Offenses by Officers & Employees of U.S. Page3

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 [Requested Instruction]

Appellant also claims prejudicial error because the trial court rejected his requested charge to the jury that he must be acquitted if the jury found that he was coerced by the revenue agents into making the payments he paid them. The trial court rejected this instruction because he found "not one scintilla of evidence in the case with regard to a shakedown." Our examination of the record confirms this conclusion, and we approve the forthright action of the court below in refusing to give the requested immaterial charge.

In three instances Umans did not pay the Internal Revenue agents until after they had completed their audits on the tax returns in issue, and, as to these payments, Umans claims there is no evidence in the record that the payments were made with intent to influence the agents, as required under 18 U. S. C. §201 and §201(b). This claim is without merit. Not only may Umans's similar acts involved in the other counts be considered with respect to his intent in making these three payments, United States v. Baneth, 155 F. 2d 978, 980 (2 Cir. 1946), but there is evidence in the record that indicates that in each of the three instances an arrangement or understanding with the agent had been arrived at, with payment to follow audit.

[Inspection of Grand Jury Minutes]

Appellant requested the trial judge to inspect the grand jury minutes. The request was refused. Because none of the government witnesses at the trial were witnesses before the grand jury, appellant claims that the trial judge should have inspected the minutes of the grand jury proceedings in order to determine whether there was testimony to support the indictment and whether there were inconsistencies between the testimony before the grand jury and that at trial. Appellant claims that the judge's failure to comply with his request was an abuse of discretion. There is no merit to this claim. The Government reveals that the indictment was based upon testimony of an Internal Revenue agent who summarized for the grand jury the contents of various affidavits of the witnesses who later testified at appellant's trial. While the grand jury testimony was not made available to appellant, these affidavits were furnished to him, and, even if the grand jury minutes had been turned over, the material therein would have added nothing to appellant's arsenal of information. Costello v. United States [56-1 USTC ¶9321], 350 U. S. 359 (1956), allows the Government to obtain indictments based on hearsay evidence.

While we are not condemning the procedure used here before the grand jury, we think it not amiss for us to state that excessive use of hearsay in the presentation of government cases to grand juries tends to destroy the historical function of grand juries in assessing the likelihood of prosecutorial success and tends to destroy the protection from unwarranted prosecutions that grand juries are supposed to afford to the innocent. Hearsay evidence should only be used when direct testimony is unavailable or when it is demonstrably inconvenient to summon witnesses able to testify to facts from personal knowledge. Appellant's claim of inconsistencies between grand jury and trial testimony is based on United States v. Borelli, 336 F. 2d 376 (2 Cir. 1964), cert. denied sub nom. Mogavero v. United States, 379 U. S. 560 (1956), which holds that the defendant is entitled for impeachment purposes to know about inconsistencies between the grand jury and trial testimony of trial witnesses. However, this claim was not raised by appellant at trial, and, even if it were, the claim has no merit, for appellant had the affidavits upon which the grand jury testimony was based.

[Statements of Government Witnesses]

Appellant maintains that he was prejudiced because statements of government witnesses were not turned over to him pursuant to his request under the Jencks Act, 18 U. S. C. §3500. These statements were sealed by the court. We have examined these sealed statements and find that they relate to payments received by the government witnesses from persons other than appellant, and the material not furnished to appellant in no way related to him. During the trial appellant cross-examined the government witnesses extensively as to their dealings with other persons. In each instance the witness admitted accepting money from other taxpayers' representatives. Since questions on cross-examination calling for details of other instances of bribery for which the witness had been indicted might properly have been excluded at trial, United States v. Irwin, 354 F. 2d 192, 198 (2 Cir. 1965), cert. denied, 383 U. S. 967 (1966), appellant was not prejudiced by the unavailability of the statements for impeachment purposes. None of the government witnesses were asked on direct examination about payments to them by persons other than appellant, and the withheld material did not directly relate to the subject matter of the witnesses' direct testimony. Under these circumstances, production was not required by the Jencks Act and the court's order sealing the statements was proper.

Appellant raises the question of the propriety of his being charged with aiding and abetting a violation of 26 U. S. C. §7214(a)(2) so as to preserve it for the United States Supreme Court. He does not urge it before this court, conceding that our opinion in United States v. Kenner, 354 F. 2d 780 (2 Cir. 1965), cert. denied, 383 U. S. 958 (1966), resolves the issue against him.

Appellant's final point that 18 U. S. C. §201(f) is void for vagueness need not be considered by us for we have vacated his convictions under that section on other grounds.

[Three Counts Vacated]

The judgment below should be affirmed except for the judgment of conviction upon the three counts charging violation of 18 U. S. C. §201(f), which is ordered vacated.

¹ Umans claims inconsistency between 26 U. S. C. §7214(a)(2):

§7214. Offenses by officers and employees of the United States

(a) Unlawful acts of revenue officers or agents.--Any officer or employee of the United States acting in connection with any revenue law of the United States--

(2) who knowingly demands other or greater sums than are authorized by law, or receives any fee, compensation, or reward, except as by law prescribed, for the performance of any duty;

* * *

shall be dismissed from office or discharged from employment and, upon conviction thereof, shall be fined not more than $10,000, or imprisoned not more than 5 years, or both. The court may in its discretion award out of the fine so imposed an amount, not in excess of one-half thereof, for the use of the informer, if any, who shall be ascertained by the judgment of the court. The court also shall render judgment against the said officer or employee for the amount of damages sustained in favor of the party injured, to be collected by execution.

which contains no element of intent on the part of a person bribing a public official and a provision which does require an intent to influence an official decision, 18 U. S. C. §201 (as effective until January 20, 19 63):

§201. Offer to officer or other person

Whoever promises, offers, or gives any money or thing of value, or makes or tenders any check, order, contract, undertaking, obligation, gratuity, or security for the payment of money or for the delivery or conveyance of anything of value, to any officer or employee or person acting for or on behalf of the United States, or any department or agency thereof, in any official function, under or by authority of any such department or agency or to any officer or person acting for or on behalf of either House of Congress, or of any committee of either House, or both Houses thereof, with intent to influence his decision or action on any question, matter, cause, or proceeding which may at any time be pending, or which may by law be brought before him in his official capacity or in his place of trust or profit, or with intent to influence him to commit or aid in committing, or to collude in, or allow, any fraud, or make opportunity for the commission of any fraud, on the United States, or to induce him to do so omit to do any act in violation of his lawful duty, shall be fined not more than three times the amount of such money or value of such thing or imprisoned not more than three years, or both.

He also claims inconsistency between 18 U. S. C. §201(f) (which became effective January 21, 19 63):

(f) Whoever, otherwise than as provided by law for the proper discharge of official duty, directly or indirectly gives, offers, or promises anything of value to any public official, former public official, or person selected to be a public official, for or because of any official act performed or to be performed by such public official, former public official, or person selected to be a public official;

* * *

Shall be fined not more than $10,000 or imprisoned for not more than two years, or both, and which contains no element of intent to influence an official act and a provision which does require such intent, 18 U. S. C. §201(b):

(b) Whoever, directly or indirectly, corruptly gives, offers or promises anything of value to any public official or person who has been selected to be a public official, or offers or promises any public official or any person who has been selected to be a public official to give anything of value to any other person or entity, with intent--

(1) to influence any official act; or

(2) to influence such public official or person who has been selected to be a public official to commit or aid in committing, or collude in, or allow, any fraud, or make opportunity for the commission of any fraud, on the United States; or

(3) to induce such public official or such person who has been selected to be a public official to do or omit to do any act in violation of his lawful duty,

* * *

Shall be fined not more than $20,000 or three times the monetary equivalent of the thing of value, whichever is greater, or imprisoned for not more than fifteen years, or both, and may be disqualified from holding any office of honor, trust, or profit under the United States .

 

 

[67-2 USTC ¶9716] Sam Umans, Petitioner v. United States

Supreme Court of the United States , No. 41, 389 US 80, 88 SCt 253, 11/6/67

On Writ of Certiorari to the United States Court of Appeals for the Second Circuit.

[1954 Code Sec. 7214(a)(2) and 18 U. S. C. 201]

Crimes: Bribery of Internal Revenue Service agents: Conviction.--The Supreme Court dismissed the writ of certiorari previously granted to a taxpayer who had been convicted of offering bribes to Internal Revenue Service agents and of aiding and abetting such agents in receiving illegal compensation for the performance of their duties. The writ was deemed improvidently granted.

Edward Brodsky, William Esbitt, 655 Madison Ave. , New York , N. Y., for petitioner. Ralph S. Spritger, Acting Solicitor General, Fred M. Vinson, Jr., Asst. Attorney General, Beatrice Rosenberg, Sidney M. Glazer, Dept. of Justice, Washington, D. C., for U. S.

PER CURIAM:

The writ of certiorari is dismissed as improvidently granted.

MR. JUSTICE HARLAN would affirm the judgment of the Court of Appeals substantially for the reasons stated in Judge Waterman's opinion for that court in United States v. Umans [66-2 USTC ¶9759], 368 F. 2d 725.

MR. JUSTICE MARSHALL took no part in the consideration or decision of this case.

 

 

 

 

[66-2 USTC ¶9767] United States of America , Appellee v. William Marks, Jr., Defendant-Appellant

(CA-2), U. S. Court of Appeals, 2nd Circuit, Docket No. 30498, 368 F2d 566, 11/9/66, Aff'g an unreported District Court decision

[1954 Code Sec. 7214(a)(2)]

Crimes: Offenses by U. S. employees: Aiding and abetting: bribery.--The taxpayer's convictions for bribery of an IRS agent and aiding and abetting an IRS agent to commit an unlawful act were affirmed. The court rejected his contention that the use of the uncorroborated testimony of his accomplices was improper along with his contention that his cross-examination was improperly limited.

Otto G. Obermaier, 60 E. 42nd, New York, N. Y., Robert M. Morgenthan, United States Attorney, Michael W. Mitchell, Assistant United States Attorney, New York, N. Y., for appellee. Maurice Edelbaum, 250 Broadway, New York , N. Y., for appellant.

Before WATERMAN, HAYS and ANDERSON , Circuit Judges.

PER CURIAM:

Appellant was convicted by jury verdict on two counts of bribing employees of the Internal Revenue Service and on two counts of aiding and abetting these employees in violating 26 U. S. C. §7214(a)(2).

Appellant contends that the federal rule permitting conviction on the uncorroborated testimony of accomplices is not one of invariable application, but that it is the "better practice" to require corroboration and that the circumstances of the present case call for the use of this "better practice." An identical contention was advanced in United States v. Armone, 363 F. 2d 385, 402 (2d Cir. 1966) and was rejected by this court in an opinion which cited United States v. Kelly, 349 F. 2d 720 (2d Cir. 1965), cert. denied, 384 U. S. 947 (1966). In the present case the trial judge instructed the jury that the government's witnesses were accomplices and that:

"You must, therefore, scrutinize their testimony with special care and act upon it with caution."

Appellant also argues that his trial was unfair because the court prevented the defense from cross-examining accomplice witnesses as to other occasions on which they had accepted bribes. Defendant was permitted to bring out that the government's witnesses had been convicted for accepting bribes, that they had not yet been sentenced and that they were testifying in the hope of avoiding jail sentences. It was well within the trial judge's discretion to limit further cross-examination on the issue of credibility. United States v. Irwin, 354 F. 2d 192 (2d Cir. 1965), cert. denied, 383 U. S. 967 (1966).

Affirmed.

 

 

 

 

[68-1 USTC ¶9132] United States of America , Appellee v. Martin Cohen, Defendant-Appellant

(CA-2), U. S. Court of Appeals, 2nd Circuit, Docket No. 30993, 387 F2d 803, 12/19/67, Affirming unreported District Court decision

[1954 Code Sec. 7214]

Crimes: Inducing IRS agents to receive unlawful fees: Gratuity given to public official.--A jury verdict finding the defendant guilty of aiding and abetting the receipt by revenue agents of unlawful fees and of the giving of a gratuity not authorized by law to a public official was affirmed. The trial court committed no reversible error.

Stanley Hendricks, 565 5th Ave. , New York , N. Y., for appellant. Robert M. Morgenthau, United States Attorney, Robert L. Latchford, Jack Kaplan, Pierre N. Leval, Assistant United States Attorneys, New York, N. Y., for appellee.

Before MOORE, SMITH and KAUFMAN, Circuit Judges.

MOORE, Circuit Judge:

Martin Cohen (Cohen), defendant-appellant, appeals (1) from a judgment of conviction entered upon a jury verdict, and (2) from the denial of a motion for a new trial. The indictment had named Cohen and five co-defendants and had alleged a conspiracy count and twenty-two substantive counts. Prior to trial, the conspiracy count was dismissed and the five co-defendants pleaded guilty to various counts. The trial therefore proceeded against Cohen alone on counts 2 through 23.

In substance, counts 2 through 11 charged Cohen with giving money to Internal Revenue Service agents to influence their official acts (bribery), 18 U. S. C. Sec. 201, 62 Stat. 69 (Act of June 25, 19 48); count 12 involved a 1963 payment to an agent in violation of the amended (1962) and presently effective bribery statute, 18 U. S. C. Sec. 201(b); count 13 charged the defendant with giving a gratuity or other payment not authorized by law to a public official in violation of 18 U. S. C. Sec. 201(f) with respect to the same 1963 payment; and counts 14 through 23 involved the same payments as alleged in counts 2 through 11 but as receipts by the agents of unlawful fees, 26 U. S. C. Sec. 7214(a)(2) and Cohen's participation therein under the aiding and abetting statute, 18 U. S. C. Sec. 2.

On the trial, the indicted agents who pleaded guilty all testified against Cohen; in defense, Cohen denied the charges. The jury convicted. Were the issuance of veracity the only appellate question, immediate affirmance would be in order. However, the nature of the indictment counts and the jury's resolution thereof, namely, acquittal on counts 2 through 12 and conviction on counts 13 through 23 raise questions not only technical but which, as Cohen argues, may have so confused the jury that he was deprived of a fair trial. Without belittling Cohen's many appellate points, his primary contention would seem to be that the indictment divides the one offense, i. e., payment, into two offenses, payment by Cohen to the agents and receipts by the agents with Cohen the payor, thus aiding and abetting this offense. Cohen asks, in effect, how he could have been acquitted of the bribe payments and have been convicted of aiding and abetting the receiving of the same payment and giving a gratuity. Resolution of these questions requires an analysis of the essential elements of the respective statutes. In addition, consideration must be given to Cohen's argument that Milanovitch v. United States, 365 U. S. 551 (1961), is controlling and requires reversal.

