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[81-1 USTC ¶9109] United States of America , Plaintiff-Appellee v. Alex R. Grote, Jr., Defendant-Appellant

(CA-5), U. S. Court of Appeals, 5th Circuit, No. 79-5279, Summary Calendar ^*, 632 F2d 387, 7/14/80

[Code Sec. 7203]

Criminal penalties: Failure to file return: Arraignment proceedings: Defective arrest warrant: Evidentiary rulings: Jury instructions: Selective prosecution.--The Appellate Court affirmed the taxpayer's conviction for failure to file for 1975 and 1976 income tax returns stating specifically the items of his gross income and any deductions and credits to which he was entitled. The court found that no prejudice resulted from the failure of the trial judge to personally inform the defendant of the charges when the judge had assigned appointed counsel that responsibility. The taxpayer failed to object to the court's personal jurisdiction under a faulty arrest warrant at the arraignment and thus waived that objection under Fed. R. Crim. P. 12. The court upheld the trial judge's instructions to the jury as being an accurate statement of the law in light of the evidence introduced at trial. The trial judge did not err in excluding documentary evidence of another court opinion where a tax consultant testified at the taxpayer's trial as to the same issue and presented the same argument to the jury. The district court properly admitted opinion testimony by an IRS agent concerning the "acceptability" to the Service of the taxpayer's 1040 forms filed in the years in question and previous years. The taxpayer's motion for acquittal was properly denied because he failed to establish his claim of selective prosecution when he alleged that the government prior to 1975 had not prosecuted protest tax returns of his variety but the taxpayer failed to offer any evidence of such a rule.

Jamie C. Boyd, United States Attorney, Le Roy Morgan Jahn, Assistant United States Attorney, James E. Bock, San Antonio, Tex. 78206, for plaintiff-appellee. Rip Collins, 507 West Tenth Street , Austin , Tex. 78701 , for defendant-appellant.

Before HILL, GARZA and THOMAS A. CLARK, Circuit Judges.

CLARK, Circuit Judge:

The appellant, Alex Grote, was convicted under two counts of an information charging him with violating 26 U. S. C. §7203, in that, for the years 1975 and 1976, he failed to file income tax returns "stating specifically the items of his gross income and any deductions and credits to which he was entitled." ¹ On appeal he challenges the trial court's instructions to the jury; the exclusion of evidence offered as relevant to his specific intent; the admission of opinion testimony by an IRS agent concerning the "acceptibility" to the Service of those 1040 forms filed by the appellant for the two years in question; the adequacy of his arraignment proceedings; his prosecution under an allegedly unpublicized change in agency policy; and the trial court's exercise of personal jurisdiction over him based on an arrest warrant issued pursuant to an unverified information. Finding no merit in any of appellant's contentions of error, we affirm.

The evidence at trial disclosed that during the years in question the defendant Grote was an employee of the Hill Bookbindery in Austin , Texas . His employer's W-2 forms show that Grote received $10,000 in "wages, tips, and other compensation" in 1975, $10,323.00 in 1976. Grote did not submit his W-2's for either of those years along with his 1040's; instead his returns reported "total income" figures of $155.00 for 1975 and $554.00 for 1976. He attached to his 1975 return a letter explaining his belief, only recently arrived at, that Federal Reserve notes were not "legal money" under the Constitution, and complaining further that his privacy rights are violated by the filing requirements of the income tax laws. Grote applied for a refund of the $177.30 which was withheld by his employer in 1975. No withholdings were made in 1976, presumably the result of a withholding exemption certificate, purportedly filed by Grote in January of that year, in which he stated that he expected to incur no income tax liability in 1976.

The first of Grote's enumerations of error, in the order in which they are said to have occurred, concerns the trial court's jurisdiction over his person. It is undisputed that the defendant's presence at his arraignment proceedings was secured by an arrest warrant issued pursuant to an unverified information. Fed. R. Crim. P. 9(a) provides for the issuance of an arrest warrant for a defendant named in an information, but only "if it is supported by oath . . .." The procedure for raising objections to the personal jurisdiction of the court, however, is governed by Fed. R. Crim. P. 12.

Rule 12(b)(1) of the Rules of Criminal Procedure requires that objections based on the institution of the prosecution be raised prior to trial, and the failure to adhere to the requirements of that Rule results in a waiver of the objection. Unlike the objections to the subject matter jurisdiction of the court which cannot be waived under Rule 12(b)(1), . . . objections to personal jurisdiction over a particular defendant can be.

United States v. Kahl, 583 F. 2d 1351, 1356 (5th Cir. 1978) (citation omitted).

Grote contends that his objection to the court's jurisdiction at arraignment preserves the issue of the defective warrant on appeal. ² As the motions which were filed by Grote's counsel after arraignment and before trial make clear, however, defendant's objection was to the subject matter jurisdiction of the trial court. R., pp. 22, 44-51. At no time was the trial court's attention ever called to the defective warrant. Grote's failure specifically to object to the personal jurisdiction of the court under the faulty arrest warrant thus constitutes a waiver of that objection under Rule 12(b)(1).

Grote next complains of the conduct of the arraignment proceedings. The record discloses that the trial court failed specifically to read the indictment, to read the contents of the information to the defendant or to state to him the substance of the charge. ² But the record also reveals that, subsequent to the appointment of counsel to represent Grote, a recess in the arraignment proceedings was held in order for counsel to consult with Grote concerning the charges against him. ⁴ "Vacating convictions for lack of formal arraignment proceedings is predicated on the existence of possible prejudice." United States v. Rogers , 469 F. 2d 1317, 1317-18 (5th Cir. 1972). We do not believe that any prejudice has resulted from the failure of the trial judge personally to inform the defendant of the charges against him. The trial judge assigned that responsibility to appointed counsel, and he satisfied himself that that responsibility had been discharged before calling upon the defendant to plead.

The appellant next complains of two evidentiary rulings made by the court in the course of trial. The first of these concerns the testimony of David Clore of the IRS. In its effort to prove knowledge on the part of the defendant in failing to make the required disclosures of income on his 1975 and 1976 returns, the Government sought testimony from Clore concerning the contents of Grote's returns for the three years prior to 1975. Throughout this line of inquiry Clore was allowed, over objection, to contrast the evidence of these returns with those of 1975 and 1976 in terms of the "acceptability" of each return to the Service for purposes of computing a tax. ⁵

Grote objects to the use of the word "acceptable" as suggesting to the jury that it should defer to the opinion of the IRS on the question of his guilt. This arguis without merit. As the Government's counsel made clear by successive questioning, the purpose of this inquiry was to contrast the contents of those returns which were in fact accepted by the Service with those which were not, in order to show prior knowledge on Grote's part of what was required of him. Clore's qualifications as a witness were as Chief of the Criminal Investigation Staff at the Austin, Texas, Service Center with access to the documents themselves. Trans., Vol. 2, pp. 46-48. As such, his testimony in the form of an opinion concerning the acceptability to the Service of the returns in question is admissible under F. R. E. 701 so long as it is "limited to those opinions or inferences which are (a) rationally based on the perception of the witness and (b) helpful to a clear understanding of his testimony or the determination of a fact in issue." The "facts[s] in issue" were the contents of the returns and the inferences that the jury might draw therefrom. It might have been possible for the Government to highlight this contrast without having Clore express an opinion as to the acceptability of any of these returns. But "[t]estimony in the form of an opinion or inference otherwise admissible is not objectionable because it embraces an ultimate issue to be decided by the trier of fact." F. R. E. 704. We conclude that it was not an abuse of discretion to admit this testimony.

Appellant also objects to the exclusion from evidence of a court opinion which purportedly held that returns substantially similar to Grote's had been accepted by the court and the Government in that prior action. Unfortunately, the record fails to disclose the citation of this authority, so we have no occasion to assess its relevance to Grote's argument that he relied thereon in filing his own returns. This does not foreclose us from ruling on this objection, however, for it appears from the record that Grote's argument was fully developed before the jury. David Martin, the "tax consultant" whose advise is no doubt partly responsible for the trouble Grote finds himself in, was called, recalled, and recalled again, to testify to the defendant's version of this missing judgment. "With the essence of desired evidence before the jury, any harm in the . . . exclusion [of the documentary evidence] was eliminated." United States v. Sanfilippo, 581 F. 2d 1152, 1155 (5th Cir. 1978). See also United States v. Ashley, 555 F. 2d 462, 465 (5th Cir. 1977). Since we are unable to conclude that "a substantial right of the [appellant] is offected," F. R. E. 103(a), we find no abuse of discretion in the exclusion of this opinion.

When both sides closed, Grote moved the court for a judgment of acquittal. His motion was denied. He contends that it had been the policy of the Government not to prosecute protest tax returns of his variety before 1975, and that his prosecution marked a departure from that alleged policy without the benefit of notice and comment rulemaking. The sole support for the existence of this policy is the cross-examination testimony of Clore that such returns "may have been" accepted before 1975. ⁶ In short, Grote contends that similar transgressors in the past have not been prosecuted.

Mindful of the separation-of-powers implications-permeating this entire area, [this court has held] that in order to make out a claim of selective prosecution, the defendant must show: (1) that others similarly situated have not been prosecuted, and (2) that the Government's prosecution of him is selective, invidious, in bad faith or based on impermissible considerations such a race, religion, or his exercise of constitutional rights.

United States v. Hayes, 589 F. 2d 811, 819 (5th Cir. 1979) (footnote omitted); U. S. v. Kahl, supra, at 1353.

Grote alleges no more than that he had been "caught in the net of increased awareness and sensitivity to particular classes of crimes," Hayes, supra, at 818. Alone this fails to support a motion for acquittal.

Grote's last objection, in point of time, concerns the trial court's charge to the jury. In the course of its charge the court instructed the jury as follows:

There are three essential elements which the Government must prove beyond a reasonable doubt in order to establish the offense or failure to file a return as charged in Count One and Count Two of the information.

First, the defendant was required by law or regulation to make a return of his income for the taxable year charged.

Secondly, that the defendant failed to make such a return at the time required by law, and

Third, that the defendant's failure to make the return was willful.

You are further instructed that a taxpayer's return which does not contain financial information enabling the Internal Revenue Service to determine the party's tax liability, if any, is not a return within the meaning of the Internal Revenue Code or the regulation adopted by the Commission of Internal Revenue Service. ⁷

The correct standard of review to be applied to challenges to jury instructions is whether the court's charge as a whole was a correct statement of law. United States v. Arguelles, 594 F. 2d 109, at 112, n. 3 (5th Cir. 1979). See also United States v. Chandler, 586 F. 2d 593 (5th Cir. 1978); United States v. Sanfilippo, 581 F. 2d 1152 (5th Cir. 1978).

Appellant does not object to the first part of the excerpted charge, which we agree accurately sets forth the elements of the crime charged in the information. He argues instead that the "you are further instructed" part of the charge had the effect of directing the jury to find the second element of the offense set forth immediately before, namely, "that the defendant failed to make such a return . . .." We cannot agree. This language merely instructed the jury, in light of the evidence that had been introduced at trial, how it might find the existence of the second element of the offense charged, and was an accurate statement of the law. See United States v. Wade, 585 F. 2d 573, 575 (5th Cir. 1978); United States v. Johnson, 577 F. 2d 1304, 1311 (5th Cir. 1978). The responsibility to find the second element of the offense was clearly the jury's under the charge as given.

For the reasons stated above, the judgment is Affirmed.

^* Fed. R. App. P. 34(a); 5th Cir. R. 18.

¹ Record, p. 1.

² Trans., Vol. 1, p. 2:

"MR. GROTE: Well, I respectfully decline, because this court lacks jurisdiction."

At p. 5:

"MR. COLLINS: At this time, Your Honor, I would ask that the Court enter a plea of Not Guilty for Mr. Grote. Mr. Grote has some disagreement about what has been filed against him and the jurisdiction of the Court in this case. I would ask the Court to enter a plea of Not Guilty for him and set it for trial."

³ "Arraignment shall be conducted in open court and shall consist of reading the indictment or information to the defendant or stating to him the substance of the charge and calling on him to plead thereto. He shall be given a copy of the indictment or information before he is called upon to plead." Fed. R. Crim. P. 10.

⁴ Trans., Vol. 1, pp. 3-6.

⁵ Trans., Vol. 2, at p. 49:

"Q: Now, would you look at the return itself? Was it an acceptable return in the eyes of the Internal Revenue Service during 1972?

A: Yes, Sir.

MR. COLLINS: Your Honor, I object to the terminology of acceptable. That's yet to be determined by the Court under the law."

At p. 51:

"Q: And is that [Grote's 1973 return] a proper filing of an Internal Revenue requirement form allowing you to be able to adequately compute whether a tax would be owing or not?

A: It is.

Q: Is that an acceptable Internal Revenue form for that reason?

A: It is acceptable.

MR. COLLINS: I object to the same word, Your Honor. The use of acceptable."

At p. 58:

"Q: All right. Now, what does that mean?

A: That means Mr. Grote did not file a tax return for the calendar year 1975.

Q: All right. Does that mean an acceptable tax return that would allow you to--

MR. COLLINS: Your Honor, I'm going to object to that terminology again, with regard to whether or not they will accept a tax return."

At p. 60:

"A: It shows that--There is no return has [sic] posted to Mr. Grote's master file account.

Q: Does that mean a return acceptable under the law by the Internal Revenue Service which would allow the Internal Revenue Service to compute whether or not he owed taxes for the year, calendar year 1976?

A: Such return has not been filed.

Q: Now, Mr. Clore, as a matter of fact, were papers filed by Mr. Grote during the calendar years 1975 and 1976 with the Internal Revenue Service?

A: Certain documents were.

Q: All right. Were you able, based on those documents, to be able to compute whether or not a tax was owing, as required by law, by Mr. Grote for the years 1975 or 1976?

A: No, Sir."

⁶ Trans., Vol. 2, p. 63.

⁷ Trans., Vol. 2, pp. 127-28.

