Court Opinion

ID: 9446965
Source: CourtListenerOpinion
Date Created: 2023-08-03 22:22:37.314548+00
Date Added: 2024-06-11T17:30:51.401600
License: Public Domain

BOREMAN, District Judge
(dissenting).
Having profound respect for the opinions of the two Judges who have rendered the majority decision, I regret that 1 must disagree with them in stating a different view. After reviewing the record in this case in its entirety and finding it replete with error, I cannot, in good conscience, vote with the majority to affirm.
I think it is safe to say that all of us are in substantial agreement as to the general principles of law applicable in tax evasion cases. Certainly it is the function of the jury to determine the guilt or innocence of one accused of the commission of crime, provided that determination is founded upon proper evidence. But I am firmly convinced that if improper evidence, in substantial measure, was permitted to go to the jury and which may have influenced, confused and misled the jury in reaching a decision, the Appellate Court should not hesitate to correct the error.
The charges here against C. D. Morrison are the attempts, wilfully and knowingly made, to evade and defeat the payment of income taxes by filing false and fraudulent returns for the calendar years 1950 and 1951. Frank R. Morrison is charged with wilfully and knowingly aiding and assisting him, counseling, procuring and advising the preparation and filing of the fraudulent returns. One of the most important elements of these offenses is the intent, and without proper proof of wilful and knowing understatements of net taxable income, with intent to evade and defeat the payment of the income tax, or a substantial portion thereof, there can be no conviction.
There are seven principal assignments of error but, under subheadings, we have been asked to consider twenty specific errors in the admission of evidence, twenty-three errors attributed to statements made before the jury by the government’s attorney, four in connection with the trial court’s refusal to grant motions for a mistrial, three in the court’s refusal of motions to strike evidence, and two in the court’s refusal to charge the jury as requested. From this tortuous maze, I shall undertake to note certain ones which appear to merit consideration.
Each defendant filed a motion for a bill of particulars as to the specific nature of the evidence pertaining to each count of the indictment. The government simply replied that “the method of determining the correct income in this case was by use of the bank deposit method, corroborated by specific items of omitted income”. The government declined to furnish any further information and the Court denied the motions for bills of particulars, but the action of the Court in this respect is not challenged *7on appeal. Thus, the defendants and their counsel were notified as to the theory on which the ease would be tried. Certainly there was no intimation that the case would be tried on the “net worth” theory, or that evidence properly admissible under that theory would be offered.
Under the government’s theory here, that is, the use of the bank deposit method, corroborated by specific items of omitted income, each prosecution year is separate and distinct, not related to the other, and quite unlike the situation presented in a net worth case where it is necessary to determine a beginning net worth and trace additions, even through a long period of years, to arrive at increases in net worth during prosecution years.
First, the government offered in evidence a certificate of assessments and payments of taxes, the tax record of C. D. Morrison, for all years beginning with 1937 through 1949. A witness, when asked to explain it, stated: “This is what is known in the Internal Revenue Service as a certificate of assessments and payments as reflected from the taxpayer’s returns that are filed by the years and any payments made in connection with those taxes”. The introduction of such a certificate in a net worth case is designed to show the reporting of income during the years prior to the determination of the beginning net worth so as to negate any contention on the part of the taxpayer that he was not given proper credit for the ownership of assets which might be claimed by him as proper to be included in the beginning net worth. Defense counsel objected to the introduction of this certificate on the ground that it had no probative value. The Court inquired as to the purpose in offering it and government counsel replied: “This will give a picture going back in the years, particularly about ’47, ’48 and ’49, as to why he paid no tax, and which have been admitted by the court in other cases”. Then follows questions and answers :
“The Court: As far back as that?
“Mr.- Parsons: Well, the only other case I could remember, Your Honor, is one where we went back to 1917, and the Court made us stop on that in 1941.
“The Court: That was for the purpose of getting the net worth value, though, was it not?
“Mr. Parsons: Yes, sir, that was one of the purposes in that case.
“Mr. Rosenberger (for defense): You are not following that in this case?
“Mr. Parsons: No, sir.
“The Court: Let me see the document. * * * I overrule the objection and admit it.”
All of this took place in the presence of the jury.
