Hearsay
Evidence Page5
[79-2
USTC ¶9537]
United States of America
, Plaintiff-Appellee v. Raymond Sawyer, Defendant-Appellant
(CA-7), U. S. Court of Appeals,
7th Circuit, No. 78-2098, 607 F2d 1190, 8/16/79, Affirming unreported
District Court decision
[Code Sec. 7203]
Criminal penalties: Failure to file return: Evidence supporting
penalty.--The taxpayer's conviction for failure to file returns was
upheld. The jury instructions as to willfulness were proper, as were the
instructions as to the taxpayer's exculpatory statements. There was no
error in the admission of a report, even though it was the report of a
law enforcement officer, because the officer was testifying and merely
using the report to refresh his recollection.
Thomas
P. Sullivan, United States Attorney, Scott Throw, Assistant United
States Attorney, Chicago, Illinois 60604, for plaintiff-appellee.
William J. Harte, 111 W.
Washington Street
,
Chicago
,
Illinois
60602
, for defendant-appellant.
Before
CASTLE, Senior Circuit Judge, SWYGERT and BAUER, Circuit Judges.
BAUER,
Circuit Judge:
The
appellant Raymond Sawyer was indicted by information on two counts of
violating 18 U. S. C. ¶7203 by failing to file timely income tax
returns for the calendar years 1971 and 1972. Sawyer pleaded not guilty
to the charges, but was found guilty by a jury. The court sentenced him
to a one-year term of imprisonment on each count, with the sentences to
run concurrently; in addition, the court fined Sawyer $10,000 on Count
I. Sawyer now appeals.
In
his first argument on appeal, Sawyer claims that the jury was improperly
instructed on the meaning of "willful" as used in 26 U. S. C.
§7203. The court instructed the jury as follows:
As
used in the statute . . . the word "willful" means voluntarily
and purposeful and deliberate and intentional as distinguished from
accidental, inadvertent or negligent.
Now,
the failure to do an act is willfully done if it is done voluntarily and
purposely and with a specific intent to fail to do what the law requires
to be done; that is to say, with a bad purpose to disobey and disregard
the law . . ..
In essence, Sawyer argues that the
jury should have been instructed that his failure to file was not
"willful" if it resulted from an "innocent reason"
or "justifiable excuse." The omission of this language, Sawyer
maintains, prevented the jury from considering his only defense, namely,
that his physical and emotional condition rendered him incapable of
filing his income tax returns on time.
However,
in an en banc decision, this Court approved a jury instruction on
"willfulness" that is virtually identical to the one given in
this case. United States v. McCorkle [75-1 USTC ¶9270], 511 F.
2d 482, 484 n. 2 (7th Cir. 1975), cert. denied, 423
U. S.
826 (1975). Like Sawyer, McCorkle argued that the instructions "had
the effect of eliminating justifiable excuse as a consideration in
resolving the issue of willfulness."
Id.
at 486. In rejecting the claim, the Court noted that only a limited set
of circumstances could legally justify a failure to file--namely,
"an inadvertent failure to file or a bona fide misunderstanding as
to [defendant's] . . . duty to make a return." The Court then
reasoned that "[s]ince the instructions required the jury to find
an intentional violation of a known legal duty, it would have been
essential for the jury to conclude that McCorkle's conduct was
unjustified."
Id.
Finding this logic applicable to the case at hand, we hold that the
trial court did not commit reversible error in its instructions to the
jury on the meaning of "willfulness."
Sawyer
next challenges the trial court's instruction to the jury on false
exculpatory statements. That instruction read:
Now,
evidence has been instroduced that the defendant made certain
exculpatory statements, which were outside the courtroom, when he was
interviewed, explaining his actions to show that he was innocent of the
crime charged in an [sic] information. Now, evidence contradictory [sic]
such statements has also been introduced and if you find that the
exculpatory statements were untrue and that the defendant made them
voluntarily and with knowledge of their falsity, you may consider such
statements as circumstantial evidence of the defendant's consciousness
of guilt.
This Court has recognized that a
defendant's false, out-of-court exculpatory statements may be taken as
evidence of guilt. See, e.g.,
United States
v. Riso, 405 F. 2d 134, 138 (7th Cir. 1968); United States v.
Lomprez, 472 F. 2d 860, 863 (7th Cir. 1972). The appellant argues,
however, that the instruction did not require the jury to determine that
he did in fact make the alleged statements. We are not persuaded by this
claim, for, in our view, such a requirement is implicit in the language
of the instruction, particularly since the appellant argued the issue to
the jury. We thus find no grounds for reversal in the trial court's
instruction on exculpatory statements.
The
appellant next argues that the district court improperly admitted
evidence of an alleged phone conversation between Sawyer and Revenue
Officer Schroeder. It is Sawyer's position that the conversation was not
properly authenticated and that a memorandum which Schroeder prepared on
the conversation was inadmissible hearsay.
On
the issue of authentication, there is sufficient circumstantial
evidence, in our view, to satisfy Rule 901(6) of the Federal Rules of
Evidence, for it is undisputed that the number listed in the agent's
report was Sawyer's business number, and the personal nature of the
information sought makes it highly unlikely that anyone else would have
answered for Sawyer.
The
admissibility of the agent's report, however, raises a more difficult
issue. It would seem, as the government argues, that the report
satisfies the criteria for admissibility as a recorded recollection
under F. R. Ev. 803(5). The agent testified that he no longer had a
recollection of the conversation and that the history sheet was prepared
immediately after the conversation. In addition, the agent's testimony
tended to show that both the original notation and its later
transcription to the referral report were accurate.
Nevertheless,
Sawyer claims that the referral report should have been excluded because
it represents the report of a law enforcement officer. Relying heavily
on United States v. Oates, 560 F. 2d 45 (2d Cir. 1977), Sawyer
argues that law enforcement reports that are barred under the
"public records" exception of F. R. Ev. 803(8) are also
inadmissible under any other exception to the hearsay rule. In Oates,
the Second Circuit found "a clear congressional intent that reports
not qualifying under F. R. Ev. 803(8)(B) or (C) should, and would, be
inadmissible against defendants in criminal cases." 560 F. 2d at
72.
We
are not persuaded, however, that the restrictions of Rule 803(8) were
intended to apply to recorded recollections of a testifying law
enforcement officer that would otherwise be admissible under Rule
803(5). In our view, the legislative history of Rules 803(8)(B) and (C)
indicates that Congress intended to bar the use of law enforcement
reports as a substitute for the testimony of the officer. Thus,
Representative Dennis, in offering the amendment which excluded law
enforcement reports from admission at criminal trials, stated:
What
I am saying here is that in a criminal case, . . . we should not be able
to put in the police report to prove your case without calling
policeman. I think in a criminal case you ought to have to call the
policeman on the beat and give the defendant the chance to cross examine
him, rather than just reading the report into evidence. That is the
purpose of this amendment.
120 Cong. Rec. H 564 (Feb. 6,
1974).
And the Oates court itself identified the loss of confrontation
rights as the underlying rationale for Rule 803(8):
[The]
pervasive fear of the draftsmen and of Congress that interference with
an accused's right to confrontation would occur was the reason why in
criminal cases evaluative reports of government agencies and law
enforcement reports were expressly denied the benefit to which they
might otherwise be entitled under F. R. Ev. 803(8).
560 F. 2d at 78.
We therefore decline to hold that Rule 803(8) disqualifies the recorded
recollections of a testifying law enforcement officer, when such
recollections would otherwise be admissible under Rule 803(5).
Accordingly, since the hearsay declarant in this case was available for
cross-examination, and since the referral report would otherwise qualify
as a recorded recollection, we find no reversible error in the admission
of the report.
Finally,
Sawyer claims that the trial court erred in excluding proof that he had
eventually paid his taxes for 1971 and 1972. However, as this Court
noted in United States v. Ming [72-1 USTC ¶9449], 466 F. 2d
1000, 1005 (7th Cir. 1972), "[i]t has been clearly established that
late filing and late tax payment are immaterial on the issue of
willfulness in a Section 7203 prosecution." We see no merit in the
appellant's argument that this principle is somehow inapplicable to the
case at hand because the government was allowed to prove the amount of
taxes that Sawyer owed for 1971 and 1972.
We
have examined the appellant's other arguments and find no grounds for
reversal. The judgment of the district court is therefore AFFIRMED.
Concurring Opinion
SWYGERT,
Circuit Judge, concurring in the result.
With
some reluctance, I concur in the affirmance of defendant's conviction.
My reluctance stems from the admission of Revenue Officer Schroeder's
reading from his referral report dated January 14, 1974 which stated
that "a phone call was made to the taxpayer's husband who stated
that the 1040 returns . . . 1971 and 1972 had been filed."
An
examination of the referral report shows that it comes within the
literal definition of records excluded pursuant to section 803(8)(B) of
the Federal Rules of Evidence: "[M]atters observed pursuant to duty
imposed by law as to which matters there was a duty to report, excluding,
however, in criminal cases matters observed by police officers and other
law enforcement personnel." (emphasis added).
The
problem here is whether section 803(8)(B) is inapplicable because of the
operative effect of section 803(5) which reads in its entirety:
Recorded
recollection. A memorandum or
record concerning a matter about which a witness once had knowledge but
now has insufficient recollection to enable him to testify fully and
accurately, shown to have been made or adopted by the witness when the
matter was fresh in his memory and to reflect that knowledge correctly.
If admitted, the memorandum or record may be read into evidence but may
not itself be received as an exhibit unless offered by an adverse party.
Officer
Schroeder testified that he obtained defendant's telephone number from
defendant's wife in September 1973 and that it was his routine practice
to attempt to contact a taxpayer under investigation by telephone in
such circumstances. He further testified that it also was routine to
record all taxpayer contacts on a history sheet and that notations
reflecting phone calls would be made immediately after the calls were
completed.
Officer
Schroeder said that he had no independent recollection of his phone
conversation with defendant and that the history sheet on defendant had
been destroyed after he had closed his part of the investigation. He
testified that he had used the history sheet to prepare his referral
report--the disputed document.
Although
we are dealing with a record of a record, not made contemporaneously
with the event, and in a sense double hearsay, I am satisfied that the
requirements of section 803(5) were met. Because Schroeder was available
as a witness for both foundation purposes and cross-examination, the
hearsay was admissible under the Federal Rules of Evidence and the
defendant was not deprived of the right of confrontation. If Officer
Schroeder had not been available for cross-examination, defendant's
right of confrontation would have been violated and a different result
would have been compelled. See
United States
v. Oates, 560 F. 2d 45 (2d Cir. 1977).
[64-2
USTC ¶9595]
United States of America
, Plaintiff-Appellee v. Andrew Pasha, Peter Grafner, and Arthur Monaco,
Defendants-Appellants
(CA-7), U. S. Court of Appeals,
7th Circuit, No. 14188, 332 F2d 193, 5/22/64, Affirming unreported
District Court decision
[1954 Code Sec. 7203]
Validity of convictions: Sufficiency of indictments: Validity of
search warrants: Admissibility of evidence.--Judgments of conviction
for violations of Code Sec. 7203 were upheld by the Court of Appeals
which found the indictments were sufficient, an affidavit stated
sufficient grounds for the issuance of valid search warrants, evidence
concerning telephone conversations and admitted by the trial court was
competent and admissible, and an instruction to the jury was proper.
Edward
V. Hanrahan, United States Attorney, John Peter Lulinski, John Powers
Crowley, Assistant United States Attorneys, Chicago, Ill., for
plaintiff. Anna R. Lavin, 209 So. LaSalle,
Chicago
,
Ill.
, Edward J. Calihan, Jr., 105 W. Adams, Chicago,
Ill.
, for defendants.
Before
HASTINGS, Chief Judge, SCHNACKENBERG and SWYGERT, Circuit Judge.
SWYGERT,
Circuit Judge:
Defendants
Andrew Pasha, Peter Grafner, and Arthur Monaco were convicted by a jury
on a two-count indictment charging violations of section 7203 of the
Internal Revenue Code of 1954. 1 Defendants
received prison sentences and were fined. They appeal from the judgments
of conviction.
The Sufficiency of the
Indictment
Both
counts of the indictment charged that defendants were engaged in the
business of accepting wagers from April 25, 1960 to April 27, 1960, and
that they received wagers on their own behalf and on behalf of other
persons engaged in the business. Count one charged defendants willfully
failed to pay the special occupational tax on wagering for the taxable
period ending June 30, 1960, as required by section 7203. Count two
charged that defendants willfully failed to register with the
Chicago
district director of Internal Revenue and to file Internal Revenue Form
11-C, as required by law and regulations, in violation of section 7203.
Defendants
contend that count one is insufficient because the names of the persons
engaged in accepting wagers on whose behalf defendants acted were not
named in the indictment.
Section
4401(c) of the Internal Revenue Code of 1954 requires the payment of a
tax by one who is engaged in the business of accepting wagers. Section
4411 imposes a similar tax upon those who receive wagers for others
whose business is the acceptance of wagers. Thus, an occupational tax is
payable by one engaged in the wagering business whether he operates the
business or acts as the agent for someone who does conduct the business.
Here, defendants were charged both as principals and agents. There was
no necessity to recite in the indictment the identity of the principals
on whose behalf defendants were acting as agents because the gravamen of
the offense is the engaging in the business of accepting wagers either
as principal or agent.
Defendants
contend that court two of the indictment failed to charge an offense
defined by statute. They point out that the count charges a failure to
register in accordance with section 4412(a) of the Internal Revenue Code
of 1954 and also a failure to make a return on Form 11-C. They assert
that the return is not required by statute. Defendants argue that the
failure to file Form 11-C is not proscribed by section 7203 even though
that section includes the failure to make a return "required by law
or regulations."
Section
4412(a) provides that each person required to pay the occupational tax
under sections 4401 and 4411 must register with the Internal Revenue
Service. Section 4412(c) provides: "In accordance with regulations
prescribed by the Secretary, he or his delegate may require from time to
time such supplemental information from any person required to register
under this section as may be needful to the enforcement of this
chapter." Pursuant to section 4412(c), the Secretary of the
Treasury promulgated regulation §44.4412-1(a) which reads in part:
"Every person required to pay the special tax imposed by section
4411 shall register and file a return on Form 11-C. For provisions
relating to the general requirement for filing a return, see §44.6011(a)-1."
2
Even
though the requirement for registering and filing a return on Form 11-C
originates in a regulation, it is given statutory sanction not only by
section 4412(c) but also by section 6011(a) of the Internal Revenue Code
of 1954. That section reads in part:
When
required by regulations prescribed by the Secretary or his delegate, any
person made liable for any tax imposed by this title . . . shall make a
return . . . according to the forms and regulations prescribed by the
Secretary or his delegate.
It
is thus apparent that count two charges a statutory offense.
The Validity of the Search
Warrants
Prior
to defendants' arrest, an Internal Revenue agent executed an affidavit
which resulted in a search of premises located at
5129 West Diversey Avenue
and
3157 North Leclaire Avenue
,
Chicago
. The agent stated in his affidavit, "There is now being concealed
certain property, namely . . . betting slips, betting pads, records of
bets, tickets, scratch sheets, telephones, . . . calculating machines,
and diverse other . . . apparatus, . . . and records, relating to the
business of accepting wagers." The agent further stated that he
made and supervised an investigation of these premises and had
maintained a surveillance for some period prior to the search; that
agents under his supervision observed the three defendants enter and
leave an apartment at the Leclaire Avenue address daily, at regular
hours, and that they saw defendants on several occasions at the Diversey
Avenue address, a building which had lettering on its front window,
Goodman Design & Engineering Co. The affidavit listed numerous
telephone calls originating from two numbers assigned to the
Leclaire Avenue
address to
Miami
,
Florida
,
New Orleans
,
Louisiana
, and other out-of-state places. The agent stated he had been informed
that the
Miami
and
New Orleans
numbers were registered to or used by known gamblers.
We
have no difficulty in concluding that the affidavit stated grounds
sufficient for the issuance of valid search warrants. United States
v. Clancy [60-1 USTC ¶15,291], 276 F. 2d 617 (7th Cir. 1960), rev'd
on other grounds [61-1 USTC ¶15,333], 365
U. S.
312 (1961); Merritt v. United States [57-2 USTC ¶10,000], 249 F.
2d 19 (6th Cir. 1957).
During
the search at the
Leclaire Avenue
address defendant
Monaco
appeared. A key taken from him was admitted into evidence. It is not
clear from the record whether
Monaco
gave the key in response to an agent's request or if it was taken from
him. Whether or not the key was voluntarily produced is immaterial. The
evidence was legally obtained by the federal agents. United States v.
Rabinowitz, 339
U. S.
56 (1950); Clay v. United States [57-2 USTC ¶9800], 246 F. 2d
298 (5th Cir.), cert. denied, 355
U. S.
863 (1957).
Defendants
contend that special agents of the Intelligence Division of the Internal
Revenue Service were not authorized to execute the search warrants. They
argue that section 7608(b) of the Internal Revenue Code of 1954 (enacted
October 23, 1962) giving investigators of the Intelligence Division
authority to execute search warrants postdated the instant search of
April 27, 1960. It is clear, however, that section 7608(b) was solely a
clarification statute and that Internal Revenue agents had implied
authority under section 7803(a) to make arrests and to execute search
warrants. 3 United
States v. Murphy, 290 F. 2d 593 (3d Cir. 1961); United States v.
Joseph, 174 F. Supp. 539 (E. D. Pa. 1959), aff'd [60-1 USTC
¶15,300] 278 F. 2d 504 (3d Cir.), cert. denied, 364
U. S.
823 (1960).
Admissibility of Telephone
Conversations
Defendants
assert that the district judge erred in admitting testimony of two
agents concerning telephone conversations with unidentified persons who
telephoned the apartment at the
Leclaire Avenue
address during the search of the premises.