On Petition for Rehearing and Petition for Rehearing En Banc

Before HILL, GARZA, and THOMAS A. CLARK, Circuit Judges.

PER CURIAM:

The defendant on petition for rehearing strongly urged that in our original opinion we overlooked the defendant's contention that the Internal Revenue Service had violated the notice and comment provisions of the Administrative Procedure Act, 5 U. S. C. §552(a)(I)(D) and (E). ¹ Defendant contends that the Internal Revenue Service had previously determined not to prosecute cases such as his, and had changed this policy without complying with the statute.

Defendant relies on the following testimony from David Clore, Chief of Criminal Investigation Staff at the Internal Revenue Service South Center :

Q. Okay. Have you ever seen a tax return like this before? [Petitioner's 1975 and 1976 income tax returns]

A. Many of them.

Q. Okay. Has the Internal Revenue Service ever accepted this particular tax return?

A. Based upon my knowledge, I think prior to our procedure at that time, there may have been returns filed that were accepted by the Internal Revenue Service.

Q. So, these in particular--This type of return has before been accepted by the Internal Revenue?

A. That's correct . . .:

Q. (By Mr. Collins) What is the date that the Internal Revenue--I'm assuming that that is correct, quit accepting this particular type of return?

A. In 1974.

Q. In 1974. And it is your--Your answer to that question is since 1974 they will not accept [this] type of return; is that correct?

A. That is correct.

Defendant also points to the testimony of David Martin who stated that such tax returns had been accepted by the Service prior to appellant's filings to show that the Government had determined not to prosecute cases such as this.

Such evidence is not enough. It does not relate to criminal prosecutions. The defendant has directed us to no previously existing policy of either the Internal Revenue Service or the Justice Department indicating that there was an established practice or policy not to prosecute persons who filed returns similar to those filed by the defendant in this case.

Our original opinion disposed of any contention of the defendant that he might have been selectively prosecuted. His claim that the Internal Revenue Service changed a substantive rule of general applicability without having offered any evidence of the existence of such a rule approaches the frivolous.

The Petition for Rehearing is Denied and no member of this panel nor Judge in regular active service on the Court having requested that the Court be polled on rehearing en banc (Rule 35 Federal Rules of Appellate Procedure; Local Fifth Circuit Rule 12) the Petition for Rehearing En Banc is Denied.

¹ The statute reads as follows:

(a) . . ..

(1) Each agency shall separately state and currently publish in the Federal Register for the guidance of the public--

. . . .

(D) substantive rules of general applicability adopted as authorized by law, and statements of general policy or interpretations of general applicability formulated and adopted by the agency; and

(E) each amendment, revision, or repeal of the foregoing.

To substantially the same effect is 26 C. F. R. §601.702(a)(iv) and (v).

 

 

[80-2 USTC ¶9842] United States of America , Appellee v. John D. Miller, Appellant

(CA-8), U. S. Court of Appeals, 8th Circuit, No. 80-1548, 634 F2d 1134, 12/1/80 , Affirming an unreported District Court decision

[Code Sec. 7203]

Crimes: Trial: Evidence: Jury instructions.--In a criminal trial for failure to file, the District Court did not err with respect to its jury instructions, and its discretion in the admission of evidence at trial was affirmed. The "good faith" defense was not available to the taxpayer, as he alleged, since he did not file a return. Moreover, it was not error for the court to deny the admission into evidence of charts designed to aid in the taxpayer's testimony, since the admission of such evidence was within the court's discretion.

Roxanne Barton Conlin, United States Attorney, Amanda M. Dorr, Assistant United States Attorney, Des Moines, Ia. 50209, for appellee. John D. Miller, 2140 W. 4th St., Davenport, Ia. 52802, pro se, Mark W. Bennett, Allen, Babich & Bennett, 5835 Grand Ave., Des Moines, Ia. 50312, for appellant.

Before GIBSON, Senior Circuit Judge, and HEANEY and BRIGHT, Circuit Judges.

HEANEY, Circuit Judge:

Appellant John D. Miller was convicted on April 30, 1980 , of two counts of violating 26 U. S. C. §7203. A jury found that Miller had willfully failed to file income tax returns for the years 1976 and 1977, and he was sentenced to six-month prison terms on each count, to run concurrently. Miller's primary arguments on appeal are that the jury was erroneously instructed, and that the trial court erred in refusing to allow the defendant to use certain demonstrative evidence at trial. We affirm the district court's rulings.

Miller, who filed no income tax return in 1976, and a "Fifth Amendment" return in 1977, requested the following "good faith" instruction at trial:

You are instructed that even if the defendant erroneously or mistakenly asserted his Fifth Amendment rights in his 1040 Form for the calendar year in 1977 that if he did so in good faith then you must find that the defendant did not act willfully.

The trial court refused the requested instruction, and gave the following ones instead:

An act is done knowingly if it is done voluntarily. The purpose of adding the word "knowingly" in indictment is to insure that no one would be convicted for an act done because of mistake, accident, or other innocent reason.

Willfulness is an essential element of the crime of failure to file an income tax return. The term "willfully" used in connection with this offense means a voluntary intentional violation of a known legal duty, in order to prevent the Government from knowing the extent of and knowing the facts material to the determination of one's tax liability.

Defendant's conduct is not "willful" if he acted through negligence, even gross negligence, inadvertence, justifiable excuse, or mistake, or due to his good faith misunderstanding of the requirements of the law. However, mere disagreement with the law in and of itself does not constitute good faith misunderstanding of the requirements of the law, because it is the duty of all persons to obey the law whether or not they agree with it. Also, a person's belief that the tax laws violate his constitutional rights does not constitute a good faith misunderstanding of the requirements of the law. Furthermore, a person's disagreement with the Government's monetary system and policies does not constitute a good faith misunderstanding of the requirements of the law.

The defendant has introduced evidence of advice he heard given by speakers at meetings, tape recorded lectures, essays, pamphlets, court opinions, and other material that he testified he relied on in concluding that he was not a person required to file income tax returns for the years 1976 and 1977.

This evidence has been admitted solely for the purpose of aiding you in determining whether or not the defendant's failure to timely file tax returns for 1976 and 1977 was knowing and willful and you should not consider it for any other purpose. You are not to consider this evidence as containing any law that you are to apply in reaching your verdicts, because all of the law applicable to this case is set forth in these instructions.

We find that the court properly refused to give the requested instruction, and that those given were proper. The good faith defense was not available to the appellant because his IRS forms contained no income information and, thus, he had made no return at all, and there was no evidence in the record to prove that he believed filing a proper return would subject him to possible prosecution.

The appellant also argues that the trial court erred in refusing to admit defendant's Exhibit W1-17, a series of charts which he contends would have allowed the jury to "visually see the points to which Mr. Miller was about to testify." Admission of such evidence, however, is within the discretion of the trial court, and we do not find that this discretion was abused. ¹

Finally, the appellant contends that the IRS abused its power by unlawfully subpoenaing records of the defendant without notification to him, and by using the results of "illegal political surveillance" against him. We will not deal substantively with these claims as they have been raised for the first time with the filing of Miller's brief on appeal.

Affirmed.

¹ Defendant's Exhibit W1-17 consisted of seventeen large posterboard "charts," each containing one statement of defendant's theories of money and taxation. These statements were as follows: "Mr. Foote McBrearty, Baxter and Porth said Federal Reserve Notes are not dollars" (W-1); "And unless I have received 750 dollars or more, I'm not required to file." (W-2); "I did not receive 750 dollars" (W-3); "The United States Supreme Court has clearly defined the term income within the constitutional sense." (W-4); "Income may be defined as the gain derived from capital, from labor, or from both combined, provided it be understood to include profit gained through a sale or conversion of capital assets, . . ." (W-5); "Only gains are taxed." (W-6); "The Supreme Court says that labor is property." (W-7); Exchanging one property for another property with no gain, results in no taxable income. The source, my wages, is not taxed." (W-8); "Wages are an even exchange of one form of property for another form of property, my labor." (W-9); "Compensation for labor is not a gain." (W-10); "A gain from labor would result only by someone hiring labor and making a profit on it" (W-11); "Within the constitutional sense, 'income' is not everything that comes in--" (W-12); "But is only that gain which is derived from property." (W-13); "Only be employing property, capital or labor, can income be derived from the source." (W-14); "The right to work and exchange ones labor for wages or any form of property even-up, was not a subject to be taxed under the 16th Amendment." (W-15); "The Supreme Court says: The 16th Amendment did not confer any new power of taxation on Congress nor extend the power of taxation to subjects previously excepted." (W-16); "For the years in question here, I had no taxable income." (W-17) (Emphasis included.). The theories advanced by the defendant are utterly without merit.

 

 

[72-1 USTC ¶9443] United States of America , Plaintiff-Appellee v. Lawrence R. Johnson, Defendant-Appellant

(CA-9), U. S. Court of Appeals, 9th Circuit, No. 71-2540, 460 F2d 20, 5/16/72 , Affirming unreported District Court decision

[Code Sec. 7203]

Failure to file return: Evidence admitted in District Court: Privilege against self-incrimination: Insanity instruction: Net worth statement: Voluntary disclosure.--The District Court did not err: (1) In denying the taxpayer's motion to dismiss information on the ground that the requirement to file income tax returns for 1963 through 1966 violated his privilege against self-incrimination; (2) in failing to instruct the jury that evidence concerning the circumstances in which he found himself during the period of alleged criminal conduct was to be determined in considering the issue of insanity; (3) in admitting into evidence a statement showing the taxpayer's net worth; and (4) in not admitting all evidence offered by the taxpayer in respect to the voluntary disclosure made by him to the IRS.

Sidney I. Lezak, United States Attorney, Norman Sepenuk, Assistant United States Attorney, Portland, Ore., for plaintiff-appellee. Stephen B. Hill, Gregory W. Byrne, Souther, Spaulding, Kinsey, Williamson & Schwabe, Twelfth Fl., Standard Plaza, 1100 S. W. Sixth Ave., Portland, Ore., for defendant-appellant.

Before JERTBERG, ELY and HUFSTEDLER, Circuit Judges.

PER CURIAM:

In each count of a four count information, appellant was charged with a misdemeanor crime of wilfully failing to file his United States income tax returns for the four years 1963-1966, in violation of Sec. 7203 of the Internal Revenue Code of 1954. (26 U. S. C. §7203.) ¹

[Facts]

Following a jury trial, appellant was found guilty on all counts. He was sentenced to the custody of the Attorney General for imprisonment for a period of six months and fined the sum of $10,000 on Count One. On each of the remaining counts he was committed to the Attorney General for imprisonment for a period of six months, such sentences to run concurrently with each other and Count One.

The record discloses that during the prosecution period appellant and one Laurence Arnett were equal partners in the partnership of Allied Artists of America, a talent agency located in Portland , Oregon . The principal source of the partnership income was from agent's commissions which were paid to the partnership by various entertainers. The appellant earned, as his one-half share of the partnership gross income, the following amounts: $19,517.31 in 1963, $25,819.27 in 1964, $24,495.89 in 1965, and $26,250.78 in 1966. He failed to file United States income tax returns for each of these years. ²

At trial his defense for failure to file such returns was that such failure was not willful and that he was insane within the rationale of rulings of this circuit on the subject of criminal insanity. ³

Appellant's defense, in substance, was that he was dependent emotionally and psychologically upon his partner, upon whom he relied to do the bookkeeping, and who, during the years in question, suffered from periods of disassociation from reality which incapacitated him, and affected appellant's ability to file returns. Psychiatric testimony was offered in support of his defense. The Government offered psychiatric testimony to show that appellant had no mental disease or defect and he was able to conform his conduct to the requirements of law. The testimony of several lay witnesses was offered by the Government as to appellant's business acumen and his competent, rational behavior during the years in question.

[Alleged District Court Errors]

On this appeal appellant contends that the district court erred:

1. In denying his motion to dismiss the information on the ground that the requirement to file income tax returns for the years 1963 through 1966 violated his Fifth Amendment privilege against self-incrimination;

2. In failing to instruct the jury that evidence concerning the circumstances in which he found himself during the period of the alleged criminal conduct was to be determined in considering the issue of insanity;

3. In admitting into evidence Government Exhibit 79, which purported to show his "net worth" on December 31, 19 66; and

4. In not admitting all evidence offered by appellant in respect to the voluntary disclosure made by him to the Internal Revenue Service.

[Self-Incrimination]

The Federal income tax return for each of the years 1963 through 1966 specifically asked whether the taxpayer had filed a tax return in the preceding year. Appellant claims that a truthful "No" answer to the question would have violated his Fifth Amendment privilege against self-incrimination by furnishing a link in the chain of evidence needed to prosecute him for the crime. The claim is without merit. See United States v. Sullivan [1 USTC ¶236], 274 U. S. 259 (1927); California v. Byers, 402 U. S. 424 (1971); Heligman v. United States [69-1 USTC ¶9258], 407 F. 2d 448 (CA-8, 1969). Appellant's reliance on Grosso v. United States [68-1 USTC ¶15,801], 390 U. S. 62 (1968) and Marchetti v. United States [68-1 USTC ¶15,800], 390 U. S. 39 (1968), and like cases is misplaced.

[Insanity Instruction]

We find no error on the part of the district judge in refusing to give the following instruction offered by the appellant:

"The question of sanity or insanity of Mr. Johnson cannot be determined in a vacuum. Evidence introduced in this case has included facts about the circumstances in which Mr. Johnson was living and working during the years involved, including the illness of Mr. Arnett. You are instructed that this evidence should be considered by you in determining whether Mr. Johnson as a result of mental disease or defect was able to conform his conduct to the requirements of the law."

We have carefully examined all of the instructions given to the jury in this case, and find that the jury was carefully and properly instructed on all issues of law involved, and the duties and responsibility of the jury. None was objected to by appellant.

The court instructed the jury that its verdict was to be based upon all of the evidence which had been admitted. In refusing the proffered instruction, the court simply refused to single out for emphasis a portion, only, of the evidence on a given subject. In doing so he acted well within his discretion.