The evidence disclosed that C. D. Morrison, after completing the fifth grade in a one room school and after a period of farming, went to Lynchburg, Virginia, where he worked as a carpenter until the year 1937. In that year, he started his own construction business, for some time maintaining his office in his home and employing one George Candler, a shoe factory machine operator, as his first bookkeeper. There were no returns filed by this taxpayer for the years 1937, 1938 and 1939, but the certificate of assessments and payments, admitted over objection and identified as Government’s Exhibit No. 14, shows that a return was filed by C. D. Morrison in each year beginning with 1940 through 1949. It further shows that taxes were paid in small amounts for certain years, and for the year 1947 in the amount of $1,276.75. Certainly, this certificate was not admissible to give a picture “as to why he paid no tax” and that was the only reason assigned by the government counsel for its admission. What possible probative value could it have had without some showing that the taxpayer had a net income on which a tax was due and unpaid for the years shown in the certificate? But C. D. Morrison was not on trial for any of those years, only the years 1950 and 1951. It is more than *8possible, and quite reasonable, to conclude that the jury may have been led to believe that this record indicated a failure on the part of Ch D. Morrison to pay taxes which were due and owing to the government for the years shown in the certificate.
Before offering in evidence the tax returns for the prosecution years 1950 and 1951, the government offered in evidence C. D. Morrison’s returns for 1947, 1948 and 1949. Objection having been interposed, extended discussion and argument ensued in the presence of the jury. In response to a question by the Court, government counsel stated: “If Your Honor please, the government will show, I believe, that there is a continuing pattern throughout these years, and the 1947 return will reflect the same pattern of activity. There are certain transactions that took place in the earlier years which do not pertain to the tax return made in 1947, but they still exist in ’50 and ’51”. Counsel further stated: “ * * * I have a specific purpose and I think it will be apparent, Your Honor. Of course, if they are not admissible at the proper time, the Court can throw them out”.
The record is clear that the returns for ’47, ’48 and ’49 were admitted in evi- ■ dence and the Court did not indicate that ‘they were admitted for any specific or I limited purpose. Relative to the admission of the ’48 return, the Court stated: “ * * * and I shall admit subject to the same ruling. I take it that it may be understood that you object to all this line of testimony”. Defense counsel replied: “Yes, sir, as to the tax returns for ’47, ’48 and ’49”.
The 1947 return was prepared by the bookkeeper who, as stated, was a shoe factory machine operator, and he was assisted by C. D. Morrison’s daughter, then a recent High School graduate. In an apparent effort to show some pattern of omission of items of income in the year 1947, the government introduced evidence of receipts which were said to have been omitted from the reported 1947 income. But, under cross-examination, the agents admitted that certain items which were reported as income should never have been so reported and that these items amounted to approximately $14,000. The return for that year was prepared on a cash basis, and the gross business receipts shown were determined by adding together the items deposited to the checking account. Included in the list of receipts claimed to have been omitted was a check from a theater construction job in the amount of $10,000 which was not deposited in the bank account, but there was strong evidence that this check had been endorsed over to a supplier of materials in payment of an account due, and that the cost of the materials was not claimed as a deductible business expense. However irregular this transaction may have been from the bookkeeping standpoint, it could hardly be said to have been dishonest or that it affected the reported taxable income. The purchases of an automobile and certain items of equipment totaling approximately $4,500, for which payment was made in cash, were referred to and claimed as specific items of unreported income although there was absolutely no showing whether the cash so paid out was taxable income for 1947 or for prior years. Such evidence of cash expenditures would have been properly admissible under the “net worth” theory of computation of income. Another item of unreported income was $2,500 which represented the value of two lots which had been conveyed to C. D. Morrison in payment for work done and this amount, of course, was not reflected because not deposited in the bank account.
The reported income for 1947 erroneously included the end of the year 1946 bank balance, a check of approximately $8,500 representing a refund to C. D. Morrison for an accommodation purchase of a lot for' a customer, the repayment of a loan for a prior year of $150, and a customer’s bad cheek for $4,050 .which had been redeposited after payment had been once refused, and the amount of which check was twice reported as in*9come. In fact, so far as the record discloses, and excluding from claimed omitted items the $10,000 check, the items incorrectly and ignorantly reported as income exceeded the total of omitted items by approximately $4,000. It will be remembered that for the year 1947, income taxes amounting to more than $1,200 were paid, and this may well have represented an overpayment rather than an underpayment, so far as disclosed by the record.
While there was testimony that certain items of income were unreported for the year 1948, the agents did not know what was included since there was no “work sheet” with the 1948 return. Evidence of omissions of income from the 1949 return was introduced; also evidence of errors in favor of the government for the same year was developed on cross-examination.
