7206 - Net Worth Statement

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Fraud Statutes 

Additional Information:

 

7203 - Accountant-Client Privilege
7203 - Accrual Basis
7203 - Admissibility 1 p1
7203 - Admissibility 1 p2
7203 - Admissibility 1 p3
7203 - Admissibility 1 p4
7203 - Admissibility 1 p5
7203 - Admissibility 1 p6
7203 - Admissibility 2 p1
7203 - Admissibility 2 p2
7203 - Admissibility 2 p3
7203 - Admissibility 2 p4
7203 - Admissibility 2 p5
7203 - Admissibility 3 p1
7203 - Admissibility 3 p2
7203 - Admissibility 3 p3
7203 - Admissibility 3 p4
7203 - Admissibility 3 p5
7203 - Admissibility 4 p1
7203 - Admissibility 4 p2
7203 - Admissions p1
7203 - Admissions p2
7203 - Advice of Counsel p1
7203 - Advice of Counsel p2
7203 - Amendment
7203 - Appeal Right to
7203 - Appeal Timeliness
7203 - Appeal Waiver
7203 - Appeal without merit
7203 - Arrest
7203 - Fraudulent Return
7203 - Defeat & Evade Income Taxes p1
7203 - Defeat & Evade Income Taxes p2
7203 - Defeat & Evade Income Taxes p3
7203 - Defeat &  Evade Income Taxes p4
7203 - Attorney Disqualified
7203 - Attorney's Testimony p1
7203 - Attorney's Testimony p2
7203 - Attorney's Testimony p3
7203 - Attorney's Testimony p4
7203 - Bail
7203 - Bank Records &  Net Worth Increases 1 p1
7203 - Bank Records &  Net Worth Increases 1 p2
7203 - Bank Records &  Net Worth Increases 1 p3
7203 - Bank Records &  Net Worth Increases 1 p4
7203 - Bank Records &  Net Worth Increases 1 p5
7203 - Bank Records &  Net Worth Increases 1 p6
7203 - Bank Records &  Net Worth Increases 2 p1
7203 - Bank Records &  Net Worth Increases 2 p2
7203 - Bank Records &  Net Worth Increases 2 p3
7203 - Bank Records &  Net Worth Increases 2 p4
7203 - Bank Records &  Net Worth Increases 2 p5
7203 - Bank Records &  Net Worth Increases 3 p1
7203 - Bank Records &  Net Worth Increases 3 p2
7203 - Bank Records &  Net Worth Increases 3 p3
7203 - Bank Records &  Net Worth Increases 3 p4
7203 - Bank Records &  Net Worth Increases 3 p5
7203 - Bank Records &  Net Worth Increases 4 p1
7203 - Bank Records &  Net Worth Increases 4 p2
7203 - Bank Records &  Net Worth Increases 4 p3
7203 - Bank Records &  Net Worth Increases 4 p4
7203 - Bank Records &  Net Worth Increases 4 p5
7203 - Bank Records &  Net Worth Increases 5 p1
7203 - Bank Records & Net Worth Increases 5 p2
7203 - Bank Records & Net Worth Increases 5 p3
7203 - Bank Records & Net Worth Increases 5 p4
7203 - Bank Records & Net Worth Increases 5 p5
7203 - Base Sentence p1
7203 - Base Sentence p2
7203 - Base Sentence p3
7203 - Base Sentence p4
I7203 - Bill of Particluar Conspiracy
7203 - Bill of Particulars
7203 - Books and Records
7203 - Burden of going forward with evidence
7203 - Burden of Proof
7203 - Carryback Offset
7203 - Changing Plea
7203 - Character witness p1
7203 - Character witness p2
7203 - Circumstanial Evidence p1
7203 - Circumstanial Evidence p2
7203 - Circumstanial Evidence p3
7203 - Circumstanial Evidence p4
7203 - Collateral Estoppel
7203 - Collection
7203 - Commitment by U.S. Commissioner
7203 - Communication to Jury
7203 - Compromise
7203 - Consolidation
7203 - Conspiracy p1
7203 - Conspiracy p2
7203 - Conspiracy 1 p1
7203 - Conspiracy 1 p2
7203 - Conspiracy 1 p3
7203 - Conspiracy 1 p4
7203 - Conspiracy 1 p5
7203 - Conspiracy 1 p6
7203 - Conspiracy 1 p7
7203 - Conspiracy 1 p8
7203 - Conspiracy 2 p1
7203 - Conspiracy 2 p2
7203 - Conspiracy 2 p3
7203 - Constitutional Grounds 1 p1
7203 - Constitutional Grounds 1 p2
7203 - Constitutional Grounds 1 p3
7203 - Constitutional Grounds 1 p4
7203 - Constitutional Grounds 1 p5
7203 - Constitutional Grounds 2 p1
7203 - Constitutional Grounds 2 p2
7203 - Constitutional Grounds 2 p3
7203 - Constitutional Grounds 2 p4
7203 - Constitutional Grounds 2 p5
7203 - Constitutional Grounds 3 p1
7203 - Constitutional Grounds 3 p2
7203 - Constitutional Grounds 3 p3
7203 - Constitutional Grounds 3 p4
7203 - Constitutional Grounds 3 p5
7203 - Constitutional Grounds 4 p1
7203 - Constitutional Grounds 4 p2
7203 - Constitutional Grounds 4 p3
7203 - Constitutional Grounds 4 p4
7203 - Constitutional Grounds 5 p1
7203 - Constitutional Grounds 5 p2
7203 - Constitutional Grounds 5 p3
7203 - Constitutional Grounds 5 p4
7203 - Constitutional Grounds 5 p5
7203 - Constitutional Grounds 6
7203 - Contempt Finding Ag. Defendant's Counsel
7203 - Continuance p1
7203 - Continuance p2
7203 - Continuance p3
7203 - Conviction Required
7203 - Copies of Records p1
7203 - Copies of Records p2
7203 - Corporation Officer
7203 - Costs
7203 - Credit for Time Served
7203 - Criminal Contempt
7203 - Cross-Examination PART 1 p1
7203 - Cross-Examination PART 1 p2
7203 - Cross-Examination PART 1 p3
7203 - Cross-Examination PART 1 p4
7203 - Cross-Examination PART 1 p5
7203 - Cross-Examination PART 2
7203 - DefendantHaving Facts Available p1
7203 - DefendantHaving Facts Available p2
7203 - DefendantHaving Facts Available p3
7203 - Degree of Proof p1
7203 - Degree of Proof p2
7203 - Depositions
7203 - Different Statute Cited
7203 - Discovery, Scope Of
7203 - Documentary Evidence in Jury Room
7203 - Double Jeopardy 1 p1
7203 - Double Jeopardy 1 p2
7203 - Double Jeopardy 1 p3
7203 - Double Jeopardy 1 p4
7203 - Double Jeopardy 1 p5
7203 - Double Jeopardy 2 p1
7203 - Double Jeopardy 2 p2
7203 - Double Jeopardy 2 p3
7203 - Double Jeopardy 2 p4
7203 - Enhanced Sentence Sophisticated Means p1
7203 - Enhanced Sentence Sophisticated Means p2
7203 - Enhanced Sentence p1
7203 - Enhanced Sentence p2
7203 - Entrapment
7203 - Erroneous calculation of tax
7203 - Exclusion of Oral Testimony
7203 - Exercise Privilege-Exclusion from Courtroom
7203 - Expert Witness p1
7203 - Expert Witness p2
7203 - Expert Witness p3
7203 - Expert Witness p4
7203 - Extenuating Circumstances
7203 - Fact Finding p1
7203 - Fact Finding p2
7203 - Fact Finding p3
7203 - Fact Finding p4
7203 - Fact Finding p5
7203 - Failure of IRS to File Return
7203 - Failure to Assess Tax
7203 - Failure to Prosecute p1
7203 - Failure to Prosecute p2
7203 - Failure to Prosecute p3
7203 - Failure to Prosecute p4
7203 - Failure to Prosecute p5
7203 - Failure to Report Income 1 p1
7203 - Failure to Report Income 1 p2
7203 - Failure to Report Income 1 p3
7203 - Failure to Report Income 1 p4
7203 - Failure to Report Income 1 p5
7203 - Failure to Report Income 1 p6
7203 - Failure to Report Income 2 p1
7203 - Failure to Report Income 2 p2
7203 - Failure to Supply Information
7203 - False Return
7203 - Fictitious names
7203 - Fraud Case Procedures p1
7203 - Fraud Case Procedures p2
7203 - Fraud Case Procedures p3
7203 - Fraud Case Procedures p4
7203 - General Exception
7203 - Good Faith p1
7203 - Good Faith p2
7203 - Good Faith p3
7203 - Good Faith p4
7203 - Government Agent Prosecuting Claim
7203 - Grand Jury 1 p1
7203 - Grand Jury 1 p2
7203 - Grand Jury 1 p3
7203 - Grand Jury 1 p4
7203 - Grand Jury 1 p5
7203 - Grand Jury 2 p1
7203 - Grand Jury 2 p2
7203 - Hearsay Evidence p1
7203 - Hearsay Evidence p2
7203 - Hearsay Evidence p3
7203 - Hearsay Evidence p4
7203 - Hearsay Evidence p5
7203 - Hostility of the Court p1
7203 - Hostility of the Court p2
7203 - Hostility of the Court p3
7203 - Hypnosis
7203 - Identification
7203 - Ignorance of Law
7203 - Immunity p1
7203 - Immunity p2
7203 - Immunity p3
7203 - Impeachment p1
7203 - Impeachment p2
7203 - Improper Comment PART 1 p1
7203 - Improper Comment PART 1 p2
7203 - Improper Comment PART 1 p3
7203 - Improper Comment PART 1 p4
7203 - Improper Comment PART 1 p5
7203 - Improper Comment PART 2 p1
7203 - Improper Comment PART 2 p2
7203 - Improper Comment PART 2 p3
7203 - Improper Comment PART 2 p4
7203 - Improper Comment PART 2 p5
7203 - Improper Comment PART 3
7203 - Improper Question
7203 - Incrimination 1 p1
7203 - Incrimination 1 p2
7203 - Incrimination 1 p3
7203 - Incrimination 1 p4
7203 - Incrimination 1 p5
7203 - Incrimination 2 p1
7203 - Incrimination 2 p2
7203 - Incrimination 2 p3
7203 - Incrimination 2 p4
7203 - Incrimination 2 p5
7203 - Incriminaton Before Grand Jury p1
7203 - Incriminaton Before Grand Jury p2
7203 - Instructions to Jury 1 p1
7203 - Instructions to Jury 1 p2
7203 - Instructions to Jury 1 p3
7203 - Instructions to Jury 1 p4
7203 - Instructions to Jury 1 p5
7203 - Instructions to Jury 2 p1
7203 - Instructions to Jury 2 p2
7203 - Instructions to Jury 2 p3
7203 - Instructions to Jury 2 p4
7203 - Instructions to Jury 2 p5
7203 - Instructions to Jury 3 p1
7203 - Instructions to Jury 3 p2
7203 - Instructions to Jury 3 p3
7203 - Instructions to Jury 3 p4
7203 - Instructions to Jury 3 p5
7203 - Instructions to Jury 4 p1
7203 - Instructions to Jury 4 p2
7203 - Instructions to Jury 4 p3
7203 - Instructions to Jury 4 p4
7203 - Instructions to Jury 4 p5
7203 - Instructions to Jury 5 p1
7203 - Instructions to Jury 5 p2
7203 - Instructions to Jury 5 p3
7203 - Instructions to Jury 5 p4
7203 - Instructions to Jury 5 p5
7203 - Instructions to Jury 6 p1
7203 - Instructions to Jury 6 p2
7203 - Instructions to Jury 6 p3
7203 - Instructions to Jury 6 p4
7203 - Instructions to Jury 6 p5
7203 - Instructions to Jury 7 p1
7203 - Instructions to Jury 7 p2
7203 - Instructions to Jury 7 p3
7203 - Instructions to Jury 7 p4
7203 - Instructions to Jury 7 p5
7205 Convictions p1
7205 Convictions p2
7205 Convictions p3
7205 Convictions p4
7205 Convictions p5
7205 Double Jeopardy
7205 Exemption Certificates
7205 Hostility of the Court
7205 Indictment
7205 Information
7205 Intent to Deceive Lacking
7205 Right to Counsel
7205 Trial, Timeliness
7205 Variance
7205 Venue
7205 Willfulness
7206 False Returns 1 p1
7206 False Returns 1 p2
7206 False Returns 1 p3
7206 False Returns 1 p4
7206 False Returns 1 p5
7206 False Returns 2 p1
7206 False Returns 2 p2
7206 False Returns 2 p3
7206 False Returns 2 p4
7206 False Returns 2 p5
7206 False Returns 3 p1
7206 False Returns 3 p2
7206 False Returns 3 p3
7206 False Returns 3 p4
7206 Basis for Allegation of Fraud
7206 Concealment of Assets p1
7206 Concealment of Assets p2
7206 Conspiracy 1 p1
7206 Conspiracy 1 p2
7206 Conspiracy 1 p3
7206 Conspiracy 1 p4
7206 Conspiracy 2 p1
7206 Conspiracy 2 p2
7206 Constitutionality p1
7206 Constitutionality p2
7206 Constitutionality p3
7206 Costs
7206 Disclosure of Returns
7206 Estoppel p1
7206 Estoppel p2
7206 Estoppel p3
7206 Evidence 1 p1
7206 Evidence 1 p2
7206 Evidence 1 p3
7206 Evidence 1 p4
7206 Evidence 1 p5
7206 Evidence 2 p1
7206 Evidence 2 p2
7206 Evidence 2 p3
7206 Evidence 2 p4
7206 Evidence 2 p5
7206 Evidence 3 p1
7206 Evidence 3 p2
7206 Evidence 3 p3
7206 Evidence 3 p4
7206 Evidence 3 p5
7206 Evidence 4 p1
7206 Evidence 4 p2
7206 Evidence 4 p3
7206 False Claims Against U.S.
7206 False Documents p1
7206 False Documents p2
7206 False Statements in Return 1 p1
7206 False Statements in Return 1 p2
7206 False Statements in Return 1 p3
7206 False Statements in Return 1 p4
7206 False Statements in Return 1 p5
7206 False Statements in Return 2 p1
7206 False Statements in Return 2 p2
7206 False Statements in Return 2 p3
7206 False Statements in Return 2 p4
7206 False Statements in Return 3 p1
7206 False Statements in Return 3 p2
7206 False Statements in Return 3 p3
7206 False Statements in Return 3 p4
7206 False Statements in Return 3 p5
7206 False Statements in Return 4 p1
7206 False Statements in Return 4 p2
7206 False Statements in Return 4 p3
7206 False Statements in Return 4 p4
7206 False Statements in Return 4 p5
7206 False Statements in Return 5 p1
7206 False Statements in Return 5 p2
7206 False Statements in Return 5 p3
7206 False Statements in Return 5 p4
7206 False Statements to IRS Agents p1
7206 False Statements to IRS Agents p2
7206 False Statements to IRS Agents p3
7206 Forgery
7206 Grand Jury
7206 Guilty Plea p1
7206 Guilty Plea p2
7206 Immunity
7206 Indictment 1 p1
7206 Indictment 1 p2
7206 Indictment 1 p3
7206 Indictment 1 p4
7206 Indictment 1 p5
7206 Indictment 2 p1
7206 Indictment 2 p2
7206 Instructions to Jury 1 p1
7206 Instructions to Jury 1 p2
7206 Instructions to Jury 1 p3
7206 Instructions to Jury 1 p4
7206 Instructions to Jury 1 p5
7206 Instructions to Jury 2 p1
7206 Instructions to Jury 2 p2
7206 Instructions to Jury 2 p3
7206 Instructions to Jury 2 p4
7206 Instructions to Jury 2 p5
7206 Instructions to Jury 3 p1
7206 Instructions to Jury 3 p2
7206 Instructions to Jury 3 p3
7206 Instructions to Jury 3 p4
7206 Instructions to Jury 3 p5
7206 Jury Verdict Disregarded
7206 Jury p1
7206 Jury p2
7206 Jury p3
7206 Lesser Included Offense p1
7206 Lesser Included Offense p2
7206 Motion For Continuance
7206 Motion to Sever
7206 Motion to Transfer
7206 Motion to Vacate Sentence
7206 Net Worth Statement
7206 Offer in Compromise
7206 Perjury
7206 False or Fraudulent Returns p1
7206 False or Fraudulent Returns p2
7206 False or Fraudulent Returns p3
7206 False or Fraudulent Returns p4
7206 False or Fraudulent Returns p5
7206 Prior Convictions
7206 Prior Law
7206 Probation
7206 Prosecutor's Comment p1
7206 Prosecutor's Comment p2
7206 Restitution
7206 Right to Counsel p1
7206 Right to Counsel p2
7206 Sentence p1
7206 Sentence p2
7206 Sentence p3
7206 Sentence p4
7206 Sentencing Guidelines 1 p1
7206 Sentencing Guidelines 1 p2
7206 Sentencing Guidelines 1 p3
7206 Sentencing Guidelines 1 p4
7206 Sentencing Guidelines 1 p5
7206 Sentencing Guidelines 2 p1
7206 Sentencing Guidelines 2 p2
7206 Sentencing Guidelines 2 p3
7206 Statute of Limitations p1
7206 Statute of Limitations p2
7206 Venue
7206 Willfulness Defined p1
7206 Willfulness Defined p2
7206 Willfulness Defined p3
7206 Willfulness Defined p4
7207 Conviction
7207 Defenses
7207 Motion to Dismiss
7207 Sentencing
7207 Willfully Defined
7210 Willful Failure to Obey Summons
7212 Assault
7212 Bribery
7212 Constiutionality
7212 Indictment
7212 Interference p1
7212 Interference p2
7212 Interference p3
7212 Interference p4
7212 Jury Instructions
7212 Rescue of Seized, Levied Property p1
7212 Rescue of Seized, Levied Property p2
7212 Sentence p1
7212 Sentence p2
7212 Statute of Limitations
7212 Suppresion of Evidence
7215 Constitutionality
7215 Conviction
7215 Corporation
7215 Defenses
7215 Evidence
7215 Intent
7215 Speedy Trial
7216 Consent
7216 Preparer Defined
7216 Scope of Statute
7217 IRS Employees