[Net Worth Statement]

The court properly admitted into evidence the "net worth statement" (Exhibit 79). This exhibit simply summarized a series of exhibits which had been previously introduced into evidence without objection. Its admission was not prejudicial.

[Voluntary Disclosure]

Appellant testified that he made a voluntary disclosure, in the fall of 1967, to the Internal Revenue Service of his failure to file income tax returns for prior years. The court rejected the letter dated December 20, 19 67 , written by appellant's attorney to the Internal Revenue Service on the same subject, and rejected similar testimony offered by appellant's accountant.

While we are of the view that all such testimony was irrelevant to the issue of appellant's willfulness in failing to file tax returns for 1966 and prior years, we are satisfied, under the record in this case, appellant suffered no prejudice by the rulings of which he complains.

The judgment appealed from is affirmed.

¹ "§7203. Willful failure to file return, supply information, or pay tax

"Any person required under this title to pay any estimated tax or tax, or required by this title or by regulations made under authority thereof to make a return (other than a return required under authority of section 6015 or section 6016), keep any records, or supply any information, who willfully fails to pay such estimated tax or tax, make such return, keep such records, or supply such information, at the time or times required by law or regulations, shall, in addition to other penalties provided by law, be guilty of a misdemeanor and, upon conviction thereof, shall be fined not more than $10,000, or imprisoned not more than 1 year, or both, together with the costs of prosecution."

² He failed to file returns for the preceding years 1958-1962, although he earned substantially in excess of $600.00 a year during each of such years.

³ For instance, Wade v. United States , 426 F. 2d 64 (CA-9, 1970).

 

 

 

[72-1 USTC ¶9227] United States of America , Plaintiff-Appellee v. Richard D. Dana, Defendant-Appellant

(CA-7), U. S. Court of Appeals, 7th Circuit, No. 18966, 457 F2d 207, 2/3/72 , Aff'g unreported District Court decision

[Code Sec. 7201]

Crimes: Tax evasion: Defenses: Summaries of evidence: Proffered instructions: Self-incrimination: Examination.--The taxpayer's conviction of tax evasion was affirmed. The following assignments of error were rejected: (1) The lower court did not err in allowing the government to present summaries of its evidence; (2) certain instructions proffered by the taxpayer that would have explained his theory of the case were properly refused; (3) the taxpayer's right against self-incrimination was not violated by statements by the prosecutor that referred to checks not in the government's possession and not introduced by the defense; and (4) the court did not abuse its discretion in not allowing the taxpayer to take the stand to refute certain testimony without being subject to cross-examination.

David J. Cannon, United States Attorney, Steven C. Underwood, Assistant United States Attorney Milwaukee, Wis., for plaintiff-appellee. Stanley P. Gimbel, 152 W. Wisconsin Ave. , Milwaukee , Wis. , for defendant-appellant.

Before DUFFY, Senior Circuit Judge, KILEY and KERNER, ¹ Circuit Judges.

KILEY, Circuit Judge:

Defendant Dana appeals from his conviction by a jury on each of five counts of an indictment charging willful attempts to evade income tax for the years 1962-66, in violation of 26 U. S. C. §7201.

The evidence most favorable to the government shows that during the years in question Dana was a salesman for Inland Container Corporation and sold packaging materials to Western Printing Company (Western). During this same time he also operated a business known as Display Products (Display) which sold coin displayers to Western.

Mielke, the production manager of Western, was a good friend of Dana. They devised the following scheme: Mielke, for Western, would order merchandise from Display. Although Display would make no delivery or only part delivery of the merchandise ordered, it would bill Western for the full amount of the order. Mielke would then approve the bills and the issuance of checks to Display in payment of the bills. They agreed to divide 60% of the proceeds of the Western checks equally between them, and Dana promised to use the remaining 40% to pay their respective income taxes.

Dana claims that the court erred in allowing the government to introduce summaries of its evidence; by failing to give certain instructions; by making prejudicial comments; and by erroneously ruling with respect to examination of witnesses.

[Summaries of Evidence]

I. In presenting its case to the jury the government relied essentially on the testimony of Mielke, and on the inflated invoices and Western checks issued for the spurious orders. The government also introduced summaries of the evidence for the 1962-66 tax years. The summaries were prepared for the jury by the government witness Kabaker.

We see no merit in Dana's contention that the district court abused its discretion in admitting Kabaker's summaries of unreported income into evidence. Dana argues that the exhibits do not contain proper references to the evidence on which the summaries are based, and that he was denied the "opportunity to voir dire" Kabaker before his summaries were admitted. We are not persuaded by the argument.

There were four summaries pertaining to Dana's tax liability for the year 1962. The first is captioned: Summary of Evidence of Unreported Receipts from Western Printing and Lithographing Company, Unreported Purchases and Unreported Expenses of Richard D. Dana Doing Business as Display Products Company--to August 31, 19 62. It has several columns showing the dates, numbers, and the amounts of invoices billed to Western. It also lists the numbers and amounts of checks issued to Display in payment of the invoices, with appropriate references to corresponding exhibit numbers. A second summary contains similar data from September through December 31, 19 62 . ²

The third summary is captioned: Summary of Evidence of Merchandise Purchases by Display Products Company for 1962. It contains five columns listing the date, amount and number of the Western checks issued in payment to Display. It also sets out the name of the payee and the exhibit numbers corresponding to the transactions.

The fourth summary for 1962 is entitled: Computation of Taxable Income for the Year 1962. It lists Dana's reported and unreported taxable income, with reference to the exhibit number of the original 1962 tax return and the preceding summaries showing the total unreported receipts for 1962. It computes Dana's additional income tax liability for 1962 by taking the difference between the total corrected income tax due and the tax actually reported.

The summaries for the years 1963, 1964, 1965 and 1966 are essentially similar to those pertaining to 1962. The respective columns give the dates, check numbers, amounts and pertinent exhibit numbers. The tax computations for the later years are also analogous to those in the 1962 summary.

This court has approved the use of summaries such as those prepared and testified to by the government witness Kabaker. United States v. Tolbert [69-1 USTC ¶9173], 406 F. 2d 81, 85 (7th Cir. 1969); United States v. Bernard [61-1 USTC ¶9221], 287 F. 2d 715, 722 (7th Cir. 1961), cert. denied, 366 U. S. 961 (1961). And the district court's ruling here can be reviewed "only upon a clear showing of abuse and resulting prejudice" to Dana. Lloyd v. United States, [55-2 USTC ¶9665], 226 F. 2d 9, 16 (5th Cir. 1955).

Kabaker's typewritten summaries, in our opinion, must have been of material aid to the jury in its deliberations for purposes of recalling and identifying source exhibits and for classifying the underlying evidence presented at the trial. The exhibit references in the summaries identifying the sources of the evidence were guards against the inherent danger of conviction upon summaries rather than upon primary evidentiary proof. Lloyd v. United States , at 17. The summary captions and source references were adequate to enable the jury to easily determine their accuracy by cross checking to the underlying exhibits. United States v. Tolbert, supra.

No prejudice is shown by Dana as a result of the court's ruling against the claimed right to voir dire examination of Kabaker. The extensive cross-examination of Kabaker tested the proper weight to which the summaries were entitled. And the summaries were further tested by the court's clear instruction against their prejudicial use. The court told the jury that the summaries should be considered "solely" as summaries, and that they did not per se constitute evidence. It instructed the jury that the summaries had no "independent value," were weighty only in so far as they "reflect[ed] accurately the primary evidence" and should be disregarded in so far as they did not reflect the truth of the underlying evidence.

[Instructions]

II. The court refused Dana's proffered instruction that monies received by officers and agents of a corporation from its sales constituted corporate income even if the person receiving the money embezzled it and the money was not deposited in any corporate bank account. We think, however, that the court's refusal to give the instruction could reasonably have been prompted by a fear of confusing the jury, and was not erroneous.

This court did approve a similar instruction in United States v. Bernard [61-1 USTC ¶9221], 287 F. 2d 715, 723 (7th Cir. 1961). The question there, however, was whether defendants had fraudulently reported corporate income. They had contended that corporate money they took had not been received by the corporation. Here Dana is not charged with evading income tax of Display.

Dana also complains that the court erred in refusing to give his proffered instructions Nos. 4, 5 and 18 covering, respectively, "willful attempt . . . to defraud the government," the distinction between civil and criminal liability for failure to pay income taxes, and the effect of a taxpayer's "honest doubt" in a prosecution for tax evasion.

Dana was entitled, of course, to an instruction upon his theory of defense. United States v. Vole, 435 F. 2d 774, 776 (7th Cir. 1970). But we think the district court's instruction on "specific intent" effectually covered the essence of refused instruction No. 4 ³ on willful attempt. True, the court did not emphasize, as Dana's instruction did, the term "attempt"--but that was unnecessary. The court could have decided with reason that the rejected instruction overemphasized that term, to suggest a confusing and erroneous implication, i. e., if Dana succeeded in evading payment, his success obviated the idea of guilt for an "attempt." O'Brien v. United States [1931 CCH ¶9474], 51 F. 2d 193, 197 (7th Cir. 1931); see also Spies v. United States [43-1 USTC ¶9243], 317 U. S. 492, 498-99 (1942); Guzik v. United States [1931 CCH ¶9681], 54 F. 2d 618, 619 (7th Cir. 1932).

With reference to instruction No. 5 there was evidence at the trial that Dana's accountant had received a letter from the Wisconsin Department of Taxation concerning Dana's failure to report commissions from Display in his 1963 state tax return. Dana thereafter filed amended federal income tax returns for the years 1963 and 1964, but prior to any contact by the IRS. He argues that this evidence required the district court to give his proffered instruction No. 5 that whether "[Dana] may or may not have settled his civil liability, for the payment of taxes . . . to the United States . . . is not considered . . . in determining the issue [in the criminal case] . . . except" to the extent that it bears on the question of intent.

We think the instruction ⁴ which was given adequately covered the point, and see no error in the rejection of the proffered instruction. Accordingly, Spies v. United States [43-1 USTC ¶9243], 317 U. S. 492, 500 (1943), and Hill v. United States [66-2 USTC ¶9511], 363 F. 2d 176 (5th Cir. 1966), cited to this point by Dana, are inapposite.

Dana's proffered instruction No. 18 concerned the defendant's "honest doubt" as to the taxability or nontaxability of certain commissions of Display, which had not been reported originally but which had been subsequently reported in the amended returns. The court rejected the instruction as unnecessary surplusage. We agree that it was not needed, since its subject matter was covered by another instruction given. The given "specific intent" instruction precluded any finding of guilty "because of mistake or accident or other innocent reason." And the court further told the jury that the "necessary element of willfulness and specific intent to evade . . . cannot be inferred from a mere understatement of income."

In instructing the jury on intent the court deleted certain "general illustrations" pertaining to examples of conduct pointing to intent to evade taxes. Dana asserts error in the trial court's failure to give the entire instruction which was based on language from Spies v. United States [43-1 USTC ¶9243], 317 U. S. 492 (1943). The trial court decided that since the illustrations were not based on evidence in the case, he would not give them. We find no abuse of discretion, or other error, in the court's decision. The court in Spies does not require that the illustrations be given. And the illustrations requested by Dana could have confused the jurors about the issues before them. Furthermore, Dana's counsel discussed the various illustrations in jury argument. We find no error in the court's failure to give the illustrations.

[Self-Incrimination]

III. During cross-examination the government witness Kabaker was questioned about "cash . . . or check payments" made by Dana to Mielke and not reflected in the summaries. Dana's counsel asked Kabaker whether his summaries would be incorrect if he had checks payable to Mielke which were not "considered on the schedules." The court then inquired, "Are there any checks . . . in existence that you know of that aren't now in this courtroom?" The prosecutor responded, "Defendant hasn't produced any, and we don't know of any." Dana's counsel them moved for mistrial on the Fifth Amendment ground that Dana's right to remain silent was violated because of the intimation that Dana had a duty to produce evidence against himself. He requested a cautionary instruction and the court immediately addressed the jury that he wanted "to again emphasize . . . that a defendant has no duty to come forth with any evidence under our system of law." We think the court's instruction was effective to remove any prejudice Dana could have suffered from the incident.

Subsequently, during rebuttal argument, the prosecutor asked rhetorical questions of, and made statements to, the jury ⁵ with respect to the checks referred to above. The argument was in response to jury argument by Dana's counsel concerning checks Dana had produced to show that Kabaker did not credit him with disbursements to Mielke and accordingly the Kabaker summaries should not be accepted by the jury as a truthful computation of Dana's income.

We see no denial of Dana's Fifth Amendment right by the court or prosecutor in the circumstances here. In support of his case Dana had produced checks which he had passed to Mielke and which were not in the government's possession or case. His counsel put questions about them to Kabaker which led to the clearly spontaneous response of the prosecutor. The court promptly cautioned the jury, as counsel requested. And Dana's counsel's jury argument justified the prosecutor's response. See United States v. Blassick, 422 F. 2d 652, 654 (7th Cir. 1970).

[Examination]

IV. Nor do we see an abuse of discretion in the court's refusal to grant Dana permission to take the stand for the limited purpose of impeaching certain testimony by Mielke against him, but without the risk of being cross-examined as to incriminatory matters. The court properly ruled that any testimony by Dana with respect to his defense would waive his Fifth Amendment right as to all other relevant facts. Johnson v. United States [43-1 USTC ¶9288], 318 U. S. 189, 195 (1943); Nash v. United States, 405 F. 2d 1047, 1054 (8th Cir. 1969).

Finally, we deem it unnecessary to discuss Dana's claim that the court improperly limited recross-examination of Mielke. Suffice to say we see no undue limitation in the court's confining the recross-examination to the redirect, and no prejudice to Dana from the ruling.

AFFIRMED.

¹ Judge Kerner heard oral argument but did not participate in the adoption of this opinion.

² On August 31, 19 62 , Display Products Co., which had been operated as a sole proprietorship, became a corporation known as Display Products Ltd. The separate summaries of unreported receipts from Western to Display in 1962 reflect this change in status.

