Opinion ID: 492452
Heading Depth: 3
Heading Rank: 3

Heading: Cash on Hand or Net Worth for Each Relative.

Text: 27 Caswell further contends that the government failed to establish that he was the only likely source of cash for his relatives' expenditures, and thus, that the government's attribution to him of those expenditures in computing his tax deficiency must be deemed error as a matter of law. In a case like this, where the government has not alleged nor proven the existence of a conspiratorial or agency relationship, Caswell maintains that the only way he can be held liable for his relatives' expenditures is if the government establishes the net worth and cash on hand balance for each relative. He asserts that this is the only way the government can prove that the relatives had no other possible nontaxable sources of income for their expenditures other than himself. 28 Before analyzing this contention, it is essential to a full understanding of this case to point out the basic assumption the government impliedly relied upon in attributing to Caswell the large cash expenditures of his relatives--the basic principle of income tax law that income is taxed to the person who earns it, regardless of attempts to divert the income elsewhere. Lucas v. Earl, 281 U.S. 111, 50 S.Ct. 241, 74 L.Ed. 731 (1930). Because its investigation revealed that Caswell's relatives' expenditures far exceeded their reported incomes and further revealed that none of them had any possible nontaxable sources of income to explain their expenditures, the government theorized that the unreported income was derived from Caswell's gambling activities, and thus, under the principle just enunciated, he was the one responsible for the taxes due and owing. Moreover, because it was Caswell's income that was purportedly being diverted, the government obviously could not have proceeded against each or any of the relatives for tax evasion. Thus, the government indicted only Caswell for willfully evading taxes in violation of 26 U.S.C. Sec. 7201. 29 With this in mind, it becomes apparent that Caswell's contention that the government must show the net worth of each relative is actually an assault on the sufficiency of the government's evidence in this case. This conclusion finds support in many other tax evasion cases where courts have held a defendant liable for the expenditures of others, despite the absence of a conspiracy charge. E.g., United States v. Tempesta, 587 F.2d 931, 933 (8th Cir.1978) (father's expenditure attributed to defendant-son), cert. denied, 441 U.S. 910, 99 S.Ct. 2005, 60 L.Ed.2d 380 (1979); United States v. Giacalone, 574 F.2d 328, 333 (6th Cir.) (wife's expenditures treated as made with defendant-husband's money), cert. denied, 439 U.S. 834, 99 S.Ct. 114, 58 L.Ed.2d 129 (1978); Marshall, 557 F.2d at 531 (capital contributions made by partner to partnership attributed to defendant-partner); Taglianetti, 398 F.2d at 567 (brother-in-law and wife's expenditures may be attributed to defendant); see Citron, 783 F.2d at 318 (jury entitled to conclude that stock in parent's account and income derived therefrom belonged to defendant-son); United States v. Pack, 773 F.2d 261, 264 (10th Cir.1985) (defendant attempted to conceal income by placing ownership titles of purchases in names of others). These cases indicate that the real question is whether the government introduced sufficient evidence to allow the jury to infer that the other individual's expenditures were made with the defendant's income. See, e.g., Tempesta, 587 F.2d at 933. 9 Thus, the specific question becomes: what amount of evidence is sufficient? 30 Our examination of the relevant cases convinces us that the government is not required to establish the other individual's net worth or cash on hand as if that person was under investigation. Rather, the government can meet its burden of proof if it conducts a reasonable investigation into the finances of those individuals and introduces evidence to negate the possibility that the income came from a source other than the defendant. See id.; see also United States v. Grasso, 629 F.2d 805, 807 (2d Cir.1980) (per curiam) (under net worth theory, government must separate spouses' finances to justify inference that wife's expenditures made with husband's funds). To meet this burden, we believe the government is obligated to show that it has investigated all leads provided by the defendant into other possible sources of nontaxable income such as gifts, inheritances, or cash hoards. See Bianco, 534 F.2d at 506. After a careful review of the evidence presented in this case, we believe that the government met this burden. 31 The IRS agents, as a part of their investigation of the Caswell family finances, subpoenaed and examined numerous cashier checks, statements, and other documents from banks, savings and loan institutions, and commercial lending institutions, in addition to examining court records. This investigation revealed that Caswell's relatives made several large cash expenditures during the years under investigation. At trial, the government introduced this evidence along with the tax returns of these relatives to show that none of them had the reported incomes to account for the expenditures. In addition, the government's investigation turned up no inheritances, gifts, cash hoards, or other sources of nontaxable income to explain the expenditures. We believe that this evidence, along with that of Caswell's gambling income, was sufficient to allow the jury to conclude that Caswell was the only likely source of his relatives' large cash expenditures during 1979, 1980, 1981, and 1982, and that Caswell gave them these funds or opened accounts in their names in order to conceal his illegally-unreported income. 32 Moreover, although there was some evidence of a $40,000 cash hoard found by Caswell's grandfather in 1984 after his wife died, and a $30,000 death bed gift given to Caswell's first wife by his mother in 1979 while she was in the hospital just before her death, the jury was fully justified in disregarding these alleged funds as other possible sources of income. First, the government's extensive investigation and discussions with the Caswell family did not uncover these sources. In fact, they were apparently made known to the government only shortly before trial commenced. Cf. Bianco, 534 F.2d at 506 (post hoc suggestions of other possible nontaxable sources of income do not render government's search insufficient). Second, the alleged cash hoard was found in 1984. This by itself does not explain the cash expenditures made in 1979, 1980, 1981, and 1982, and indeed, there was no evidence showing that the hoard existed during this time. Under these circumstances, and in light of the fact that the persons testifying to the funds were Caswell's own relatives, we hold that the jury was under no duty to accord face value to this self-serving, undocumented testimony. United States v. Goldstein, 685 F.2d 179, 182 (7th Cir.1982). 33