 

Net Worth Statement

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7206- Fraud and False Statements: Net Worth Statement

 

[55-1 USTC 9481]Tad R. Knowles, Appellant v. United States of America , Appellee

(CA-10), In the United States Court of Appeals for the Tenth Circuit, No. 5039--May Term, 1955, 224 F2d 168, May 25, 19 55

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

[1939 Code Sec. 3809--changed in 1954 Code Secs. 7206(1), 7207]

Criminal prosecution: False return: Comment on failure of taxpayer to testify: Statutory meaning of "false statements".--In a jury trial resulting in the conviction of taxpayer on charges of making and filing a false income tax return and of knowingly making a false and fraudulent statement to agents of the Internal Revenue Service, it was held on appeal that the following grounds were not reversible errors: (1) that the Government's counsel's comment to the jury called attention to the fact that taxpayer had failed to testify on his own behalf, (2) that the evidence failed to prove that the omission of certain income in taxpayer's return resulted in a knowingly false return, and (3) that the statement of net worth submitted to the Revenue Agent in the course of his investigation was not a "statement made within the jurisdiction of a department or agency of the United States" within the meaning of 18 U. S. C. A. 1001.

Everett E. Smith for appellant. Robert S. Wham (Donald E. Kelley and Robert D. Inman were with him on the brief) for appellee.

Before PHILLIPS, Chief Judge, and MURRAH and PICKETT, Circuit Judges.

MURRAH, Circuit Judge:

This is an appeal from a conviction and concurrent sentences on an indictment containing two counts, the first of which charged the appellant with having made and filed a materially false income tax return with the Collector of Internal Revenue for the District of Colorado, for the calendar year 1950 in violation of 26 U. S. C. A. 3809(a). The second count charged the appellant with knowingly making or causing to be made a false and fraudulent statement and representation to agents of the Internal Revenue Service of the United States Treasury Department in violation of 18 U. S. C. A. 1001.

[Taxpayer's Failure to Testify]

The appellant did not choose to be a witness in his own behalf in the trial of the case, and in the first point on appeal he charges that the argument of counsel prejudicially called the jury's attention to his failure to take the witness stand.

