Opinion ID: 395207
Heading Depth: 2
Heading Rank: 2

Heading: The Failure of Proof Arguments

Text: 155 Scott next challenges the sufficiency of the evidence against him, both as to the government's net worth case, and as to the specific items of income he failed to report.
156 Scott challenges the government's net worth case on several grounds. He first argues that the government failed to establish a likely taxable source for his increase in net worth. See Holland v. United States, 348 U.S. 121, 137, 75 S.Ct. 127, 136, 99 L.Ed. 150 (1954). He contends that the government proved only that the likely source for Scott's expenditures during 1972 was the cash in his six safe deposit boxes, and not that the money in those boxes was taxable income in the 1972 year. If some of these monies were from bribes or extortion or other illegally obtained funds as the government suggested, they were taxable income the year in which Scott received them and not in the year they were spent. Thus, Scott argues, the government itself proved that the money in these boxes was not taxable income in 1972. Scott did not present this argument to the jury, nor did he make it to the district court in his motions for acquittal at the close of the government's case or at the close of all the evidence or in his post trial motions. 157 The question for us on appeal, then, is whether, looking at the evidence in the light most favorable to the government, e. g., United States v. Fearn, 589 F.2d 1316, 1320-21 (7th Cir. 1978), there is substantial evidence tending to show that the likely source of Scott's net worth increase was taxable funds or that no nontaxable source for the expenditures existed. United States v. Massei, 355 U.S. 595, 78 S.Ct. 495, 2 L.Ed.2d 517 (1958); Holland v. United States, 348 U.S. 121, 137, 75 S.Ct. 127, 136, 99 L.Ed. 150 (1954); United States v. Mackey, 345 F.2d 499, 507 (7th Cir.), cert. denied, 382 U.S. 824, 86 S.Ct. 54, 15 L.Ed.2d 69 (1965). The funds would be taxable income to Scott in 1972 if: (1) they were given to Scott in trust for use in his political campaigns or for political purposes and he diverted them to his own use in 1972, e. g., United States v. Miriani, 422 F.2d 150, 152 (6th Cir.), cert. denied, 399 U.S. 910, 90 S.Ct. 2199, 26 L.Ed.2d 561 (1970); (2) they were payments made in 1972 for the improper purpose of influencing official conduct. United States v. Isaacs, 493 F.2d 1124, 1144-45, 1161 (7th Cir.), cert. denied, 417 U.S. 976, 94 S.Ct. 3183, 41 L.Ed.2d 1146 (1974). Arguably they would also be taxable income in 1972 if they were given Scott out of a desire to compensate him for political or official activity, rather than from a detached and disinterested generosity. Commissioner v. Duberstein, 363 U.S. 278, 285, 80 S.Ct. 1190, 1196, 4 L.Ed.2d 1218 (1960). 51 Contrary to Scott's argument on appeal, the government introduced substantial evidence from which the jury could have inferred that the likely source of Scott's net worth increase during 1972 was funds taxable to Scott in 1972. 158 Scott's appellate argument that the government itself proved that Scott's cash was derived from bribes or extortions or other illegally obtained funds he received prior to 1972, and not from taxable income in 1972, can be rebutted simply by looking at the evidence the government introduced at trial. The government introduced evidence from which the jury could reasonably have concluded that Scott spent at least $10,000 in cash in 1972, cash which could not be traced to any legitimate source. The total amount of the allegedly improper payments made to Scott between 1968 and December 31, 1971 was $4,600. Thus, Scott's argument fails to explain the source of Scott's remaining $5,400 in expenditures for 1972, expenditures which the government claimed were made from campaign contributions converted to personal use in 1972 or from improper payments received in 1972 (the Barrett money). 159 We think the government introduced sufficient evidence from which the jury could have concluded that Scott's cash expenditures in 1972 were derived from all of the types of 1972 taxable income previously discussed. 