Mr. Parsons was the United States Attorney and later the Assistant United States Attorney, Mr. Ryder, joined in the argument for the government and, in referring to the prior years, stated: “There is an understatement of income. It is based on those omitted specific items, and we are entitled to show the jury that that resulted, as in these two years [’50 and ’51] in a substantial understatement of the man’s income”. The Court replied: “Perhaps I misunderstood what you are driving at. Do you propose to show understatements for the previous years computed on the bank deposit method in an amount in excess of the omitted items”? Government counsel responded affirmatively. This exchange covers approximately twelve pages of the original record.
Following cross-examination and the testimony and admission of the agent that nontaxable items were included in the 1947 reported income, the same question was reopened and this later discussion covers approximately twenty-eight pages of the record. The government was still proposing to prove that there was an understatement of income in the years ’47, ’48 and ’49. The United States Attorney, speaking for the government, was most insistent in his efforts to explain to the Court that the proof of the defendants’ intent was one of the most important burdens imposed upon the prosecution. I shall quote at some length from his argument as follows:
“The state of the record now shows that the man omitted certain items; he put certain items in that should not have been there. What we propose to show is that, regardless of the items that he put in that he ought to have left out, in the prior years he understated his income and understated the amount of the tax due. That is the charge in the indictment. The law is that those pri- or offenses are admissible for the purpose of proving intent, and intent alone. The intent in this case is to understate the amount of tax owed to the government. We have not proved that in the prior years. We have only proof that he omitted certain items of income. Mr. Rosen-berger has, in turn, proved that he put certain items in that should not *10have been there. We have to prove that he has understated the amount of tax owed the government. That is the sole purpose of the evidence. We are not charging him with omitting certain items from his tax return; we are charging him with understating the amount of tax due and owing to the government and in order to prove that, we can show it in a number of ways. The Court has not allowed us to prove that yet and the evidence is of no use to this Court or the jury until we prove that. * * * In this case it is the intent involved, that is, the understatement of tax owing. * * *
We want to prove by this agent, and we have already proved that in ’50 and ’51 he understated the amount of tax owing. He did it by a certain method. The agent used a certain method of proof, that is, specific omissions and the bank deposits method. What we have shown in the prior years is only the method; that is what we are asking the Court to allow us to show, namely, the intent. I submit that the record as it now stands by merely omitting the items of income is erroneous now, because the Court could only introduce that evidence for the purpose of showing an intent to evade and defeat the payment of the tax.”
This same line of argument continues over many pages but the Court steadfastly refused the government’s request for permission to introduce testimony which, by the government’s own admission, was necessary in order to bear upon the intent of the defendants in prior years and thus show a pattern of understatement with intent to evade the payment of tax. Certainly, this evidence as to happenings in prior years could have had no bearing on the intent of the defendant, Frank R. Morrison, because he was not employed by the defendant, C. D. Morrison, to handle the office work and prepare tax returns until the year 1949.
The only possible inference which the jury could or should have drawn from the evidence as to omission of income items in prior years, and the improper inclusion of large items, was that the returns were prepared by persons who had no idea whatsoever of bookkeeping and accounting and that the situation presented was, as characterized by defense counsel, a “comedy of errors”. During the argument to the Court, government counsel again stated, positively and without equivocation, that C. D. Morrison paid no tax for the year 1947, but the government’s own records showed this statement to be incorrect.
Even though the government had admitted error and had urged that it be granted the opportunity to remove it by the introduction of further testimony, the improper evidence remained before the jury, without explanation as to the purpose for which it could be received. Since the only basis for the introduction of such evidence, when properly developed, would be to show intent, and the jury was left with the impression that it could consider the evidence as to omissions in prior years, under the circumstances here revealed, as indicating a pattern of evil intent, I am convinced that the jury not only could have been, but probably was, confused and misled and that prejudicial error resulted.
