Legal Document

348 U.S. 121 75 Supreme Court Reporter 127 99 L.Ed. 150 Marion L. HOLLAND and Ethel E. Holland, Petitioners,v.UNITED STATES of America. Number 37. Argued Oct. 20, 21, 1954. Decided Dec. 6, Rehearing Denied Jan. 31, 1955. See 932, 334. [Syllabus from pages 121-123 intentionally omitted] Messrs.Sumner M. Redstone, Peyton Ford, Washington, D.C., for petitioners. Mr. Marvin Frankel, respondent. Justice CLARK delivered the opinion Court. 1 Petitioners, husband wife, stand convicted under § 145 Internal Revenue Code1 an attempt to evade defeat their income taxes year 1948. The prosecution was based on net worth method proof, also in issue three companion cases2 a number other decisions here Courts Appeals nine circuits. During past two decades this has been asked review increasing criminal cases which proof tax evasion rested theory. We have denied certiorari because involved only questions evidence and, isolation, presented no important law. In 1943 did occasion pass upon application theory where taxpayer had records. United States versus Johnson, 319 503, 63 1233, 87 1546. 2 recent years, however, tax-evasion convictions obtained come with frequency left impressions beyond those previously unrelated petitions. concluded that something more than ordinary use circumstantial usual case. Its bearing, therefore, safeguards traditionally provided administration justice called consideration entire At our last Term arising brought attention serious doubts courts regarding implications method. Accordingly, we granted these four held others await decision. 3 typical prosecution, Government, having taxpayer's records are inadequate as basis determining liability, attempts establish 'opening worth' or total value assets at beginning given year. It then proves increases each succeeding during period examination calculates difference between adjusted values end years involved. nondeductible expenditures, including living expenses, added increases, if resulting figure any is substantially greater taxable reported by year, Government claims excess represents unreported income. addition, it asks jury infer willfulness understatement, when taken connection direct 'conduct, likely effect would be mislead conceal.' Spies States, 317 492, 499, 364, 368, 418. 4 Before proceeding discussion cases, believe outline general problems implicit type litigation. assume, must view its widespread use, deems useful enforcement sanctions laws. Nevertheless, careful study indicates so fraught danger innocent closely scrutinize use. 5 One basic assumption establishing guilt most derive source, not true position explain discrepancy. such raises legal Unlike civil actions recovery deficiencies, determinations Commissioner prima facie validity, always prove charge reasonable doubt. This led many disturbed method, particularly scope latitude allows prosecutors. E.g., Demetree Cir., 1953, 207 Federal Reporter, 2nd Series 892, 894; Caserta, 1952, 199 905, 907; Fenwick, 7 177 488. 6 But grown up overnight. first utilized Capone 1931, 51 609 Guzik 54 618, corroborate specific supra, approved support inference taxpayer, owner vast elaborately concealed network gambling houses he declared income, indeed received 'substantial amount.' potent weapon undisclosed sources all efforts failed. Since Johnson case, horizons widened until now used run-of-the-mine regardless amount deficiency decided today allegedly comes same disclosed produced none anything like deficiencies Guzik. seems, evolved final volley shot Government's battle revenue, income-bracket greatly chances error. leads us point out dangers consciously kept mind order assure adequate appraisal facts individual cases. 1. Among defenses often asserted claim increase shown statement reality existence substantial cash hand starting point. favorite defense asserts cache made years' savings various reasons were hidden expended period. Obviously, great difficulty refuting contention. However, taxpayers too encounter obstacles convincing hoards. emergence uncovers fraud creditors. 8 connection, frequently gives 'leads' agents indicating his come, prior earnings, stock transactions, real estate profits, inheritances, gifts, etc. Sometimes back old transactions far removed Were required run down face grave investigative difficulties; still failure do might jeopardize taxpayer. 9 2. As said, requires assumptions, among equation unexplained Obviously weaknesses. may loans account newly acquired wealth. There assume once established figures computations, crime automatically follows. possibility jury, without guarding instructions, allowed take into room charts summarizing computations; bare way acquiring own, independent gave rise them. 10 3. Although sound fair say can 'bulge' worth, entirely honest yet unable recount financial history. rule tend shift burden proof. compelled forward evidence, risk lending case showing loose business methods losing through apparent evasiveness. Of course, prosecutions juries disbelieve convict innocent. minimize danger. 