160 First, there was sufficient evidence from which the jury could infer that the money in the safe deposit boxes, which Scott spent for his personal use in 1972, 52 came from political or campaign contributions, making it taxable income in 1972, regardless of when he received it. E. g., United States v. Miriani, 422 F.2d 150, 152 (6th Cir.), cert. denied, 399 U.S. 910, 90 S.Ct. 2199, 26 L.Ed.2d 561 (1970); United States v. Dawson, 400 F.2d 194, 205 (2d Cir. 1968), cert. denied, 393 U.S. 1023, 89 S.Ct. 632, 21 L.Ed.2d 567 (1969). 53 There was evidence that Scott converted campaign contributions to his own use in 1972: the evidence was clear that the $500 Shaffer check and the $5,000 Barrett cash contribution were both intended for Scott's political use. While the $500 was converted once Scott deposited it to his personal bank account, there is no direct evidence of what Scott did with the Barrett money. It can readily be inferred that he converted it to his own use, however, because his campaign had no records of the contribution and Barrett received no receipt from the campaign, as was routinely given Scott's contributors who gave cash to his campaign. See note 15, supra. His habit of maintaining campaign funds in cash in safe deposit boxes is known. 161 Second, there is sufficient evidence from which the jury could infer that the gifts given Scott in 1972 did not meet the standards for nontaxable gifts. See Commissioner v. Duberstein, 363 U.S. 278, 285, 80 S.Ct. 1190, 1196, 4 L.Ed.2d 1218 (1960). The jury, after proper instructions, evaluated the credibility of defense witnesses and rendered its verdict. It is not for us to say on appeal that the jury's evaluation of witness credibility was wrong. As the Second Circuit has stated: 162 whether a jury can find (underreporting of income) beyond a reasonable doubt where the net worth method ... of proof is used is a very difficult determination for an appellate court to make upon a cold record; most of the evidence in such a record is circumstantial and an evaluation of it is often influenced by determinations of witness credibility which we are in no position to review. 163 United States v. Dawson, 400 F.2d 194, 205 (2d Cir. 1968), cert. denied, 393 U.S. 1023, 89 S.Ct. 632, 21 L.Ed.2d 567 (1969). 164 Finally, there was sufficient evidence from which the jury could have concluded that certain of the payments made to Scott in 1972 were made to compensate Scott for official conduct, rendering them taxable income in that year. There were the Barrett and Shaffer payments. Several other witnesses were employees of or Special Assistants hired by Scott, or had relatives whom he had appointed, and payments made to reward him for such acts would be income. Again, the interpretation of the intent with which these payments were made is a question for the jury, Commissioner v. Duberstein, 363 U.S. at 285, 80 S.Ct. at 1196, supra. 165 (b) 166 Scott argues that the court erred in allowing the government expert witnesses, Mr. Dyas and Mr. Duffy, to testify that he could have spent more per day on food and drink while he was traveling than the $8.47 per day included in Dyas' net worth schedule for a total projected food cost for 1972 of $2,397.01. He characterizes this as speculation, along with the government's reference to undocumented lodging, transportation or entertainment expenses while traveling, and any purchases of clothing, personal care, or gifts for his children. No numerical figures were attached to these latter items. They were not included in the government's net worth schedules. The government simply told the jurors that if they thought Scott spent money on any of these items, that money should be added to his net worth, over and above what the government actually calculated. 167 Proof of non-deductible expenditures such as food, clothing, shelter and gifts is one factor in the net worth and expenditures method of proof. E. g., United States v. Hamilton, 620 F.2d 712, 716 (9th Cir. 1980). The taxpayer's expenditures are added to the adjusted net values of his assets at the end of the year, and, consequently increase the figure to be compared with the opening net worth. Id. Government tax experts routinely add living expenses to their net worth schedules. Id.; United States v. Goichman, 407 F.Supp. 980, 989 (E.D.Pa.), aff'd, 547 F.2d 778 (3d Cir. 1976). Cf., United States v. King, 563 F.2d 559, 561 (2d Cir. 1977), cert. denied, 435 U.S. 918, 98 S.Ct. 1476, 55 L.Ed.2d 510 (1978). 