³ The instruction given by the court states, inter alia, that the government must prove beyond a reasonable doubt that Dana "wilfully attempted to evade" the taxes in question; and that "the only way you have of arriving at the intent of defendant . . . is . . . to take into consideration all the facts and circumstances . . . and determine . . . whether it was the intent of the defendant . . . to defraud the government of the tax which he knew was due from him."

⁴ The court told the jury, inter alia:

. . . The filing of an amended return does not constitute evidence in any manner that the original returns filed for the same years were false and untrue. In other words, you are instructed that the filing of the amended return by the Defendant cannot be considered evidence of an attempt to evade and defeat taxes at the time the Defendant filed the original returns. If you find that the amended returns were filed at a time that the Defendant was not under compulsion, attributable to an assertion of deficiency or threat of prosecution, then you may consider the filing of the returns as evidence relating to the defendant's intent, and may draw whatever inference you might reasonably find as to the ultimate issues in this case.

⁵ "Where are the checks? Don't you think Defendant would have produced the checks, if he had them . . . of course he would have. They are not going to rely on the fact that they don't have to come forward to produce any evidence. They have started the ball rolling by producing these. . . . He could have gone to the bank if he doubted what we had. He has subpoena powers . . . [for] all the records . . . there are no more checks."

 

[71-2 USTC ¶9730] United States of America , Appellee v. Anthony M. Siragusa, Appellant

(CA-2), U. S. Court of Appeals, 2nd Circuit, Docket No. 71-1426, 11/1/71 , Affirming unreported District Court decision

[Code Sec. 7201--Result unchanged by '69 Tax Reform Act]

Crimes: Tax evasion: Wilfullness: Extraneous material in jury room: Failure to sequester jury: Insufficiency of evidence: "Two inferences" charge.--A conviction for wilfull evasion was upheld even though a Federal Income Tax Booklet not admitted into evidence was found in the jury room after deliberations, and even though the District Court failed to sequester the jury over the weekend while it was still deliberating and unable to reach a verdict. The booklet was found to have no prejudicial effect because the information in the marked section of the booklet was already in evidence. The District Court's failure to sequester the jury was not an abuse of discretion since no harm resulted from such action. Secondly, the Court found that the evidence was sufficient so as to warrant sending the case to the jury and sustain a guilty verdict. Thirdly, in light of Holland, 51-2 USTC ¶9714, 348 U. S. 121 (1954) the District Court had not erred in refusing to charge the jury with the "two inferences" charge since the Second Circuit does not approve of this charge.

Whitney North Seymour, Jr., United States Attorney, Ross Sandler, Peter F. Rient, Assistant United States Attorneys, New York, N. Y., for appellee. Joseph E. Brill, John L. Pollok, 233 Broadway, New York , N. Y., for appellant.

Before MOORE , SMITH and HAYS, Circuit Judges.

[Facts]

SMITH, Circuit Judge:

This is an appeal from a final judgment of the United States District Court for the Southern District of New York, Dudley B. Bonsal, Judge, convicting appellant, Dr. Anthony Siragusa, after a six-day jury trial, on three counts of evasion of personal federal income tax for the calendar years 1962, 1963 and 1964, in violation of 26 U. S. C. §7201. Appellant was sentenced to 30 days imprisonment on each count, to be served concurrently, and was ordered to pay a fine of $5,000 on counts one and three, and $1,000 on count two, that is, $11,000 plus the costs of prosecution. Execution of sentence was stayed pending appeal. At the same trial, appellant was acquitted of three counts of filing a false tax return for the calendar years 1962-64. We find no reversible error and affirm the judgment.

Using the bank deposits method of proving tax evasion, the government introduced evidence to show that appellant received more money from professional fees and interest on savings bank deposits than he had reported on his tax returns during the years in question. Summing up the information the government had obtained from the numerous banks at which appellant had deposits, from a former employee of appellant, and from appellant himself, a revenue agent calculated the deficiency in tax due to be $3,956.29 for 1962, $900.14 for 1963, and $2,209.48 for 1964. The appellant does not contest the fact that the amounts on the tax returns may be in error. He claimed that, of his and his wife's 23 savings accounts, some were inactive during those years, and the passbooks were not presented for the recording of accrued interest. He also claimed that he was hurried in filling out the tax returns and that he estimated the amount of interest and fees to cover that income for which he did not have exact figures. The government introduced evidence which raised doubt about the sufficiency of these explanations.

[Extraneous Material in Jury Room]

The main issue, then, was one of knowledge and wilfullness: did Dr. Siragusa know that he reported less than his income for those years, and did he wilfully evade his full tax responsibility? After two and a half days of testimony, the jury began deliberating late on a Thursday afternoon. When they did not come to an agreement by 6:00, the court, with the consent of counsel, allowed them to disperse for the night, cautioning them not to discuss the case with anyone. The jury resumed deliberations on Friday, and at 4:45 indicated that they were unable to reach a verdict on any of the counts. After a further unsuccessful attempt to come to some agreement that afternoon, a majority indicate that continued discussion might be productive, and they were requested by the court to return on Monday to deliberate further. This action was taken over objection of defense counsel, who argued that the jury ought not be separated for such a length of time, particularly after they had indicated a repeated inability to agree on any verdict.

The jury met on Monday and at about 4:00 p. m., they announced that they had found Dr. Siragusa guilty of three counts of tax evasion and not guilty of three counts of filing false returns.

When counsel reappeared on the date set for sentencing, the court revealed that after the jury had been dismissed, his law clerk had found a 1970 Federal Income Tax Booklet in the jury room. ¹ Both counsel agreed that the booklet had not been put into evidence. A pencil mark bracketed a portion of the book which said:

You must report any interest you received or which was credited to your account (whether entered in your passbook or not) and which you can withdraw.

Appellant's motion for a new trial based on the prejudicial nature of this non-evidentiary, hearsay material was denied, as was a motion for a hearing to examine the jury on the presence of the booklet and their use of it in their deliberations. The denial was based on the fact that the substance of the information in the circled area had been entered in evidence at the trial.

Appellant raises several points on this appeal. His main contention is that the introduction of non-evidentiary material into the jury room, through no fault of appellant, vitiates the verdict in the case and calls for a new trial. He also claims that a hearing on the circumstances surrounding the presence of the booklet ought to have been held by the court. Further, in this connection, he claims that the failure to sequester the jury over the weekend while it was in the midst of deliberation was the cause of the introduction of the extraneous material, presumably by one of the jurors anxious to persuade a hesitant fellow-juror. ²

The rule that nothing which has not been introduced into evidence may go to the jury room is fundamental. However, the court below found that the booklet had no prejudicial effect because the information in the marked section had been introduced into evidence during the trial, and we agree. It added nothing to the evidence any instructions already before the jury.

[Failure to Sequester Jury]

The claim that the failure to sequester led to the difficulty here raises primarily a question of whether the court abused its discretion in allowing the jury to disperse for the weekend. The trial court had wide discretion in such a matter to decide, depending on the nature of the case, whether to keep the jury together. ³ While the court here might have ruled otherwise than to ask the jury to return after a day and a half of deliberation and several communications regarding their inability to agree on any count, we cannot say that it was an abuse of discretion to do as he did in view of the time and effort already spent, and the fact that it was not a sensational trial or notorious defendant likely to arouse great public interest and danger of outside pressures.

[Sufficiency of Evidence]

The other issues raised by appellant do not merit reversal. His second claim is that the evidence on the second count of tax evasion was insufficient to warrant sending it to the jury or sustaining a verdict of guilty. This seems to be a claim that the amounts in question were so small and the possibility that the appellant might not have been informed by his banks so great that a reasonable man would have to have a reasonable doubt about his guilt. In this case, the credibility of defendant's explanations to the agents, the inferences the jury had to draw about knowledge and wilfullness from the conflicting evidence, and the fact that there was a wilfull pattern in appellant's behavior over the three-year period, created a situation in which the conclusion of the factfinder is particularly to be respected. There was surely enough to go to the jury. If the jury believed that there was a pattern and that appellant's behavior was wilfull, the fact of the smaller amount of deficiency in 1963 is unimportant, as long as it was found by them and can reasonably be seen as substantial.

["Two Inforences' Charge]

The third contention is that the court erred in not charging the jury with the "two-inferences" charge. That is, essentially, that when facts and circumstances proven are susceptible of two inferences, one pointing to innocence and the other to guilt, the jury must adopt the one pointing to innocence. This charge was common many years ago, but the Supreme Court, in Holland v. United States [54-2 USTC ¶9714], 348 U. S. 121 (1954), held that it was not essential for the trial court to charge that in order to justify a conviction, where the evidence is circumstantial, it must be such as to exclude every reasonable hypothesis other than guilt, or in other words, that if an inference of innocence is possible, it must be believed. Although some circuits have persisted in using or approving this charge, this circuit has not departed from Holland . ⁴ There was no error in the court's refusal so to charge. The judgment is affirmed.

¹ This is a booklet sent out in the millions by the Internal Revenue Service to inform taxpayers on how to fill out their returns.

² There were two jurors who felt, on Friday afternoon, that agreement on the case would be impossible; one of them was a woman who lived 88 miles from the courthouse and was anxious for the trial to be concluded.

³ United States v. Breland, 376 F. 2d 721 (2d Cir. 1967); United States v. Acuff, 410 F. 2d 463 (6 Cir. 1969), cert. denied, 396 U. S. 830 (1969). Appellant cites some cases going the other way. However, some are earlier than the Breland case and others involve threats or crimes of violence and attendant publicity.

⁴ United States v. Tutino, 269 F. 2d 488, 490 (2d Cir. 1959); United States v. Woodner [63-2 USTC ¶9515], 317 F. 2d 649, 651 (2d Cir.), cert. denied, 375 U. S. 903 (1963); United States v. Marchisio, 344 F. 2d 653, 622 (2d Cir. 1965).

 

 

[70-2 USTC ¶9715] United States of America , Appellee v. Floyd A. Marttila, Appellant

(CA-8), U. S. Court of Appeals, 8th Circuit, No. 19,916, 434 F2d 834, 11/25/70 , Affirming unreported District Court decision

[Code Sec. 7201--Result unchanged by '69 Tax Reform Act]

Evasion or avoidance of tax: Evidence: Intent: Instructions to jury.--A jury was entitled to infer that a bookkeeper and successful businessman wilfully failed to report commissions earned on a car and truck expense account. Furthermore, the court did not err in refusing to give an instruction requested by the taxpayer to the effect that a reserve account should not have been considered as income. District Court affirmed.

Harold O. Bullis, United States Attorney, Fargo, N. Dak., for appellee. Philip Vogel, 6091/2 First Ave., N. , Fargo , N. Dak., for appellant.

Before VAN OOSTERHOUT, MEHAFFY and LAY, Circuit Judges.

MEHAFFY, Circuit Judge:

This appeal is from a judgment of the United States District Court for the District of North Dakota after jury trial finding defendant guilty on three counts of income tax evasion in violation of 26 U. S. C. §7201 for the years 1962, 1963 and 1964. Defendant was sentenced to pay a fine of $500.00 on each count and to two years' probation on each count, the probation sentences to run concurrently. This appeal challenges the sufficiency of the evidence and the refusal of the court to give a requested instruction. We affirm.

Defendant first worked for Farmers Union Oil Company at Ellendale , North Dakota as a bookkeeper and station agent. In 1942 he became manager of the company. His compensation was derived from commissions earned from the operation of a service station and from bulk deliveries. He furnished his own trucks for delivery of the products and paid the salaries of all of his employees from his commissions. He set up two accounts on his books, one a "Salary Account" and the other a "Car and Truck Expense Account." He put all the commissions earned from the service station plus fifty per cent of the commissions from the bulk deliveries into the "Salary Account." The other fifty per cent of the commissions earned from the bulk deliveries went into the "Car and Truck Expense Account." This account was set up to pay all of the operation expenses for the bulk delivery trucks. He made no accounting to the government on his tax returns for the profits he earned from this account which amounted to $7,086.01 in 1962, $8,873.19 in 1963 and $12,001.20 in 1964. Defendant was also required to set up a portion of the commissions earned as a reserve account for doubtful accounts. He reported these reserves as income on his income tax returns. Defendant's failure to report his profits from the "Car and Truck Expense Account" is the basis for his conviction.

In approaching our discussion, we are mindful of the settled rule that in a criminal case resulting from a conviction by a jury verdict we must accept as established all reasonable inferences that tend to support the action of the jury and conflicts in the evidence must be resolved in favor of the jury verdict. A number of cases in support of this rule are cited in United States v. Francisco, 410 F. 2d 1283, 1286 (8th Cir. 1969). See McKenna v. United States [56-1 USTC ¶9492], 232 F. 2d 431, 435-436 (8th Cir. 1956), and cases therein cited to the same effect.

It is strongly urged that the government did not prove that defendant acted "wilfully" to evade income taxes, but willfulness and fraudulent purpose are questions for the jury. Fowler v. United States [65-2 USTC ¶9723], 352 F. 2d 100, 110-111 (8th Cir. 1965), cert. denied, 383 U. S. 907 (1966). Cf. United States v. Griffin [70-2 USTC ¶9655], -- F. 2d -- (8th Cir. #20,054 Oct. 19, 1970 ).

In Gaunt v. United States [50-2 USTC ¶9412], 184 F. 2d 284 (1st Cir. 1950), cert. denied, 340 U. S. 917 (1951), the court stated that, while willfulness is a question of fact, direct proof thereof is not essential, that it may be inferred from acts and circumstances and that inferences may be drawn from a combination of such. In Gaunt the court stated that the jury could have found that defendant was an intelligent, astute and successful businessman. In the present case, the government urges by analogy that defendant was an astute businessman, having built Farmers Union Oil Company of Ellendale into a substantial business. Although he had a bookkeeper in the business, the bookkeeping system was under his control and he made the allocation of commissions earned to the "Salary Account" and "Car and Truck Expense Account." He admitted that he realized a profit on the "Car and Truck Expense Account" in the year 1964. He did not report the commissions he earned for the "Car and Truck Expense Account" on Form 1099 even though he was familiar with the form and had prepared such forms for patrons of the Farmers Union Oil Company.