11 4. When there books records, inferred fact coupled understatement uses appear correct face, alone unjustified, especially circumstances surrounding consistent mistake willful violation. On hand, very disclose proved indicate deliberate falsification. 12 5. type, relies statements, revenue course investigation, vital links agent confronts deficiency, latter concerned quick settlement search truth. Moreover, pick choose statement, relying favorable portion throwing aside does bolster position. problem corroboration, dealt Smith 147, 194, Calderon, 160, 186, therefore becomes crucial. 13 6. statute defines offense years. While able accuracy over relating sufficiently steadily justify additional unless reasonably allocated appropriate counts 14 cannot pitfalls inherent foreclose they require exercise care restraint. complexity met merely rules. Cf. Universal Camera Corporation National Labor Relations Board, 340 474, 489, 71 456, 465, 95 456. Trial should approach full realization ensnared system which, though difficult utilize, equally hard defendant refute. Charges clear, including, addition formal summary nature assumptions rests, inferences available both against accused. Appellate bearing constantly difficulties arise chief itself approximation. 15 With considerations guide, turn facts. 16 indictment returned Hollands embraced counts. charged husband, attempted 1946 1947. He found guilty thejury third count Holland wife 1948 $19,736.74 them joint return. guilty. Mrs. fined $5,000, while her sentenced imprisonment $10,000. 17 opening computation shows defendants $19,152.59 Shortly thereafter, purchased hotel, bar restaurant, began operating House. Within $31,265.92 increased $113,185.32.3 indicated that, 1948, convicted, some $32,000, totaled less one-third sum. 18 Use Net Worth Method Where Books Are Apparently Adequate. 19 noted, reach supra (319 1240), affirmed conviction expenditures exceeded 'available resources.' establishments destroyed few had, forced resort ground 'To * tantamount holding skilful concealment invincible barrier proof', 517—518, page 1240. Petitioners ask restrict situations books. They 41 Code,4 expressly limiting authority deviate accounting, confines inadequate. Despite lower courts, see Riganto, F.Supp. 158, 161, 162; Williams, 208 437, 437—438; Remmer 205 277, 286, judgment vacated grounds, 347 227, 74 450, conclude argument fail. provision 'net shall computed accordance accounting regularly employed keeping taxpayer', refers receipts accrual allocate expenses American Can Co., 280 412, 419, 50 177, 179, 518. technique, different one defendants. all, except insofar calls Petitioners' purposes; admittedly, detect false entries therein. did, defendants' truthful, items disappeared before even reached recording stage. Certainly Congress never intended make set blinders prevents looking self-serving declarations 'The relied collection largely own disclosures *. function successfully within near keep render accounts.' 495, 366. To protect who 'render accounts', free whether story told accurately reflects 20 Establishing Definite Opening Worth. 21 agree petitioners essential condition establishment, certainty, serve calculate future assets. importance immediately apparent, correctness result depends inclusion sum outset. included costing $29,650 $2,153.09 cash.5 failed include accumulation $113, 000 currency 'hundreds possibly thousands shares stock' owned accumulated date, $104,000 1933, balance 1933 1945. money, claimed, mostly $100 bills times canvas bag, suitcase, metal box. dipped 1946, became source wealth later form home, ranch, hotel properties. main jury. introduce dispute claim. Rather anyone undergone hardship privation endured late 20's throughout 30's. lost cafe business; $35,000 debts paid; household furniture unpaid $92.20; suffered default $506.66; separate eight 'economical advantage.' part period, obliged herself son working motion picture house Denver Wyoming. further improvements bought installments small denominations, earnings rather bills. negatived petitioners' accumulating checking Holland's returns 1913, previous insufficient enable save appreciable money. resolved question Hollands, verdict fully supported. 