The
evidence shows that the agents were assigned to answer calls made to the
three telephones located on the premises. On some occasions in response
to the caller's request to place a bet the agents answered,
"Yes," and hung up. In several instances, however, one of the
agents, in response to the caller's question, "Who is this?",
gave the name of one or the other of the defendants as the person
speaking, and the caller then placed a bet or asked for racing
information. One caller said, "I hear there's a general raid all
over the country." These telephone conversations were admitted into
evidence over defendants' objections.
Defendants
contend that the conversations were hearsay; however, the statements of
the unidentified callers were offered only as circumstantial evidence of
the type of operation that was being conducted on the premises. Such
evidence is competent. Reynolds v. United States [55-2 USTC ¶49,146],
225 F. 2d 123 (5th Cir. 1955).
Defendants
also contend that the testimony relating to the conversations was
inadmissible because the actions of the agents in answering the
telephones violated section 605 of the Communications Act of 1934, 47 U.
S. C. §605, 4 as well as
the fourth and fifth amendments to the Constitution.
Olmstead
v. United States, 277
U. S.
438 (1928), is dispositive of the constitutional claims. That case held
that telephone conversations intercepted by police officers were not
protected by the fourth and fifth amendments. 5
The
question remains whether section 605 of the Communications Act was
violated thereby rendering the testimony concerning the conversations
inadmissible under the exclusionary doctrine developed in Nardone v.
United States, 302 U. S. 379 (1937), and expanded in Nardone v.
United States, 308 U. S. 338 (1939).
Billeci
v. United States, 184 F. 2d
394 (D. C. 1950) is authority for the proposition that section 605 is
not violated when police officers in answering a telephone do not
actively impersonate the intended recipient but merely listen to what
the caller has to say. That case held that the action of a United States
marshal in picking up a telephone when it rang and listening to the
caller, during the search of an alleged gambling establishment, was not
an interception within the meaning of section 605. In Rathbun v.
United States, 355
U. S.
107 (1957), the Supreme Court, while not explicitly approving Billeci
and similar holdings in other cases, impliedly approved that line of
decisions.
Although
Billeci answers in part the question before us, we must still
consider the conversations in which one of the agents did impersonate
the intended receivers.
The
supreme court of
New Jersey
in State v. Carbone, 138 N. J. 19, 183 A. 2d 1 (1962), faced this
identical problem. In that case a police officer during a raid of the
defendant's premises under a search warrant answered the defendant's
telephone, impersonate the defendant, and listened to the caller. The
court held this did not constitute a violation of section 605. In so
ruling the court said:
The
statute was not designed to create a new category of confidential
communications. . . . "The protection intended and afforded by the
statute is of the means of communication and not of the secrecy of the
conversation." Goldman v.
United States
. . . . "The communication itself is not privileged and one
party may not force the other to secrecy merely by using a
telephone." Rathbun v.
United States
. . . .
The
. . . statute protects the established line of transmission; the
prohibition is against intervention into that channel. This is the view
of it we find in Goldman.
In
Goldman. . . . the court found no violation of section 605,
saying: ". . . [A]s has rightly been held, this word [intercept]
indicates the taking or seizure by the way or before arrival at the
destined place. It does not ordinarily connote the obtaining of what is
to be sent before, or at the moment, it leaves the possession of the
proposed sender, or after, or at the moment, it comes into the
possession of the intended receiver. . . ."
In
the case before us, there was no tampering with the established means of
communication. Indeed the officer was the immediate party to the call.
The bettor intended his words to reach the officer, albeit the better
thought he was someone else. Thus the officer did not
"intercept" a message while it was en route to another;
there was no other on the line.
We
are in agreement with the view expressed by the
New Jersey
court. We think the Supreme Court indicated in Silverman v. United
States, 365 U. S. 505 (1961), Rathbun v. United States, 355
U. S. 107 (1957), and Goldman v. United States, 316 U. S. 129
(1942), that section 605 should be given a narrow interpretation. Carbone
is consistent with such an approach.
Although
the callers in the instant case were unaware that they were not being
heard by the intended receivers and some were even misled into believing
they were talking to one or the other of the defendants, the
conversations between the callers and the agent cannot be said to have
been intercepted. Interception connotes a situation in which by
surreptitious means a third party overhears a telephone conversation
between two persons. We believe that impersonation of the intended
receiver is not an interception within the meaning of the statute. Cf.
Seeber v.
United States
, 329 F. 2d 572 (9th Cir. 1964).
Moreover,
we see no essential difference between the situation in which a police
officer picks up the telephone, answers "yes," and proceeds to
listen to the caller (as in Billeci) and the situation in which
the officer explicitly represents that he is the intended receiver. In
the latter instance the impersonation is positive, in the first it is
passive but impersonation nonetheless.
The Scope of the Evidence
We
find no error in the district judge's instruction to the jury near the
end of the Government's case that, with the exception of one exhibit,
all the evidence could be considered as to all defendants. Where two or
more persons associate together in the commission of a crime or crimes,
the acts and declarations of one are admissible as to all. United
States v. Bernard [61-1 USTC ¶9221], 287 F. 2d 175 (7th Cir. 1961).
As was said in Cossack v. United States, 82 F. 2d 214, 216 (9th
Cir.), cert. denied, 298
U. S.
654 (1936):
The
common object of persons associated for illegal purposes forms part of
the res gestae, and acts done with reference to such object are
admissible, though no conspiracy is charged.
Moreover,
the district judge did not by the instruction withdraw from the jury, as
defendants argue, the issue whether the defendants were engaged in a
joint venture to violate the law. A judge's function is to determine the
admissibility of evidence. Admissibility may involve preliminary factual
determinations which perforce must be made by the judge, not the jury. Carbo
v.
United States
, 314 F. 2d 718 (9th Cir. 1963).
We
have discussed the principal contested issues which are urged for
reversal. Defendants present a number of other issues including whether
the evidence was sufficient to show defendants' knowledge and
willfulness and whether the district judge should have instructed on the
issue of a lesser and included offense. They also contend that the judge
gave contractory instructions and unduly restricted cross-examination.
We have considered these and other contentions asserted. We find them to
be without substance. It is unnecessary to discuss them.
The
judgments are affirmed.
1
26
U. S.
C. §7203 reads in pertinent part:
Any
person required under this title to pay any estimated tax or tax, or
required by this title or by regulations made under authority thereof to
make a return . . . or supply any information, who willfully fails to
pay such estimated tax or tax, make such return . . . or supply such
information, at the time or times required by law or regulations, shall
. . . be guilty of a misdemeanor. . . .
2
Treas. Reg. §44.6011(a)-1(b) reads:
Every
person required to pay the special tax imposed by section 4411 shall
make a return on Form 11-C in accordance with the instructions and
regulations applicable thereto.
3
Section 7608(a) enacted in 1958, gave Internal Revenue agents authority
to execute search warrants with respect to the enforcement of liquor,
tobacco, and firearms revenue laws. This statute was enacted to clarify
existing authority of Internal Revenue agents to execute search warrants
with respect to enforcement of those laws. 3 U. S. Code Cong. & Ad.
News, 85th Cong., 2d Sess. 4395, 4605 (1958). Similarly, section
7608(b), granting authority to investigators of the Intelligence
Division of the Internal Revenue Service to execute search warrants,
clarified and made specific the authority of such agents that had
existed prior to the 1962 legislation.
4
47
U. S.
C. §605 roads in part:
No
person receiving or assisting in receiving, or transmitting, or
assisting in transmitting, any interstate or foreign communication by
wire or radio shall divulge or publish the existence, contents,
substance, purport, effect, or meaning thereof, except through
authorized channels of transmission or reception, to any person other
than the addressee, his agent, or attorney, or to a person employed or
authorized to forward such communication to its destination, . . . and
no person not being authorized by the sender shall intercept any
communication and divulge or publish the existence, contents, substance,
purport, effect, or meaning of such intercepted communication to any
person; . . . (Italics added.)
5
Despite invitations to do so, the Court has not reversed Olmstead.
Silverman v.
United States
, 365
U. S.
505 (1961); Goldman v.
United States
, 316
U. S.
129 (1942).
[67-1
USTC ¶9446]William C. Siravo, Defendant-Appellant v.
United States of America
, Appellee
(CA-1), U. S. Court of Appeals,
1st Circuit, No. 6847, 377 F2d 469, 5/15/67, Aff'g unreported District
Court opinion
[1954 Code Sec. 7206(1)]
Criminal penalties: False returns: Omission of income.--The
taxpayer's conviction for filing perjurious tax returns for 1958 through
1960 by failing to report specific amounts of income from another
business was upheld. Signing the declaration on the return that it was
true and correct when he knew it was not was a violation of Code Sec.
7206(1). The fact that Code Sec. 7203 created a misdemeanor for
willfully failing to keep tax records or supply required information did
not preclude Congress from establishing a felony for falsely swearing
under penalties of perjury that a partial return was a whole one.
[1954 Code Sec. 7203]
Criminal penalties: Failure to file a return: Instructions to jury:
Evidence of cost of goods sold: Testimony as hearsay.--The trial
court correctly instructed the jury that total receipts must be reduced
by the cost of goods sold and other costs representing a return of
capital to arrive at gross income from the taxpayer's manufacturing
business, and that, even if the government did not prove the exact
amount of income stated in the indictment, it was sufficient if the
evidence showed that receipts exceeded cost of goods sold by at least
$600. The Government did not have the burden of proving the taxpayer's
labor costs offsetting proved gross receipts because evidence of
unexplained receipts shifts the burden of introducing evidence as to the
amount of offsetting expenses, if any, to the taxpayer. In addition, the
trial court did not err in admitting a special agent's testimony claimed
to be hearsay, nor was the court's use of the term "gross
income" in its instructions to the jury prejudicial.
James
R. McGowan, Lester H. Salter,
Providence
, R. I., for defendant-appellant. Attorney, Alton W. Wiley, Special
Assistant for appellee.
COFFIN,
Circuit Judge:
Defendant
appeals from judgment of conviction on three counts for wilfully making
and subscribing false tax returns in 1958, 1959, and 1960, in violation
of 26 U. S. C. §7206(1), 1 and on one
count for wilfully failing to file a tax return in 1961 in violation of
26 U. S. C. §7203. 2
Defendant's
returns during 1958-1960 showed as income only wages (not exceeding
$7,500 in any of the tax years in question) paid by Siravo Motor Sales.
In each year the tax due was less than tax withheld and refund was
applied for. Evidence at trial showed that during these years defendant
operated Trans-Lux Jewelry Co., which assembled jewelry components as a
subcontractor for various manufacturers, receiving for this work the
following amounts: 1958-$22,242.83; 1959-$28,976.22; 1960-$54,319.47;
1961-$71,362.73.
Defendant
made no entry on his form 1040 opposite the heading "profit (or
loss) from business from separate Schedule C", nor did he file a
separate Schedule C ("Profit (or Loss) From Business or
Profession"). He signed the customary declaration. 3
While
the evidence indicated that the defendant's jewelry assembly work must
have required a number of people, there was no evidence as to the amount
of any costs or expenses, whether of materials, labor, or overhead.
The
first three counts charged that defendant "did wilfully . . . make
and subscribe . . . a . . . tax return . . . which was verified by a
written declaration that it was made under the penalties of perjury,
Salter & McGowan, 146 Westminster St., Frederick W. Faerber, Jr.,
United States United States Attorney, Providence, R. I., and which . . .
he did not believe to be true and correct as to every material matter in
that . . . he failed and omitted to disclose . . . substantial gross
receipts from a business activity. . . ."
Defendant's
principal contention is that 26 U. S. C. §7206(1) describes a form of
perjury, that a basic requirement of perjury is a false statement of
fact, and that failure to attach a separate Schedule C reporting
"gross receipts" is neither a constructive misrepresentation
of taxable income 4 nor a false
statement. He therefore attacks the sufficiency of both the indictment
and the evidence. The government denies that section 7206(1) is a
perjury statute and that a false statement of facts is an essential
element of this crime. It argues that a violation of the section can
consist of the knowing and wilful omission of facts, citing Conford
v. United States, 10 Cir., 1964, [64-2 USTC ¶9752] 336 F. 2d 285.
In
our view it is unnecessary to resolve this dispute in semantics, for we
hold that a return that omits material items necessary to the
computation of income is not "true and correct" within the
meaning of section 7206. If an affirmative false statement be required,
it is supplied by the taxpayer's declaration that the return is true and
correct, when he knows it is not. Therefore, the government has made out
a violation of the section, whether it be labelled "a perjury
statute", Kolaski v. United States, 5 Cir., 1966, [66-2 USTC
¶15,700] 362 F. 2d 847, or "similar in nature", United
States v. Clement, 5 Cir., 1966, 358 F. 2d 87, cert. denied,
385 U. S. 822.
Our
decision is grounded first on the language of the statute. If
"true" and "correct" are not to be construed as
precisely synonymous, therefore redundant, they must mean something more
than that no false figures have been used and that the arithmetic is
accurate. In fact, the two terms together are commonly construed as
meaning that the document described is both accurate and complete. See,
e.g., East Coast Lumber Co. v. Ellis-Young Co., 1908, 55
Fla.
256, 45 So. 826; Collier v. Collier, 1898, 150 Ind. 276, 49 N. E.
1063. 5
Moreover,
we think this construction is necessary to effect the statutory
"self-assessing" approach to income taxation. See
United States
v. Raylor, S. D. Cal., 1962, [62-2 USTC ¶9607] 204 F. Supp. 486,
491, appeal dismissed as untimely, 9 Cir., 1963, 323 F. 2d 519, cert.
denied, 375
U. S.
993. As the Supreme Court said in United States v. Carroll, 1953,
[53-1 USTC ¶9356] 345
U. S.
457, 460 (dictum), "The code and regulations must be construed in
light of the purpose to locate and check upon recipients of income and
the amounts they receive." In the context of this case, defendant's
contrary construction comes down to this: The return of an employee who
earned $10,000 a year and reported only $8,000 would not be "true
and correct", while that of a corporation director who reported
fees of $5,000 but omitted an accounting for the receipt of $1,000,000
in rents would be "true and correct". Or, to reverse the
pattern in this case, defendant would have to say that a return showing
an accounting for a taxpayer's business resulting in a net profit of
$7,500 and omitting wage payments of $50,000 would also be "true
and correct". We cannot conclude that Congress, in devising "a
variety of sanctions for the protection of the system and the
revenues", Spies v. United States, 1943, [43-1 USTC ¶9243]
317 U. S. 492, 495, intended to place such a premium on the telling of
half truths.
Defendant
argues also that another statute amply covers the wilful omission of
information and that the principle of narrow construction of penal
statutes compels us not to allow the application of section 7206(1) to
defendant. Section 7203 of title 26 creates a misdemeanor for the wilful
failure to keep required tax records or supply required information. But
the fact that Congress has seen fit to classify wilful failure to supply
information as a misdemeanor quite clearly does not preclude it from
establishing a felony for falsely swearing under the penalties of
perjury that a partial return is a whole one. The structure of
sanctions, particularly in the tax field, is not one of mutually
exclusive alternatives. See
United States
v. Rayor, supra, 204 F. Supp. at 489-90. While we respect the
principle of narrow construction, we see no ambiguity in the words
"true and correct". This is a far cry from the situation in Commissioner
v. Acker, 1959, [59-2 USTC ¶9757] 361 U. S. 87, where the
government sought to parlay a failure to file a declaration of estimated
tax into a "substantial underestimate".
The
fourth count charged that defendant, having a gross income of $73,209.24
in 1961, wilfully and knowingly failed to file a return. The trial court
correctly instructed the jury that total receipts must be reduced by the
cost of goods sold and other costs representing a return of capital to
arrive at gross income for a manufacturing business, and that, even if
the government did not prove the exact amount of income stated in the
indictment, it was sufficient if the evidence showed that receipts
exceeded cost of goods sold by at least $600. But there was no evidence
as to the amount of costs, except the testimony that substantially all
materials were supplied by defendant's customers. Defendant argues that
since labor costs are part of the cost of goods sold and since there was
testimony that the volume of business was impossible for one man to
handle, the government has not carried its burden of showing that he did
not have labor costs offsetting the proved gross receipts.
We
do not agree that the government has any such burden. The applicable
rule here is that uniformly applied in tax evasion cases--that evidence
of unexplained receipts shifts to the taxpayer the burden of coming
forward with evidence as to the amount of offsetting expenses, if any. E.g.,
United States v. Shavin, 7 Cir., 1963, [63-2 USTC ¶9584] 320 F. 2d
308, cert. denied, 375 U. S. 944; Swallow v. United States,
10 Cir., 1962, [62-2 USTC ¶9693] 307 F. 2d 81, cert. denied,
1963, 371 U. S. 950; United States v. Tadio, 2 Cir., 1955, [55-1
USTC ¶9521] 223 F. 2d 759, cert. denied, 350 U. S. 874; United
States v. Stayback, 3 Cir., 1954, 212 F. 2d 313, cert. denied,
1955, 348 U. S. 911. 6 Indeed, this
case is necessarily included in that rule. For in a tax evasion case the
government's ultimate burden is to show that the taxpayer received not
only gross income but also taxable income, after deduction of capital and
non-capital expenses. If that is satisfied by proof of sales receipts,
absent explanation, so must be the lesser burden here.
Defendant
attempts to distinguish the cited cases by tracing them back to United
States v. Hornstein, 7 Cir., 1949, [49-2 USTC ¶9326] 176 F. 2d 217,
where the defendant had filed a return reporting some income and
deductions, and the government proved additional items of income not
reported. Defendant's argument is that the rule of Hornstein is
applicable only in such a case, on the theory that when some deductions
are reported the government can rest on the presumption that no others
are allowable and thus that all unreported income is taxable. Such a
theory may be consistent with the facts of Hornstein, 7 but we do
not think it accurately reflects the sound considerations involved. The
rule we follow here is based on considerations of fairness to both
parties and of reasonable access to the relevant evidence. Cf.
Morrison v.
California
, 1934, 291
U. S.
82, 88-89. To allow the defendant, who can readily keep records that
would establish his capital costs, to file no return, however great his
receipts, and then challenge the government to prove the amount of those
costs, would be effectively to frustrate the purposes of section 7203.