In Fowler, supra, it was argued that defendants there had only third and eighth grade educations and were not capable of forming the requisite intent to evade taxes. This court pointed this out as obviously fallacious reasoning since the defendants in Fowler were intelligent enough to operate a series of successful businesses. Thus, the court stated that they could certainly plan to evade tax obligations and that one's capacity is measured by more than just his formal education. In this case, defendant Marttila was a college graduate with a minor in commerce including some accounting, a bookkeeper and a successful businessman, and for a period of more than twenty years consistently failed to report the commissions he earned on the "Car and Truck Expense Account."

[Jury Was Fully Instructed]

Defendant points out that the trial judge gave the following instruction:

"The attempt to evade or defeat the tax must be a willful attempt; that is to say, it must be an attempt made voluntarily and intentionally, and with the specific intent to keep from the Government a tax imposed by the income tax laws, which it was the legal duty of the accused to pay to the Government, and which the accused then and there knew it was his legal duty to pay.

"In other words, the attempt must be made with the bad purpose of willfully seeking to defraud the Government of some substantial amount of income tax lawfully due from the accused."

Neither party made exception to this instruction and it is stated by counsel for defendant in his brief that this instruction represents the law of the case and he asserts it is obvious that the jury either did not listen to the instruction, or, having listened to the instruction, failed to follow it. We do not agree. We cannot reverse a conviction on the supposition that the jury did not listen to the instruction or failed to follow it. The jury was fully instructed of the necessity on the part of the government to prove defendant's willfulness. The evidence here, in our view, was certainly sufficient to make a jury question, and we have no right under such circumstances to reject its finding.

[Taxpayer's Requested Instruction Denied]

It is next contended that the court erred in not granting defendant's requested instruction that the reserve established by the Farmers Union Oil Company should not have been considered as income in 1962, 1963 and 1964.

Defendant contends that he was reporting on a cash basis, and the government contends that while the taxpayer reported most of his income in the years in question on a cash basis he reported the reserves in question on an accrual basis. Defendant had consistently followed this practice since 1942 as it was the most advantageous for him to follow.

Defendant's method of reporting the reserves was a permissible one as Int. Rev. Code of 1954 §446(c) sets forth the permissible methods as being (1) cash receipts and disbursement method; (2) accrual method; (3) any other method permitted by this chapter; or (4) any combination of the foregoing methods permitted under regulations prescribed by the Secretary or his delegate. Under the regulations, it is recognized that no uniform method of accounting can be prescribed for all taxpayers and each taxpayer may adopt such forms as are in his judgment best suited to his needs. However, no method of accounting is acceptable unless in the opinion of the Commissioner it clearly reflects income. Treas. Reg. §1.446-1(a)(2) (1957).

The revenue agent computed defendant's profits earned on the "Car and Truck Expense Account" for the years involved under the same accounting method employed by the taxpayer in filing his original returns. In Fowler, supra, we said (352 F. 2d at 103), "the government was bound to follow appellants' method of accounting in computing taxable income." Our opinion cited United States v. Vardine [62-2 USTC ¶9624], 305 F. 2d 60, 64 (2nd Cir. 1962), and Morrison v. United States [59-2 USTC ¶9657], 270 F. 2d 1 (4th Cir. 1959), cert. denied, 361 U. S. 894 (1959). In Morrison, supra, the court said (270 F. 2d at 4):

"When the taxpayer has employed a hybrid or unauthorized accounting method, he is hardly in a position to complain when the computation employing that method is introduced to prove specific items of omitted income."

Even if deductions for reserves were allowed, defendant would still have unreported taxable income, and refusal of an instruction such as requested here, even if proper, was a very harmless error since the deductions for the reserve account were not proved in an amount sufficient to account for defendant's unreported taxable income. Compare United States v. Schenck [42-1 USTC ¶9363], 126 F. 2d 702, 708 (2nd Cir. 1942), cert. denied, 316 U. S. 705 (1942).

A number of civil tax cases are cited in each brief but a discussion of them is not necessary. We have canvassed the entire record and conclude that we are dealing here only with a question of fact which the jury resolved and we are not at liberty to change.

The judgment is affirmed.

 

 

[70-2 USTC ¶9692] United States of America , Plaintiff-Appellee v. Gerson Bacher, a/k/a George Bacher, Defendant-Appellant

(CA-5), U. S. Court of Appeals, 5th Circuit, No. 28374, 7/27/70 , Affirming unreported District Court

[Code Secs. 7201, 7202, and 7203--Result unchanged by '69 Tax Reform Act]

Crimes: Jury trial: Instructions: Judge's remarks: Opportunity for correction.--Failure to give instruction, admittedly crucial, was not reversible error where taxpayer's counsel did not take advantage of his opportunity to object. Nor was the judge's remark before the jury on the legality of the taxpayer's actions reversible error where there was an opportunity to correct the remark.

Before BROWN, Chief Judge, GOLDBERG and CLARK, Circuit Judges.

PER CURIAM:

This is an appeal in a criminal tax case. Two questions are posed: (1) May a defendant assert as error on appeal the failure to give a charge to the jury which was specifically withdrawn? (2) Is a remark by the Court in the presence of the jury that a loan which formed a part of the basis of the criminal charge was "probably illegal" so prejudicial to the defendant's substantial rights as to warrant a reversal, when an offer by the court to give any correcting instruction defendant's counsel might suggest was never accepted? We answer both questions in the negative and affirm.

[Instruction]

Defendant requested a charge to the jury that he was entitled to rely upon the advice of his accountants. The court agreed to give the charge, but it was inadvertently omitted. At the end of the charge the court asked if any requested instructions had been omitted. A recess was taken to provide both counsel an opportunity to check. After the recess and out of the presence of the jury, counsel for defendant ¹ stated on the record:

"If Your Honor, please, I will withdraw any [requests for instructions] that the Court inadvertently omitted. I am satisfied that the instructions were complete, but I have no objection to the Court not giving any that may have been inadvertently omitted."

Needless to say, the omitted instruction was very likely crucial.

It should be noted that trial counsel in the instant case was retained by defendant. Whether the withdrawal of the requested charge was the result of an error on counsel's part or was trial strategy that miscarried we do not know. In our opinion it makes no difference. Full opportunity to object was given and no objection was made. Rule 30, Fed. R. Crim. P., provides the complete answer when it states that "no party may assign as error any portion of the charge or omission therefrom unless he objects thereto before the jury retires to consider its verdict, stating distinctly the matter to which he objects and the grounds of his objection."

[Judge's Comment]

During the examination of one witness, the following colloquy was exchanged between the witness and the judge:

"THE COURT: Is it your opinion that a stockholder may take corporate money and insist it be charged to a loan account?"

THE WITNESS: Well, he borrowed the funds--

THE COURT: Does it not require the Directors to pass on those things or somebody in authority? By your method, he was not even a majority stockholder.

THE WITNESS: But there was evidence that he had repaid loans during this period, also.

THE COURT: I know, but the fact that there had been a bad practice one time does not admit it a second time. That was unusual, was it not, and probably illegal."

No objection was then made but later, after the luncheon recess defendant's counsel asked about the remark and the court offered to correct it stating "Whatever you want, Dave, you put it in writing and I will accept that." He did not move for a mistrial. He stated he would reflect on the desirability of doing anything to correct the remark but he never did avail himself of the court's offer. We believe that under the circumstances the record indicates that counsel made a strategic decision to waive the point rather than run the risk of emphasizing the remark in the minds of the jury. We do not think that the court's remark affected any substantial right of the defendant. See Rule 52, Fed. R. Crim. P. and Fitzgerald v. United States, 324 F. 2d 153 (5th Cir. 1963), cert. denied 376 U. S. 944, 84 S. Ct. 798, 11 L. Ed. 2d 768 (1964).

AFFIRMED.

¹ Defendant-appellant is represented by other counsel on this appeal.

 

 

[76-1 USTC ¶9219] United States of America , Plaintiff-Appellee v. Bernard A. Horton, Defendant-Appellant

(CA-5), U. S. Court of Appeals, 5th Circuit, No. 75-1530, 526 F2d 884, 2/5/76

[Code Secs. 446, 7203, and 7206(1)]

Criminal penalties: Fraud: Income not reported: Reconstruction of income: Bank records: Specific items: Net worth increase.--Evidence of criminal tax fraud found in defendant's total bank deposits was admissible as corroborative evidence with respect to the "omission of specific items" method of proof used by the government, and was not limited to proof under the net worth increase method. Bank deposit evidence implied that the specific-item testimony had correctly indicated the defendant's receipt of considerable unreported income. The District Court erred in refusing to instruct the jury to limit evaluation of the bank deposit evidence to corroborative credibility; but the error was harmless.

Gerald J. Gallinghouse, United States Attorney, Mary Williams Cazalas, Assistant United States Attorney, New Orleans, La., for plaintiff-appellee. George W. Reese, 1802 Broadway, New Orleans , La. , for defendant-appellant.

Before THORNBERRY, SIMPSON and MORGAN, Circuit Judges.

THORNBERRY, Circuit Judge:

Appellant Bernard Horton was convicted by a jury of willfully and knowingly subscribing false income tax returns for the years 1968, 1969, and 1970. See 26 U. S. C. §7206(1). Appellant's conviction followed from his understating on his returns for the years in question his gross receipts from the practice of law. The present appeal challenges that conviction on three grounds. We reject appellant's contentions and affirm his conviction.

In response to appellant's request pursuant to F. R. Cr. P. 7(f) for a bill of particulars, the Government stated that it intended to establish appellant's guilt by the "specific item" method of proof. Appellant now challenges the Government's later introduction--in Schedule VI and through the testimony of expert summary witness Rotolo--of evidence as to his total bank deposits in 1968, 1969, and 1970. He argues that introduction of this evidence created a fatal variance between the Government's asserted method of proof set out in the bill of particulars and the proof at trial and, more specifically, that evidence of total bank deposits is admissible only where the Government proceeds under the "net worth" theory. To be contrasted with the specific item method of proof, the net worth method hinges on a proven increase in the taxpayer's net worth during the period in question in an amount greater than that reported to IRS with the consequent implication of unreported income. See, e.g., United States v. Meriweather [71-1 USTC ¶9390], 440 F. 2d 753 (5th Cir. 1971), cert. denied, 417 U. S. 948, 94 S. Ct. 3074, 41 L. Ed. 668 (1974). The net worth method generates a circumstantial case laden with possibilities for error and is, in turn, circumscribed in its use by a number of limiting rules. See Holland v. United States [54-2 USTC ¶9714], 348 U. S. 121, 75 S. Ct. 127, 99 L. Ed. 150 (1954); Merritt v. United States [64-1 USTC ¶9226], 327 F. 2d 820 (5th Cir. 1964). For example, the Government must establish opening net worth with reasonable certainty and must investigate and show false leads furnished by the taxpayer. E.g., Holland v. United States , 348 U. S. at 135-36, 75 S. Ct. at 135; Agoranos v. United States [69-1 USTC ¶9316], 409 F. 2d 833, 835 (5th Cir. 1969); Merritt v. United States , supra at 822-23.

The specific item method is, however, direct in its operation. The usual strategy with the latter method is for the Government to produce evidence of the receipt of specific items of reportable income by the defendant that do not appear on his income tax return or appear in diminished amount. United States v. Goldstein, 56 F. R. D. 52, 55 n. 8 (D. Del. 1972); see Azcona v. United States [58-2 USTC ¶9666], 257 F. 2d 462 (5th Cir. 1958); Lloyd v. United States [55-2 USTC ¶9665], 226 F. 2d 9 (5th Cir. 1955). Appellant Horton's prosecution presents a good example of the specific item method of proof in income tax cases. Horton was a lawyer in New Orleans with an extensive criminal defense practice. Agents of IRS, working from records supplied by appellant and from records in the local court clerk's office that showed those cases in which appellant was attorney of record, derived the names of a large number of clients represented by Horton during 1968, 1969, and 1970. The agents then determined through a lengthy process of interviews the amounts paid to appellant as legal fees by those clients in the above years. Unfortunately for appellant, the amounts his clients were willing to testify to exceeded the amounts of gross receipts stated on his income tax returns. Relying on the testimony of appellant's clients, the Government successfully built its case and obtained a conviction.

We reject appellant's argument that use of evidence of total bank deposits created a fatal variance. In this appeal, as was the case at trial, the Government argues that evidence of total bank deposits was properly admissible in corroboration of the testimony of appellant's former clients as to amounts paid him in 1968, 1969, and 1970. Many of the former clients called by the Government possessed no documents or receipts to substantiate their claims of payment to appellant. The Government contends, correctly, that the evidence of total bank deposits corroborated this unsupported testimony as to the fact of payment. The corroborative feature of the bank deposits evidence proceeds apace with the implication that appellant handled and expended large sums of money, as would be expected if the specific item testimony were true. See United States v. McGuire [65-1 USTC ¶9299], 347 F. 2d 99 (6th Cir. 1965), cert. denied, 382 U. S. 826, 86 S. Ct. 59, 15 L. Ed. 2d 71 (1966); McKenna v. United States [56-1 USTC ¶9492], 232 F. 2d 431, 436-37 (8th Cir. 1956); United States v. Nunan [56-2 USTC ¶9876], 236 F. 2d 576, 588 (2d Cir. 1956), cert. denied, 353 U. S. 912, 77 S. Ct. 661, 1 L. Ed. 2d 665 (1957). For this reason, appellant's fatal variance argument is inapposite. The evidence of total bank deposits during the years in question was properly admissible as corroborative evidence in this specific item prosecution and there was no variance.

