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[63-2 USTC ¶9517] United States of America , Appellee v. Gerald A. Guidarelli, a/k/a Gerardo A. Quindarelli, Defendant-Appellant

(CA-2), U. S. Court of Appeals 2nd Circuit, Docket No. 28038, 318 F2d 523, 6/4/63, Affirming an unreported District Court decision

[1954 Code Sec. 7201]

Tax evasion: Criminal conviction: Evidence: Prejudice.--Conviction of a newsstand and gift shop operator for willful evasion of income tax is upheld. In the lower court the Government used the net worth method of proof and contended that the taxpayer had unreported income from gambling and bookmaking activities. On appeal the taxpayer attacked the net worth amount on the ground that the lower court erred in permitting an IRS agent's testimony regarding statements made to him by the taxpayer's wife. He also claimed that his cause was prejudiced by the Court's admission of evidence of his prior convictions for bookmaking and by the prosecutor's summation remarks (such as calling the taxpayer a "leech"). The Court of Appeals found that the taxpayer could not challenge the net worth amount because his counsel had stipulated to it after the lower court ordered the items in the net worth account based upon the wife's statements stricken from the record. As to the evidence of the taxpayer's prior convictions, his gambling activities were part of the case story, and any prejudice was dispelled by the judge's jury instructions. Also, although the prosecutor did overstep the bounds of summation, his comments were not sufficiently prejudicial to warrant reversal.

Louis Lombardi, Schenectady , N. Y., for defendant-appellant. Dante M. Scaccia, Assistant United States Attorney, Syracuse, N. Y. (Justin J. Mahoney, United States Attorney, Albany, N. Y., Louis F. Oberdorfer, Assistant Attorney General, Lee A. Jackson, Joseph M. Howard, Norman Sepenuk, Department of Justice, Washington 25, D. C., on brief), for appellee.

Before CLARK , SMITH, and HAYS, Circuit Judges.

[Basis of Conviction]

CLARK, Circuit Judge:

Defendant was convicted of willfully attempting to evade and defeat his income taxes for the years 1956 and 1957 by filing false and fraudulent returns, in violation of I. R. C. 1954, §7201. During the prosecution years he claimed as his only source of income the newsstand and gift shop which he operated, known as "Lee's News." Using the net worth method of proof, the prosecution introduced evidence of cash on hand, various automobiles of which the purchase price was attributable to the defendant, legal fees, life insurance premiums, and miscellaneous personal living expenses--all of which tended to show funds at his disposal indicating that a substantial tax was due and owing from him for the years involved. The government contended that the indicated deficiencies in the income reported arose from gambling and bookmaking activites--a taxable source of income--and pointed to defendant's failure to keep books, his excessive use of currency, and the concealment of assets by placing several of the automobiles purchased by defendant in the name of relatives as proof of the necessary element of willfulness. The primary theory of defense below was that the net worth increases which the government had shown were due to the receipt of cash loans from defendant's parents.

[No Grounds to Challenge Net Worth Amount]

On appeal the defendant argues that the district court erred in permitting Special Agent O'Sullivan to testify regarding statements made to him by defendant's wife. Defendant contends that admission of this testimony was in violation of spousal privilege. While we agree that the testimony in question presents some interesting questions as to the application of both the spousal privilege rule and the hearsay rule, we need not concern ourselves with them here. For Judge Brennan had second thoughts about this aspect of Special Agent O'Sullivan's testimony and, on his own motion, ordered the items in the net worth account based upon the wife's statements stricken from the record. Defendant now seems to claim that Judge Brennan failed to strike all the items on which the wife's statements had bearing. But the effect on the net worth statement of striking the testimony was determined by a stipulation to which the defense counsel agreed; and he then made no claim that other items should also have been stricken. Thus he has no ground to challenge the failure to include such other items in the exclusion.

[Evidence of Prior Convictions Allowed]

Defendant also complains of the use in evidence of his arrests for bookmaking in 1955 and 1958, his conviction for those offenses, and the payment by him in 1955 of a $1,000 fine. The government may have made generous use of defendant's vulnerability from his gambling activities, but this was part of the story and the case. Any prejudice here was dispelled by Judge Brennan's instructions to the jury.

[Summation Remarks Not Sufficiently Prejudicial]

While we believe the prosecutor did overstep the bounds in summation--calling defendant a leech and accusing him of ruining a young law student relative's career by having the boy hold cash for him--we do not feel that these comments were sufficiently prejudicial to warrant reversal.

Affirmed.

 

 

[55-2 USTC ¶9705]Edward S. Canton, Appellant v. United States of America , Appellee

(CA-8), In the United States Court of Appeals for the Eighth Circuit, No. 15,262, 226 F2d 313, October 20, 1955

Appeal from the United States District Court for the District of Minnesota.

[1939 Code Secs. 22(a) and 22(b)--substantially unchanged in 1954 Code Secs. 61(a) and 102(b)]

Exclusion from gross income: Cancellation of indebtedness: Gift v. loan.--Cancellation of a $10,000 loan made to taxpayer by his brother was taxable income. The record showed the taxpayer shipped considerable scarce lumber to his brother, and that the loan was cancelled because it was for procurement of lumber for taxpayer's brother.

[1939 Code Sec. 145(b)--substantially unchanged in 1954 Code Sec. 7201]

Criminal prosecution: Understatement of net income: Sufficiency of evidence.--Evidence of specific omissions of items from net income was sufficient to warrant a finding by the jury that the taxpayer substantially understated his income though taxpayer contended his preoccupation with other duties resulted in his making omissions from net income.

[1939 Code Sec. 145(b)--substantially unchanged in 1954 Code Sec. 7201]

Criminal prosecution: Willful intent: Sufficiency of evidence.--Despite the taxpayer did not sign the income tax return in question, from the evidence which showed a consistent pattern in failing to record and report the profits made in taxpayer's business there was ample evidence for the finding by a jury of a willful intent on the part of the taxpayer to evade the payment of taxes.

[1939 Code Sec. 145(b)--substantially unchanged in 1954 Code Sec. 7201]

Criminal prosecution: Circumstantial methods.--Circumstantial methods held proper in proving understatement of net income without resort to net worth method.

[1939 Code Sec. 23(a)(1)--substantially unchanged in 1954 Code Sec. 162(a)]

Deductibility of expenses: Traveling expenses: Instructions to the jury.--Court did not err in instructing the jury in such a way as to permit the jury to treat as nondeductible items pertaining to depreciation and living and traveling expenses, which were allowed as deductions by the government's agents.

[1939 Code Sec. 145(b)--substantially unchanged in 1954 Code Sec. 7201]

Criminal prosecution: Prosecutor's remarks to the jury.--Taxpayer was not substantially prejudiced by prosecuting attorney's remarks to the jury where the taxpayer claimed the prosecuting attorney drew conclusions not supported by evidence from the bank deposit exhibits, and that improper allusion was made to taxpayer's net worth appearing in the net worth statement.

Hayner N. Larson (Raymond A. Scallen and Oscar G. Haugland were with him on the brief), for appellant. Alex Dim, Assistant United States Attorney (George E. MacKinnon, United States Attorney, was with him on the brief), for Appellee.

Before SANBORN, COLLET, and VAN OOSTERHOUT, Circuit Judges.

VAN OOSTERHOUT, Circuit Judge:

The appellant, Edward S. Canton, hereinafter referred to as the defendant, was found guilty by a jury on a charge by information of violating 26 U. S. C., §145(b), by filing or causing to be filed a fraudulent income tax return for the year 1947. He appeals from the denial of his motion for judgment notwithstanding the verdict and from final judgment and sentence on the guilty verdict.

Defendant, who was 53 years of age at the time of the trial, is a high school graduate, and has had one year of college education and a short course at a business school. After working for various employers in the lumber industry, he established the Canton Lumber Sales Company in Minneapolis in 1930. He has been the sole proprietor of this business at all times since, except for a period of about five years ending in 1938 when his brother Paul was associated with him as a partner. At the outset the defendant acted exclusively as a salesman for lumber mills strictly on a commission basis. The bookkeeping then was simple as the mills billed and collected from the customers and paid the defendant his commission. Later his business developed into a wholesale lumber business. The lumber was still generally shipped direct to the customer, but the defendant paid the mill and he in turn billed and collected from his customers. He usually charged a customer five per cent above his cost which was the maximum mark-up permitted by the Office of Price Administration during most of the involved period. The defendant was allowed two per cent cash discount and he allowed his customers a two per cent cash discount for prompt payment.

In 1945 lumber was hard to get. Defendant was unable to supply the needs of his customers. Defendant with Baldridge, a man with mill experience, purchased a lumber mill at Drain, Oregon , which was incorporated under the name of Douglas Timber Corporation, hereinafter sometimes referred to as Douglas . Defendant secured financial assistance for the mill purchase and operation by means of sale of stock and personal loans from many of his customers upon assurance that this would put them in a preferred position to obtain hard-to-get lumber. Baldridge died unexpectedly, so it was necessary for defendant to assume management of the lumber mill and to spend nearly all of his time in Oregon from March 1946 until October 1948 when the mill was sold. Defendant was not an experienced mill operator, and this project created many difficult financial, labor, and other problems which made heavy demands upon the defendant's time.

During defendant's absence in Oregon the bookkeeping at Minneapolis was done by his niece, Tanea Canton, since married and now Tanea Bradley. When she started working for the defendant in the fall of 1945, Tanea was 18 years of age and had recently graduated from high school where she had taken a bookkeeping course. During most of the involved period defendant's other employees in Minneapolis were two salesmen. Tanea's duties were to compute the profits, do the bookkeeping, make out bank deposit slips, type customers' invoices, and take care of some correspondence. The defendant had instructed Tanea as to how to handle the bookkeeping. She had written down the instructions which have since been lost. Tanea said that she followed the instructions to the best of her ability and that she was not aware of the fact that any profits were being concealed. The records consisted of a cash book, order books, a car journal, a customers ledger, and invoice files. The cash book was supposed to contain entries showing all profits, including wholesale profits and commissions, and all items of business expense. The only record turned over to and used by Mr. Holl, a lumber dealer who prepared the income tax return in question and defendant's returns for many prior years, was the cash book. Further facts will be discussed hereinafter.

