Court Opinion

ID: 9447672
Source: CourtListenerOpinion
Date Created: 2023-08-03 22:40:51.344753+00
Date Added: 2024-06-11T17:31:08.308487
License: Public Domain

*73On the Merits.
It will be seen that the court below, as it did in the former trial, based its findings of fraud largely on admitted facts concerning the handling of these two items as they were developed by the evidence before the court on each of the trials. We pointed out before that, as a farmer, taxpayer was not required to keep books, and that he did not in fact keep books. Yet the appellee contends, and convinced the court below, that fraud should be assumed because appellant’s records, which he was not required to keep, were incomplete and did not in themselves tell a full story of each of the transactions involved. Without any attempt to set forth or analyze taxpayer’s extensive operations in 1946 showing gross income from cattle sales of $99,-555.83, gross income from all operations of $131,480.26, monies borrowed by taxpayer of over $120,000 from the First State Bank of Stratford, the appellee picks out these two items alone as indicative of fraud because of the manner in which they were handled by appellant through the bank.
In our opinion on the first appeal,7 we posed the question presented by the appeal thus:
“* -» * ¿id Taxpayer purposefully conceal these grain items so that they would not be reported as income upon which a tax would be payable, or was the omission by Russell due to mere neglect or error, either because Taxpayer failed to inform his attorney-accountant of the facts or because of error in the receipt, consideration and use of the Taxpayer’s information by Russell’s office?”
The question remains the same here, and the court below, on this trial and on essentially the same testimony, reached the same conclusion. The court referred to “another link in a possible chain of concealment.” In thus revealing what was in its mind, the court indicated that possibilities were playing a part in its reasoning towards the end result reached by it in this case that appellant “obliterated the record” made by the bank in connection with the two transactions which form the base of the fraud penalty involved. We do not think that either transaction, or both of them together, fastened upon appellant the just charge that he obliterated anything.
As to the larger item, the $14,352.69 check applied by the bank to taxpayer’s note, under the undisputed facts in the record before us, the answer here must be the same as that we made in Eagle v. Commissioner, 5 Cir., 1957, 242 F.2d 635, 638. Eagle never made out any deposit slips, but relied upon his friends, the officers of his bank, to apply monies delivered by him to the bank to his checking account or to the payment of indebtedness as to them seemed best. Large amounts of income were, therefore, omitted from his tax returns over a period of years, but we held that such a showing did not convict Eagle of fraud. Exactly the same situation existed here, except that Price, the bank president with whom appellant did business, was not only appellant’s close friend and business adviser, but was personally lending appellant money and was engaged in joint ventures with appellant in his farming and ranching operations. Insofar as the conclusion of the court below as to this item is based upon the way the $14,352.69 item was handled, the case is controlled by the Eagle case.
We think also that the reasoning of Eagle controls the records evidence as it relates to the smaller item of $6,400. Not required to keep any records, the appellant, by his course of handling both items, made a complete and easily discoverable record, which could be traced by anyone caring to do so. Not only was this true, but the books of the grain company and its cancelled checks furnished an easy clue to the amount of money which appellant was paid by the grain company, and the records of the bank showed clearly what was done with the money. Without examining the author*74ities or analyzing the facts further, we hold that, under Eagle and the reasoning employed and the authorities therein discussed, the records obtained from the books of the grain company, and of the bank, and of the handling of these items by appellant, do not make out a case of fraud.
The appellee contends that the bare records themselves and the way the two transactions were handled by appellant are invested with weight,and significance by testimony given by Russell, the accountant-lawyer who was recommended to taxpayer by the bank president Price (who was not living at the time of the trials) and Russell’s employees. In its written opinion, the trial court made reference to this testimony at one or more places.8 It is difficult to perceive how appellant’s omissions over a number of years compared with those of Russell’s other clients would be relevant or probative in this case. The appellee does not so argue. On the question of the credibility and probative value of the testimony of Russell and his employees referred to in the second paragraph of Note 8 supra, the appellee recognizes that these conclusions from the opinion of the court were based upon inferences drawn by these witnesses, rather than from statements of fact made by Russell and his employees.9
From these quotations from appellee’s brief it is clear that the positive testimony of appellee, cf. Smith v. Dunn, 5 Cir., 1955, 224 F.2d 353, and cases there cited, was not contradicted by probative evidence of Russell or his employees. All they could do was to formulate the inference that, although they did not recall whether appellee gave them information concerning the two items, if *75he did so, memoranda would have been made and the items would have been reflected in their file. As definitely discounting the dependability of this type of testimony, we pointed out, when the ease was before us in 1959 (264 F.2d 934), that a deposit slip covering cattle sales amounting to nearly $7,000, which appellant had admittedly furnished Russell and which was found in the latter’s files, had not been reflected in appellant’s income tax return for that year.
The stress put upon Russell’s testimony in appellee’s argument and the extent to which the trial court relied upon it warrant a brief look into another litigated case growing out of the same facts as those involved here and based, in large part, upon the same testimony. Prior to the beginning of the litigation before us, appellant moved, in a criminal proceeding brought against him, that he be allowed to withdraw the plea of guilty which had formerly been entered by him. The motion came on for hearing before the same judge who entered the judgment attacked on this appeal. The evidence and entire record in that trial is before us, and for brevity we quote a portion of the opinion of the trial court as summarizing the important portions, of that trial which have relevance in the present case,10
*76Based in part upon the facts and conclusions set forth in the footnote, the judge denied the motion to withdraw the plea of guilty to the information, which, incidentally, involved other years besides the one here involved. The basis of the judge’s decision was mainly that Carter had waited too long to bring the matter up; but he based it also upon his conclusion that both Carter and Russell “equally understood everything they had done and that was being done.”
In a per curiam opinion this Court affirmed11 the judgment denying Carter the right to withdraw his plea of guilty and the Supreme Court granted certiorari and by a per curiam order vacated and remanded that judgment to the district court12 From the quotation from appellee’s brief supra, it appears that one of the reasons behind the Supreme Court’s action was doubt as to whether Carter was represented by a disinterested attorney.
Among the exhibits before us is certified copy of an order entered by the district court on March 1, 1956 ordering that Carter be permitted to withdraw his plea of guilty and that the clerk repay to him the $10,000 fine he had theretofore paid. These undisputed facts reflect the estimate placed upon Russell’s actions by the Supreme Court of the United States and by the district court. His testimony as a witness is so discounted, therefore, as to render it a very doubtful basis for adjudging fraud against the appellant under all of the facts appearing in this record.13
For these reasons, after having studied and considered the entire evidence, we are left with the definite and firm conviction that a mistake has been committed. United States v. United States Gypsum Co., 1948, 333 U.S. 364, 365, 68 S.Ct. 525, 92 L.Ed. 746.14 The judgment *77of the lower court is, therefore, reversed and the cause is remanded for the entry by the district court of a judgment in favor of appellant B. B. Carter for the amount paid by him as a fraud penalty, together with legal interest.
Reversed and Remanded with directions.

