Papadakis v. United States, 13772.

• Decision Date: 21 December 1953
• Docket Number: No. 13772.,13772.
• Parties: PAPADAKIS v. UNITED STATES.
• Court: U.S. Court of Appeals — Ninth Circuit

208 F.2d 945 (1953)

PAPADAKIS v. UNITED STATES.

No. 13772.

United States Court of Appeals, Ninth Circuit.

December 21, 1953.

COPYRIGHT MATERIAL OMITTED

Russell E. Parsons, Beverly Hills, Cal., for appellant.

Laughlin E. Waters, U. S. Atty., Ray H. Kinnison, Asst. U. S. Atty., James K. Mitsumori, Asst. U. S. Atty., Los Angeles, Cal., for appellee.

Before STEPHENS, BONE and ORR, Circuit Judges.

BONE, Circuit Judge.

Appellant, C. N. Papadakis, stands convicted on 16 counts of willfully and knowingly attempting to defeat and evade income taxes by filing and causing to be filed false and fraudulent income tax returns, in violation of 26 U.S. C.A. § 145(b).

The first 8 counts charged appellant and his father, Nick Papadakis, as joint defendants, with attempting to defeat and evade income taxes due and owing by Nick and his wife, Katina, who reported their income on a community property basis. Counts 1, 3, 5 and 7 relate to income taxes due and owing by Nick for the taxable years 1945, 1947, 1948 and 1949, respectively. Counts 2, 4, 6 and 8 concern income taxes due and owing by Katina for the same years, and in the same order.

The counts numbered 9 through 16 charged appellant as sole defendant with willfully attempting to defeat and evade income taxes due and owing by himself and his wife, Helene, who reported their income on a community property basis. Counts 9, 11, 13 and 15 relate to income taxes due and owing by appellant for the taxable years 1946, 1947, 1948 and 1949, respectively. Counts 10, 12, 14 and 16 concern income taxes due and owing by Helene for the same years, and in the same order.

Appellant was sentenced to 10 months imprisonment on each of the 16 counts, the sentences to run concurrently, and to pay a fine of $200 on each of the counts — a total of $3200. Nick was convicted and sentenced on counts 1 through 8 but took no appeal.

Prior to the taxable years involved Nick Papadakis owned and operated the LaSalle Hotel and two liquor stores in San Pedro, California and owned a number of other properties on which he received rental income. In 1946 Nick turned over the business of the two liquor stores to appellant and his brother, George Papadakis, who thereafter operated the stores as a partnership under the firm name of Anchor Liquors. Prior to 1950 Anchor Liquors took on two additional partners and acquired two more liquor stores.

Nick and his wife received all of the income from the LaSalle Hotel and the rental properties until early in 1947 when Nick took his son, Ernest, in as his partner. Ernest left this partnership late in 1949 to join the firm of Anchor Liquors.

The income of Nick and his wife from all of the properties, including the two liquor stores, is in issue for the year 1945 under counts 1 and 2 of the indictment, and their incomes from the LaSalle Hotel and the rental properties for the years 1947 through 1949 are in issue under counts 3 through 8. The incomes of appellant and his wife from Anchor Liquors for the years 1946 through 1949 are in issue under counts 9 through 16.

Appellant challenges the sufficiency of the evidence on all counts and we turn first to that question, putting off for the moment questions raised as to the admissibility of certain evidence introduced by the government.

Sufficiency of the Evidence.

In determining whether the evidence was sufficient to sustain the verdict we view the record in the light most favorable to the government and affirm if the evidence, so viewed, was sufficient to justify the jury in finding, beyond a reasonable doubt, that there has been a willful attempt to evade taxes. Gendelman v. United States, 9 Cir., 191 F.2d 993, 995, certiorari denied 342 U.S. 909, 72 S.Ct. 302, 96 L.Ed. 680; McFee v. United States, 9 Cir., 206 F. 2d 872, 874.

Counts 1 through 8. Appellant was charged in these counts on the theory that he knowingly and willfully assisted Nick in an attempt to defeat and evade income taxes due and owing by Nick and his wife.