Defendant in his brief thus states the questions presented for review:

"The return filed for the defendant, a wholesale lumber dealer, reported a net income of $26,105.99. Concededly omitted from gross income were the following items and amounts:

(a) Special 5% discount allowed

on purchases from 
Douglas

Timber Corporation ..................         $5,531.03

(b) Offset of 2% discounts for

prompt payment granted to

and allowed by the defendant ........            488.23

(c) An interest check received

from 
Douglas
 ........................          1,001.39

(d) Direct sales commissions

represented by two checks

received from 
Douglas
 ...............          1,911.01

Total ...............................         $8,931.66

 

"The omissions represented by items (a) and (b) are reflected in detail in the defendant's books and records. Those represented by items (c) and (d) are reflected in detail in the Douglas books and records, for which the defendant was responsible.

"Not deducted on the defendant's return were the following items allowed as deductions by the Government's agents:

(e) Depreciation (Ex. 105, R.

250) ........................................           $ 399.33

(f) Miscellaneous expenses, principally

living and travel expenses

on the West Coast

(Ex. 103, R. 248) ...........................          11,259.07

Total .......................................         $11,658.40

 

"Assuming that there were no omissions from gross income other than items (a) to (d) (and, as will be seen, there were no such other omissions), the defendant's return overstated his net income by $2,726.74 unless the cancellation by the defendant's brother of a $10,000 loan to the defendant represented income taxable to the defendant.

"The principal questions are--

"(1) Whether there is substantial competent evidence from which it could be found beyond a reasonable doubt that cancellation of the $10,000 loan was taxable income.

"(2) Whether, if question (1) should be answered in the affirmative, there is substantial evidence from which it could be found beyond a reasonable doubt that the resulting understatement in net income was due to an intent to evade.

"(3) Whether, if both question (1) and question (2) should be answered in the affirmative, there is substantial evidence of such an overt act reflecting willfulness as is required by Spies v. United States, 317 U. S. 492 [43-1 USTC ¶9243], and, in this connection, whether, if there is such evidence, the court erred in refusing to instruct the jury in the detail set out in the defendant's first requested instruction.

"If questions (1), (2) and (3) should all be answered in the affirmative, then

"(4) Whether the court erred in permitting resort to a circumstantial method of proving understatement in net income, there being no evidence, but on the contrary a concession, that the defendant had no additional income from the same sources as items (a) to (d) and no income from other or undisclosed sources; and, moreover, if the court did not so err, whether the circumstantial method so permitted did in fact furnish a sufficient basis for a finding beyond a reasonable doubt that there was an understatement in net income, particularly since such method purported to reflect income according to the cash method of accounting whereas the court instructed the jury (R. 193) that the defendant's business income was determinable only according to the accrual method of accounting, and since such circumstantial method in addition treated as income substantial items which the court instructed the jury did not constitute income under either method of accounting (R. 199).

"(5) Whether the court erred in instructing the jury in such a way as to permit the jury to treat as nondeductible the items (e) and (f) above, particularly the latter, which were allowed as deductions by the Government's agents.

"(6) Whether the prosecuting attorney indulged in unwarranted statements and remarks in his arguments to the jury, to the defendant's substantial prejudice."

We proceed to the consideration of the issues raised by the defendant.

(1) Defendant upon his urgent request obtained a $10,000 loan in January 1947 from his brother Paul who was engaged in the retail lumber business at Watson , Minnesota . The loan is shown in defendant's customers ledger. Paul, in a letter to defendant dated July 7, 1947 , writes:

"Dear Ed:

"Last January I turned over to your firm the sum of ten thousand (10,000.00) dollars. I think you have been carrying this amount on your books (and statements) as cash advanced against future purchases.

"In view of the fact that I agreed to share with you a percentage of my net operating profit, for acting as supplier and purchaser of hard-to-get merchandise, I have charged the sum advanced to you to the cost of such merchandise. The sum of ten thousand dollars is therefor tendered to you in lieu of any expected profit percentage. As far as I am concerned, you are authorized to remove the above mentioned sum and entry from your records of advance payments or accounts payable.

Yours truly,

Paul J. Canton"

Defendant admits receiving the above letter and entering on his customers ledger a $10,000 charge to offset the $10,000 credit, and also making the following notation: "July 7, 1947, to services rendered per letter from Paul J. Canton, $10,000." Defendant insists that the cancellation of the foregoing $10,000 loan constitutes a gift exempt from tax under section 22(b)(3) of the Internal Revenue Code, and in support cites Helvering v. American Dental Co., 318 U. S. 322 [43-1 USTC ¶9318], and Commissioner v. Jacobson, 336 U. S. 28 [49-1 USTC ¶9133]. In the American Dental case, supra, the Court thus defines "gifts":

"* * * Its plain meaning in its present setting denotes, it seems to us, the receipt of financial advantages gratuitously."

In the Jacobson case, supra, the Supreme Court, in reversing the Court of Appeals, held that the discount at which a solvent debtor purchased bonds upon which he was liable was income rather than a gift. Justices Reed and Douglas dissented on the basis of the American Dental case. Justice Rutledge, specially concurring, expressed the opinion that the result was in conflict with the American Dental case. The majority distinguished the American Dental case and stated (p. 51):

"The situation in each transaction is a factual one. It turns upon whether the transaction is in fact a transfer of something for the best price available or is a transfer or release of only a part of a claim for cash and of the balance 'for nothing'."

In United States v. Burdick, 3 Cir., 214 Fed. (2d) 768 [54-2 USTC ¶9475], remanded 348 U. S. 905 [55-1 USTC ¶9139], reaffirmed 221 Fed. (2d) 932 [55-1 USTC ¶9428], the issue we are now considering is quite fully discussed. At page 771 of 214 Fed. (2d) we find the following:

"As we held in Smith v. Manning, 1951, 189 Fed. (2d) 345, 348 [51-1 USTC ¶9345] whether the receipts are gifts is primarily a question of fact to be resolved upon the peculiar circumstances of the case; the mere fact that the payments were voluntary does not establish them as gifts; if the payments were made without a donative intent and as compensation for services they constitute taxable income. * * *"

The fact issue of whether the cancellation resulted in a gift or taxable income was submitted to the jury under proper instructions. The record shows that the defendant did in fact ship considerable scarce lumber to his brother Paul. On cross-examination defendant testified as follows:

Mr. Dim: "But Paul was very grateful to you for getting lumber for him all that time?"

The Witness: "Yes."

And at another point:

Q. "Isn't it a fact that the loan was cancelled in July because it was for procurement of lumber for Paul Canton?"

A. "Yes."

And on further cross-examination:

Q. "Now with reference to the Paul Canton $10,000 matter for the year 1947, during that same question and answer period of October 17, 1951, didn't you state that as long as your brother, Paul, treated it as a procurement expense that you were willing to accept it as such?"

A. "If I said that it was an error of legal knowledge."

There is also testimony of three Government agents that during the course of the investigation the defendant told them in substance that the $10,000 note cancellation was income and should have been reported. Defendant insists that this admission to the agents is an admission after the fact and as such should be corroborated. The contention in this respect is supported by Smith v. United States, 348 U. S. 147 [54-2 USTC ¶9715], and Opper v. United States, 348 U. S. 84. Here, there is ample corroboration. Defendant makes the further claim that the admission to the agents is one of law and not one of fact. This contention was not raised before the trial court by objection to testimony or motion to strike or in any other manner. Consequently, we are not required to consider it. In any event there is ample evidence exclusive of the admission to the agents to support the verdict.

We have not detailed all of the evidence bearing upon the gift issue. There is, of course, some evidence on this issue favorable to the defendant. The defendant testified that he made no special concessions to Paul in the delivery of lumber, that he performed no services for him for which he was not compensated. In view of the verdict the evidence must be considered in the light most favorable to the Government. So considered the record would support a finding by the jury that the cancellation of the $10,000 loan was for services rendered and hence taxable income.

As heretofore noted defendant conceded omissions of income totalling $8,931.66, which total does not include the $10,000 debt cancellation. From this he sought to deduct $399.33 depreciation about which there is no serious controversy, and $11,259.07 in miscellaneous expenses of which $7,978.55 was for living expenses in Oregon , and thus establish that he had not understated his income. The Government denies that the defendant is entitled to a deduction for the Oregon living expenses. Such expenses appear in Government's Exhibit 103 and were part of the Government's proof in establishing income by the bank deposit method. The testimony of Aas, the Government agent who made the bank deposit computation, is:

"Referring to Exhibit 103 'Expenses not previously allowed for the year 1947,' the item of $6,920.82 shown as living expenses at Drain, Oregon, and the item of $1,057.73 shown as business expenses were transcribed by me from information in Mr. Diracles' [defendant's accountant] records and I allowed these amounts for our bank deposit method. I did not verify them."

The trial court in ruling upon the defendant's motion for acquittal or for a new trial stated:

"* * * But merely because the Government gave the defendant the benefit of these deductions from gross bank deposits in computing net income by the bank deposit method, that fact does not necessarily establish such expenditures as deductible in determining defendant's net income from his books and records. Defendant recognized in his request for instructions to the jury that such items were deductible only to the extent that he had not been reimbursed for such outlays from other sources. He made no record of these expenses in his books and records. The testimony is silent as to whether or not he received any reimbursement from the Douglas Timber Company. And moreover, the evidence is impelling that Canton 's stay on the West Coast was primarily in the interest and in behalf of the Douglas Timber Company. True, he was promoting the Douglas Timber Company's activities so that the Canton Lumber Sales would have a source for lumber in its wholesale business. The indisputable fact nevertheless remains that the Douglas Company was an independent corporation and not a subsidiary or adjunct of the Canton Lumber Sales. It was a producer and manufacturer of lumber in Oregon . Canton Lumber Sales was a wholesaler of lumber in Minneapolis . To the extent, if any, that any portion of these expenses in light of the evidence constituted a permissible deduction for Canton as an individual in computing his 1947 income tax was a matter of considerable speculation and uncertainty. However, the Court permitted the jury to determine that question notwithstanding."