. 264 F.2d 935.

. 179 F.Supp. at page 362: “* * * Furthermore, the testimony of Mr. Russell that this taxpayer had more omissions from income over a five-year period than any other client for whom he prepared returns suggests something more than carelessness.
“ * * * In this case there is credible testimony from Russell and his employees, including Mmes. Hancock and Hisaw, and Messrs. Underwood and Boomer, that information concerning the unreported income was not furnished for the preparation of the taxpayer’s return.”

. These quotations from appellee’s brief support this statement:
“The testimony of Russell and his employees was that they prepared the returns from the bank statements, can-celled checks, deposit slips, and such other information as the taxpayer brought in. They had no doubt that the taxpayer knew that these were the sources of their information, and the taxpayer, although denying at one point that he knew this, at another point admitted that he knew Russell would have only such information as the taxpayer provided. The taxpayer said that he gave Russell’s office information of all checks he received, but Russell and his employees testified that if the taxpayer had notified them of these two checks a memorandum of that would have been put in his file. No such memorandum existed. * * *
“He had no doubt in his own mind that the taxpayer understood this * * =i: It was Russell’s testimony tliat if the taxpayer had brought in other oral information, either Russell himself or Mr. Hancock, a public accountant employed by Russell since 1927, would have received it. * * *
“The taxpayer attacks the testimony of Walter Russell on the grounds that Russell informed on him while employed as his accountant and subsequently advised Carter to plead guilty to a criminal tax evasion charge. With respect to Russell’s rule in the criminal proceedings, this Court has already had occasion to consider the matter in Carter v. United States, 224 F.2d 563, vacated and remanded, 350 U.S. 928 [76 S.Ct. 301, 100 L.Ed. 811], * * * Upon the taxpayer’s petition for certiorari, the Solicitor General confessed error on the ground * * * that the taxpayer may have received legal advice in that proceeding affected by an interest adverse to his own. Whatever the propriety of Russell’s conduct in representing the taxpayer or recommending that his colleague, Arthur Glover, represent him in that action, for purposes of the present case Russell was only a witness whose testimony could properly be weighed by the District Court in the light of all the surrounding circumstances. * * * ” [Emphasis supplied.]

