United States v. Lawrence P. Bardin

224 F.2d 255

• Court: Court of Appeals for the Seventh Circuit
• Decided: July 1, 1955
• Docket: 10953
• Status: Published

Opinions

SCHNACKENBERG, Circuit Judge.

We have awaited the decisions of the United States Supreme Court in Holland v. United States¹ and other “net worth” tax cases. Our consideration of the principles of law there formulated which we deem applicable to this case, followed by a divergence of views among the members of this court, has delayed the decision. The writing of an opinion was assigned to the author on April 14,1955.

This is an appeal from a judgment of the district court, entered on the verdict of a jury finding defendant guilty, as charged in a two-count indictment, of willfully and knowingly attempting to defeat and evade a large part of the income tax due and owing by him to the United States of America for the calendar year 1946.

Count I charged that on or about May 26, 1947, defendant did willfully and knowingly attempt to defeat and evade said tax by filing a false and fraudulent income tax return for the calendar year 1946, wherein he stated his net income for said year was $528,824.56 and the tax due and owing thereon was $426,382.89, whereas, as he then and there well knew, his net income for said year was $759,-827.94, more or less, and the tax due thereon was $639,841.28, more or less. Count II charged that “on or about September 15, 1946, through and including May 27, 1947”, the defendant did willfully and knowingly attempt to defeat the payment of said tax due and owing by him “by concealing and attempting to conceal from the Collector of Internal Revenue the nature and extent of his assets and the location thereof, said tax being $639,841.28, more or less, by refusing to pay said tax due and owing, and at said times he having funds with which to pay said tax.” Both counts are based on 26 U.S.C.A. § 145(b). Defendant urges as grounds for reversal: (1) the trial court’s refusal to grant defendant’s motion for acquittal, (2) the alleged misconduct of the United States attorney during the course of the trial, and the trial court’s alleged failure to take proper and necessary steps to prevent the said misconduct from influencing the jury in its deliberations, and (3) count II actually charged defendant with a misdemeanor, rather than a felony, and was therefore barred by the statute of limitations.

1. Whether the trial court erred in refusing to grant defendant’s motion for acquittal, requires us to determine whether the substantial evidence, taken in a light most favorable to the prosecution, tends to show the defendant is guilty beyond a reasonable doubt. United States v. Yeoman-Henderson, Inc., 7 Cir., 193 F.2d 867, at page 869. The facts thus proved by such evidence, much of it undisputed, are as follows:

This case involves defendant’s income for the calendar year 1946.

On December 6, 1945 defendant closed a deal for the purchase of a brewery, and embarked upon the business of selling beer at prices above the ceiling prices fixed by federal price control regulations. Specific payments to him for this purpose during the taxable year 1946 totaled $242,492.00. He failed to keep adequate financial records. He also carried on extensive tradings in grains through brokerage houses.

Defendant put $250,000 in a safe in his brother’s home in California. According to defendant, $175,000 was secreted there in 1946, and the balance of $75,000 in early January, 1947. The jury could reasonably infer that this $75,000 was a part of defendant’s income, for 1946, rather than that it constituted income for the period from January 1, 1947 to January 15, 1947, when it was deposited in the safe in California.

On January 1, 1946 defendant’s net worth was $51,297.85, and on December 31, 1946, it was $799,610.67. Thus, the difference between the amounts on the first and last days of 1946, or the net worth increase for 1946, was $748,312.82. The addition of non-deductible expenditures for 1946 increased the latter figure to $758,713.94. This was defendant’s net income for 1946 computed according to the net worth theory formula. Holland v. United States, 348 U.S. 121, at page 125, 75 S.Ct. 127. The net income reported by defendant on his return for that year is $528,824.56. He filed no returns prior to 1942. According to income tax returns filed with the Internal Revenue Collector, the defendant and his wife had a total income of $3,861.15 and net income of $2,311.15 for the year 1942. For 1943 they had a total income of $12,-067.25 and net income of $1,602.25. For the next two years, defendant alone reported as follows:

Year Gross Income Net income

1944 $8,314.85 None

1945 8,196.15 $3,873.30

These figures tend to show that defendant’s income during prior years was insufficient to have enabled him to save any appreciable amount of money, and thus tend to corroborate the relatively low figure set by the government as defendant’s beginning net worth. Holland v. United States, supra, 348 U.S. at page 133, 75 S.Ct. 127.2 Defendant failed to file an estimated return for 1946 and delayed filing an actual return until May 27, 1947.

