . . shall, in addition to other penalties
provided by law, be guilty of a misdemeanor and, upon conviction
thereof, shall be fined not more than $10,000, or imprisoned not more
than 1 year, or both, together with the costs of prosecution.
See Abdul v.
[58-1 USTC ¶9453], 254 F. 2d 292 (9th Cir. 1958), in which this
court approved instructions that had so defined "willful" for
the purpose of section 7203. See also United States v. Murdock [3
USTC ¶1194], 290
See United States v. Cirillo [58-1 USTC ¶9164], 251 F. 2d 638,
639 (3rd Cir. 1958), in which the Court of Appeals for the Third Circuit
stated that "the jury was entitled to view the W-2 forms as
reminders of the duty to file received shortly before or during the
period within which filing was required." See also United States
v. Litman [57-2 USTC ¶9820], 246 F. 2d 206, 208 (3rd Cir. 1957), in
which the same court stated that persistent failure to file "itself
See Pependrea v.
, 275 F. 2d 325 (9th Cir. 1960).
Appellant filed the following three motions with this court: (1) a
motion to dismiss the charges against him on the basis that they are
unsupported and unsubstantiated; (2) a motion to modify the sentence on
the basis that it was cruel and unusual; and (3) a motion to dismiss on
grounds of unconstitutionality. While it was inappropriate to file these
motions with this court, we nevertheless have examined the contentions
contained therein. We have concluded in this opinion that there was
sufficient evidence to support his conviction of the crime charged and
that the sentence he received was not cruel and unusual. His further
contentions in the third motion that he was deprived of due process of
law by virtue of the requirement of excessive bail and that he was
deprived of a speedy and public trial are without merit.
¶10,014]Carl C. Lee, Appellant v.
United States of America
(CA-9), U. S. Court of Appeals,
9th Circuit, No. 15,039, 238 F2d 341, 10/24/56, Aff'g, unreported DC
[1939 Code Sec. 145(b)--corresponding to 1954 Code Sec. 7201]
Income tax evasion: Conduct of trial.--The court finds no merit
in the four alleged errors on appeal from conviction for tax evasion.
These alleged errors were: (1) in overruling the defendant's
(appellant's) objections to testimony of the Government witness as to
defendant's gross receipts and net income and in thereafter denying
motion to strike the testimony; (2) in refusing to give the defendant's
requested instruction to the jury regarding intent to evade or defeat
tax, the instructions given having been adequate; (3) in refusing to
give the jury instructions regarding the lesser offense of willful
failure to pay the correct tax, a misdemeanor; and (4) in allowing
$434.40, claimed as costs by the Government, and representing fees of
the court reporter for a daily transcript purchased by the Government
for its own use and convenience. The last objection was overruled
because it was not reviewable.
Avakian & Johnston, J. Richard Johnston, Fred Pierce, Oakland,
Calif., Pierce & Brown, Sacramento, Calif., for appellant. Lloyd H.
Burke, United States Attorney, John Lockley, Assistant United States
Attorney, San Francisco, Calif., for appellee.
BARNES and HAMLEY, Circuit Judges.
14, 1955, in the United States District Court for the Northern District
of California, appellant, Carl C. Lee, was indicted for violating §145(b)
of the Internal Revenue Code of 1939, 26 U. S. C. A., 1946 Ed., §145(b),
which provided that "any person who willfully attempts in any
manner to evade or defeat any tax imposed by this chapter 1 or the
payment thereof, shall, in addition to other penalties provided by law,
be guilty of a felony and, upon conviction thereof, be fined not more
than $10,000, or imprisoned for not more than five years, or both,
together with the costs of prosecution."
alleged that "on or about the 15th day of March, 1951, in the
Northern District of California, Carl C. Lee [appellant], late of
Sacramento, California, who during the calendar year 1950 was married,
did willfully and knowingly attempt to evade and defeat a large part of
the income tax due and owing by him and his wife to the United States of
America for the calendar year 1950, by filing and causing to be filed
with the Collector of Internal Revenue for the First Internal Revenue
Collection District of California, at San Francisco, a false and
fraudulent joint income tax return on behalf of himself and his said
wife, wherein it was stated that their net income for said calendar year
was the sum of $9,927.09 and that the amount of tax due and owing
thereon was the sum of $1,282.00, whereas, as he then and there well
knew, their joint net income for the said calendar year was the sum of
$69,162.69, upon which said net income there was owing to the United
States of America an income tax of $27,564.42."
arraigned, pleaded not guilty and had a jury trial which consumed eight
days and resulted in a verdict of guilty. Thereupon, on January 11,
1956, the District Court rendered a judgment sentencing appellant to be
imprisoned for five years and to pay a fine of $10,000 and the costs of
prosecution. The judgment was filed and entered on January 12, 1956. 2 Appellant
appealed from the judgment on January 12, 1956.
On January 13,
1956, appellee, the
served on appellant's attorney and filed with the clerk of the District
Court a document entitled "Bill of Costs." That document,
hereafter called the bill, was a bill of costs, within the meaning of 28
U. S. C. A., §§ 1920 and 1924, 3 and was also
an application for the taxation of costs, within the meaning of the
District Court's Rule 23(a). 4 The costs
claimed in the bill aggregated $987.50. The bill contained an itemized
schedule thereof. One item was as follows: "Fees of the court
reporter for all or any part of the transcript necessarily obtained for
use in the case, $434.40."
Attached to and
served with the bill was an affidavit of appellee's attorney stating
that the costs claimed in the bill were correct and were necessarily
incurred, and that the services for which fees were charged were
actually and necessarily performed. Also attached to and served with the
bill was a notice stating that appellee's attorney would "appear
before the clerk to tax said costs" at 10:00 A.M. on January 17,
1956. Appellant did not, at or before that time, object to the bill or
any item thereof. No objection having been made, all costs claimed in
the bill, including the item of $434.40, were allowed and taxed by the
clerk at 10:30 A.M. on January 17, 1956.
On January 19,
1956--two days after the clerk's decision 5--appellant
filed the following objection: "Defendant [appellant] objects to
the following item on the grounds stated below, in the bill of costs
filed herein by plaintiff [appellee] on January 13, 1956: Fees of the
court reporter, $434.40. This represents the cost of a copy of a daily
transcript purchased by plaintiff for its own use and convenience, 6 which is not
taxable against defendant." The objection being untimely, the clerk
was not required to consider it and did not consider it.
No appeal was
taken from the clerk's decision. 7 The time
within which such an appeal could have been taken expired on January 22,
1956. 8 Thus, on
January 22, 1956, the clerk's decision became final.
January 26, 1956, the District Court made and entered the following
order: "Defendant [appellant] has appealed from the ruling of the
clerk of the [District] Court 9 allowing as
an item of cost a transcript obtained by the Government [appellee] for
its use during the trial. 28 U. S. C. A. §1920(2) provides that a court
may tax as costs 'Fees of the court reporter for all or any part of the
stenographic transcript necessarily obtained for use in the case; * * *'
The [District] Court finds that the stenographic transcript was
necessarily obtained by counsel for plaintiff [appellee] for use in the
trial of the case. 10
Accordingly, it is ordered that defendant's objection to the allowance
of cost in the amount of $434.40 for the transcript be, and the same
hereby is, overruled and the item is allowed." The clerk's decision
having become final on January 22, 1956, the order of January 26, 1956,
had no effect. It benefited no one, aggrieved no one.
On February 3,
1956, appellant took two appeals--one from the judgment entered on
January 12, 1956, and one from the order of January 26, 1956. The appeal
taken on February 3, 1956, from the judgment entered on January 12,
1956, is dismissed because it was not taken within the 10-day period
mentioned in Rule 37(a)(2) of the Federal Rules of Criminal Procedure,
C. A. The appeal from the order of January 26, 1956, is dismissed
because appellant was not aggrieved by that order and therefore had no
right to appeal from it. 11
for consideration the appeal taken on January 12, 1956, from the
judgment entered on January 12, 1956--the only valid appeal in this
brief, four alleged errors are specified. 12
Specification 1 is that the District Court erred "in overruling
appellant's objections to testimony of the witness Brady 13 as to
appellant's gross receipts and his net income, and in thereafter denying
appellant's motion to strike such testimony."
does not, as required by our Rule 18, 14 quote the
grounds urged at the trial for the objections and the full substance of
the testimony referred to. We are therefore not required to consider
this specification. 15 However, we
have considered it and find no merit in it.
is that the District Court erred in refusing to give the jury the
following instruction requested by appellant: "There is only one
state of mind that will supply the intent necessary to warrant a
conviction in this case, and that is the intent to defeat or evade the
tax due. Filing a false return with any other bad purpose would not
supply the necessary intent. Nor would filing a false return without a
justifiable excuse, or with a careless disregard for whether or not one
has the right to do so, constitute, in themselves, the intent which is
required by the law. You may find the defendant [appellant] guilty in
this case only if you find that he knowingly filed a false return with
the intention of evading or defeating the tax due."
The jury was
adequately instructed as to the intent necessary to warrant a conviction
in this case. 16 The
requested instruction referred to in specification 2 was therefore
unnecessary and was properly refused. 17
is that the District Court erred in refusing to give the jury the
following instruction requested by appellant: "The defendant
[appellant] is charged with willfully attempting to evade and defeat his
income taxes and those of his wife for the calendar year 1950, an
offense which is a felony. 18 If you are
not convinced that the defendant is guilty of this offense, but you are
convinced beyond a reasonable doubt that he willfully failed to pay his
correct income tax for the year 1950, you may find him guilty of this
lesser offense, which is a misdemeanor." 19
contends that, under Rule 31(c) of the Federal Rules of Criminal
Procedure, 18 U. S. C. A., 20 he was
entitled to the requested instruction referred to in specification 3.
The contention is rejected, for obviously the "lesser offense"
mentioned in the requested instruction was not necessarily included in
the offense with which appellant was charged. 21 The
requested instruction was properly refused.
is that the District Court erred in overruling appellant's objection to
the item of $434.40 claimed as costs by appellee. Thus, in effect,
appellant specifies as error that part of the order of January 26, 1956,
which overruled or purported to overrule the objection filed by
appellant on January 19, 1956.
above, the order of January 26, 1956, had no effect. Therefore appellant
cannot be said to have been prejudiced by it or by any part of it.
Furthermore, as indicated above, the appeal we are now considering--the
only valid appeal in this case--was taken on January 12, 1956. Therefore
the order of January 26, 1956, is not, nor is any part of it, reviewable
on this appeal. 22
Chapter 1, §§ 1-482 of the Internal Revenue Code of 1939, 26
C. A., 1946 Ed., §142, imposing income taxes.
Appended to the judgment is the following notation: "Entered
January 13, 1956." Actually, however, the judgment was entered on
January 12, 1956. This appears from the supplemental record filed here
on September 20, 1956.