The evidence showed, without dispute, that in the taxable year 1950, appellant received the sum of $3,570.00 from the sale of sheep which he did not report in his return for that year. On argument, counsel for appellant intimated to the jury that the appellant received the item as an agent for someone else, and was therefore not reportable as income. In the closing argument, counsel for the government answered the insinuation by saying that there was "not the slightest bit of explanation given to the Internal Revenue Department about it, or given to you. Now it was easy to explain to Mr. Coard [Internal Revenue Agent]; could be easy to explain to you, but it hasn't been done." The jury was asked to consider the matter from a standpoint of a statement having been filed with the government by the taxpayer both on a return and a net worth statement. And then counsel said, "He had every opportunity in the world given to make an explanation of it, to prove it was in error, to cast doubt upon it. And it wasn't done. Consider the sheep sale item, and opportunity given there, and no explanation given of that. And it was so easy to do if it were the truth."

It is concededly improper and reversible error to comment on the failure of a defendant to testify in his own behalf, and the test is whether the language used was manifestly intended or was of such character that the jury would naturally and necessarily take it to be a comment on the failure of the accused to testify. Morrison v. United States , 6 Fed. (2d) 809. It is not improper for the government to draw attention to the failure or lack of evidence on a point if it is not intended to call attention to the failure of the defendant to testify. Thus, when counsel for the defendant moved for a mistrial or objected to the statement of counsel after the jury had been instructed, the court observed that it was perfectly proper to comment on the lack of evidence if he didn't comment on the failure of the defendant to give it, and that in his judgment counsel for the government did not refer to the failure of the defendant to testify. The jury was also told as a part of its instructions that anyone charged with a crime had a right to testify in his own behalf or not, and the mere fact that he failed to testify in his own behalf should not be counted against him or influence the jury in any manner. Appellant concedes the general rule, applicable in federal courts, that prompt and emphatic condemnation by the trial judge may cure an improper argument of government counsel. See Annot. 84 A. L. R. 784, Sub-section VI, p. 795. He contends, however, that here the comment of counsel was so palpably improper as to be incurable by the conventional instruction.

In the first place, the trial court was correct in its view that the comment of counsel was not directed to the failure of the appellant to testify, but was primarily directed to the failure of the evidence of furnish any explanation for the unreported receipt of the $3,570.00. Counsel for the government merely answered appellant's insinuation that he had received the money as an agent for someone else. If, however, the challenged comment can be said to have the effect of focusing attention on appellant's failure to testify, we think it was cured by the court's instructions in that respect.

[Intentional Omission of Income]

The appellant next challenges the sufficiency of the evidence to prove that the omission of the $3,570.00 item constituted a knowingly false return. Of course failure to file a correct return does not necessarily constitute a fraudulently false return. See Davis v. Commissioner, 184 Fed. (2d) 86 [50-2 USTC 9427]. The omission or inaccuracy must relate to a knowingly material matter. But here the evidence shows without dispute that the appellant received the money from the sale of the sheep and deposited it in his account; and, his work sheets show that it was income to him. There was only an insinuation that he received it for someone else, and the jury was fully justified in finding that it was income and that the appellant knew that it was reportable income. This is not a case like Davis v. Commissioner, supra, it is simply a case where the failure to report a large item of income justified a permissible inference that it was material and knowingly omitted.

[False Statement to Revenue Agent]

During an investigation by the Internal Revenue Department of appellant's income tax liability for the years 1945 to 1950, inclusive, the appellant was examined orally by the Internal Revenue Agent. During one of these examinations he was asked to submit a net worth statement for the five years in question. In collaboration with his certified public accountant, and based upon information furnished by the appellant, the accountant submitted the net worth statement signed by the appellant and his wife. This statement showed the sale in 1949 of land in Elbert County , Colorado , for the sum of $45,000.00 with a cost basis in 1943 of $25,000.00, and an additional cost of $5,000.00, making a total cost of $30,000.00 and a net gain of $15,000.00. The evidence showed without much dispute that the cost of the land in question was $10,000.00, not $25,000.00, and that any additional cost was in the form of improvements contributed by his own labors. The evidence also showed that while the investigation was in progress, the appellant contacted the real estate agent who handled the transaction, suggesting that he gave $10,000.00 in cash and "$10,000.00 in bulls and wet cows". When the agent replied that he paid cash for the land, the appellant said in effect, "well, I guess you can't help me."

Appellant attacks his conviction on count 2 on two grounds. First, that Section 1001, under which the indictment is laid, does not reach oral and voluntary statements made to investigating officers which are not required by law, rule or regulation to be given to an agency or department of the United States government. The statute says in effect that whoever, in any manner within the jurisdiction of any department or agency of the United States knowingly and willfully falsifies, conceals or covers up by any trick, scheme or device a material fact, or makes any false or fraudulent statements or representations, shall be punished as provided therein. Until the enactment of Section 1001, the law condemned only the making of false claims for the purpose of pecuniarily defrauding the government, and the purpose of the Amendment in 1934 (Act of June 18, 19 34, 40 Stat. 1015) was "to protect the authorized functions of governmental departments and agencies from the perversion which might result from the deceptive practices described." United States v. Gilliland, 312 U. S. 86. See also United States v. Bramlett, decided April 4, 19 55, -- U. S. --. The Gilliland case involved false statements made to the Department of Interior in pursuance of valid rules and regulations. The Bramlett case involved false and fraudulent representations made to the Disbursing Office of the House of Representatives, apparently for the purpose of obtaining disbursements for the defendant's benefit.

[Statutory Meaning of "Statement"]

It is said, however, that a statement not made in obedience to law, rule or regulation is not a matter within the jurisdiction of a department or agency of the United States within the meaning of the statute, and taking that view in United States v. Levin, an unreported case from the District of Colorado, Judge Pickett dismissed an indictment based upon a false statement made to an agent of the Federal Bureau of Identification. Judge Chesnut was of like mind in United States v. Stark, -- Fed. Supp. --, decided April 18, 19 55, also involving a statement to an agent of the Federal Bureau of Identification. Applying the rule of ejusdem generis, he construed the critical word "statement" in the statute as partaking of the word "representation" which followed it in the text. Given this connotation, the court took the view that in its statutory sense, the word "statement" contemplated an affirmative statement voluntarily made for the "purpose of making claim upon or inducing improper action by the government against others."

The identical question was presented under facts indistinguishably similar to ours in Cohen v. United States, 201 Fed. (2d) 386 [53-1 USTC 9165]. There, the court referred to Marzani v. United States, 168 Fed. (2d) 133 (aff' md. by an equally divided court, 335 U. S. 985), where a state department employee voluntarily sought an interview with his superior officer to discuss a request which had been made for his resignation. The court sustained the prosecution for false oral statements made in that interview despite the fact that the employee was not required to attend such an interview or make the statements. And, after observing that the statements in both cases were voluntarily made, the court in the Cohen case stated, "The Treasury Department had been investigating appellant's income tax liability. Treasury agents had requested a statement relating to his financial affairs. The document in question was signed only after a discussion of nearly an hour as to various items therein." The court pointed out that the defendant was fully conscious of the consequences of his willfully false statements, and the conviction was sustained on the theory that an investigation of income tax liability by an authorized internal revenue agent was a matter within the jurisdiction of a department or agency of the United States within the meaning of Section 1001.

If the court in the Cohen case intended to embrace the full sweep of the Marzani case, it was under no necessity of doing so in the affirmance of the conviction there, for there is undoubtedly a decisive difference in a voluntary oral statement made to a superior officer in an informal interview as in the Marzani case and a deliberate statement made by a taxpayer concerning his taxable income to a revenue agent whom he knew was conducting an investigation of the correctness of his returns. In any event, we recognize a valid difference in the two cases, and we prefer to place our affirmance of this judgment squarely upon the premise that the statement was made in pursuance of statutory requirements.

Every individual having for a taxable year a gross income for a prescribed amount is required to make a return under penalty of perjury. 26 U. S. C. A. 51. And, every person liable to pay any tax or for the collection thereof is required to "keep such records, render under oath such statements * * * and comply with such rules and regulations, as the Commissioner * * * may from time to time prescribe." 26 U. S. C. A. 54. And, every internal revenue agent "shall see that all laws and regulations relating to the collection of internal revenue taxes are faithfully executed and complied with, and shall aid in the prevention, detection, and punishment of any frauds in relation thereto." 26 U. S. C. A. 3654. In the pursuance of these statutory duties, the internal revenue agent is not only authorized to inquire in an investigative capacity, but to "administer and enforce" the revenue laws. Carroll Vocational Institute v. United States , 211 Fed. (2d) 539; Cf. United States v. Zavala, 139 Fed. (2d) 830. It follows, we think, that a "statement" to an internal revenue agent in the course of an authorized inquiry into the correctness of the taxpayer's returns is a statement "made within the jurisdiction of a department or agency of the United States ." See United States v. Beacon Brass Co., 344 U. S. 43 [52-2 USTC 9528]; Walker v. United States, 192 Fed. (2d) 47; Mitchell v. United States , 143 Fed. (2d) 953. We therefore conclude that count 2 stated an offense against the laws of the United States .

The materiality of the statement was challenged, but there can be no doubt of it.

The judgment is affirmed.

 

 

 

[84-1 USTC 9196] United States of America , Appellee v. Staniford A. Sorrentino, Defendant, Appellant

(CA-1), U. S. Court of Appeals, 1st Circuit, No. 83-1260, 726 F2d 877, 1/31/84 , Remanding an unreported district court opinion

[Code Secs. 7201 and 7206]

Crimes: Tax evasion: False statements in return: Trial: Production of records:--In a case where an individual was convicted of tax evasion and filing false returns, the District Court's failure to require production of an IRS special agent's report summarizing his pre-trial net worth investigation of the individual pursuant to the latter's request under the Jencks Act, 18 USC 3500, was error. Thus, the case was remanded to the District Court with instructions to examine the report and determine which portions, if any, relate to the agent's trial testimony and are producible, make them available to the individual, and determine if the government's failure to turn over the report at trial materially prejudiced the indivudual. Various taxpayer challenges to jury instructions, evidentiary rulings, and the trial courtroom seating arrangement were rejected because they did not prejudice the taxpayer.