Our
analysis is not shaken by consideration of our opinion in Winkler v.
United States, 1 Cir., 1956, [56-1 USTC ¶9342] 230 F. 2d 766. The
only issue expressly addressed in that case was the definition of gross
income with respect to a professional gambler. Neither party briefed the
question of allocating the burden of producing evidence as to losses. To
be sure, our action in reversing the conviction rather than remanding
for trial under proper instructions may be read as assuming that the
government was bound to show the amount of offsetting losses. Having now
faced the issue frontally, we are persuaded of the soundness of our
present position and must reject any implications stemming from this sub
silentio assumption.
Defendant's
final attack on his count IV conviction is that it was reversible error
to allow a special agent, who was absent during the first day of trial,
to give his opinion that "in this particular case I would state
that the gross income or the gross receipts would be the same
figure". This testimony is challenged because it allegedly relied
upon hearsay and because it invaded the province of the jury in dealing
with an ultimate issue.
We
do not have here the egregious effort to use a special agent as a
conduit for the hearsay testimony of absent witnesses which was
presented in Greenberg v. United States, 1 Cir., 1960, [60-2 USTC
¶9577] 280 F. 2d 472; same, 1 Cir., 1961, [61-2 USTC ¶9727] 295
F. 2d 903. Here the manufacturers who paid defendant testified and
defendant stipulated that he received the proceeds of the checks in
evidence. Cf. Johnson v.
United States
, 1 Cir., 1963, [64-1 USTC ¶15,537] 325 F. 2d 709, 711. The court
was careful to exclude testimony by the special agent as to
conversations with others. As to the objection to the special agent's
opinion above quoted, we observe that not only did he add the qualifying
clause "in the absence of inventories and merchandise
purchased", but he acknowledged on cross-examination that labor
costs also should be deducted from gross receipts in order to arrive at
gross income. Under the circumstances, the special agent was merely
stating the obvious--the identity of gross receipts and gross income in
the absence of evidence of material and labor costs. We find no
prejudice to defendant.
For
similar reasons we find no prejudice in the trial court's use of the
term "gross income" in instructing on the first three counts.
Admittedly, those counts dealt with failure to report gross receipts;
but the conduct of the trial and the court's other instructions made it
adequately clear that if there was any difference between gross receipts
and gross income in this case, the latter must be a smaller figure. Any
misapprehension engendered by the instructions complained of could only
have benefitted the defendant. The use of the words "gross
income", though perhaps error in the context, was not prejudicial.
Affirmed.
1
Section 7206. Fraud and false statements.
Any
person who--
(1)
Declaration under penalties of perjury.--Willfully makes and
subscribes any return, statement or other document, which contains or is
verified by a written declaration that it is made under the penalties of
perjury, and which he does not believe to be true and correct as to
every material matter; . . .
shall be fined not more than
$5,000, or imprisoned not more than 3 years, or both, together with the
costs of prosecution.
2
Section 7203. Willful failure to file return, supply information, or
pay tax
Any
person . . . required by this title or by regulations . . . to make a
return . . . or supply any information, who willfully fails to . . .
make such return, . . . or supply such information, at the time or times
required . . . shall, in addition to other penalties provided by law, be
guilty of a misdemeanor and . . . shall be fined not more than $10,000,
imprisoned not more than 1 year, or both, together with the costs of
prosecution.
(Section
6012(a)(1) requires a return to be made by "every individual having
for the taxable year a gross income of $600 or more . . ..")
3
"I declare under the penalties of perjury that this return
(including any accompanying schedules and statements) has been examined
by me and to the best of my knowledge and belief is a true, correct, and
complete return."
4
We agree that defendant's return was not such a misrepresentation. But
intent to evade taxes is not an element of the crime charged under this
section.
United States
v. Gaunt, 1 Cir., 1950. [50-2 USTC ¶9412] 184 F. 2d 284, cert.
denied, 1951, 340
U. S.
917 (Int. Rev. Code of 1939, §3809(a)).
5
This effectively disposes of defendant's contention that the jury should
have been instructed to disregard the addition of "complete"
to "true" and "correct" in the printed declaration
that he signed. Although "complete" is superfluous, it does
not change the scope of the statutory language, as was the case in Patterson
v. United States, 9 Cir., 1910, 181 Fed. 970 ("sole" added
by Patent Office to statutory requirement that patent applicant declare
himself "the original and first inventor", thus illegally
excluding co-inventors).
6
Of course, when the defendant does offer evidence of offsetting costs,
the burden is on the government to persuade the jury that the costs are
not allowable. See Small v. United States, 1 Cir., 1958, [58-2
USTC ¶9553] 255 F. 2d 604, 607; cf.
Clawson
v.
United States
, 9 Cir., 1952, [52-2 USTC ¶9479] 198 F. 2d 792, cert. denied,
1953, 344
U. S.
929.
7
But see Guzik v. United States, 7 Cir., 1932, [1931 CCH ¶9681]
54 F. 2d 618 (no indication that reported deductions, if any, had any
significance); Oliver v. United States, 7 Cir., 1932, [1931 CCH
¶9649] 54 F. 2d 48 (defendant's return did not show receipts or
deductions, only net income). Guzik is cited in Hornstein,
176 F. 2d at 220.
[55-1
USTC ¶9161]Louis E. Wolcher, Appellant v.
United States of America
, Appellee
(CA-9), In the United States Court
of Appeals for the Ninth Circuit, No. 14,109, 218 F2d 505, December 28,
1954
Appeal from the United States District Court for the Northern District
of California. Southern Division.
[1939 Code Sec. 145(b)--similar to 1954 Code Sec. 7201]
Tax evasion: Trial errors: Evidence: Instructions.--Taxpayer was
convicted on a charge of attempted income tax evasion. The Appeals Court
ruled against taxpayer on all of the following assignments of error: (1)
that the trial court erred in its instruction which had the effect of
shifting the burden of proof to taxpayer and of authorizing the jury to
disregard frailties in the government's proof, (2) that the court erred
in refusing to give a requested instruction which required the jury to
determine the actual amount which taxpayer paid for and received for
whiskey sold, (3) that the court improperly ruled on self-serving or
hearsay testimony, and (4) that the court erred in refusing to reopen
the trial to enable taxpayer to call a witness after the parties had
rested.
Leo
R. Friedman,
San Francisco
,
Calif.
, for appellant. Lloyd H. Burke, United States Attorney, Robert H.
Schnacke, Assistant United States Attorney, Melvin L. Sears, Regional
Counsel, Robert G. Thurtle, Trial Attorney, Internal Revenue Service,
San Francisco, Calif., for appellee.
Before
HEALY, ORR, and POPE, Circuit Judges.
HEALY,
Circuit Judge:
This
matter is before us on appeal from a judgment of conviction on a charge
of attempted income tax evasion.
[The Facts]
Appellant
had earlier been convicted on the same charge, and we reversed for error
committed in the course of the trial. Wolcher v.
United States
, 200 Fed. (2d) 493 [52-2 USTC ¶9547]. The background of the case
is rather fully developed in that opinion, and we shall here touch but
briefly on the evidence. During the tax year involved (the fiscal year
ending June 30, 1944) appellant collected large sums from the sale at
wholesale of whisky at overceiling prices. Wolcher himself was not a
wholesaler of whisky, but operated or was interested in a number of
taverns or bars. The sales in question were made through
San Francisco
liquor wholesalers. The purchasers gave checks to the wholesalers in the
amount of the ceiling price and paid the overceiling price in cash
directly or indirectly to Wolcher. Wolcher reported no income from the
sales.
The
government through various witnesses established the details of these
transactions, and Wolcher himself admitted them while on the stand. He
contended only that he made no profit from the operations for the reason
that in acquiring whiskey he himself was obliged to make overceiling
payments to one William Gersh in amounts which approximately offset the
cash paid him by the buyers. At the former trial Gersh testified for the
government that the large sum of money sent him by Wolcher was to be in
payment for coin machines which Gersh thereafter attempted
unsuccessfully to buy for Wolcher. He said the money was returned except
for a minor amount spent in acquiring for Wolcher a number of
phonographs. Gersh did not testify on the second trial.
[Instruction Affecting Burden
of Proof]
The
sufficiency of the evidence to sustain the conviction is not disputed.
What is claimed is that certain prejudicial errors were committed on the
trial. The assignment most heavily relied on is an alleged error in the
giving of an instruction. During the course of a lengthy charge to the
jury the court said: "So that in my opinion brings the issue of the
case down to a very simple (question), and that is this--that since the
Government has proved and the defendant has admitted receiving the cash
over ceiling prices, the issue is whether you do or do not believe the
testimony and the story told by the defendant in the case. If you
believe his story, then you should return a verdict of not guilty. If
you are convinced beyond a reasonable doubt that his story should not be
believed, then you are justified in returning a verdict of guilty."
It
is argued that the instruction shifted the burden of proof from the
government to appellant; that it took from the jury the question of
whether the government's evidence established the charge beyond a
reasonable doubt; that in effect it told the jury to disregard all other
evidence in the case save the testimony and story of the defendant and
to decide his guilt or innocence solely upon his testimony; and that it
told the jury to discount or ignore weaknesses in the government's case
if the jurors found appellant's testimony to be unworthy of belief.
Naturally
the propriety of the instruction is to be considered in context. In the
course of its charge the court gave the jury the following instruction:
"The presumption is that the defendant is innocent and that
presumption continues until such time as the Government has proved the
guilt of the defendant beyond a reasonable doubt. The Government has the
burden of proving the guilt of the defendant. That burden never shifts
at any stage of the proceeding to the defendant. The defendant has no
obligation of any kind to go forward and prove that he is
innocent."
In
immediate connection with the passage under attack, and as preliminary
to it, the court gave the instructions shown on the margin. 1
We
think in the circumstances and in light of the accompanying instructions
the jury could not rationally have understood the particular passage as
shifting the burden of proof to the defendant, or as authorizing them to
disregard frailties in the government's proof. As already said, the
government had shown and the appellant had admitted that in the course
of his liquor transactions during the tax year under inquiry he had
received large sums in cash which he did not report as income. Obviously
in such condition of the record he had some explaining to do; and, as
the court indicated, he undertook specifically to show that the cash did
not represent a profit because he had to pay out equivalent sums as
overceiling acquisition costs.
[Supporting Authorities]
The
government had clearly established a prima facie case. Several of
the circuits have held in prosecutions for income tax evasion that when
a prima facie case has been made out the burden of going forward
with the evidence is on the accused.
United States
v. Stayback, 212 Fed. (2d) 313, 316-317 [54-1 USTC ¶9345]; United
States v. Smith, 206 Fed. (2d) 905, 910 [53-2 USTC ¶9538]; United
States v. Link, 202 Fed. (2d) 592, 593-594 [53-1 USTC +9230];
United States v. Hornstein, 176 Fed. (2d) 217, 220 [49-2 USTC ¶9326].
The holdings appear well grounded. In this instance, however, the court
instructed the jury that no duty of going forward rested on the accused,
and we think it unnecessary to consider whether the decisions mentioned
should be followed here. If the jury were convinced beyond a reasonable
doubt that there was no truth in appellant's defense, then, certainly,
as the court advised them, they were justified in returning a verdict of
guilty. In sum, the instruction did not impose on appellant the burden
of going forward. On the contrary, it left upon the government the onus
of disproving his affirmative defense beyond a reasonable doubt.
The
claim that the jury were told to disregard all evidence other than the
testimony of the defendant himself presents a different question. It is
pointed out that other witnesses had given testimony of a nature
corroborative of the defendant--principally in respect of the great
difficulty of obtaining whisky at the time other than on the black
market; and it is said that in effect the jury were instructed to
disregard these corroborative circumstances.
We
think the point is without force. The problem confronting the jury was
not whether whisky was difficult to obtain or whether appellant was able
to obtain it. Admittedly he did obtain the whisky in question, albeit at
what he said was a heavy overceiling price. The instruction could hardly
be understood by the jury as telling them to disregard these, or other
circumstances in evidence, which might tend to corroborate appellant's
account of his transactions or the asserted necessity of his paying
overceiling prices. The choice of the term "his story" may not
have been a happy one, but we think in the framework of this case the
term would naturally be understood as having reference to appellant's
defense as a whole, including whatever corroboration it might have in
the testimony of others or in the circumstances in evidence.
[Instruction on
"Amounts"]
The
second specification of error is the refusal of the court to give a
requested instruction reading as follows: "In determining whether
the defendant made any profit on his purchases and sales of whiskey, you
must determine, from all the evidence in the case, the actual amount the
defendant paid for the whiskey and the actual amount the defendant
received for the whiskey; in determining what amount the defendant paid
for any whiskey involved in this case, you must add to the actual cost
of said whiskey, any amounts of money, if any, that Wolcher paid to any
person as a bonus or commission or fee for procuring such whiskey for
him."
The
proposed instruction was on its face misleading and there was no error
in refusing to give it. The jury were not required to determine the
"actual amount" the defendant paid for the whisky or the
"actual amount" received for it. It was enough if he were
found to have received net income which he failed to report. The
instructions actually given sufficiently covered the general subject.
[Hearsay Testimony]
Another
error claimed is the ruling of the court on a question asked appellant
regarding a conversation he had had with William Gersh, when, as he
said, he approached the latter in the spring of 1943 for the purpose of
acquiring the whisky. The government objected to the interrogation as
calling for self-serving or hearsay testimony, and the court sustained
the objection.
A
sufficient answer to the assignment is that the substance of the
conversation was actually related by Wolcher, and is in the record. He
testified that at that time he had a conversation with Gersh with
respect to obtaining whisky, and that Gersh told him he (Gersh) had
friends in the liquor business who could get it for him; that in the
conversation Gersh mentioned the necessity of paying an overceiling
price. Wolcher testified, of course, to the details of his asserted
transactions with Gersh, the amounts of money he had sent the latter,
the quantity of liquor received from him, and the amount of the
overceiling price he had to pay him. Those, rather than details of
conversations preliminary to them, were the essential matters Wolcher
needed to get before the jury. Appellant made no offer of proof with
respect to further items of the alleged conversation which might have
been thought material. We think the ruling of the court in this respect
was not prejudicial, and certainly it was not reversible error.
[Reopening of Trial]
Finally
it is claimed that the court erred in refusing to reopen the trial after
the parties had rested, in order that appellant might call Gersh as a
witness. Appellant was familiar with Gersh's testimony given at the
former trial. He had had opportunity to subpena Gersh and knew where he
lived. He claims that he was not aware of the presence of the witness in
San Francisco
until shortly before the time of making the request for a reopening, and
he suggests that he had a right to rely upon the government to call
Gersh. We think otherwise. Under the circumstances the court's refusal
to reopen was well within its discretionary authority. Cf. Horowitz
v.
United States
, 5 Cir., 12 Fed. (2d) 590; Brink v.
United States
, 6 Cir., 60 Fed. (2d) 231.
Affirmed.
1
"The indictment in this case charges the defendant with wilfully
and knowingly attempting to defeat and evade a large part of his income
tax for the fiscal year ending June, 1944. The amount by which his net
income is alleged to have exceeded the amount he reported on his return
was approximately $45,000, as alleged in the indictment. The indictment
was filed pursuant to a federal statute which makes it a criminal
offense for any person to wilfully attempt in any manner to evade or
defeat any tax imposed by the revenue laws of the
United States
. Now the defendant plead not guilty to that charge, and so that's the
issue. Did he wilfully and intentionally attempt to evade the payment of
income taxes due the
United States
for this fiscal year ending in June, 1944?
"Now
the Government has the burden of proving that the defendant had taxable
net income which he did not report, and that his act in so doing,
failing to report it, was wilfull and intentional.
"Now
what do we mean when we speak about net income? Well, there is of course
a very simple definition of it. Most of the men on the jury, I think,
have heard it stated--maybe the ladies not so often, unless you are
following some occupation--that it means the gross income, the total
income that a man has, less the deductions or expenses or expenditures
that the law says he can take from it; than what he has got left is his
net income. Now that's what the defendant is charged in this case with
nonpayment of, is the net income. Now the taxable income of an
individual includes anything by way of a gain or profit or income that
he might get from salaries or wages, business, compensation for personal
services, from trade or business, or sales or dealings in property; and
it also includes any profit or income, net in character, that a man
would obtain from any illegal transaction as well as a legal
transaction. He has to account for all of his net income to the
United States
.
* * *
"Now
it is not necessary for the Government to prove the exact amount of the
evasion, if any, nor the exact amount charged in the indictment. It
would be sufficient if the Government shows that a substantial amount of
money, consisting of net income, was wilfully evaded by the defendant in
the case.
"Now
I think it might be well if I very briefly stated to you what the Court
believes is the issue of the case as it appears from the contentions
respectively of the parties--the Government on the one hand and the
defendant on the other hand. The Government contends, as appears from
the argument made by Government counsel, that the cash monies that the
Government proved the defendant received from the sale of liquor and
which the defendant admitted that he received, were income and were net
income, and that the whisky was purchased for the purpose of making a
profit on it in its resale and not for the benefit of the defendant's
own taverns, or his friends'. The Government contends that there were no
records of the transaction kept by the defendant, and that that was so
that he could keep the proceeds without paying any tax on them. The
Government contends, as stated by the Government lawyer, that the
defendant's account of sending large amounts in cash through the mail
and otherwise to someone in the East is a story that is fabricated and
should not be believed by you. That, I think very briefly, is the
Government's contention.
"The
defendant, on the other hand, admits that the black market transactions
were had by the defendant, but contends that he made no profit in
connection with these transactions and that therefore he had no net
income and that therefore he is not chargeable with any evasion of
income taxes; that he made no profit in the matter, because he had to
pay out certain monies in connection with the transactions and that
therefore the net result was that he had no profit in the matter, and
that therefore he is not chargeable with a violation of federal statute.