54 168 In this case, the only necessity of life that the government added to its net worth schedules was food. This addition was based on Scott's travel vouchers. See United States v. Doyle, 234 F.2d 788, 794 (7th Cir.), cert. denied, 352 U.S. 893, 77 S.Ct. 132, 1 L.Ed.2d 87 (1965). 55 The government's estimates probably favored Scott, as it is not unreasonable to assume that he spent more per day on food and drink in the Bahamas or Nice, France, than he did while traveling in Illinois or on state business. Thus, it was not unduly speculative for the government to point out that anything Scott spent on food and drink above the $8.47 per day included in the government's schedules was additional unreported income. 169 Assertions that Scott may have spent money on traveling, or on his children or on entertainment were appropriate and not speculative, at least as applied to the circumstances of this particular case. Id. at 793-94. Scott left no record of any possible expenditures during 1972 on any of the necessities of life food, clothing and shelter. Neither did he leave any record of any expenditures on his children, despite his 1977 testimony under oath that he spent approximately $184 per month on his children in addition to his child support payments. Common sense tells us that Scott must have spent some money on these items, and that these expenditures were in cash, as otherwise they could be documented. Here again, however, the government's proof favored Scott, as the government did not attempt to estimate these expenditures and then add the estimate to its net worth proof. It only told the jury that anything Scott spent on these items would increase his net worth above what the government showed. The jury was free to reject this suggestion. We see no reason why these costs cannot be referred to by the government, especially since the government's calculations of Scott's basic living costs consistently favored him. 170 (c) 171 Scott also contends that the court improperly instructed the jury on the fundamental issue of opening net worth for the year 1972. He alleges that the court told the jury that the starting point for the government's net worth calculations was April 16, 1968, but that it never instructed the jury that the crucial date for the government's case was January 1, 1972. 172 There are three crucial dates in a net worth prosecution such as this. The first is the starting point, here, April 16, 1968. This was the date from which Scott's changes in net worth were calculated. Holland v. United States, 348 U.S. 121, 125, 75 S.Ct. 127, 130, 99 L.Ed. 150 (1954). Scott did not contest this starting point. Any evidence of Scott's financial dealings prior to this date is relevant for establishing the accuracy of his opening net worth. The second and third crucial dates are the opening and closing dates of the prosecution period, January 1, 1972, and, for purposes of this appeal, December 31, 1972. The jury could consider any evidence of Scott's acquisition and disposition of assets between the starting point of April 16, 1968, and the opening date of the prosecution period, January 1, 1972, only for determining the accuracy of the government's calculations of Scott's net worth on January 1, 1972, unless otherwise specifically instructed. See United States v. Balistrieri, 403 F.2d 472, 479 (7th Cir. 1968), vacated on other grounds, 395 U.S. 710, 89 S.Ct. 2032, 23 L.Ed.2d 654 (1969), reaff'd, 436 F.2d 1212 (1971), cert. denied, 402 U.S. 953, 91 S.Ct. 1620, 29 L.Ed.2d 124 (1971). 173 We have examined the court's instructions on the net worth dates and find Scott's objections to be without merit. The court carefully explained the dates and evidence the jury could consider in determining the accuracy of the government's calculations. Its instructions included the substance of Scott's suggested instruction. 56 The court need not use the exact words of an offered instruction so long as it appears from the charge as a whole that the subject matter has been fully covered. United States v. Doyle, 234 F.2d 788, 795 (7th Cir.), cert. denied, 352 U.S. 893, 77 S.Ct. 132, 1 L.Ed.2d 87 (1956).