William F. Weld, United States Attorney, Boston, Mass. 02109, Glenn L. Archer, Jr., Assistant Attorney General, Deborah Wright Dawson, Michael L. Raup, Robert E. Lindsay, Department of Justice, Washington, D. C. 20530, for appellee. Francis J. DiMento, Carolyn M. Conway, DiMento & Sullivan, for appellant.

Before CAMPBELL, Chief Judge, BOWNES, Circuit Judge, and MALETZ, * Senior Judge.

BOWNES, Circuit Judge:

Defendant Staniford Sorrentino is charged with eight counts of tax evasion for the years 1975, 1976, 1977, and 1978. In each year he is alleged to have willfully attempted to evade a substantial part of his individual federal income tax liability in violation of 26 U. S. C. 7201, and also to have willfully subscribed a materially false small business corporation income tax return in violation of 26 U. S. C. 7206(1). Following a thirty-day jury trial in the United States District Court for the District of Massachusetts, Sorrentino was convicted on all eight counts. On appeal, he challenges three jury instructions, sundry evidentiary rulings, the trial courtroom seating arrangement, and a Jencks Act ruling.

The elements of attempted tax evasion under 7201 are (1) an additional tax due and owing, (2) an attempt to evade or defeat that tax, and (3) willfulness. Sansome v. United States [65-1 USTC 9307], 380 U. S. 343, 351 (1965). The Government makes out a prima facie case under the net worth method of proof if it establishes the defendant's opening net worth (computed as assets at cost basis less liabilities) with reasonable certainty and then shows increases in his net worth for each year in question which, added to his nondeductible expenditures and excluding his known nontaxable receipts for the year, exceed his reported taxable income by a substantial amount. See Holland v. United States [54-2 USTC 9714], 348 U. S. 121, 125 (1954); McGarry v. United States [68-1 USTC 9204], 388 F. 2d 862, 864 (1st Cir. 1967), cert. denied, 394 U. S. 921 (1969). The jury may infer that the defendant's excess net worth increases represent unreported taxable income if the Government either shows a likely taxalbe souece, Holland, 348 U. S. at 137-38, or negates all possible nontaxable sources, United States v. Massei [58-1 USTC 9326], 355 U. S. 595 (1958); the jury may further infer willfulness from the fact of underreporting coupled with evidence of conduct by the defendant tending to mislead or conceal. Holland , 348 U. S. at 125.

In the present case, the Government conducted an extensive pretrial investigation of Sorrentino's financial affairs for the years in question. Government agents interviewed the defendant, his two sisters, his business associates and contacts, and numerous bank and commercial employees who dealt with Sorrentino. The agents analyzed the defendant's banking and investment accounts in detail to ascertain the nature and extent of his assets and liabilities. They also checked local real estate and probate records, as well as the IRS's own records. The investigation showed that Sorrentino held or acquired the following major assets, among others, during the indictment years: telephone bonds and Treasury notes; three parcels of improved real estate, including a new home constructed by Sorrentino in 1975-79 at a cost of over $330,000; and undistributed income from the Crown & Anchor, a motel with several bars of which Sorrentino was manager and half owner. There was also documentation of substantial personal, nondeductible expenditures for automobiles, antiques, and travel. Aside from a $5,000 trust fund and some jewelry valued at $8,000 left him in his mother's will twenty years previously, there were no records of gifts or inheritances.

The results of the Government's investigation were summarized in a net worth and expenditures schedule based on evidence admitted at trial and revised in the course of the trial to reflect the testimony actually given before the jury. The net worth schedule shows an opening net worth for Sorrentino of $17,074.86 on December 31, 1974 , with increases in the following amounts in the indictment years: $46,752.56 in 1975; $13,198.44 in 1976; $74,767.19 in 1977; and $70,602.19 in 1978. This translates, according to the Government's calculations, when nondeductible expenditures are added and nontaxable receipts subtracted, to the following figures for taxable income: $110,194.17 in 1975; $31,223.11 in 1976; $90,352.92 in 1977; and $66,240.84 in 1978. 1 The corresponding figures reported as income by Sorrentino were: $10,979.60 in 1975; none in 1976; $5,378.00 in 1977; and none in 1979.

On the issue of the source of the unreported income, the Government offered the testimony of Robert Hedrick, the former general manager of the Crown & Anchor during the period in question. Hedrick testified that he observed the regular collection of substantial amounts of cash door receipts, which were not reported as income on the Crown & Anchor's corporate tax returns but instead were distributed under the table to Sorrentino and his co-owner. Hedrick also testified to the existence of a similar "skimming operation" with respect to the cash receipts from the Crown & Anchor bars, which were allegedly used to fund a cash payroll with the purposes of evading federal withholding taxes. Hedrick's testimony was corroborated in material respects by John Henry, another Crown & Anchor employee.

On the issue of willfulness, the Government showed not only a regular failure on Sorrentino's part to report taxable income from his securities and a complete failure to report income in previous years, but also a predilection for undocumented cash transactions and a pattern of registering his own assets in the name of his intimate friend, Chester Warner.

At trial, the principal defense was that the net worth increases and expenditures shown by the Government actually came not from the Crown & Anchor skimming operations, but from nontaxable sources which the Government failed to take into account, namely gifts and inheritances. Specifically, defendant claimed that he had received substantial cash gifts from his father, and that, after the father's death in January, 1976, he had received an inheritance of valuable antiques with a basis stepped up to fair market value. Although defendant produced some evidence of antique sales, he could not document their nontaxable nature, for all transactions had purportedly been made in cash, and both his father and the purchaser of his antiques were no longer alive.

We reject at the outset the notion that the Government's evidence was insufficient to go to the jury because of any failure to track down "leads" to nontaxable sources. 2 Defendant points to a newspaper article which mentioned in passing a statement made by Sorrentino to the effect that he had inherited his father's antique collection, and claims that this should have been treated by the Government as a lead. In his single pretrial interview with an IRS special agent, however, Sorrentino expressly denied receiving any gifts or inheritances except from his mother, and refused to offer any leads whatsoever concerning nontaxable sources of income. We hesitate in these circumstances to apply the leads doctrine at all. Even assuming, though, that the newspaper article provided a lead, we hold that the Government's exhaustive investigation of county probate registers, federal social security records, federal estate and gift tax returns and antique dealers' records was clearly adequate to support the Government's prima facie case. The investigation revealed no trace of a probated will or taxable estate for Sorrentino's father, much less a bequest of valuable antiques; rather, it indicated that Sorrentino's father lived in straitened circumstances and was dependent on social security payments. This supported the inference, apparently made by the jury, that Sorrentino's unreported receipts did not come from a nontaxable source such as gifts or inheritances. See United States v. Goldstein [82-2 USTC 9507], 685 F. 2d 179, 182 (7th Cir. 1982); United States v. Giacalone [78-1 USTC 9350], 574 F. 2d 328, 332 (6th Cir.), cert. denied, 439 U. S. 834 (1978); United States v. Penosi [72-1 USTC 9103], 452 F. 2d 217, 219-20 (5th Cir. 1971), cert. denied, 405 U. S. 1065 (1972).

We now turn to the four areas in which the defendant assigns substantial error.

I. Jury Instructions

In his charge to the jury, Judge Caffrey set forth the elements of attempted tax evasion under 7201, and explained the Government's burden of proof under the net worth method. On the issue of taxable source, he stated: "The burden of proof is on the government to establish beyond a reasonable doubt that the funds reflected by his increased net worth or by his nondeductible expenditures came from taxable rather than nontaxable sources." He further explained that taxable income would include compensation for personal services, gain from business or commercial dealings, and interest or dividends, while nontaxable receipts would include gifts, inheritances, life insurance proceeds, loans, and reimbursement for purchases made on behalf of other people. Judge Caffrey properly instructed the jury that in deciding whether the Government had met its burden it should consider evidence of a likely source of taxable income and evidence tending to negate any nontaxable source, as well as any failue on the Government's part to track down any leads reasonably susceptible of being checked.

On the specific issue of antique sales, which the defendant claimed as a nontaxable source of funds, Judge Caffrey explained that the proceeds of any antique sales would not necessarily be nontaxable unless the basis was equal to or greater than the sales price. He instructed the jury that if they found that Sorrentino had failed to provide leads before trial as to when the antiques in question were originally purchased and how much was paid for them, then the Government was not required to have investigated the basis of the alleged antiques and was permitted to assume that the proceeds were taxable.

If you find that no reasonable lead was given to the government which was adequate to enable them to investigate or to discover [Sorrentino's father's] basis and you further find antiques were, in fact, sold during '75 to '78 by Sorrentino, the government is entitled to treat the proceeds of any antique sales in those years as a long-term capital gain . . ..

Defendant complains that these instructions impermissibly shifted to him the burden of proving a basis in the antiques that he claimed to have received from his father. He argues that his father's cost basis in the antiques, though unascertainable, is irrelevant under his version of the facts: he supposedly received the proceeds of antiques before his father's death in the form of a nontaxable cash gift from his father, and received negligible gains from those sold after his father's death due to the automatic step-up in basis to fair market value under 26 U. S. C. 1014(a). Therefore, he concludes, his father's basis in the antiques as well as his failure to give leads in that respect are both beside the point.

Defendant's contention is ingenious, but we think it reflects a misreading of the charge as given. With respect to antiques sold before his father's death, defendant's claim is essentially that he was given cash by his father: this would clearly be treated as a nontaxable gift under Judge Caffrey's enumeration of nontaxable sources earlier in the charge. Likewise, with respect to antiques sold after his father's death, defendant's claim is basically that the antiques were a nontaxable inheritance and that the taxable appreciation in value between the time of the father's death and the time of sale was de minimis. This, too, was covered in the instruction on nontaxable income.

The situation to which Judge Caffrey's charge on basis was directed was neither of those advanced by defendant, but rather the possibility that Sorrentino had sold antiques given him by his father during his father's lifetime. In that case, the basis of the antiques would have been the same in Sorrentino's hands as in his father's, and proof of the father's basis would have been essential to determine taxability of the proceeds when the antiques were sold. "[W]here relevant leads are not forthcoming, the Government is not required to negate every possible source of nontaxable income, a matter peculiarly within the knowledge of the defendant. . . . Once the Government has established its case, the defendant remains quiet at his peril." Holland, 348 U. S. at 138-39 (citations omitted). The burden of producing evidence of basis, in the absence of verifiable leads, would therefore lie with the defendant. See Siravo v. United States [67-1 USTC 9446], 377 F. 2d 469, 473-74 (1st Cir. 1967); United States v. Vardine [62-2 USTC 9624], 305 F. 2d 60, 63 (2d Cir. 1962). This in no way affected the burden of persuasion. Judge Caffrey reminded the jury immediately before giving the instruction in question that Sorrentino was "not required to prove anything in this case, including the source of his net worth . . .." He also phrased the inference of a taxable source in permissive terms: the Government was "entitled to treat" the proceeds as taxable, and the jury was told, "you may treat all the proceeds of selling antiques as capital gains which are taxable . . .." The jury was thus free to believe either the defendant or the Government with respect to the issue of taxable source. The instruction on basis was not erroneous.