Section 1920 provides:
or clerk of any court of the
may tax as costs the following: * * *
of the court reporter for all or any part of the stenographic transcript
necessarily obtained for use in the case; * * *
"A bill of
costs shall be filed in the case and, upon allowance, incuded in the
judgment or decree."
any bill of costs is taxed, the party claiming any item of cost or
disbursement shall attach thereto an affidavit, made by himself or by
his duly authorized attorney or agent having knowledge of the facts,
that such item is correct and has been necessarily incurred in the case
and that the services for which fees have been charged were actually and
Rule 23(a) provides:
Application to the clerk, Within five days after notice of the entry of
a judgment allowing costs, the prevailing party shall serve on the
attorney for the adverse party and file with the clerk an application
for the taxation of costs. The application shall contain an itemized
schedule of the costs and a statement signed by the attorney for the
applicant that the schedule is correct and that the costs were
necessarily incurred. The application shall be heard by the clerk, not
less than one nor more than three days after it is served, and notice of
the time of hearing shall be endorsed upon it. * * *
Objections. Upon the hearing, specific objections, supported by
affidavits or other evidence, may be made to any item of costs. The
clerk shall thereupon tax the costs, and if there is no appeal, shall
insert the amount of costs taxed in the blank left in the judgment, and
also in the docket.
Review. A dissatisfied party may take an immediate oral appeal to the
[District] Court from the decision of the clerk if the opposing party is
present; or may appeal upon written motion served within five days of
the clerk's decision, as provided in Rule 54(d), Federal Rules of Civil
Procedure. Appeals shall be heard upon the same papers and evidence
submitted to the clerk."
Rule 54(d) of
the Federal Rules of Civil Procedure, 28
C. A., provides:
"* * *
Costs may be taxed by the clerk on one day's notice. On motion served
within 5 days thereafter, the action of the clerk may be reviewed by the
In this opinion, as in paragraph (3) of the District Court's Rule 23(a),
supra, the action of the clerk in allowing and taxing costs is called a
The objection was not supported by any affidavit or other evidence. The
affidavit attached to the bill was not controverted by the objection or
The objection filed on January 19, 1956, did not purport to be and
obviously was not an appeal.
See paragraph (3) of the District Court's Rule 23(a), supra.
Actually, there was no such appeal.
This finding has not been challenged.
United States v. Adamant Co., 9 Cir., 197 Fed. (2d) 1; 4 C. J.
S., Appeal and Error, §183; 2 Am. Jur., Appeal and Error, §152. As to
whether the order of January 26, 1956, would have been appealable if
appellant had been aggrieved by it, we express no opinion. See, however,
Walker v. Lee, 9 Cir., 71 Fed. (2d) 622.
Our Rule 18 (formerly Rule 20) provides:
Counsel for the appellant shall file with the clerk of this court 20
copies of a printed brief * * *
brief shall contain * * *
all cases a specification of errors relied upon which shall be numbered
and shall set out separately and particularly each error intended to be
urged. When the error alleged is to the admission or rejection of
evidence the specification shall quote the grounds urged at the trial
for the objection and the full substance of the evidence admitted or
rejected, and refer to the page number in the printed or typewritten
transcript where the same may be found. * * *"
Augustus V. Brady, a witness for appellee.
See footnote 12.
, 9 Cir., 174 Fed. (2d) 439; Mosca v.
, 9 Cir., 174 Fed. (2d) 448; DuVerney v.
, 9 Cir., 181 Fed. (2d) 853; Lii v.
, 9 Cir., 198 Fed. (2d) 109; Cly v.
, 9 Cir., 201 Fed. (2d) 806; Gordon v.
, 9 Cir., 202 Fed. (2d) 596.
The instructions given were, in part, as follows:
establish its case, the Government [appellee] must prove beyond a
reasonable doubt both of the following elements:
substantial income tax was due and owing from the defendant [appellant]
in addition to that declared in his income tax return; and
that the defendant willfully attempted to evade and defeat such tax.
of the offense charged in the indictment is a willful attempt on the
part of the taxpayer to evade or defeat the tax imposed by the income
tax law. The word 'attempt,' as used in this law, involves two things:
intent to evade or defeat the tax, and
some act done in furtherance of such intent. * * *
various schemes, subterfuges and devices that may be resorted to to
evade or defeat the tax. The one alleged in this indictment is that of
filing a false and fraudulent return with the intent to defeat the tax
or liability. * * *
attempt to evade and defeat the tax must be a willful attempt; that is
to say, it must be made with the intent to keep from the Government a
tax imposed by the income tax laws which it was the duty of the
defendant to pay to the Government. The attempt must be willful, that
is, intentionally done with the intent that the Government should be
defrauded of the income tax from the defendant at bar. * * *
the defendant in this case can be found guilty of the alleged charge set
forth in the indictment it must be established by the evidence beyond a
reasonable doubt that the defendant had the specific intent to commit
the acts therein alleged.
your judgment as jurors, the prosecution fails to prove such specific
intent beyond a reasonable doubt, or if after considering all of the
evidence, you or any of you entertain a reasonable doubt as to whether
the defendant had such specific intent, then you must return a verdict
finding the defendant not guilty."
, 9 Cir., 155 Fed. (2d) 929; Nye & Nissen v.
, 9 Cir., 168 Fed. (2d) 846; Todorow v.
, 9 Cir., 173 Fed. (2d) 439; Himmelfarb v. Untied States, 9
Cir., 175 Fed. (2d) 924 [49-1 USTC ¶9313]; D'Aquino v. United
States, 9 Cir., 192 Fed. (2d) 338; McFee v.
, 9 Cir., 206 Fed. (2d) 872 [53-2 USTC ¶9549]; Lemke v. United
States, 9 Cir., 211 Fed. (2d) 73; Silva v.
, 9 Cir., 212 Fed. (2d) 422; Randall v.
, 9 Cir., 215 Fed. (2d) 587.
See §145(b) of the Internal Revenue Code of 1939, 26
C. A., 1946 Ed., §145(b), supra.
See §145(a) of the Internal Revenue Code of 1939, 26 U. S. C. A., 1946
Ed., §145(a), which provided: "Any person required under this
chapter to pay any estimated tax or tax, * * * who willfully fails to
pay such estimated tax or tax, * * * 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, be fined
not more than $10,000, or imprisoned for not more than one year, or
both, together with the costs of prosecution."
Rule 31(c) provides: "The defendant may be found guilty of an
offense necessarily included in the offense charged or of an attempt to
commit either the offense charged or an offense necessarily included
therein if the attempt is an offense.
United States v. Kafes, 9 Cir., 214 Fed. (2d) 887 [54-2 USTC ¶9492];
Dillon v. United States, 8 Cir., 218 Fed. (2d) 97 [55-1 USTC ¶9131].
See also Spies v. United States, 317
492 [43-1 USTC ¶9243]; Berra v. United States, 351
131 [56-1 USTC ¶9480].
United States v. Asher, 9 Cir., 111 Fed. (2d) 59 [40-1 USTC ¶9425].
McGrew, Appellant v.
United States of America
(CA-5), In the United States Court
of Appeals for the Fifth Circuit, No. 15188, 222 F2d 458, May 13, 1955
Appeal from the United States District Court for the Northern District
[1939 Code Sec. 145(b)--substantially unchanged in 1954 Code Sec. 7201]
Criminal prosecution: Net worth method: Preliminary questions.--On
the authority of Holland v. U. S., the Appeals Court rejected
defendant's contention that the Government did not make the preliminary
proof that (1) the taxpayer had no books; or (2) refused to produce
them; or (3) the books did not clearly reflect his income; and (4) the
circumstances were such that the net worth method did reflect his income
with reasonable accuracy and certainty.
Criminal prosecution: Willful intent: Sufficiency of evidence.--There
was ample evidence for a finding by the jury that the discrepancy
between income reported and income received was the result of a willful
intent to evade the taxes.
Criminal prosecution: Function of jury.--The jury had the right
to accept the Government's evidence in part and reject the claims of the
defense in part.
, M. Neil Andrews,
, for appellant. James W. Dorsey, United States Attorney,
, for appellee.
HUTCHESON, Chief Judge, HOLMES, Circuit Judge, and DAWKINS, District
Charged in four
counts with wilfully attempting, in violation of Sec. 145(b), 26 U. S.
C., to defeat and evade a large part of his income taxes for the year
1946, involving more than two-thirds of the claimed deficiencies, and
the years 1947, 1948, and 1949, each involving much smaller amounts,
defendant was acquitted on Count One and convicted on Counts Two, Three
and Four. Sentenced on each of the three counts to pay a fine of $7500
and to serve three years, the sentences to run concurrently, defendant,
appealing therefrom is here attacking the judgment and sentence on three
[Reasons for Appeal]
ground, under which most of his propositions are put forward and argued,
presents the claim: that the government did not make the necessary
preliminary proof that (1) the taxpayer had no books; or (2) refused to
produced them; or (3) the books did not clearly reflect his income; and
(4) the circumstances were such that the net worth method did reflect
his income with reasonable accuracy and certainty; and that, therefore,
an acquittal should have been directed.
have been thought to be the state of the law as to these propositions
before the decision in Holland v. United States, 348 U. S. 121
[54-2 USTC ¶9714], and the companion cases decided on the same day came
down, the decisions in these cases have made it clear that if they ever
were tenable, they are no longer so.
ground of attack is that the requirement of Spies v. United States,
492 [43-1 USTC ¶9243], and cases decided under its authority, such as Jones
v. United States, 164 Fed. (2d) 398 [47-2 USTC ¶9402], and Spriggs
v. United States, 198 Fed. (2d) 782 [52-2 USTC ¶9454], that
willfulness is an essential element of the offense and must be shown,
was not met.
ground is the broad one, that the evidence was insufficient to convict
the defendant of the offenses charged, and his motion for acquittal
should have been granted.
The first of
these two grounds either misapprehends the nature and effect of the Spies
and following decisions as to the proof required to show willfulness, or
of the evidence adduced in this case. For it is clear, we think, that if
the evidence of the government as to the defendant's net worth was
accepted by the jury and the explanation tendered by the defense of the
sources of that net worth was rejected by them, there was ample basis in
the evidence for a finding by the jury, under the charge of the court to
which no exception was taken, that the discrepancy between income
reported and income received was the result of a willful intent to
defeat and evade the taxes.
ground, which in its generality embraces the claimed inadequacy in the
proof of willfulness, put forward as the second ground for reversal, and
the inadequacy in the proof of an excess of income over that reported,
is no better taken. It is true that the jury did reject the large claim
of discrepancy between initial and concluding net worth claimed by the
government for the year 1946, and that to the extent of the rejection
the jury did sustain the defense that at the beginning of that year
defendant did have a much larger net worth than the government was
willing to accord to him as of that time. It is further true that this
finding in defendant's favor should, and no doubt, as shown by the
colloquy in the record at the time when the sentence was first imposed,
will, when the final determination of the proper sentence is made, have
its full weight with the court in determining both the extent and nature
of the offending, and the over-all considerations which should enter
into and influence the sentencing.
