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Holland v. United States. Holland

: January 21, 1954.

HOLLAND
v.
UNITED STATES. HOLLAND V. UNITED STATES.



Murrah

Before BRATTON, HUXMAN and MURRAH, Circuit Judges.

MURRAH, Circuit Judge.

Marion Holland and Ethel Holland, husband and wife, separately appeal from a judgment and sentence on jury convictions for willfully attempting to defeat and evade their income tax liability for the calendar year 1948, in violation of Section 145(b), 26 U.S.C.A.

The first count in the indictment charged the husband with violations of 145(b) for the calendar year 1946, by filing or causing to be filed in the District of Colorado, a false and fraudulent return, wherein he stated that his net income for the said calendar year was $15,336.93 and that the amount of the tax due and owing thereon was $3,980.39, when, as he well knew, his net income for the said year was $38,471.03, upon which net income he owed a tax of $15,688.75.

The second count charged the husband with violations of Section 145(b) for the calendar year 1947, for filing or causing to be filed in the District of Colorado a false and fraudulent return, wherein he stated that his net income for the said year was $5,717.57 and that the amount of tax due and owing thereon was $851.74, when, as he well knew, his net income for the said year was $34,631.97, upon which net income he owed a tax of $13,846.99.

The third count of the indictment, upon which both the appellants were convicted, charged them with violations of Section 145(b) by filing or causing to be filed in the District of Colorado a false and fraudulent return for the calendar year 1948, showing income of $11,211.42 with a tax of $1,532.52, when, as they well knew, their true net income for such year was $29,948.16, upon which they owed a tax of $7,518.88.

The husband was acquitted on the first two counts of the indictment, and the evidence relating to those two counts is relevant only insofar as it bears upon the charge in the third count, upon which the appellants were convicted and sentenced.

The returns for each of the prosecution years were prepared by a tax accountant from books and records kept by him from information furnished by appellants. There is no contention that the returns do not accurately reflect all of the income shown on the books and records maintained by the taxpayers in the course of their business as owners of a hotel and restaurant in Golden, Colorado. There is no direct proof of any specific unreported item of income or undisclosed sources of income, or that any items of expense claimed as deductions were not legitimate and allowable. The government's case rests solely on the circumstances of increased net worth established by record purchases and expenditures during the prosecution period to prove a substantial understatement of taxable income for those years. And, the first contention of the appellants is that the government failed to prove with sufficient accuracy the net worth of appellants at the beginning of the prosecution period.

Relying primarily upon Bryan v. United States, 5 Cir., 175 F.2d 223; and United States v. Fenwick, 7 Cir., 177 F.2d 488, appellants take the position that to prove a prima facie case based on increased net worth and expenditures, the government must produce evidence which excludes or tends to exclude all other available sources from which the increased net worth and expenditures could have been derived. It is of course incumbent upon the government to prove to a reasonable degree of accuracy the net worth of the taxpayer at the beginning of the prosecution period, otherwise there could be no foundation for the hypothesis that the established increased net worth represented unreported current income. But, the "government is not required to prove a negative or to refute all possible speculation" as to the source of increased net worth. Gariepy v. United States, 6 Cir., 189 F.2d 459, 463; see also Schuermann v. United States, 8 Cir., 174 F.2d 397; Leeby v. United States, 8 Cir., 192 F.2d 331. One bent on income tax evasion cannot be expected to make a record of his unreported income, indeed, the disposition is toward concealment. The government is not required to go beyond records reasonably available in order to foreclose any permissible inference that the unexplained excess expenditures in any taxable year were derived from sources other than current income. United States v. Johnson, 319 U.S. 503, 63 S. Ct. 1233, 87 L. Ed. 1546.

From records and information available to it, the government fixed a net worth for the appellants as of January 1, 1946 in the sum of $19,152.59, consisting primarily of a checking account and common corporate stocks. From record purchases and expenditures in the year 1946, the government showed an increased net worth for that year in the sum of $57,410.94, and by the same method determined an increased net worth of $33,790.25 for the calendar year 1947 and $33,011.72 for 1948. These net worth increases established a taxable income substantially in excess of the reported income for the respective years on which a substantial additional tax would be due and payable.