The second objection to the jury instructions relates to Judge Caffrey's definition of proof beyond a reasonable doubt as "proof that you would not hesitate to act and rely on in the most important of your own affairs." Defendant's objection in the present case goes to the comparison of the verdict in a criminal case with the jury's own personal decisions. We have noted similar criticisms in previous cases, see Dunn v. Perrin, 570 F. 2d 21, 24 n. 5 (1st Cir.), cert. denied, 437 U. S. 910 (1978), but we have not held the language in question to be plain error. United States v. Cranston, 686 F. 2d 56, 62 (1st Cir. 1982); United States v. Drake, 673 F. 2d 15, 20 (1st Cir. 1982). We adhere to our precedent and rule that the use of such language, though appeal generating, is not plain error.

In view of our holdings concerning the jury charge, we also reject defendant's concharge that the errors assigned in the charge tainted the verdict with respect to the 7206(1) (false corporation tax return) counts.

The third challenged instruction to the jury was a ruling made during trial concerning the status of the Cape Historical Homes Trust (the Trust), in which the defendant held a 90% beneficial interest. In calculating the defendant's net worth, the Government atrributed to him ownership of Trust assets (including the Bradford Street rental property formerly used as a museum, and the improved property on which defendant built his new home) to the extent of his 90% interest. The district court instructed the jury that the degree of control exercisable by the defendant was tantamount to ownership of 90% of the Trust.

The Trust 3 was set up with Sorrentino and Warner as sole trustees; in this capacity they had complete discretion to distribute or withhold Trust income, as well as to terminate the Trust. Sorrentino and Warner were also the sole beneficiaries, holding shares in the ratio of 90 to 10 respectively. Under the Trust agreement, one-quarter of the shareholders constituted a quorum for annual and special meetings. Trustees could be appointed and removed by a two-thirds vote of the shareholders; a two-thirds vote was also required to dispose of real property held by the Trust and to alter or amend the terms of the Trust.

It is clear as a matter of law that the defendant's 90% beneficial interest enabled him to control the distribution of Trust income and disposition of Trust assets, if necessary by constituting a shareholder quorum and removing Warner as co-trustee. Regardless of whether or how it is exercised, Paxton v.Commissioner [CCH Dec. 31,249], 57 T. C. 627, 633 (1972), the very existence of such powers was sufficient to trigger the provisions of 26 U. S. C. 677(a):

The grantor shall be treated as the owner of any portion of a trust . . . whose income without the approval or consent of any adverse party 4 is, or, in the discretion of the grantor or a nonadverse party, or both, may be . . . distributed to the grantor . . . [or] held or accumulated for future distribution to the grantor . . ..

Sorrentino's power to amend or alter the terms of the Trust also amounted to a power of revocation under 26 U. S. C. 676(a): "The grantor shall be treated as the owner of any portion of a trust . . . where at any time the power to revest in the grantor title to such portion is exercisable by the grantor or a non-adverse party, or both." See also Treas. Reg. 1.676(a)-1; Schulz v. Commissioner [82-2 USTC 9485], 686 F. 2d 490, 494-96 (7th Cir. 1982).

Under either 677(a) or 676(a), Sorrentino could be treated as the owner of at least an undivided 90% interest in the Trust, and the Government properly allocated to him a pro rata 90% share of each item of income, deduction and credit in calculating his net worth. See Treas. Reg. 1.671-3(a)(3). The court's instruction was therefore correct.

II. Evidentiary Rulings

Defendant also assigns as error several evidentiary rulings. He complains first of all that a summary exhibit prepared by his accountant, which showed $60,000 to $80,000 of nontaxable proceeds from antique sales in each indictment year, was improperly excluded. It is well established that summary exhibits such as net worth schedules, whether offered by the prosecution or the defense, are admissible for the convenience of the jury in understanding and evaluating evidence independently established in the record; it is equally clear that purported summaries containing assertions not otherwise supported by the record are not admissible. Oertle v. United States [66-2 USTC 15,722], 370 F. 2d 719, 727-28 (10th Cir. 1966), cert. denied, 387 U. S. 943 (1967); United States v. Moody [64-2 USTC 9873], 339 F. 2d 161, 162 (6th Cir. 1964), cert. denied, 386 U. S. 1003 (1967). Here, the prosecution's net worth schedule was based exclusively on primary evidence which was available to test the accuracy of the summary; the agent who prepared the chart was available for cross-examination concerning disputed items; and the purpose and effect of the chart were made clear to the jury. The prosecution's net worth summary was therefore admissible. United States v. Lawhon [74-2 USTC 9634], 499 F. 2d 352, 357 (5th Cir. 1974), cert. denied, 419 U. S. 1121 (1975). By contrast, there was virtually no documentation for the defendant's alleged antique sales: both the amount of the proceeds and the assumed basis figures were taken not from documents in evidence but from the defendant's own unsupported speculation. Under the circumstances, the court acted within its discretion in excluding the defendant's potentially misleading and prejudicial exhibit. See Oertle, 370 F. 2d 727-28; United States v. Shavin [63-2 USTC 9584], 320 F. 2d 308, 312 (7th Cir.), cert. denied, 375 U. S. 944 (1963); United States v. Kiamie [58-2 USTC 9817], 258 F. 2d 924, 932-33 (2d Cir.), cert. denied, 358 U. S. 909 (1958).

Defendant also objects to the scope of direct and cross-examination permitted by the district court with respect to the prosecution's witness Gerald Killion, the revenue agent who prepared the Government's net worth schedule. On cross-examination, defense counsel opened the issue of why certain proceeds from flea market sales claimed by Chester Warner were not included as nontaxable funds available to the defendant on the Government's net worth schedule. On redirect, Killion explained that he had taken Warner's testimony concerning the flea market sales into consideration but had not included the sales on the schedule because there was inadequate corroborating testimony and he did not find Warner's testimony credible. The district court immediately mediately instructed the jury that the decision whether to accept Warner's testimony as credible was to be made by the jury. It was made clear to the jury on recross that Warner's testimony, if believed, would reduce the amounts in the Government's net worth schedule by $5,000 to $10,000 per year. On recross, defense counsel also inquired why Killion had not found Warner's testimony credible, and elicited the answer that Warner had testified untruthfully before the grand jury and had shown a selective memory. On re-redirect, Killion elaborated further on his reasons for disbelieving Warner, including Warner's failure to report income on his tax returns. On re-recross, defense counsel attempted to show that prosecution witness Robert Hedrick had also failed to file income tax returns. The court ruled that Hedrick's credibility had not been raised on re-redirect and was therefore outside the permissible scope of re-recross. This was well within the court's discretion, for "[m]ore strictly than with cross-examination, a court may limit recross to the subject matter of redirect and may exercise extensive discretion over its scope." United States v. Honneus, 508 F. 2d 566, 573 (1st Cir. 1974), cert. denied, 421 U. S. 948 (1975); see also Fed. R. Evid. 611(a), (b).

Defendant's next objection goes to the court's limitation of his cross-examination of another prosecution witness, Special Agent Richard Walsh. On cross-examination, defense counsel offered a photocopied excerpt from a newspaper or brochure in which the defendant was quoted as saying that he had inherited the antique collection in his home from his late father. The excerpt was admitted on the limited issue of the adequacy of the Government's pretrial investigation, and not to show the value of antiques or the truth of any quoted statement. On recross, the court permitted defense counsel to point out the defendant's quoted statement in the excerpt and question Walsh concerning his investigation, but not to read the excerpt aloud before the jury. Walsh summarized the passage in question as suggesting that Sorrentino "inherited antiques from his father when he passed on," and then described his investigation of probate and tax records, as well as his interviews with the defendant's two sisters. The court acted well within its discretion in refusing to permit defense counsel to read the excerpt aloud: such a reading was not only outside the limited purpose for which the excerpt had been admitted, but might well have led the jury to give undue weight to its unsubstantiated contents. Fed. R. Evid. 611(a).

The district court also sustained an objection to defense counsel's question whether Walsh had asked defense counsel himself for leads in the course of the investigation. The question was improper under the circumstances because Walsh's answer would necessarily have brought out the fact that the defendant had invoked his privilege against self-incrimination following the initial interview with Walsh. The court's ruling was, therefore, correct.

The court also sustained objections to defense counsel's questions whether Walsh had gone through all the records of auctioneers who might have dealt with the defendant during the indictment years. Walsh had just indicated that he had spent eight months going through bank records, and had previously indicated on redirect that it was difficult to locate dealings with specific individuals among the auctioneers' records because they were arranged by date rather than name. Although defense counsel's line of questioning was not clearly irrelevant, it was potentially cumulative and harassing, and was properly excluded. Fed. R. Evid. 611(a). The cases cited by defendant concerning the scope of cross-examination for bias are inapposite.

Defendant next objects to the striking of an appraisal offered by his expert witness, Robert Luddington. Luddington, manager of Jordan Marsh's interior design department, was qualified to give expert testimony on the value of antiques. Although he had visited the defendant's Bradford Street museum and seen the antiques it contained several years previously, he had never made an official appraisal of those antiques because his function at the time involved only interior decoration. At trial, with his memory refreshed by photographs of the museum rooms in their former condition, he offered an "overall" "top-of-the-hat appraisal." Luddington himself conceded that an "official" appraisal would have involved viewing each individual antique and writing a description of it, which he had not done. He stated that he was "not [in court] as an appraiser" and that he had never made an official appraisal of the museum antiques. Although he may have been technically qualified, his expertise was irrelevant: the appraisal lacked a factual foundation, and could not "assist the trier of fact to understand the evidence or to determine a fact in issue," Fed. R. Evid. 702.