22 stock, dabbling market 1937 1938. His purchases negligible borrowed stocks 1944 1945 dividends $1,600 $1,850 respectively. record unclear point, appears 1942 pledged considerable collateral loans. what portions actually time, since trading day day. And, 4,550 shares, usually 'stock selling dollars per share.' light, approximately $30,000 line. sale about $50,000 but receipt dividends; nor subsequent sold 1946. fact, stated 'fooled market' 1946; 1949; saved $9,000 stocks.6 bolstered admissions petitioners, statement. By token, proceeds date justified jury's conclusion above credited 23 Investigation Leads. 24 So overwhelming, indeed, bother check represented sales 20's; $113,000 exchanging $12,000 gold named bank. law approach—a powerful proving otherwise undetectable offenses—should investigate furnished injustice. is, prescribe procedures,7 province sufficiency convict. rests solely approximations computation, cogency effective negation explanations inconsistent guilt. Such refutation fail track relevant taxpayer—leads susceptible being checked, true, innocence. fails show investigation validity leads, trial judge consider go aid forestalling unjust prosecutions, practical advantage eliminating dilemma, accused's adverse substantiate Government. procedure long espoused duty done. 25 detailed complete answer explanations. Admitting kind 'would desirable every conceivable line inquiry,' centered inquiry entered lives covering several states score could believed moneys twenties turned lacked claimed crucial Even assumed sufficient distant incidents remote time events whatever petitioner's January 1, 26 Increases Must Attributable Taxable Income. 27 Also requisite supporting defendant's attributable currently 28 introduced tending although apparently question, profits fell one-quarter management comparable period;8 register tapes, based, petitioners; reflect money withdrawn hotel's personal payments restaurant supplies. unrecorded category $12,500 Thus ample 73% 29 adduce negative possible nontaxable alleged increases—gifts, loans, agree. view, carried negations urge. standing alone, find sprang, sufficient. Court's 'had large, reinforced (for certain his) private 'the finding properly *.' 517, capable producing income; proven much quantity increases. Any investigating unlikely disprove. disregard checked. forthcoming, negate matter peculiarly knowledge defendant. Rossi 289 89, 91—92, 53 532, 533, 77 1051. 30 Burden Proof Remains 31 Nor element doubt mathematical certainty. settled standards applicable just crimes. Once remains quiet peril. Yee Hem 268 178, 185, 45 470, 472, 69 904. disadvantages lessened pressures leads. 32 Willfulness Present. 33 A necessary willfulness. contend 'involves intent mere income.' rule. Here, pattern underreporting large amounts Since, proper submission, acts supported willfulness, stand. 499—500, 368. 34 Charge Jury. 35 press us, finally, contention instructions court erroneous misleading constitute grounds reversal. carefully reviewed comment. assail refusal instruct exclude hypothesis instruction decisions, Garst 180 KF105 F3 339, 343; Anderson 485—487; Stutz 47 1029, 1030; Hanson 914, 916, better instructed doubt, confusing incorrect, Austin-Bagley Corp., 229, 234, denied, 279 863, 49 479, 73 1002; Becker, 62 1007, 1010; Wigmore, Evidence (3d ed.), §§ 25—26. 36 Circumstantial respect intrinsically testimonial evidence. Admittedly, wholly incorrect result. Yet instances, weigh correctly points inaccuracy ambiguous inference. both, experience people weighing probabilities. If convinced more. 37 insistent attack, below, defined . you folks affairs your willing act upon.' think section terms person hesitate act, Bishop App.D.C. 132, 107 297, 303, act. some. definition seem create confusion misapprehension. 'Attempts term 'reasonable doubt' making clearer minds jury,' Miles 103 304, 312, 481, feel whole, conveyed concept 38 assign error give wording indicted, crime. impossibility pointing rights prejudiced this, assuming error, enough correct, Center Veal Beef 162 766, 771. apply That operation implies standard physical meanings explained particularity necessary, thus invaded. 39 light affirmed. 40 Affirmed. Code KF62 145, Annotated KF65 U5 145. Penalties. '(b) Failure collect pay tax, tax. chapter collect, for, imposed chapter, willfully truthfully manner payment thereof, shall, penalties law, felony Friedberg 142, 138; 186; 194. Because extensive factual backgrounds require, significant differences present, treated opinions. corrected takin g U.S.C., 'Part IV—Accounting Periods Methods Accounting. 41. General annual (fiscal calendar be) taxpayer; liabilities listed $12,650.50. 'Q. words, summarize whole thing: $157,000 consisted December 22, currency, investment securities—or securities. 'A. Yes.' (R. 303.) will formulate rules applied federal maintain 'proper courts.' McNabb 318 332, 341, 608, 613, 819. 1/2% 1945; 1947 ratio 12%; 26%.

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