"So
that in my opinion brings the issue of the case down to a very simple
(question), and that is this--that since the Government has proved and
the defendant has admitted receiving the cash over ceiling prices, the
issue is whether you do or do not believe the testimony and the story
told by the defendant in the case. If you believe his story, then you
should return a verdict of not guilty. If you are convinced beyond a
reasonable doubt that his story should not be believed, then you are
justified in returning a verdict of guilty."
[55-2
USTC ¶9665]E. C. Lloyd, Appellant v.
United States of America
, Appellee
(CA-5), In the United States Court
of Appeals for the Fifth Circuit, No. 15207, 226 F2d 9, September 30,
1955
Appeals from the United States District Court for the Northern District
of Alabama.
[1939 Code Sec. 145(b)--similar to 1954 Code Sec. 7201]
Criminal tax evasion: Admissibility of evidence.--Taxpayer was
convicted of wilful attempts to evade and defeat his Federal income tax
for the years 1945, 1946, 1947. The following assignments of error were
overruled on appeal: (1) that there was not sufficient evidence to
support the jury's findings of wilfulness essential to the statutory
offense, (2) that the court erred in refusing to grant taxpayer's motion
to suppress, as illegally obtained evidence, his 1946 cash receipts book
and photostatic copies thereof, (3) that the court abused its discretion
in sequestering taxpayer's accountant witness and not sequestering the
Government's accountant witness, (4) that the court erred in admitting,
over taxpayer's objections, testimony of revenue agents claimed to be
inadmissible as conclusions and hearsay, (5) that the court erred in
admitting, over taxpayer's objections, testimony and records concerning
the financial circumstances of taxpayer's wife and daughter.
[1939 Code Sec. 145(b)--similar to 1954 Code Sec. 7201]
Criminal tax evasion: Evidence: Offer to compromise on prior year's
tax.--The trial court admitted, over taxpayer's objection, evidence
with respect to taxpayer's offer to compromise his tax liability for the
years 1924 to 1932, inclusive. There was held to be no logical probative
value as to taxpayer's intent in commission of later acts in addition to
the general proof of his criminal tendencies. Admission of such evidence
was held to be highly prejudicial; the judgment was accordingly reversed
and the cause remanded for a new trial.
William
S. Pritchard, Winston B. McCall,
Birmingham
,
Ala.
, for appellant. Frank M. Johnson, Jr., United States
Attorney
,
Leon
J. Hopper, Assistant United States Attorney,
Birmingham
,
Ala.
, for appellee.
Before
RIVES, TUTTLE and CAMERON, Circuit Judges.
RIVES,
Circuit Judge:
Appellant
was convicted upon a jury trial under three counts of two separate
indictments 1 charging him
with the offense of willfully attempting to evade and defeat his federal
income tax for the calendar years 1945, 1946 and 1947, by filing false
and fraudulent returns in violation of Title 26 U. S. C. A. Section
145(b). He was sentenced by the district court to 18 months imprisonment
and to pay a $2,500.00 fine.
On
a hearing of the defendant's motion for a bill of particulars, the
United States Attorney represented to the court and to counsel for the
defendant "that the method employed in computing the corrected net
income was the specific-item adjustment method," and thereupon the
court ordered the Government "to furnish the defendant with
information as to the categories in which the specific item adjustments
were made in said computations." The Government then informed the
defendant that the items upon which adjustments were made were for 1945,
receipts, merchandise purchases, and delivery expenses, and for 1946 and
1947, receipts and merchandise purchases.
The
evidence tended to show that, on his bakery books and in his returns for
the years involved, appellant overstated the expense of merchandise
purchased by approximately $17,350.00, principally by writing five
$3,000.00 checks on his bakery account, four of which were drawn on the
Commercial National Bank at Anniston, Alabama, and charged on his bakery
books as "flour purchases", and one of which, dated July 2,
1946, was drawn on his adopted daughter's account at that bank and shown
on the bakery books as a sugar purchase, which checks were supported by
no invoices or other records to corroborate appellant's claim that they
actually represented payment for merchandise purchases as reflected upon
his bakery books, and which actual use for such purpose was somewhat
negatived by testimony of a revenue agent, Potter, revealing that on the
date each check was drawn a corresponding amount was deposited to the
credit of appellant's personal loan account at that same bank; that four
other counter checks aggregating $1,650.00 were also drawn by appellant
during 1945 and 1946 on the Anniston Cotton Oil Company, and were
represented on his bakery books as "miscellaneous merchandise
purchases", though the owner of that Company, J. A. Stewart,
testified that he gave appellant cash for these checks and that they
were not received in payment for any merchandise or services rendered by
his Company either to appellant or his bakery establishment; that for
the year 1945 the delivery expenses of appellant's bakery were
overstated by $1,300.00, proof of which overstatement was made by
testimony that three checks drawn by appellant, dated December 7, 1945,
one of which was made payable to the Alabama Motor Company and the other
two to C. J. Alford, were not issued or received in payment of any
delivery expenses, as indicated by the books of the bakery, but were
simply cashed by appellant, the witness C. J. Alford testifying that at
the time appellant "laughed casually" and said he was
"going to the Elks Club" to "play blackjack";
further, that appellant's bookkeeper, for about two months in 1945 and
ten months in 1946, admittedly erased and altered original entries on
the cash book of the bakery so as to reduce by $300.00 per week the
record of actual cash receipts from merchandise sales, which
alterations, according to appellant's testimony, were made so that he
could use the $300.00 weekly to make necessary purchases of bakery
products on the "black market" from OPA violators. In addition
to this direct testimony by his bookkeeper and appellant's admission as
to these false understatements of cash receipts on the bakery books,
there is much circumstantial evidence of unreported cash receipts from
cash deposited by appellant during the tax years involved in bank
accounts in the name of his wife and adopted daughter, from cash
invested in United States Savings Bonds, and from purportedly nontaxable
"loans" made to appellant's bakery by his wife during the
prosecution years. 2
Appellant
in brief assigns twenty specifications of error, each of which has been
carefully considered, but we think that only those hereinafter discussed
require separate treatment.
(1)
Sufficiency of the evidence. Appellant insists that language from the
recent decision of the Supreme Court in Holland v. United States,
348 U. S. 121, 125-129, 139 [54-2 USTC ¶9714], and from several
decisions of this Court, 3 require
direction of a judgment of his acquittal for insufficiency of the
evidence to warrant the jury's finding of guilt beyond a reasonable
doubt, particularly as to the element of willfulness essential to
constitute this specific statutory offense; that the Government failed
to eliminate in its computations, as available sources of funds for
appellant's proven deposits, loans and purchases, amounts which had been
accumulated by appellant and his wife in nonprosecution years, and
failed directly to trace any unreported cash receipts into the bank
accounts of either appellant, his wife or daughter, or to show that
amounts entered upon his bakery books for merchandise purchases did not
truly reflect deductible cash expenditures actually used for such
purpose; finally, that the starting point for the revenue agents' net
worth computations, under Bryan v. United States, 5 Cir., 175
Fed. (2d) 223, 227 [49-1 USTC ¶9322], was not established with the
definiteness required to support a tax fraud conviction based upon
wholly circumstantial proof. See Pollock v.
United States
, 5th Cir., 202 Fed. (2d) 281, 284 [53-1 USTC ¶9229].
It
is not this Court's function to determine guilt or innocence. That
judgment is exclusively for the jury, subject however to the decision of
the district court reviewable by this Court as to whether the evidence
is legally sufficient to sustain conviction, a matter, of course,
presenting a question of law. Kotteakos v.
United States
, 328
U. S.
750, 763. In the performance of its function, the court has no right to
invade the province of the jury by determining questions of credibility
and weight of evidence. Goldman v. United States, 245 U. S. 474,
477; Stilson v. United States, 250 U. S. 583, 588; Glasser v.
United States, 315 U. S. 60, 80; Mortensen v. United States,
322 U. S. 369, 374. "The verdict of a jury must be sustained if
there is substantial evidence, taking the view most favorable to the
Government, to support it." Glasser v.
United States
, supra. In circumstantial evidence cases, this Court has said that
the test to be applied is whether the jury might reasonably find that
the evidence excludes every reasonable hypothesis except that of guilt. Vick
v.
United States
, 216 Fed. (2d) 228, 232, and cases there cited; see also United
States v. Levy, 7th Cir., 138 Fed. (2d) 429, 430, 431.
We
think a fair reading of this record impels the conclusion that a jury
question as to appellant's guilt was presented, certainly under the
prosecution's "specific item adjustments method" of proving
unreported income by means of substantial understatements of cash
receipts and overstatements of merchandise purchases and delivery
expenses for the tax years involved. See Spies v. United States,
317
U. S.
492, 500 [43-1 USTC ¶9243]; Bostwick v. United States, 5th Cir.,
218 Fed. (2d) 790, 794 [55-1 USTC ¶9170]. The specific willful intent
and bad motive required for conviction under this statute is, of course,
inherently unsusceptible of direct proof, but as in the Bostwick
case, supra, might here have been inferred by the jury from
appellant's conduct, if the jury believed from the testimony that he
knowingly permitted the making of false book entries and alterations to
conceal cash receipts, purposely inflated his operating expenses, and
thereby depreciated his net taxable income by means of fictitious flour
and sugar purchases, delivery expenses, etc. See
United States
v. Rosenblum, 7th Cir., 176 Fed. (2d) 321, 329-330 [49-1 USTC ¶9314].
True, appellant correctly contends that "the intent to avoid
detection of price ceiling violation is not the specific intent to evade
income taxes," but by the same token, "if the tax evasion
motive plays any part in such conduct the offense may be made out even
though the conduct may also serve other purposes such as concealment of
other crime." Spies v.
United States
, supra at p. 499. That the appellant might conceivably have been
found innocent had his explanations been believed by the jury is no
tenable ground for attacking the submission of such cogent, prima facie
proof. Cf.
United States
v. Fleischman, 339
U. S.
349, 360-361; Casey v.
United States
, 276
U. S.
413, 418.
Appellant's
further reliance upon such authorities as this Court's Bryan
case, supra, for the proposition that indefinite proof of initial
net worth is sufficient to invalidate all subsequent computations of the
revenue agents, is here misplaced, for essentially this is a
"specific item adjustment" rather than a net worth tax fraud
prosecution, though in support of its prima facie case based on that
theory the Government introduced its net worth and circumstantial proof
in anticipation of the defense that appellant had available assets at
the inception of the prosecution years sufficient to account for his
proven expenditures over and above reported income. The jury might
plausibly have inferred that, if appellant and his wife had had
available in 1942 the approximately $101,000.00 cash reserve it was
shown they would have needed to explain appellant's subsequent excess
expenditures over reported cash receipts and deposited funds, they would
not have found it necessary to borrow several thousand dollars from
various banks and pay interest upon such loans during this period. Cf. Barcott
v.
United States
, 9th Cir., 169 Fed. (2d) 929 [48-2 USTC ¶9377]. In any event,
proof of guilt in such cases to a mathematical certainty is neither
possible nor required. While we think a jury case was made for each of
the three tax years, the sentence imposed would be justified if the
evidence supported the jury's finding that appellant willfully attempted
to evade a substantial part of his income tax during any one of the
three tax years involved. See
Holland
v.
United States
, supra; Schuermann v.
United States
, 8th Cir., 174 Fed. (2d) 397, 399 [49-1 USTC ¶9281]; United
States v. Schenck, 2nd Cir., 126 Fed. (2d) 702, 707 [42-1 USTC ¶9363];
Norwitt v. United States, 9th Cir., 195 Fed. (2d) 127, 135 [52-1
USTC ¶9252]; Pollock v. United States, 5th Cir., 202 Fed. (2d)
281, 284 [53-1 USTC ¶9229].
(2)
The motion to suppress evidence. The appellant moved to suppress as
illegally obtained evidence the 1946 Cash Receipts Book of Lloyd's
Bakery and photostatic copies of pages therefrom. 4 The
examination and investigation of appellant's income tax returns for the
years 1942 to 1947, inclusive, was commenced by Agent Smith in May,
1947, as a "routine assignment--the usual examination without any
suspicion of fraud." By March 9, 1948, fraud had been suspected,
and Special Agent Potter from the Intelligence Unit was assigned to work
with Agent Smith. Potter resigned in 1951 or 1952, and another Special
Agent Moorman was assigned to complete the work with Agent Smith during
1953 and 1954. In such cases, where many of the facts are discovered on
a routine investigation before fraud is suspected, it is not to be
expected that a taxpayer will be formally warned at the beginning of an
investigation, and informed of his constitutional rights. In any event,
as we have several times held, such circumstances do not require the
exclusion of the evidence, but may go to its weight or credibility.
Montgomery
v.
United States
, 5th Cir., 203 Fed. (2d) 887, 893 [53-1 USTC ¶9336], and cases
there cited; Vloutis v. United States, 5th Cir., 219 Fed. (2d)
782, 787 [55-1 USTC ¶9262]; White v.
United States
, 5th Cir., 194 Fed. (2d) 215, 217 [52-1 USTC ¶9204].
(3)
Sequestering appellant's accountant witness and not sequestering the
Government's accountant witness. In Bostwick v.
United States
, 5th Cir., 218 Fed. (2d) 790, 792 [55-1 USTC ¶9170], we refused to
hold that the district court had abused its discretion in sequestering
the defendant's accountant witness, and a like ruling is due here. We
deem it appropriate to state, however, that, in our opinion, ordinarily
and in the absence of unusual circumstances, the same treatment in this
respect should be accorded to the Government and to the defendant.
(4)
Admission of testimony and records concerning financial circumstances of
appellant's wife and daughter. Appellant filed both written and oral
objections to the court's admission of testimony by the revenue agents,
Smith and Moorman, relating to alleged unreported cash bakery receipts
supposedly deposited by appellant during the prosecution years in bank
accounts to the credit of his wife and daughter, the purchase of U. S.
Savings Bonds in their names, admission of their bank and tax records,
income and assets, etc. He insists there was no showing that he actually
deposited such funds, if any, to their name, or that he had any such
dominion or control over such funds as justified admission of such
evidence of their separate and independent financial estates. The wife
and daughter were members of appellant's household, and during the tax
years in question were employees in his bakery. Appellant had given a
statement to Government agents that his wife had no source of income
except her salary at the bakery and interest on loans. We think that
this evidence was competent for the purpose for which it was offered and
admitted--to establish a justifiable inference for the jury that these
excess funds and expenditures, not otherwise satisfactorily explained,
were actually derived from unreported income taxable personally to the
appellant. In view of the court's charge that "it is not up to the
defendant to assume the burden of proving that the deposits in the bank
accounts of his wife and daughter were not his income," no
prejudice to appellant's rightful presumption of innocence or unfair
shift of the burden of proof resulted from the admission of such
testimony. Cf. Ford v.
United States
, 5th Cir., 210 Fed. (2d) 313, 316-317 [54-1 USTC ¶9233].
(5)
Testimony of the revenue agents claimed to be inadmissible as
conclusions and hearsay. Appellant insists that certain testimony by the
revenue agents, Smith and Moorman, contained a series of theoretical
estimates and conclusions based on hearsay as to his unreported income
and practically required him "to prove himself innocent by assuming
the burden of overcoming the prejudicial effect of the mass of exhibits,
conjectures and conclusions which the Government has been allowed to get
into the record." See Demetree v.
United States
, 5th Cir., 207 Fed. (2d) 892, 894 [53-2 USTC ¶9646]. The order in
which both Smith and Moorman were permitted to express their conclusions
did tend, we think, to impress the jury with the idea that the
conclusionary figures were matters of original evidence rather than mere
summaries of the calculations of the witnesses from evidentiary facts.
For example, at the beginning of Smith's testimony he was permitted to
state, over the appellant's objection, that for each of the three years
he determined from his investigation that there was other taxable income
in addition to that reported by the appellant, and to state the amount
of the unreported income. He thereafter gave in some detail how those
figures were arrived at, but we think the order of proof should have
been reversed and his basic facts and figures first stated before his
conclusions were expressed. Moorman went into detail as to the records
which he had examined and other sources of his information, among other
things stating that "I interviewed several witnesses myself."
We think, however, that his subsequent testimony clearly revealed that
his computations were not based on any such objectionable hearsay, but
upon available facts and figures of record, the source of which was
adequately disclosed. Again, Moorman, after describing the records and
sources of his information, was permitted to testify, over the
appellant's objection, to his determination of what he considered to be
the appellant's correct income tax liability for each of the three tax
years based upon his investigation. That kind of conclusion should not
have been expressed until the facts and figures on which it was based
had first been adequately proved and explained to the jury. Moorman's
subsequent testimony was probably sufficient to sustain his conclusions,
and we do not say that we would base a reversal on the erroneous
admissions of his conclusionary statements when they were subsequently
connected up. We do, however, express our disapproval of permitting this
order of proof, especially in view of its tendency to divert the jury's
attention from the original and basic evidentiary facts and to emphasize
the conclusions of the witness when such conclusions were, in fact, mere
summaries of his calculations from other facts.
(6)
Admission in evidence and revenue agents' use of charts. Appellant
strenuously insists that the large scale charts summarizing the revenue
agents' computations and admitted in evidence over his objection were
offered and used before the jury as primary proof of his unreported tax
liability, and that their use should here be condemned as prejudicial
because the court permitted them to acquire "an existence of their
own, independent of the evidence which gave rise to them."
Holland
v.
United States
, supra; see Elder v. United States, 5th Cir., 213 Fed. (2d)
876. We think the general rule is that the admission of such charts is
discretionary with the trial court, and that its rulings thereon are
subject to review only upon a clear showing of abuse and resulting
prejudice to an accused. See United States v. Johnson, 319
U. S.
503, 519 [43-1 USTC ¶9470]; Noell v. United States, 9th Cir.,
183 Fed. (id) 334, 339; United States v. Bramson, 2nd Cir., 139
Fed. (2d) 298, 600;
United States
v. Weinbren, 2nd Cir., 121 Fed. (2d) 826, 829; Bomberg v.