We agree with the trial court that the defendant was not entitled to these unclaimed deductions as a matter of law. It seems obvious that the Government's concession as to the living expenses was strictly limited to allowing them as an offset on the bank deposit method. The trial court violated no legal rights of the defendant in submitting to the jury the question of the living expenses to be allowed the defendant.

We are convinced that the evidence of the specific omissions alone was sufficient to warrant a finding by the jury that the defendant substantially understated his income in the 1947 return filed.

(2) Is there substantial evidence that defendant's understatement was attributable to an intent to evade taxes? It is clear that the record here would support a finding that substantial items of income were not reported. Hr. Holl had since 1933 prepared defendant's income tax returns, obtaining all information for such returns from defendant's cash book. The jury could find that the defendant knew that his tax expert did consider only the items entered in the cash book in preparing the returns. In such a situation, where the defendant knew that any other records he might have were not being considered in making the return, the fact that he might have more complete records in other books or files would not be particularly material. In setting out profits from sales in the cash book, $488.23 in profits created by customers not taking their cash discounts is concededly omitted. Defendant also admits that he specifically instructed his bookkeeper to ignore the cash discount allowed defendant and that allowed the customers in computing profits. His explanation is that this was so handled to simplify and expedite the bookkeeping, and that a check made by him a number of years before had shown that the profit and loss occasioned by ignoring cash discounts would offset. When a car of lumber was billed to defendant at $1,000, he would deduct two per cent and remit $980 to the mill. He would then add his five per cent mark-up to the original $1,000, and bill his customer for $1,050. The two per cent discount on this would be $21. If the defendant and the customer each took the discount, the profit would be the difference between the customer's net cost of $1,029 less defendant's net cost of $980, or a total of $49. In entering the profit on such a sale, the defendant disregarded all discounts, and entered as a profit the difference between $1,050 and $1,000 or $50. Thus, where each took the discount, the result was an overstatement of profit of $1. The defendant always took his discount. If the customer overlooked his discount, the defendant would collect $1,050, and his profit would be the difference between that figure and his net cost of $980 or $70. In such a situation there would be an understatement of profit of $20. There is evidence from which the jury could find that due to material scarcity the defendant encouraged some of his customers to waive their cash discounts and that quite a number of customers did so. In 1946 the omitted income resulting from not considering the cash discounts amounted to $5,124.47.

After defendant acquired Douglas he received a five per cent discount on all his purchases, this being in addition to the usual five per cent mark-up and two per cent discount previously received. This additional five per cent discount is not reflected in his cash book and was not considered in computing and entering the profits in his cash book. Such omission resulted in a $5,531.03 understatement of income in 1947, and in 1946 resulted in a $14,599.97 understatement. The defendant admitted that he gave his bookkeeper no specific instructions as to how to enter this five per cent mill discount. While defendant spent much of his time in Oregon , he made a number of trips to Minneapolis in 1946 and 1947. He was continually pressed for money, and it does not seem unreasonable to suppose that he was interested in his profit records. He knew that his bookkeeper was young and inexperienced, and that none of the other employees in Minneapolis was in a position to supervise the bookkeeping or offer any help. During this period he personally made the entry in connection with the Paul Canton cancellation.

$1,911.01 of commissions and interest in the amount of $1,001.39 were not entered in the cash book or reflected in the 1947 return. Defendant's explanation is that he sent either his checks or at least the vouchers in cases where he needed to cash the checks to his office. However, he does not claim that he gave any specific directions that these items were to be entered in the cash book, or as to how they were to be handled. Defendant in his explanation of the foregoing omissions states that he was unable to give proper attention to his Minneapolis business because of his absence from Minneapolis and the terrific load placed upon him at Douglas .

Wiseley v. Commissioner, 6 Cir., 185 Fed. (2d) 263 [50-2 USTC ¶9504], and Lewis v. Commissioner, Docket No. 37335 [14 TCM 319, CCH Dec. 20,961(M); T. C. Memo. 1955-93], decided by the Tax Court in April 1955, lend some support to defendant's contention that his preoccupation with other duties may negative willful or wrongful intent in failing to report his full income. Both of these cases were civil fraud cases, and in each the court concluded the fraud penalty should not be imposed. We agree with the court's statement in the Wiseley case to the effect that the fact that defendant was personally busy to the point of distraction is a vitally material factor in determining the issue of fraudulent intent. From the report of the Wiseley case it would appear that the defendant on his own initiative, before investigation, became aware of his understatement and employed auditors and filed amended returns. In any event we believe that each case must be determined upon its own facts. It is not impossible for an extremely busy person to be guilty of fraudulent conduct. The record of defendant's business pressure was before the jury for such consideration as they thought it was entitled to. The jury was specifically told that to convict they must find that the defendant willfully and knowingly attempted to evade the tax. The trial judge who presided over this trial and had an opportunity to hear and observe all the witnesses, in his memorandum opinion not officially reported, stated:

"My sustained conviction is that there was a question for the jury as to whether there was an understatement by defendant of his 1947 income tax. The more difficult question is whether the evidence beyond a reasonable doubt sustained an intent to evade. On a motion for judgment of acquittal, the Court must take the view of the evidence and the inferences to be drawn therefrom which is most favorable to the Government, and although the Court might have arrived at a different interpretation of the evidence as to intent than is reflected in the jury's verdict, I cannot say that reasonable minds might not have concluded in considering all the evidence, direct and circumstantial, that defendant's guilt had been proven beyond a reasonable doubt. The Court was meticulously careful to surround the defendant with every protection to which he was entitled under the law, and particular emphasis was placed upon the durden which rested upon the Government with reference to intent."

We agree with and adopt the foregoing statement.

(3) The defendant next contends that even if the Government has established a substantial understatement with intent to evade, the conviction can not be sustained because of failure to prove beyond a reasonable doubt an overt act reflecting wilfulness. In supplement to the defendant's brief it is stated that the defendant did not sign the 1947 return and that consequently the instrument purporting to be a return is not a return at all. He relies upon Miller v. Commissioner, Docket No. 43633 [14 TCM 398, CCH Dec. 20,994(M); T. C. Memo. 1955-112], decided by the Tax Court on April 29, 1955 . Defendant's counsel contend that they and the defendant overlooked the fact that the defendant had not signed the return until the return was produced at the trial, and that they were caught by surprise and overlooked legal implications arising from this situation. They ask that we note plain error pursuant to Rule 52(b) of the Rules of Criminal Procedure.

The factual situation is that the 1947 return was signed in defendant's name by his wife. The return is dated March 15, 1948 . There is no express evidence of any direct authorization for the wife to sign the return, nor is there direct evidence to show that she was not authorized to do so. The wife was authorized to sign checks drawn on the defendant's account. Mrs. Canton testified that Mr. Holl, who prepared the 1947 return, came to the house for the cash book, and later came back to her with the completed return. There is nothing to show the wife arranged with Holl to prepare the return, so it would seem fair to assume that Holl did so either upon the request of defendant or as the result of the long-standing arrangement that Holl was to prepare defendant's returns. Defendant in his numerous visits with the investigators never denied signing or filing the return. The 1946 return was signed by Tanea Canton under similar circumstances.

A contention similar to that made by the defendant was made in Gariepy v. United States, 6 Cir., 220 Fed. (2d) 252 [55-1 USTC ¶9267]. There the questioned returns were not signed by the taxpayer but were prepared by a tax service from information furnished by the defendant and his employees. This problem is rather fully discussed, the court saying in part (pp. 259-260):

"Appellant argues that the 'purported' returns did not constitute income tax returns under the law; that the filing of the unsigned documents did not constitute the commission of an affirmative act requisite to sustain conviction under section 145(b). We think this contention runs contrary to the holding of this court in Emmich v. United States, 6 Cir., 298 Fed. 5, 9 [1924 CCH ¶3481], where it was said: 'The real character of the offense lies, not in the failure to file a return, or in the filing of a false return, but rather in the attempt to defraud the government by evading the tax.' The specious contention of appellant comes rather late. At the trial, he did not deny that the documents filed with the Collector of Internal Revenue on his behalf were in fact income tax returns. * * *"

See also United States v. Albanese, 2 Cir., 224 Fed. (2d) 879, 882 [55-1 USTC ¶9494].

In this case the court instructed the jury:

"It appears that Mrs. Canton signed the 1947 income tax return. She signed her husband's name. It is not contended that she did not have authority from defendant to sign this return, so it is conceded that the return, Government's Exhibit 1, constitutes defendant's income tax return regardless of the fact that he did not sign it. However, the fact that he was not present when the income tax return was prepared by Mr. Holl, and that he was not present when his wife signed it, is a matter that you may give due consideration to insofar as it may bear upon the question of his alleged intent to wilfully and intentionally commit the offense charged in this information."

Defendant did not except to this instruction. Although the defendant requested certain instructions, he made no request for any instruction on the significance of his failure to sign the return. Under the record here made the jury were justified in finding that the defendant filed or authorized the filing of his return. The filing of the fraudulent return constitutes the required affirmative or overt act. In Cave v. United States , 8 Cir., 159 Fed. (2d) 463 [464] [47-1 USTC ¶9171], 467, this court states:

"* * * The crime denounced by §145(b) of willfully attempting to defeat or evade the tax is complete when the taxpayer willfully and knowingly files a false and fraudulent return with intent to defeat or evade any part of the tax due the United States . Guzik v. United States , 7 Cir., 54 Fed. (2d) 618, 619 [1931 CCH ¶9681], certiorari denied 285 U. S. 545, 52 S. Ct. 395, 76 L. Ed. 937; Bowles v. United States , 4 Cir., 73 Fed. (2d) 772, 774 [1934 CCH ¶9546]."