The Statutes

Section 201, Title 18, ¹ makes it a crime to give money to a person acting for any agency of the United States in any official function with intent to influence his decision.

Section 7214, Title 26, ² on the other hand, merely makes it a crime for a revenue agent to receive compensation, except as by law prescribed, for the performance of any duty.

Section 2, Title 18, ³ would apply to Cohen's inducing or procuring the agents' commission of the crime of receiving.

Section 201(f), Title 18, ⁴ proscribes the giving of a gratuity or other payment not authorized by law to a public official for or because of any official act performed by that person.

Although it is not for the court to speculate as to the rationale used by the jury to acquit on the bribery counts and to convict on the aiding and abetting receiving counts, the differences in findings requisite to conviction are sufficiently clear. The aiding and abetting counts, unlike the bribery counts, require proof that the Internal Revenue Agent received a fee, not prescribed by law, for the performance of his duty. ⁵ The bribery counts, unlike the aiding and abetting counts, require proof of a specific corrupt intent to influence official action. ⁶ From a time standpoint alone, bribery requires that money be given or promised with the intent to influence an official's decision before that decision is reached. The payments in this case were made after the favorable audit reports had been submitted to Cohen and signed by his taxpayer clients. The jury therefore might well have considered that the requisite evidence as to intent was lacking, but that the payments were in the Section 7214 category, and that Cohen enabled the auditors to receive illegal compensation for the performance of their duty because that performance met with his satisfaction, thereby violating 18 U. S. C. §2.

Milanovitch, supra, did not involve these two distinct situations. There the defendant was charged (1) with aiding and abetting stealing certain goods, and (2) with receiving the same stolen goods. The limitations of Milanovitch were pointed out recently in United States v. Umans [66-2 USTC ¶9759] 368 F. 2d 725 (2 Cir., 1966), cert. granted, 386 U. S. 940 (1967), cert. dismissed, after argument, as improvidently granted, 36 L. W. 3188 (Nov. 6, 1967). However, even if Milanovitch applied, Cohen would have been entitled only to a charge that the jury could have found him guilty of one count or the other as to each transaction. And this is exactly what they did, so that no prejudice is shown.

Cohen also argues that he was acquitted of the bribery charge in count 12 and, therefore, should have been acquitted of giving a gratuity to a public official (count 13). This contention is without merit because the gratuity count, unlike bribery, requires no corrupt intent--it is a lesser form of bribery. See United States v. Umans, supra.

Improper Joinder

All of the crimes charged were of the same character. Rule 8 (F. R. Crim. Proc.) authorizes joinder of counts in such a situation. No objection to the joinder or motion for a severance was made, although defendant was represented by able trial counsel. Furthermore, the testimony admitted was properly admissible on the aiding and abetting counts.

The Charge

Quite apart from failure to take objections to, and absence of "plain error" in, the charge, Cohen's appellate points are not well taken. Cohen did have "the greatest stake in the outcome of the trial" and the trial court's charge as to possible motive on Cohen's part to fabricate was entirely proper, particularly when coupled with instructions that the jury could also accept Cohen's version of the facts if they chose to do so.

The other objections to the charge now raised on appeal--but as to which no trial objections were taken--involve:

(1) criminal intent under the gratuity count (similar charge approved in United States v. Irwin, 354 F. 2d 192, 197 n. 3 (2 Cir., 1965));

(2) criminal intent under the aiding and abetting counts (somewhat similar situation in United States v. Umans, supra);

(3) inferences available to the jury from failure to call an available witness who may have had favorable information (see United States v. Comulada, 340 F. 2d 449, 452 (2 Cir., 1965)); and

(4) the immateriality of the correctness of the tax returns of Cohen's clients.

Analysis of these objections justifies the conclusion that the trial court committed no reversible error.

Improper Admission of Testimony

The jury could have drawn an inference from Cohen's self-introduction to an auditor "as a friend of Gilbert Sherman" that he was to be considered persona grata to the auditor co-defendant. The auditor's elaboration of the meaning of this statement--that he "would probably get paid"-- was hearsay. However, coupled with the other testimony, this answer does not constitute reversible error. Nor does the reference by the same auditor to the fact that he had stated to the government that there were other guilty accountants rise to this level. Testimony which also referred to other audits in which bribes were given and to which no objection was taken, was properly admitted. See United States v. Bozza, 365 F. 2d 206, 214 (2 Cir. 1966).

Summation

In context, the part of the government's summation in which the jury was told to acquit the defendant if they believed the government was party to a plot to convict an innocent man was proper. Cohen's claim that the prosecutor's personal belief in the credibility of the witness was expressed is unfounded.

We have considered other errors raised by Cohen but do not find that individually or collectively they constitute reversible error.

The Motion for a New Trial

The motion was properly denied. The taxpayer's knowledge or lack thereof of payments by Cohen to the auditors would not be exculpatory evidence.

Judgment affirmed.

¹ 18 U. S. C. §201 provides:

"Offer to officer or other person.

"Whoever promises, offers or gives any money or thing of value, or makes or tenders any check, order, contract, undertaking, obligation, gratuity, or security for the payment of money or for the delivery or conveyance of anything of value, to any officer or employee or person acting for or on behalf of the United States, or any department or agency thereof, in any official function, under or by authority of any such department or agency or to any officer or person acting for or on behalf of either House of Congress, or of any committee of either House, or both Houses thereof, with intent to influence his decision or action on any question, matter, cause, or proceeding which may at any time be pending, or which may be law be brought before him in his official capacity, or in his place of trust or profit, or with intent to influence him to commit or aid in committing, or to collude in, or allow, any fraud, or make the opportunity for the commission of any fraud, on the United States, or to induce him to do or omit to do any act in violation of his lawful duty, shall be fined not more than three times the amount of such money or value of such thing or imprisoned not more than three years, or both.

"This section shall not apply to violations of section 212 of this title. (June 25, 1948, ch. 645, 62 Stat. 691.)"

18 U. S. C. §201(b) provides:

"Bribery of public officials and witnesses

"Whoever, directly or indirectly, corruptly gives, offers or promises anything of value to any public official or person who has been selected to be a public official, or offers or promises any public official or any person who has been selected to be a public official to give anything of value to any other person or entity, with intent--

"(1) to influence any official act; or

"(2) to influence such public official or person who has been selected to be a public official to commit or aid in committing, or collude in, or allow, any fraud, or make opportunity for the commission of any fraud, on the United States; or

"(3) to induce such public official or such person who has been selected to be a public official to do or omit to do any act in violation of his lawful duty, or

* * *

"Shall be fined not more than $20,000 or three times the monetary equivalent of the thing of value, whichever is greater, or imprisoned for not more than fifteen years, or both, and may be disqualified from holding any office of honor, trust, or profit under the United States . Added Pub. L. 87-849, §1(a), Oct. 23, 19 62, 76 Stat. 1119."

² 26 U. S. C. §7214 provides:

"Offenses by officers and employees of the United States .

"(a) Unlawful acts of revenue officers or agents.

"Any officer or employee of the United States acting in connection with any revenue law of the United States--

* * *

"(2) who knowingly demands other or greater sums than are authorized by law, or receives any fee, compensation, or reward, except as by law prescribed, for the performance of any duty;

* * *

"shall be dismissed from office or discharged from employment and, upon conviction thereof, shall be fined not more than $10,000, or imprisoned not more than five years, or both. The court may in its discretion award out of the fine so imposed an amount, not in excess of one-half thereof, for the use of the informer, if any, who shall be ascertained by the judgment of the court. The court also shall render judgment against the said officer or employee for the amount of damages sustained in favor of the party injured, to be collected by execution."

³ 18 U. S. C. §2 provides:

"Principals

"(a) Whoever commits an offense against the United States or aids, abets, counsels, commands, induces or procures its commission, is punishable as a principal.

"(b) Whoever willfully causes an act to be done which if directly performed by him or another would be an offense against the United States , is punishable as a principal."

⁴ 18 U. S. C §201(f) provides:

"Whoever, otherwise than as provided by law for the proper discharge of official duty, directly or indirectly gives, offers, or promises anything of value to any public official, former public official, or person selected to be a public official, for or because of any official act performed or to be performed by such public official, former public official, or person selected to be a public official; or * * *"

⁵ See Shuttlesworth v. City of Birmingham , 373 U. S. 262 (1968); United States v. Umans, 368 F. 2d 725 (2 Cir. 1966), cert. dismissed, 36 L. W. 3188 (Nov. 6, 1967).

⁶ United States v. Umans, supra

 

 

 

[69-1 USTC ¶9328] United States of America , Appellee v. David Bernard Barash, Defendant-Appellant

(CA-2), U. S. Court of Appeals, 2nd Circuit, Docket No. 32225, 412 F2d 26, 4/9/69, Aff'g unreported District Court decision

[Code Sec. 7214]

Crimes: Tax evasion: Bribery of revenue agents: Aiding and abetting the taking of bribes.--Various assignments of error were overruled by the Court of Appeals, and the conviction of a certified public accountant on charges of offering, promising and giving bribes to IRS agents with intent to influence office audit examinations and for aiding and abetting certain revenue agents under Code Sec. 7214(a)(2) in the taking of bribes was affirmed.

Robert M. Morgenthau, United States Attorney, David M. Dorsen, John E. Sprizzo, Assistant United States Attorneys, New York, N. Y., for appellee. Louis Bender, Lloyd A. Hale, 225 Broadway, New York , N. Y., for defendant-appellant.

Before MOORE , FRIENDLY and FEINBERG, Circuit Judges.

MOORE, Circuit Judge:

This is an appeal by David Bernard Barash from a judgment of conviction entered against him in the district court, after a ten-day trial. The case was before the district court upon remand after this court reversed a previous conviction of Barash at a first trial. United States v. Barash, 365 F. 2d 395 (1966).

The indictment named Barash, a certified public accountant and attorney, in 32 counts relating to 16 transactions in which he was alleged to have made improper payments to several Internal Revenue Service agents in return for favorable adjustments in connection with audits of personal income tax returns of Barash's clients. Counts 1 through 12 charged him with offering, promising and giving bribes to 3 agents with intent to influence office audit examinations in violation of the prior 18 U. S. C. §201, and counts 13 through 16 charged him with the same crime in violation of the present statute, 18 U. S. C. §201(b). ¹ Counts 17 through 20 charged a violation of 18 U. S. C. §201(f), which makes it a crime to pay a public official a sum of money "for or because of any official act performed or to be performed" by them. Counts 21 through 32 charged Barash with aiding and abetting ² the violation of 26 U. S. C. §7214(a)(2), which proscribes revenue officers from knowingly demanding or receiving sums of money except as prescribed by law.

At the first trial, Barash was acquitted on counts 7, 13, 15, 17, 19 and 27, relating to alleged unlawful payments to Internal Revenue Service agents Montello and Wolf, but was convicted on the remaining counts, which concerned agents Clyne, DeSibio and Coady. He was sentenced to concurrent terms of imprisonment of a year and a day on each count. On appeal, this court reversed and remanded for a new trial because hearsay testimony was erroneously admitted, cross-examination was improperly restricted and the charge to the jury was in error in two respects, namely, (1) threat of economic harm as an element of intent, and (2) payment alone sufficient to establish intent.

At the second trial, there were thirteen pairs of counts representing, and numbered identically as, those upon which Barash had been convicted at the first trial, charging unlawful payments to Clyne, DeSibio and Coady. On October 21, 19 67, the jury returned a verdict of guilty on counts 8, 10, 18, 20-26 and 28-32. On the other counts the jury either returned a verdict of not guilty, or reported that it was unable to agree. Barash was sentenced to concurrent terms of imprisonment for nine months and a fine of $1,000 on each of counts 21-26 and 28-32; to terms of imprisonment of five years, execution suspended, with a fine of $2,500 on each of counts 8 and 10; and to terms of imprisonment of two years, execution suspended with probation of five years, and a fine of $2,500 on each of counts 18 and 20. The total fine was $21,000.

The Facts

The Government's case against Barash consisted of the testimony of agents Clyne and DeSibio, who had pleaded guilty to charges against them in the indictment, and that of Coady, a Government undercover agent. Clyne, involved in all but three of the transactions resulting in convictions, gave substantially the same testimony at the second trial that he had given at the first. ³ He testified that Barash paid him a total of $225 for false audits in 1960, followed by lesser sums in each of the succeeding three years. DeSibio gave testimony as to two similar transactions in 1961 involving payments of about $25 each. Coady, the undercover agent, testified that he met Barash in 1963 upon an introduction by a former Internal Revenue Service auditor, Miss Jeanne Lupesco, ⁴ and upon the request of Barash assigned an audit to himself, contrary to normal office procedure, and approved certain deductions without any inquiry as to their accuracy. A few minutes later, according to Coady's testimony, Barash gave him an envelope containing $50.

Appellant's defense consisted of his own testimony and that of some additional witnesses who testified as to his good reputation. Barash, on the stand, admitted that he gave money to Clyne on several occasions ⁵ but said that those transactions were Christmas gifts having nothing to do with the audits. The money, explained Barash, had been given merely to create a more pleasant working atmosphere. In response to the testimony of DeSibio, Barash said that he had taken DeSibio to lunch upon the conclusion of a normal audit. Both Clyne and DeSibio, Barash suggested, had implicated him to gain mitigation of sentences they were to receive for crimes arising from these and other transactions. And finally, Barash testified that his $50 payment to Coady was wholly unrelated to the audit performed, but was given out of sympathy induced by Coady's indication that he was in debt and was soon to go to a Marine training camp.