United States
, 7th Cir., 71 Fed. (2d) 637, 640;
United States
v. Glazer, 110 Fed. Supp. 558 [53-1 USTC ¶9351]; 4 Wigmore on
Evidence, 3rd ed., Sec. 1230. While the Supreme Court's recent
admonition in the Holland case, supra, should make trial
courts mindful to guard against permitting any unrestricted acceptance
and use by a jury of such charts as a substitute for primary and
independent proof, practical problems inevitably encountered both by the
Government and by the accused in presenting this too often confusing and
complex tax fraud proof still justify the use of illustrative charts by
both sides to summarize the varying computations, and make the primary
and independent proof upon which such charts must be based more
intelligible to the jury. See United States v. Schenck, supra at
p. 709; United States v. Park Avenue Pharmacy, 2nd Cir., 56 Fed.
(2d) 753, 756. The use of this type evidence, however, has inherent
dangers to an accused, for a jury is often unfairly and unduly impressed
by the aparent authenticity of a government witness' chart computations,
as such, rather than by the truth and accuracy of the underlying facts
and figures supporting them. A trial court is charged with grave
responsibilities in such instance to insure that an accused is not
unjustly convicted in a "trial by charts," however impressive
the array produced. Ordinarily, it would be the better practice, not so
carefully observed in this instance, to require that the source of the
facts and figures upon which such a chart is based be fully disclosed
before its admission into evidence. Whenever possible, such charts
should be confined in their preparation to strictly mathematical
computations, subject to detailed explanation upon the trial by the
testimony of expert government witnesses, and they should not be
encumbered by such impressive, conclusionary captions as
"Overstatement of Merchandise Purchases", "Overstatement
of Delivery Expenses", "Unreported Cash Receipts of Lloyd's
Bakery", "Unreported and Undeposited Cash Receipts Invested in
United States Savings Bonds", "Unreported Net Income of Mr. E.
C. Lloyd", "Income Tax Unported and Unpaid by Mr. Lloyd",
such as were used on the Government charts here in dispute. While a
prosecution witness may testify as to such conclusions from his
mathematical computations, we think the danger in permitting the
unrestricted use of such phrases upon charts results from a jury's
natural tendency to accept such unsworn, conclusionary verbiage as
authentic, primary proof, instead of purely in summarization and
explanation of sworn testimony or authenticated documentary evidence.
Though
we have felt it timely and appropriate thus to elaborate upon the
Supreme Court's admonition to trial courts against permitting any
unrestricted and indiscriminate use of such charts, in view of the broad
discretion vested in the trial court in the admission of such evidence,
we pretermit a decision as to whether that discretion was abused in this
case and whether the appellant suffered such prejudice from the use of
the charts as would justify a reversal, a reversal of this case being
necessary in any event on account of the rulings next to be discussed.
(7)
Evidence with respect to appellant's offer to compromise his tax
liability for the years 1924 to 1932, inclusive. Over the appellant's
objections, the Government was permitted to prove that the appellant
submitted an offer of $750.00 to compromise an income tax liability
amounting to $3,107.68, which he had incurred for the tax years 1924 to
1932, inclusive. The offer was rejected and the Government was permitted
further to prove, over the appellant's objection, that an investigation
followed in regard to suspected fraud and misrepresentation of facts in
the filing of the offer in compromise; that the appellant had made a
sworn statement that he borrowed the $750.00 from relatives and that he
afterwards admitted that statement was untrue; and that certain other
facts stated as to his assets and liabilities were likewise untrue. The
court first stated:
"Overrule
the objection and will receive the evidence or permit it to be
considered by the jury only as bearing on the possible source of funds
which the evidence may disclose were in the possession of or received by
the taxpayer Defendant for the years '45, '6 and '7."
A short time later, the court
stated:
"That
evidence is admitted, gentlemen of the jury, only for such light as it
might shed in your deliberations on the issue of intent, which is one of
the elements of the charge in this case. Your consideration is limited
to that issue only."
The jury must have been confused
as to the purpose for which they could properly consider such testimony.
In our opinion, it was not admissible for either purpose. The earliest
tax year investigated by the agents was 1942, ten years after 1932, the
last year for which the settlement was offered, and eight years after
1934, the year in which the offer in compromise was made. Appellant's
attorney very properly called to the attention of the court "the
difference in the economy and values whatever they were in the years
1932, '3 and '4 against now, and suggest because of the vast difference
in values and the economy it couldn't throw any light we could rely upon
for the years '45, '6 and '7." A remark of the Supreme Court in United
States v. Calderon, 348
U. S.
160, 164 [54-2 USTC ¶9712], is pertinent here. "Proof that the
taxpayer was impoverished by the depression, that he was working for his
meals and $8 a week in 1935, is too remote, absent proof of the
taxpayer's financial circumstances in the intervening years."
The
offer in compromise and testimony relating thereto were equally
inadmissible to show intent. Evidence of other wrongful acts to prove
intent must go further than showing that the defendant has a generally
criminal disposition or character, and must logically tend to prove the
defendant's criminal intent at the time of the commission of the act
charged. The prior acts must be similar to the one charged and must not
be so remote as to be lacking in evidentiary value. Excellent
discussions of this subject are contained in the opinions of this Court
in Weiss v. United States, 120 Fed. (2d) 472; on rehearing, 122
Fed. (2d) 675, 682-689; and in the opinion of the District of Columbia
Circuit in Boyer v. United States, 132 Fed. (2d) 12, 13. See,
also, Wolcher v. United States, 9th Cir., 206[200] Fed. (2d) 493,
497 [52-2 USTC ¶9547]; Lambert v. United States, 5th Cir., 101
Fed. (2d) 960, 964; 2 Wigmore on Evidence, 3rd ed., Secs. 302ff. In the Boyer
case, supra, the time elapsed between the two transactions was
"nearly two years," and the earlier wrongful act was held
inadmissible. In the present case, more than eight years had passed and
there was no logical probative value as to the appellant's intent in the
commission of the later act in addition to the general proof of his
criminal tendencies.
It
seems to us that the admission of such evidence was highly prejudicial
to the appellant, since it indicated to the jury that he had cheated on
his income taxes over a period of years theretofore and was further
unworthy of belief because he had made misstatements in his offer of
compromise. We are unwilling to say that without such inadmissible
evidence the jury might not have reached a different verdict. See Kotteakos
v.
United States
, supra, 328
U. S.
at p. 764. The judgment is accordingly reversed and the cause remanded
for a new trial.
Reversed
and remanded.
1
Count 2 of the original indictment mistakenly referred to the year 1945
instead of 1946, and was ordered nol prossed by the court on motion of
the United States Attorney. A separate indictment for the year 1946 was
consolidated for trial and on appeal with the indictment for 1945 and
1947.
2
According to the testimony of the revenue agents, Smith and Moorman, and
certain chart summarizations prepared by the latter witness, appellant
understated his cash receipts or sales on his bakery books and tax
returns for the years involved in the total sum of $52,072.00, which
aggregate understatement analyzed by years and disposition is as
follows:
"1945 1946 1947 Total
"DEPOSITED IN PERSONAL
BANK ACCOUNTS
Mrs. May W. Lloyd's
Checking Account ..... $ 4,408.00 $ 550.00 $ 4,958.00
Mrs. May W. Lloyd's
Savings Account ...... 1,850.00 1,850.00
Miss Mary Elizabeth
Lloyd's Checking Account 4,389.00 8,365.00 3,910.00 16,664.00
TOTAL ................... $ 8,797.00 $10,765.00 $ 3.910.00 $23,472.00
'LOANED' TO LLOYD'S BAKERY BY
MRS. MAY W. LLOYD ......... 6,587.00 6,713.00 13,300.00
INVESTED
IN
U.
S.
SAVINGS BONDS .......... 8,512.50 6,787.50 15,300.00
$17,309.50 $24,139.50 $10,623.00 $52,072.00"
3
Demetree v.
United States
, 207 Fed. (2d) 892, 894 [53-2 USTC ¶9646]; Ford v. United
States, 210 Fed. (2d) 313, 315 [54-1 USTC ¶9233]; Wardlaw v.
United States, 203 Fed. (2d) 884, 887 [53-1 USTC ¶9335]; Jones
v. United States, 164 Fed. (2d) 398, 400 [47-2 USTC ¶9402].
4
In his motion to suppress, "Defendant states that the Government
Agents in this case, when they first came to see him about his income
tax matters, told him that it was a routine check-up and that they would
let him know after the investigation how much taxes he owed. At no time
was it intimated to him that there might be a criminal prosecution.
Defendant was never warned and was never told by the said Agents that
the evidence here sought to be suppressed would be used in either a
civil or criminal prosecution against him. The defendant never consented
to the said Agents getting possession of or removing from his place of
business or photostating any pages contained in the said 1946 Cash
Receipts Book of Lloyd Bakery. Defendant states that said Daily Cash
Receipts Book was obtained by stealth by the said Government Agents and
secretly removed from his place of business and photostated by the said
Government Agents without his consent."
[55-1
USTC ¶9508]Maurice D. Scanlon, Defendant, Appellant v.
United States of America
, Appellee
(CA-1), In the United States Court
of Appeals for the First Circuit, No. 4877, 223 F2d 382, June 13, 1955
Appeal from the United States District Court for the District of New
Hampshire.
[All issues: 1939 Code Sec. 145(b)--substantially unchanged in 1954 Code
Sec. 7201]
Criminal prosecution: Admissibility of evidence: Net worth statement
procured by revenue agent.--A net worth statement signed and sworn
to by defendant at the request of a revenue agent but without coercion
or trickery on the agent's part was admissible, even though defendant
was not warned that his tax liability was being investigated.
Criminal prosecution: Defendant's right to inspect pre-trial
statements: Accountant's report in Government's possession.--Defendant's
counsel had no right to inspect a report made by an accountant who had
prepared defendant's returns, which was in the Government's possession
and was referred to by the accountant while testifying as the
Government's witness, since the witness stated that his testimony was
not different from what was contained in his report and defendant did
not otherwise prove that the accountant had signed a statement competent
to contradict his oral testimony.
Criminal prosecution: Failure to instruct jury.--The trial court
allowed the Government to introduce an affidavit of a witness for the
purpose of impeaching him and also for the purpose of showing the truth
of the statements contained therein. A general objection was made by
defendant's counsel, which was overruled. Failure of the trial court to
instruct the jury that the affidavit was not to be utilized as
substantive evidence was harmless error, since the entire payment made
to the witness by defendant which was sought to be included as an
expenditure amounted to slightly over 10% of defendant's unreported net
income as alleged by the Government.
Criminal prosecution: Admissibility of evidence: Summaries copied
from records of corporate successor.--A special agent testified from
summaries which were introduced as evidence purporting to be copied from
the records of the corporate successor to defendant's sole
proprietorship. The Government maintained that the value of the assets
of the successor was properly included in defendant's net worth
statement. Defendant contended that the summaries were constructed from
the books of the corporate successor with which he had no connection and
that therefore the summaries were inadmissible hearsay. The
Appeals Court
agreed with the Government that since the original records of the
proprietorship were unavailable, the summaries were admissible as
secondary evidence.
Criminal prosecution: Net worth method: Inclusion of wife's bank
accounts in defendant's net worth.--Defendant urged that the
Government improperly attributed his wife's bank accounts to him and
included them in its estimate of his net worth. The Appeals Court held
that failure on the part of the Government to investigate this lead
would require acquittal had the Government's case turned upon the
increase in net worth revealed in the bank accounts, but the
Government's other evidence was sufficient to convict since the increase
in the bank account amounted to about 13% of the alleged unreported
income.
Criminal prosecution: Net worth method: Cash basis taxpayer:
Liabilities not includible in net worth.--Defendant contended that
the Government's proof of net worth of his investment in the sole
proprietorship did not include liabilities of the enterprise. The
Appeals Court
held that it was not improper to exclude accounts receivable and
accounts payable since both the defendant and the proprietorship used
cash basis accounting and inclusion of these items in the net worth of
the current year would not accurately reflect defendant's income for
that year.
Criminal prosecution: Net worth method: Likely source of income:
Gambling activities.--Defendant was a bookie and kept no records of
income from his bookmaking operations. It was not necessary for the
Government to prove by direct evidence the extent of defendant's income
from bookmaking since the jury could reasonably find that the bookmaking
was a likely source for defendant's increases in net worth.
Criminal prosecution: Admissibility of evidence: Opinion evidence:
Testimony of special agent.--A special agent testified that on a
certain day he showed defendant that according to the Government's net
worth figures it was obvious that there was unreported income. After
objection by defendant that this was opinion evidence, the trial court
did not abuse discretion in admitting the special agent's statement on
the ground that it was a statement made to defendant and that as such it
was not an inadmissible opinion of a witness on an issue to be decided
by the jury.
Criminal prosecution: Admissibility of evidence: Government's net
worth statement and tax computation.--There was no abuse of
discretion by the trial court in admitting the Government's net worth
statement and tax computation since both were merely summaries of
evidence that had been offered by the Government and could have been
disbelieved by the jury in whole or in part.
Criminal prosecution: Net worth method: Sufficiency of evidence.--Defendant
contended that the Government did not provide sufficient evidence for
the jury to infer with reasonable certainty that the Government's net
worth figure as of December 31, 1946, was accurate representation of his
net worth on that date. The contention was dismissed on the ground that
there was a net worth statement signed by defendant himself and prepared
by his accountant as well as other admissions made by him to the special
agent during the course of investigations.
Criminal prosecution: Government's comments on defendant's
nonpresentation of witnesses.--The Government's comments on
defendant's failure to bring in witnesses who could testify as to giving
or loaning to defendant such sums of money as would justify defendant's
net worth increases resulted in no prejudicial error.
Criminal prosecution: Instructions to jury.--Defendant had
objected to the trial court's instruction that if defendant's net worth
statement was voluntarily given the jury must consider its contends.
This instruction is not objectionable because the jury was to consider
the contents of that statement and the weight to be given to them only
if they dicided the statement was obtained voluntarily. Defendant had
also objected to the instruction: "The prosecution in this case has
taken December 31, 1946, as a base or starting point and has determined
the amount of the excess of his assets over his liabilities at that
time. This constitutes his net worth as of that date." Upon
defendant's objection the trial judge further charged the jury on this
point in an attempt to correct any misunderstanding. In the opinion of
the
Appeals Court
the jury should have understood from the amended instruction that it was
their duty to determine whether or not defendant's net worth was
substantially identical to the Government's figure.
Stanley
M. Brown (McLane, Carleton, Graf, Greene & Brown,
Manchester
, N. H., was with him on brief), for defendant, appellant. Maurice P.
Bois, United States Attorney (Burton L. Williams, Trial Attorney,
Internal Revenue Service, Boston, Mass., was with him on brief), for
appellee.
Before
MAGRUDER, Chief Judge, and WOODBURY and HARTIGAN, Circuit Judges.
Opinion of the Court
HARTIGAN,
Circuit Judge:
This
is an appeal from a judgment of the United States District Court for the
District of New Hampshire entered April 14, 1954, sentencing the
defendant to imprisonment for a period of fifteen months on each of two
counts of an indictment for violations of §145(b) of the Internal
Revenue Code of 1939, * said prison
sentences to run concurrently, and to a fine of $2,500.00 on each count.
The first count of the indictment refers to an individual return for
calendar year 1947 and the second count to a joint return for calendar
year 1948. The trial was before a jury, and, following the Government's
presentation of its case, which was based on the net worth and
expenditures method, the defendant moved to strike certain evidence and
for judgment of acquittal. Both motions were denied. The defendant chose
not to present any evidence following the denial of these motions.
The
defendant bases his appeal on several grounds. We shall deal first with
his objections to the admission of certain evidence during the course of
the trial.
[Defendant's Net Worth
Statement]
Prior
to the trial the defendant unsuccessfully sought to have suppressed a
net worth statement signed and sworn to by him on August 20, 1952. He
later objected to its admission during the trial on the same grounds as
were advanced by him at the hearing on the motion. It seems from the
record of the hearing on the defendant's motion to suppress evidence,
which is somewhat confusing on this point, that the defendant was not
warned during the pre-trial investigation that any statements made by
him might be used against him. This net worth statement was signed at
the request of Edward M. Vytal, an Internal Revenue agent, but there is
no evidence that there was any duress, coercion, fraud or trickery
employed by the Government in obtaining it and the trial court so found.
The
defendant has cited two cases as recognizing a duty imposed on the
Government to warn a person whose taxes are being investigated of his
right against self-incrimination. However, in the first of these cases, Montgomery
v. United States, 203 Fed. (2d) 887 (5 Cir. 1953) [53-1 USTC ¶9336],
although the court reversed the conviction of the appellant because of
certain errors in the conduct of the trial, it held that even though a
Special Agent of the Government testified that no warning at any time
was given to the appellant that a Government exhibit based upon
statements and admissions made to the Special Agent by the appellant and
documents surrendered to the Special Agent by the appellant were
admissible. The court further held that such documents were admissible
as evidence themselves, stating at p. 893: "We do not think that
the circumstances under which the statements of the defendant and of his
wife, and the cancelled checks and documents, were obtained were
sufficient of themselves to require that that evidence be excluded on
the ground of being involuntary as a matter of law, or to require that
the Government's Exhibit No. 20 based in part upon such testimony be not
admitted in evidence. All of those circumstances were matters which went
to the weight or credibility of the testimony thus obtained. * * *"
It is to be noted that in the Montgomery case a Special Agent
obtained the questioned documents but that in the instant case it was a
Revenue Agent, Vytal, who procured the defendant's signature on the net
worth statement. From the testimony before us it appears that a Special
Agent at least in some cases carries on the investigation originally
begun by a Revenue Agent. It is not improbable that in the
Montgomery
case the questioned documents were obtained at a stage of the
investigation much nearer to actual criminal prosecution than in the
instant case.