Defendant further assigns as error four occasions on which the district court limited the defendant's own testimony on direct examination. First, the court struck defense counsel's question whether the defendant had "some understanding as to why [Diego, an antique dealer] insisted on dealing only in cash," on the ground that even if the answer came within the state-of-mind exception to the hearsay rule, the defendant's state of mind was irrelevant because Diego was the one who insisted on cash dealing. Several witnesses had already testified that Diego dealt only in cash, and defense counsel was permitted to elicit confirmation of that fact from the defendant.

On the second occasion, the court sustained an objection to defendant's testimony concerning a conversation with a prosecution witness, former Crown & Anchor manager Hedrick, in which Hedrick allegedly had demanded a cash salary so that he could avoid reporting it. Defendant had already testified that Hedrick was responsible for instituting the Crown & Anchor's cash payroll. The court ruled that the earlier testimony had already established that the cash payroll originated with Hedrick, and that the subsequent testimony was merely cumulative.

On the third occasion, the defendant began to testify concerning an incident when Hedrick, having been fired from the Crown & Anchor, returned seeking a letter of recommendation from the defendant. The district court permitted defense counsel to elicit the essential facts: James McNearney, another Crown & Anchor employee, was confronted by Hedrick with a favorably drafted letter to type up for defendant's signature; McNearney called the defendant to tell him that the draft was not acceptable; the defendant instructed McNearney to draft a letter that he could sign; McNearney did so; and the defendant signed the resulting letter. The court cut off inquiry into the contents of Hedrick's original draft and the number of calls between McNearney and the defendant because McNearney had previously testified to the incident in detail.

The fourth challenged ruling relates to defense counsel's questions relating to defendant's testimony that he left the Crown & Anchor bookkeeping responsibilities to Hedrick and did not maintain records himself. The court sustained an objection to defense counsel's question as to what Hedrick told the defendant about his bookkeeping experience, and rejected an offer of proof that the defendant had difficulty with arithmetical computations.

The district court "retains considerable latitude even with admittedly relevant evidence in rejecting that which is cumulative, and in requiring that which is to be brought to the jury's attention to be done so in a manner least likely to confuse that body." Hamling v. United States, 418 U. S. 87, 127 (1974). We endorse the general rule that a trial court's rulings on relevance and admissibility will not be disturbed unless there is abuse of discretion, see United States v. Allison, 474 F. 2d 286, 288-89 (5th Cir. 1973), cert. denied, 419 U. S. 851 (1974). In each of the four instances assigned as error, the district court excluded testimony on the basis of irrelevance, redundancy, or confusion. Although a different trial court might well have allowed the testimony in evidence, we cannot say that there was any abuse of discretion here, nor can we see any prejudice to the defendant.

Finally, defendant objects to the exclusion of an offer of proof relating to the amount of door receipts. Through the testimony of Chester Warner, defense counsel offered to prove the door receipts by using the following formula: total bar receipts from a representative week; divided by the average expenditure on drinks per customer; minus the proportion of free netry passes; multiplied by the admission charge; multiplied by the number of weeks in the summer season. The week's total bar receipt figure was documented by Crown & Anchor daily sheets, but the other figures were essentially guesses by Warner. The average expenditure on drinks per customer, allegedly $5.00, came from a "study" of unspecified nature put together by Warner and the defendant; the proportion of free entry passes was loosely estimated by Warner as 30% for the Crown & Anchor's cocktail show and 50% for the Disco each evening; and the amount of the admission charge was disputed, with estimates ranging from $2.00 to $5.00. Moreover, Warner had repeatedly testified to his lack of personal knowledge concerning collection and distribution of the cash collected at the door and at the bars. The court excluded the offered proof as "sheer speculation." The ruling was entirely proper; Warner could not testify to transactions of which his personal knowledge was so tenuous and for which no factual foundation had been laid. See Fed. R. Evid. 602.

We therefore hold that there was no error in the court's evidentiary rulings.

III. Seating Arrangement

At the outset of the trial, Judge Caffrey ordered the defendant to sit in the front row of the spectators' section rather than at the counsel table. Defense counsel complained that this would make it difficult to communicate with the defendant, but Judge Caffrey assured counsel that he was "free to go back any time [he] want[ed] and I won't make any comment of any kind and neither will the government counsel if you with to confer with him. . . . You can talk to him any time you wish. . . ." Defendant now claims that this seating arrangement violated his sixth amendment right to effective assistance of counsel.

Judge Caffrey gave no particular reason for his order, but apparently relied on our decision in United States v. Turkette, 656 F. 2d 5 (1st Cir. 1981), in which we upheld against a due process challenge his requirement in a previous case that four defendants sit together in the spectators' area. 5 We specifically distinguished the spectators' section from the constitutionally suspect prisoner's dock used in Massachusetts:

[T]he dock is a four-foot high box in which the accused is isolated. . . . Here, the defendants sat in the front row of the spectator's area of the courtroom, hardly a place calculated to strip an accused of his presumption of innocence in the eyes of the jury. The defendants were no more isolated than they would have been if seated with their attorneys, as is ordinarily the case.

Id. at 9-10 (emphasis added). Where special circumstances, such as the number of defendants, see e.g., Turkette, make it impractical for defendants to sit at the counsel table, "as is ordinarily the case," the seating arrangement is necessarily "a matter best left to the discretion of the trial court," id. at 10.

The district court here articulated no reasons for refusing defendant's request to sit at the counsel table. We hold that absent reasons of security or, as in Turkette, practicality, a defendant has the right to be seated at the same table as his attorney. We find, however, that no prejudice resulted here, for there is no evidence that the seating arrangement prevented or unduly hindered communication between defendant and his counsel. See Blackwell v. Wolff, 403 F. Supp. 759, 765 (D. Neb.), aff'd, 526 F.2d 1142 (8th Cir. 1975). The error was therefore harmless, see United States v. Morrison, 449 U. S. 361, 365 (1981).

IV. Jencks Act Material

At trial, the Government called Special Agent Richard Walsh as a witness. According to routine IRS practice, Walsh had prepared a "special agent's report" summarizing his pretrial investigation. Defense counsel requested production of the report pursuant to the Jencks Act, 18 U. S. C. 3500, but the motion was denied.

The Jencks Act provides:

After a witness called by the United States has testified in direct examination, the court shall, on motion of the defendant, order the United States to produce any statement (as hereinafter defined) of the witness in the possession of the United States which relates to the subject matter as to which the witness has testified. If the entire contents of any such statement relate to the subject matter of the testimony of the witness, the court shall order it to be delivered directly to the defendant for his examination and use.

18 U. S. C. 3500(b).

"The term "statement", as used in subsections (b), (c), and (d) of this sectioin in relation to any witness called by the United States, means--

(1) a written statement made by said witness and signed or otherwise adopted or approved by him[.]

28 U. S. C. 3500(e)(1).

In order to meet the requirements of the Act, the material must be a written statement signed, adopted or approved by the prosecution witness which relates to the subject matter of the witness's testimony. In the present case, the record does not clearly show the basis for the district court's ruling. Judge Caffrey merely said, "I don't think it's Jencks Act material. You have got his statement of interviews with the witnesses, but I don't think the case agent's report is the type of thing that comes under that." It is also unclear whether the district court ever examined the report to determine which portions, if any, were producible. The Government stated at trial that the report consisted mostly of a net worth analysis of the defendant and that all material concerning Walsh's interview with the defendant was already included in an interview memo made available to the defense. Defense counsel stipulated that the net worth analysis could be excised, and limited his request to the remaining material.

On appeal, the Government concedes that it was error for the district court not to require production of appropriate sections of the report. We are, therefore, at a loss to understand why the Government did not produce the report on its own initiative at trial. The report is clearly a "statement" under 18 U. S. C. 3500(e)(1), see United States v. Cleveland [73-1 USTC 9357], 477 F. 2d 310, 315-16 (7th Cir. 1973), cited in United States v. Del Toro Soto, 676 F. 2d 13, 16-17 (1st Cir. 1982). The district court should, therefore, have examined it to determine which portions were producible; if the district court failed to do so, because it either thought the report was not a statement or assumed that the material was identical to the interview memo already turned over to the defense, this was error. United States v. Johnson, 521 F. 2d 1318, 1320 (9th Cir. 1975).

Under the circumstances, we decline the Government's invitation to review the report and rule on it at this stage. That is not our task. See Goldberg v. United States, 425 U. S. 94, 108 (1976). Under our case law, the appropriate procedure is to remand to the district court with instructions to examine the report and determine which portions, if any, relate to Walsh's trial testimony and are thus producible. 6 Del Toro Soto, 676 F. 2d at 17. We further direct the district court to make the producible portions of the report available to defense counsel and then to hold a hearing to determine whether the Government's failure to turn over the report at trial materially prejudiced the defense. If there was material prejudice, a new trial must, of course, be granted. If, on the other hand, the producible portion of the report "is merely duplicative of material already in the defendant's possession," United States v. Medel, 592 F. 2d 1305, 1316-17 (5th Cir. Court rejected this approach because the from Walsh's trial testimony, United States v. Sink, 586 F. 2d 1041, 1051 (5th Cir. 1978), cert. denied, 443 U. S. 912 (1979), or could not have materially enhanced defense counsel's cross-examination of Walsh, see Del Toro Soto, 676 F. 2d at 16; Johnson, 521 F. 2d at 1320, then the error was harmless and the verdict and judgment will stand. See Rosenberg v. United States, 360 U. S. 367, 371 (1959).

The case is remanded to the district court for further proceedings consistent with the foregoing. If the district court finds that a new trial is necessary, then the verdict will be set aside and the judgment of conviction reversed. If the district court finds that the error was harmless, then the verdict and judgment of the district court is affirmed.

* Of the United States Court of International Trade, sitting by designation.

1 The amounts for 1977 and 1978 were revised during the trial to $88,802.42 and $65,640.84, respectively. This does not affect the adequacy of the Government's proof, for the Government need prove only that the amount of tax evaded was substantial. It is not necessary to prove the exact amount. United States v. Nunan [56-2 USTC 9876], 236 F. 2d 576 (2d Cir. 1956), cert. denied, 353 U. S. 912 (1957).