Defense of Economic Coercion

In the first of many claims of reversible error, Barash asserts that it was error for the trial judge to exclude the defense of economic coercion from the jury's consideration of the counts under 26 U. S. C. §7214(a)(2) and 18 U. S. C. §201(f), the provisions covering unlawful payment of gratuities. In the first appeal of this case we said:

We think that if a government officer threatens serious economic loss unless paid for giving a citizen his due, the latter is entitled to have the jury consider this, not as a complete defense like duress but as bearing on the specific intent required for the commission of bribery. Cf. United States v. Miller, 340 F. 2d 421, 425 (4th Cir. 1965). While it is arguable that this is also true with respect to giving gratuities under 18 U. S. C. §201(f), or to being an accessory to the receipts prohibited by 26 U. S. C. §7214(a), offenses which have no requirement of specific intent, see United States v. Irwin, [354 F. 2d 192, 197 (2d Cir. 1965), cert. denied, 383 U. S. 967, 86 S. Ct. 1272, 16 L. Ed. 2d 308 (1966)], and carry a significantly lower punishment, we incline to the view that as to these offenses economic pressure is irrelevant. 365 F. 2d at 401-402. ⁶

Although criminal intent is a necessary element for conviction under the gratuity counts, no specific intent is required. In this case, accepting Barash's version of the facts, the payments were received by the auditors "otherwise than as provided by law for the proper discharge of official duty," as provided for in §201(f). ⁷ In measuring intent, it matters not whether the payments were made because of economic duress, a desire to create a better working atmosphere, or appreciation for a speedy and favorable audit.

It is somewhat of a misnomer to refer to "the defense of economic coercion"; rather it (economic coercion) is related to the ultimate fact conclusion of intent. The trial court did not "rule out" such coercion as Barash argues. Specifically, the trial court told the jury that it could consider Barash's version of Clyne's coercive approach as "pressure" and that it might "consider the conduct of Clyne as bearing on the issue whether the defendant in making such payment or payments had the intent to influence official action, which is an essential element of the offense under old Section 201 and present Section 201-B."

The trial court can scarcely be held in error for following our opinion in which we said that the offenses specified in 18 U. S. C. §201(f) and 26 U. S. C. §7214(a) "have no requirement of specific intent." The court was entitled to accept our "view that as to these offenses economic pressure is irrelevant." 365 F. 2d at 402. The charge instructed that the receipt (by Clyne and DeSibio) of compensation or reward must have been with "criminal intent" and that Barash to have aided and abetted must have "associated himself with the criminal venture, that he participated in it as something he wished to bring about, that he, by his act or acts, endeavored to make it successful."

Appellate courts will never know how much or how little a jury is able to absorb from the reading of stilted indictments and adverbial statutes, from the specification of a series of essential elements necessary to convict and the "boilerplate" forced upon trial judges by time-honored and cumulative decisions. Refuge must be sought in trying to appraise the charge as a whole and to decide whether the jury would have been able to place the template of essential elements upon the factual mat laid out before it and thus determine a violation of law. Such an approach leads to the belief that, if the jury had wished to accept Barash's version that he was the innocent victim of Clyne's economic pressure, the charge adequately gave it this choice as to the counts where it could have been a factor in reaching their determination.

Entrapment by Coady

Barash next contends that the trial court erroneously failed to instruct the jury on the issue of entrapinent in connection with his payment of $50 to undercover agent Coady. The fact that Barash made no offer or promise to pay Coady with respect to the audit, coupled with Coady's hints that he was about to go into the armed forces and was in debt establish, it is averred, inducement sufficient to support a charge of entrapment. But the most Barash could testify to was that Coady suggested a general financial need several days before the $50 was given. There was no evidence given sufficient to warrant a jury finding that Coady induced or initiated the crime, a finding necessary to satisfy the first element of entrapment. United States v. Dehar, 388 F. 2d 430, 432-433 (2d Cir. 1968). In fact, Barash's own testimony completely refutes even any inference of attempted entrapment by Coady. Furthermore, Coady's conversations and behavior fall short even of constituting solicitation, which in itself is insufficient to constitute entrapment. United States v. Berry , 362 F. 2d 756, 758 (2d Cir. 1966). Therefore, there was no error in the court's failure to charge as to entrapment.

Testimony of Lupesco

Jeanne Lupesco, a former Revenue Service auditor, testified that Barash approached her in 1963 and inquired whether she "knew" anybody in a certain group to which Barash had been assigned for an audit. She responded by introducing Barash to Coady. In order to demonstrate what Barash meant by this question, and why Coady was selected, the Government asked her about her prior dealings with Barash. She answered that in 1958 Barash had given her $80 in return for a favorable audit. Barash contends that the admission of this testimony constituted reversible error, primarily because the Lupesco transaction was too remote from the 1963 transactions and thus had little probative value. Even though the jury was instructed that the Lupesco testimony was to be admitted as a prior similar act solely as to the Coady transactions, and even though he was not convicted on the Coady bribery count (16), Barash argues that prejudice arose because the testimony "was quite similar to DeSibio's" and may well have influenced the jury's verdict as to the count (20) on which he was convicted. But the evidence was probative on Barash's state of mind, by helping to explain the prior relationship between himself and Miss Lupesco and the meaning of his conversation with her. To be admitted such evidence `does not need to have strong, full, superlative, probative value, does not need to involve demonstration or to produce persuasion by its sole and intrinsic force, but merely to be worth consideration by the jury.' 1 Wigmore, Evidence (3d ed. 1940), 411." United States v. Kahaner, 317 F. 2d 459, 471 (2d Cir.), cert. denied, 375 U. S. 836 (1963). Since the Lupesco testimony was properly admitted as to the Coady count (16), and since Judge Wyatt specifically limited the jury's consideration of this evidence to that count (which was eventually dismissed), the possible prejudice to Barash was minimal, and insufficient to establish grounds for reversal.

Failure of Proof on DeSibio counts

Barash urges that the testimony offered was insufficient to justify a jury conviction on the counts involving DeSibio. In support of this position he cites DeSibio's lack of certainty of the exact amount of the payments made to him or of the exact words used by Barash in suggesting improper payments, and confusing jury instructions. On appeal the evidence must be viewed most favorably to the Government. United States v. Aiken, 373 F. 2d 294, 296 (2d Cir.), cert. denied, 389 U. S. 833 (1967). DeSibio testified that Barash had told him in words or substance, that "there would be something in it for him" if certain deductions were fraudulently allowed in 1961, and that he would not have prepared the same audit report if he had not believed that payment from Barash was forthcoming. Similar testimony was given as to a later transaction. This evidence satisfied the requisite elements of the bribery statutes here and a fortiori, the less demanding standard of 26 U. S. C. 7214(a)(2). Neither do we find merit in Barash's assertion that the trial judge confused the jury by giving a specific answer to a specific question about a portion of the charge rather than repeating the instructions verbatim.

The Verdict

After more than 13 hours of deliberation over a two-day period, the jury sent a statement to the trial judge that it was unable to reach a verdict on some of the counts. At that point of time, the court accepted the verdict of guilty on those counts as to which the jury had reached a conclusion ⁸ and in a supplemental charge asked the jury to deliberate further as to the remaining counts. ⁹ Following an additional three hours of deliberation, the jury announced as to the remaining counts that it had reached a verdict on some counts but could not agree on the others. ¹⁰ Barash maintains that the trial court erred in giving what he characterizes as an Allen charge because it was coercive in and of itself, and in the context in which it was given. We disagree. The lower court's charge "made it sufficiently clear that a juror ought not abandon his personal conviction." United States v. Bilotti, 380 F. 2d 649, 654 (2d Cir.), cert. denied, 389 U. S. 944 (1967). Furthermore, in view of the fact that more than three hours elapsed between the time of the charge and the jury's final verdict, the jury had ample time for thoughtful consideration which would negate coercion. United States v. Furlong, 194 F. 2d 1, 4 (7th Cir.), cert. denied, 343 U. S. 950 (1952); United States v. Rao, 394 F. 2d 354, 356 (2d Cir. 1968). Similarly, the claim that the supplemental charge was given prematurely has no merit. The jury here retired to deliberate at 11:25 a. m. and emerged at 11:30 p. m. to announce that it was unable to reach a unanimous decision on a number of counts. The court permitted the jury to go home to sleep. The next day the jury deliberated for two more hours before the court gave its supplemental charge. We think the trial court acted well within its proper discretion in so timing the charge. ¹¹

Barash further attacks the verdict on the grounds that the trial judge improperly sent the jury back for further deliberations after accepting their verdict of guilty on a number of the counts. But no authority has been offered in support of this proposition. The cases cited by Barash hold that silence by the jury as to its verdict on particular counts in a multi-count indictment operates as an acquittal if the verdict is accepted by the trial judge and the jury is discharged. ¹² This rule is designed to protect a defendant against double jeopardy in cases of retrial on the counts as to which the jury had been silent, and is inapplicable to the present situation. The practice of sending the jury back for further deliberations on unresolved counts has been followed in this circuit since United States v. Cotter, 60 F. 2d 689, 690-691 (2d Cir.), cert. denied, 287 U. S. 666 (1932), see also United States v. Frankel, 65 F. 2d 285, 288-289 (2d Cir.), cert. denied, 290 U. S. 682 (1933), and we adhere to that practice here.

Grand Jury Proceedings

It is claimed that reversal of Barash's conviction is required because of lack of competent evidence before the grand juries which indicted him. The investigations leading to the indictments involved four grand juries and more than 40 witnesses. Clyne, DeSibio, Coady and Lupesco testified in person before one of these grand juries, giving testimony which incriminated Barash. The fact that an Internal Revenue Inspector, in the interests of economy of time, summarized this evidence before the grand jury which ultimately indicted Barash, was not improper. Though caveats have been issued against excessive use of hearsay before grand juries, its use has always been accepted where, as here, it is "demonstrably inconvenient to summon witnesses able to testify to facts from personal knowledge." United States v. Umans [66-2 USTC ¶9759], 368 F. 2d 725, 730 (2d Cir. 1966), cert. dismissed, 389 U. S. 80 (1967); Costello v. United States [56-1 USTC ¶9321], 350 U. S. 359, 363, 76 S. Ct. 311, 100 L. Ed. 406 (1955). In view of the array of grand juries involved here, and the inconvenience in recalling witnesses who had already testified from personal knowledge, the instant case is well within the Umans rule, supra. Furthermore, Barash's related contention, that there was reversible error because he was allegedly given the grand jury minutes only after Clyne left the witness stand cannot prevail--particularly since the court offered to permit Clyne's recall.

Trial Court's Charge

Barash has alleged four errors in the court's charge to the jury. It is first asserted that the court erred in failing to instruct the jury that no inference could be drawn against Barash from the testimony of Clyne and DeSibio that they had pleaded guilty to charges of accepting unlawful payments. The trial judge had indicated that he would give the jury a compromise form of this instruction ¹³ but thereafter failed to do so. Barash, however, neglected to bring this omission to the court's attention and is, therefore, precluded from raising the point on appeal. Federal Rules of Criminal Procedure, Rule 30. ¹⁴

Nor do we find that the jury should have been instructed that the audit was "completed" as soon as the auditor had agreed on the amount to be disallowed, or alternatively, that a "no change" report would be filed. Such an instruction theoretically would enable the jury to infer from a payment after "completion" of the audit that the payment was not made to influence the agent's act. But in view of the considerable evidence showing many continuing responsibilities of the auditor in connection with the audit after "completion," the trial judge was correct in charging otherwise. ¹⁵

The third alleged error in the charge is that the trial court omitted the element of intent in its instructions to the jury on the counts under §7214(a)(2). There is no basis for this contention. After clearly indicating that a necessary element for the conviction of Clyne and DeSibio was the receipt of money "with a criminal intent, that is, with bad purpose and motive," the court instructed the jury on Barash's intent as follows:

In order to find that the defendant aided or abetted another, in this case Clyne or DeSibio or both, to commit the offenses charged in these counts, you must find that the defendant, in some way, associated himself with the criminal venture, that he participated in it as something he wished to bring about, that he, by his act or acts, endeavored to make it successful.

This language has been specifically found proper, in United States v. Umans, supra, at 728.

Finally, Barash contends that the trial judge failed properly to present his defense theory to the jury. He claims that his case was characterized as a mere denial of the testimony of the Government's witnesses, thus tending "to eliminate from consideration by the jury of [his] factual testimony of the circumstances of each audit." We have examined the record, however, and find that the factual summary was fair and accurate. Toward the beginning of his instructions, the trial judge said:

Before considering the separate counts in the indictment I call the jury's attention to the fact that in these instructions I do not propose to review or summarize the evidence because the trial has not been so long as to make that necessary or desirable. You have heard the evidence presented and on yesterday you had the benefit of the closing arguments of counsel. If I mention any evidence in the course of these instructions it will be only for the particular purpose which will be indicated. You are to attribute no significance to my failure to mention any evidence.

Following brief summaries of the testimony of Clyne and DeSibio, the trial judge told the jury that he referred to "this testimony, * * * which you heard Mr. Barash deny from the witness stand, not to indicate any opinion as to whether you should accept that testimony * * * or not but solely in order to relate the government's evidence to the different counts and for no other purpose." Furthermore, the summary of Coady's testimony was followed by the statement to the jury that "[y]ou [the jury] heard Mr. Barash testify that he did give to Coady an envelope containing $50, but under circumstances different from those to which Coady testified, and with an intent different from that alleged in the indictment." We find no unfairness in these instructions to the jury.

Duplication of Counts

The concluding point for our consideration is Barash's contention that it was error to submit to the jury the counts under 18 U. S. C. former §201 as well as the counts under 26 U. S. C. 7214(a)(2), ¹⁶ thus permitting the jury to convict on both counts. In the recent decision of United States v. Cohen, 387 F. 2d 803 (2d Cir. 1967), we made clear the differences in the requirements for conviction under these sections:

The aiding and abetting counts, unlike the bribery counts, require proof that the Internal Revenue Agent received a fee, not prescribed by law, for the performance of his duty. The bribery counts, unlike the aiding and abetting counts, require proof of a specific corrupt intent to influence official action. From a time standpoint alone, bribery required that money be given or promised with the intent to influence an official's decision before that decision is reached. Id. at 805-806.