Before the commencement of the trial, the government disclosed that the case was to be tried on the bank deposits method corroborated by omission of specific items of income. Calculations were presented to the jury based upon that method to show an understatement of tax for the years 1950 and 1951. Special Agent Clagett told the jury that his calculations were for prosecution purposes. But both the Internal Revenue Agent and the Special Agent had testified that, in their opinion, the accrual method of accounting and reporting was the method which should have been followed by the defendants. They then were permitted to reconstruct, for the years 1947 through 1951, the tax which C. D. Morrison *11should have paid and which was claimed as due and owing to the government, based on the accrual method. They referred repeatedly to calculations made “for prosecution purposes” and other calculations made for the purpose of properly determining the tax due by the use of an entirely different method. Many items which were charged, by the use of one method, as omissions in the prosecution years 1950 and 1951, were shown, under the accrual method, as items which should have been reported in earlier years. In short, by the use of one method of accounting, it was charged that certain items were wrongfully omitted from reported income in the prosecution years and, by the use of another method, it was charged that the same items were wrongfully omitted from reported income in prior years.
The tax returns of Frank R. Morrison, charged with aiding, abetting, counseling, etc., C. D. Morrison for the calendar years 1949, 1950 and 1951, were offered by the government, and when objection was interposed, the government attorney stated: “ * * * We anticipate we will be able to show a pattern in this individual’s tax returns similar to that shown in the returns of C. D. Morrison”. When reminded that Frank R. Morrison was not charged with filing false returns, the government counsel replied: “ * * * This will be shown as proving intent. It will show a pattern that the jury could consider in evaluating the case”. When the objection was sustained and the returns were identified but not admitted, government counsel then asked the witness if he had a certificate of assessment of tax for Frank R. Morrison and when objection was stated, the certificate was filed for identification only. But the jury could have drawn only one conclusion from these proceedings, that Frank R. Morrison was guilty of underreporting his own taxable income and of filing false returns as to his own taxes due. This is but another illustration of the zeal with which this prosecution was conducted and the determined effort by government counsel to prejudice and influence the jury.
Far be it from me to criticize a vigorous prosecution and I admire a positive and fearless presentation of a well prepared case. However, I feel that it is the duty of all counsel and the Court to see that the case is presented fairly, with no undue advantage gained by innuendo, insinuation and improper inference.
The majority opinion states: “We have read with care the instructions given the jury by the court and we find in them nothing to criticize. They are sound statements of the law applicable to the case, they are clear and complete and as favorable to the defendants as they could, in reason, desire”. But I observe that the defense counsel requested the Court to make some explanation to the jury as to the evidence pertaining to the use of the bank deposit method and the use of the accrual method, in view of the government’s statement that the case would be tried on the bank deposit method. Counsel stated: “The government has exhibited to the jury a schedule showing the bank deposits and showing the tax computed on the results obtained by the bank deposits method. Then, when that method seemed to be slipping away in the course of yesterday or the day before, they put the revenue agent on to show the tax computed on the net income obtained by the accrual method. That is the point I am asking the Court to instruct the jury on: that the government has elected to proceed to show it was a false tax return, rather than by the bank deposits method, corroborated by specific items of omission”.
Notwithstanding this request, the melange of theories, and the introduction into evidence of certain testimony and exhibits heretofore discussed, the Court simply told the jury: “You have listened to the evidence and I shall not undertake to review it in detail. In my opinion, no good purpose would be served by my undertaking to do so. I am sure it is fresh in your minds and your recollections as to the testimony of the various *12witnesses and as to the various exhibits which have been filed, and that your recollection would be better than mine. In any event, you are the ones who have the responsibility of passing upon the effect of that evidence, and not the Court”. Further on in the charge, and speaking concerning “intent”, the Court told the jury: “* * * therefore, the only way you have of arriving at a conclusion as to the intention of the defendants in this case is for you to take into consideration all the facts and circumstances shown by the evidence, including, of course, the exhibits and testimony of the witnesses * * * ”, With the highest regard for the ability of the trial judge to properly charge a jury, I venture the suggestion here that the jury should have been instructed as requested, and that some explanation should have been made as to the limits within which certain evidence could be considered and for what purposes.
Without specific reference to the cases examined, in my search I have found no case wherein it was shown conclusively, as here, that certain items were improperly included in tax returns for years prior to the prosecution years, which returns were offered by the government as bearing upon the taxpayer’s intent in connection with proof of omitted items. It is evident in many of the cases examined that the failure to report specific items of income resulted in a determined tax deficiency. The testimony of the agents as to items improperly reported was elicited on cross-examination after the returns for prior years had been admitted. I am convinced that the United States Attorney, when urging permission to show an understatement of taxable income in prior years, was correct when he stated to the Court: “I submit that the record as it now stands by merely omitting the items of income is erroneous now, * * * ”.
For the reasons stated, I would favor the granting of the motion to set aside the guilty verdicts and award a new trial to each of these defendants.