Opinion ID: 748851
Heading Depth: 2
Heading Rank: 3

Heading: As Used in Shetty's Trial and Sentencing

Text: 61 In proving that Shetty subscribed to false tax returns in violation of 26 U.S.C. § 7206(1), the Government used the net worth method of proof to determine the amount of income Shetty failed to report on his tax returns. The defense did not object to the use of this evidence at trial. 62 Nevertheless, on appeal, Shetty contends that use of the net worth method was improper at trial and for purposes of sentencing because the Government made no effort to obtain his financial records. The defense argues that the Government was required to demonstrate that it has made efforts to obtain the taxpayer's books and records but they [were] either unavailable or inadequate. These arguments misstate and ignore critical facts in the record. 63 First, there is ample demonstration by the Government that Shetty's records were unavailable and inadequate. For example, during the civil audit and despite repeated requests, Shetty did not provide the IRS with his books and records. Then, during the criminal investigation, defense counsel refused to provide any information regarding Shetty's books and records to the IRS special agent. Shetty admitted that he did not keep certain records typical of a medical practice, and his former receptionist testified that she never maintained a variety of records. Due to the unavailability and inadequacy of Shetty's records, the IRS agent stated that it was not possible to track down every payment from insurance companies or directly received from patients during the tax years at issue. From a practical standpoint, it was the lack of records which led to the criminal investigation in the first place. 64 Furthermore, although the defense argues that the Government should have used its subpoena/summons power and made more direct contacts with Shetty to compel him to turn over his records, there is absolutely nothing to suggest that there were any records in existence which accurately reflected Shetty's income. Had the Government pursued Shetty further, defense counsel would surely be arguing that the prosecution was attempting to deprive Shetty of his Fifth Amendment privilege against self-incrimination. Cf. United States v. Helina, 549 F.2d 713, 715-16 (9th Cir.1977) (taxpayer charged with tax evasion and subscribing to false tax return refused to produce books and records during criminal investigation and Government was forced to use the net worth method). 65 In this case Shetty was charged only with subscribing to false tax returns. Thus, technically, the Government was not required to show the exact amount of tax deficiency at trial. Instead, it was merely required to show a false statement on Shetty's returns. Although Shetty challenges the use of the net worth method during the trial, on appeal he does not ask for a new trial based on the admission of that evidence. The only relief sought in relation to the net worth method is a remand for resentencing which, in view of the record, seems surprising. If anything, Shetty benefited from the use of the net worth method at sentencing. 66 The figures which the Government showed as unreported taxable income for the tax years at issue were conservative. Tr. at 28 (Oct. 11, 1996) (emphasis added). For example, the Government did not consider living expenses for Shetty, his wife, and their four children. See Colacurcio, 514 F.2d at 2 n. 2 (living expenses typically considered when net worth method used to determine taxable income). 67 Also at sentencing, the district court considered Shetty's challenge to the use of the net worth method stating: 68 The Court is satisfied that the evidence in this case was very likely the tip of the iceberg. That's the way in which the case was presented. It was presented on the matters, the cold, hard, easy to show and obvious items. There are indications to the Court that the figure may be well in excess of $120,000, but I don't think the Court needs to decide that at this point. The only issue to decide is whether the amount of tax loss exceeds $120,000 and the Court finds that it does. I think there is very clear evidence to the Court that that's the case. 69 Tr. at 50-51 (Oct. 11, 1996). 70 Given the entire record, any contention that Shetty's business and personal records accurately reflected his income verges on frivolous. Cf. Stonehill, 702 F.2d at 1296 (where taxpayers caused millions of unrecorded dollars to be deposited in Swiss bank accounts, any contention that their tax records accurately reflected income was frivolous). Therefore, allowing the use of the net worth method during the course of Shetty's trial was not plain error, and using it for purposes of sentencing was a proper exercise of the district court's discretion. 71