The jury, concluded the court, might well have considered that Cohen did not possess the requisite intent for a bribery conviction, but that the payments were within the reach of the milder standard of §7214(a)(2). And in fact the jury did convict Cohen only on the lesser counts, handing down acquittals on all charges of bribery. That case is therefore applicable here as to most of the counts, in which the jury came to similar conclusions. But Barash was convicted on the jury's first partial verdict of aiding and abetting DeSibio in the receipt of payments under §7214(a)(2) (Counts 28 and 30) and a few hours later convicted on the second partial verdict of bribing DeSibio under 18 U. S. C. former §201. Thus this case squarely presents the issue absent in Cohen: can a jury properly convict a defendant on both of these counts?

The question was recently raised in United States v. Umans, supra, but no answer was directly supplied. In Umans, the defendant had been indicted and convicted under the "paired" counts of §201(b) and §201(f), ¹⁷ and under the old paired counts of former §201 and §7214(a)(2). After rejecting the defendant's claim that the pairs of statutes contained contradictory elements of proof, ¹⁸ the court found that "the correct relationship between §201(b) and §201(f) is that §201(f) is a lesser included offense of §201(b). There is no reason to believe that Congress intended that there should be concurrent convictions and sentences under both sections, and we should not allow multiple convictions based on the same transactions even where the sentences are concurrent." Id. at 730. The sentences on the §201(f) counts were therefore vacated, with the court noting that there would be no effect upon the defendant's prison term since the vacated sentences were concurrent with those which remained in force. The court said nothing, however, on the question of whether such reasoning should apply with equal force to the 7214(a)(2) convictions and sentences, each of which had a former §201 counterpart, even though both "pairs" of counts had been treated equally in previous portions of the opinion.

Because of the concurrent jail sentences on all counts of which he was convicted, this point would be without practical effect on Barash except for the aggregate amount of the fines and his argument that the Supreme Court's decision in Milanovich v. United States, 365 U. S. 551 (1961) requires reversal of the conviction on all counts rather than merely vacating the sentences on counts claimed to be duplicitous. Quite understandably, Barash does not desire to serve any jail term under any count. The jury, however, having seen and heard Barash and the guilty-pleading agents apparently rejected Barash's version of being pressurized, of making Christmas gifts and tangibly showing monetary sympathy for Coady's financial plight. Therefore, condemned by his peers, Barash searches for technicalities in that most fertile field, the statutes themselves.

It is fair to assume that each statute was intended to have a purpose. In Congressional zeal to cover every situation, an appearance of duplicitousness often may be created. Specifically Barash was indicted in substance for bribery. The first twelve counts (transactions up to January 21, 19 63) being under 18 U. S. C. §201 and counts 13-16 (subsequent to January 21, 19 63) under §201(b). Simply stated these sections deal with the corrupt giving of money to a government employee with intent to influence him to commit a fraud on the United States . Another statute, 26 U. S. C. §7214(a)(2) prohibits employees from receiving a reward for the performance of their duties. Thus the giver and receiver are enjoined. In addition, however, the Congress wished to discourage the tempter who by his acts (aiding and abetting) would seek to break down the moral fibre of some not-too-resisting government employees. Thus Barash, as the tempter, quite apart from the direct bribe, would have been the cause of the commission of an entirely different crime by the employee, albeit the same money in both cases.

The jury was highly selective. Affirmative bribery was found as to DeSibio (counts 8 and 10). There was acquittals as to the Clyne transactions (counts 1, 3 and 9). For Barash's aiding and abetting Clyne and DeSibio to commit the crime of receiving, the jury returned guilty verdicts as to all the §7214(a)(2) counts (counts 21-32).

The jury must have been satisfied of aiding and abetting guilt much earlier in their deliberations than on the bribery counts because, pursuant to the court's advice with respect to agreement on any count or counts, they reported during the morning of their second day that they had agreed on a guilty verdict as to the aiding and abetting counts (counts 21-26, 28-32). After further deliberation, guilty verdicts on bribery were returned (counts 8, 10, 18 and 20).

From this result, Barash argues that the court should have charged the jury that it could not return a verdict of guilty on the bribery counts and the gratuity counts and "at the very least" he "was entitled to an order compelling the Government to elect to proceed on either the 201 counts or the 7214(a)(2) counts."

Decisions relating to lesser included offenses are not applicable because such a situation is not presented here. The elements of the two offenses proscribed in the bribery and gratuity statutes were by no means identical. Furthermore, this court has held that a "claim, that a payor to an internal revenue officer cannot be an aider and abettor of the latter's violation of 26 U. S. C. §7214(a), is foreclosed by United States v. Kenner [66-1 USTC ¶9134], 354 F. 2d 780, 785 (2d Cir. 1965), cert. denied, 383 U. S. 958, 86 S. Ct. 1223, 16 L. Ed. 2d 301 (1966)." 365 F. 2d at 399 n. 3. The effect of Kenner was thus considered in the previous Barash appeal insofar as the Government's right to proceed under both statutes is concerned. Although Kenner had been acquitted on the bribery counts and convicted of aiding and abetting on the gratuity counts, there is no such inconsistency in the counts here as to require a different result. See also United States v. Cohen [68-1 USTC ¶9132], 387 F. 2d 803 (2d Cir. 1967).

Affirmed.

¹ Counts 13 through 16 relate to transactions which took place after January 21, 19 63, when the present statute came into force. The present §201(b) contains no change of substance from the prior §201. See United States v. Barash, 365 F. 2d 395, 398, f. 1 (2d Cir. 1966).

² 18 U. S. C. §2(b) reads: "Whoever wilfully causes an act to be done which if directly performed by him or another would be an offense against the United States, is punishable as a principal."

³ The opinion in the first Barash appeal summarized the nature of the transactions as follows:

Barash would inform Clyne of clients who had received "call-in" letters instructing them to appear for audit of their returns before the group of agents that include Clyne. In violation of office procedures Clyne would obtain the returns and related papers from his supervisor's file and assign the audits to himself. Barash would suggest relatively small disallowances in unsubstantiated deductions for travel and entertainment expenses, and would offer Clyne compensation for thus passing the returns.

⁴ Coady's testimony concerning this introduction was substantially the same as that of Miss Lupesco. Miss Lupesco also testified that in 1958 she had conducted an audit favorable to Barash's client and was thereafter given $80 in cash by Barash.

⁵ Barash testified that he gave Coady Christmas gifts of $25 or $50 in 1960, 1961 and 1962, and that he gave another $50 to Coady in January, 1963.

⁶ Two footnotes, reciting relevant portions of §201(f) and §7214(a) have been omitted. The text of these statutes is noted, infra.

⁷ Substantially identical language in §7214(a)(2) reads: "except as by law prescribed, for the performance of any duty. . . ."

⁸ Counts 21, 22, 23, 24, 25, 26, 28, 30, 31, 32.

⁹ The text of the charge is as follows:

As I took pains to emphasize to the jurors in my instructions on yesterday, you should never surrender your honest conviction as to the weight or effect of evidence solely because of the opinion of other jurors or for the mere purpose of returning a verdict. But it is your duty as pointed out yesterday, and I point it out today, to consult with one another and to deliberate with a view to reaching an agreement if you can do so without violence to your individual judgment.

Each of you must decide these counts for yourselves but you should do so only after consideration of the evidence in the case with other jurors.

In the course of your deliberations you should not hesitate to reexamine your own views and change your opinion if you find that opinion to be erroneous.

¹⁰ Barash was found guilty on counts 8, 10, 18 and 20, not guilty on counts 1, 3 and 9, while no conclusion was agreed upon on counts 2, 4, 5, 6, 11, 12 and 14.

¹¹ The minimum limits as to prematurity in this court appear to have been established in United States v. Kenner [66-1 USTC ¶9134], 354 F. 2d 780 (2d Cir. 1965), cert. denied, 383 U. S. 958 (1966), in which an Allen charge was given after the jury had deliberated for three hours and 45 minutes on seven counts of unlawful payments. That case was saved from reversal by the "barest margin," that margin provided by the trial judge's disclaimer of intention to "coerce" and by his expression of willingness to accept "the ultimate decision," whatever it might be. Id. at 784.

¹² Dealy v. United States, 152 U. S. 539, 542, 14 S. Ct. 680 (1894); Jolly v. United States, 170 U. S. 402, 408, 18 S. Ct. 624 (1898); Green v. United States, 355 U. S. 184, 190-191, 78 S. Ct. 221, 2 L. Ed. 2d 167 (1957); United States ex rel. Hetenyi v. Wilkins, 348 F. 2d 844, 857 (2d Cir. 1965).

¹³ The modified charge read:

There was testimony by Jeremiah Clyne and Erasmo DeSibio that they had pleaded guilty to certain counts of this indictment. You must not consider that testimony or any such pleas as indicating the guilt of the defendant.

¹⁴ The relevant portion of Rule 30 reads:

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.

¹⁵ The jury was charged as follows:

The relevance of the making of the payment before or after the audit or audit settlement is agreed to is simply the question whether the defendant, when the payment was made, believed that there was no official action to be taken by the public official . . ..

¹⁶ 26 U. S. C. §7214(a)(2) reads as follows:

§7214. Offenses by officers and employees of the United States .

(a) Unlawful acts of revenue officers or agents.--Any officer or employee of the United States acting in connection with any revenue law of the United States * * * (2) who knowingly demands other or greater sums than are authorized by law, or receives any fee, compensation, or reward, except as by law prescribed, for the performance of any duty * * * shall be dismissed from office or discharged from employment and, upon conviction thereof, shall be fined not more than $10,000, or imprisoned not more than 5 years, or both.

18 U. S. C. §201 reads as follows:

§201. Offer to officer or other person.

Whoever promises, offers, or gives any money or thing of value, or makes or tenders any check, order, contract, undertaking, obligation, gratuity, or security for the payment of money or for the delivery or conveyance of anything of value, to any officer or employee or person acting for or on behalf of the United States, or any department or agency thereof, in any official function, * * * with intent to influence his decision or action on any question, matter, cause, or proceeding which may at any time be pending, or which may by law be brought before him in his official capacity, or in his place of trust or profit, or with intent to influence him to commit or aid in committing, or to collude in, or allow, any fraud, or make opportunity for the commission of any fraud, on the United States, or to induce him to do or omit to do any act in violation of his lawful duty, shall be fined not more than three times the amount of such money or value of such ching or imprisoned not more than three years, or both.

¹⁷ 18 U. S. C. §201(b) reads as follows:

§201(b). Whoever, directly or indirectly, corruptly gives, offers or promises anything of value to any public official or person who has been selected to be a public official, or offers or promises any public official or any person who has been selected to be a public official to give anything of value to any other person or entity, with intent--

(1) to influence any official act; or

(2) to influence such public official or person who has been selected to be a public official to commit or aid in committing, or collude in, or allow, any fraud, or make opportunity for the commission of any fraud, on the United States; or

(3) to induce such public official or such person who has been selected to be a public official to do or omit to do any act in violation of his lawful duty * * * shall be fined not more than $20,000 or three times the monetary equivalent of the thing of value, whichever is greater, or imprisoned for not more than fifteen years, or both, and may be disqualified from holding any office of honor, trust, or profit under the United States.

18 U. S. C. §201(f) reads as follows:

§201(f). Whoever, otherwise than as provided by law for the proper discharge of official duty, directly or indirectly gives, offers, or promises anything of value to any public official, former public official, or person selected to be a public official, for or because of any official act performed or to be performed by such public official, former public official, or person selected to be a public official * * * shall be fined not more than $10,000 or imprisoned for not more than two years, or both.

¹⁸ The court rejected defendant's claim that it was error to convict him of having committed "mutually inconsistent crimes," saying:

It appears that in both claimed inconsistent instances one of the two statutes requires proof of an extra element to convict, a specific intent to influence official action, while the other statute only requires proof that payment was made to an agent in a situation where no payment was necessary. There are not contradictory elements of required proof between the two statutes; only additional elements of proof. United States v. Umans, supra at 728-729.

[Concurring Opinion]

FRIENDLY, Circuit Judge, concurring (with whom FEINBERG, Circuit Judge, also concurs):

If the issue were res nova, I would have considerable difficulty in believing that an accountant who makes a payment to an internal revenue agent can properly be convicted for aiding and abetting the agent in violation of 26 U. S. C. §7214(a)(2). The ALI Model Penal Code, which uses the term "accomplice" to encompass aiding and abetting §2.06(3), says in §2.06(6):

"Unless otherwise provided by the Code or by the law defining the offense, a person is not an accomplice in an offense committed by another person if:

"(b) the offense is so defined that his conduct is inevitably incident to its commission; . . ."

This principle would seem peculiarily applicable when the legislature has enacted other provisions, here 18 U. S. C. §201, specifically directed against the payor, even though Congress decided in 1963 that these were not broad enough.

However, this court crossed that bridge in United States v. Kenner [66-1 USTC ¶9134], 354 F. 2d 780, 785 (2 Cir. 1965), cert. denied, 383 U. S. 958 (1966), the applicability of which we assumed on Barash's earlier appeal, 365 F. 2d at 399 n. 3, see also United States v. Cohen [68-1 USTC ¶9132], 387 F. 2d 803 (2 Cir. 1967). I understand that the Government now "pairs" with §201(b) only the lesser included offense of §201(f), and Barash was convicted on two counts under old §201 which would have amply supported the nine months imprisonment that he must serve. I am also not entirely persuaded that even if Barash could permissibly be held guilty as an aider or abettor of the agent's violations of 26 U. S. C. §7214(a)(2), he could be convicted both of that and of a violation of §201, see Milanovich v. United States, 365 U. S. 551 (1961), as he was on counts 8 and 28, and 10 and 30, but that also seems to be assumed by our previous decisions. Under the circumstances I do not feel warranted in seeking reconsideration of the issue by the full court.

In all other respects I agree with Judge Moore's careful opinion.

 

 

[70-1 USTC ¶9107] United States of America , Appellee v. Mortimer Stern, a/k/a Morton Stern, Defendant-Appellant

(CA-2), U. S. Court of Appeals, 2nd Circuit, Docket No. 33651, 418 F2d 198, 10/29/69

[Code Secs. 7206 and 7214]

Crimes: Offenses by officers and employees of the U. S.: False statements: False tax return.--Taxpayer's conviction for signing a false statement of personal worth in connection with a personal investigation of himself by the IRS at the time he was a revenue officer for knowingly filing a false tax return and for divulging without authorization information that came to him in the course of his official duticial duties was upheld. Code Sec. 7214(a)(7), which makes the execution or signing of any false entry in a book or the execution o signing of any fraudulent certificate, return or statement by a revenue officer or agent a crime, does not apply only when the acts are committed by the revenue officer in the performance of his duties. All that is necessary is that the offending acts be committed while the offender is a revenue agent.