If the purported return can not be technically considered a return, it would seem that it constitutes a false statement. A willful attempt to evade taxes by making a false statement violates section 145(b). United States v. Beacon Brass Co., 344 U. S. 43 [52-2 USTC ¶9528]. In Spies v. United States, 317 U. S. 492 [43-1 USTC ¶9243], relied on by defendant, there was a failure to file a return and pay the tax. The Court holds that these omissions alone would not constitute the 145(b) felony. The Court then goes on to say (p. 499):

"* * * Willful but passive neglect of the statutory duty may constitute the lesser offense, but to combine with it a willful and positive attempt to evade tax in any manner or to defeat it by any means lifts the offense to the degree of felony.

"Congress did not define or limit the methods by which a willful attempt to defeat and evade might be accomplished and perhaps did not define lest its effort to do so result in some unexpected limitation. Nor would we by definition constrict the scope of the Congressional provision that it may be accomplished 'in any manner.' By way of illustration, and not by way of limitation, we would think affirmative willful attempt may be inferred from conduct such as keeping a double set of books, making false entries or alterations, or false invoices or documents, destruction of books or records, concealment of assets or covering up sources of income, handling of one's affairs to avoid making the records usual in transactions of the kind, and any conduct, the likely effect of which would be to mislead or to conceal. * * *"

See also Hoyer v. United States, 8 Cir., 223 Fed. (2d) 134 [55-1 USTC ¶9518]; Banks v. United States, 8 Cir., 204 Fed. (2d) 666 [53-1 USTC ¶9402], remanded 348 U. S. 905 [55-1 USTC ¶9139], reaffirmed, 223 Fed. (2d) 884 [55-2 USTC ¶9532]. In Holland v. United States, 348 U. S. 121, at p. 139 [54-2 USTC ¶9714], the Court said:

"A final element necessary for conviction is willfulness. The petitioners contend that willfulness 'involves a specific intent which must be proven by independent evidence and which cannot be inferred from the mere understatement of income.' This is a fair statement of the rule. Here, however, there was evidence of a consistent pattern of under-reporting large amounts of income, and of the failure on petitioners' part to include all of their income in their books and records. Since, on proper submission, the jury could have found that these acts supported an inference of willfulness, their verdict must stand. Spies v. United States , supra, at 499-500."

Under the record in this case the jury could find a consistent pattern in failing to record and report the profits arising from the two per cent discount situation, the additional five per cent mill discount, and commissions, and also the similar omissions that occurred in 1946. Defendant's accountant admitted that the understatement of income for 1946 was $29,927.20. While on the record here made a jury could readily have arrived at a verdict for the defendant, viewing the evidence in the light most favorable to the Government as we are required to do, we can not say that the verdict is without evidentiary support. The motion made at the close of the evidence and defendant's motion for judgment notwithstanding the verdict were both properly overruled.

(4) Defendant next contends that the court erred in permitting the Government to resort to circumstantial methods of proving understatement of net income. This case was tried before the Supreme Court decided Holland v. United States , supra. The Holland decision makes it clear that the net worth method may be used even in cases where the taxpayer's books are not shown to be inadequate, the Court stating (348 U. S. at pp. 131-132):

"* * * Petitioners' accounting system was appropriate for their business purposes; and, admittedly, the Government did not detect any specific false entries therein. Nevertheless, if we believe the Government's evidence, as the jury did, we must conclude that the defendants' books were more consistent than truthful, and that many items of income had disappeared before they had even reached the recording stage. Certainly Congress never intended to make §41 a set of blinders which prevents the Government from looking beyond the selfserving declarations in a taxpayer's books. 'The United States has relied for the collection of its income tax largely upon the taxpayer's own disclosures. . . . This system can function successfully only if those within and near taxable income keep and render true accounts.' Spies v. United States , 317 U. S. , at 495. To protect the revenue from those who do not 'render true accounts,' the Government must be free to use all legal evidence available to it in determining whether the story told by the taxpayer's books accurately reflects his financial history."

Defendant contends that in any event the circumstantial methods of proof here used do not establish an understatement of net income. The defendant's return listed net income of $26,105.99. Admitted specific omissions total $8,931.66, to which the jury would be justified in adding the $10,000 Paul Canton item, making a total taxable income of $45,037.65, from which the jury was authorized to deduct such part of the $11,658.40 in miscellaneous expenses as they considered allowable under the court's instructions. On the bank deposit method, including the Paul Canton item, Government Exhibit 105 shows net income of $50,743.72, and Exhibit 56 purports to snow an increase in net worth of $29,449.53. Authenticity of these computations is contested by defendant. As to the bank deposit method there is much confusion as to whether the defendant's reports were on the cash or accrual basis. Mr. Holl who prepared the returns thought that he was preparing them on the cash basis, and some of the earlier returns showed on their face that the reports were on the cash basis, and the evidence is that the defendant was never given permission to change from a cash to an accrual basis. Likewise, there is considerable confusion and disagreement as to whether defendant's books were kept on the cash or accrual basis. The court in its instructions adopted the defendant's theory, and instructed that the defendant's books were kept on the accrual basis. In United States v. Burdick, supra, at pp. 933, 934, the court said:

"We are of the opinion that the conviction under review is fully sustainable without resort to the net worth theory. This being the case, it would constitute a mere academic exercise to reconsider the net worth features of this appeal in the light of the authoritative guidance furnished by the Supreme Court with respect to net worth prosecutions.

* * *

"It is apparent therefore, that the defendant was convicted for wilfully failing to report approximately $14,500 as taxable income. The receipt of these amounts was admitted. Their taxability was established by overwhelming evidence. Accordingly, the net worth computations introduced at the trial are without relevance to this appeal."

Similarly, in our present case we believe that the Government has established a case on the specific omissions admitted and proved, and that there was adequate proof of specific omissions to support the jury's finding of a substantial understatement.

(5) Under the record in this case we do not believe the defendant was as a matter of law entitled to deductions from gross income which the Government conceded were deductible for the purposes of their bank deposit method of proof. Our basis for reaching this conclusion is set out in division (1) of this opinion.

(6) Defendant finally contends that he was substantially prejudiced by the Government's arguments to the jury. To set out the argument objected to and to discuss the evidence upon which it was based would unduly extend this opinion without serving any useful purpose. In general it is charged that the Government counsel misinterpreted the evidence relative to instructions given by defendant to his bookkeeper, that counsel drew conclusions not supported by evidence from the bank deposit exhibits, and that improper allusion was made to defendant's net worth appearing in the net worth statement. Objections were made to the argument that the trial court did not sustain the objections but noted exceptions, and in some instances told the jury that if a misstatement had been made the jury should disregard it. The trial court overruled the motion for a new trial which included the objections to the argument we are now considering. We have examined the arguments as a whole in the light of the evidence and find no prejudicial error.

The consideration of the whole record convinces us that the defendant had a fair trial. The court's instructions fairly submitted the issues to the jury. The trial court has committed no prejudicial error.

The judgment appealed from is affirmed.

 

 

[78-1 USTC ¶9455] United States of America , Plaintiff-Appellee v. Sam B. Haynes, Defendant-Appellant

(CA-5), U. S. Court of Appeals, 5th Circuit, No. 77-5382, 573 F2d 236, 5/18/78, Aff'g an unreported District Court decision

[Code Sec. 7206--result unchanged by '76 Tax Reform Act]

Crimes: Fraud and false statements: Aiding and advising preparation of false returns.--The taxpayer's conviction for willfully assisting in the preparation of false or fraudulent income tax returns was affirmed. The court determined that: (1) the trial judge had not committed reversible error by making reference to the taxpayer's failure to testify on his own behalf, (2) the trial judge had correctly concluded that the issue of whether a tax return was false or fraudulent as to a material material matter was a question of law and (3) the trial judge did not err in allowing the indictment to be taken to the jury room during deliberations.

Kenneth J. Mighell, United States Attorney, Fort Worth, Texas 78102, Harry Koch, Assistant United States Attorney, Dallas, Texas 75242, for plaintiff-appellee. Samuel B. Paternostro, 5925 Forest Lane, Dallas, Texas 75230, Kerry P. Fitzgerald, 3503 Fairmount, Dallas, Texas 75219, for defendant-appellant.

Before WISDOM, THORNBERRY, and RUBIN, Circuit Judges.

THORNBERRY, Circuit Judge:

It is particularly appropriate that this case was argued before the Court during the height of the federal income tax "season," since it involves fraud by a tax preparer, "whose Twentieth Century occupation is now almost indispensable to all save those taxpayers who can use, or risk the use of, a short form with standard deductions." United States v. Brown, 548 F. 2d 1194, 1196 (5 Cir. 1977). The widespread use of tax preparers has caused serious problems, and the Internal Revenue Service has taken steps through its "Tax Preparers' Program" to locate dishonest or incompetent tax preparers. See Anderson v. United States, 548 F. 2d 249 (8 Cir.), cert. denied, -- U. S. --, 98 S. Ct. 59, 54 L Ed. 2d 75 (1977).

Appellant Sam B. Haynes challenges his conviction, in a jury trial, on seven counts of knowingly and willfully assisting in the preparation of false or fraudulent income tax returns in violation of 26 U. S. C. §7206(2). ¹ He received a total of five years imprisonment, five years probation, and a $100 fine. A condition of probation is that Haynes, who has previously been convicted of similar tax offenses, "NEVER, NEVER, NEVER deal with income tax returns again." Record at 81 (emphasis in original).

Three issues are raised on appeal: (1) whether the trial judge improperty commented on Haynes' failure to testify on his own behalf; (2) whether the question of a tax return's being false or fraudulent as to a "material matter" is a question of law; and (3) whether the trial judge improperly allowed the indictment to be taken to the jury room during deliberations. For the reasons stated below, we affirm.

Haynes was originally indicted on 18 counts of §7206(2) violations. He was arraigned on 10 counts, and only seven went to the jury. These seven counts involved the tax returns of four individuals and two married couples, who paid Haynes fees ranging from $5 to $15.50 for his services. All returns were for tax years 1971-73.