2 Under the "leads doctrine," the Government is obligated to "track down relevant leads furnished by the taxpayer--leads reasonably susceptible of being checked, which, if true, would establish the taxpayer's innocence. When the Government fails to show an investigation into the validity of such leads, the trial judge may consider them as true and the Government's case insufficient to go to the jury." Holland, 348 U. S. at 135-36. Leads, of course, must be given a sufficient amount of time before trial to permit investigation; where there is no evidence that the defendant gave leads to the Government before trial, the issue is properly left to the jury. United States v. Vardine [62-2 USTC 9624], 305 F. 2d 60, 65 (2d Cir. 1962).

3 We reject as spurious the defendant's attempt to recast the Trust as a corporation under Treas. Reg. 301.7701-2. Four of the characteristics listed by the defendant--centralization of management, continuity of life, free transferability of interests, and limited liability--are common to both corporations and trusts, and are therefore not material in attempting to distinguish between the two forms of taxable entities. Id. Furthermore, although the IRS may look past the declared form of a taxable entity to determine its actual nature, the taxpayer is not free to disregard a tax characterization which he has adopted for his own purposes and for reasons sufficient to him. See Moline Properties, Inc. v. Commissioner [43-1 USTC 9464], 319 U. S. 436, 438-39 (1943).

4 An "adverse party" is defined in 26 U. S. C. 672(a) as a "persno having a substantial beneficial interest int he trust which would be adversely affected by the exercise or nonexercise of the power which he possesses respecting the trust." Warner could in no event qualify as an adverse party to an extent greater than his 10% beneficial interest, if at all. See Laganas v. Commissioner [60-2 USTC 9657], 281 F. 2d 731, 735 (1st Cir. 1980); Treas. Reg. 1.672(a)-1(b).

5 No sixth amendment issue was raised in Turkette; the defendants raised no claim that they could not communicate effectively with their attorneys during the trial. 656 F. 2d at 10.

6 In addition to portions of the report which are not relevant to Walsh's trial testimony, see United States v. Medel, 592 F. 2d 1305, 1317 (5th Cir. 1979), the portions which merely set out the net worth analysis introduced in the Government's net worth schedule at trial may be excised, according to defense counsel's stipulation.

 

 

 

[91-2 USTC 50,470] United States of America, Plaintiff-Appellee v. Patrick J. Notch, Defendant-Appellant

(CA-10), U.S. Court of Appeals, 10th Circuit, 90-1172, 7/12/91 , 939 F.2d 895. Affirming an unreported District Court decision

[Code Secs. 446 and 7206 ]

Fraud: Reconstruction of income: Net worth method: Burden of proof: Conspiracy to defraud.--An individual taxpayer's conviction on three counts of filing false income tax returns was not improper because evidence was sufficient under the net worth method of reconstructing income to establish that he underreported income from an adult video arcade in which he was a 50 percent partner. The government was not required to negate all possible nontaxable explanations of the taxpayer's increase in net worth, only those explanations offered by the taxpayer. The taxpayer's assertion that his net worth was inflated because it took into account only 50 percent of partnership liabilities was unsupported by any evidence, and was negated by testimony of the taxpayer's partner and accountant. The taxpayer's assertion that loan amounts shown in his books were inaccurate was similarly unsupported and a factual determination for the jury. It was not error for the district court to allow testimony of a government expert that the reconstruction of income did not take into account personal expenses because such expenses are nondeductible. The government's conservative approach worked for the taxpayer's benefit rather than against him. Finally, the conspiracy count against the taxpayer was proper in that its object went beyond filing false tax returns; it was to conceal taxable income. Several methods were used to prevent the IRS from accurately ascertaining and collecting income tax, including filing of false returns, but the taxpayer and his partner also concealed income through false accounting records and paying salaries and bonuses in cash.

Michael J. Norton, United States Attorney, William R. Lucero, Assistant United States Attorney, Denver, Colo. 80294, for plaintiff-appellee. Rick Budd, Benjamin Spitzer, Budd & Spitzer, P.C., 2170 S. Parker Rd., Denver, Colo., for defendant-appellant.

Before MCKAY and ANDERSON, Circuit Judges, and CHRISTENSEN 1, District Judge.

MCKAY, Circuit Judge:

Patrick Notch appeals from a jury verdict convicting him on three counts of filing a false income tax return for 1983, 1984, and 1985 in violation of 26 U.S.C. 7206(1) (1988). He also appeals his conviction on one count of conspiracy to defraud the United States in violation of 18 U.S.C. 371 (1988).

At trial, the government used the net worth method of proof to establish that defendant understated his income on his personal income tax returns. After the jury returned its verdict, the defendant filed a Motion for Judgment of Acquittal on the basis of sufficiency of the evidence. He also filed a Motion for New Trial and a Motion for Judgment Notwithstanding the Verdict. The district court denied the motions.

In this appeal, defendant attacks his conviction on three grounds, alleging that: (1) there was insufficient evidence to establish the net worth method of proof for 1983, 1984 and 1985; (2) the district court erred when it allowed the government to introduce evidence that permitted the jury to improperly speculate as to his personal expenses; and (3) the government incorrectly charged him with conspiracy to defraud the United States.

I.

The Internal Revenue Service began an investigation of defendant and his partner, Walter Burkey, in 1986. The investigation focused on a scheme by the defendant and Mr. Burkey in which they agreed to conceal and not report to the IRS money generated from six adult bookstores in the Denver, Colorado area. Eighty to ninety percent of the money came from customers viewing pornographic videos in private booths, also known as video arcades, located in the bookstores.

The financial relationship between defendant and Mr. Burkey began in 1974 when Mr. Burkey hired defendant to work as a part-time clerk in his adult bookstores. By 1976, Mr. Burkey, through his business entitled Burkey Management, owned four stores. He promoted defendant to general manager to run them.

The businesses were very profitable under defendant's direction. Burkey Management added a fifth adult bookstore. In 1983, Mr. Burkey and defendant entered into a number of business transactions as equal partners. They purchased a sixth store called the Ward Road Bookstore. They also purchased real estate in Missouri and on South Federal Street in Denver. Their partnership operated during 1981, 1982, and the first three months of 1983. They then liquidated the partnership and formed a corporation called Ward Road Bookstore, Inc., in which they were equal and sole shareholders. The corporation owned Ward Road Bookstore and the properties on South Federal Street and in Missouri.

During the period from 1976 to 1985, defendant was paid fifteen percent of the net profits from the adult bookstores as compensation for managing them. The six stores grossed approximately $20,000 per week from the video arcades. Mr. Burkey and defendant agreed they would not report these funds to the IRS. Testimony at trial showed that fifty percent of the arcade money was not reported. To hide the evidence of their income, Mr. Burkey and defendant used perforated accounting sheets on which the true amount of cash generated daily from the bookstores appeared on a bottom portion that was discarded, and another false figure was maintained as a record on the top portion. In addition, unreported income was placed in a safety deposit box. A third method to hide income was to falsify the total compensation to employees on their W-2 forms.

Because defendant's records were inadequate to accurately establish his income, the government used the net worth method of proof. The government's expert testified that defendant had understated his income on his personal income tax returns for 1983, 1984, and 1985 in the amounts of $4,582, $70,744, and $32,992 respectively. The likely source of the increase in defendant's net worth was cash generated from the video arcades.

II.

In reviewing the district court's denial of defendant's Motion for Judgment of Acquittal, we must examine all the evidence--both direct and circumstantial, together with the reasonable inferences to be drawn therefrom--in the light most favorable to the government. United States v. Hooks, 780 F.2d 1526, 1529 (10th Cir.), cert. denied, 475 U.S. 1128, 106 S.Ct. 1657, 90 L.Ed.2d 199 (1986). We must then determine whether a reasonable jury could find the defendant guilty beyond a reasonable doubt. United States v. Bowie, 892 F.2d 1494, 1497 (10th Cir.1990); Hooks, 780 F.2d at 1531. When direct evidence is lacking, a criminal conviction can be sustained solely on circumstantial evidence. Hooks, 780 F.2d at 1531.

The net worth method of reconstructing income relies on circumstantial evidence whereby the defendant's liabilities are subtracted from his assets to establish a starting net worth at a particular time, usually the beginning of a tax year. The same calculation is made at the end of the year and compared to the starting net worth to determine defendant's increase in net worth over that time. See United States v. Terrell [85-1 USTC 9249 ], 754 F.2d 1139, 1144 (5th Cir.), cert. denied, 472 U.S. 1029, 105 S.Ct. 3505, 87 L.Ed.2d 635 (1985). An increase or "bulge" greater than the increase in reported income for the corresponding tax year creates an inference of unreported income. Holland v. United States [54-2 USTC 9714 ], 348 U.S. 121, 75 S.Ct. 127, 99 L.Ed. 150 (1954).

Under the net worth analysis the government must accurately establish defendant's opening net worth, identify a likely source of taxable income, and reasonably investigate any leads that suggest defendant properly reported his income. United States v. Gomez-Soto [84-2 USTC 9584 ], 723 F.2d 649 (9th Cir.), cert. denied, 466 U.S. 977, 104 S.Ct. 2360, 80 L.Ed.2d 831 (1984). We must closely scrutinize the net worth analysis due to "the difficulties that arise when circumstantial evidence as to guilt is the chief weapon of a method that is itself only an approximation." Holland [54-2 USTC 9714 ], 348 U.S. at 129, 75 S.Ct. at 132.

A.

Defendant alleges several flaws in the government's net worth calculation, each of which concerns the bookkeeping of Ward Road Bookstore, Inc. His first contention is that the evidence failed to accurately establish his liabilities. He argues that the government incorrectly allocated to him only fifty percent of a Loans Payable amount listed on the corporation's tax returns. The government did so because he and Mr. Burkey were equal partners, but defendant asserts that no evidence was presented establishing that he, in fact, owed only fifty percent of the money. 2

Defendant also argues that the government's net worth calculation is flawed because the loan amounts were listed on the corporation's books for March 31 of 1984, 1985, and 1986 yet the government assigned these liabilities to December 31 of 1983, 1984, and 1985. He therefore contends that the government failed to produce any evidence sufficient for the jury to determine the liability balances that defendant owed Ward Road Bookstore, Inc., on December 31 of 1983, 1984, and 1985.