On June 13, 1947, defendant talked to the assistant collector of internal revenue. He claimed inability to pay the tax in the amount shown by his return. He failed to mention $25,000 which was later found in cash in a safe deposit box and turned over to the government on a court order and about $20,000 due him on an account with his stock broker. A day or two prior to June 19,1947 defendant withdrew the latter amount from the stock broker. He also failed to mention $46,939.94 which was in one of his bank accounts known as “L. P. Bardin for account of Alvin Bardin.” All this was in addition to the sum of $250,000 withdrawn from Indianapolis banks during 1946 and taken by defendant personally to California and hidden in the safe here-inabove referred to. Although defendant, when pressed by the, government to file a 1946 income tax retfim, reported, on May 26, 1947, that this money was stolen from the safe during a burglary the day. before, and the physical circumstances surrounding the safe at least simulated a burglary, none of the money was ever recovered, and no one connected with the commission of the alleged crime was ever apprehended.

From the foregoing facts the jury was justified in finding that defendant was proved guilty as to count I beyond a reasonable doubt, though not to a mathematical certainty. No more was required. Holland v. United States, supra, 348 U.S. at page 138, 75 S.Ct. 127.

The conduct of the defendant in connection with his belated filing of his 1946 tax return, and his misrepresentations as to his inability to pay any part of his tax, support the verdict of the jury as to count II.

The trial court did not err in denying defendant’s motion for acquittal.

2. Alvin Bardin, brother of defendant, was called as a government witness. He declined to answer certain questions on the ground that to do so might incriminate him. The court sustained the position of the witness and he was excused. Upon his departure from the stand no admonition was given by the court to the jury that they should draw no inferences unfavorable to the defendant from the witness’ refusal to testify.

In his closing statement, the district attorney referred to the fact that Alvin Bardin had exercised his privilege of refusing to testify, and asked the jury why he did that. At. this point defense counsel objected, and that objection was sustained by the court. Thereupon the district attorney asked the jury to disregard any reference he had made to the failure of the witness to testify. Defense counsel made no motion in reference to the incident and did not ask the court to admonish the jury in reference to the matter. Defendant cannot now in this court be permitted to capitalize on his counsel’s failure to press for further action by the trial court. Moreover, the court’s sustaining of the objection clearly indicated to the jury that the remark of government counsel was improper.

We do not believe that these incidents deprived defendant of a fair trial, or that the action of the court in connection with them was erroneous.

A dissenting opinion by our colleague speaks of the failure of the district court to give to the jury such an instruction on the net worth theory as is referred to in Holland v. United States, supra. .

On the trial there was no instruction tendered by defendant which was refused by the court. In this court his counsel has not assigned error on the subject of instructions. He was represented in the trial court by a member of the bar of this court, whose competency has not been questioned herein. In this court, his present counsel has filed a brief and made an oral argument which attests not only to his competency, but also to the diligent effort which he made to properly present all questions deemed to be available on this appeal. Present counsel has not argued or briefed any point on the instructions.³

3. Defendant contends that his prosecution under count II was barred by the three-year statute of limitations,⁴ because that count charged a misdemeanor under section 145(a),⁵ not a felony under section 145(b).⁶ He relies on Spies v. United States, 317 U.S. 492, 63 S.Ct. 364, 87 L.Ed. 418.

The material allegations of count II are:

“That on or about September 15, 1946, through and including May 26, 1947, in the Indianapolis Division of the Southern District of Indiana, Lawrence P. Bardin did willfully and knowingly attempt to defeat the payment of the income tax due and owing by him to the United States of America for the calendar year 1946 by concealing and attempting to conceal from the Collector of Internal Revenue the nature and extent of his assets and the location thereof, said tax being $639,841.28, more or less, by refusing to pay said tax due and owing, and at said times he having funds with which to pay said tax, all in violation of Title 26, U.S.C., Section 145(b).”