The taxpayers testified that Haynes, who operated an income tax service in Dallas , simply manufactured various deductions to which they were not entitled. For example, one taxpayer's tax return reflected a $580 deduction for medical insurance, although the taxpayer paid nothing for any such insurance during that particular year and did not tell Haynes otherwise. And, despite the fact that another taxpayer was not in business for himself, his tax return listed approximately $2500 in business deductions. In other cases, the taxpayers said, Haynes substantially inflated figures for otherwise legitimate deductions. For instance, one taxpayer told Haynes that he had given $150 to his church, but the return included a $300 deduction for charitable contributions. Similarly, another taxpayer provided Haynes a receipt for interest payments on a credit card account for $40.34, while the return claimed $443.00.

Defense witnesses testified that Haynes suffered from poor eyesight and that he had prepared several hundred tax returns during the relevant time period. They also told of their negotiations and dealings with Haynes in the preparation of tax returns, and a tax expert testified as to the propriety of certain deductions for business expenses.

During cross-examination of one of the taxpayers who testified on behalf of the government, defense counsel repeatedly attempted to determine whether the witness had expenses for medical insurance other than those he had mentioned on direct examination. Counsel was trying to account for the amount claimed on the tax return prepared by Haynes, which was considerably greater than the amount the taxpayer had actually paid. The court told counsel several times that this information was immaterial unless he demonstrated that it had been conveyed to Haynes. When counsel continued this line of questioning in regard to a credit life insurance policy, contending that a portion of the premium might cover medical expenses, the following exchange took place:

COURT: You know that he has got to tell Mr. Haynes in order for it to be considered.

COUNSEL: Judge, I contend that if I can show where this figure came from, Mr. Haynes did not make it up.

COURT: Even if he did tell Mr. Haynes it still is not admissible [because counsel had not proved that part of the credit life insurance premium covered medical expenses].

COUNSEL: Judge, if I can show that is the correct figure what I am trying to tell the Court. Whether he told Mr. Haynes or Mr. Haynes got it from some other source, Your Honor, is what I am trying to say.

COURT: Well, as far as he is concerned you can only consider what he told Mr. Haynes. If you want to put Mr. Haynes on the stand, that is a different matter.

Transcript at 200-01. Cross-examination of the witness continued, and at its completion court was recessed for the day. The next morning defense counsel objected that the Court had made "a direct comment on whether or not the defendant would take the stand in this case" and asked for an instruction for the jury to disregard the remark. The Court agreed, but denied counsel's motion for a mistrial on the ground that the error was incurable. The Court then instructed the jury to disregard the comment, and in the final jury instructions stated that a criminal defendant "is never under any duty or obligation to testify on his own behalf and no inference of guilt can be made from his decision not to testify."

Just as it is improper for a prosecutor to comment on a defendant's silence, it is improper for a trial judge to call attention to such a failure to testify. Griffin v. California, 380 U. S. 609, 85 S. Ct. 1229, 14 L. Ed. 2d 106 (1965); Davis v. United States, 357 F. 2d 438 (5 Cir.), cert. denied, 385 U. S. 927, 87 S. Ct 284, 17 L. Ed. 2d 210 (1966). However, not all comment is improper. For example, the Supreme Court recently held that a trial judge's giving of an instruction, over the defendant's objection, that the jury must draw no adverse inferences from the defendant's failure to testify did not violate the privilege against compulsory self-incrimination. Lakeside v. Oregon , -- U. S. --, 98 S. Ct. 1091, 55 L. Ed. 2d 319 (1978). Moreover, our cases emphasize that the facts and circumstances of each case must be analyzed to determine whether the language was "manifestly intended" as a comment on the accused's failure to testify or that the remark was "of such character that the jury would naturally and necessarily take it" as such. Davis v. United States, supra; United States v. Rochan, 563 F. 2d 1246 (5 Cir. 1977); United States v. Dearden, 546 F. 2d 622 (5 Cir. 1977); United States v. Trevino, 565 F. 2d 1317 (5 Cir. 1978). Therefore, we must carefully examine the context in which the comment was made.

At first blush, this case seems close to Davis . In both cases the trial judge, during cross-examination of a government witness, commented that defense counsel could overcome some evidentiary problems by putting the defendant on the stand. However, there are critical differences that must lead to a different result in the instant case. First, the trial judge in Davis said several times that the defense could "have your people . . . testify if you want them to" and "[b]ring them up here and put them under oath." 357 F. 2d at 440-41 n. 5. In the instant case, however, the trial judge made only a single simple statement in the context of an evidentiary ruling necessitated by defense counsel's pursuing an irrelevant matter. ² Second, the trial judge in the instant case told the jury to disregard the remark as soon as she was requested to do so by defense counsel, and she also gave a detailed instruction on this point in the general charge to the jury. There is no indication that such corrective measures were taken in Davis .

Moreover, in United States v. Rochan, supra, the court held that a trial judge lacked the requisite "manifest intention" when he inadvertently commented about "the only thing we have heard from the defense" in making an evidentiary ruling. The same is true in the case at bar, and it is clear that the trial judge's comments in Davis went well beyond the remarks here or in Rochan. Moreover, the context in which the statement was made precludes our labeling it a remark that the jury would "naturally and necessarily" interpret as a comment on the accused's exercise of his fifth amendment privilege Moreover, we cannot ignore the impact of the trial judge's cautionary instructions to the jury. See Lakeside v. Oregon , supra. Considering these circumstances, we conclude that no prejudice flowed to Haynes. See United States v. Cerullo, 435 F. 2d 142 (5 Cir. 1970); United States v. Goodwin, 470 F. 2d 893 (5 Cir. 1972), cert. denied, 411 U. S. 969, 93 S. Ct. 2160, 36 L. Ed. 2d 691 (1973); United States v. Wilson, 500 F. 2d 715 (5 Cir. 1974), cert. denied, 420 U. S. 977, 95 S. Ct. 1403, 43 L. Ed. 2d 658 (1975). Even if the comment were error, it was clearly harmless beyond a reasonable doubt, especially in light of the overwhelming evidence of Haynes' guilt. See United States v. Bynum, 566 F. 2d 914 (5 Cir. 1978).

To establish a violation of §7206(2), the government must prove, inter alia, that the defendant aided and/or assisted in the procuring, counselling, or advising in the preparation of an income tax return that is false or fraudulent as to a material matter. Haynes contends that the trial court erroneously decided the question of materiality as one of law and that the issue should have been submitted to the jury.

In the analogous context of perjury offenses, this court has held that materiality is a question of law to be decided by the court. E.g., United States v. Brumley, 560 F. 2d 1268 (5 Cir. 1977) (18 U. S. C. §1622, subornation of perjury; 18 U. S. C. §1001, false writing or document with respect to any matter within any department or agency of the United States); United States v. Damato, 554 F. 2d 1371 (5 Cir. 1977) (18 U. S. C. §1623(a), false declaration before court or grand jury); United States v. Edmondson, 410 F. 2d 670 (5 Cir.), cert. denied, 396 U. S. 966, 90 S. Ct. 444, 24 L. Ed. 2d 430 (1969) (18 U. S. C. §1621, perjury in any instance in which federal law requires an oath to be admin istered). See also Sinclair v. United States, 279 U. S. 263, 49 S. Ct. 268, 73 L. Ed. 692 (1929).

Moreover, in prosecutions under 26 U. S. C. §7206(1), ³ we have indicated that materiality is a question of law for the court. Hoover v. United States, 358 F. 2d 87 (5 Cir.), cert. denied, 385 U. S. 822, 87 S. Ct. 50, 17 L. Ed. 2d 59 (1966). See also United States v. Romanow [75-1 USTC ¶9153], 509 F. 2d 26 (1 Cir. 1975). ⁴ There is no doubt that §7206(1) and §7206(2) are closely related companion provisions. The former, specifically a perjury statute, ⁵ makes clear that any person who makes a knowingly false statement on any return is criminally liable. The latter does not refer to perjury but makes willful assistance in preparing a false return an offense. Significantly, this court has rejected the argument that a tax preparer cannot be prosecuted under §7206(1) but must be pursued under §7206(2). United States v. Miller [74-1 USTC ¶9307], 491 F. 2d 638 (5 Cir.), cert. denied, 419 U. S. 970, 95 S. Ct. 236, 42 L. Ed. 2d 186 (1974). Thus, the same set of facts may give rise to prosecution under either §7206(1) or §7206(2). See, e.g., United States v. Jernigan [69-1 USTC ¶9397], 411 F. 2d 471 (5 Cir.), cert. denied, 396 U. S. 927, 90 S. Ct. 262, 24 L. Ed. 2d 225 (1969) (preparer of corporate income tax return prosecuted under §7206(1)); Baker v. United States [68-2 USTC ¶9520], 131 U. S. App. D. C. 7, 401 F. 2d 958 (1968) (taxpayer prosecuted under §7206(2) for assisting another to falsify his own tax return); Hedrick v. United States [66-1 USTC ¶9269], 357 F. 2d 121 (10 Cir. 1966) (CPA and his employer jointly indicted under §7206(2)).

Accordingly, we hold that the materiality question under §7206(2) should be treated no differently than the same issue under §7206(1) and other federal perjury statutes. That is, materiality is a question of law to be decided by the court. We point out that the jury still must decide the ultimate issue of whether the returns had been willfully falsified, and this issue is generally the focal point of §7206 cases. See United States v. Pomponio [76-2 USTC ¶9695], 429 U. S. 10, 97 S. Ct. 22, 50 L. Ed. 2d 12 (1976); United States v. Bishop [73-1 USTC ¶9459], 412 U. S. 346, 93 S. Ct. 2008, 36 L. Ed. 2d 941 (1973); United States v. Brown, supra. In the instant case, the jury had to find that Haynes had willfully inflated legitimate deductions or manufactured nonexistent deductions in order to find him guilty. See United States v. Warden, 545 F. 2d 32 (7 Cir. 1976). Thus, the trial judge in the instant case correctly concluded that the materiality question was one of law for the court to decide.

Finally, Haynes argues that the trial court abused its discretion in permitting the jury to have a copy of the 18-count indictment during its deliberations, since only seven counts were submitted to the jury.