Robert M. Morgenthau, United States Attorney, Thomas J. Fitzpatrick, Jack Kaplan, Assistant United States Attorneys, New York, N. Y., for appellee. Irving Rader, 335 Broadway, New York, N. Y., Murray E. Gottesman, 217 Broadway, New York, N. Y., for defendent-appellant.

Before LUMBARD, Chief Judge, and MEDINA and FEINBERG, Circuit Judges.

PER CURIAM:

We affirm in open court the conviction of Mortimer Stern for signing a false statement while a revenue agent, 26 U. S. C. §7214(a)(7) (1964), for knowingly filing a false tax return, 26 U. S. C. §7206(1) (1964), and for divulging without authorization information that came to him in the course of his official duties, 18 U. S. C. §1905 (1964).

The only substantial point raised on this appeal revolves around the construction of 26 U. S. C. §7214(a)(7) (1964), a provision which to our knowledge has never received judicial attention. Upon coming under suspicion of misbehavior in the performance of his official duties as a revenue officer, Stern was asked by the Inspection Section of the Service to submit a financial statement showing his and his wife's assets, income, and liabilities. Stern concedes that there was sufficient evidence before the jury to support their finding that he filed a fraudulent statement. He claims, however, that as a matter of law §7204(a)(7) [§7214(a)(7)] does not reach this sort of conduct.

[Offenses Committed by Revenue Officers]

Generally, this section makes criminal certain acts when performed by revenue officers. ¹ Stern argues that the section, and, more specifically, (a)(7) under which he was convicted, is operative only when the noted acts are committed by the revenue officer in the performance of his duties. Since he made the false statement of personal worth in connection with a personal investigation of him by the Service, albeit at a time when he was a revenue officer, he argues that the provision is inapplicable. Stern relies principally on the preamble to section 7214, which states "Any officer or employee of the United States acting in connection with any revenue law of the United States . . . ." He would have us read "acting in connection with" as meaning acts committed in the course of his duties as an agent. We disagree. The preamble merely designates generally which Government employees are under the section, and it is conceded that Stern was still a revenue officer when he made the false statements at issue.

Our construction of the section is strengthened by several factors. First, several subsections are specifically limited to acts committed by the offender in the course of performing his official duties. This language would be redundant if we were to accept defendant's limiting reading of the preamble.

Second, we cannot find the omission of "performance of duty" language from (a)(7) to be merely fortuitous. Section 7214(a) is largely derived from section 4047 of the 1939 Code, with nine of the ten subdivisions carried over into the 1954 Code. Six subdivisions that did not have performance of duty language under the 1939 Code did not have it in the 1954 Code; three subdivisions kept the performance of duty language. The subdivision involved here, however, which did have performance of duty language under section 4047(e), does not have it in the 1954 Code. Although no explanation for the change is given in the legislative history, it seems clear that the omission was intentional and therefore we must give it effect.

Section 7214 imposes sanctions on revenue agents for departures from the high standards of conduct demanded of those holding that office. Quite realistically, some of these derelictions may be committed outside the performance of the officer's official duties. See United States v. Waldin [58-1 USTC ¶9417], 253 F. 2d 551, 553 (3rd Cir.), cert. denied, 356 U. S. 923 (1958). Thus it is sufficient that the offending acts are committed while the offender is a revenue agent, as was Stern here.

The conviction is affirmed.

¹ §7214

(a) Unlawful acts of revenue officers or agents.--Any officer or employee of the United States acting in connection with any revenue law of the United States--

* * *

(7) who makes or signs any fraudulent entry in any book, or makes or signs any fraudulent certificate, return, or statement;

* * *

shall be dismissed from office or discharged from employment and, upon conviction thereof, shall be fined not more than $10,000, or imprisoned not more than 5 years, or both. . . .

 

 

 

 

[80-1 USTC ¶9165] United States of America , Appellee v. Stanley Stahl, Defendant-Appellant

(CA-2), U. S. Court of Appeals, 2nd Circuit, No. 79-1218, 616 F2d 30, 1/22/80 , Reversing and remanding unreported District Court decision

[Code Sec. 7214 and 18 U. S. C. §§ 2 & 371]

Crimes: IRS agent: Bribery of: Prosecutorial miscounduct.--Conviction for conspiring and aiding and abetting in the bribery of an IRS agent was reversed and remanded for a new trial due to prejudicial prosecutorial misconduct. In the prosecution before a jury of a real estate entrepreneur for the alleged bribery of an agent who was valuing real property in an estate, the prosecutor impermissibly equated wealth with wrongdoing, making a persistent appeal to class prejudice.

Robert B. Fiske, Jr., United States Attorney, Frederico E. Virella, Jr., Gregory L. Diskant, Assistant United States Attorneys, New York , N. Y. 10007, for appellee. Milton S. Gould, Saul S. Streit, Ralph L. Ellis, Richard F. Czaja, George O. Guldi, Shea, Gould, Climenko & Casey, 330 Madison Ave., New York, 10017, for defendant-appellant.

Before GURFEIN, ^* VAN GRAAFEILAND, and KEARSE, Circuit Judges.

VAN GRAAFEILAND, Circuit, Judge:

This is an appeal from a judgment following a jury trial in the United States District Court for the Southern District of New York, in which appellant was convicted of conspiring and aiding and abetting in the bribery of a government employee (26 U. S. C. §7214(a)(2)). Appellant's principal contention is that prejudicial prosecutorial misconduct deprived him of a fair trial. Because the record amply supports that contention, we reverse the judgment of the district court and remand for a new trial.

Thd Facts

In 1970, Max Stahl died and his son, Stanley Stahl, the defendant herein, became the executor of his estate. At the time of his death, Max Stahl owned or had an interest in at least twelve parcels of real estate, and defendant retained Henry Brooks, president of a local appraisal firm, to apprise this property for estate tax purposes. Brooks evaluated the total equity in the properties at $1,275,541 and determined decedent's interest to be $658,455. Abraham Brody, the attorney for the estate, used these figures in preparing the estate tax return, which was filed in April 1972.

At that time, Mario Triolo was the chief supervisor of the IRS Valuation Group, which had the duty of reviewing appraisals submitted for estate tax purposes. The review of the Stahl estate appraisals was performed by Harold Broadman an IRS appraiser and a subordinate of Triolo. In 1973, Broadman met with Attorney Brody and informed him that there was going to be a significant increase in the appraised value of some of the Stahl properties. Brody apparently conveyed this information to the defendant who in turn contacted Brooks about the matter. According to Brooks, who testified for the Government as an unidicted coconspirator, Brooks then had a conversation with Triolo during which Triolo suggested a bribe. Brooks testified that Triolo demanded $7,000 or $8,000 and that Brooks in turn demanded $10,000 from Stahl, planning to keep the excess for himself. Allegedly, the payoff was made by Brooks to Triolo in the early fall of 1973 with money provided by Stahl.

Ultimately, the appraisals on the Stahl properties were raised by approximately $450,000, resulting in the levy of an additional $88,000 in estate taxes. The Government theorized, without presenting any evidence to support its theory, that, but for the bribe, the increase in appraised value would have been larger than it was. However, because neither the Government nor Stahl called Broadman as a witness, the record is unclear as to whether the increase in appraised value was in fact any less than Broadman had initially proposed. ¹

An investigation into IRS Valuation Group corruption conducted in 1977 and 1978 revealed the complicity of Brooks in several alleged bribes. When confronted with the evidence against him, Brooks entered into a cooperation agreement with the Government in November 1978. Subsequently, Brooks participated in a video-taped conversation with Triolo and two audio-taped conversations with Stahl. Portions of these conversations were introduced into evidence. After a nine-day trial, the jury returned a verdict of guilty.

Prosecutorial Misconduct

Appellant contends that the prosecutor engaged in a continuous course of conduct designed to equate wealth with wrongdoing and to appeal to the potential bias of not-so-wealthy jurors against a very wealthy real estate entrepreneur. That this was the prosecutor's trial strategy, appellant suggests, is readily apparent from the Government's Memorandum of Law in Response to Defendant's Motion for a New Trial. In that memorandum, the Government sought to defend the tenor of remarks made in summation by stating that it "properly argued to the jury the logical inference that a man whose total life is geared to make money in real estate would also, in all likelihood, be driven by greed to pay the $10,000 bribe in order not to pay substantial monies in taxes." (emphasis in original).

Although the district court denied defendant's motion for a new trial, it strongly denounced the Government's argument on this point, commenting that "it impermissibly equates success, affluence and a single minded occupation with one's business affairs with greed and corruption." The court concluded, however, that the Government had not really gone that far in its agrument on summation and that, in any event, the jury had been given curative instructions against drawing adverse inferences from the defendant's wealth or social status. ²

Our own review of the record and our questioning of the Assistant United States Attorney during oral argument lead us to conclude that this young prosecutor did in fact intend to arouse prejudice against the defendant because of his wealth and engaged in calculated and persistent efforts to arouse such prejudice throughout the trial. In addition, the prosecutor made several statements during the trial that were not supported by the evidence and may, in some instances, have been intentionally misleading.

By was of example, the prosecutor stated in his opening that "this case is also about money, tremendous amounts of money", and then continued:

The proof in this case will not deal with small time bribe-givers. It will deal, however, with the basic roots of corruption both within and without or outside the IRS. . . . [Y]ou are going to hear proof, members of the jury, about the unchecked flow of corruption in various Park Avenue offices, in the IRS, and in the executive offices of a major real estate company in this city. . . . [I]t will deal with the man whose illegal conduct in business made him a major corrupt bribegiver in the City of New York .

Actually, the Government sought to connect Stahl with one bribe only, and this had nothing to do with the conduct of Stahl's business but instead arose out of the administration of his father's estate.

Time and again during interrogation of witnesses, the prosecution attorney went out of his way to refer, or have witnesses refer, to the " Park Avenue offices" of the various participants in this drama, an emphasis that had nothing whatever to do with defendant's guilt or innocence. When questioning Attorney Brody, the prosecutor persistently tried to get Brody to characterize the Stahl estate as a "substantial estate" of some "$13.5 million dollars", when in fact the prosecutor had the estate tax forms in front of him and knew that the total estate was approximately one million dollars and the taxable estate, after legitimate deductions, was approximately $300,000. ³ When the defendant took the stand, the prosecutor made a point of delving into his estimated net worth (over $20 million) and how he had managed to build up such a fortune.

Finally, in summation, the prosecutor referred to Stahl as "a multi-millionaire businessman in real estate, who his whole life is geared to buy property, buy property" and whose "office, his suite office, has just dollar signs, dollar signs all over. That's all he cares about." In discussing Stahl's motivation, the prosecutor said, "But because Mr. Stahl is a man whose life is geared to make money in real estate, money, money, money, this is a chance he saw to have the fix in. . . ." In the prosecutor's words:

The decision was, "Do I have a choice here? Is it a choice between profit and money or conscience and responsibility?" And Mr. Stahl chose money and profit. To make money, money., The man who built up a $12,000 investment into the millions of dollars which he doesn't even know how much he owns, or how many apartment buildings he has. It is his greed.

These examples indicate the nature of the prosecutor's trial strategy--a strategy that obviously included a persistent appeal to class prejudice. Because such appeals are improper and have no place in a court room, United States v. Socony-Vacuum Oil Co., 310 U. S. 150, 239-40 (1940); New York Central R. Co. v. Johnson, 279 U. S. 310, 319 (1929); Koufakis v. Carvel, 425 F. 2d 892, 900-905 (2d Cir. 1970); Benham v. United States [54-2 USTC ¶9574], 215 F. 2d 472, 473-75 (5th Cir. 1954); Drasner v. Thomson McKinnon Securities, Inc., 433 F. Supp. 485, 489-91 (S. D. N. Y. 1977), we are compelled to reverse. This was not a case in which the proof of guilt was so overwhelming that censure of misconduct will suffice. Nor is it one in which curative instructions by the trial court were sufficient to eliminate the taint. See United States v. Berger, 295 U. S. 78, 85 (1935). There was prejudicial error, and the judgment of conviction must be reversed.

Other Claims of Error

Harold Broadman, the IRS appraiser who was an alleged but unindicted coconspirator, was present in court throughout the trial. However, neither party called him as a witness. The district court correctly refused defendant's request to charge that the jury might infer that the Government's failure to call Broadman was due to the fact that his testimony would have been unfavorable to the prosecution. If the district court had been requested to do so, it might have charged that under the circumstances an adverse inference could be drawn against either side. United States v. Erb, 543 F. 2d 438, 444-45 (2d Cir.), cert. denied, 429 U. S. 981 (1976).

We are more troubled by appellant's complaints concerning the Government's video-tape of a conversation between Brooks and Triolo. This conversation, which took place on December 8, 1978 , when Brooks was cooperating with the Government, was offered in evidence for the purpose of establishing the following exchange:

Brooks: You know, you know what I keep laughing it stands out in my mind that time when that shmucky Broadman went to that Stanley Stahl and he asked him for the dough, you remember? Triolo: Yeah.

Because Triolo was not present during any conversations between Broadman and the defendant, any testimony by Triolo concerning such conversations would have been objectionable as hearsay. United States v. Check, 582 F. 2d 668 (2d Cir. 1978). We have carefully examined the folio references relied upon by the Government to support the video-tape's admissibility as impeaching evidence and find testimony by Triolo that there was "friction" between Broadman and Brooks and a denial of knowledge by Triolo as to whether Broadman had gone to Stahl concerning it. This was not a very strong foundation for admitting the purported substance of a conversation between Broadman and Stahl, as framed by a witness cooperating with the Government at a carefully staged interview some five years after the event at issue. Brooks, the cooperating witness, testified at trial that the defendant admitted having been approached by Broadman; the defendant denied that he had talked to Broadman. The question of which of these two men was telling the truth was a very important issue in the case. Despite the trial court's limiting instructions concerning the Brooks-framed video-taped statement, we are not at all sure that the probative value of this proof, will all the irrelevant matter that accompanied it, was not substantially outweighed by its potential prejudice to the defendant. See Fed. R. Evid. 403; United States v. Shoupe, 548 F. 2d 636, 643-44 (6th Cir. 1977); United States v. Brown, 490 F. 2d 758 (D. C. Cir. 1974).