The burden of persuading the jury beyond a reasonable doubt that defendant wilfully falsified his tax returns remains with the government at all times. Holland [54-2 USTC 9714 ], 348 U.S. at 138, 75 S.Ct. at 136; United States v. Scott [81-2 USTC 9663 ], 660 F.2d 1145, 1160 (7th Cir.1981), cert. denied, 455 U.S. 907, 102 S.Ct. 1252, 71 L.Ed.2d 445 (1982). In a net worth case, however, the government makes out a prima facie case when it has proved income greater than the income reported, the existence of a likely source of taxable income, and an effective negation of reasonable explanations by defendant inconsistent with guilt. Holland [54-2 USTC 9714 ], 348 U.S. at 135-38, 75 S.Ct. at 135-37; Scott [81-2 USTC 9663 ], 660 F.2d at 1160-61. It is defendant's burden to furnish leads that might explain the increases in net worth so the government can investigate these leads before trial. United States v. Caswell [87-2 USTC 9452 ], 825 F.2d 1228, 1234 (8th Cir.1987); Terrell [85-1 USTC 9249 ], 754 F.2d at 1146. Once the government has established its case, a defendant who elects to rely on the jury finding some reasonable doubt remains quiet at his peril. Id. at 138-39, 75 S.Ct. at 137; Scott [81-2 USTC 9663 ], 660 F.2d at 1161; United States v. Cramer [71-2 USTC 9565 ], 447 F.2d 210, 218 (2d Cir.1971), cert. denied, 404 U.S. 1024, 92 S.Ct. 680, 30 L.Ed.2d 674 (1972).

Here, the government's thorough investigation made out a prima facie case. At trial, the government presented the testimony of defendant's partner, Mr. Burkey. He stated that the mortgage payments on three properties owned equally by defendant and himself (the Ward Road Bookstore and the properties on South Federal Street and in Missouri) were made by Ward Road Bookstore, Inc. In addition, one of defendant's witnesses, an accountant retained to prepare his tax returns, testified that the loan amounts listed on the corporation's tax returns represented mortgage payments on these properties. These sums were also included on the corporation's accounting worksheets as loans to shareholders, a group comprised of defendant and Mr. Burkey whose ownership interests were equal. The evidence also showed that they agreed not to report the money from the video arcades to the IRS.

Moreover, defendant did not put on evidence rebutting the government's evidence that the loans were not made during the calendar tax year. Nor did he attempt to rebut the showing that the amount he owed was fifty percent of the loans. Defendant's assertion that the net worth analysis is fatally flawed because of the possibility that the loans could have been made during a time other than the tax years charged, or the possibility that the loans might have been in a proportion different than the equity interests of defendant and Mr. Burkey, does not rise to the level of a reasonable explanation inconsistent with guilt that the government has the burden to negate. See Holland [54-2 USTC 9714 ], 348 U.S. at 135, 75 S.Ct. at 135; Scott [81-2 USTC 9663 ], 660 F.2d at 1160-61. The government is not required to disprove every possible source of nontaxable income. Holland [54-2 USTC 9714 ], 348 U.S. at 138, 75 S.Ct. at 137; United States v. Beasley [79-1 USTC 9107 ], 585 F.2d 796, 799 (5th Cir.1978), cert. denied, 440 U.S. 947, 99 S.Ct. 1426, 59 L.Ed.2d 636 (1979). Nor is the government required to document defendant's financial affairs to an absolute certainty before he can be convicted, particularly when the corporation itself did not keep records on the amounts loaned during the calendar tax year. Holland [54-2 USTC 9714 ], 348 U.S. at 138, 75 S.Ct. at 136; United States v. Dwoskin [81-1 USTC 9416 ], 644 F.2d 418 (5th Cir.1981). The net worth method of proof is itself an approximation.

Based on all the evidence, the jury could draw the conclusion that fifty percent of the loans were attributable to defendant. Likewise, the jury could infer that the loan amounts were attributable to loans made during the calendar tax years. Viewing the evidence in the light most favorable to the government, Hooks, 780 F.2d at 1529, we conclude that the evidence was sufficient to support defendant's conviction.

B.

Defendant also argues that the loan amounts are inaccurate because the corporation's cash entry in its books was never reconciled with the amount of cash on deposit in its bank account. Defendant asserts that the loan amounts were adjusted to make these two amounts match and that the loan figures do not accurately reflect the amount owed by defendant.

Whether the loan figures were accurate is a factual determination for the jury. On one hand, the government presented evidence showing the figures on the corporation's returns and what these amounts were used for. Defendant cast doubt on their accuracy during cross-examination of the government's expert witness and during direct testimony of his own expert by emphasizing that the corporate cash account and the bank account had not been reconciled. The defendant did not, however, present evidence conclusively demonstrating that the loan figures were inaccurate. The government need not prove the increase in defendant's net worth to a mathematical certainty. Holland [54-2 USTC 9714 ], 348 U.S. at 138, 75 S.Ct. at 137. It was permissible, therefore, for the jury to infer that the loan figures were accurate. The evidence was sufficient to support the jury's verdict.

III.

Defendant's next argument is that the district court erred by allowing the government to introduce evidence that permitted the jury to improperly speculate as to his personal expenses. At trial, the government's expert witness testified that she did not take into consideration defendant's personal expenditures for food and clothing in arriving at her net worth computation. Such expenses are non-deductible and, if included in the net worth analysis, would increase the amount of total income defendant was charged with failing to report.

Defendant objected to this testimony because it allegedly invited the jury to speculate that his increase in net worth was greater than the amount the government was attempting to prove. The district court's decision to allow the government's expert to testify on this matter will not be overturned absent an abuse of discretion. See LeMaire v. United States, 826 F.2d 949, 953 (10th Cir.1987); United States v. Cooper, 733 F.2d 1360, 1366 (10th Cir.), cert. denied, 467 U.S. 1255, 104 S.Ct. 3543, 82 L.Ed.2d 847 (1984).

Personal expenditures for food and clothing are usually included in the net worth calculation. Holland [54-2 USTC 9714 ], 348 U.S. at 125, 75 S.Ct. at 130. The government's expert did not include food and clothing expenditures in her net worth analysis because she could not verify these figures. This conservative approach to the net worth computation made the analysis appear more credible. Although defendant characterizes the expert's testimony as an invitation to the jury to speculate that defendant's net worth was greater than the amount charged in the indictment, it can also be viewed as showing that the jury need not consider personal expenses in order to conclude that defendant understated his income. In these circumstances, we cannot say that the district court abused its discretion.

IV.

Defendant's final argument is that the government charged him under the wrong provision of 18 U.S.C. 371 . The statute provides that it is unlawful for "two or more persons [to] conspire either to commit an offense against the United States, or to defraud the United States . . . ." Count IV of the indictment charged defendant with conspiring to defraud the United States by impeding, impairing, obstructing, and defeating the lawful efforts of the IRS to ascertain, compute, assess, and collect income taxes. See 18 U.S.C. 371 . Defendant contends that he should have been charged under the offense provision of 18 U.S.C. 371 , not the fraud provision, because the evidence at trial was directed at proving that he had committed an "offense" against the United States, specifically, the offense of filing a false income tax return. He argues that he was wrongly charged and that his conviction must therefore be reversed.

Defendant principally relies on United States v. Minarik [90-1 USTC 50,085 ], 875 F.2d 1186 (6th Cir. 1989). In that case, the United States Court of Appeals for the Sixth Circuit held that the defendants could not be convicted when they had been indicted under the "defraud" clause of 18 U.S.C. 371 but the evidence showed only that they conspired to commit the specific statutory offense found in 26 U.S.C. 7206(4) (1988)--concealing assets upon which the IRS may impose a levy for taxes owed. The court in Minarik was particularly concerned that the broad language of the defraud provision prejudiced the defendant's ability to prepare for trial by allowing the prosecutor to indict without precisely setting forth the alleged crime. Id. at 1196; United States v. Reynolds [91-1 USTC 50,267 ], 919 F.2d 435, 439 (7th Cir. 1990), cert. denied, --U.S.--, 111 S.Ct. 1402, 113 L.Ed.2d 457 (1991); see also McNally v. United States, 483 U.S. 350, 361, 107 S.Ct. 2875, 2882, 97 L.Ed.2d 292 (1987) (refusing to interpret criminal fraud statute "in a manner that leaves its outer boundaries ambiguous"); Tanner v. United States, 483 U.S. 107, 107 S.Ct. 2739, 97 L.Ed.2d 90 (1987) (section 341 should not be broadly construed to criminalize activity not within its plain language).

Unlike the situation in Minarik, the facts of this case did not constitute only a conspiracy under the offense clause to violate 26 U.S.C. 7206(1) . See United States v. Bilzerian, 926 F.2d 1285, 1302 (2d Cir. 1991), petition for cert. filed, (May 22, 1991) (indictment under defraud clause proper where criminal activity broader than specific statutory prohibition). The object of the conspiracy went beyond filing false tax returns; it was to conceal taxable income in order to prevent the IRS from accurately ascertaining and collecting income taxes. Several methods were used so the IRS could not trace gains generated from the adult bookstores if it were to conduct a tax audit. One of these was the filing of false income tax returns. In addition, the defendant and Mr. Burkey concealed their income by using perforated accounting sheets on which the daily income from the video arcades was recorded and then discarded. Another device was the payment of salaries and bonuses in cash. Defendant also purchased cashier's checks with cash in order to buy property and hide the source of his income.

Furthermore, the indictment did not prejudice defendant's ability to prepare for trial. It listed numerous overt acts, including those discussed above. Defendant cannot complain that he was unaware of the activities on which the government based the conspiracy charge. Under these circumstances, the district court did not err in denying defendant's Motion for Judgment of Acquittal on Count IV.

For the foregoing reasons, the district court's denial of defendant's Motion for Judgment of Acquittal is AFFIRMED.

1 Honorable A. Sherman Christensen, United States Senior District Judge for the District of Utah, sitting by designation.

2 One of the line items in the liability section of the government's net worth computation was "Loans Payable: Ward Road Bookstore, Inc." in the following amounts:

 

 

Year Ending                                                       Amount

December 31, 1983
 ........................................  $22,037.00

December 31, 1984
 ........................................  $37,646.00

December 31, 1985
 ........................................  $37,646.00

 

According to defendant, he may have owed all of the loans, which, if true, would reduce his net worth and result in an overstatement of income for 1983. He argues that it would also cast sufficient doubt on the net worth calculations for 1984 and 1985 so that a jury could not find him guilty beyond a reasonable doubt.

 

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