It is unclear from the record before us that the jury was actually given the entire 18-count indictment. Each count was set out in a separate page, and the trial judge could well have provided the jury only the pages pertinent to the seven counts. That inference can certainly be drawn from the court's instructions to the jury, although the opposite inference can also be drawn. ⁶ Moreover, defense counsel did not make a specific objection in the trial court. The objection, set out in the margin, ⁷ would cover not only the error complained of on appeal but also the situation in which the jury received only the seven counts.

It is a cardinal rule that an objection must be framed with precision sufficient to inform the trial judge as to the matter about which the objection is raised and the grounds therefor. Rule 51, Fed. R. Crim. P., requires that a party make known to the court "has objection to the action of the court and the grounds therefor." When an objection is so general "as not to indicate the specific grounds upon which it is made, it is unavailing on appeal, unless it be of such character that it could not have been obviated at the trial." Noonan v. Caledonia Gold Mining Co., 121 U. S. 393, 400, 7 S. Ct. 911, 915, 30 L. Ed. 1061 (1887); see also United States v. Garcia, 531 F. 2d 1303 (5 Cir.), cert. denied, 429 U. S. 941, 97 S. Ct. 359, 50 L. Ed. 2d 311 (1976); United States v. Hyde, 448 F. 2d 815 (5 Cir. 1971), cert. denied, 404 U. S. 1058, 92 S. Ct. 736, 30 L. Ed. 2d 745 (1972); United States v. Jackson, 451 F. 2d 259 (5 Cir. 1971). Thus, in this case our review is limited to plain error. Rule 52(b), Fed. R. Crim. P. ⁸

However, the government urges that even plain error review is unnecessary because the record does not support Haynes' contention that the entire indictment was before the jury. See, e.g., United States v. Dunham Concrete Products, Inc., 475 F. 2d 1241, 1251 (5 Cir.), cert, denied, 414 U. S. 832, 94 S. Ct. 65, 38 L. Ed. 2d 66 (1973). The record is ambiguous at best, and we are not willing to adopt a "presumption of irregularity" in cases such as this. However, even assuming that the jury did receive the complete indictment, we find no plain error.

The trial court has discretion to permit the jury to have a copy of the indictment during its deliberations. United States v. Vicars, 467 F. 2d 452 (5 Cir. 1972), cert. denied, 410 U. S. 967, 93 S. Ct. 1451, 35 L. Ed. 2d 702 (1973); United States v. Frick, 490 F. 2d 666 (5 Cir. 1973), cert. denied, 419 U. S. 831, 95 S. Ct. 55, 42 L. Ed. 2d 57 (1974); United States v. Tucker, 526 F. 2d 279 (5 Cir.), cert. denied, 425 U. S. 958, 96 S. Ct. 1738, 48 L. Ed. 2d 203 (1976). The jury was properly instructed that the indictment itself did not constitute evidence, ⁹ and the indictment contains no inflammatory or perjorative language that would create any prejudice against the accused. ¹⁰ Compare Getchell v. United States, 282 F. 2d 681, 689-90 (5 Cir. 1960); see also United States v. Shafer, 455 F. 2d 1167 (5 Cir. 1972).

Moreover, in closing argument defense counsel made reference to the 18-count indictment in an apparent effort to bolster his theory that Haynes had simply made honest mistakes in preparing the tax returns on which the seven counts were based. Transcript at 486. The government successfully objected on the ground that only seven counts were at issue. Defense counsel obviously attempted to use the 18 counts in a favorable manner at trial, and we are at a loss to see how the complete indictment assumed prejudicial characteristics in the brief period between closing argument and jury deliberations. In addition, the trial court carefully instructed the jury that only seven counts were involved and that the other counts were not to be considered. See footnote 6, supra. If the trial court did in fact provide the jury with a copy of the entire indictment, the court did not abuse its discretion in doing so and Haynes was not prejudiced thereby.

The judgment is AFFIRMED.

¹ This section provides:

§7206. Fraud and false statements. Any person who--

* * *

(2) . . . [w]illfully aids or assists in, or procures, counsels, or advises the preparation or presentation under, or in connection with any matter arising under, the internal revenue laws, of a return, affidavit, claim, or other document, which is fraudulent or is false as to any material matter, whether or not such falsity or fraud is with the knowledge or consent of the person authorized or required to present such return, affidavit, claim, or document . . .

* * *

shall be guilty of a felony . . ..

² The fact that Haynes had not yet had the opportunity to testify when the remark was made does not, of course, mean that there was no comment on his failure to take the stand. Davis makes this clear. However, the fact that the comment came during the government's case-in-chief is useful in terms of context. The judge's remark was a response to defense counsel's argument that Haynes had learned of certain medical insurance expenses from a source other than the taxpayer. The judge's remark dealt with establishing the existence of that particular source, and at that point in the trial it could logically be assumed that Haynes would testify.

³ This section provides:

§7206. Fraud and false statements. Any perso who--

(1) . . . [w]illfully makes and subscribes any return, statement, or other document, which contains or is verified by a written declaration that 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 guilty of a felony . . ..

⁴ Arguably contra is United States v. Null, 415 F. 2d 1178 (4 Cir. 1969). However, a careful reading of the case indicates that the Court did not address the question of whether materiality is a question of law, but rather considered only whether the jury should have been permitted to determine if certain items omitted from defendant's tax return were de minimis. Id. at 1181.

⁵ See United States v. Levy [76-2 USTC ¶9500], 533 F. 2d 969 (5 Cir. 1976).

⁶ The court charged the jury:

Paragraph 1 of the indictment sets forth the general allegations of the alleged illegal conduct of the defendant applicable to each of the 7 counts which you are to consider. The specific details of each count are set forth on the following pages of the indictment.

Record at 64-65. However, the court also charged the jury that although the indictment contained 18 counts, "[s]ome of the counts are not before you and are not to be considered by you" and that the jury was to consider "only the charges in the 7 counts--that is, Counts 1-4, 10, 15, and 17." Record at 64. This statement suggests that the jury received all 18 counts but can also be read as merely explaining to the jury why they received copies of only seven counts that were not numbered sequentially.

⁷ "We object to the jury getting the indictment in this cause as the indictment was not admitted into evidence and it allows the jury to speculate and reinforce the charges of the Government." Tr. at 504.

⁸ Moreover, a party cannot object on one ground in the trial court and then urge on appeal that the objection should have been sustained on another ground. See United States v. Hicks, 524 F. 2d 1001 (5 Cir. 1975), cert. denied, 425 U. S. 953, 96 S. Ct. 1729, 48 L. Ed. 2d 197 (1976). Here, Haynes appears to have objected at trial to any portion of the indictment going to the jury, yet on appeal he urges that allowing the jury to have the complete indictment was error. The imprecision of the objection rendered it improper under Rule 51 and also created problems in that an alternative ground is arguably being asserted on appeal. See United States v. Garcia, supra.

⁹ "An indictment is but a formal method of accusing a defendant of a crime. It is not evidence of any kind against the accused and does not create any presumption or permit any inference of guilt." Record at 72.

¹⁰ The opening paragraph of the indictment reads as follows:

[The grand jury charges that] on or about the dates hereinafter specified, in the Northern District of Texas, SAM B. HAYNES, a resident of Dallas, Texas, hereinafter called the defendant, did wilfully and knowingly aid and assist in, and counsel, procure and advise the preparation and presentation to the Internal Revenue Service, of United States Individual Income Tax Returns, Forms 1040, for the taxpayers and calendar years hereinafter specified, which were fraudulent and false as to material matters, in that they represented that the said taxpayers were entitled under the provisions of the Internal Revenue Laws to claim deductions and exemptions for items hereinafter specified, whereas, as the defendant then and there well knew and believed, the said taxpayers were not entitled to claim deductions and exemptions in said amounts, but of lesser amounts as hereinafter specified.

Each count was then set out on a separate page in tabular form. Count I is reproduced below as an example.

COUNT I

Date of Offense: April 9, 1974

Taxpayer: Lucille Corsey

Calendar Tax Year: 1973

                                   Total            Amount          True &

                                Amount           Falsely         Correct

Description                    Claimed           Claimed          Amount

Depreciation .......         $1,500.00         $1,500.00           $ -0-

Rent ...............            600.00            600.00             -0-

Salaries ...........            800.00            800.00             -0-

Insurance ..........            240.00            240.00             -0-

Interest ...........            144.00            144.00             -0-

Tires & Battery ....             10.00             10.00             -0-

Gas & Oil ..........            810.00            810.00             -0-

Equipment ..........          1,316.00          1,316.00             -0-

Supplies ...........          1,500.00          1,500.00             -0-

A violation of Section 7206(2), Internal Revenue Code; Title 26, United States Code, Section 7206(2).

 

[68-2 USTC ¶9512]George Leslie Samuels, Appellant v. United States of America , Appellee

(CA-5), U. S. Court of Appeals, 5th Circuit, No. 24482, 398 F2d 964, 8/5/68, Aff'g unreported District Court opinion

[1954 Code Secs. 7201 and 7206(1)]

Crimes: Tax evasion: False declarations: Trial: Improper comments.--It was not a reversible error that the prosecutor called the jury's attention to the fact that the defendant had failed to testify on his own behalf at the trial. A timely objection to the prosecutor's remark was not made, and the context in which the remark was made indicated that it was directed more at defense counsel's arguments rather than the defendant's failure to testify.

[1954 Code Secs. 7201 and 7206(1)]

Crimes: Tax evasion: False declarations: Miscellaneous defenses.--The Court found that the prosecutor's final argument to the jury was not improper or prejudicial, and that the trial court did not err in limiting cross-examination or in failing to properly charge the jury on the question circumstantial evidence. Other miscellaneous defenses raised by the defendant were all without merit.

Gordon G. Hawn, Willis T. Taylor, 18th Floor, Milam Bldg., San Antonio, Tex., for appellant. Andrew L. Jefferson, Jr., Assistant United States Attorney, San Antonio , Tex. , for appellee.