However, the trial court has considerable discretion in determining whether evidence is properly admitted for impeachment purposes. See United States v. Rogers, 549 F. 2d 490, 496 (8th Cir. 1976), cert. denied, 431 U. S. 918 (1977); United States v. Dye, 508 F. 2d 1226, 1234 (6th Cir. 1974), cert. denied, 420 U. S. 974 (1975). We are not prepared to say that there was an abuse of the district court's discretion in the instant case. We are confident that, upon retrial, the able district judge will again give the matter careful consideration, bearing in mind our misgivings as expressed herein.

Appellant's other contentions are without substance and require no comment.

Reversed and remanded for a new trial.

^* Due to the unfortunate death of Judge Murray I. Gurfein, this case has been decided by the two remaining members of the panel pursuant to §0.14(b) of the Rules of the United States Court of Appeals for the Second Circuit.

¹ Brody testified that the originally proposed increase in appraised value was in the neighborhood of "half a million dollars." Defendant testified that there was never a reduction in Broadman's originally proposed figures.

² The district judge stated that "[t]he remarks of the Government prosecutor stretch at times to the outer limits of propriety . . .." We believe they exceeded those limits.

³ The $13.5 million figure represented the gross value of the real property without taking into account over $12.2 million in encumbrances. The prosecuting attorney first used this figure in a question addressed to Brody. After defense objection, the prosecutor's comment was stricken, and the jury was instructed to disregard it. The Court then sustained no less than four defense objections to questions seeking to elicit the $13.5 million figure from Brody. The prosecutor finally abandoned the attempt. In summation, however, the prosecutor again referred to the estate as a "$13.5 million dollar estate," a statement he knew was inaccurate.

 

 

 

 

[83-2 USTC ¶9542]Don Schultz, Plaintiff v. John R. Stark and R. L. Slate, Defendants Gary Almond, et al., Plaintiffs v. John R. Stark and R. L. Slate, Defendants

U. S. District Court, East. Dist. Wis., C. A. Nos. 82-C-1280, 82-C-1281, 554 FSupp 1219, 1/25/83

[Code Sec. 7214(a)(1), and the First Amendment]

Revenue officers or agents, offenses by: Constitutionality: Freedom of religion--Regardless of whether membership in a religious order gave the taxpayers justification for filing Forms W-4, claiming that their wages were exempt from state and federal withholding, the proper procedure for challenging their tax liability was through a suit for refund. However, applying the withholding tax against the taxpayers' employer did not violate the taxpayers' First Amendment right to religious freedom. Further, the taxpayers' factual allegations failed to support their claim that the IRS agents who directed their employer to ignore the W-4 Forms were guilty of any extortion or willful oppression under color of law.

William Whitnail, P. O. Box 693, Racine, Wis., Shelly Waxman, 30 W. Washington Street, Chicago, Ill., for plaintiff. Joseph P. Stadtmueller, United States Attorney, Melvin K. Washington, Assistant United States Attorney, Milwaukee, Wis. 53202, for defendant.

Decision and Order

REYNOLDS, Chief Judge:

These cases were removed from the state courts to this court. The defendants are the same in each case and the facts essentially identical. The plaintiffs share the same counsel. In both cases, the plaintiffs have moved to remand these cases to the state courts, or alternatively that the cases be consolidated. The defendants have moved to dismiss each case.

The allegations of the complaints indicate that the plaintiffs are all employed by American Motors Corp., and are all members of the Belanco Religious Order. Pursuant to orders from Belanco, the plaintiffs completed Internal Revenue Service Forms W-4 claiming that their wages were exempt from state and federal withholding. The IRS, through the defendants, directed AMC to ignore the W-4 Forms and to withhold taxes on wages paid to the plaintiffs. AMC complied with the IRS's direction.

The complaints allege five causes of action. The first is that the above acts by the defendants constitute a common law tortious interference with the plaintiffs' relationship with their employer and conversion of funds. Count II alleges that the defendants' actions violated 26 U. S. C. §7214(1) [which the Court assumes refers to §7214(a)(1)] which makes it illegal for United States employees to extort or willfully oppress under color of law. Count III alleges a violation of the Privacy Act, 5 U. S. C. §552. Counts IV and V allege constitutional torts violating the plaintiffs' rights of religious freedom and due process.

From the foregoing allegations of federal causes of action and violations of the United States Constitution, it is apparent that removal was proper and that the plaintiffs' motion to remand these cases must be denied.

The Court also concludes that the allegations of the complaints fail to state a claim for which relief can be granted. The factual allegations simply state that the IRS, through its employees who are the defendants in this action, improperly refused to grant plaintiffs an exempt status. However, none of the allegations in the complaint sufficiently allege why the refusal was erroneous.

It may be inferred from the allegations that the reason the plaintiffs claim the refusal was erroneous is that the plaintiffs belong to a religious order which directs its members not to pay income taxes. Regardless of whether such membership gives the plaintiffs justification for not paying taxes, the plaintiffs proper procedure for challenging their tax liability is through a suit for a refund after filing a claim for a refund with the IRS under 26 U. S. C. §7422(a). Applying the withholding tax against the plaintiffs' employer would not violate the plaintiffs' right to religious freedom under the first amendment to the United States Constitution. Similarly, such withholding does not violate the plaintiffs' due process rights. E.g., Stonecipher v. Bray [81-2 USTC ¶9614], 653 F. 2d 398, 403 (9th Cir. 1981).

The factual allegations are also insufficient to support any of the first three causes of action listed in the complaint.

The defendants have also requested that this Court award costs and attorney fees. Such an award is appropriate where the losing party has "acted in bad faith, vexatiously, wantonly, or for oppressive reasons." Alyeska Pipeline Service Co. v. Wilderness Society, 421 U. S. 240, 258-59 (1975). In this action, an award of attorney fees and costs is appropriate. The law is well settled as to the constitutionality of the withholding tax and the manner in which refunds are sought. This action is clearly frivolous.

THEREFORE, IT IS ORDERED that:

1. Plaintiffs' motion to remand these cases is denied.

2. Defendants' motions to dismiss are granted in both case No. 82-C-1280 and case No. 82-C-1281.

3. Defendants in case No. 82-C-1280 and case No. 82-C-1281 shall be awarded reasonable attorney fees and costs.

 

 

 

 

[84-2 USTC ¶9889]United States of America , Plaintiff-Appellee v. F. Thomas Little, Defendant-Appellant United States of America , Plaintiff-Appellee v. Peter Chernik, Defendant-Appellant

United States of America, Plaintiff-Appellee v. Harold Grutchfield, Defendant-Appellant


(CA-9), U. S. Court of Appeals, 9th Circuit, Nos. 83-1021, 83-1026, 83-1032, 753 F2d 1420, 10/26/84 , Affirming an unreported decision of the District Court

[Code Secs. 704, 706, 6031, 7214, and 18 U. S. C. §371]

Partners and partnerships: Retroactive allocations of income: New partners: Returns: Sale of interest: Criminal penalties: Revenue officers or agents, offenses by.--In affirming the trial court, the court of appeals held that the taxpayers conspired to evade taxes by means of a fraudulent retroactive allocation of partnership losses to new partners, in contravention of existing law. The taxpayers' preparation of fraudulent partnership records and backdating of a promissory note evidenced their awareness of the requirements of the law and their intent to circumvent it. Moreover, the trial court did not commit reversible error as to its rulings on jury instructions, admissibility of evidence, and proceedings at the trial. Further, the taxpayers failed to prove that the IRS agents violated their constitutional rights with their undercover operation.

Deborah Wright Dawson, Department of Justice, Washington , D. C. 20530, for for plaintiff-appellee. Edward Ord, San Francisco , Calif. , for defendant-appellant.

Before ALARCON, and CANBY, Circuit Judges, and STEPHENS ^*, District Judge.

Opinion

ALARCON, Circuit Judge:

In these three companion appeals, appellants F. Thomas Little, Peter R. Chernik, and Harold Grutchfield challenge their convictions for conspiracy to defraud the United States by impeding, impairing, obstructing and defeating the lawful function of the Internal Revenue Service and Department of Treasury in the collection of tax revenue, in violation of 18 U. S. C. §371. Little, Chernik, and Grutchfield individually and jointly raise numerous issues on appeal. We affrm their convictions.

Facts

The indictment in this matter stemmed from an IRS undercover investigation of Indec Financial Inc. (Indec), a real estate development company that sold interests in real estate limited partnerships to investors. Little was the chairman of Indec's board of directors. Chernik, a member of the California bar, was Indec's legal counsel. Grutchfield was Indec's president. Peter Yost, who did not appeal his conviction, was a salesperson for Indec. ¹

The IRS investigation commenced on December 24, 1980 , when IRS Special Agent Christopher White, posing as Charles Whitman, a representative for a group of investors looking for tax shelters, called Little at Indec regarding a possible investment in a tax shelter. White was referred to Yost. White discussed with Yost the possibility of providing a $200,000 tax shelter for calendar year 1980 for a wealthy client. White stated that he might not be able to contact his client until January 1981. Yost indicated that Indec could accept a check in January 1981. Yost scheduled a meeting with White in Indec's offices for December 29, 1980 .

At the December 29 meeting, Yost explained Indec's investment and shelter programs. According to Yost, Indec had two types of investment programs: one was designed to make a profit and the other was designed to shelter income from taxation. Bedford & Company, a partnership in the Cayman Islands , was of the latter type. Yost explained the Bedford partnership in detail and offered to sell White's client an interest in Bedford .

White again told Yost that he might have difficulty contacting his client before January 1981. Yost assured White that this would not be a problem. Yost explained that the client's entitlement to a tax deduction depended on his participation in the Bedford partnership prior to June 1, 1980 . Because that critical date had already passed, a backdated subscription agreement and promissory note would be used to provide documentary proof that the client was a member of the partnership prior to the June 1, 1980 deadline. The partnership's records would then reflect that the client's 1981 check was a delinquent payment on the 1980 promissory note. Yost agreed with White that the client's accountant and attorneys should not be told of the backdated note. Before the December 29 meeting had ended, Yost gave White several documents, including a Bedford offering memorandum, a blank promissory note to Bedford , and a tax opinion letter regarding Bedford which bore Chernik's signature.

On January 12, 1981 , White called Yost at Indec's offices to discuss the Bedford investment. Yost recommended that White's client participate in Bedford for three or four years to avoid scrutiny from the IRS. Yost repeated his explanation of the use of the backdated documents and reassured White that his client could take a deduction on his personal tax return for 1980, despite his becoming a member of the Bedford partnership until 1981. Yost further explained that the backdated promissory note would be used only for 1980. For subsequent years of participation in Bedford , White's client would be billed prior to June 1. Yost also emphasized that the IRS would be unable to subpoena Bedford 's partnership records because they were maintained in the Cayman Islands .

White asked Yost to send him a sample of the documents used for filing the individual partners' personal tax returns and an outline of the mechanics of Bedford 's investment plan. The copy of the tax schedule Yost sent to White differed from that which Yost had previously indicated should be used. During a subsequent telephone conversation with Yost, White inquired into this discrepancy. Yost explained that there were some options as to which tax schedule could be used and he would later determine which one White's client should use to report the deduction from Bedford .

On January 22, White went to Indec's offices to pick up the written explanation of the Bedford investment program and a copy of the schedule his client was to use when filing his individual tax return. The receptionist gave White an envelope which contained an outline of Bedford 's investment plan prepared by Yost and a copy of a schedule E tax form. While White was at Indec's offices, Little approached White and asked him if he had any questions regarding the investment in Bedford . White responded that he was confused about the mechanics of the investment and how it related to the Bedford offering memorandum. Little told White that the offering memorandum was for purposes of the IRS only. Little also explained that Bedford would prepare the information necessary for White's client to file his tax return. Little assured White that his client's privacy would be protected by a numerical filing system. The only documents which would link names to the numbers were secured by an accountant in the Cayman Islands .

On February 6, 1981 , White and Special Agent Walter Perry, who posed as Vincenzo Paoli (Paoli), White's wealthy client, met with Yost, Little, and Chernik to discuss the Bedford investment plan. This and subsequent meetings and telephone conversations between IRS agents and Indec representatives were secretly recorded.

At the February 6 meeting, Little introduced Chernik as Indec's attorney and theorist. Little presented to White and Paoli an overview of Indec's investment programs. Little then elaborated on the specific mechanics of the Bedford partnership investment plan. Little explained that there was an interest in Bedford available for 1980, but in order for Paoli to take a 100% deduction Paoli would have to have entered the partnership before June 1, 1980 . Little and Yost assured Paoli that a backdated promissory note would allow him to use Bedford as a deduction for his 1980 individual tax returns and that the IRS would not be able to dispute or disprove that he entered Bedford in May of 1980. Little and Yost also stated that they had successfully used the backdating procedure with other clients. Little advised Paoli not to inform his accountant of the true details of the Bedford deduction because accountants are not privileged. Chernik was present during Little's presentation of the Bedford partnership and explanation of the use of backdated documents.

During the course of the February 6 meeting, Little gave Paoli three copies of a blank subscription agreement and a promissory note to sign. Little encouraged Paoli to sign the Bedford partnership agreement so that he or Chernik could take these documents with them on their upcoming trip to the Cayman Islands . Paoli told the others that he had decided to leave the final decision whether to invest in Bedford up to White.

After the meeting concluded, Agent Perry initialed and signed the Bedford subscription agreements and the promissory note under his assumed name, Vincenzo Paoli. Perry gave the signed documents to White.

On February 9, White took the signed subscription and promissory note to Indec's offices. White told Yost and Little that he was uneasy about having to decide whether Paoli should invest in Bedford . Little and Yost reassured White that similar transactions had been successful in the past. Little again emphasized that the dates on the documents could not be disproved, absent a breach from one of the parties involved in the transaction. Little left the meeting and Yost continued speaking with White.