When it comes,
however, to the much more modest claims of the later years, the jury, as
it had a right to do under the evidence, accepted, at least in part, the
government's evidence and, at least in part, rejected the claims of the
defense. We are, therefore, unable to agree with defendant's contention
that a verdict should have been directed in his favor and that the
judgment must be reversed.
appearing, the judgment is AFFIRMED.
¶9165]R. Avery Dawley, Appellant v.
United States of America
(CA-4), In the United States Court
of Appeals for the Fourth Circuit, No. 6171, 186 F2d 978, February 1,
Appeal from the United States District Court for the Eastern District of
Virginia, at Richmond.
Reconstruction of income: Private records discovered: Net-worth
increase.--The Internal Revenue agent recomputed the income of the
taxpayer, a retail furniture dealer, for 1945 and 1946 by reference to
loose-leaf pages and accounts receivable kept in the taxpayer's
handwriting in his safe and not known to the independent bookkeeper who
kept the other records and prepared the returns. For 1947, the agent
recomputed the income by reference to increase in net worth with an
adjustment for estimated living costs. A conviction for fraudulent
evasion of income taxes was sustained despite the taxpayer's arguments
that the agent should have computed the 1946 income on the installment
basis and that for 1947 the agent had not included accounts payable.
Herberle for Appellant. John P. Harper, Assistant United States Attorney
(George R. Humrickhouse, United States Attorney, on brief), for
and DOBIE, Circuit Judges, and WARLICK, District Judge.
This appeal is
from a conviction under Section 145(b) of the Internal Revenue Code, 26
C. A. §145(b), for the fraudulent evasion of income taxes for the years
1946 and 1947. The indictment contained three counts. The first charged
that for the year 1945 the defendant reported a net income of $3,545.64
and a tax due of $520.17 whereas his actual net income was $33,239.11 on
which a tax of $13,059.00 was due. The second count charged that for the
year 1946 the defendant reported a net income of $2,952.12 and a tax due
of $397.83 whereas his actual net income was $36,774.01 on which a tax
of $15,839.52 was due. The third count charged that for the year 1947
the defendant reported a net income of $4,836.63 and that the tax
thereon was $661.00 whereas his actual net income was $17,953.47 on
which a tax of $5,155.40 was due. Upon the motion of the defendant the
lower court granted a directed verdict of acquittal on the first count,
finding as a matter of law that the evidence was insufficient to sustain
a verdict of guilty. The court denied similar motions on the remaining
two counts and submitted the case to the jury. Verdicts of guilty were
returned on both counts and the court fined the defendant $1,500 on each
count or a total of $3,000. The principal question on appeal is whether
there was sufficient evidence to warrant a jury determination of guilt
under the second and third counts.
Dawley, the taxpayer, was engaged in the retail furniture business at
. He purchased the business on September 15, 1944 for $4,000 in cash and
a $4,000 note, explaining to the vendor that he did not have the money
to pay for it completely. He rented the building which housed his
business until June, 1946 when he purchased it for $12,000. He carried
on a successful business selling approximately half of his goods for
cash and half on the installment plan. Sales of the latter type were
recorded on an accounts receivable ledger which purported to show each
sale, the initial payment, payments on account and the balance due. The
defendant employed an independent bookkeeper, outside his office, named
John Ennis, to keep additional records on information furnished in daily
written reports of the defendant, check stubs and cancelled checks.
Ennis used these records to prepare the defendant's tax returns, monthly
statements and balance sheets. A third set of records in the defendant's
handwriting were kept in the defendant's safe. They consisted of small
loose leaf notebook pages, which covered the years 1945 and 1946, and
contained, inter alia, figures showing daily time sales and cash sales,
as well as the annual totals, inventory figures, balance sheets and the
total net worth of the defendant. Neither the accounts receivable ledger
nor the loose leaf pages were known to Ennis when he prepared the
defendant's tax returns.
and after search, these records and certain cancelled checks and check
stubs were all that the agent could find to compute the defendant's
income. Relying on the loose leaf pages in particular, the agent
recomputed the defendant's income on a cash basis for the years 1945 and
1946, comparing it with that disclosed in the tax returns for those
years. The records for 1947 being unsatisfactory, the agent prepared a
net worth statement showing increases in net worth for the years 1945,
1946 and 1947 in order to arrive at the approximate income for 1947 and
to substantiate the computations of income already made for the years
1945 and 1946. We concern ourselves with the evidence relating to the
years 1946 and 1947.
[Reconstruction of Income for
government's proof for the year 1946 centers primarily on a comparison
of the defendant's figures on his tax return with those disclosed in his
private loose leaf notebook pages. There was little difference between
the figures for costs of goods sold and other expenses in the taxpayer's
return and in the government's computation. When totaled they came to
$64,400.02 in the return and $62,359.50 in the computation. However, the
taxpayer's return showed sales in the amount of only $67,352.14 and a
net profit of $2,952.12 whereas the loose leaf pages showed cash and
time sales of $99,133.51 and a net profit of $36,774.01 according to the
attacks this calculation first on the ground that the agent computed the
tax for 1946 on the cash basis and did not compute it on the installment
basis, as is permissible for a person who regularly sells on the
installment plan under Section 44 of the Internal Revenue Code, 26 U. S.
C. A. §44. The agent did not use the installment basis since he was
under the erroneous impression that such a taxpayer may not use this
basis without the permission of the Commissioner of Internal Revenue,
and also because he was told by the defendant that he did not use the
installment basis but reported his income partly on cash and partly on
accrual basis. It is obvious that the agent's mistake of fact is
immaterial since a person in the installment business may report his
income either on a cash or an accrual basis if he so desires. Hence it
is only necessary to determine whether there was substantial evidence to
support the correctness of the agent's computation, that is to say,
whether there was substantial evidence to take the case to the jury.
Since the agent's figures approximated those used in the defendant's tax
return for 1946 except for two items, one showing the amount of the
inventory at the end of the year and the other the amount of sales
during the year, we confine ourselves to these items. The amount of the
inventory at the end of the year used in the agent's calculation
exceeded that shown on the taxpayer's return by the sum of approximately
$3,000; but the use of the larger figure was justified since it was
taken from a detailed inventory set out in the notebook in the
defendant's safe. The sales figure, amounting to $99,133.51, for the
year was taken from the same source and purported to be the sum total of
cash sales and installment sales during the year. It is objected that
insofar as the total consists of money due the defendant on installment
sales made but unpaid in 1946, it exceeded the cash receipts for the
year and thereby erroneously exaggerated the taxable income. The
taxpayer's notebook, however, showed that the total amounts receivable
at the end of 1946 amounted to $18,551.51 and his accounts receivable
ledger showed the sum of $17,973.35 as accounts receivable at that time.
If the larger of these figures is deducted from the total sales they
will be reduced to the sum of $80,582.00 and the net profit for 1946
will be reduced to $18,222.50 as compared with a profit of $2,952.12
shown by his return. Admittedly these various computations of net profit
for the year 1946 leave room for error; but as we stated in Bell v.
U. S., 4 Cir., 185 Fed. (2d) 302 [50-2 USTC ¶9499], "* * * the
absence of proof of the exact amounts of unreported income is not fatal
if there is substantial evidence tending to prove the defendant's guilt
beyond a reasonable doubt." It is obvious that the evidence is
sufficient to support the charge contained in the indictment and this
conclusion is fortified by the fact that the calculation in the
taxpayer's notebook, which we may assume was made on the accrual basis,
shows a net profit for the year of $37,062.34. Moreover, it is highly
significant that the taxpayer offered no evidence to dispute the
correctness of the agent's computation.
[Net-Worth Increase for 1947]
offered by the government to sustain the third count of the indictment
in respect to the taxable income of the defendant for the year 1947
consists primarily of a comparison of his net worth at the beginning and
at the end of the year, as calculated by the government agent. This
method is of necessity an approximation which has been approved by this
and other courts and was resorted to in this case because of the absence
of accurate records, which it was the duty of the defendant to keep. Bell
v. U. S., supra. After extensive investigation the agent found that
the assets of the defendant, bank deposits, savings bonds, inventory,
accounts receivable, real estate, &c., less his liabilities,
totalled $71,935.86 as of December 31, 1946 and $86,719.85 as of
December 31, 1947. To the increase in net worth of $14,874.92 was added
an estimated cost of living, insurance premiums and federal income taxes
paid in the total amount of $3,078.55. The adjusted income as thus
determined came to $17,953.47 whereas the defendant reported only
computation is criticized chiefly because it includes accounts
receivable and also because it does not include accounts payable. It
seems axiomatic that in the computation of the net worth of the taxpayer
monies owing him as well as monies payable by him must be included.
Accounts payable were omitted by the agent because the defendant stated
to him that he paid his bills promptly and carried no accounts payable
forward. No such accounts were included in the estimate of net worth
prepared by the defendant's bookkeeper Ennis and put in evidence by the
in this case. Accounts receivable were properly included since they were
outstanding in considerable amounts at the beginning and end of the
year. The decision in Commissioner v. South Texas Co., 333 U. S.
496 [48-1 USTC ¶5922], upon which the defendant relies, has no bearing
in this connection since it related to the exclusion of unrealized and
unreported profits from invested capital in computing the excess profits
tax of a corporation engaged in installment sales.
of the agent was supported by the defendant himself and by his own
records. He was furnished a copy of the computation and after an
examination of it stated that it was substantially correct. Moreover,
the records prepared by Ennis showed a net worth of $34,047.84 at the
beginning and $53,252.05 at the end of 1947, or an increase in net worth
of $19,204.21 for the year, as compared with a reported profit of
$4,836.63. There was thus substantial evidence to support the verdict of
the jury on this count.
United States of America
, Appellee v. Joseph D. Nunan, Jr., Defendant-Appellant
(CA-2), U. S. Court of Appeals,
2nd Circuit, Docket No. 23476, 236 F2d 576, 9/6/56, Affirming an
unreported District Court Case, N. Y
[1939 Code Sec. 145(b)--similar to 1954 Code Sec. 7202]
Willful tax evasion: Criminal prosecution: Miscellaneous defenses.--The
taxpayer was properly found guilty of willful income tax evasion. No
merit was found in various defenses relating to sufficiency of evidence;
failure to exclude evidence of large bank deposits; jury charges;
prosecution's summation; and inspection of grand jury minutes. The
taxpayer, an experienced and influential lawyer and former Commissioner
of Internal Revenue, kept no records of his personal business
transactions; failed to report large amounts to income; concealed legal
fees from taxing authorities as well as from his law partners; made
incredulous and inconsistent statements relative to the amount of cash
on hand; and was therefore properly found guilty of tax evasion.
Moore, United States Attorney, Eastern District of New York, Brooklyn,
New York (Thomas C. Platt, Jr., Assistant United States Attorney,
Brooklyn, New York, of counsel), for appellee. Richard J. Burke, J.
New York City
, for appellant.
, HINCKS and WATERMAN, Circuit Judges.