174 Scott contends that there was insufficient evidence of the $5,000 Edward Barrett and William J. Kiley gave him in the summer of 1972, and attribution of the payments Arthur Wirtz made to Ellen Cooper, to allow these two items to go to the jury. According to the government, Scott's failure to report either of these two items resulted in a false income tax return in violation of 26 U.S.C. § 7206(1), and proof of either is sufficient to sustain his conviction. 57 175 On appeal, the question becomes whether there was sufficient credible evidence on each item for the jury to have concluded beyond a reasonable doubt that these payments were income to Scott that he should have reported on his 1972 income tax form. United States v. Dawson, 400 F.2d 194, 205 (2d Cir. 1968), cert. denied, 393 U.S. 1023, 89 S.Ct. 632, 21 L.Ed.2d 567 (1975). In determining the legal sufficiency of this evidence, however, we are not to weigh the evidence or pass on the credibility of the witnesses. United States v. Anderson, 509 F.2d 312, 331 (D.C.Cir.1974), cert. denied, 420 U.S. 991, 95 S.Ct. 1427, 43 L.Ed.2d 672 (1975). It is our duty to sustain the jury's verdict if there is substantial evidence, in the light most favorable to the government, to support the jury's conclusion. Id. We think there was sufficient evidence that both items were income to Scott during 1972 which he was required to report on his 1972 Form 1040. 176 We set forth evidence regarding the Barrett payments in Part I-B-3, supra. We need not spend much time discussing its sufficiency, which we think is clear, for Scott's own attorneys as much as conceded this point in closing arguments. Mr. Bugliosi admitted that Scott failed to report the Barrett payment as a gift pursuant to the Disclosure of Economic Interest Act, Ill.Rev.Stat. ch. 127 § 604A, et seq. (1973). He further acknowledged the strength of the Barrett evidence when he asserted that Barrett was the only witness the government offered to prove that Scott converted campaign contributions to his own use. 58 Finally, in a last ditch effort to convince the jurors of Scott's innocence, Mr. Bugliosi told them that even if they believed that the Barrett payment was a campaign contribution which Scott had converted to his own use, it was only $5,000 and was too insubstantial to support a conviction. We disagree with Mr. Bugliosi's characterization of the payment as insubstantial, and find that the Barrett payment is sufficient evidence to support Scott's conviction. 177 The second major specific item of income which the government relied on was the payments made during 1972 by Arthur Wirtz, a Chicago businessman, to Ellen Cooper, whom defendant married in 1974. The government contended that Wirtz made these payments as a favor to Scott because as Attorney General, Scott possessed regulatory and enforcement powers over many of Wirtz' businesses. See United States v. Kuta, 518 F.2d 947, 950 (7th Cir.), cert. denied, 423 U.S. 1014, 96 S.Ct. 446, 46 L.Ed.2d 385 (1975). Therefore, Scott should have reported these payments, as the first principle of income taxation (is that) income must be taxed to him who earns it, United States v. Basye, 410 U.S. 441, 449, 93 S.Ct. 1080, 1085, 35 L.Ed.2d 412 (1973); Commissioner v. Culbertson, 337 U.S. 733, 739-40, 69 S.Ct. 1210, 1212-13, 93 L.Ed. 1659 (1949), and not another person who receives or spends it. Provided that Scott's failure to disclose this income was wilful, that is, a voluntary and intentional violation of a known legal duty, e. g., United States v. Pomponio, 429 U.S. 10, 12, 97 S.Ct. 22, 23, 50 L.Ed.2d 12 (1976); United States v. Garber, 607 F.2d 92, 99-100 (5th Cir. 1979), his failure to report this attributed income is just as much a violation of Sec. 7206(1) as is failure to report substantial income from any other source. See United States v. Allen, 551 F.2d 208, 212 (8th Cir. 1977); United States v. Diez, 515 F.2d 892 (5th Cir. 1975), cert. denied, 423 U.S. 1052, 96 S.Ct. 780, 46 L.Ed.2d 641 (1976). 59 178 We conclude that the government introduced sufficient credible evidence from which the jury could have inferred that the payments Wirtz made to Cooper were motivated by Scott's office or in anticipation of services to be rendered. United States v. Kuta, 518 F.2d at 950, supra. As such, Scott earned the income, United States v. Basye, 410 U.S. at 449, 93 S.Ct. at 1085, supra, and was bound to report it on his 1972 Form 1040. Given the manner in which Scott conducted his financial affairs, his treasurer's background and his legal knowledge, it can also be inferred that his failure to do so was wilful. 179 Although there was no testimony to that effect, Scott's counsel characterized these payments as disguised campaign contributions. Assuming that the jury was properly instructed, and we find that it was, 60 the characterization of these payments is properly left to them. As the Supreme Court stated with respect to the finding of a gift, 180 Decision of the issue presented ... must be based ultimately on the application of the fact-finding tribunal's experience with the mainsprings of human conduct to the totality of the facts of each case. The nontechnical nature of the statutory standard, the close relationship of it to the data of practical human experience, and the multiplicity of relevant factual elements, with their various combinations ... confirm us in our conclusion that primary weight in this area must be given to the conclusions of the trier of fact. 181 Commissioner v. Duberstein, 363 U.S. 278, 289, 80 S.Ct. 1190, 1198, 4 L.Ed.2d 1218 (1960).