The
second case cited by the defendant in support of his contention that the
net worth statement was inadmissible is United State v. Guerrina,
112 Fed. Supp. 126 (E. D. Pa. 1953) [53-1 USTC ¶9369], which held that
certain evidence sought to be used by the Government in a prosecution
for income tax evasion should be suppressed. This evidence had been
obtained voluntarily from the defendant by a Special Agent who at the
time of the investigation "* * * had reason to believe that the
defendant had been guilty of fraud and that his purpose in making the
examination of his papers was to obtain evidence for contemplated
criminal prosecution.", id. p. 130, and who did not warn the
defendant of his constitutional right to decline to produce these
incriminating documents. However, upon reargument of the motion to
suppress, Judge Clary in United States v. Guerrina, 126 Fed.
Supp. 609 (E. D. Pa. 1955) [55-1 USTC ¶9143], admitted that his earlier
opinion with respect to the evidence voluntarily produced by the
defendant was erroneous and that such evidence was admissible, stating
at p. 610 "The import of the decisions in the Burdick and Montgomery
cases * * * is that failure to warn the defendants of their
constitutional rights before questioning them as to their potential tax
liability does not per se and as a matter of law render their admissions
involuntary. The circumstances of the investigation and the failure to
warn the defendants of their constitutional rights were matters which
went only to the weight and credibility of the evidence thus obtained
and not to its admissibility." We hold that the trial judge in the
instant case did not err in denying the defendant's motion to suppress
his net worth statement and that his denial was in accord with the
weight of judicial opinion.
United States
v. Burdick, 214 Fed. (2d) 768 (3 Cir. 1954) [54-2 USTC ¶9475]
vacated and remanded 348
U. S.
905 (1955) [55-1 USTC ¶9139]; Hanson v. United States, 186 Fed.
(2d) 61 (8 Cir. 1950) [51-1 USTC ¶9118]; United States v. Wolrich,
119 Fed. Supp. 538 (S. D. N. Y. 1954) [54-1 USTC ¶9276].
[Accountant's Report]
The
defendant contends that his counsel should have been allowed to inspect
a document referred to in the testimony of the Government's witness,
Edward S. Samara, an accountant who had prepared the defendant's tax
returns for 1947 and 1948. The particular document sought to be
inspected by defendant's counsel was a report in the Government's
possession signed by Samara and which he had reexamined in the United
States Attorney's office before testifying. Samara stated that as far as
he could recollect, his testimony on the witness stand was not different
from that contained in the report. The defendant's contention that the
trial court committed error in its refusal to order production of the
document is based on United States v. Krulewitch, 145 Fed. (2d)
76 (2 Cir. 1944). In that case the principal Government witness had
signed a written statement for an agent of the Federal Bureau of
Investigation which completely exculpated the accused. The court said at
p. 78: "During the course of her cross-examination, the accused's
counsel, who has apparently learned of this paper, demanded the
privilege of inspecting it with a view to cross-examining her upon it
and presumably of putting it in evidence to impeach her."
Apparently, despite the trial court's refusal to allow accused's counsel
to inspect the document, the principal Government witness upon
cross-examination swore that the statement she had given the Government
was false throughout. Thus, the competence of the document to contradict
the testimony of this witness was clear and the defendant had properly
laid a foundation for the inspection of this statement. The court
appears to imply that inspection may be proper if the competence of the
document to impeach the witness is apparent without inspection as
otherwise the defendant could not ask those questions which are
necessary for admission of the statement itself. In the Krulewitch
case the defendant had already established that the Government's witness
has made a prior contradictory statement. Once this was established the
defendant had a right to inspect the statement. In the instant case,
however, the defendant did not prove that Samara had signed a statement
competent to contradict his oral testimony. In
United States
v. Remington, 191 Fed. (2d) 246 (2 Cir. 1951), cert. denied 343
U. S. 907 (1952), it is again implied that it is necessary that it first
be established that the pre-trial statement is inconsistent with the
witness' present testimony before such statement will be made available
to the defense. In Gordon v. United States, 344 U. S. 414 (1953),
Justice Jackson clearly expresses certain principles to be followed by
the trial court in determining whether the defense shall be given the
right to inspect pre-trial statements made by Government witnesses. It
is clear that the defense must lay a foundation before the court must
order the production of documents. In the Gordon case this
requirement had been met for it was expressly stated at p. 418 that
"By proper cross-examination, defense counsel laid a foundation for
his demand by showing that the documents were in existence, were in
possession of the Government, were made by the Government's witness
under examination, were contradictory of his present testimony, and that
the contradiction was as to relevant, important and material matters
which directly bore on the main issue being tried: the participation of
the accused in the crime." In the instant case there is no evidence
that Samara's pre-trial statement was inconsistent in any respect with
his trial testimony and, therefore, there is no evidence that it
contained contradictions on relevant, important and material matters
bearing on the defendant's guilt or innocence.
The
defendant maintains that he did everything possible to establish a
foundation which would require the production of Samara's statement but
that he could not show inconsistencies unless he had the document itself
to compare with Samara's oral testimony. But if we hold that the trial
court must require the production of such documents which the defendant
alleges could be used not only to attack the credibility of the witness
but also to establish the truth of the facts included in the statement,
if inconsistent with the witness' oral testimony, without any
preliminary showing of competence to impeach, it is not at all unlikely
that this would lead to frequent fruitless and time wasting
"fishing expeditions" on the part of the defense. The defense
is not without protection against the possibility of not being able to
utilize pre-trial contradictory statements for if it is able to
establish that the Government witness has given contradictory written
statements on relevant matters to the Government as was done in the Krulewitch
case, it has a right to inspect such statements.
[Tuttle's Affidavit]
The
defendant further contends that the trial court committed reversible
error when it allowed the Government to introduce an affidavit signed by
the witness Tuttle, for the purpose not only of impeaching Tuttle but
also for the purpose of showing the truth of the statements contained
therein. The decision of the trial court if it allowed this affidavit as
substantive evidence was erroneous. Bridges v. Wixon, 326
U. S.
135 (1945). However, defendant's counsel did not state the ground of his
objection and there is considerable authority holding that if a general
objection, as was made here, is overruled, such general objection cannot
avail the defendant upon appeal if that evidence was admissible for any
purpose. Bucher v. Krause, 200 Fed. (2d) 576 (7 Cir. 1952), cert.
denied 345
U. S.
997 (1953), rehearing denied 346
U. S.
842; 1 Wigmore, Evidence §18 (3rd ed. 1940). Moreover, the trial judge
was under the impression that Tuttle's affidavit was admitted "on
the basis of his credibility" and not as affirmative evidence of
the statements contained therein. We note that the defendant did not
request instruction from the court on the purpose of which the jury
could consider Tuttle's affidavit. It is doubtful that the failure of
the trial court to make entirely clear that the affidavit was not to be
utilized as substantive evidence was anything more than a harmless error
which did not affect the substantial rights of the defendant. Fed. R.
Crim. P. 52(a). The entire payment made to Tuttle by the defendant which
was sought to be included as an expenditure in 1948 was $2,696.24,
whereas the Government alleged that the defendant's unreported net
income in 1948 was $23,466.22. If we decrease the latter amount by
$2,696.24 there would be left $20,769.98 in expenditures and increase in
net worth in 1948, which the jury could find t be attributable to
unreported 1948 income. See United States v. Costello (2 Cir.
April 5, 1955) [55-1 USTC ¶9342].
[Testimony From Summaries]
The
defendant further contends that the Government's main witness, Roger
Charpentier, a Special Agent with the Intelligence Division of the
Bureau of Internal Revenue, was erroneously allowed to testify from
summaries, which were introduced as evidence purporting to be copied
from the records of the J. Scanlon and Company. This company was a crane
operating enterprise which the Government sought to prove was wholly
owned by the defendant. The Government maintains that the value of its
assets was rightfully included in the defendant's net worth statement.
Evidence was presented which tended to prove that these assets consisted
of two cranes, a truck, a welding machine and tools and that these
assets had been purchased by the defendant in 1947 and 1948. This
enterprise was conducted as an individual proprietorship until March 7,
1949 when it was incorporated as J. Scanlon and Company, Incorporated.
It appears that the records copied were the records of the corporate
successor to the defendant's individual proprietorship. There was
testimony to the effect that the only records kept for J. Scanlon and
Company in 1947 and 1948 when it was owned by the defendant were a check
book and pay roll record. Charpentier testified that his summary which
purported to show the accounts receivable and accounts payable of J.
Scanlon and Company on January 1, 1949 and also the existence of a tool
asset item was copied from a "combination journal, ledger and cash
receipt and cash disbursement record." Although the president of J.
Scanlon and Company, Incorporated, brought all the records which he
possessed relating to the company both in 1947 and 1948 when the company
was owned by the defendant and in 1949 when the company was
incorporated, Charpentier testified that these records did not include
the journal entries from which he prepared his summaries. The essence of
the defendant's challenge to the admissibility of Charpentier's
summaries is that they were reconstructed from the books of a corporate
successor of the defendant's individual proprietorship with which
corporation the defendant had no connection and that therefore the
corporate books or any summary of them were inadmissible hearsay. The
Government's theory is that the corporate records were relevant and as
they were not in the possession of J. Scanlon and Company, Inc.,
therefore they could logically only be in the possession of the
defendant, who had denied the existence of such records, and under the
authority of Lisansky v. United States, 31 Fed. (2d) 846 (4 Cir.
1929) [1929 CCH D-9277], cert. denied 279
U. S.
873, Charpentier's summaries as secondary evidence were then admissible.
The Government established to the satisfaction of the trial judge that
the original records were destroyed, mislaid or otherwise unavailable
and that Charpentier's summaries were admissible as secondary evidence.
We agree with the Government in this regard and assuming the original
records were competent evidence, then under the circumstances the
secondary evidence of these records was properly admissible. Whether or
not the original records from which Charpentier copied his summaries
were relevant to the issue of the defendant's income in 1948 is the
primary question that must have been considered by the trial court in
deciding whether the summaries were admissible. There is no doubt that
the earliest date on which the particular entry as to these asset and
liability items could have been made was January 1, 1949. It could also
be inferred by the jury that these entries were made in March, 1949 when
the assets formerly owned by the defendant were acquired by J. Scanlon
and Company, Inc. However, the jury could have found that the defendant
very well could have had an interest in the corporation in 1949 when the
assets and liabilities were entered in the corporate records, as
Cowette, president of J. Scanlon and Company, Inc., testified that the
defendant had not had any interest in the business since January, 1951
which would certainly not negative the probability that the defendant
did have such an interest in 1949. Moreover, Charpentier testified that
the defendant admitted that he had withdrawn from the business in 1951.
The value given to assets and liabilities on January 1, 1949, including
the tool asset item, by a corporation in which the defendant had an
interest and which purchased the defendant's assets in March, 1949 does
have some rational probative value as to the extent of the defendant's
net worth on December 31, 1948. It was the function of the jury to
determine how much weight it would give this evidence and the court did
not err in admitting it for consideration by the jury.
[Wife's Bank Accounts]
Another
point urged by the defendant is that this case must be reversed because
of the insufficiency of proof relating to the defendant's wife's two
banking accounts which were claimed by the Government to be wholly
attributable to the defendant and thus includible in the Government's
estimate of his net worth. It is argued that the defendant on March 2,
1953 told Charpentier, the Internal Revenue Special Agent, that $2,900
or $3,000 of the money in one of his wife's banking accounts had
belonged to her father and this money had been returned to her father in
1950 or 1951. While under cross-examination Charpentier testified that
he had not checked further on this item other than asking the defendant
for further information which was not forth-coming. The Special Agent
also testified that the defendant had gone over every item in a later
conference and that he had not objected to the apparent inclusion of his
wife's bank accounts. However, the agent testified that he could have
"easily found out" in what years the money had been deposited
but had not done so because "It appeared at the time that the money
in question related to later years * * *." The defendant contends
that this case should not have gone to the jury because the evidence
relating to these bank accounts was insufficient to meet the standards
laid down by the Supreme Court in Holland v. United States, 348
U. S. 121 (1954) [54-2 USTC ¶9714]. In that case the Court said at pp.
135, 136:
"*
* * When the Government rests its case solely on the approximations and
circumstantial inferences of a net worth computation, the cogency of its
proof depends upon its effective negation of reasonable explanations by
the taxpayer inconsistent with guilt. Such refutation might fail when
the Government does not track down relevant leads furnished by the
taxpayer--leads reasonably susceptible of being checked, which, if true,
would establish the taxpayer's innocence. When the Government fails to
show an investigation into the validity of such leads, the trial judge
may consider them as true and the Government's case insufficient to go
to the jury. This should aid in forestalling unjust prosecutions, and
have the practical advantage of eliminating the dilemma, especially
serious in this type of case, of the accused's being forced by the risk
of an adverse verdict to come forward to substantiate leads which he had
previously furnished the Government. It is a procedure entirely
consistent with the position long espoused by the Government, that its
duty is not to convict but to see that justice is done."
In
view of the fact that a bank account of the defendant's wife increased
from $1,624.32 to $5,336.35 in 1948, which would indicate a deposit of
over $3,000 in that year, thus supporting the defendant's explanation,
the Government's failure to investigate this lead would require
acquittal of the defendant if the Government's case turned upon the
increase in net worth revealed in this bank account. However, the
defendant's explanation would account for only $3,000 of a totalled
alleged unreported net income in 1948 of $23,466.22. Thus, even if this
lead were assumed to be true, the Government's evidence was sufficient
to convict. See
United States
v. Costello, supra.
[Company's Liabilities]
The
defendant further contends that the Government's proof of the net worth
of the defendant's investment in J. Scanlon and Company consisted of the
value of the depreciable assets of J. Scanlon and Company only both in
1947 and 1948 and did not include the liabilities of that enterprise and
therefore such net worth figure did not accurately reflect the true
value of the defendant's investment. This contention would at first seem
plausible for it is obvious that the value of one's investment in an
enterprise is certainly affected by the extent of the liabilities of
that enterprise. That is to say, if the defendant had purchased $50,000
worth of equipment and had contributed this to an enterprise solely
owned by him and, assuming no other assets were purchased and that this
enterprise had in some manner incurred a liability of $50,000, it would
seem grossly illogical to say that the value of the defendant's
enterprise was still $50,000. The Government maintains, however, that as
the defendant and J. Scanlon and Company were both on the so-called cash
basis accounting, which does not recognize liabilities that have not
resulted in the payment of cash by the taxpayer, to recognize such
liabilities would produce a net worth figure that would not accurately
reflect the defendant's income picture during the current year but would
rather take into account in the current year a loss that would be taken
advantage of, insofar as taxes are concerned, in the following year.
Thus, in the example above, assuming the $50,000 liability was an
account payable which had been incurred in 1948 but was not paid until
1949, the defendant's income tax return for 1948, because he and his
company were on a cash basis, would not reveal the existence of the
$50,000 account payable but his 1949 return would reflect the cash
payment of $50,000.
This
court agrees that it is not improper to exclude from such net worth
estimate such items as accounts receivable and accounts payable, which
are not attributable to the defendant's current income (income being
that income which is reportable by a taxpayer on a cash basis). However,
if the Government does exclude all non-cash items such as accounts
payable and accounts receivable it must not include in its net worth
figure any assets which were purchased by means of accounts payable or
any other non-cash liability account. For example, the value of a house
purchased by means of a still outstanding loan could not be included in
the net worth statement unless it was set off by the balance of the loan
still owing. Similarly, if the defendant here had obtained certain
materials for his crane business through accounts payable which were
still unpaid at the end of the tax year in question, the value of such
material could not appear in the closing net worth figure for that year
unless offset by the balance of the accounts payable.
In
the instant case the Government offered evidence from which the jury
could infer that the principal assets of J. Scanlon and Company were
purchased with cash and that this cash was obtained neither through
accounts payable, loans outstanding or any other non-income source. For
example, a bank official testified that the defendant had purchased a
bank check for $19,335 which was apparently made up of a withdrawal of
$1335 from the defendant's bank account plus an unknown credit from
another source; and this bank check was endorsed by a corporation from
which the defendant purchased a crane for J. Scanlon and Company for
$21,435. The Government also provided evidence tending to prove that the
only outstanding loan to J. Scanlon and Company which it had been able
to find was that of a local bank in the amount of $10,000, and this loan
was reflected in the Government's estimate of the defendant's net worth.
The Government also provided evidence that J. Scanlon and Company's
accounts payable amounted to $4,030.08, as of January 1, 1949, which
would indicate that no great prejudice could have been suffered by the
defendant through the Government's failure to offset this $4,030.08
item, which it had discovered itself through investigation of the
records of J. Scanlon and Company, against the value of a crane costing
twenty-four thousand dollars purchased by the defendant in 1948 along
with a truck and welding equipment. Moreover, there was no suggestion by
the defendant that the purchase in 1948 of these assets was made
possible though the establishment of an account payable of about only
four thousand dollars. The record does not reveal any other lead given
to the Government by the defendant which could possibly explain how
these assets were obtained other than through cash attributable to
current income and "* * * where relevant leads are not forthcoming,
the Government is not required to negate every possible source of
nontaxable income, a matter peculiarly within the knowledge of the
defendant." Holland v. United States, supra, at 138.
[Income From Gambling]
The
defendant contends that the Government should have offered evidence from
which it could be found that his income from his gambling activities
exceeded his reported income before the allegedly prejudicial fact that
he was a bookie was made known to the jury. This contention does not
warrant lengthy discussion. In
United States
v.
Holland
, supra, at pp. 137, 138, it was said "Increases in net worth,
standing alone, cannot be assumed to be attributable to currently
taxable income. But proof of a likely source, from which the jury could
reasonably find that the net worth increases sprang, is
sufficient." Here it was shown that the defendant was a bookie and
that he kept no records to show income from his bookmaking operations
although the defendant had reported income from gambling operations. The
Government also produced evidence tending to prove that the defendant
was a bookie in other to make a large profit and not "for just a
week's pay." The proving by direct evidence of the extent of the
defendant's income from bookmaking was not necessary in this case so
long as the jury could reasonably find that it was a likely source from
which the defendant's increases in net worth arose.