Defendant says that the crux of the matter was defendant’s refusal to pay his tax obligation, i. e., his willful failure to pay said tax. The pertinent parts of § 145(a) provide:

“Any person required under this chapter to pay any estimated tax or tax * * * who willfully fails to pay such estimated tax or tax * * * shall * * * be guilty of a misdemeanor and, upon conviction thereof, be fined not more than $10,000, or imprisoned for not more than one year, or both, * *

and of § 145(b) provide:

“ * * * any person who willfully attempts in any manner to evade or defeat any tax imposed by this chapter or the payment thereof, shall * * * be guilty of a felony and, upon conviction thereof, be fined not more than $10,000, or imprisoned for not more than five years, or both * *

A failure to pay a tax, under § 145(a), and an attempt t© defeat and evade one, under § 145(b), must both be willful. However, the difference between the two offenses is found in the affirmative action implied from the term “attempt” as used in § 145(b), the felony sub-section. As the court said in Spies v. United States, supra, 317 U.S. at page 499, 63 S.Ct. at page 368:

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

Accordingly, in count II, a willful and knowing attempt is charged in the affirmative action taken by the defendant to accomplish his purpose, i. e., “by concealing and attempting to conceal from the collector of internal revenue, the nature and extent of his assets and the location thereof.” Indeed, the court in Spies v. United States, supra, 317 U.S. at page 499, 63 S.Ct. at page 368, in illustrating what conduct would justify a basis for “affirmative willful attempt”, listed, among others, “concealment of assets or covering up sources of income”. In view of the fact that defendant was engaged in transactions which exposed him to prosecution under the. federal price regulations, the following statement of the court in Spies v. United States, supra, also 317 U.S. at page 499, 63 S.Ct. at page 368, is pertinent here:

“If the tax-evasion motive plays any part in such conduct the offense may be made out even though the conduct may also serve other purposes such as concealment of other crime.”

We hold that count II charges a felony under § 145(b). Mr. Prentice H. Marshall, a member of the bar of this court, served in this court as appointed counsel for the defendant. We express our appreciation of his diligent performance of his duties.

For the reasons herein set forth, we affirm the judgment of the district court.

1 . 1954, 348 U.S. 121, 75 S.Ct 127.

2 . The evidence also shows an alternative calculation based upon United States v. Johnson, 319 U.S. 503, at page 517, 63 S.Ct. 1233, 87 L.Ed. 1546. Defendant’s total expenditures for 1946 amounted to $831,441.15, as against his reported income of $521,883.63. That he had large, unreported income, was reinforced by this proof.

3 . In view of this record, the matter of an instruction on the net worth theory is undoubtedly irrelevant. However, we note that in Holland v. United States, 348 U.S. 121, at page 129, 75 S.Ct. 127 (which decision was announced after the trial and the arguments before this court in the case at bar), it was pointed out that charges to a jury in such a case should be especially clear, including, in addition to the formal instructions, a summary of the nature of the net worth method, the assumptions on which it rests, and the inferences available both for and against the accused.

In the case at bar, in reference to the net worth theory, the court instructed the jury:

“In determining whether defendant Bardin received a net income in excess of that reported in his income tax return for the year 1946, you may consider the facts and circumstances in evidence and view them in relation to each other. In this connection, you may compare the defendant Bardin’s net worth of assets at the beginning of the taxable period in question and his net worth of assets over income reported at the end of that period. You may also consider any expenditures of the defendant Bar-din, as well as any property acquired by him during the period involved, as shown by the evidence.”

The instruction on the same subject given in the Holland case, which has been made available to this court by the clerk of the United States Supreme Court, reads:

“Now, Ladies and Gentlemen of the Jury, the Government has produced evidence here that on January 1, 1946, Mr. and Mrs. Holland had certain property, of a value with respect to which the Government has presented evidence. And the Government says that at that time they had a net worth of some nineteen thousand dollars. The Government says that three years later — this is their claim, you know — the Government says that at the end of 1946 their net worth was increased, and again at the end of 1947 that their net worth was further increased, and again at the end of 1948 their net worth was again increased. And the Government says it is reasonable to infer that the increase in the property that they owned, and in the value of it, is attributable and were the result of purchases from receipts earned in the taxable years in question from that business.”

Neither of these instructions tells the jury of the pitfalls inherent in the net worth method, yet, while defense counsel in the Holland case specifically objected to the instruction given, on the ground that it did not fully explain the net worth theory, the objection was overruled and his two tendered instructions explaining the theory in more detail, were refused. Yet the court affirmed the conviction.

It seems clear that the language of the Holland opinion will be a guide for future trials based on the net worth theory, but it does not indicate that, in cases previously tried, the failure to give a net worth instruction other than that given in the Holland case and in the case at bar, requires reversal.

4 . 26 U.S.C.A. § 3748(a).

5 . 26 U.S.C.A. § 145(a).

6 . 26 U.S.C.A. § 145(b).