Assuming for the purposes of argument only, however, that a variance did exist between the method of proof designated in the bill of particulars and the Government's introduction of the total bank deposits evidence, appellant has still failed to demonstrate that the variance was fatal to the Government's case. The purpose of the bill of particulars is to apprise the defendant of the charges against him with sufficient precision to enable him to prepare his defense, e.g., United States v. Bearden, 423 F. 2d 805 (5th Cir. 1970), cert. denied, 400 U. S. 836, 91 S. Ct. 73, 27 L. Ed. 2d 68 (1971), and this purpose is particularly well-served in complicated income tax prosecutions like the instant one. The usual manner in which questions as to bills of particulars reach this Court is on review of a district court's denial of a defendant's request for the bill. In such cases, the standard of review is one of discretion; viz., did the district court abuse its discretion? See e.g., Buie v. United States , 420 F. 2d 1207 (5th Cir. 1969), cert. denied, 398 U. S. 932, 90 S. Ct. 1830, 26 L. Ed. 2d 97 (1970); Joseph v. United States, 343 F. 2d 755 (5th Cir. 1965), cert. denied, 382 U. S. 828, 86 S. Ct. 65, 15 L. Ed. 2d 73 (1966). In the instant situation, where a fatal variance is argued, appellant must demonstrate that he was taken by surprise by reason of the variance and that such surprise prejudiced the preparation of his defense. See United States v. Glaze, 313 F. 2d 757 (2d Cir. 1963); cf. Buie v. United States , supra. Appellant Horton has not made and cannot make the requisite demonstration. As early as the first day of trial, the Government stated and defendant acknowledged in their respective opening remarks that bank statements and other documents connected with four basic bank accounts used by appellant and his wife would be introduced and analyzed. First Supplemental Record on Appeal, Vol. I at 7, 15. Appellant cannot argue that the evidence of total bank deposits unreasonably impeded the adequate preparation of his defense by reason of surprise.

Appellant also challenges the refusal of the district court to give the jury an instruction limiting its consideration of the total bank deposits evidence to corroboration of the specific item testimony. The district court relied on Azcona v. United States , supra, to support its denial of the requested instruction. This was error. The Azcona opinion dealt with a district court's denial of an additional bill of particulars in a specific item prosecution; it did not address the problem of a limiting instruction on corroborative evidence. We hold that the district court erred in refusing the requested instruction. However, we also find the error to be harmless under the facts of the instant case. The evidence against appellant was overwhelming, and the bank deposits evidence was but an insignificant portion of the Government's total case. Moreover, the colloquy that occurred between the Government, the defense attorney, and the bench in the presence of the jury when defense counsel objected to the introduction of this evidence served as the functional equivalent of a limiting instruction.

GOVERNMENT: Your Honor, we tender this schedule into evidence as corroborative evidence, not to be added to Exhibits 1 through 5 previously admitted, but as separate corroborative evidence to show the availability of cash as testified to by witnesses who have testified previously.

DEFENSE: I object to the introduction of all of this evidence as far as Schedule VI is concerned, Your Honor.

THE COURT: Objection overruled; let it be admitted.

GOVERNMENT:

Q. Would you give us the total amounts shown on your schedules for the period we are concerned with, Mr. Rotolo?

A. In 1968 the total deposits amounted to $31,511.80; in 1969, $52,499.25; in 1970, $43,835.99.

Q. Now, did you prepare another schedule in connection with all the preceding schedules?

A. Yes, sir. That's G-VII, I believe.

Q. Would you identify that for us please?

THE COURT: Let me ask you first: These amounts the witness has mentioned as being total deposits, is it the government's contention that they represent the gross receipts on the books?

GOVERNMENT: No, Your Honor. Those figures are only in corroboration of the witnesses who have testified.

THE COURT: In 1970, for example, the understatement alleged here was $9,199.

THE WITNESS: That's inclusive of all the sources we used, Your Honor.

THE COURT: What?

GOVERNMENT: In other words, Your Honor, we have introduced evidence of four types of sources to indicate that $9,000 amount.

One of the important sources of that was the testimony of witnesses, who did not have receipts any longer that they paid, and we have intended to show, by this corroborative evidence, that there were bank deposits in this year of amounts which will justify belief in those witnesses that what they paid was received and deposited.

DEFENSE: And I have objected on the grounds that I previously stated, Your Honor.

THE COURT: I just don't want the jury to get the impression that this is an addition to the $9,000 already mentioned.

GOVERNMENT: Oh, no, sir.

THE COURT: All right; go ahead.

DEFENSE: Your Honor, also because of my previous objection to Government Exhibit VI, on the bank deposits, I also want to interpose an objection to Exhibit VII, where these figures are carried over in an attempt to summarize the figures, which I don't think is proper.

THE COURT: Objection overruled. Go ahead.

Second Supplemental Record on Appeal, Vol. I at 1062-64. Accordingly, the district court's refusal to give the limiting instruction was harmless error. See Kotteakos v. United States , 328 U. S. 750, 66 S. Ct. 1239, 90 L. Ed. 1557 (1946); United States v. Harbolt, 491 F. 2d 78 (5th Cir. 1974).

As a second point of error, appellant attacks the Government's use of prior statements by appellant's clients, given to IRS agents at the time of their investigation, to refresh the memories of those witnesses at the time of trial. Appellant's contention is answered by this Court's opinion in Esperti v. United States, 406 F. 2d 148, 150-51 (5th Cir.), cert. denied, Farinella v. United States , 394 U. S. 1000, 89 S. Ct. 1591, 22 L. Ed. 2d 777 (1969).

It is hornbook law that any writing may be used to refresh the recollection of a witness. See Wigmore, Evidence §758. This is true even where the document itself would be inadmissible as evidence. Williams v. United States , 7 Cir. 1966, 365 F. 2d 21. Caution must be exercised to insure that the document is actually being used for purposes of refreshing and not for purposes of putting words into the mouth of the witness. Such, however, is within the discretion of the trial judge.

See Redfearn v. United States , 375 F. 2d 767 (5th Cir. 1967).

It must be borne in mind that the reliability and credibility of witnesses is a matter for the trier of fact--here, the jury. See Thompson v. United States, 342 F. 2d 137 (5th Cir.), cert. denied, 381 U. S. 926, 85 S. Ct. 1560, 14 L. Ed. 2d 685 (1965). Moreover, where the issue, as here, is one of present recollection revived, the doctrine of contemporaneity has little application. See Putnam v. United States , 162 U. S. 687, 16 S. Ct. 923, 40 L. Ed. 1118 (1895). We perceive no abuse of discretion in the district court's allowing the Government to refresh the witnesses' memories with their prior statements to IRS agents.

As a final point of error, appellant challenges that portion of the Plan for Random Selection of Grand and Petit Jurors for the Eastern District of Louisiana which excuses operators of "one-man" businesses from jury duty upon request. We reject appellant's argument. In the first instance, the exclusion of sole proprietors is not automatic. On the contrary, it is necessary for such persons to request that they be excused from jury duty. This element of choice makes the present case analogous to that before the Court in Camp v. United States, 413 F. 2d 419 (5th Cir. 1969), where the use of voter registration lists to compile a roster of potential jurors was approved. As the Court stated in Camp, persons choosing not to register to vote do not constitute a cognizable class capable of systematic exclusion from juries. 413 F. 2d at 421. Likewise, sole proprietors requesting to be excused from juries in the Eastern District of Louisiana do not constitute a cognizable class systematically excluded from petit juries. See Labat v. Bennet, 365 F. 2d 698 (5th Cir. 1966); cf. Taylor v. Louisiana , 419 U. S. 522, 95 S. Ct. 692, 42 L. Ed. 2d 690 (1975); Curry v. Estelle, 524 F. 2d 981 (5th Cir. 1975). The categorical exclusion of certain occupational groups from jury duty is permissible on the "bona fide ground that it [is] for the good of the community that their regular work should not be interrupted." Government of the Canal Zone v. Scott, 502 F. 2d 566, 569 (5th Cir. 1974), quoting Mr. Justice Holmes in Rawlins v. Georgia, 201 U. S. 638, 640, 26 S. Ct. 560, 561, 50 L. Ed. 899 (1906). The exclusion of sole proprietors upon request meets that standard.

The judgment of conviction in the instant case is in all respects affirmed.

 

 

 

[83-2 USTC ¶9459] United States of America , Plaintiff-Appellee v. Henry J. Kalita, Defendant-Appellant

(CA-7), U. S. Court of Appeals, 7th Circuit, No. 82-1258, 7/8/83 , (712 F2d 1122), Affirming an unreported decision of the District Court

[Code Sec. 7203]

Crimes: Failure to file returns: Evidence: Jury instructions.--A taxpayer's conviction for his wilful failure to file income tax returns for the years 1975--1978 was affirmed. The evidence was sufficient to show that: the taxpayer had earned enough gross income to require him to file returns for the years in question; the taxpayer was not denied the right to effective representation of counsel; the instructions to the jury regarding unanimity were proper; and evidence of the taxpayer's failure to file returns for years subsequent to the years for which he was indicted for his wilful failure to file was not presented to give the jury the impression that the taxpayer was a tax evader, but was relevant on the issue of wilfulness and properly admitted.

Dan K. Webb, United States Attorney, Stephen R. Olson, Assistant United States Attorney, Chicago, Illinois 60604, for plaintiff-appellee. Paul M. Brayman, 134 N. LaSalle Street , Chicago , Illinois 60602 , for defendant-appellant.

Before PELL and POSNER, Circuit Judges, and JAMESON, Senior District Judge. ^*

JAMESON, District Judge.

Henry J. Kalita was charged in a four count indictment with wilfully failing to file income tax returns for the years 1975, 1976, 1977, and 1978, in violation of 26 U. S. C. §7203. In a jury trial he was found guilty on all counts and has appealed his conviction. ¹ We affirm.

I. Factual Background

A. Returns Filed. After filing proper tax returns for several years, Kalita in 1976 submitted a return for 1975 showing Federal Income Tax withheld in the amount of $350 and claiming a "refund" in that amount. He objected on Fourth and Fifth Amendment grounds to completing the balance of the 1040 Form. Attached to the Form was a "Petition and Protest" and numerous other documents, totaling over 90 pages, but containing no income information. Similar returns were filed in 1976, 1977, and 1978, except for those years the returns did not show any amount withheld. ² In cach return in place of any amounts appears the notation "Object 4th & 5th Amends." or "Object self-incrimination." Appellant states in his brief that in each return "he asserted constitutional privileges in refusing to answer questions and provide income information." ³

Following the filing of each return, Kalita received a notice from the Internal Revenue Service that the return filed was not acceptable, did not contain information required by law, and did not comply with the Internal Revenue Code requirements.

B. Agreement with Pepperidge Farm. On March 29, 1971 , Kalita entered into a Consignment Agreement with Pepperidge Farm Incorporation, a manufacturer and distributor of bakery products. Under this agreement Kalita was given exclusive franchise territory in the Chicago area within which to sell and distribute Pepperidge Farm products. Provisions of the contract relevant to this case include the following:

2. QUANTITES CONSIGNED. Bakery will consign and deliver to Consignee and Consignee will accept sufficient quantities of Consigned Products to maintain at all times an adequate and fresh supply thereof in all retail stores in the territory which request such products and whose accounts are not demonstrably unprofitable; provided, however, that Bakery reserves the right to allocate its products as nearly proportionately as practicable if the overall demands for its products exceeds its production. Consignee shall hold and care for all Consigned Products as the sole and exclusive property of Bakery. Title to all Consigned Products shall be vested in, subject to, and under the control of Bakery until sold by Consignee.

3. PROCEEDS AND RECORDS OF SALES. The Consignee will pay promptly each week on the day specified by the Bakery for all Consigned Products sold by him during the preceding week. If any chain store organization refuses to pay or to permit its store managers to pay the Consignee directly for Consigned Products distributed by him and, instead, requires the Bakery to submit a consolidated bill to a central or district office of such chain, the Consignee shall be entitled to deliver to the Bakery for credit to his account all charge tickets signed by such store managers; provided, however, that the Bakery may in its discretion (a) refuse such credit on any charge ticket not received by the Bakery within the time prescribed in its published billing schedule then in effect and (b) debit the Consignee's account with any charge ticket which it is unable to collect within a reasonable time. Consignee guarantees the payment of all bills and accounts for Consigned Products sold by Consignee under this agreement. Consignee will keep such records of Consigned Products received and sales made as Bakery may from time to time request; Bakery may inspect such records and Consigned Products at such times as Bakery may select. . . .

8. CHAIN STORE ACCOUNTS. If any chain store organization requires that authorization for the distribution of Consigned Products to the chain's retail stores in the territory shall be obtained through a central or district office located outside of the territory, or only in conjunction with the distribution of Consigned Products to its retail stores in other territories, the Bakery will co-operate with the Consignee in procuring such authorization. If any chain store organization refuses to pay or to permit its store managers to pay any Consignee directly for Consigned Products and, instead, requires the submission of a consolidated bill to a central or district office of the chain, the Bakery will handle the billing and the collections for all such products, subject to the terms of Paragraph 3.

9. PROHIBITED SALES AND DELIVERIES. The Consignee will not sell or deliver any Consigned Products directly to consumers or to any other purchasers except retail stores within the territory and such hotels, restaurants, clubs and similar organizations within the territory as the Bakery may authorize in writing. Also, the Consignee will not, without like authorization, make deliveries of Consigned Products to any chain store organization via a central or district warehouse or in any manner other than directly to its retail stores. If, despite the best efforts of the Consignee and the Bakery to obtain permission from any chain to make deliveries directly to its retail stores, such chain refuses to handle Consigned Products except via warehouse deliveries, the Bakery shall have the right in its discretion to sell and deliver its products directly to such chain for its own account via warehouse deliveries as long as such refusal remains in effect.

15. INDEPENDENT BUSINESSMAN. The Consignee is a self-employed independent businessman, not an agent or employee of the Bakery, and has no authority other than to sell products consigned to him hereunder, express or implied, to do or perform any act or thing or to make any warranty or representation or promise or commitment of any character which will be binding upon the Bakery or for which it will be responsible, and he will refrain from any conduct inconsistent with the terms of this paragraph.

