United States v. Julian A. Penello

668 F.2d 789, 1982 U.S. App. LEXIS 22387, 9 Fed. R. Serv. 1226

• Court: Court of Appeals for the Fourth Circuit
• Decided: January 22, 1982
• Docket: 81-5126
• Status: Published

Opinions

PER CURIAM:

Julian Penello was indicted for four counts of tax evasion and four counts of subscribing to false income tax returns in violation of 26 U.S.C. § 7201 and § 7206(1). His first trial ended in a hung jury. Before the second trial, the district court held a suppression hearing to review the evidence and ordered the government to exclude the testimony of an IRS agent concerning a statement made by Penello. The government filed an appeal pursuant to 18 U.S.C. § 3731. We affirm.¹

Penello operates a fishing boat in Norfolk, Virginia. The IRS began investigating him for unreported income for tax years 1972 through 1975. Penello concedes that he did not report certain amounts of income during the period, but contends that the money was put aside as a tax-exempt capital fund for use in purchasing a new engine for his boat.² The government counters that he never established a capital fund, and that he intended to evade taxes.

To prove intent, the government sought to introduce the testimony of two IRS agents who held a five-hour interview with the defendant. During this interview, Penello told the agents that he had sold “shack fish” ³ to the fisheries for cash. The fisheries paid for these fish from a petty cash fund and required Penello to sign a voucher to acknowledge receipt of the proceeds. Penello told the agents that he occasionally signed fictitious names to these vouchers because he had heard that other fishermen had been getting into trouble for not reporting the income. However, he was never indicted for failure to report shack fish proceeds. The district court made a determination under Fed.R.E. 403 that the prejudicial effect of the evidence outweighed its probative value, and ordered it excluded.⁴ The issue on appeal is whether the district court abused its discretion in making such a ruling.

The parties agree that the standard for overturning a Rule 403 determination is whether the district court acted in an “arbitrary or irrational” manner. United States v. Masters, 622 F.2d 83 (4th Cir. 1980). We see nothing irrational or arbitrary about the court’s decision here. The government had only the agents’ statement that Penello admitted to signing a fictitious name on shack fish vouchers. There was no proof that he actually received any money.⁵ The fictitious signature is hardly probative of Penello’s intent to avoid taxes if he did not even take the money. Given the certain prejudice the jury would attach to this testimony, we find that the district court properly excluded the evidence.

Accordingly, the decision of the district court is affirmed.

AFFIRMED.

1 . Even though neither party raised the question of jurisdiction, the court, during argument, inquired of counsel if such a question did exist. Neither party pressed the matter. We see no need to inquire further regarding jurisdiction.

2 . The Capital Construction Fund is a tax deferral program established in 1970 which is designed to encourage fishermen to reinvest earnings in boats and equipment. The program is administered by the Commerce Department.

3 . “Shack fish” are small fish and sea animals caught with the main catch.

4 . The district court did not cite Rule 403 in its order. However, by the language of its ruling it is clear that the decision was based upon Rule 403.

5 . On the contrary, there was testimony that shack fish proceeds were traditionally split among members of the crew, not including Penello.