In late 1945 appellant was given general supervision of his father's business affairs. For all of the taxable years in question he had charge of reporting the income of the family enterprises for tax purposes. Books were kept by several members of the Papadakis family showing receipts and expenses of the LaSalle Hotel and the rental properties. The manager of each of the liquor stores kept the books for that store. At the end of each year appellant collected from the person or persons who kept the books information as to the receipts, costs and expenses of the hotel and rental properties and of each of the liquor stores. From these figures appellant prepared consolidated work sheets and turned these sheets over to an accountant, who prepared the required partnership and individual returns.

Counts 1 and 2 concern the incomes of Nick and Katina for the year 1945. The books and records for the LaSalle Hotel and rental properties being admittedly incomplete, the government relied solely upon the net worth-expenditures method to prove that Nick and Katina had unreported income in 1945. In other words, the government sought to show the net worth of Nick and Katina as of the beginning and the end of the year 1945 and the non-deductible expenditures and gifts made by them in that year. If the increase in their net worth plus their non-deductible expenditures and gifts exceeded their reported income, and this excess was not satisfactorily explained, the jury was entitled to find, as it evidently did find, that they received income in that year which they failed to report. McFee v. United States, supra.

The evidence was sufficient on counts 1 and 2. The government introduced evidence and computations based thereon which, if believed, established that Nick and Katina had a total unreported income of $20,822.94 in 1945. The only substantial dispute of fact was whether the income from the liquor stores in that year, amounting to $16,761.52, was income of Nick and Katina or of their two sons, appellant and George Papadakis. The theory of the defense was that while the profits of the two stores went into the bank account of Nick or were expended by him, those profits in fact belonged to appellant and George, as owners of the businesses; that Nick and Katina were therefore obligated to appellant and George for the amount of those profits; and that in failing to take this obligation into account the government overstated the unreported income of Nick and Katina in the amount of the income from the stores.

Admittedly Nick held fee title to the land and the store buildings, but several members of the Papadakis family testified that the business of one of the stores had belonged to George Papadakis since 1935 and that the business of the other had been the property of appellant since 1939. The off-sale liquor licenses for the stores were in the names of appellant and George, and they reported the income from the stores in 1945, as in prior years, as their own for income tax purposes. However, there was abundant evidence to sustain the conclusion that the businesses in fact belonged to Nick and his wife in 1945. The net worth statement introduced by the defense, on which appellant relies, lists the inventories of the stores as belonging to Nick and Katina as of December 31, 1944 and December 31, 1945, and it is admitted that appellant and George Papadakis were obliged to buy the inventories from Nick for a very substantial sum in 1946, when the firm of Anchor Liquors was formed. And there is room for doubt that Nick was ever in fact under an obligation to pay his sons the 1945 profits from the stores, for no payments were ever made by him and no time set for payment. Appellant testified vaguely that perhaps Nick would take care of the matter in his will.

From the fact that appellant and George reported the 1945 income from the stores on their own income tax returns it might have been found that appellant acted in good faith, and that there was no willful attempt to evade taxes on that income. But this was a question for the jury. There was evidence that in 1949 appellant told a Bureau agent that the business belonged to Nick in 1945. This cast doubt on appellant's good faith in failing to report the income from the stores as income of Nick and Katina. There was ample evidence, as will be seen, from which the jury could have decided that this was but a part of a deliberate, long-continued practice by appellant of attempting to defeat taxes on the income from the family enterprises, and that the reporting of the income of the stores by appellant and George was merely a ruse to avoid the higher surtax rates which would apply if the income was reported by Nick and Katina.

Moreover, even if the income of the stores is eliminated from the income of Nick and Katina, and if we allow for a seeming minor error in the government's computation, the government's proof still established that Nick and Katina had unreported income of nearly $3000 in 1945.

Counts 3 through 8 concern the incomes of Nick and Katina Papadakis from the LaSalle Hotel and the rental properties for the years 1947 through 1949. The government relied upon both the net worth-expenditures method and upon other evidence to prove evasion of the taxes of Nick and Katina for those years.

The government claims to have established, by the net worth-expenditures method, that Nick and Katina had unreported income of $42,949.12 in 1947, $42,395.02 in 1948, and $34,440.29 in 1949. However, a large part of the income attributed to Nick and Katina in the government's computation was in fact the income of Ernest Papadakis, who was Nick's partner in those years. The government concedes the existence of this partnership. The profits from the LaSalle Hotel and the rental properties all went into Nick's bank account or were expended by him for his own account. This was brought out by Martha O'Sullivan, testifying as a government witness on direct...