II. Proceedings in District Court

A. Testimony of John Silk. John Silk, Manager of Sales Accounting for Pepperidge Farm for the preceding 16 years, testified at trial regarding the consignment agreement. He stated that basically a distributor consignee such as Kalita sells two ways: (1) to what Pepperidge Farm considers its customers, chain stores and commissaries; and (2) to his other retail customers, which are "Ma and Pa stores." Pepperidge Farm would ship to the consignee (also known as franchisee or distributor) certain products for which the consignee had an obligation to service Pepperidge Farm customers with the products on hand. He also used his inventory to service his own accounts at other retail stores.

Kalita, as with any consignee, would be billed for the products on an inventory depletion system. Pepperidge Farm issued pre-printed tickets used to record the merchandise a consignee delivered at a chain store. One copy of the ticket was left with the store, one was sent to Pepperidge Farm, and one was retained by the consignee. The consignee was given credit for these sales against the money he owed Pepperidge Farm for the products. The consignee would be paid a commission on the chain store and commissary accounts. With respect to these accounts, Pepperidge Farm assumed the responsibility for billing and collection of payments and set prices for its products. The consignee was also allowed to establish his own accounts, and Pepperidge Farm had no knowledge of these customers or the prices charged them.

Silk testified that for 1975 Kalita received compensation or "an approximate profit" somewhere between 19% and 23% on the consignee's cost of products sold to chain stores. The amount of money Kalita made servicing his own retail business was unknown to Silk.

During 1975 Pepperidge Farm used a three-part document called a "Notification of Payment" form, also referred to by Silk as a "distributor invoice". On this form was recorded on a weekly basis the products for which a consignee was accountable and the chain store tickets for which he was given credit. The form also provided entries the consignee used to settle his accounts with Pepperidge Farm.

The Government offered in evidence all of the weekly forms for 1975 which Silk could locate (a few were missing). At the bottom of each form was an entry "Net Per Tickets", showing the total amount of product delivered by a consignee to a chain store and total amount for which the consignee was billed for a particular week. Silk also produced the weekly forms for the period January-July, 1976. Kalita's share during this period was also between 19% and 23% of chain store sales.

In August, 1976, Pepperidge Farm changed its billing system. Among the changes were the payment of a fixed 20% commission for delivering products to Pepperidge Farm customers and a recasting of the "distributor invoice" to a "consigned inventory recap." The new form also included the total of all chain store tickets turned into Pepperidge Farm under the caption "total chain credits" (previously "Net Per Tickets") and specifically set forth the amount of commission earned under the caption "Payable Amount." The weekly inventory recap forms for the periods August-September 1976 and all of 1977 and 1978 were received in evidence as Government exhibits. The new form also set out the calculation showing inventory for which Kalita was responsible, less his chain credits and commissions.

Although Kalita earned commissions at the fixed rate of 20% of the chain store sales, he did not always receive a check for the amount earned. If the sales to chain stores exceeded 80% of his sales for a week, he was issued a check. If his chain store sales were less than 80% of the total sales, Kalita would owe money to Pepperidge Farm. His commissions were used to offset the money owed to Pepperidge Farm for products which were sold to his own accounts.

Silk testified further that in 1976 Pepperidge Farm began to issue 1099 Forms, a form required by the Internal Revenue Service for commissions paid to a third party in excess of $500. In preparing these forms, Pepperidge Farm totaled each year's commissions, as well as some miscellaneous allowances for transportation and postage. The amounts shown on the 1099 Forms were determined by calculating the total chain store sales and crediting the distributor consignee with 20% of the net. The forms issued to Kalita for the years 1976, 1977 and 1978, which were received in evidence as Government exhibits, showed under "Commissions and fees to non-employees" the amounts of $13,215.79; $31,340.37; and $38,443.22 respectively. These amounts represented the total of the amounts for which Kalita was given credit on his weekly consignment recaps. Copies were sent by Pepperidge Farm to Kalita.

B. Testimony of Lucille Nash. Lucille Nash, a revenue agent with the Internal Revenue Service, testified with respect to computations of Kalita's gross income which she had made, based on the documents received in evidence and Silk's testimony.

Based on the 1040 Form Kalita submitted for 1975, Nash determined that Kalita was single and would have been required to file an income tax return if his gross income exceeded $2,350. Using Pepperidge Farm's weekly invoice sheets for 1975, she added all the "net amount per ticket" figures and multiplied by both 19% and 23%. She arrived at commission incomes for Kalita of $14,991.35 and $18,147.40 respectively.

In 1976 Nash again determined that Kalita was single and was required to file an income tax return if his gross income exceeded $2,450. Using the weekly invoice sheets, she totaled the "net per ticket" figures for the period January through July, 1976, multiplied by 19% and 23%, which resulted in commission incomes for this period of $13,194.81 and $15,972.66. Relying on the 1099 Form for the balance of 1976, she arrived at a total commission income for 1976 between $26,410.60 and $28,435.40.

For 1977 the amount of gross income which necessitated filing an income tax return was $2,950. The 1099 Form showed commission income of $31,430.37. Several weekly recap sheets for 1977 were missing, but Nash's calculations were close to those appearing on the 1099 Form. Again, based on the assumption that Kalita was single, he was required to file a return for 1978 if his gross income exceeded $2,950. The amount of commissions reflected on the 1099 Form for 1978 was $38,443.22.

Nash explained the difference between gross receipts and gross income, stating that for businesses gross income is computed by subtracting the cost of goods sold from gross receipts. She testified that gross income includes commissions and other income from businesses. She also testified that there was no information on any of the returns filed by Kalita for the years 1975, 1976, 1977 and 1978 from which a tax could be computed.

On cross-examination, Nash testified that if Kalita were an "independent distributor simply purchasing at a 20 per cent discount," there was nothing in the Pepperidge Farm documents reflecting his gross income. She said that if the figures she had given were gross receipts and not gross income, they would be meaningless in terms of whether Kalita was required to file.

C. Motions for Acquittal. At the close of the Government's case, the defendant made a motion for a directed verdict of acquittal on the ground, among other things, that the Government had not proved any "gross income" for the years in question. This motion was denied, as was a similar motion at the close of all the evidence.

III. Contentions on Appeal

Appellant contends that (1) the district court erred in denying his motions for a directed verdict in that the Government failed to prove that he had earned any gross income for the tax years in question; (2) he was denied due process of law and the right to effective representation of counsel by being represented inadequately at trial; (3) the court erred in telling the jury that they had to reach a unanimous verdict and by refusing to give defendant's offered instruction; and (4) the court erred in admitting IRS records showing that appellant filed no income tax returns for 1979 and 1980.

IV. Proof of Gross Income

Was the evidence sufficient to prove that Kalita earned enough gross income to require him to file tax returns for the years in question?

As noted above, Kalita filed proper tax returns for several years prior to 1975. During the years he operated under the Pepperidge Farm agreement, his initial 1040 returns showed the following:

1971: "Business Income"                 $ 8,355.74

(From "Net Profit", Schedule C)

"Adjusted Gross Income"                   4,972.39

1972: "Business Income"                 $10,015.87

(From "Net Profit", Schedule C)

"Adjusted Gross Income"                   9,441.97

1973: "Business Income"                 $10,909.50

(From "Net Profit", Schedule C)

"Adjusted Gross Income"                   9,910.00

1974: "Business Income"                  $3,147.70

(From "Net Profit", Schedule C)

"Adjusted Gross Income"                   2,952.74

 

In 1977, however, Kalita filed amended returns showing "adjusted gross income" in the following amounts: 1971, $11.00; 1972, $14.50; 1973, $14.00; and 1974, $22.00. Amended returns were also filed for 1975, showing an adjusted gross income of $8.00; and for 1976, an adjusted gross income of $11.50. There was a notation on each of these returns that the amounts shown were in "lawful (gold and silver) Dollars", with certain exceptions, and numerous comments, including objections under the Fourth and Fifth Amendments. Apparently similar amended returns were not filed for 1977 and 1978; and no returns were filed for 1979 and 1980.

In the return for 1976, the line for "adjusted gross income" was followed by a double asterisk ("** "). At the bottom of the return was this notation (among others):

** This figure means specific objection is made under the 4th and 5th amendments to the constitution of these United States of America --To the question as to Federal Reserve Notes, and that similar objection is made to the question under the 1st, 4th, 5th, 7th, 8th, 9th, 10th, 13th, 14th, and 16th Amendments.

The 1977 and 1978 returns contain the notation "Object, self incrimination".

In all of the 1040 Forms filed by Kalita for the years 1971 through 1978, together with numerous letters, copies of court decisions, essays, and other documents, asserting various constitutional and political theories, he did not at anytime contend that he did not have sufficient gross income to require the filing of a proper return. The contention that the Government had failed to show any gross income for the tax years in question was first asserted at his trial.

In contending that the Government failed to prove that appellant earned any gross income for the tax years in question, appellant argues that he was an "independent businessman" and not a "commissioned salesman," and that the credit or profit of 19% to 23% received for 1975 and 20% for the remaining years was a "discount" rather than a "commission". Appellant offered no evidence with respect to his earnings, but relied solely on the alleged failure of proof.

In determining whether there was sufficient proof of gross income for the tax years in question, we emphasize that Kalita did in fact file "returns", without income information, for each of the years in question (and amended returns for three of those years), from which it may reasonably be assumed that he recognized that his "gross income" was sufficient to require him to file a return. In addition he had filed returns for the three prior years he operated under the consignment agreement and in each of those years there was a tax due, which he paid.

We agree with the Government that there is nothing inherently inconsistent in an independent business man earning commissions reportable on Form 1099. The term "self-employed independent businessman" in paragraph 15 of the agreement, quoted above, simply makes it clear that Kalita was not an agent or employee of Pepperidge Farm and had no authority to perform any act or make any commitment "which will be binding upon the Bakery." Moreover, paragraph 15 must be construed with other provisions of the consignment agreement. For example, under paragraph 2, title to all consigned products is vested in and "under control of Bakery until sold by Consignee." Under paragraph 3, the consignee must keep such records as the Bakery requests, and Pepperidge Farm may take "physical inventory" of its products "whenever and as often as Bakery desires such to be advisable." Paragraph 8 contains special provisions for "chain store accounts," and paragraph 9 prohibits sales and deliveries to any purchasers "except retail stores" and "such hotels, restaurants, clubs and similar organizations . . . as Bakery may authorize in writing."

The fact that Kalita was described in the Consignment Agreement as a "self-employed business man" and "not an agent or employee of the Bakery" does not preclude the payment of "commissions", which must be reported on Form 1099 if they exceed $500 and which are a part of the "gross income" to be shown in Form 1040. It is clear from Silk's testimony that the parties to the agreement considered the payments commissions rather than discounts.

On the basis of the facts set forth above and the testimony of witnesses Silk and Nash the jury could properly find that Kalita had sufficient gross income for each of the years in question to require him to file a tax return and could find him guilty on each count beyond a reasonable doubt. The district court did not err in denying Kalita's motions for a directed verdict.

V. Representation of Counsel

Appellant contends that he was denied due process of law and the right to effective representation of counsel by being inadequately represented at trial. In United States ex rel. Williams v. Twomey, 510 F. 2d 634, 641 (7 Cir. 1975), cert. denied, 423 U. S. 876 (1975), this court held that the Sixth Amendment "guarantees a criminal defendant legal assistance which meets a minimum standard of professional representation." In determining whether that standard is met, "the court must look at the totality of circumstances in the particular case." United States v. Phillips, 640 F. 2d 87, 92 (7 Cir. 1981), cert. denied, 451 U. S. 991 (1981). We are satisfied from our examination of the record that Kalita's trial counsel more than met the minimum standards of professional competence set forth in Twomey and Phillips and that Kalita was not denied effective representation.

Kalita represented himself from March 17, 1981 until July 12, 1981 , when Michael G. Parham filed his appearance as co-counsel. Kalita played an active role in his own defense both before and after retaining Parham. He filed a "Petition for Writ of Habeas Corpus" on March 24, 1981 , and a Motion to Dismiss on April 24. On September 21, 1981 , he filed a "Notice of Co Counsel and Personal Jurisdiction," giving "notice to this court, that Mr. Michael Parham has been hired as co counsel on my behalf." ⁴ Kalita filed two motions on December 8, 1981 --one entitled "Motion to Dismiss Subpoena Duces Tecum, Pursuant to Rule 16(d)(1)", and the other entitled "Motion to Dismiss for Lack of Jurisdiction and for Court to Take Judicial Notice Pursuant to Rule 201 d Federal Rules of Evidence." We find no evidence in the record that counsel at any time took any action contrary to Kalita's expressed desires.

Kalita argues on appeal that his counsel was not adequately prepared for trial, noting that although he had six months to prepare, he filed a motion for a continuance on December 11, 1981 , four days before the case was set for trial. The motion was denied. On December 15, the date the case was set for trial, counsel informed the court that he had been engaged in a number of other trials until the day before and had not had adequate time to prepare this case for trial. A continuance was granted to December 17.

Appellant cites as perhaps "the first signal that Mr. Parham was unprepared" the fact that he deferred his opening statement until the close of the Government's case. Considering the nature of the case and in particular the nature of Kalita's defense, counsel could understandably desire to hear the Government's evidence before committing his client to a specific position before the jury.

Appellant relies upon isolated comments made by Mr. Parham including a statement to the court that he was "not a contract lawyer" and "would certainly like some time to further look into this with another attorney who can advise me in this matter." From our examination of the entire record, however, including in particular Parham's cross-examination of the Government witnesses, his argument on the two motions for a directed verdict of acquittal, his opening statement to the jury, his offered instructions, and his argument to the jury, we are satisfied that Kalita was adequately represented. It is significant also that counsel on appeal have adopted trial counsel's "gross income" theory and also rely upon trial counsel's objection to one of the instructions given by the court.