, Circuit Judge:
This is an
appeal by Joseph D. Nunan, Jr. from a judgment of conviction entered
upon the verdict of a jury finding him guilty of income tax evasion, in
violation of Section 145(b) of the Internal Revenue Code of 1939, on
each of five counts covering the calendar years 1946 to and including
1950. Appellant was sentenced to five years imprisonment on each of the
five counts, the sentences to run concurrently, and a fine of $3000 on
each of the five counts was imposed.
We are urged to
reverse and dismiss the indictment or remand for a new trial. The points
may be briefly summarized: (1) that there was insufficient evidence to
establish the commission of the crime charged and that it was error to
deny appellant's motion for a directed verdict; (2) that the motion to
strike certain evidence of a long and continuous series of bank deposits
in currency and payments to brokerage houses and others in currency
should have been granted, because there was no basis for a finding that
any of this cash constituted taxable income and because of the alleged
prejudicial character of such proof; (3) that appellant was deprived of
a fair trial by a variety of rulings admitting and excluding evidence,
by allegedly erroneous instructions to the jury and refusals to charge
as requested and by additional miscellaneous rulings of one kind and
another; (4) that the summation of the prosecutor was inflammatory,
irrelevant and improper; and (5) that it was error to deny appellant's
motions to quash the indictment, to permit an inspection of the Grand
Jury minutes and to suppress certain evidence. These points are
proliferated and subdivided into so many separate contentions as to make
it a tedious and profitless task to attempt further enumeration.
The validity of
each of appellant's points depends as usual upon the factual background
disclosed by the record, which at first blush seems extremely
complicated and confusing. This seeming confusion, however, as we shall
see, is due in no small measure to the fact that both sides leaned
heavily on pre-trial statements made by appellant to the United States
Attorney or to his assistants and to the Grand Jury, he having elected
not to testify in his own defense at the trial. These various statements
by appellant abound with inconsistencies, contradictions and
ambiguities. Moreover, the large number of appellate court opinions of
recent vintage in tax evasion cases have furnished a variety of labels
or categories; and the zeal of counsel to fix one or another of these
labels on the case, or to squeeze it into one or another of these
so-called categories, has created the illusion that the basically simple
issues are complicated and difficult of resolution.
Sufficiency of the Evidence
Appellant is a
lawyer who, in addition to his law practice, served as a member of the
New York State Legislature from 1930 to 1940. He functioned as Collector
of Internal Revenue in
, from 1941 to 1944, when he became Commissioner of Internal Revenue in
, D. C., serving in that capacity until June 30, 1947. He had been a
member of one law firm in
New York City
for some time, and, after June 30, 1947, became a member of another law
On February 2,
1951, by H. Res. 78, a Sub-committee of the House of Representatives was
set up to "Investigate the Administration of the Internal Revenue
Laws." Not long after this, and on June 27, 1951, appellant filed
amended joint returns for himself and wife for the calendar years 1949
and 1950. In October, 1951, two Revenue Agents were assigned to do a
special examination of appellant.
developed that appellant had no checkbooks or cancelled checks for years
prior to 1951. He said he had no personal books or records such as a
taxpayer keeps and is required by law to keep in order to substantiate
the data set forth in his income tax returns and facilitate verification
by those charged with the duty of checking the various items. Moreover,
he employed no accountant or other person to assist him but made out his
returns himself and no other person has knowledge of the basis for the
various amounts stated therein, except such as are mere reproductions of
figures supplied by brokerage houses or the bookkeepers of his law
firms. Schedules and details plainly required by the printed
instructions on the returns were completely disregarded and omitted.
Appellant's special knowledge of the tax laws which might have been
inferred from his law practice and his experience as Collector of
Internal Revenue and as Commissioner of Internal Revenue, with general
superintendence over the collection of all taxes and the preparation of
the regulations, blanks and forms, was said to be non-existent. He
denied that he was a tax expert and said he became a federal revenue
officer only by "the chance of politics." He is portrayed in
his brief and in his various statements as a sort of political lawyer
and business getter. And when the investigating. Revenue Agents pointed
out the difficulties caused by his lack of any sort of personal records
and asked him for a net worth statement, he refused to give it.
investigation proceeded and it was discovered that a large number of
items of income had been entirely omitted from his returns for the years
1946-1950. Some of these items were small, others were far from
negligible in amount. In addition, a close examination of the bank
ledgers disclosed a surprising number of deposits by appellant and his
wife in currency. These were periodic and continuous, over the years
covered by the indictment. The following is the list of such deposits in
the year 1946:
March 9 ......... $ 300.00
March 29 ........ 300.00
April 29 ........ 460.00
April 29 ........ 200.00
April 30 ........ 500.00
May 15 .......... 500.00
May 20 .......... 550.00
August 23 ....... 750.00
August 30 ....... 700.00
August 30 ....... 750.00
September 5 ..... 860.00
September 23 .... 800.00
September 23 .... 500.00
September 30 .... 500.00
October 15 ...... 500.00
October 15 ...... 550.00
November 7 ...... 500.00
November 15 ..... 250.00
December 9 ...... 900.00
December 12 ..... 600.00
December 16 ..... 750.00
Total ........... $11,720.00
bought some stock in 1946 he handed over to the brokerage house one
hundred and sixty $100 bills and fourteen $50 bills. A further single
payment of $11,253 in currency was made in the same year.
The amount paid
to one dress shop during the prosecution years was $29,500; and of this
amount $12,014.86 was paid in currency.
deposits and expenditures during these years totalled $98,092.86; and
for the years 1945 through 1950, the Revenue Agents unearthed $160,000
of deposits and expenditures in excess of appellant's reported net
explanation defies credulity. The ledger sheets of his bank for the
years prior to 1937 had been destroyed, so that no evidence was
available to show what his balance was in the early thirties or at any
time prior to 1937. He knew that safe deposit records showed that he
rented a $10 box at the Chemical Safe Deposit Company on July 1, 1935.
He said in substance that he had $170,000 in his bank account in March
of 1933; that, fearful of the failure of the bank, and during the next
two years, he made cash withdrawals in amounts ranging between $2000 and
$5000, and put the cash in a metal box which was kept on a shelf in the
bedroom in his home; that most of this was his wife's money, that he
regarded the contents of the box as belonging to them both, and that she
had a key; that in 1935 he decided to put the money in a safe deposit
box, which was rented for the purpose; that from July, 1935 to the end
of 1944 most of the cash was kept in this safe deposit box; and that,
finally, he decided to put the money back in the bank, which he did
piecemeal and that these piecemeal deposits made periodically over the
years 1946 to 1950, which the government claims constituted taxable
income, were not income at all but the same old $170,000 fund he started
with, less whatever had been expended in the meantime. This is the
substance. There were countless variations as he was questioned by the
United States Attorney or his assistants, or by the Foreman or by one of
the Grand Jurors. The amount withdrawn from the Irving Trust Company was
$100,000 or $150,000 or $125,000. The amount he left on deposit in his
personal checking account, despite his fears, was $10,000 or $25,000 or
$12,000. There were similar variations in his recollection of the amount
of cash he kept in the safe in his law office, the amount kept at home,
the amount in the metal box in the bedroom closet, and so on.
Revenue Agents and the prosecuting officers questioned appellant
closely, especially after this belated and fantastic explanation was
finally forthcoming. And appellant's pre-trial statements were
supplemented by his wife's testimony at the trial. She had inherited a
substantial sum from a rich uncle and an additional amount from her
father. She said she had turned these funds over to appellant prior to
1932. It also appeared that appellant had made the practice over the
years of turning his salary checks, as a legislator and as Collector and
Commissioner, into cash; and he made other claims of accumulations of
cash. We need not follow in detail the testimony of the Revenue Agent
who described at the trial the course of the extensive investigation
into each and every item in so far as estate and corporate and other
documents and records and interviews with persons able to throw some
light on real estate transfers, mortgages, and other matters, might
reveal the true state of affairs. Suffice it to say that the net result,
on the record as a whole, was evidence amply sufficient to warrant a
finding by the jury that there never was any such fund of $170,000 or
anything approximating such a sum in appellant's possession in the late
twenties or early thirties.
[Construction of Income]
of the government's proof was a meticulous checking of all available
items in order to arrive at an approximate figure representing the
amount of appellant's taxable income. This was an arduous task, as it
has proved to be in many other income tax evasion cases where the
absence of records and the handling of large amounts of currency have
made it impossible to do more than demonstrate that the taxable income
involved greatly exceeded the amounts shown in the returns. The jury was
evidently satisfied that the investigation was conducted in good faith
and that appellant was given the benefit of any and all circumstances
favorable to his side of the case, as claimed by the Revenue Agent who
testified. The evidence warranted such a finding.
claimed the following deficiencies for the prosecution years:
Net Income Tax
Year Deficiency Deficiency
1946 ..... $ 42,489.13 $33,079.50
1947 ..... 19,503.69 15,583.44
1948 ..... 23,599.48 14,641.46
1949 ..... 17,818.91 11,228.34
1950 ..... 23,840.76 16,553.86
Total .... $127,251.97 $91,086.60
As to the
specific items of taxable income which had been omitted from the
returns, the substance of the defense was that they had been carelessly
overlooked, that the amounts were not significant when compared with the
totals of reported taxable income in each of the years in question, and
that, if the proof of periodic cash deposits and expenditures was out of
the case, the evidence of omission of specific items was insufficient to
support a finding of wilful evasion.
turn to the specific items, which have significance not only in
themselves, but for the light they throw upon the cash deposits and
expenditures phase of the case.
possession of large amounts of cash or the expenditure of large amounts
of cash may well arouse suspicion and speculation, but it is well
settled that proof of this, standing alone, will not suffice to
establish that the amounts involved constitute taxable income. See Gleckman
, 8 Cir., 80 Fed. (2d) 394, 399 [35-2 USTC ¶9645], cert. denied,
709; Graves v.
, 10 Cir., 191 Fed. (2d) 579, 582 [51-2 USTC ¶9431]; cf. Holland
v. United States, 348
121 [54-2 USTC ¶9714]; Smith v. United States, 348
147 [54-2 USTC ¶9715] (semble). But when unreported receipts in
the indictment years are established by independent evidence, as here,
the proof that the receipts derived from a taxable source may be made by
proof of a likely source of taxable income, as in United States v.
Johnson, 319 U. S. 503 [43-1 USTC ¶9470]; Capone v. United
States, 7 Cir., 51 Fed. (2d) 609 [2 USTC ¶786]; Guzik v. United
States, 7 Cir., 54 Fed. (2d) 618 [1931 CCH ¶9681]; United States
v. Costello, 2 Cir., 221 Fed. (2d) 668 [55-1 USTC ¶9342]; United
States v. Ford, 2 Cir., August 6, 1956, -- Fed. (2d) -- [56-2 USTC
¶9823]. The variations of this pattern are legion but a common feature
is the necessity for concealment and the method of concealment not
infrequently is the use of currency.