Yost showed White two client files containing backdated promissory notes and offered to contact one of these clients. The client told White that he was satisfied with the backdating method. Yost's client also told White that he had been given backdated dunning letters. Yost assured White that dunning letters could be provided to Paoli if he wanted them. Yost also emphasized the secrecy regarding the files on Paoli's investment in Bedford . White left Indec's office and later that evening called Yost to inform him that he had advised Paoli not to invest in Bedford .

On February 18, White returned Yost's call and briefly conversed with him. This was White's last contact with Indec personnel. The undercover operation was suspended for several months because of the unavailability of government funds for the investigation. IRS agents resumed the undercover investigation of Indec in August 1981.

On August 27, 1981 , Agent Perry, acting as Paoli, called Yost and asked whether Indec still had any tax shelters available for 1980. Yost indicated that such a shelter was available and arranged a meeting for September 21.

On September 21, 1981 , Paoli and another IRS special agent posing as Joe Russo, met with Yost, Little, Chernik, and Grutchfield at Indec's new office. Paoli then explained why he had not contacted Indec since February. Paoli stated that he had until October 15, 1981 , to file his 1980 tax return.

Little asked Paoli if he needed any deductions for 1980 and Paoli replied that he could use $200,000 in deductions. Little and Grutchfield indicated that they had some writeoffs that were available. Little offered Paoli the same type of tax shelter in Bedford he had described to him in February. Little indicated that a backdated subscription agreement and promissory note would be used.

After Little left the September 21, 1981 meeting, Grutchfield, Chernik, and Yost explained to Paoli and Russo that the backdated promissory notes would document Paoli's status as a partner in Bedford prior to June 1, 1980 . They also agreed that fraudulent dunning letters could be placed in Paoli's file to document further his entry into the partnership prior to June 1, 1980 . Grutchfield stressed that the letters would "make things look better" and that Paoli should not let the IRS learn of the backdating of the notes. Before the meeting ended, Paoli stated that he would accept the offer to invest in Bedford in order to take the investment as a writeoff on his 1980 returns. Paoli signed a promissory note which Yost had backdated to May 21, 1980 . Russo asked that dunning letters be provided.

On October 7, Paoli and Russo met with Yost, Little, Grutchfield, and Chernik in Little's office at Indec in order to conclude the Bedford transaction. At the meeting, Little gave Russo four fraudulent dunning letters. Russo then paid Little for the interest in Bedford by placing a cashier's check for $100,000 on his desk. As the group prepared to celebrate the conclusion of the transaction with champagne, several IRS special agents entered the office. Some agents arrested Yost, Grutchfield, and Little in Little's office. Other agents arrested Chernik in Indec's reception area. The agents took Yost, Grutchfield, Little, and Chernik to San Francisco for arraignment.

A team of special agents remained at Indec's office from the time of the arrest on October 7 through shortly after noon on October 8. The parties dispute whether the agents searched the office.

Discussion

I. Legality of the Retroactive Allocation

A. IRS Statutes and Regulations

Appellants urge us to reverse their convictions for conspiracy to defraud the government on the ground that the retroactive allocation to Paoli of Little's and Grutchfield's shares of the Bedford partnership losses was legal. They contend that the interplay between 26 U. S. C. §§ 704(a), 761(c) and 6031, ² as they read it at the time of the Bedford transaction, permitted the retroactive allocation to a new partner of partnership losses attributable to periods prior to the new partner's entry into the partnership. Specifically, they contend that pursuant to these code sections and respective regulations, Bedford's partnership agreement could have been amended at any time prior to October 15, 1981 , to effect a legal retroactive allocation of Little's and Grutchfield's shares of Bedford's 1980 losses to Paoli. Appellants are wrong. Their tortured interpretation of the pertinent statutes and legislative history does not withstand scrutiny.

Appellants and the government agree that 26 U. S. C. §706(c)(2)(A), which governs the sale of a partner's entire interest in a partnership, applies to the transaction in this case. Section 706(c)(2)(A) provides in relevant part:

The taxable year of a partnership shall close--

(i) with respect to a partner who sells or exchanges his entire interests in a partnership, and . . .

Such partner's distributive share of items described in section 702(a) for such year shall be determined, under regulations prescribed by the Secretary, for the period ending with such sale, exchange, or liquidation

The pertinent regulation, 26 C. F. R. §1.706-1(c)(2)(ii), provides that when a partner sells his or her entire interest, the partnership's taxable year closes with respect to that partner on the date of the sale, and the transferor partner must report his or her share of the partnership's gains or losses attributable to the period prior to the sale. The transferee partner must report his or her share of the partnership's gains or losses attributable to the period after the sale. See 1 McKee, Nelson and Whitmire, Federal Taxation of Partnerships and Partners §§ 11.02[3], [4][a], 5[a] at 11-6 to 11-11 (1977 ed.); 2 Willis, Pennell, and Postlewaite, Partnership Taxation §87.04 at 87-10 (3rd ed. 1981).

In Moore v. Commissioner [Dec. 35,417], 70 T. C. 1024 (1978), although the issue before the court involved retroactive allocations under 26 U. S. C. §706(c)(2)(B), the tax court expressly noted that 26 U. S. C. §706(c)(2)(A) and 26 C. F. R. §1.706-1(c)(2)(ii), require a partner who transfers his entire interest to report his distributive share of partnership items for the period he was a partner. The court emphasized that the partner could not transfer retroactively those items to the transferee by modifying the partnership agreement under 26 U. S. C. §761(c). Id. at 1031. In light of the express language in Moore , retroactive allocations in situations governed by 26 U. S. C. §2706(c)(2)(A) cannot be legally accomplished by amending the partnership agreement under 26 U. S. C. §761(c).

Smith v. Commissioner [64-1 USTC ¶9390], 331 F. 2d 298 (7th Cir. 1964), is not to the contrary. Smith involved the sale of an entire partnership interest between two existing, equal partners. Although the sale occurred in the middle of the partnership's taxable year, the partners amended the partnership agreement, at the time of the sale, to allocate substantially all of the fiscal year's gains and losses to the purchasing partner.

After finding that there was no evidence that the partners modified the partnership agreement in order to avoid or evade taxes, the Seventh Circuit concluded that the retroactive allocation of the partnership income was proper. Smith clearly does not support the proposition urged by appellants--that retroactive allocations to new transferee partners in §706(c)(2)(A) situations are allowed. See also Rodman v. Commissioner [76-2 USTC ¶9710], 542 F. 2d 845, 857-58 (2nd Cir. 1976). (The Second Circuit distinguished cases such as Smith where existing members of an ongoing partnership agreed to rearrange shares retroactively from cases where a new partner has joined the partnership by a transfer of partnership interest. The Second Circuit found that retroactive reallocation where a new partner has joined the partnership was prohibited. The Second Circuit also concluded that when one partner sold his entire interest to the remaining three partners, "the partnership year closed as to him and his distributive shares . . . were set as of that moment.")

In 1976, Congress amended 26 U. S. C. §706(c)(2)(B) in order to make clear that retroactive allocations were not permitted where new partners entered into a partnership by contribution or acquisition of less than the entire interest of an existing partner. Appellants contend that because the 1976 amendments did not affect §706(c)(2)(A), retroactive allocations continued to be permissible under the latter section. They assert that if Congress had wanted to bar retroactive allocations under §706(c)(2)(A), it would have done so under the 1976 Tax Reform Act. This argument is based on appellants' unreasonable and erroneous contention that retroactive allocations were permissible under §706(c)(2)(A).

A reading of the legislative history of the 1976 amendment to §706(c)(2)(B), clearly indicates that Congress was aware that retroactive allocations were not permissible under §706(c)(2)(A). In explaining the reasons for the amendment to §706(c)(2)(B), the committee reports: "Present law is not clear whether retroactive allocations are permissible under the Internal Revenue Code. Essentially, there are four partnership Code provisions which have a direct or indirect bearing on this issue--sections 704(a), 761(c), 704(b)(2), and 706(c)(2)(B)." H. R. Rep. No. 658, 94th Cong., 1st Sess.; S. Rep. No. 938, 94 Cong., 2d Sess.; reprinted in 1976 U. S. Code Cong. & Ad. News 2897, 3017 & 3531. The omission of §706(c)(2)(A) from this enumeration was not an oversight by Congress. Congress emphasized that it was amending §706(c)(2)(B) to clarify that retroactive allocations were not permitted under this section and to make it consistent with the requirements of §706(c)(2)(A) and its respective regulation, 26 C. F. R. §1.706-1(c)(2)(ii). Id. at 3018-19 & 3532-34. Specifically, the committee report states:

The bill amends present law (sec. 706(c)(2)(B)) to make it clear that the varying interests rule of this provision is to apply to any partner whose interest in a partnership is reduced, whether by sale, exchange, or otherwise, such as by the admission of a new partner who purchased his interest directly from the partnership. Correspondingly, the provision is to apply to the incoming partner so as to take into account his varying interests during the year. In addition, regulations are to apply the same alternative methods of computing allocations of income and loss to situations falling under section 706(c)(2)(B) as that currently provided with respect to section 706(c)(2)(A) situations (sale or liquidation of an entire interest).

Id. at 3019 (emphasis added); see also id. at 3533-34. The purpose of the amendment to §706(c)(2)(B) was not to modify the existing law, as appellants suggest, but to clarify it so that it would be applied consistently. See Richardson v. Commissioner [CCH Dec. 37,801], 76 T. C. 512, 523-24 (1981), aff'd [83-1 USTC ¶9109], 693 F. 2d 1189 (5th Cir. 1982).

The legislative history of the 1976 Tax Reform Act clearly indicates that Congress did not amend §706(c)(2)(A) to bar retroactive allocations because there was no need to do so. Retroactive allocations to new partners were not permitted under that section.

Furthermore, the legislative history of the 1976 Tax Reform Act also refutes appellants' assertion that the interplay between 26 U. S. C. §§ 704(a) and 761(c) allows for retroactive allocation in §706(c)(2)(A) situations. Congress noted that this smae argument had been made in order to circumvent the prohibition against retroactive allocations under §706(c)(2)(B). To reinforce the prohibition against retroactive allocations, Congress amended §104(a). The committee report states:

In addition, the present law provision relating to the effect of a partnership agreement (sec. 704(a)) is amended to provide that it is overridden by any contrary provisions of the partnership provisions (under subchapter K, including section 706(c)(2)(B)). Thus, a partnership agreement, amended (pursuant to section 761(c)) to provide for a retroactive allocation, will not override an allocation required under section 706(c)(2)(B).

1976 U. S. Code Cong. & Ad. News at 3020; see also id. at 3534.

Section 704(a) was amended to read: "A partner's distributive share of income, gain, loss, deduction or credit shall, except as otherwise provided in this chapter, be determined by the partnership agreement" (emphasis added). Congress thereby made clear that a partnership agreement amended pursuant to §761(c) could not override an allocation required under §706(c)(2)(B). Id. at 3020 & 3534. See Marriott v. Commissioner [CCH Dec. 36,835], 73 T. C. 1129 (1980); Moore v. Commissioner [CCH Dec. 35,417], 70 T. C. 1024 (1978).

This amendment to §704(a) also resolved any doubt regarding §706(c)(2)(A). A partnership agreement amended pursuant to §761(c), would not override the allocation mandated by §706(c)(2)(A).

In sum, at the time of the initiation of the Bedford deal on December 24, 1980 , the allocation rule set forth in §706(c)(2)(A), as interpreted by case law and clearly reflected in the pertinent legislative history, was and remains mandatory. The requirements of §706(c)(2)(A) cannot be circumvented by modifying the partnership agreement under §761(c).

B. Jury Instructions

Closely related to appellants' claim that retroactive allocation was allowed under 26 U. S. C. §706(c)(2)(A), is their challenge to the district court's jury instructions. Appellants argue that the district court committed reversible error by: (1) failing to give some of the joint and individual instructions they requested, (2) giving some of the government's instructions, and (3) deleting parts of some of the government's instructions.

Initially, we note that a trial judge is given substantial latitude in tailoring jury instructions as long as they fairly and adequately cover the issues presented. United States v. Marabelles, 724 F. 2d 1374, 1382-83 (9th Cir. 1984). In United States v. Smith [84-2 USTC ¶9686], 735 F. 2d 1196 (9th Cir. 1984), this court recently reiterated the standard of review we apply to challenges to jury instructions. "The adequacy of a judge's instructions to the jury is measured by reading the instructions as a whole. The judge's formulation of those instructions or his choice of language is entirely in his discretion, so long as the instructions fairly and adequately cover the issues presented." Id. at 1198 (citation omitted).

Our review of the jury instructions in this case, convinces us that there was no abuse of discretion. The district court instructed the jury as follows:

Now the law provides that a taxpayer who is in a partnership shall take into account his share of the partnership losses for the taxable year, or portion thereof, in which he is a partner in determining his individual taxable income. However, the law prohibits a partner from taking into account, in determining his individual taxable income, a share of the partnership losses for a taxable year, or a portion thereof, prior to his admission into the partnership.

In evaluating the presence or absence of specific intent, you may consider, together with all the other evidence in the case, the circumstance that no decided case directly and precisely construes the legality of a transaction such as that alleged to be the substance of the alleged conspiracy in this case.

If a partner sells or exchanges his entire partnership interest, the partnership's taxable year closes, with respect to him, on the date of the sale or exchange. The date selected by the parties should control provided the benefits and burdens shift on that date.

The law permits the modification of a partnership agreement which is agreed to by all the partners or as modified in any manner which is provided to the partnership agreement with respect to any taxable year of the partnership until the date prescribed by law for filing of a partnership tax return for such taxable year, and the law as of October 7, 1981 , provided that a partnership need not file any partnership tax return for any year in which the partnership carried on no business in the United States, and derived no income from sources within the United States.

Now if you find that a defendant reasonably believed that the sale or assignment of his entire partnership interest in 1981, after the close of the calendar year 1980, was permissible under the Internal Revenue Code, even if the transaction was not valid under the Internal Revenue Code, then such a defendant cannot have entertained the required specific intent under the conspiracy law, and is entitled to acquittal.