Before RIVES, GEWIN and THORNBERRY, Circuit Judges.

GEWIN, Circuit Judge:

George Leslie Samuels (appellant) was indicted, tried and convicted of various violations of the Internal Revenue Code. The ten count indictment, returned on March 8, 1965, by a federal grand jury in the San Antonio division of the United States District Court for the Western District of Texas, specifically charged him under five counts with violations of 26 U. S. C. §7201 for wilfully attempting to evade a large portion of income tax due by him and his wife, one count for each of the years 1958, 1959, 1960, 1961 and 1962. The other five counts of the indictment charged Samuels with violation of 26 U. S. C. §7206(1) for wilfully subscribing a return containing a written declaration that it is made under the penalties of perjury, not believing the return to be true. A separate violation was charged for each of the five years 1958 through 1962 inclusive. Samuels entered a plea of not guilty and was tried before a jury. The trial lasted seven days. A verdict of guilty on all ten counts was returned and judgment of conviction was entered on December 20, 1966 . Samuels received a sentence of eighteen months on each count, to run concurrently. A motion for a new trial was overruled and notice of appeal was timely filed on December 30, 1966 . After a full and careful consideration of each of appellant's contentions, we affirm.

Appellant alleges that numerous errors were committed in the trial of the case which require us to reverse. Specifically, he contends that the prosecutor illegally commented on his failure to testify; the prosecutor's final argument was improper and prejudicial; the trial court erred in illegally limiting cross-examination, failing to properly charge on circumstantial evidence, admitting evidence, and overruling appellant's motion in arrest of judgment; and that a series of errors were committed in the course of the trial, the cumulative effect of which denied him a fair trial.

Although no attack is made upon the sufficiency of the evidence to support the judgment of conviction, it is nonetheless necessary briefly to set forth the facts giving rise to this prosecution and the government's contentions with respect to such facts, in order to place appellant's objections in their proper factual context. G. L. Samuels was the president of Samuels Glass Company, a corporation, throughout the period in question. The company offices were located in San Antonio , Texas , and its business consisted of selling glass and aluminum in the San Antonio area as well as selling scrap metal to various iron and metal dealers. Annual sales approached $2,000,000.00. While the evidence was contradictory on certain points, it was such that the jury could have found, as contended by the prosecution, that the violations primarily resulted from certain special purchasing arrangements made between appellant and two of the company's customers--Francis Kuemmel and Luther Warrick. When these two customers purchased items such as automobile windshields from the Samuels Glass Company, they dealt with G. L. Samuels personally, making their payments directly to him in cash. Such payments were not recorded in the books and records of the Samuels Glass Company and were not reported as income by either appellant or the corporation during the period 1958 through 1962. A similar pattern of operation was also shown involving lesser amounts in other transactions conducted by Samuels.

The most serious of appellant's contentions concerns the charge that the Assistant United States Attorney who conducted the prosecution for the government made a direct comment upon his failure to testify thereby violating his right to a fair and impartial trial. During the course of the trial Samuels did not take the stand to testify in his own behalf, but rather elected to exercise his rights under the Fifth Amendment to the United States Constitution and 18 U. S. C. §3481. During the early portion of the closing argument of the prosecutor, the statement was made that "G. L. Samuels does not want to talk about the facts." At the conclusion of the argument, defendant's counsel called the attention of the trial court to the remark in his motion for a mistrial, which motion was denied. Again in his motion for a new trial, defendant's counsel raised the issue. The motion for new trial was overruled. Appellant contends that both the plain meaning of the statement as well as the context in which it was made constituted a substantial and prejudicial violation of his right to a fair trial.

Under both the Fifth Amendment to the United States Constitution and 18 U. S. C. §3481 it is clear that no comment is permissible on a defendant's failure to testify. Stewart v. United States , 366 U. S. 1, 6 L. ed. 2d 84 (1961); Wilson v. United States , 149 U. S. 60, 37 L. ed. 650 (1893); DeLuna v. United States , 308 F. 2d 140 (5 Cir. 1962). Such a comment is equally forbidden even though it is indirect. Benham v. United States, [54-2 USTC ¶9574] 215 F. 2d 472 (5 Cir. 1954); DeMayo v. United States, 32 F. 2d 472 (8 Cir. 1929).

The government's threshold defense of the comment under attack here is that there was a failure by the defense to make a timely objection. In support of this argument the government relies heavily on the case of Fogarty v. United States, 263 F. 2d 201 (5 Cir. 1959). That case also involved a contention that the attorney for the government had adverted to the defendant's failure to testify while making his closing argument to the jury. The court stated:

". . . no objection was made to the argument when made. It is not sufficient to move for a mistrial after all the arguments are in. The purpose of requiring objection to be made while the argument is in process is to give counsel making the argument a chance to withdraw or explain it and the court a chance to exclude it from the jury's consideration. The Rules requiring prompt objection and the assignment of reasons therefor are rules of reason and their observance should not be lightly disregarded." (Citations omitted.) 263 F. 2d 201 at 204.

Another case which strongly supports the government's position is Langford v. United States, 178 F. 2d 48 (9 Cir. 1949). There the defendant was charged with a Mann Act violation, did not testify on his own behalf, and during the closing argument the attorney for the government stated: "Once again I want to direct your attention to the fact that the defendant was not on the stand. It seems to me that the least he could do would be to get on the stand and testify as to his occupation at this time or at the time when these acts were charged last spring." 178 F. 2d at 53. No objection was made. The court stated that whether a defendant should be held to have waived the right to subsequently raise the objection (or whether such remark constituted "plain error") was dependent upon the "gravity of the error in the particular case--upon how flagrantly the rights of the accused have been disregarded." In the circumstances there present the court held that it would not treat the comment as plain error. In addition, the court added that had the trial court admonished the jury to disregard the remarks of counsel or given general instructions that no weight was to be given to defendant's refusal to testify, then any possible error would have been cured.

Despite the strenuous argument by appellant's counsel, we do not believe that the case of O'Connor v. Ohio, 385 U. S. 92, 17 L. ed. 2d 189 (1966) forecloses all reliance on the many cases requiring prompt objection to comment on an accused's failure to testify. The O'Connor case involved a state prosecution for larceny. Subsequent to O'Connor's conviction, the Supreme Court decided Griffin v. California, 380 U. S. 609, 14 L. ed. 2d 106 (1965) which applied the Fifth Amendment prohibition relative to comment on the accused's failure to testify to the states through the Fourteenth Amendment. The Supreme Court therefore remanded O'Connor's case to the Ohio Supreme Court in light of the Griffin decision. 382 U. S. 286, 15 L. ed. 337. Upon remand, the Ohio Supreme Court again affirmed the conviction. Their sole ground was that O'Connor had failed to make a timely objection to the illegal comment. 217 N. Ed. 2d 685 ( Ohio 1966). O'Connor again appealed to the Supreme Court which held that failure to object in the circumstances there present was no bar to a consideration of the constitutional claim since petitioner had already exhausted his state remedies at the time of the Griffin decision and therefore could not be held to have anticipated the application of the Fifth Amendment to the states so as to be required to object. The Supreme Court carefully refrained from any all inclusive language which would obviate the necessity to object in all cases. Rather the court said:

"We hold that in these circumstances the failure to object in the state courts cannot bar the petitioner from asserting this federal right. . . . Defendants can no more be charged with anticipating the Griffin decision than can the states . . . the failure to object to a practice which Ohio had long allowed cannot strip him of his right to attack the practice following its invalidation by this Court." (Emphasis supplied) 385 U. S. at 93.

We construe the O'Connor decision not as foreclosing the issue of requiring a timely objection, but rather of reaffirming such a rule while carving out a specific exception to it. It is observed also that there was no question about the fact that the constitutional rule was violated by the prosecutor's remarks in O'Connor. The State did not even contest that fact.

In deciding whether or not an objection was made in a timely manner, we are loathe to require any strict and unalterable rule that one must always object to a comment upon the refusal of a defendant to testify at the precise moment such comment is made. However, in the circumstances of this case where no objection to the argument under consideration was made until after the argument was concluded, we decide that appellant's objection was not timely. Consequently, appellant can obtain relief only if the remark was so flagrant as to constitute plain error within the meaning of Rule 52(b), F. R. Cr. P. ¹

In determining whether the prosecutor's remark constitutes plain error, we must first consider whether the statement here in question was in fact a comment on the accused's failure to testify. In doing so we look to the context in which the statement was made in order to determine the manifest intention which prompted it and its natural and necessary impact upon the jury. Davis v. United States , 357 F. 2d 438 (5 Cir. 1966).

The theme of the prosecutor's argument was that while he had attempted to try the case solely on the facts, Mr. Foster, the defense counsel, had relied on "supposition, innuendo, and insinuation" and employed the usual defense stratagem of attempting to shift the focus of the jury's attention from the defendant, Samuels, to the prosecution's witness, Kuemmel. In effect, he was contrasting his tactics in conducting the case with those of defense counsel. It was within this framework that the comment was made that "G. L. Samuels does not want to talk about the facts." ²

This argument, viewed in its entirety, was not such that it can be said that the prosecutor's manifest intention was to comment upon the accused's failure to testify nor was it of such a character that the jury would naturally and necessarily take it to be a comment on the failure of the accused to testify. United States v. Fay, 349 F. 2d 957 (2 Cir. 1965). The context in which it was made indicates that the remark was directed to the argument of counsel and not to defendant's failure to testify. It is very possible that such comment was merely inadvertent and the prosecutor's intention was to use defense counsel's name rather than "G. L. Samuels". At the very least it can be said that the contested statement, taken in context, represents a borderline case as to whether there was any comment on defendant's refusal to testify at all. ³

In addition to the lack of any flagrant emphasis on the remarks of the prosecutor, the court gave several curative instructions to the jury on this issue. ⁴ It is clear that in extreme cases it would be unrealistic to believe that instructions to the jury, however phrased, can remove the prejudicial effects of a constitutional error and courts have so stated. DeLuna v. United States , 308 F. 2d 140 (5 Cir. 1962). Krulewitch v. United States, 336 U. S. 440 (concurring opinion of Justice Jackson at 453). This principle is limited, however, to cases where the effect of the error is so great as to be impossible of erasure. Thus, in DeLuna, supra, the court vividly described the extreme circumstances as follows:

"The court's instructions were intended, of course, to neutralize the effect of the comments. But considering the head-on collision between the two defendants, the repetition of the comments, and the extended colloquy over the comments between the trial judge and the lawyers, the imputation of guilt to DeLuna was magnified to such an extent that it seems unrealistic to think any instruction to the jury could undo the prejudicial effects of the reference to DeLuna's silence."