Here, as we
shall see, there were proofs from which the jury might find that
appellant had received fees not included in the earnings of his two law
partnerships. Because "of the chance of politics," he was in a
position of unusual prominence, in contact with government officials of
every rank and stature, and obviously eager and willing to harvest the
crop when it was ripe. As a member of two law firms he shared largely in
huge partnership income. But he did not hesitate to turn his position as
a public figure to account in other ways. And the number of legal fees
he concealed not only from the tax authorities but also from his law
partners has a special relevancy, in view of his extrajudicial statement
that his professional income was reported on the basis of his earnings
as they appeared on the partnership books.
[Pattern of Conduct]
In the fall of
1947 Brown & Bigelow Company desired to market some of its
securities through Otis & Co. The stockholders' meeting was
scheduled for December 6th, and it was necessary to secure a
"closing agreement" from the Bureau of Internal Revenue prior
to the meeting. The lawyers for the company went to
and saw the officials whose duty it was to act in the matter, but were
informed that there were so many similar applications ahead of theirs
that prompt action was impossible. Appellant, who had ceased to be
Commissioner of Internal Revenue about six months previously was
retained and in a few hours, as the result of a telephone call or
interview, the business was done, and appellant was paid a fee of
$25,000. The details are interesting. After agreeing on a fee of
$25,000, appellant acceded to the suggestion that this be paid in stock,
which the president of Brown & Bigelow Company had bought in at
$9.50 a share. Accordingly, a computation was made at the nearest
approximation; 2630 shares at 9.50 came to $24,985.00. A bill dated
December 28, 1947, was made out by appellant in that amount, duly
receipted and sent out to Brown & Bigelow Company in
; the 2630 shares were forwarded to appellant on January 2, 1948.
But the bill is
not on the billhead of his New York law firm but on an old form of
personal, Joseph D. Nunan, Jr., billhead previously used, with the old
address crossed out and 55 Liberty Street substituted, and the stock was
forwarded to appellant, not at his law office, but at "604 Shore
Road, Douglaston, Long Island." The firm bookkeeper had no
knowledge of the matter but appellant claims the jury could have found
that other members of the firm knew of this fee and were willing to have
appellant keep it all. But the jury may well have found that appellant
concealed the fee from his partners. True, one of the partners testified
that appellant had told him that Brown & Bigelow Company had
"given" him some stock, and on cross-examination he said he
"understood" the firm would not receive any of the stock. But
this is far from saying that he knew of the services rendered by
appellant, or that a fee of $25,000 had been agreed upon and paid.
Moreover, the credibility of every one of the witnesses constituted an
issue in the case.
It is claimed
by appellant that this Brown & Bigelow Company fee is included in
his 1948 joint return under the heading of "Other
income--$22,500." For the purposes of computing the amount of tax
evaded by appellant in 1948 the government was willing to make its
calculations accordingly. But there is no possible way of making $22,500
equal $24,985, nor did appellant in any of his various statements give
1949, the Unexcelled Chemical Company retained appellant's firm and paid
a retainer of $1500, which was entered on the firm books. But C. D.
Waller, President of the Company, purchased 1000 shares of bearer stock
of Unexcelled, endorsed in blank, at a cost of $2997.50, for the account
of "Mr. Joseph D. Nunan, Jr., care of C. D. Waller,
." In one of his statements appellant claimed the client had said
"we are not in a very strong cash captionposition--would you take
stock for a fee," and that he put the stock in the safe and
"we forgot about it." But no record of the receipt of the
stock was made in the firm books and nothing happened until two weeks
after appellant was interviewed by the Revenue Agents in 1951, when the
stock was sold and the partnership included the proceeds as income for
that year. There was testimony by one of appellant's partners to the
effect that this was a sort of "contingent" fee not to be
taken "until it was earned," but this, under the
circumstances, might not have seemed convincing to the jury.
Anheuser-Busch, Inc. was about to complete the construction of a new
$30,000,000 brewery in
. Foreseeing the possibility of complications over "permits and
things of that sort" appellant was "put on a retainer" of
$500 a month with the understanding that he might be called upon at any
time "for legal advice and counsel." He received three monthly
payments, aggregating $1500, in 1950. But none of this ever reached his
law firm, nor is there any evidence that any of the partners ever knew
anything about it. Appellant's explanation before the Grand Jury was
that he was hired not to perform legal services but to "try to get
* * * Anheuser-Busch beer into certain places in
No item of
$1500 from Anheuser-Busch, Inc. appears in appellant's 1950 return. In
one of his statements appellant said two of the payments were included
under the description "Other income--$2250" in the original
1950 return and a third in his amended return, filed June 27, 1951,
under the heading "Other income--$2750."
represented a Dr. Jones who had an income tax problem and appellant
claimed to have done considerable work on the matter personally. The fee
was $7500 but appellant had certain charities he wanted to help so the
fee was paid by a check of $6000 to the order of his law firm, and two
additional checks for $500 and $1000 respectively, drawn to appellant's
order and endorsed over to the charities in which he was interested. The
jury would have been justified on the evidence in concluding not only
that the firm lost its share of the $1500 portion of the fee, but that
there was at least the possibility that appellant took the charitable
deduction twice, one by the simple method above described, and again
when he tried to remember, but made no effort to enumerate in detail, as
required by the instructions, his gifts to charity during the year, as
he filled out his income tax form. He made up a sort of estimate out of
his head when writing out his returns, and set down a figure in each
return after writing "various church & charities." This
figure varied from $5100 in the 1946 return, $6050 in 1947, $9350 in
1948, $9600 in 1949, to $11,360 in 1950. He said he "didn't
think" he included the two Dr. Jones items in his charitable
deductions for that year.
[Still More Unexplained Income]
There was a
forwarding fee due from the law firm of Glass & Lynch. This was one
of the matters which appellant and his firm split on a 50-50 basis. He
sometimes received the fee and remitted the firm share later. He
received two checks, one dated February 28, 1944, for $3333.33 and the
other dated November 19, 1945, for $8138.82. The payments to the firm,
however, were not 50-50. Of the amount of the first check appellant
remitted $1500, and of the other he remitted $2830. The result was not
only a diminution of the amount owing to the firm, but the government
lost income taxes both on appellant's share of what he withheld, or
$1406.08, and also on the firm's share, or another $1406.07, making a
total of $2812.15 on which no income taxes were paid. Appellant reported
his income from this transaction only on the basis of that fraction of
the fee which he remitted to his law firm. It is futile for counsel to
make the explanation in appellant's brief that there may have been
disbursements deducted by appellant. No such explanation was made at any
time by appellant, nor was there any testimony on the subject, and the
even figures of appellant's checks do not indicate any such deduction.
appellant's lack of books and records and his giving of lump sum totals
here and there in persistent disregard of the printed instructions on
the returns, and his omissions to give his firm the share of legal fees
to which they were entitled, were due to the fact that appellant was so
busy that he developed careless habits. But the jury might have found
that there were just too many of these slip-ups, that an honest man with
his huge income would naturally keep some sort of books and records and
procure the usual assistance in preparing his income tax returns. From
the circumstances of the case as a whole the jury was well justified in
drawing the inference of wilful evasion.
appellant handled the fees above described had a bearing on the sources
from which he derived the large amounts of currency deposited and
expended. If he withheld from his firm and from the government
information of fees which he was paid by check, how much more likely was
he to withhold information of fees paid in currency. Especially as such
opportunities for enrichment presented themselves as in the Brown &
Bigelow matter, where contact with an official almost in the twinkling
of an eye resulted in a fee of $25,000. It would be far from strange if
services of this character were paid for in cash.
In any event,
and before we set forth a summary of the evidence concerning the
numerous other omitted items, it may be well to say that it is now
apparent, we think, that the interrelation between the currency phase of
the case and the so-called specific items is such that the trial judge
would have erred grievously and to the prejudice of the government's
case had he stricken from the case all evidence of the periodic cash
deposits and expenditures, and appellant's explanations thereof.
usual explicit statements from his broker he failed to report a capital
gain of $544.80 in 1950. He mailed reminders every year to Dr. Kiffney
specifying the amount of principal and interest due on a mortgage but
failed to report receipt of any of the interest payments, which
aggregated $2278.52 in the five prosecution years. He was paid $1800
which he won on a wager in 1948, but this was not included in his
return. He explained that his gambling losses exceeded this amount in
that year, although he must have known that the details to such
transactions must be specified if the losses are to be allowed against
the gains. There was a persistent and continuous failure in each of the
prosecution years to report the full amount of dividends received. In
April, 1946, the senior member of his law firm died and appellant and
another partner agreed to contribute together to the firm the sum of
$28,000. As appellant's undistributed earnings for prior years amounted
only to $8,474.52, the balance of his $14,000 contribution, or $5525.48,
constituted earnings which he should have reported as such, as they were
not otherwise included in his partnership earnings. It is claimed that
this is the sort of disputed item one might come across in a civil
litigation, but it is hard to see any plausible ground for any bona fide
dispute. A few omitted directors' fees make up the balance of the
$23,536.30 of specific items of unreported income.
None of these
items can be considered in vacuo. Nor does the sum of them tell
the story. Viewed in perspective against the background of the case as a
whole we cannot say that the evidence required a ruling that the jury
must render a verdict of acquittal. The showing by the government must
warrant a finding that the amount of the tax evaded is substantial. Timkoff
, D. C. Cir., 86 Fed. (2d) 868 [37-1 USTC ¶9057]; United States
v. Schenck, 2 Cir., 126 Fed. (2d) 702 [42-1 USTC ¶9363]; Graves
v. United States, 10 Cir., 191 Fed. (2d) 579 [51-2 USTC ¶9431]. But
this is not measured in terms of gross or net income nor by any
particular percentage of the tax shown to be due and payable. All the
attendant circumstances must be taken into consideration. Here the total
gross income reported by appellant in 1946 was $67,823.57 and in 1950,
$143,239.00. But a few thousand dollars of omissions of taxable income
may in a given case warrant criminal prosecution, depending on the
circumstances of the particular case. Otherwise the rich and powerful
could evade the income tax law with impunity. Here, even if the jury had
been unable to agree with the contentions of the government to the
effect that the cash deposits and disbursements constituted, to the
extent alleged, taxable income, still a verdict of guilty would have
been warranted by the proof of specific unreported items, viewed in the
light of the evidence taken as a whole.
serious contention, advanced by appellant in different ways, is that the
absence of a statement of his net worth at the beginning of the
prosecution period is fatal and that there should at least be a new
trial restricted to proofs concerning the specific items of unreported
income. It is said that without some proof of appellant's assets prior
to the period of periodic and continuous currency bank deposits and
expenditures in currency, the effect of the method of proof pursued here
deprived appellant of the presumption of innocence and placed upon him
the burden of showing that he had not received taxable income in excess
of that shown on his returns for the years 1946-1950. We are urged to
hold that the requirements of the net worth cases (
, supra; Friedberg v.