. “The defendant B. B. Carter moves the Court to allow him to withdraw a plea of guilty entered and upon which sentence has heretofore been passed * * the movant, B. B. Carter, accompanied by his attorneys, Walter G. Bussell and Arthur Glover, appeared in court * * and entered a plea of guilty to an information filed charging him with willfully and unlawfully attempting to evade a large portion of the income tax due and owing by him to the United States of America. * * *
“The defendant Carter, after a lapse of more than three years, now comes to court and says that he was caused to enter the plea of guilty by the fraudulent representations made to him by his attorneys * * * and that he was not guilty as charged and should not have entered a plea of guilty but for being misled by those who presented his case in court. * ® *
“The defendant Carter kept no books; his bank books, his cancelled checks, his deposit slips and his memory are the source of information from which the reports were made. On one occasion the banker Price in conversation with accountant Bussell called Bussell’s attention to gossip among the employees of his bank in which 'some of the young lady employees in the bank had observed that Cartel-, with all the money he was handling, was not paying any larger income tax checks than they were paying. Bussell says he thought about this some time and on one occasion in conversation related it to the United States Bevenue Agent Dubbs. * * *
“Defendant Carter with newly employed counsel says that the purpose of Bussell was a deep laid scheme to get his client Carter into trouble for the" purpose of representing him and collecting a large fee. Bussell says that he worried about the matter and decided it was his duty to report the matter to the government, * * *
“On the question of actual fraud, the Court must consider the deductions sought to be made that Bussell reported his client for personal gain in order to collect a large fee. We must consider further Bussell’s statement that he considered it his duty. Then there may have been other elements that entered into the mind of Bussell, such as fear of public opinion resulting from gossip, that induced him to report his client to the agent. * * *
“Some year or more went by and another agent of the government, becoming possessed of the statement that had been made to Dubbs, made an investigation of the income and tax liability of the defendant. * * * Instead of being delivered to the government office as desired, by some error they [reports and summaries made by the revenue agents touching Carter’s tax liabilities] wore delivered to the mail box of the defendant Carter. He got it out and found it to be a report touching on his income tax status. One of the first passages in the report advised him that the report stemmed from information originally obtained from his Accountant, Walter G. Bussell. * * *
“Carter and Bussell agreed that it would now be necessary to employ counsel to defend him against the criminal charges brought by the government. After discussion it was agreed between him and Carter that Bussell’s firm would undertake the defense. * * * A fee *76of $10,000 was arranged * * * In the ultimate division of the fee, Russell received for his part one-half of the total.
“In reporting Carter to the United States Revenue Officer, we are not prepared to say that Russell had in mind a long range scheme to defraud and ultimately collecting the fee that he finally received. We do not think that it can thus be established by circumstantial evidence that the report made to the revenue officer, although unethical as it may have been, can be sustained under the rules of circumstantial evidence to establish actual fraud. * * * But having turned in his client to be prosecuted by the government because he felt it was his duty to do so, we cannot understand how he felt free to accept employment to defend him.
“ * * * He [appellant Carter] argued long and understandingly with his counsel on the better course to pursue and finally agreed with them to enter a plea of guilty and throw himself upon the mercy of the court.”

. 224 F.2d 563.

. 350 U.S. 928, 76 S.Ct. 301, 100 L.Ed. 811.

. Appellee relies on two other items of evidence which the court below considered as having some persuasive force. One was the supposed statement of appellant made some fourteen years before that a man was “a damned fool for paying it [income taxes] at all.” Nobody contends that this was anything but a facetious remark made in the presence of appellant’s friends. The testimony concerning it is, under all the circumstances, unreliable even if it had been said in seriousness.
The other relates to the retention by appellant of copy of a report which came to him in due course of mail. This was the report of the revenue agents, but it came into appellant’s hands legitimately and it contained the startling evidence that he had been “turned in” by his accountant and attorney. We'do not consider his retention of this report on that ground or on any other ground as an admission of guilt of willfully failing to file a correct income tax return.

. Cf., in addition to our former decision, 264 F.2d 930, and ,the many authorities therein cited, particularly the Eagle case, the well reasoned opinion of Mize, District Judge, D.C.S.D.Miss.1958, in Broad-head v. Enochs, 162 F.Supp. 897; and the able opinion of Clayton, District Judge, D.C.S.D.Miss.1959, 179 F.Supp. 876, in the companion case of Broad-head v. Enochs. These opinions are given added weight by the fact that the government took no appeal from the former decision, and abandoned the appeal in the latter.