The
defendant contends that Special Agent Charpentier's testimony was
improperly admitted. Charpentier testified in direct examination that on
February 24, 1953, he "showed Mr. Scanlon that according to the net
worth statement prepared by Mr. Burnett, and also according to figures
we were preparing, that it was abvious that there was unreported
income." After objection by defendant that this was opinion
evidence the trial court allowed the answer on the ground it was a
statement made to the defendant and that as such it was not an
inadmissible opinion of a witness on an issue to be decided by the jury.
See 7 Wigmore, Evidence §1969(2), (3rd ed. 1940). We are of the opinion
that the admission of this testimony was not an abuse of discretion on
the part of the trial court.
The
defendant's objection to Charpentier's statement that proper accounting
on a cash basis would not consider accounts payable or receivable is
without substantial merit as Charpentier was in this instance properly
acting as an expert on income tax matters. United States v. Johnson,
319
U. S.
503 (1943) [43-1 USTC ¶9470], United States v.
Caserta
, 199 Fed. (2d) 905 (3 Cir. 1952) [52-2 USTC ¶9540]. The admission
in evidence near the close of the trial of two Government exhibits, one
being a net worth statement and the other a tax computation was not an
abuse of discretion by the trial judge as both were merely summaries of
evidence that had been properly offered by the Government and could have
been disbelieved by the jury in whole or in part. Defendant was free to
present his own evidence and summaries if he wished to rebut this
evidence. Hanson v. United States, supra.
Defendant's
further contention that the trial court was guilty of improper conduct
in that it demanded that the defendant produce certain documents does
not warrant discussion especially when these alleged demands are viewed
in the context of the entire record.
The
defendant further contends that the Government did not provide
sufficient evidence for the jury to infer with reasonable certainty that
the Government's beginning net worth figure of $28,599.77 as of December
31, 1946 was an accurate representation of the defendant's actual net
worth on that date. Defendant relies on Bryan v. United States,
175 Fed. (2d) 223 (5 Cir. 1949) [49-1 USTC ¶9322], affirmed 338
U. S.
552 (1950) [50-1 USTC ¶9140] but the evidence presented in that case
was certainly weaker than was presented by the Government in the instant
case. In the
Bryan
case there was no admission by the defendant as to the extent of his
beginning net worth. See Pollock v.
United States
, 202 Fed. (2d) 281, 284 (5 Cir. 1953) [53-1 USTC ¶9229], cert.
denied 345
U. S.
993. In the instant case there was properly admitted in evidence a net
worth statement signed and sworn to by the defendant and prepared by the
defendant's accountant which stated his beginning net worth was
$26,262.22. It is to be noted that the net worth figure finally relied
upon by the Government was $28,599.77 or $2,337.55 more than the
defendant's own estimate of his net worth. Other admissions made by the
defendant during the course of the investigation by Special Agent
Charpentier supply additional evidence from which the jury could infer
that all of the defendant's assets as of December 31, 1946 were
reflected in the Government's $28,599.77 net worth figure.
[Government's Arguments to Jury]
The
defendant cntends that certain portions of the Government's argument to
the jury were so prejudicial as to entitle the defendant to acquittal.
With regard to the interest of Bernard Cowette in J. Scanlon and Company
and the Government's allegedly prejudicial remark with reference
thereto, the Government counsel was merely presenting to the jury his
conception of a reasonable deduction to be made from Cowette's
testimony. See Keal Driveway Co. v. Car & General Ins.
Corporation, 145 Fed. (2d) 345 (5 Cir. 1944). Defendant's contention
that Government counsel failed to completely discuss the capital gains
and losses provision of the Internal Revenue Code is without merit. The
remarks concerning the source of defendant's income were withdrawn after
objection and do not constitute prejudicial error.
The
defendant also objected to that portion of the Government's counsel's
argument to the jury which is as follows:
"I
submit to you, ladies and gentlemen of the jury, that although, as Mr.
Graf points out, the defendant does not have to take the stand, and a
jury is not entitled to make any inference from that, if there were that
information available, if in fact somebody had given Mr. Scanlon ten
thousand dollars in 1946 or 1947 or 1948, they could have brought him in
for you. But did you see any evidence of it? No."
The Government argues that this
comment was allowable on two grounds. One ground appears to be that the
defendant's counsel had already discussed the subject of the defendant
not having to testify and that consequently the Government could be
allowed to comment on the defendant's nonpresentation of witnesses. The
Government cites as authority for this point United States v.
Feinberg, 140 Fed. (2d) 592 (2 Cir. 1944), cert. denied 322
U. S.
726, and Myres v. United States, 174 Fed. (2d) 329 (8 Cir. 1949)
[49-1 USTC ¶9275], cert. denied 338 U. S. 849, but these cases
presented situations unlike that presented in the instant case and do
not stand as authority for the Government's contention. In the instant
case defendant's counsel did not attempt to indicate what the defendant
would have said if he had testified and thus did not create an
opportunity for the prosecution to comment upon the defendant's lack of
evidence. The other ground of the propriety of Government's counsel's
comment is that it is allowable to comment on the failure of the
defendant to bring in a witness who could testify as to giving or
loaning the defendant such sums of money as would justify the
defendant's net worth increases. In Graves v. United States, 150
U. S. 118 (1893), the Supreme Court, although reversing a conviction
because of prejudicial comment by the district attorney, stated at p.
121: "The rule even in criminal cases is that if a party has it
peculiarly within his power to produce witnesses whose testimony would
elucidate the transaction, the fact that he does not do it creates the
presumption that the testimony if produced would be unfavorable."
This rule has been generally followed and consequently comments on the
non-production of evidence which is peculiarly within the control of the
other party have been allowed. 88 C. J. S. Trial §184;
Chesapeake
& O. Ry. Co. v. Richardson, 116 Fed. (2d) 860 (6 Cir. 1941),
cert. denied 313
U. S.
574; Milton v. United States, 110 Fed. (2d) 556 (D. C. Cir.
1940); see Bell v. United States, 185 Fed. (2d) 302, 309 (4 Cir.
1951) [50-2 USTC ¶9499], cert. denied 340
U. S.
930. In the instant case the testimony of any person who had made a gift
or loan to the defendant would certainly be evidence peculiarly within
the control of the defendant and consequently the allowance of the
prosecution's comment did not result in prejudicial error.
[Trial Court's Charge]
The
defendant's final contentions deal with the trial court's charge. This
charge adequately instructs the jury as to placing on the Government the
burden of proving the defendant's guilt beyond a reasonable doubt and
also made clear to the jury that the fact of the defendant's indictment
was not to be considered as evidence of guilt. Objection was made to the
trial court's instruction that if the defendant's net worth statement
was voluntarily given, the jury must consider its contents. This
instruction, however, did not invade the province of the jury for only
if the jury decided the statement was obtained voluntarily was it to
consider the contents of that statement and the weight to be given to
the contents was left entirely to the judgment of the jury.
The
main objection of the defendant is to the trial court's instruction with
regard to the defendant's net worth on December 31, 1946. It is
contended that the trial court in effect made what amounted to a finding
of fact on this issue when it stated: "The prosecution in this case
has taken December 31, 1946, as a base or starting point and has
determined the amount of the excess of his assets over his liabilities
at that time. This constitutes his net worth as of that date."
However, when this was objected to by the defendant the trial judge
attempted to correct any misunderstanding on the part of the jury by
further charging the jury on this point. In our opinion the jury should
have understood from this amounded instruction that it was their
function to determine whether or not the defendant's net worth was
substantially identical to the Government's figure.
The
judgment of the district court is affirmed.
*
26 U. S. C. §145(b) (1946), 53 Stat. 62 (1939)
"§145.
Penalties
* * *
"(b)
Failure to collect and pay over tax, or attempt to defeat or evade
tax. Any person required under this chapter to collect, account for,
and pay over any tax imposed by this chapter, who willfully fails to
collect or truthfully account for and pay over such tax, and any person
who willfully attempts in any manner to evade or defeat any tax imposed
by this chapter 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."
[54-1
USTC ¶9137]C. N. Papadakis, Appellant v.
United States of America
, Appellee
(CA-9), In the United States Court
of Appeals for the Ninth Circuit, No. 13,772, 208 F2d 944, December 21,
1953
Appeal from the United States District Court for the Southern District
of California, Central Division.
Criminal penalties: Unreported income determined by net worth method:
Whose income?: Sufficiency of evidence.--Defendant and his father
were charged with attempting to defeat and evade income taxes due and
owing by the father and defendant. The latter had general supervision of
his father's business affairs, as well as being responsible for
reporting the income of the family enterprises for tax purposes. The
required information was turned over to an accountant who prepared the
returns. By use of the net worth method, the Government established that
the parents had total unreported income of $20,822.94 in 1945. Defendant
contended that this amount was overstated since $16,761.52 belonged to
him and his brother. The Court held that although the defendant and his
brother reported this amount on their own returns, the evidence
indicated that the parents were not under any obligation to pay this sum
to the sons. Also, that the jury could have inferred from the evidence
that the sons reported the income in order to avoid higher surtax rates
applicable if the income would have been reported by the parents.
Moreover, even if this amount were not considered, the parents would yet
have unreported income of nearly $3,000 for 1945. With respect to
unreported income for the years 1947 through 1949, the Court held that
(1) one-half of the profits was the income of the father's partner, and
(2) payments made by the defendant and his brother to the father on the
purchase price of the inventory of the liquor store were not taxable
income. Nevertheless, even after allowance for these errors, the parents
still had unreported income in each of the taxable years, and testimony
of the accountant indicated that the omissions were deliberate and made
under the defendant's direction.
Criminal penalties: Fact finding.--Defendant was also guilty of
attempting to evade taxes of himself and his wife on the income from a
partnership. Relying on the partnership books, the Government
established substantial overstatements of purchases and expenses and
understatements of gross receipts. The accountant testified that, at the
defendant's direction, he had cut net income on partnership returns.
There was also evidence of an attempted bribe of a Bureau agent
investigating the partnership.
Criminal penalties: Admissibility of evidence.--Defendant
objected to the admission of certain exhibits on the ground that they
were hearsay as against him. The Court held admissible (1) an exhibit
admitted without objection by the defendant in the lower court, (2) a
summary of deposits and checks drawn on bank accounts of the father and
the partnership, (3) a net worth statement of the parents signed by the
father, and (4) summaries of omissions from a book showing receipts from
rental properties. Evidence of certain oral statements made out of court
by the father were hearsay as against the defendant but defendant failed
to show that these statements were prejudicial.
Criminal penalties: Instructions to the jury.--The Court below
did not err in refusing to give an instruction on the defense of
entrapment. The accountant had informed Government officials of
irregularities in 1948 but continued to work for the defendant until
1952. However, there was no evidence that the accountant was ever an
agent of the Government, and the defense of entrapment is available only
where there has been "an instigation by government officials
* * *." Nor was it reversible error not to instruct the jury that
the accountant was an accomplice and that his testimony was to be viewed
with extreme caution. The Court did not err in instructing the jury that
in judging the testimony of the defendants they were to consider the
interest of the defendants in the case, "their hopes and fears, and
what they have to gain as a result of your verdict." An instruction
that "* * * any juror should not hesitate to abandon his own view
when convinced it is erroneous" was properly given. The Court also
acted properly in refusing to instruct that "* * * unless the
evidence established guilt * * * beyond a reasonable doubt, in the mind
of each and every juror, then such juror should vote to acquit * *
*."
Russell
E. Parsons,
Beverly Hills
,
Calif.
, for appellant. Laughlin E. Waters, United States Attorney, Ray H.
Kinnison, Assistant United States Attorney, Chief, Criminal Division,
James K. Mitsumori, Assistant United States Attorney, Los Angeles,
Calif., for appellee.
Before
STEPHENS, BONE and ORR, Circuit Judges.
BONE,
Circuit Judge:
Appellant,
C. N. Papadakis, stands convicted on 16 counts of willfully and
knowingly attempting to defeat and evade income taxes by filing and
causing to be filed false and fraudulent income tax returns in violation
of 26 U. S. C. A. §145(b).
The
first 8 counts charged appellant and his father, Nick Papadakis, as
joint defendants, with attempting to defeat and evade income taxes due
and owing by Nick and his wife, Katina, who reported their income on a
community property basis. Counts 1, 3, 5 and 7 relate to income taxes
due and owing by Nick for the taxable years 1945, 1947, 1948 and 1949,
respectively. Counts 2, 4, 6 and 8 concern income taxes due and owing by
Katina for the same years, and in the same order.
The
counts numbered 9 through 16 charged appellant as sole defendant with
willfully attempting to defeat and evade income taxes due and owing by
himself and his wife, Helene, who reported their income on a community
property basis. Counts 9, 11, 13 and 15 relate to income taxes due and
owing by appellant for the taxable years 1946, 1947, 1948 and 1949,
respectively. Counts 10, 12, 14 and 16 concern income taxes due and
owing by Helene for the same years, and in the same order.
Appellant
was sentenced to 10 months imprisonment on each of the 16 counts, the
sentences to run concurrently, and to pay a fine of $200 on each of the
counts--a total of $3,200. Nick was convicted and sentenced on counts 1
through 8 but took no appeal.
Prior
to the taxable years involved Nick Papadakis owned and operated the
LaSalle Hotel and two liquor stores in
San Pedro
,
California
, and owned a number of other properties on which he received rental
income. In 1946 Nick turned over the business of the two liquor stores
to appellant and his brother, George Papadakis, who thereafter operated
the stores as a partnership under the firm name of Anchor Liquors. Prior
to 1950 Anchor Liquors took on two additional partners and acquired two
more liquor stores.
Nick
and his wife received all of the income from the LaSalle Hotel and the
rental properties until early in 1947 when Nick took his son, Ernest, in
as his partner. Ernest left this partnership late in 1949 to join the
firm of Anchor Liquors.
The
income of Nick and his wife from all of the properties, including the
two liquor stores, is in issue for the year 1945 under counts 1 and 2 of
the indictment, and their incomes from the LaSalle Hotel and the rental
properties for the years 1947 through 1949 are in issue under counts 3
through 8. The incomes of appellant and his wife from Anchor Liquors for
the years 1946 through 1949 are in issue under counts 9 through 16.
Appellant
challenges the sufficiency of the evidence on all counts and we turn
first to that question, putting off for the moment questions raised as
to the admissibility of certain evidence introduced by the government.
Sufficiency of the Evidence
In
determining whether the evidence was sufficient to sustain the verdict
we view the record in the light most favorable to the government and
affirm if the evidence, so viewed, was sufficient to justify the jury in
finding, beyond a reasonable doubt, that there has been a willful
attempt to evade taxes. Gendelman v.
United States
, 9 Cir., 191 Fed. (2d) 993, 995 [51-2 USTC ¶9474], cert. denied
342
U. S.
909; McFee v.
United States
, 9 Cir., 206 Fed. (2d) 872, 874 [53-2 USTC ¶9549].
Counts
1 through 8. Appellant was
charged in these counts on the theory that he knowingly and willfully
assisted Nick in an attempt to defeat and evade income taxes due and
owing by Nick and his wife.
In
late 1945 appellant was given general supervision of his father's
business affairs. For all of the taxable years in question he had charge
of reporting the income of the family enterprises for tax purposes.
Books were kept by several members of the Papadakis family showing
receipts and expenses of the LaSalle Hotel and the rental properties.
The manager of each of the liquor stores kept the books for that store.
At the end of each year appellant collected from the person or persons
who kept the books information as to the receipts, costs and expenses of
the hotel and rental properties and of each of the liquor stores. From
these figures appellant prepared consolidated work sheets and turned
these sheets over to an accountant, who prepared the required
partnership and individual returns.
Counts
1 and 2 concern the incomes of Nick and Katina for the year 1945. The
books and records for the LaSalle Hotel and rental properties being
admittedly incomplete, the government relied solely upon the net
worth-expenditures method to prove that Nick and Katina had unreported
income in 1945. In other words, the government sought to show the net
worth of Nick and Katina as of the beginning and the end of the year
1945 and the non-deductible expenditures and gifts made by them in that
year. If the increase in their net worth plus their non-deductible
expenditures and gifts exceeded their reported income, and this excess
was not satisfactorily explained, the jury was entitled to find, as it
evidently did find, that they received income in that year which they
failed to report.McFee v. United States, supra.
The
evidence was sufficient on counts 1 and 2. The government introduced
evidence and computations based thereon which, if believed, established
that Nick and Katina had a total unreported income of $20,822.94 in
1945. The only substantial dispute of fact was whether the income from
the liquor stores in that year, amounting to $16,761.52, was income of
Nick and Katina or of their two sons, appellant and George Papadakis.
The theory of the defense was that while the profits of the two stores
went into the bank account of Nick or were expended by him, those
profits in fact belonged to appellant and George, as owners of the
businesses; that Nick and Katina were therefore obligated to appellant
and George for the amount of those profits; and that in failing to take
this obligation into account the government overstated the unreported
income of Nick and Katina in the amount of the income from the stores.
Admittedly
Nick held fee title to the land and the store buildings, but several
members of the Papadakis family testified that the business of one of
the stores had belonged to George Papadakis since 1935 and that the
business of the other had been the property of appellant since 1939. The
off-sale liquor licenses for the stores were in the names of appellant
and George, and they reported the income from the stores in 1945, as in
prior years, as their own for income tax purposes. However, there was
abundant evidence to sustain the conclusion that the businesses in fact
belonged to Nick and his wife in 1945. The net worth statement
introduced by the defense, on which appellant relies, lists the
inventories of the stores as belonging to Nick and Katina as of December
31, 1944 and December 31, 1945, and it is admitted that appellant and
George Papadakis were obliged to buy the inventories from Nick for a
very substantial sum in 1946, when the firm of Anchor Liquors was
formed. And there is room for doubt that Nick was ever in fact under an
obligation to pay his sons the 1945 profits from the stores, for no
payments were ever made by him and no time set for payment. Appellant
testified vaguely that perhaps Nick would take care of the matter in his
will.