142 [54-2 USTC ¶9713]; Smith v.
v. Calderon, 348
160 [54-2 USTC ¶9712]) must be applied.
[Not A Net Worth Case]
But the answer
to all this is that each tax evasion case must rest on its own bottom.
This is not a net worth case. All the law requires is that there be
proof sufficient to establish that there has been a receipt of taxable
income by the accused and a wilful evasion of the tax thereon. It is not
necessary to prove that there was a particular amount of tax evaded nor
need the computations be exact in an accounting sense. The claim that
there is no proof of any probable income-producing source for the cash
is completely refuted by the evidence which we have already partially
reviewed. The relationship between the various phases of the evidence
and the attendant circumstances, such as the complete absence of
personal books and records, amply justified a finding by the jury that
each of the parts fitted into a pattern of substantial tax evasion. To
split the case apart would be to emasculate it.
While it is
confidently asserted that there has been no refutation by the government
of appellant's statement about his large cash hoard, the fact is that
the testimony of the Revenue Agent who testified demonstrated, or at the
very least warranted an inference by the jury, that the alleged sources
of at least a part of the hoard were fabricated and in many instances
exaggerated. Indeed, the description of the metal box and the transfers
of cash to the safe deposit box and the curious piecemeal redeposit of
the funds in the bank is so fantastic as to provide the basis for its
hold that the motion to strike the evidence of periodic cash deposits
and expenditures and appellant's explanations thereof was properly
denied, that the state of the evidence did not warrant the granting of
the motion for a directed verdict of acquittal, that there was more than
ample proof of wilful tax evasion and that the proof relative to the
specific items of taxable income which were omitted from the returns in
the light of the evidence as a whole was of itself sufficient to suport
The Instructions to the Jury
Many of the
objections to the charge have already been disposed of as they merely
repeat contentions advanced in connection with the claim that the
evidence was insufficient to support the verdict. There was no occasion
to instruct the jury that "the prosecution must establish
defendant's net asset position at the commencement of the period,"
nor to give "a summary of the nature of the net worth method, the
assumptions on which it rests, and the inferences available, both for
and against the accused." Holland v. United States, supra,
at p. 129. See Gleckman v.
, supra; Graves v.
, supra; Stinnett v.
, 4 Cir., 173 Fed. (2d) 129 [49-1 USTC ¶9217].
instructions relative to the crucial issues were simple and clear. Had
appellant received income in each of the years in question upon which
there was an income tax due which was wilfully evaded, the exact amount
of unreported income need not be established by the government to a
mathematical certainty, but there must be a substantial evasion of the
Much is made of
the fact that the trial judge refused appellant's Request 18, which read
government must establish beyond a reasonable doubt that the items
claimed to be income to the defendant were income in the years in
question. On this you may not speculate nor may the government ask you
to speculate or guess. If you believe that the cash deposits and cash
expenditures during the years 1946 to 1950 came from an accumulation of
cash, accumulated prior to 1946, as stated in substance by defendant,
then such cash is not income in the years in question and the defendant
was not required to report such cash in the years in question nor was he
liable for any income tax on such cash."
While the trial
judge did not adopt the exact language thus proffered, nor did he cover
the same matters in sequence, his instructions adequately and clearly
covered the substance of each of the propositions therein contained.
to the first sentence of Request 18, the court charged, "The
government must prove to you beyond a reasonable doubt that the
defendant wilfully avoided the payment of taxes known to be due upon
income received during the years specified in the indictment."
Moreover, the jury were instructed not to speculate or guess.
Of course it
was important that the jury should know that if the cash deposits and
cash expenditures made in the indictment years came from currency
accumulated by appellant in prior years, as claimed by appellant, he was
not liable for any income tax on this cash. But this was not an issue
which crept into the case sub silentio; the pros and cons were
referred to again and again in the testimony of various witnesses and in
the arguments of counsel. It was as plain as a pikestaff that if the
currency deposits and expenditures came from cash in appellant's
possession prior to 1946, then this same cash could not be found to be
taxable income in the prosecution years. That the jury might have
labored under some misunderstanding on the subject seems no more than a
hypothetical possibility, too remote from the realities of the trial for
serious consideration. In any event, the short answer is that the
instructions sufficiently covered the point.
[Burden on Government]
Thus the jury
were told that the burden rested exclusively on the government, that
"the defendant need not prove to you that expenditures were made
from prior accumulations and a source other than taxable income for the
years specified in the indictment." And, in a portion of the
instructions quoted below, it was made plain to the jury that they were
to decide whether appellant had unreported income on which the tax was
wilfully evaded, "or whether or not the money was received by the
defendant prior to 1946 and therefore is not income."
contends that certain language in the charge may well have been
understood by the jury as a statement "that the cash deposits in
banks and the expenditures had been proved by evidence to constitute the
financial returns from appellant's occupation." No such inference,
we think, is justified when this portion of the charge is read in its
entirety. It is as follows:
Government has submitted proof in support of its charges of evasion of
income taxes and understatements of income by evidence that the
defendant had a lucrative occupation, the financial returns from which
were reflected in bank deposits, in known receipts and expenditures. It
is claimed that the total of these, eliminating duplications, was in
excess of the reported income. The claimed differential between the two
is the alleged understatement upon which the claimed differences are
your function, members of the jury, to determine whether there was such
a differential and if the differential was income and whether the tax
thereon was wilfully evaded. It is for you to determine whether or not
upon all of the evidence the defendant had unreported income, the tax
whereon was or was not wilfully evaded, or whether or not the money was
received by the defendant prior to 1946 and therefore is not
stating the claim of the prosecution, the trial judge left it to the
jury to say whether there was unreported income or whether, as asserted
by appellant, "the money was received by the defendant prior to
1946 and therefore is not income."
Had it been
supposed that this was any more than a statement of the broad outlines
of the claims of the parties on this phase of the case counsel should
have drawn the matter to the attention of the trial judge and requested
a clarification, but he did not.
Deductions, Contributions and
taken, however, to a statement to the jury with reference to the $1800
gambling gain above referred to, that "gambling losses are not
deductible unless so claimed and supported." This statement was in
all respects accurate. Appellant, after all his experience as a lawyer
who handled income tax matters for clients at least occasionally, and
after his service as Collector and as Commissioner of Internal Revenue,
must have known that he was not entitled to deduct alleged gambling
losses without claiming them on the face of the return. This was part of
the background the jury was called upon to consider.
It is said that
the trial judge, even if not specifically requested to do so, was under
a duty to explain to the jury that if appellant honestly believed no tax
was due on this item of $1800 they could not find that appellant
wilfully evaded the tax thereon. But there is nothing in this. The
instructions on the subject of wilfulness were lucid and explicit; the
jury must have understood that what was said on that subject applied to
each and every item of alleged unreported taxable income.
A few other
miscellaneous points may well be disposed of here, as they have to do
with certain requirements of law which were relevant to various phases
of the case but which appellant says were brought in to his prejudice.
From the very
outset of the case, when the returns and amended returns were being
offered in evidence, appellant objected to reference to the printed
instructions requiring the enumeration of "deductions and
contributions," no specific items appearing on the returns and no
attached schedules. This particular contention was based upon the
statement in the government's Bill of Particulars, "No disallowance
of deductions or exemptions claimed."
But it was not
the function of the Bill of Particulars to set forth every detail of
what the jury was warranted in concluding was appellant's elaborate and
ingenious scheme of operations. The lack of any personal books or
records, the making out of the returns himself, the persistent disregard
of instructions obviously designed to prevent tax evasion and the use of
odd lump sums which could be said to mean almost any thing desired if,
as and when the evil day arrived and Revenue Agents began to
investigate, may well have appeared to the jury, in the light of the
evidence as a whole, as part and parcel of appellant's method of tax
nothing in or out of the Bill of Particulars which should have led the
trial judge to rule out evidence that appellant had retained no record
of his contributions to charities, that he never kept any record of his
cash contributions, that he could not identify any of the contributions
from memory and that aggregates in round figures in his returns,
characterized as "Various church & charities" were no more
than guesses or estimates. Naturally the prosecutor commented on this
item in his summation and he was plainly entitled to do so.
There was never
any concession by the prosecutor that the deductions were
"proper," as claimed by appellant, or that they were properly
set forth on the returns. Nor did appellant ever claim that the two
checks of $1,000 and $500, paid on the Dr. Jones' fee, were included in
his total of contributions for the year in which he endorsed those
checks over to the two charities in which he said he was interested.
objection is made with reference to the $24,985 fee for expediting the
rendition of the "closing agreement" in the Brown &
Bigelow Company matter. When appellant said the item "Other
income--$22,500" in his 1948 return represented this item, the
government was willing to make its calculations of the amount of tax
claimed to be evaded at $2485, the difference between the fee received
and the amount claimed to be reported. But this furnished no basis for
keeping the full details of the transaction from the jury, as they were
relevant to the periodic currency deposits and expenditures phase of the
case, and especially so on the issue of motive, intent and wilfulness.
Nor was there
error in rejecting the proffered evidence of the bid and asked prices of
the Brown & Bigelow Company stock on a when, as and if issued basis,
on January 5, 1948, the mean of which is said to be 85/8 rather than the
91/2, which was the basis used when the fee was agreed upon. This
evidence could have served no other purpose than to confuse the jury.
All the evidence in the case showed an agreed fee of $24,985, the amount
of appellant's receipted bill. He made no statement at any time to the
effect that he intended to enter on his return the amount the stock
might be deemed worth according to the market quotations, nor was any
evidence produced on his behalf to indicate that he did so. No
calculation made on the basis of the alleged bid and asked prices on
January 5, 1948, could be made to come to $22,500.
argument made in the prosecutor's summation, that this fee was not
disclosed to appellant's partners, was amply justified, as indicated in
an earlier portion of this opinion.
argument is devoted to the amended returns, two of which were filed on
June 27, 1951, shortly after the passage of the Resolution of the House
of Representatives, setting up the Sub-committee to "Investigate
the Administration of the Internal Revenue Laws," above referred
to, and shortly before the two Revenue Agents were assigned to
investigate appellant's personal income tax situation. The relevancy of
these amended returns to the government's case will appear from a single
In 1949, one of
the officers of American Lithofold Corporation, which manufactured
business forms, conferred with appellant over the possibility of getting
business for the firm through the medium of appellant's "prominence
in the neighborhood," meaning New York City. Appellant was
accordingly employed and made a vice-president of the company. Some
cards were printed with appellant's name as vice-president and he went
around to see some customers and sent out a number of letters. For these
services he was paid on February 28, 1949, $750, on March 31, 1949, $750
and on April 30, 1949, $750. A further payment was made to appellant of
$1200 in 1950. The 1949 return, as originally filed on January 16, 1950,
made no reference to the amounts received from American Lithofold
Corporation in that year. In the 1950 return, filed on January 12, 1951,
there is an unexplained lump sum statement, "Other
income--$2250." The amended return for 1949, filed on June 27,
1951, contains a new item, "Other income--$2250," the
equivalent of the three $750 payments above described: and, in the
amended 1950 return, filed June 27, 1951, the original statement,
"Other income--$2250" is raised to "Other
income--$2750." Appellant claimed that the 1949 amended return of
"Other income--$2250" represented the payments received from
American Lithofold Corporation in 1949. His claim about the "Other
income--$2750" in the 1950 amended return is obscured to us, partly
because of his answers during the investigation relative to the
Anheuser-Busch payments referred to in a foregoing portion of this
[Proper Jury Question]
In any event,
the filing of the amended returns under the circumstances could give
appellant no immunity on account of any prior wilful misstatement or
omission of taxable income. It was for the jury to consider these items
of proof together with all the other evidence in the case and give them
such probative weight on the issues as the jury might decide upon.