The district court's instructions gave an accurate statement of the applicable law and accommodated the appellants' defense theory that they reasonably believed that the proposed Bedford transaction was legal. ³

C. Reliance on Dahlstrom

Appellants contend that reversal of their convictions is required in light of this court's opinion in United States v. Dahlstrom [83-2 USTC ¶9557], 713 F. 2d 1423 (9th Cir. 1983), cert. denied, 104 S. Ct. 2363 (1984). Appellants' reliance on Dahlstrom is misplaced.

The defendants in Dahlstrom were convicted of conspiracy to defraud the government by impeding, impairing, and obstructing the IRS in the ascertainment, computation, assessment and collection of income taxes and of aiding and abetting the preparation of false returns because of their involvement in promoting a tax shelter program which involved the creation of a foreign trust organization. The court concluded that reversal of the defendants' convictions was required on several grounds.

First, we emphasized that "[d]ue process requires that a person be given fair notice as to what constitutes illegal conduct so that he may conform his conduct to the requirements of the law." Id. at 1427. In Dahlstrom, on the dates alleged in the indictment, there was no statute that expressly made illegal the type of tax shelters promoted by the defendants nor was there any case law which held that defendants' scheme lacked economic substance for tax purposes. Thus, the defendants could not have had "fair notice" that their conduct was illegal. Second, the court noted that where a defendant is not given fair notice of the requirements of the law, a defendant necessarily lacks the requisite intent to violate the law.

In the present case, as discussed above, the law regarding the legality of retroactive allocations under §706(c)(2)(A) was clear on the dates alleged in the indictment. Case law and relevant legislative history made plain that the retroactive allocation to a new partner of partnership losses attributable to periods prior to the new partner's entry into the partnership was impermissible. Appellants had fair notice of the law and they could have conformed their conduct to the requirements of the law. Thus, they could have had the requisite intent to violate the law.

Because the law regarding retroactive allocations of a partner's interest in a partnership was clear and appellants had fair notice as to what constituted illegal conduct, we also reject appellants' contention that their convictions violated their due process rights or the constitutional prohibition against ex post facto laws.

Appellants also rely heavily on Dahlstrom to support their assertion that the prosecution violated their first amendment rights of commercial free speech. In Dahlstrom, this court noted that the first amendment barred prosecution for advocacy of conduct which did not violate existing law. Unlike Dahlstrom, the record in this case indicates that the appellants' conduct was prohibited by existing law. Appellants encouraged Paoli to enter into the Bedford partnership so he could deduct from his personal return losses to which he was not entitled. They developed and presented a scheme as to how Paoli could retroactively declare the losses on his 1980 tax return. They supplied Paoli with backdated and fraudulent documents which would substantiate the claimed deductions in the event of an IRS audit, and told him they had used the backdating scheme in the past. Appellants' conduct consequently went far beyond advocacy and amounted to participation in unlawful action. Appellants cannot cloak their intentional misconduct under the protections of the first amendment.

II. Suppression Claims

A. Tape Recordings

Relying on People v. Conklin, 12 Cal. 3d 259, 114 Cal. Rptr. 241, 522 P. 2d 1049, appeal dismissed, 419 U. S. 1065 (1974), appellants contend that the tape recordings of the conversation between the IRS undercover agents and appellants violated their fourth amendment rights and Cal. Penal Code §632, which prohibits electronic eavesdropping without the consent of all the parties to the communication. ⁴ Therefore, appellants argue that the district court should have suppressed the tapes. We have previously considered and rejected such arguments. We do so again.

In this circuit, the rule regarding admissibility of evidence in a federal prosecution is clear and simple. Evidence obtained in violation of neither the Constitution nor federal law is admissible in federal court proceedings without regard to state law. See United States v. Adams, 694 F. 2d 200, 201-02 (9th Cir. 1982), cert. denied, 103 S. Ct. 3085 (1983) (citing United States v. Hall, 543 F. 2d 1229, 1234-35 (9th Cir. 1976) (en banc), cert. denied, 429 U. S. 1075 (1977); United States v. Keen, 508 F. 2d 986, 989 (9th Cir. 1974), cert. denied, 421 U. S. 929 (1975)).

The tape recordings in the present case were not obtained in violation of the fourth amendment. See United States v. White, 401 U. S. 745, 751-53 (1971). The fourth amendment does not afford protection to wrongdoers' misplaced confidences. Hoffa v. United States , 385 U. S. 293, 302 (1966). Nor were the tape recordings obtained in violation of federal law. Under 18 U. S. C. §2511(2)(c), the tape recordings were lawful and, thus, were admissible under federal law. 18 U. S. C. §2517(3).

We also reject the attempt by appellants to bypass this clear rule by invoking the supervisory power of the district court. The supervisory power is to be applied with caution when the result of its application would be to exclude probative evidence. See United States v. Payner [80-2 USTC ¶9511], 447 U. S. 727, 734-35 (1980). We decline to apply it here, where there has been no outrageous conduct by the agent and no violation of any appellants' federal rights.

B. 18 U. S. C. §3109

Appellants argue that the IRS agents violated the "knock and notice" requirement of 18 U. S. C. §3109, by failing to give notice of their authority and purpose prior to arresting the appellants in Indec's office. Appellants contend that "all evidence obtained" from their arrest and subsequent search of Indec's offices must be suppressed. The government asserts, and appellants do not refute, that the only post-arrest evidence introduced at trial were statements made by Yost and Chernik.

Appellants cannot complain about the introduction of Yost's statements. The district court carefully instructed the jury to consider Yost's statements only against him. Moreover, appellants may not vicariously assert Yost's fourth amendment rights. See Rakas v. Illinois , 439 U. S. 128, 138 (1978); Alderman v. United States , 394 U. S. 165, 171-72 (1968). Accordingly, we need only concern ourselves with the post arrest statements made by Chernik. ⁵

Under 18 U. S. C. §3109, a federal officer may break open "any outer or inner door" to execute a search warrant if after notice of authority and purpose, entrance is refused. This section also applies to an arrest, with or without a warrant, by a federal officer for a federal offense. Sabbath v. United States , 391 U. S. 585, 588 (1968); United States v. Crawford, 657 F. 2d 1041, 1044 (9th Cir. 1981).

The enforcement of section 3109 serves three interests: (1) it provides protection from violence, assuring the safety and security of both the occupants and the entering officers; (2) it protects an individual's right to privacy; and (3) it protects against the needless destruction of private property. United States v. Moreno, 701 F. 2d 815, 817 (9th Cir. 1983), petition for cert. filed, 52 U. S. L. W. 3191 (U. S. Sept. 8, 1983 ) (No. 83-396).

Here, the IRS agents conceded that they did not knock and announce their presence or purpose before entering Indec's office. In light of this concession and by allowing Chernik's statements into evidence, the district court must have determined that §3109 was inapplicable to the agents entry into Indec's offices. We limit our review to the entry into the reception area. Whether we review the district court's determination under the clearly erroneous standard, see, e.g., United States v. Moreno, 701 F. 2d at 817, or under the de novo standard, see, e.g., United States v. McConney, 728 F. 2d 1195, 1205 (9th Cir. 1984) (en banc), we conclude that the district court was correct.

The IRS agents entered Indec's reception area through an unlocked door during business hours. Chernik was in Indec's reception area when the agents arrested him. A reception area is used for purposes of greeting and screening those who enter an office to determine if the individual is properly there. Also, office workers are generally free to walk through this area. Since the public and office workers are allowed to walk freely into a reception area, an individual working in the office can have no reasonable expectation of privacy there. Accordingly, section 3109 does not apply to Indec's reception area.

Appellants cite Wong Sun v. United States, 371 U. S. 471 (1963); Lo-Ji Sales, Inc. v. New York , 442 U. S. 319 (1979); and United States v. Phillips, 497 F. 2d 1131 (9th Cir. 1974), in support of their claim that §3109 should apply to this situation. Appellants' reliance on these cases is misplaced. Neither Wong Sun nor Lo-Ji Sales, Inc., involved §3109. The issue before the court in Wong Sun was whether the police had probable cause to arrest the defendants. In Lo-Ji Sales, Inc., the Supreme Court did not address the propriety of the police officer's entry into an adult bookstore during business hours to effectuate a search warrant. The issue in Lo-Ji was the sufficiency of an affidavit and search warrant to seize certain items once the officers were on the business premises.

United States v. Phillips, is factually distinguishable. Phillips involved a nocturnal entry into a locked, occupied business. In concluding that §3109 applied to such an entry, this court emphasized that "a locked commercial establishment, at least at night, is a 'house' as that word is used in §3109." 497 F. 2d at 1133-34.

C. Unlawful Search of Indec. Appellants also argue that "all fruits" of the IRS agents' search of Indec's offices should have been suppressed. We agree with the government that we need not reach this issue. Other than the post-arrest statements of Yost and Chernik, which we have discussed above, none of the alleged fruits of the search and seizure of Indec's offices was introduced into evidence at appellants' trial.

III. IRS Authority for Undercover Investigation and Government Misconduct

Appellants contend that reversal of their convictions is required because the IRS agents acted beyond their statutory authority in conducting the undercover investigation and committed numerous instances of alleged misconduct. We reject both of these contentions.

A. IRS Authority to Conduct Undercover Investigation

Appellants contend that the IRS agents exceeded their statutory authority by conducting the undercover investigation and therefore the entire investigation must be ruled void and unlawful. Appellants fail to cite any case which directly supports their contention that IRS undercover criminal investigations exceed the IRS's statutory authority. Our review of the relevant statutes convinces us that the IRS undercover criminal investigations such as the investigation in this case are well within the broad authority Congress delegated to the agency.

Under 26 U. S. C. §6301, Congress granted the IRS broad authority to collect taxes. Congress also gave the IRS a broad mandate to investigate all persons who may be liable for any internal revenue tax, 26 U. S. C. §7601, and broad discretion in determining what "reasonable devices or methods" may be "necessary or helpful" in collecting revenue tax. 26 U. S. C. §6302(b). Under 26 U. S. C. §7608(b), Congress granted police powers to IRS criminal investigators. These statutory grants of authority are clearly broad enough to encompass undercover criminal investigations which may be necessary and proper to the determination and collection of taxes, and to the general enforcement of the revenue laws.

Furthermore, the Supreme Court has recognized that in order to apprehend individuals engaged in criminal activities, the government is entitled to use decoys and to conceal the identity of its agents. Lewis v. United States , 385 U. S. 206, 208-09 & n. 5 (1966). Indeed the Supreme Court expressly stated that "there are circumstances when the use of deceit is the only practicable law enforcement technique available." United States v. Russell, 411 U. S. 423, 436 (1973) (rejecting entrapment defense where undercover agent supplied defendant with chemical necessary to manufacture illegal drug). This case, where the collection of taxes is being impeded by fraudulent conduct, presents such circumstances. See, e.g., United States v. Everett, 692 F. 2d 596 (9th Cir. 1982), (IRS undercover investigation revealed defendants' scheme to sell tax shelter investments that had been backdated to allow buyers to claim deductions on their federal income tax returns for the years prior to those in which transaction actually occurred).

Appellants' contention that the IRS agents' undercover investigation in this case was prohibited by 26 U. S. C. §7214(a)(4), (a)(5) and (a)(6), is patently frivolous. ⁶

The agents' conduct was simply part of their undercover role. Were we to accept appellants' contention that the agents' conduct violated §7214 we would, in effect, be barring undercover investigations in which a federal agent must pretend and appear to violate the law. Clearly, Congress could not have intended such a rule in enacting §7214. Moreover, even if the IRS agents violated §7214, the remedy lies not in freeing appellants, but in prosecuting the agents. See Hampton v. United States , 425 U. S. 484, 490 (1976).

Because the IRS agents acted within their authority in conducting the undercover investigation, we also reject appellants' argument that the undercover investigation violated appellants' due process rights.

B. IRS Agent Misconduct

Appellants allege numerous instances of misconduct by the IRS agents which appellants claim require reversal of their convictions, either under the due process clause or this court's supervisory powers. Our review of the record convinces us that none of the allegations of government misconduct requires reversal.

1. Affirmative Misrepresentation by IRS Agent Perry

Appellants argue that the district court should have suppressed the tapes of all of the conversations between appellants and the IRS agents occurring after August 24, 1981 , because they were secured by "fraud, deceit and trickery." Their argument is based on Agent Perry's denial to an Indec receptionist that he was with the IRS. Appellants assert that Perry had a duty to answer truthfully when questioned about his affiliations. Appellants further contend that if Agent Perry had answered truthfully, they would have terminated their dealings with the IRS agents.

Appellants fail to cite any cases holding that an undercover agent is under an affirmative duty to respond truthfully if questioned about his or her true identity. The cases relied on by appellants all involve government agents--known by the suspects to be agents--who through deceit, trickery or misrepresentation abused the powers of their position to gain access to a private citizen's premises or records. ⁷ The rule set forth in those cases is that access gained by a government agent, known to be such by the person with whom the agent is dealing, violates the fourth amendment's bar against unreasonable searches and seizures if such entry was acquired by affirmative or deliberate misrepresentation of the nature of the government's investigation. This rule is inapplicable to cases, such as the present, involving an undercover agent's denial that he or she is a federal agent.

In Jones v. Berry [83-2 USTC ¶9653], 722 F. 2d 443 (9th Cir. 1983), cert. denied, 104 S. Ct. 2343 (1984), we recognized that cases such as those relied on by appellants are readily distinguishable from situations such like the present, where "IRS agents did not pretend to be civil agents, thereby implicitly invoking their powers as civil investigators, when in fact they intended to conduct a criminal investigation. Rather, the agents pretended to be fellow criminals in order to gain the [suspect taxpayer's] confidence." Id. at 447 n. 5.

The undercover agent's denial of association with the government is justifiable and necessary to protect the agent's "cover." Were we to accept appellants' theory, we would, in effect, put an end to federal undercover operations by imposing a duty on federal undercover agents to identify themselves as such whenever they are asked. To insure themselves against convictions based on evidence obtained through undercover investigations, criminals would only have to ask their acquaintances and associates if they were government agents. We reject appellants' fanciful theory.