No such circumstances exist in the instant case. The comment here under attack was unexceptional and wholly lacking in aggravation and emphasis. The facts and circumstances of this case present a typical example of the kind of case where prompt objections and curative instructions have their highest and best use. ⁵

Because of our view of all of the above circumstances attending the comments to which appellant objects, we are unable to discover any reasons which dictate a ruling that such comments constituted plain error within the meaning of Rule 52(b), F. R. Cr.P. Even were we to conclude that a prompt objection had been made, our analysis of the applicable law would not differ. The same circumstances which lead us to the conclusion that there was no plain error would also dictate a ruling that the prosecutor's comment did not constitute an invasion of appellant's right against self-incrimination. We thus hold that the prosecutor's comments are not of such a nature as to constitute reversible error.

Appellant also lodges numerous objections to other allegedly improper and prejudicial comments made by the Assistant United States Attorney during the course of his closing argument to the jury. We have read the argument closely, but do not feel that it was improper or prejudicial. Meaux v. United States , 387 F. 2d 370 (5 Cir. 1968), cert. den. -- U. S. --, 20 L. ed. 2d 284 (1968). No objection was interposed to many of the comments, nor were the comments of such kind and character as to constitute plain error. United States v. Socony-Vacuum Oil Co., 310 U. S. 150, 84 L. ed. 1129 (1940). In addition most of these comments were well within the range of fair argument or constituted the prosecutor's fair response to matters provoked or invited by the argument of defense counsel. Del Cristo v. United States , 327 F. 2d 208 (5 Cir. 1964); Isaacs v. United States , 301 F. 2d 706, 738 (8 Cir. 1962); Taylor v. United States , 279 F. 2d 10, 12 (5 Cir. 1960). We agree with the appellant that the argument of the prosecutor was extremely effective, but we fail to find anything in it so improper or prejudicial as to require reversal.

Appellant further contends that the trial court committed error in limiting the cross-examination of one of the government's principal witnesses, Francis Kuemmel. There is no doubt that the testimony of Kuemmel was a vital factor in the government's case and that the defendant was entitled to a full and complete cross-examination of him in order to impeach his credibility or attack him in any other legitimate manner. Gordon v. United States , 344 U. S. 414 (1953). In this case there was vigorous cross-examination of Kuemmel, and the objection of appellant is only that he was not allowed to cross-examine as to an allegedly false sworn inventory filed by Kuemmel in a prior state court divorce proceeding. However, the matter of certain alleged concealments of property by Kuemmel by using the names of other persons was allowed. As the Supreme Court stated in Alford v. United States, 282 U. S. 687, 694 (1931): "[t]he extent of cross-examination with respect to an appropriate subject of inquiry is within the sound discretion of the trial court." Here, the district court permitted reasonable cross-examination on the question of concealment of assets by Kuemmel. In fact, the mention of the divorce in this context made it apparent that concealment took place in connection with such divorce. A full reading of the transcript of the cross-examination convinces us that the trial court did not abuse its discretion in relation to the scope of the inquiry. Harris v. United States , 371 F. 2d 365 (9 Cir. 1967).

There remains one final contention of appellant that deserves some comment. He alleges that the trial judge failed to follow this circuit's test in cases where the evidence of guilt is solely circumstantial, and refused to apply such test in his charge to the jury. The test for which appellant contends is that the jury must be charged that a finding of guilt beyond a reasonable doubt in cases where only circumstantial evidence is introduced can only be returned if the jury might reasonably find that such evidence excluded every reasonable hypothesis except that of guilt. Riggs v. United States , 280 F. 2d 949 (5 Cir. 1960); Panci v. United States , 256 F. 2d 308 (5 Cir. 1958). In this case the conviction is supported both by direct and circumstantial evidence and in such cases it is not error to refuse to give a charge on circumstantial evidence. Barshop v. United States [51-2 USTC ¶9425], 191 F. 2d 286 (5 Cir. 1951), cert. den. 342 U. S. 920. The jury was correctly charged on reasonable doubt. ⁶ In the circumstances revealed by the record in this case the district court was not in error in refusing the requested charge. Holland v. United States [54-2 USTC ¶9714], 348 U. S. 121, 99 L. ed. 150 (1955).

Appellant's other contentions that certain other comments of the prosecutor were improper, that the manner of presenting certain exhibits was argumentative and invaded the province of the jury, and that the cumulative effect of all the errors committed by the court below prevented him from receiving a fair trial, all are without merit. We have given full consideration to all of appellant's contentions, individually all collectively, and we find no error in the record. "A defendant is entitled to a fair trial but not a perfect one." Lutwak v. United States, 344 U. S. 604, 619; Steele v. United States [57-1 USTC ¶9607], 243 F. 2d 712, 715 (5 Cir. 1957).

Judgment affirmed.

¹ Rule 52(b) provides:

"Plain error. Plain errors or defects affecting substantial rights may be noticed although they were not brought to the attention of the court."

² The following are excepts from the argument:

"You know, when you try a case, it seems to me the best way to try it is not to be afraid of the facts no matter what they are or who says them. You sleep better, I think, when you try a case that way . . ..

Defending a lawsuit is a difficult task. I'm sure that's true. You do the best with what you have. If you don't have anything, ordinarily the best defense is a good offense. Expressed another way, let's try anybody except G. L. Samuels. Let's try anybody, except forget about the facts as they relate to G. L. Samuels. Let's try Francis Kuemmel. Let's try him in the hope that the jury will forget about the facts as they relate to G. L. Samuels, and convict Francis Kuemmel of something even though he is not on trial. Let's confuse the issues. Let's hide the ball. Let's talk about supposition, innuendo, and insinuation. But the last thing you want to talk about in defending a case is the facts.

I am proud to talk about the facts . . . I want to speak on the issues raised by the defense in defending this case.

I want to talk about Francis Kuemmel. . . . Mr. G. L. Samuels chose this man--this awful fellow, this awful fellow--simply because he was a good customer and could come up with the cash when G. L. Samuels wanted it. Mr. Francis Kuemmel was good enough to do business with, he was good enough to pay G. L. Samuels and the Samuels Glass Company about a hundred and ten thousand dollars over a five-year period, but he is such a bad guy now. . . . And he was good enough to lend money to at interest. But he is such a bad guy now.

I don't think you are going to like that. If he was good enough then, he is good enough now. Except, G. L. Samuels does not want to talk about the facts.

Mr. Foster says, 'Let me tell you what could have happened. Mr. Kuemmel could have put some of this money in his own pocket.'"

³ After the verdict had been returned the district judge did state to the attorneys that "it is evident to the Court that he [the Assistant United States Attorney, Mr. Jefferson] was referring to Mr. Foster, an inadvertent error, so that the Court didn't regard it as anything significant, because he immediately began to refer to Mr. Foster. . . ." As a witness to the argument and a participant in the proceedings we feel the district judge's comments are entitled to great weight on the issue of the manifest intention which prompted the comment and its natural and necessary impact on the jury.

⁴ The court, as a part of its charge to the jury instructed that:

"The law does not require a defendant in a criminal case to take the stand and testify. In the present case the defendant elected not to take the stand and testify. You are instructed that such fact is not to weigh against the defendant in the slightest degree and that no inference of any kind is to be drawn against him because of such fact. You are further instructed that you are not to discuss that matter during your deliberations."

In addition, before arguments the court instructed the jury as follows:

"You are informed that the statements made by counsel during the arguments are not evidence. It is their views of the evidence. It is not permissible and it is improper for counsel to give their own personal views as to the guilt or innocence of the defendant, because it might be assumed they had information not presented to you. So, when they make statements to you, you will regard it as though they had prefaced each statement with 'as shown by the evidence,' and that is all they are arguing is what is shown by the evidence, unless it should clearly appear that they are trying to state something of their own knowledge. So, counsel will notice, you won't have to keep saying 'assumed by the evidence' and not any of your personal beliefs."

After all argument was concluded the court further charged the jury that:

"Statements made by the attorneys in their opening statements or in their jury arguments are not evidence in the case and are not to be considered by you as such. Any such statements are the views of the attorneys as to what will be or has been established by the evidence of the case. Other statements made by the attorneys during the course of the trial which are not in the nature of stipulations are not to be considered by you as evidence in the case. The evidence in the case consists of the testimony of the witnesses, the exhibits admitted into evidence by the Court, and the stipulations of the attorneys."

⁵ It should be noted that the test for determining whether a comment on a defendant's failure to testify can be treated as harmless error is closely related to the test for determining whether a timely objection was required or whether such comment can be cured by trial court instructions. Such determinations turn on whether the comment was extensive and stressed to the jury, and whether the evidence of guilt was great. Anderson v. Nelson, -- U. S. --, 20 L. ed. 2d 81 (1968).

⁶ Instruction No. 4 given by the court reads:

"You have been instructed in other instructions that the Government must establish the guilt of the defendant beyond a reasonable doubt. A reasonable doubt of guilt means a doubt founded upon reason. It means a doubt which, without being sought after, fairly and naturally arises in your mind after a fair and candid consideration of all the evidence or lack of evidence. It does not mean a forced or strained or unnatural doubt. It is not a doubt based upon whim, or caprice, or sentimentality or sympathy. Proof of guilt to a mathematical certainty or beyond the possibility of a doubt is not required. Proof of guilt is sufficient if it establishes guilt to a moral certainty. Such proof is not sufficient if it does not so establish guilt."

 

 

[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."