Much is made of
the fact that appellant had a right to file amended returns at any time,
and, although not included in the requests for instructions submitted
prior to the charge by the trial judge, counsel in a colloquy in the
absence of the jury, relative to exceptions to the charge as given,
requested the trial judge to supplement his charge by a further
instruction "that an amended return does not have to be filed
before March 15th, but can be filed at any time." The occasion for
this is said to be that in his summation the prosecutor had said:
"Now for that year, 1949, when the return was filed on January
16th--and please contrast this with the first one where, on March 12th,
he filed an amended return (1946), and we took the amended return
because he had a right to file an amended return at any time before the
15th of March."
objection had been made to this statement by the prosecutor, which was
of trifling significance, and the trial judge wisely, as we think,
thought it would not be helpful to emphasize such a point just before
the jury retired for its deliberations; and he remarked "if you had
made objection at the time we could have said something about it."
We can see no
error here. Nothing but confusion and distraction from the main issues
could have resulted from the discussion at that stage of the trial of
such a minor point. It was well within the discretion of the trial judge
to grant or refuse the request.
consisting of a letter from Gaylord Container Corporation, dated March
15, 1946, requesting a ruling on a proposed stock split-up, and a reply
acceding to the request, signed by appellant as Commissioner, dated
March 27, 1946, were received in evidence subject to connection. They
were not read or shown to the jury; the connection failed to materialize
and they were stricken together with the testimony of the witness who
identified them. The prosecutor made no comment about these exhibits,
and the instructions of the trial judge to the jury to disregard the
exhibits and the testimony amply protected appellant.
v. On Lee, 2 Cir., 193 Fed. (2d) 306, 310, aff'd, 343
, 3 Cir., 14 Fed. (2d) 497, 499; Looker v.
, 2 Cir., 240 Fed. 932.
It is alleged
that the trial judge erred in receiving over objection proof of
borrowings by appellant's wife, overdrawings of her bank account and
similar evidence which, according to the claim of the prosecution,
constituted conduct inconsistent with the existence of the cash hoard in
the metal box in the bedroom closet. We are told that the wife was
extravagant, that she concealed her borrowings from appellant and that
what she did has no relevancy to the charge against appellant.
stated that the wife turned over to him the money she inherited from her
uncle and from her father, that he considered the accumulation of cash
in the metal box to belong to both of them and that she had a key to the
box. Moreover, appellant stated that she had no income of her own and
that all her cash deposits and cash expenditures came from currency he
gave to her. Under these circumstances we think the evidence of her
borrowings was admissible. 8 Wigmore, Evidence (3rd Ed., 1940) Section
The Prosecutor's Summation
brief contains some twenty odd specifications of what are alleged to be
improprieties of the prosecutor in his closing statement to the jury. In
a few instances objection was made at the time by interrupting the
summation, but nothing was said about most of these supposed
improprieties until a motion for a new trial was made later. There are
six instances of alleged inflammatory appeals to prejudice, three
"intimations" of personal knowledge on the part of the
prosecutor of facts either not in evidence or contrary to the evidence,
and a large number of statements or arguments which appellant claims are
without support in the evidence or contrary to the evidence or which
called upon the jury to speculate.
Most of the
items relied upon are matters of trivial consequence. Counsel was
entitled to argue the inferences to be drawn from the proofs, and the
jury was instructed that statements by the lawyers in summation are not
proof and that the recollection of the evidence by the jury was what
they should take into consideration in arriving at their verdict.
inflammatory appeals turn out to be nothing of the kind. What was said
about the Brown & Bigelow Company fee and how it was earned was not
only proper but necessary, if the jury were to understand the
significance, according to the prosecution's theory of the case, of the
legal fees earned by appellant and not turned over to his law firm.
Appellant still insists that the firm knew about this fee but the
evidence could have justified a finding by the jury to the contrary, as
we have already pointed out. So also, with reference to the prosecutor's
comments relative to appellant's claim that the moneys he received from
Anheuser-Busch were not legal fees but for prospective efforts to get
Stevens to sell Anheuser-Busch beer at the ball parks and race tracks.
We have already adverted to appellant's claim that he was not a tax
expert and to his method of entering lump sums in his returns, despite
the plain printed instructions which required details and annexed
schedules, if necessary. It was perfectly proper for the prosecutor to
refer to the fact that appellant was "top man," as
Commissioner of Internal Revenue for part of the prosecution period, and
that by law he was responsible for the collection of all taxes in the
True it is that
the prosecutor argued that the large amount of currency claimed by
appellant to be in his accumulated hoard would not go in a $10 safe
deposit box, although the precise dimensions of the box had not been
proved. But this was fair argument, and the same may be said of his
statement that he too graduated from law school in 1923 and knew that
the remuneration young lawyers received in those days "was never as
much as we thought would be commensurate." He also said that after
the Bank Holiday in 1933 none of the large banks in
New York City
had any difficulty. This was objected to and there was a colloquy in
which the trial judge said he would leave it to the jury to recall what
the testimony was. Things of this sort come up in practically every
trial and we find no basis whatever for any finding of impropriety.
summation defense counsel had argued that the government should have had
one of its agents go to the bedroom closet in the Douglaston house,
where appellant lived when he said he kept the metal box with the cash
there, and take measurements and photographs. In response to this the
prosecutor commented: "In his summation, Mr. Burke criticized me
for not taking photographs and measurements. Mr. Burke would have been
the first to have objected to my photographs, objected because they
would have been taken in 1954 and would not fairly represent a thing
twenty year ago." This was legitimate argument; and we find no
evidence that the prosecutor "went so far as to brandish before the
jury photographs never identified or offered."
There is no
merit in any of the claims of impropriety on the part of the prosecutor;
and we think it unnecessary further to discuss this phase of the case.
The Motion to Suppress
Reversal of the
judgment of conviction is also urged on the ground that it was obtained
by the admission of evidence, the use of which was prohibited by 18
C. §3486, since amended. 1 This issue
was raised by a motion to suppress, argued before trial and renewed at
the commencement of the trial, and by objections to the introduction of
certain evidence. We hold that the motion was properly denied, and the
objections were properly overruled. The statute then provided:
testimony given by a witness before either House, or before any
committee of either House, or before any joint committee established by
a joint or concurrent resolution of the two Houses of Congress, shall be
used as evidence in any criminal proceeding against him in any court,
except in a prosecution for perjury committed in giving such testimony.
But an official paper or record produced by him is not within the said
testified before the King Committee, above referred to, on September 12,
1951 and March 18, 1952 but none of this testimony was offered in
evidence at the trial. But appellant was interrogated privately on many
occasions by the two revenue agents assigned to investigate his income
tax returns and he made certain records available to them, such as the
books and records of his law firms, certain photostatic copies of
existing records of his bank account and records of his accounts with
of appellant's contention on this phase of the case is that the revenue
agents were acting as agents of the King Committee, that what he told
them from time to time in the course of their investigation and the
documents he made available to them served as clues or leads to other
items of proof, and that all this came within the purview of the
immunity statute quoted above.
of Revenue Agent Saldana at the trial indicated that he and his fellow
investigator were not connected with the King Committee but that, after
their investigation was under way, they were told to cooperate with the
King Committee by answering any questions put to them by the Committee
and they had done so. There is no dispute about the fact that, at their
first interview with appellant, they told him they desired to make a
reexamination of certain of his income tax returns "on behalf of
the Bureau of Internal Revenue."
But we need not
pursue the question of whether, and to what extent, the two revenue
agents may be said to have in some way represented the King Committee,
as we agree with the interpretation of the statute made by the Court of
Appeals for the
District of Columbia
in United States v. Brennan, 214 Fed. (2d) 268, cert. denied 348
268. There counsel for the Committee informed the defendant "that
the Committee, acting through me, would like to see you and ask some
questions about the facts." Defendant appeared before Committee
counsel with his lawyer, who took the position that none of his client's
answers could be used against him in any criminal proceeding, and the
answers were given. The court held, nevertheless, that the motion to
suppress must be denied, as Committee counsel was "not an organic
part of the Committee, which can be composed only of members of
Congress," and the statute had no application to statements made to
agents or employees of the Committee, which did not constitute
"testimony given by a witness * * * before any committee of either
House." We do not see how we can hold otherwise, in view of the
explicit wording of the statute.
The Motions to Quash the
Indictment and Inspect the Grand Jury Minutes
The appeal also
brings up for review an order of Chief Judge Inch, denying appellant's
motion to quash the indictment, or, in the alternative, to permit an
inspection of the minutes of the proceedings before the Grand Jury.
On February 18,
1952, the Grand Jury was impanelled in the Eastern District of New York
and commenced to hear witnesses; the indictment against appellant was
returned on December 2, 1952; the motion to quash the indictment or
inspect the minutes of the Grand Jury was denied on March 19, 1953; the
trial commenced on June 8, 1954.
The motion to
quash is based upon: (1) a series of sensational newspaper articles and
radio and television publicity, between February and September 1952,
that is to say, both prior to and during the sessions of the Grand Jury;
(2) certain incidents which are said to evidence a controversy between
the legislative and executive branches of the government relating to the
investigation of appellant's conduct, culminating in the service of a
Grand Jury subpoena on Congressman Kean, who gave certain testimony, all
of which is claimed to have violated appellant's right to an impartial
tribunal, under the Fifth and Sixth Amendments; and (3) the alleged
absence of any competent or adequate evidence to warrant the return of
As the various
disclosures brought to light by the King Committee affected some of the
highest ranking officials in the Internal Revenue Service, including
appellant, it was inevitable that the resulting publicity would be
sensational in character, and much of it was unfair, misleading, and, at
least to some extent, untrue and unwarranted. But we are not dealing
here with alleged bias or prejudice by a petit jury, caused by
widespread publicity during or just prior to a trial of the issues, as
was the case in Meyer v. Cadwalader, E. D. Pa., 49 Fed. 32 and
, 3 Cir., 295 Fed. 437. In such a situation much would depend upon
the character of the publicity, proof that it was of such a nature as to
be likely to make an impression on the jurors, and the steps taken by
the trial judge to mitigate or remove its effect. Instructions that
jurors must avoid reading newspapers or listening to or looking at radio
and television commentators and that their verdict must be based solely
on the evidence introduced in the case in court, will generally suffice.