From
the fact that appellant and George reported the 1945 income from the
stores on their own income tax returns it might have been found that
appellant acted in good faith, and that there was no willful attempt to
evade taxes on that income. But this was a question for the jury. There
was evidence that in 1949 appellant told a Bureau agent that the
business belonged to Nick in 1945. This cast doubt on appellant's good
faith in failing to report the income from the stores as income of Nick
and Katina. There was ample evidence, as will be seen, from which the
jury could have decided that this was but a part of a deliberate,
long-continued practice by appellant of attempting to defeat taxes on
the income from the family enterprises, and that the reporting of the
income of the stores by appellant and George was merely a ruse to avoid
the higher surtax rates which would apply if the income was reported
[by] Nick and Katina.
Moreover,
even if the income of the stores is eliminated from the income of Nick
and Katina, and if we allow for a seeming minor error in the
government's computation, the government's proof still established that
Nick and Katina had unreported income of nearly $3000 in 1945.
Counts
3 through 8 concern the incomes of Nick and Katina Papadakis from the
LaSalle Hotel and the rental properties for the years 1947 through 1949.
The government relied upon both the net worth-expenditures method and
upon other evidence to prove evasion of the taxes of Nick and Katina for
those years.
The
government claims to have established, by the net worth-expenditures
method, that Nick and Katina had unreported income of $42,949.12 in
1947, $42,395.02 in 1948, and $34,440.29 in 1949. However, a large part
of the income attributed to Nick and Katina in the government's
computation was in fact the income of Ernest Papadakis, who was Nick's
partner in those years. The government concedes the existence of this
partnership. The profits from the LaSalle Hotel and the rental
properties all went into Nick's bank account or were expended by him for
his own account. This was brought out by Martha O'Sullivan, testifying
as a government witness on direct examination, and was never
contradicted. One-half of the profits held or expended by Nick in the
years 1947 through 1949 were taxable to Ernest, and the government did
not consider this in its calculation of the unreported income of Nick
and Katina for those years.
It
was also brought out in the government's own evidence, and never
disputed, that in the years 1947, 1948 and 1949 appellant and George
Papadakis made payments to Nick on the purchase price of the inventory
of the liquor stores. Those receipts were not taxable income, and the
government's computation of unreported income is therefore excessive
because of a failure to take them into account.
After
allowing for these errors, Nick and Katina had unreported income,
according to the net worth-expenditures proof of the government, of more
than $10,000 in 1947, $15,000 in 1948 and $5,000 in 1949. Appellant
contends that there was an additional overstatement by the government of
unreported income of $7,000 in 1949, but the basis for that contention
has been nowhere satisfactorily explained.
There
was other, overwhelming proof of appellant's guilt on counts 3 through
8. Some of this evidence was supplied by the defense itself. In
attacking the government's net worth-expenditures computation appellant
relies upon defense evidence that Ernest's share of the profits of the
LaSalle Hotel and the rental properties was more than $23,000 in 1947
and more than $27,000 in 1948. Admittedly the share of Nick and Katina
was an equal amount in each of those years. Yet the partnership tax
return stated Nick's share to be less than $11,000 in 1947 and less than
$14,000 in 1948, and this was of course reflected in the individual
returns of Nick and Katina.
A
Bureau agent testified that an audit of the rental receipt book kept for
the rental properties revealed a great number of omissions. This book
was the source of information for the income tax returns. In some
instances receipts of rent were proved by the production of checks drawn
by tenants, indorsed by Nick, and it was shown that those receipts were
never entered in the book. Substantial omissions were admitted by
several members of the Papadakis family. There were apparent omissions
which were never explained. The undisputed and apparent omissions
amounted to more than $8,000 in 1947 and 1948 and more than $7,000 in
1949. While appellant did not personally make the entries in this book,
he had general supervision of the family enterprises, and the jury could
well have concluded that he was fully aware of the omissions when he
directed the preparation of the tax returns.
In
his investigation the Bureau agent first totaled the rental receipts
shown in the book on an adding machine. Later he made an audit of the
book. Some of the apparent omissions had been filled in between his
first and second examinations of the book. This was admitted by Ernest
Papadakis, a defense witness.
Leonard
Mattis, an accountant who prepared the income tax returns for the
Papadakis family for the years 1947 through 1951, testified that in
March of 1948, in the course of preparing the partnership income tax
return for the LaSalle Hotel and the rental properties, he found that
approximately $22,000 had been spent in 1947 in remodeling the LaSalle
Hotel. Mattis thought this should have been capitalized, but appellant
told him to put it all down as deductible expense, and that if they were
caught, he (appellant) would take care of it. When Mattis had prepared a
tentative return, appellant told him it was still "too damn
high." Under appellant's direction, Mattis raised expenses and cut
gross receipts until the net income was reduced by $16,000 on the final
return.
The
following year Mattis prepared a tentative return for the partnership
for the year 1948 from the work sheets given him by appellant. Appellant
told him that the income shown on the tentative return would have to be
cut. Accordingly, Mattis, at appellant's direction, reduced the gross
receipts on the final return by $10,000. Moreover, when appellant found
that there would be an overall tax saving by omitting the rental paid
Nick by Anchor Liquors from the rental receipts, and also omitting it
from the expenses of Anchor Liquors, this was the course followed, with
the view that Anchor Liquors would be reimbursed by appellant's father
in the amount of the tax saving to the latter.
The
evidence was clearly sufficient on counts 3 through 8.
Counts
9 through 16. These counts
charged appellant with attempting to evade taxes of himself and his wife
on the income from Anchor Liquors for the years 1946 through 1949.
Appellant was in charge of preparing the tax returns for the firm. He
signed the partnership returns and also the individual returns of his
wife.
The
government did not use the net worth-expenditures method of proof on
these counts. They relied instead upon the partnership books. These
books revealed that there had been substantial overstatements of
purchases on the partnership returns for each of the years 1947, 1948
and 1949, and in addition that gross receipts had been understated and
expenses overstated for the year 1949. The resulting understatements of
net income in the partnership returns were reflected in the individual
returns of appellant and his wife. This evidence was corroborated by
Mattis, appellant's accountant. He testified that, at appellant's
direction, he cut net income on the partnership returns in the years
1947 through 1949, and that work papers made available to him indicated
a similar practice in the preparation of the return for 1946.
At
Mattis' first meeting with appellant in March of 1948, Paul Hoffman, the
prior accountant for the Papadakis family, was present. According to
Mattis, Hoffman told him that "they had been cutting the grass and
changing the inventory from year to year." When Mattis asked
whether that was risky, Hoffman said that "they had been getting
away with it for years."
There
was evidence that shortly after the Bureau investigation of Anchor
Liquors was commenced, appellant offered a Bureau agent a bribe first of
$1,000 and then of $1,500 to "wind up this case--set up some
deficiency and get out."
The
evidence was sufficient on counts 9 through 16.
Admissibility of Evidence
Appellant
contends that Government Exhibits 34, 74, 75, 77, 77-A and 77-B were
hearsay as against appellant.
Exhibit
34 is a statement showing the net worth of Nick and Katina Papadakis as
of the beginning and end of each of the taxable years involved. It was
prepared by Martha O'Sullivan, an accountant for Nick. Whether it was
hearsay as against appellant we need not decide, for it was admitted
without objection by appellant. Moreover, it was almost an exact copy of
Defense Exhibit N-D, on which appellant here relies. Appellant can
hardly contend, therefore, that he was prejudiced by Exhibit 34.
Exhibit
74 is a summary of the deposits made in and checks drawn on the bank
accounts of Anchor Liquors and Nick Papadakis. It was introduced to show
that the amounts of cash which flowed through these accounts were
abnormally large when compared with the reported incomes of the
depositors. It was based upon records kept in the ordinary course of
business by the bank. These records were identified by an official of
the bank and properly admitted in evidence under the Business Records
exception to the hearsay rule. 28
U. S.
C. A. §1732. Exhibit 74 was admissible as a summary or tabulation of
the results of an examination of these records. Augustine v. Bowles,
9 Cir., 149 Fed. (2d) 93; Hanson v.
United States
, 8 Cir., 186 Fed. (2d) 61 [51-1 USTC ¶9118]; United States v.
Kelley, 2 Cir., 105 Fed. (2d) 912 [39-2 USTC ¶9621].
Exhibit
75 was a net worth statement of Nick and Katina Papadakis signed by
Nick. It was hearsay as against appellant, but the error in admitting it
as against him was clearly harmless. Exhibit 75 was substantially the
same as Government Exhibit 89, as to which appellant makes no complaint.
Even Defense Exhibit N-D, on which appellant relies, varies from Exhibit
75 in only a few particulars. Defense Exhibit N-D corrects errors in
Government Exhibits 75 and 89--errors which we have noted above--and
these corrections constituted the only substantial differences between
the government and the defense on the net worth-expenditures evidence.
Appellant was not prejudiced by the admission of this exhibit.
Exhibits
77, 77-A and 77-B were summaries of omissions from the book showing
receipts from the rental properties. Photostatic copies of the pages of
the rental receipt book and, later, the original book itself were
received in evidence. The book was admissible as against appellant under
the business records exception to the hearsay rule. 28
U. S.
C. A. §1732. Exhibits 77, 77-A and 77-B were admissible a summaries or
tabulations of the results of an examination of the book.Augustine v.
Bowles, supra; Hanson v.
United States
, supra;
United States
v. Kelley, supra.
Appellant
presents a blanket objection to all of these documents. All of them,
says appellant, summarized accumulations of properties by Nick and
Katina or transactions in which appellant had no part and therefore they
were hearsay as against him. In other words, appellant asserts that the
facts should not have been shown as against him since he had nothing to
do with those facts. But that is no valid objection under the hearsay
rule. That rule is not concerned with what facts may or may not be the
subjects of evidence. Other rules, such as the rules of relevancy, deal
with that question. The hearsay rule is concerned only with the reliability
of evidence offered to prove a fact, whatever that fact might be. It
operates to render inadmissible extra-judicial writings or declarations
introduced to prove the truth of what was said or written, on the theory
that such evidence, not being subject to the tests of cross-examination,
is not reliable. 5 Wigmore on Evidence, §1361. That appellant had no
part in the transactions summarized in the exhibits complained of may
raise a question of relevancy, but it is a matter of indifference so far
as the hearsay rule is concerned.
If
appellant means to say that the documents were irrelevant as against
him, the contention is clearly without merit. The documents tended to
show that Nick and Katina Papadakis had income which they failed to
report, and therefore that there was an attempt to defeat their income
taxes--an attempt in which appellant had a very active, if not the
principal part.
The
court below also admitted evidence of certain oral statements made out
of court by Nick Papadakis. The declarations were properly received as
against Nick as admissions of a defendant, but they were hearsay as to
appellant. Lutwak v.
United States
, 344
U. S.
604. The court below instructed the jury at the close of the trial to
consider out-of-court statements by either of the defendants only as
against the defendant who made them, but this was not sufficient. The
court should have directed that the declarations were received only as
against Nick Papadakis at the time they were admitted. Lutwak v.
United States
, 344
U. S.
604, 619. In this connection, three oral conversations of Nick with
Bureau agents are complained of. They were as follows: (1) Bureau agents
examined the journal showing receipts from the rental properties. They
discovered apparent omissions and asked Nick Papadakis why the rentals
had not been shown. Nick replied that he did not know. (2) Nick stated
to Bureau agents that the entries in the rental receipts book had been
made by himself, his son and his daughter. (3) Bureau agents discovered
in their second examination of the rental receipt book that apparent
omissions had been filled in since their first examination of the book.
Nick was asked why these additions had been made, why the book had never
been totaled, and whether the book was the original book kept for the
rental properties. Nick replied that he couldn't understand the talk as
to the filling in of omissions, that the book must have been totaled at
some time, and that the book was the original book.
Appellant
contends that this evidence was "highly inflammatory" but he
gives no reason why it should be so considered and we perceive none. The
only declaration of Nick which could conceivably have prejudiced
appellant was the statement that he did not know why there were
omissions from the book. But evidence of the same omissions was
introduced at the trial and never rebutted or explained by the defense.
The errors in failing to limit the effect of these declarations, whether
considered singly or cumulatively, were wholly innocuous. This is a
clear case for application of Rule 52(a) of the Federal Rules of
Criminal Procedure. 1
The Court's Instructions
Questions
raised as to the lower court's instructions to the jury make it
necessary to consider the role of appellant's former accountant, Leonard
Mattis, in the transactions and investigations which gave rise to the
indictment in this case. Mattis was employed at some time prior to March
of 1948 by Paul Hoffman, who for years had prepared income tax returns
for members of the Papadakis family. At a meeting between Mattis,
Hoffman and appellant in March of 1948, ways and means of cutting income
taxes were discussed. Mattis testified that he thereafter took part in
preparing fraudulent income tax returns for the Papadakis family for the
taxable year 1947 under the direction of appellant. In September or
October of 1948, either because he had fears concerning his part in the
preparation of the returns, or because he thought he might obtain, as an
informer, a part of the government's recovery of deficiencies as against
members of the Papadakis family, Mattis wrote a letter to the Internal
Revenue Bureau stating what had transpired. In the summer of 1949, after
the Bureau had begun an investigation of the Papadakis family
enterprises, Mattis was called to the San Pedro Office of the Bureau of
Internal Revenue to meet with an investigator. Later he turned over a
number of his work papers on Papadakis income tax matters to Bureau
agents. Mattis continued to prepare income tax returns for the Papadakis
family through March of 1952, and during that period was in touch with
Bureau agents.
Appellant
contends, first, that the court below erred in refusing to give
instructions on the defense of entrapment. We think not. The defense of
entrapment is available only where there has been "an instigation
by government officials of an act on the part of persons
otherwise innocent in order to lure them to its commission and punish
them." (Italics supplied). Sorrells v.
United States
, 287
U. S.
435, 448. The defense is recognized, not because a person induced by
another is any the less guilty of the crime committed, but because it is
deemed unconscionable to permit the government to prosecute an accused
for an offense instigated by its own agents. "The defense is
available, not in the view that the accused though guilty may go free,
but that the government cannot be permitted to contend that he is guilty
of a crime where the government officials are the instigators of his
conduct." Sorrells v. United States, supra, 287
U. S.
at 452.
Here
there is not a shred of evidence that Mattis was ever an agent of the
government. His testimony certainly did not so indicate, and the defense
did not see fit to explore the matter on cross-examination. The evidence
is that he prepared the income tax returns of the Papadakis family for
the years 1947 through 1951 for a reasonable fee, and that he contacted
government officials in the summer of 1948 either out of fear or in hope
of a profit. Neither is there any evidence that Mattis instigated the
fraudulent preparation of tax returns, or that he implanted the criminal
design in the mind of appellant. Mattis did not appear on the scene
until March of 1948, two years after the commission of the crimes
charged in counts 1 and 2 of the indictment and a year after the crimes
charged in counts 9 and 10. Mattis testified that it was only under
appellant's instructions that he thereafter prepared fraudulent returns.
Appellant denied giving such instructions, but he did not testify that
Mattis at any time suggested the falsification of returns. There is
simply no evidence of entrapment, and the court below correctly refused
an instruction on that subject.
Appellant
also contends, rather anomalously, in view of his position on the
entrapment issue, that Mattis was an accomplice, and that the court
below erred in failing to instruct the jury that the testimony of an
accomplice is to be viewed with extreme caution. Whether Mattis was an
accomplice we need not decide, for it does not appear that appellant
requested an instruction on that score. But assuming that Mattis was an
accomplice, and assuming further that the instruction had been
requested, a refusal to give it, though not the better practice, would
not have been reversible error. Caminetti v. United States, 242
U. S.
470, 495, affirming 9 Cir., 220 Fed. 545;
United States
v. Wilson, 2 Cir., 154 Fed. (2d) 802, 805, cert. denied 328 U.
S. 823, rehearing denied 329 U. S. 819; cf. Kearns v. United States,
9 Cir., 27 Fed. (2d) 854, cert. denied 278
U. S.
652; Stillman v.
United States
, 9 Cir., 177 Fed. (2d) 607.
Appellant
urges that the court erred in refusing to instruct the jury to consider
the "motives and statements" of prosecution witnesses who were
officers of the government, but that subject was adequately covered in
another instruction.
It
is next contended that the court erred in instructing the jury that in
judging the testimony of the defendants they were to consider the
interest of the defendants in the case, "their hopes and fears, and
what they have to gain or lose as a result of your verdict." This
instruction was proper.Frederick v.
United States
, 9 Cir., 163 Fed. (2d) 536, 550, cert. denied 332
U. S.
775; Marino v.
United States
, 9 Cir., 91 Fed. (2d) 691, cert. denied 302
U. S.
764;Schulze v.
United States
, 9 Cir., 259 Fed. 189.
Appellant
requested an instruction that the defendant was entitled to the
individual and independent verdict of each and every member of the jury,
and that unless the evidence established guilt of the crime charged,
beyond a reasonable doubt, in the mind of each and every juror, then
such juror should vote to acquit the defendant. The court refused this
instruction, and charged the jury that "Jurors are expected to
agree upon a verdict where they can conscientiously do so, you are
expected to consult with one another in the jury room and any juror
should not hesitate to abandon his own view when convinced it is
erroneous." The instruction requested was properly refused; the
instruction given was substantially correct. Allen v.
United States
, 164
U. S.
492;Zamloch v.
United States
, 9 Cir., 193 Fed. (2d) 889, cert. denied 343
U. S.
934; Egan v.
United States
, D. C. Cir., 5 Fed. (2d) 267; Lias v.
United States
, 4 Cir., 51 Fed. (2d) 215, affirmed 284
U. S.
584; Bowen v.
United States
, 8 Cir., 153 Fed. (2d) 747, cert. denied 328
U. S.
835;
United States
v. Furlong, 7 Cir., 194 Fed. (2d) 1, cert. denied 343
U. S.
950.
The
judgment is affirmed on all counts.
1
"RULE 52. HARMLESS ERROR AND PLAIN ERROR
"(a)
Harmless Error. Any error, defect, irregularity or variance which does
not affect substantial rights shall be disregarded."