As a part of its proof of opening and increased net worth of the taxpayers, the government investigator testified from sworn statements of the appellants made in connection with the investigation, and introduced in evidence by the appellants. In those statements, the husband stated that the excess expenditures for the years in question represented their lifetime savings, accumulated prior to 1946; that on January 1, 1946, he had a net worth of $156,000.00 or $157,000.00, consisting of $104,000.00 in currency, mostly one-hundred-dollar bills, all of which he earned and accumulated prior to December 22, 1933; $9,000.00 earned between 1933 and 1946, $4,000.00 by himself and $5,000.00 by him and his wife. The remainder of the accumulated funds was in corporate stocks. With respect to the $104,000.00 in currency, he stated that he had $20,000.00 when he was drafted into the army for the First World War, and that after discharge and in the Twenties, he speculated on the stock market and in real estate; and operated, bought and sold restaurants, one of which he sold three different times at a profit of $15,000.00; that when, in 1933, the restaurant business became unprofitable and he was unable to pay his debts, he just closed up and told the mortgagee to take over - "I just gave him the setup for what I owed him"; and that at that time he or his wholly owned corporations owed approximately $35,000.00 in unpaid bills. He further stated that immediately after closing his restaurant business, he sold vacuum cleaners for about six months, and then went to Casper, Wyoming, where he worked as a chef in a hotel for seven years for $175.00 a month and living quarters. During all of this time his wife and son remained in Denver for economic reasons, and his wife worked as a secretary. Upon returning to Denver in 1941, he worked as a chef in a restaurant there, later went to Orange, Texas where he also worked as a chef, thence to Billings, Montana, and back to Colorado where he was employed as a chef in the hotel which he purchased in the Spring of 1946. During all of this time, he stated that he kept the $104,000.00 in currency in a sack or metal box in his room or wherever he happened to be living; that only his wife knew of the funds; that he never invested or deposited the money any place at any time until he decided to purchase the hotel in Golden, Colorado in 1946, whereupon from time to time he deposited funds in the bank sufficient to cover the checks he wrote for the expenditures which the government contends represented current income.

In addition to the sworn statement of appellant, the government introduced evidence tending to show that in 1933, when he went out of business, he was unable to pay his rent; that his creditors were threatening to sue him for his unpaid bills, and at least one judgment was rendered against him and his corporation. A dairy bill incurred prior to cessation of business in 1933 was compromised in 1946 for $2,500.00. He defaulted on $10.00 per month installment payments for furniture purchased in 1933. Correspondence introduced in the record showed that in 1928 and 1929, he was pleading with his creditors not to bring suit or to insist upon payment in order to avoid bankruptcy. The appellants objected to the introduction of this correspondence and contend on appeal that it is too remote and was written in behalf of a separate corporate entity. But, we think it had an admissible bearing on the question of his opening net worth, especially in view of his asserted affluence at that time.

The government introduced the appellant's income tax record in Colorado from 1913 to 1933 to show that he reported no taxable income during the time he claimed to have been accumulating his currency assets. The government also introduced, over the objection of appellants, copies of certificates of assessment and payment of income taxes for the years 1933 to 1941, to show that during the husband's residence in Wyoming, he paid only nominal income taxes. The certificates were on a prescribed form of the Treasury Department and directed to the Intelligence Unit of the Internal Revenue Service at Denver, Colorado. They were signed by the Director for the State of Wyoming, who, as legal custodian of the official records of the United States Bureau of Internal Revenue for the State of Wyoming, certified that the transcript of the accounts of the taxpayer was true and complete for the period stated; that all assessments of tax, penalty and interest were shown therein; and that after diligent search, no record or entry appeared on his records except as therein indicated. The exhibits were produced in court by a witness who did not make them and had no personal knowledge of their contents. The appellants claim reversible error for the admission of these exhibits on the grounds that they were admittedly false and incorrect upon their face and not properly authenticated.

The government also introduced in evidence the appellant's income tax return for the year 1944 filed in Montana and his income tax return for the year 1945 filed in Colorado, apparently to show reported income for those years. The tax assessment list in the State of Montana for the years 1946 and 1947 were also admitted in evidence for the same purpose. The appellants complain of the admission of the income tax returns and of testimony by a special agent of the Bureau who referred to them, on the grounds that the documents were not properly authenticated, and not having custody or personal knowledge of the contents of the records, his testimony based thereon was hearsay. Objection was made to the admission of the assessment lists from the State of Montana because not properly certified. The special agent who produced them did not prepare them or have official custody of them, nor did he have personal knowledge ...


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