But there must be a careful appraisal of the possibility or likelihood
of extraneous influence. And, indeed, there is good sense in this, since
petit jurors must remain passive spectators of the court room drama.
But a Grand
Jury is not confined to a passive role, but may and often should proceed
on its own initiative. 4 Stanford L. Rev. 68, 69, 77-8; Dession, From
Indictment to Information, 42 Yale L. J. 163, 176. That it is induced to
such action by newspaper reports forms a continuum with its historic
function of ferreting out crime and corruption, and is in no way
inconsistent with its duty to decide on and in accordance with the
evidence adduced before it.
Chairman and members of the King Committee, charged with the duty to
"Investigate the Administration of the Internal Revenue Laws,"
feared that the proceedings before the Grand Jury might be used to
"whitewash" appellant and others. We are not concerned here
with the removal of the Committee files to
, and their subsequent return. Nor was there the slightest impropriety
on the part of the Grand Jury in bringing Congressman Kean before it and
hearing his testimony. Indeed, this would seem to have been its plain
duty in the premises.
We agree with
the finding of Chief Judge Inch that the record is barren of any
evidence that the grand jurors were prejudiced or coerced by the
publicity or by anything said or done by any member of the King
Committee. Quite to the contrary, there is every reason to suppose that
the Foreman and other members of the Grand Jury pursued the
investigation conscientiously and with diligence. Their refusal to be
intimidated by what they may have considered to be legislative sound and
fury, is commendable. It must not be forgotten that they heard witnesses
over a considerable period, and did not return the indictment for some
months after appellant had testified before them and provided out of his
own mouth evidence which was far from lacking in probative force. And
appellant has made much of the fact that at no time did he refuse to
answer any question on the ground that the answer might tend to
We find no
merit whatever in the contention that there was insufficient evidence
before the Grand Jury to justify the return of the indictment. It may
well be that some of the evidence was not properly received, but it is
well established law that the submission to a grand jury of some
incompetent proof is not a ground for dismissing the indictment. Holt
245; Cox v. Vaught, 10 Cir., 52 Fed. (2d) 562;
v. Pearlman, S. D. N. Y., 247 Fed. 158; Joyce, Indictments §138
(2d ed., Blakemore, 1924); cf. Costello v. United States, 350
359 [56-1 USTC ¶9321], affirming 2 Cir., 221 Fed. (2d) 268 [55-1 USTC
do not reach and need not decide the question of whether 18 U. S. C. §3486,
above referred to, applies to grand jury investigations. It was held in United
States v. Smyth, N. D., Cal., 104 Fed Supp. 283, 307, that the
statute only forbade the use on a trial of testimony taken before a
Congressional Committee. We have some doubt about the soundness of this
ruling. But here, in addition to the excerpts from appellant's testimony
before the King Committee, which were read to the Grand Jury, the record
discloses that the Grand Jury had considerable other evidence before it,
which we find it unnecessary to catalogue.
An effort is
made by appellant to eliminate from consideration on this point
testimony before the Grand Jury of the Revenue Agent Saldana, who
testified at great length at the trial. The basis for this particular
argument is the following single question and answer contained in
Saldana's testimony before the King Committee, given at a time when the
Grand Jury was midway in its investigation:
"Q. Do you
actually have any evidence that the $97,000 expended or deposited during
the five years constituted unreported income to Mr. Nunan upon which any
taxes were due? A. We do not."
But this is the
old story of selecting a brief quotation here or there and disregarding
the rest. There appears to have been evidence before the Grand Jury of
several of the specific items of unreported income; at the time Saldana
gave the answer to the question above quoted the grand jury
investigation was incomplete; and it seems not improbable that the
witness meant merely that he had no direct, as contrasted with
circimstantial evidence, that the amount of the cash deposits and
expenditures constituted unreported income.
cannot say that appellant has overcome the strong presumption of
regularity accorded to the deliberations and findings of grand juries,
e.g., United States v. Gooding, 12 Wheat. 460; Radford v.
, 2 Cir., 129 Fed. 49; Nanfito v.
, 8 Cir., 20 Fed. (2d) 376; Joyce, Indictments §140 (2d ed.,
Blakemore, 1924), or that the district judge abused his discretion in
denying the motion to quash.
Nor would we be
warranted in holding that it was an abuse of discretion to deny the
motion for an inspection of the Grand Jury minutes.
v. Garsson, S. D. N. Y., 291 Fed. 646;
v. Violon, S. D. N. Y., 173 Fed. 501; cf. United States v.
General Motors, 15 F. R. D. 486, which collects the cases on page
487, nn. 2, 2a.
There is no
merit in any of the other contentions of appellant and we find it
unnecessary to discuss them.
Act of August 20, 1954, c. 769, §1, 68 Stat. 745.
¶9394]Louis J. Schwartz, Appellant, v.
United States of America
(CA-5), United States Circuit
Court of Appeals for the Fifth Circuit, No. 7994, 84 F2d 637, Decided
July 2, 1936
Appeal from the District Court of the United States for the Southern
District of Florida. District Court's conviction for wilfull failure to
file a 1932 return is sustained, the Court finding that appellant had a
net income of from six to seven thousand dollars from his partnership,
whether the latter was on the cash or accrual basis. Affirming District
HUTCHESON, and HOLMES, Circuit Judges.
Schwartz was indicted for that in 1932 he had a named net income on
which he owed a tax, part of which was due to be paid March 15, 1933, on
filing his tax return, but that he wilfully and feloniously and to evade
the tax failed to make any tax return; and in a second count that during
1932 he had a gross income of over $5,000, but on March 15, 1933, and
thereafter he wilfully failed to make any return. The jury found him
guilty on both counts. His sentence requires both counts to sustain it.
shows that during 1932 Schwartz was a partner interested one-half, and
apparently the managing partner, in a bail-bonding agency in
. It is not disputed that the gross premiums earned were $37,472.50, and
that of that sum $13,115.38 was due to and probably paid to a
, leaving an apparent gross income of $24,357.12 for the firm. There is
a contention that perhaps five to seven thousand dollars of the premiums
were not collected. Office and operating expenses are claimed of $2,004.
Schwartz's partnership under his contract with the super-agency was
bound to indemnify the super-agency against all losses, demands,
liability and expenses of whatsoever kind or nature sustained or
incurred by reason or in consequence of the execution of any of the bail
bonds, and the super-agency was in like manner bound to the Public
Indemnity Company, a corporation of New Jersey, which executed the bail
bonds. During 1932, as figured in appellant's brief, judgments were
entered on forfeitures of such bonds amounting to $9,652.35. Forfeitures
which had not gone to judgment were further had in 1932 amounting to
$27,850. There is no evidence that anyone during 1932 paid any of these,
or that Schwartz's partnership was called on to pay any of them at any
time. The Public Indemnity Company failed in 1933. Schwartz, a married
man without children, had no income except that from his partnership,
and no individual deductions were claimed. His taxable income therefore
depended wholly on the net income of his partnership, his half of which
was under law taxable to him whether distributed to him or not. The
partnership was not on a fiscal year basis, and the records were so
incomplete as not clearly to show its income on either a cash or accrual
basis, being hardly more than current bond memoranda and checks. No tax
returns appear to have been attempted by anyone. In the summer of 1933
after an investigation the Commissioner made assessments to which
protests were filed in which Schwartz mainly claimed deductions for
uncollected premiums and expenses, not setting up bond losses, as if
accounting on a cash basis. The taxes finally assessed were not paid. In
the trial he claimed an accrual basis of accounting in order to bring in
the losses by forfeitures of the bonds. The Court allowed in evidence
the forfeitures reduced to judgment in 1932, but excluded those which
had not gone beyond preliminary estreat. This ruling is excepted to.
partnership was not directly liable on any bond. The bonding company
could call on the super-agency to indemnify it and the super-agency
could in turn call on Schwartz. We assume as the trial court did that
the indemnity agreements were not only against loss by payment but also
against liability. We had occasion to examine the difference recently in
Michel v. American Fire & Casualty
, -- Fed. (2d) --. We there said: "If the indemnity promised is
against liability, the incurring of the liability, or if disputed the
rendition of a judgment upon it, will entitle the indemnitee to enforce
his indemnity." Some of these bonds were for bail in the United
States Courts and some in the Florida State Courts. In neither
jurisdiction does the mere failure of the principal to appear establish
any final liability against the surety. In
(Comp. Gen. Laws of 1927, §8351 and following), the judge issues a
certificate of the facts, and a suit or a scire facias against
the surety follows. By Sect. 8356 the surety may defend by making excuse
for the failure of the principal to appear, to be judged of by the
court, and only after trial is a final judgment entered. In the United
States Courts sureties are likewise proceeded against and may make
defenses which exists as of right, and in addition even after final
judgment may often get the penalty remitted in whole or in part under
the provisions of 18 U. S. C. A., §601. A number of the judgments in
this case were thus greatly reduced during 1932. No call for indemnity
was ever made on Schwartz on a preliminary estreat, so as to indicate
that the bonding company and the super-agency acknowledged the liability
as absolute; and we do not think it can be said that any certain
liability of his firm was thus created such as could be called a loss
for income tax purposes even on an accrual basis of accounting. Lucas
v. American Code Co., 280
v. Commissioner, 56 F. (2) 832. We think the judge correctly
excluded from consideration as losses accruing in 1932 estreatures of
bonds which had not been paid, nor gone to judgment, nor been
acknowledged as liabilities by demand on Schwartz for indemnity. He made
no claim that he believed in 1932 that they were deductible and had in
good faith made no return in that belief, but on the contrary testified
that he did not then know that they were deductible.
With the mere
estreats thus eliminated, the evidence shows that it is immaterial
whether a cash or an accrual basis of accounting be followed, for on the
former basis while uncollected premiums will be eliminated from income
the judgments on bonds cannot be deducted since none were paid; while on
the latter basis the premiums earned must be considered income though
not collected while the judgments are deductible. Whichever way it is
figured the partnership had a net income of from twelve to fourteen
thousand dollars, and Schwartz's half was six to seven thousand dollars.
He owed a return and he owed a tax. There remained only the question of
his willfulness in failing to make a return, and his fraudulent intent
with reference to the tax. He claimed no error or misfortune or
forgetfulness. He made no claim that he believed in good faith that the
bond estreatures were deductible. The idea that they were was first
advanced at the trial. His contention was that the firm had no net
income which would make him owe a tax, and that was not true.
charge is subject to criticism, and some of the refused requests to
charge might well have been given. The failure to give them is, however,
justified because the evidence did not support the theory that the
partnership made a net loss, either on cash or accrual accounting. The
wilfulness and fraud of Schwartz were clearly put to the jury, as well
as the matter of reasonable doubt. These were really the only matters
that the jury had room to debate about. Looking to the whole record, we
think no error appears on which reversal ought to be had.