VI. Instructions on Unanimous Verdict

Appellant argues that the court erred in telling the jury at the beginning of the trial:

Your function is to find the facts in the case from the evidence, and then to apply the law which I give to you to those facts, and reach a verdict, which is unanimous. You have to have a unanimous verdict in this Court, either for or against guilt.

Appellant suggests that the error could have been "somewhat cured" by giving his offered Instruction No. 9, which stated in part that

. . . you are not under any pressure to reach the opinion of another juror in order to reach a verdict. If you are personally convinced that the evidence shows what you believe it to show, then by all means, stick to your convictions regardless of the opinion of your fellow jurors. There is no compulsion to bring in a verdict merely for the sake of such verdict.

In its charge to the jury at the close of the trial, the court gave the standard instruction on jury unanimity approved in this circuit which reads:

The verdict must represent the considered judgment of each juror. Your verdict, whether it be guilty or not guilty, must be unanimous on each count.

You should make every reasonable effort to reach a verdict. In doing so, you should consult with one another, express your own views, and listen to the opinions of your fellow jurors. Discuss your differences with an open mind. Do not hesitate to reexamine your own views and change your opinion if you come to believe it is wrong. But do not surrender your honest beliefs about the weight or effective [sic] evidence solely because of the opinions of your fellow jurors or for the purpose of returning a unanimous verdict.

The twelve of you should give fair and equal consideration to all the evidence and deliberate with the goal of reaching an agreement which is consistent with the individual judgment of each juror.

This instruction, at the close of the trial (and which the jury was permitted to take to the jury room) made it clear that the jury should "make every reasonable effort to reach a verdict," but that the jurors should not surrender "their honest beliefs" solely "for the purpose of returning a unanimous verdict." We cannot agree that the instructions as a whole had any coercive effect on the jury.

VII. Evidence that Appellant Filed no Returns for 1979 and 1980

Finally, appellant contends that the court erred in admitting, over his objection, evidence that he did not file income tax returns for 1979 and 1980. Appellant argues that the only reason for presenting this evidence was to create the impression that he is a tax evader and inflame the jury to return a guilty verdict.

The Government responds that the failure to file for subsequent years was highly probative of Kalita's wilfulness in failing to file and that the Government at no time argued or suggested that Kalita was a tax evader. The evidence was admitted as a part of the testimony of an IRS agent that Kalita had been advised by letter each year in which he filed his protest returns that the returns were not acceptable and did not comply with the Internal Revenue Code. Notwithstanding there letters Kalita continued to either file protest returns or no returns at all.

Moreover, the Government argues that when this evidence was admitted, it did not know whether the defendant would call witnesses, and if so, who they would be or what they would testify. Kalita did not take the stand himself, but two of his three witnesses, a paralegal friend and the pastor of the Church of Christian Liberty and Academy of Prospect Heights, of which Kalita had been a member since 1975, testified regarding Kalita's involvement in the "tax movement". They testified that Kalita enjoyed a good reputation for truth and veracity and related various conversations with Kalita. The pastor also testified, among other things, about the church's instructions regarding taxation, his counseling of parishioners, and Kalita's understanding of the history of the income tax. In addition to contending that there was no proof of "gross income" counsel relied heavily on the testimony of these witnesses in arguing Kalita's state of mind and motivation in his argument to the jury. ⁵

In holding that evidence of failure to file returns for prior and subsequent years was properly admitted, this court in United States v. Stout [79-2 USTC ¶9461], 601 F. 2d 325, 329 (7 Cir. 1979), cert. denied, 444 U. S. 979 (1979), said in part:

This evidence supports a finding that the defendant knew that he was required to file returns and that therefore when he failed to file them, he did so willfully.

We have often approved the admission of such evidence. United States v. Farris [75-1 USTC ¶9497], 517 F. 2d 226, 229 (7th Cir. 1975), cert. denied, 423 U. S. 892, 96 S. Ct. 189, 46 L. Ed. 2d 123 (1975); United States v. McCobe [69-2 USTC 9622], 416 F. 2d 957, 958 (7th Cir. 1969). See also, F. R. Evid. 404(b).

Here too the failure to file returns for 1979 and 1980 was relevant on the issue of wilfulness.

VIII. Conclusion

We find no reversible error and affirm the judgment of conviction on each count.

^* Hon. William J. Jameson of the District of Montana, sitting by designation.

¹ Kalita was sentenced to one year imprisonment on Court One and to three consecutive one-year periods of probation on the remaining counts, to be served consecutively to the imprisonment.

² Attached to the 1976 return was an affidavit reciting, inter alia, that affiant had "received no income in lawful money since March 18, 19 68 ."

³ As set forth later in this opinion, in 1977 Kalita filed amended returns for the years 1969 through 1976, but did not furnish any income information.

⁴ Kalita stated in this notice Judge McGarr had stated that Mr. Parham could not be Kalita's co-counsel, but had to be his counsel and that was "something which I must challenge. I am the person who hired Mr. Parham as my co-counsel. I have paid and continue to all costs and expenses. Mr. Parham has agreed to act as my advisor and argue any and all motions which I may think are required."

⁵ It is true that appellant did not rely on the testimony of the defense witnesses on this appeal. Rather his opening brief states that, "The defense presented three witnesses, whose testimony has no significance on the issues raised on appeal."

 

 

[83-1 USTC ¶9233] United States of America , Appellee v. Frank J. Hecht, Appellant.

(CA-8), U. S. Court of Appeals, 8th Circuit, No. 82-1842, 705 F2d 976, 3/4/83 , Affirming an unreported District Court decision

[Code Sec. 7201]

Crimes: Attempt to evade tax: Trial errors alleged.--The taxpayer's conviction for attempting willfully to evade or defeat corporate income tax using a disguised accounting system was affirmed. The evidence was sufficient to support the conviction and miscellaneous claims of trial error were rejected. Also the court did not err in failing to use requested instructions and those given were not erroneous or coercive.

James M. Rosenbaum, United States Attorney, Thorwald Anderson, Jr., Assistant United States Attorney, Minneapolis, Minn. 55401, for appellee. Rob ert J. Sheran, Joseph G. Kohler, Lindquist & Vennum, 80 South Eighth Street, Minneapolis, Minn. 55402, for appellant.

Before HEANEY, GIBSON and FAGG, Circuit Judges.

[Opinion]

FAGG, Circuit Judge:

Frank J. Hecht appeals from his jury conviction under 26 U. S. C. §7201 for attempting willfully to evade or defeat corporate income tax for the year 1978. He was acquitted by the jury on the same charge for calendar years 1975, 1976 and 1977. In this appeal Hecht attacks the sufficiency of the evidence to support his conviction. He also contends that other errors entitle him to a new trial. We reject his arguments and affirm.

I. To sustain a §7201 conviction for tax evasion, it must be shown that the defendant attempted willfully to evade the tax, that there was a tax deficiency, and that the defendant committed some affirmative act to that end. Sansone v. United States [65-1 USTC ¶9307], 380 U. S. 343, 351 (1965). Since Hecht challenges the sufficiency of the evidence to support his conviction for calendar year 1978 we will summarize the evidence, viewing it as we must in the light most favorable to the government. United States v. Swarek, 656 F. 2d 331, 333 (8th Cir.), cert. denied, 454 U. S. 1034 (1981).

Valley News Corporation is a company which distributes magazines and paperback books to retail outlets. At the time of his conviction Hecht had been its president for more than 30 years. The company was on a calender year reporting basis for the tax years in question. The charges focus upon certain end of the year accounting practices undertaken by the company at the direction of Hecht.

The first practice involved the reporting of income. For the calendar years in question a portion of the receipts received by the company during the months of November and December were placed in a safe until January of the next calendar year, and the receipts were then deposited in a company bank account and included as income in the year of deposit. For the purpose of disguising this practice the date of deposit instead of the date of receipt was entered in the cash receipts journal. For calendar year 1978 receipts in the amount of $528,503 were held for deposit in January 1979.

The second practice involved the deduction of business expenses. For each of the calendar years in question a significant number of checks for expenses were written in January but were backdated for entry in the cash disbursements journal as of the last business day of the preceding calendar year. For tax purposes the amounts on these checks were deducted in the calendar year corresponding to the date placed on the backdated checks, not the year when the checks were actually written. For calendar year 1978 expenses in the amount that Valley News was a cashe basis taxpayer, of $1,115,074 were deducted although the checks were written and payment was made in 1979.

A government accountant analyzed the accounting system used by Valley News, arrived at a determination that it was a cash basis system, and by applying cash basis principles of timing for the recognition of income (year of receipt) and the deduction of expenses (year of payment), the accountant computed a tax deficiency for calendar year 1978 in the amount of $170,318. There was ample evidence in the record to buttress the accountant's determination that Valley News used a cash basis accounting system, including the testimony of the company's tax counsel and accountant, the fact that Hecht signed a verified tax court petition which alleged that Valley News was a cash basis taxpayer, and state income tax returns were filed by Valley News which indicated it was on a cash basis system of accounting.

In addition, Hecht was not entitled to rely upon the preparer of the Valley News tax returns. In the first place, Hecht did not divulge his practice of postponing the reporting of cash receipts to the Valley News accountant before the 1978 tax return was prepared, even though the company's tax counsel had expressed his disapproval of the practice to Hecht. In addition, Hecht did not tell his accountant about his practice of backdating checks until it was too late to do anything about the situation other than use Hecht's figures in preparing the 1978 return. Upon learning of this practice, the accountant told Hecht that his practice was wrong, and he made it clear to Hecht that when the tax return was prepared it would not be correct. Nevertheless, Hecht signed and filed the 1978 corporate tax return after it was prepared. See United States v. Vannelli [79-1 USTC ¶9257], 595 F. 2d 402, 404-05 (8th Cir. 1979); United States v. Scher [73-1 USTC ¶9315], 476 F. 2d 319, 321 (7th Cir. 1973).

While we recognize that the case was sharply contested by Hecht, the jury was not required to accept his theory that Valley News was on an accounting system that would explain his method of handling receipts and disbursements. After reviewing the record we are satisfied that the trial judge correctly submitted the case to the jury, the evidence was sufficient to prove each element of the charge for calendar year 1978, and the verdict was a permissible one.

II. Hecht complains of the trial judge's failure to give his requested instructions to the jury; however, we have serious doubt whether there is anything before us to review.

Hecht tendered his requested instructions at a "preliminary charge conference." The atmosphere at the conference was informal. Some of Hecht's instruction were discussed by counsel in the presence of the trial judge and others were never mentioned. The trial judge made it clear to counsel that he was not going to take a position on the requested instructions at that time, that he viewed their remarks as nothing more than preliminary observations, and that there would be a final charge conference after the evidence was presented. As we read the record of the conference proceedings, defense counsel did not comply with Fed. R. Crim. P. 30. They failed clearly to articulate the specific errors the trial judge would commit if he failed to give Hecht's requested instructions. United States v. Parisien, 574 F. 2d 974, 976, (8th Cir.), cert. denied, 439 U. S. 850 (1978); United States v. Phillips, 522 F. 2d 388, 391 (8th Cir. 1975). The object of Rule 30 is to inform the trial judge of any possible error in the instructions so that he may have an opportunity to correct them. Id. At best, defense counsel merely offered their requested instructions to the trial judge for his consideration, and such an offer in and of itself is not sufficient to preserve an error based upon the judge's failure subsequently to use the requests. United States v. Fountain, 642 F. 2d 1083, 1095 (7th Cir.), cert. denied, 451 U. S. 993 (1981); United States v. Byrd, 542 F. 2d 1026, 1028 (8th Cir. 1976).

Later, at the final charge conference, defense counsel stated "any exception that we would have would be limited to the failure of the trial court to give the instructions heretofore requested, except for this I do not see any basis for objections to the instructions as given or as proposed to be given." And, just before the jury retired for deliberations defense counsel lodged an objection to the charge, stating "the Defendant takes or renews its exceptions to the charge so far as the charge does not give in words or in substance instructions requested by the Defendant." There having been no distinct statement of the grounds of objection at the preliminary charge conference, these generalized objections did not satisfy Rule 30. United States v. Bey, 667 F. 2d 7, 10 (5th Cir. 1982).

In any event, we have carefully reviewed the instructions and we conclude that the trial judge did not err in failing to use each of Hecht's requested instructions. We are satisfied that the instructions, as given, were adequate and not erroneous. Moreover, the substance of nearly all the requests were covered by the charge given to the jury.

III. After a day of deliberations, the jury notified the trial judge that it was having difficulty in arriving at a verdict. With the consent of defense counsel, the judge recalled the jury, read the identical instruction given in the original charge concerning the jury's deliberative duties, 1 E. Devitt & C. Blackmar, Federal Jury Practice and Instructions, §18.01 (3d ed. 1977), and directed the jurors to resume deliberations. No objections were lodged to these procedures. At the end of the next day of deliberations, the jury found defendant guilty on the count involving calendar year 1978. Hecht now argues that the trial judge should have dismissed the jury and that the verdict was coerced. There are four answers to Hecht's arguments: First, defense counsel had no objections. Second, this court has previously examined a nearly identical supplemental instruction and has found that it is not in substance coercive. United States v. Singletary, 562 F. 2d 1058, 1060-61 (8th Cir. 1977). Third, extended jury deliberations were justified after a lengthy tax evasion trial involving multiple charges. Last, the jury deliberated for a substantial period of time after receiving the supplemental instruction. This factor, coupled with Hecht's acquittal on three of the counts, indicates that the supplemental instruction was not coercive under the circumstances in this case.

IV. Hecht raises other arguments on appeal. He claims that the trial court erred in refusing to admit evidence concerning income tax payments made by Valley News after calendar year 1978, and he complains that he should have been allowed to introduce evidence of a tax accounting statute for magazine and paperback book distributors that is not applicable to tax years prior to 1979. He also argues that he was absolved of criminal intent for calendar year 1978 because he relied upon earlier civil audit examinations that failed to penetrate what we deem to be a disguised accounting system. We have carefully considered these and all other arguments raised by Hecht, and we find that no error was committed that would require reversal of his conviction.

The judgment is affirmed.