237 F.2d 466 (2nd Cir. 1956), 292, United States v. O'Connor

Docket Nº:292, 23763.
Citation:237 F.2d 466
Party Name:UNITED STATES of America, Plaintiff-Respondent, v. Raymond A. O'CONNOR, Defendant-Appellant.
Case Date:October 01, 1956
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit
 
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Page 466

237 F.2d 466 (2nd Cir. 1956)

UNITED STATES of America, Plaintiff-Respondent,

v.

Raymond A. O'CONNOR, Defendant-Appellant.

Nos. 292, 23763.

United States Court of Appeals, Second Circuit.

October 1, 1956

Argued March 12, 1956.

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John F. X. Finn, New York City (Joseph Lorenz, John E. McAniff, William R. White, New York City, of counsel), for defendant-appellant.

John O. Henderson, U.S. Atty., W.D. New York, Buffalo, N.Y. (Alexander C. Cordes, Asst. U.S. Atty., Buffalo, N.Y., of counsel), for plaintiff-respondent.

Before FRANK, LUMBARD and WATERMAN, Circuit Judges.

WATERMAN, Circuit Judge.

Defendant, Raymond A. O'Connor, appeals from a judgment entered upon the verdict of a jury, finding him guilty on all four counts of an indictment charging him with wilfully attempting to evade and defeat his income taxes for the years 1946, 1947, 1948, and 1949, by filing for each of those years an income tax return understating the amount of his taxable income. Judge Knight imposed a sentence of five years upon each of the four counts (to be served concurrently), and a fine of $10, 000 for each of the counts for 1946 and 1947. Defendant was released on bail pending this appeal.

The alleged errors raised by defendant are as follows: (1) the failure of the Government to prove the essential elements of its case; (2) the inaccuracy of the Government's net worth statements and computations; (3) the inadmissibility of certain evidence; (4) the correctness and sufficiency of the charge; and (5) a group of miscellaneous and unclassified errors.

Because of the complexity of this particular case and the confusing manner in which it was conducted, defendant's most telling point is that the trial court's charge to the jury was unclear, confusing, and incomplete. The role of the court's charge in tax evasion cases increases in significance in direct proportion to the mounting complexity of the issues presented.

Because of the size and range of defendant's fiscal activities, the Government's case of necessity required extensive factual data. At the time of the trial, the defendant was fifty-five years of age, married, and the father of four children, among whom he had distributed many of his assets. He was a certified public accountant, duly admitted to the practice of his profession by the Regents of the University of the State of New York. In addition, the defendant had varied business interests. He conducted the largest accounting practice in Niagara County, New York. He also managed two farms and a canning plant; he was treasurer of a cold storage business; he dealt with at least thirteen parcels of real estate; and he managed a large investment portfolio.

The trial covered a period of fifty days. The Government introduced 435 complicated and frequently confusing exhibits. In addition, the defendant introduced 145 exhibits. The staggering task of properly analyzing these exhibits was left to the jury without adequate instruction.

The Government conceded that a complicated case was presented, as indicated by its chief witness who testified: 'There are thousands of entries, thousands of adjustments, thousands of items that we have had to handle.' To pull together all the items of evidence the Government relied primarily upon the testimony of three revenue agents, all of whom confessed

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to only a modest background in accounting and an unfamiliarity with net worth tax cases. The presentation of evidence revealed little awareness of the complexities of proof required for a net worth prosecution. The witnesses were not properly prepared to present a logical flow of testimony.

The record was devoid of any computation offered by the Government to prove the specific amount of tax due from the defendant in his individual capacity. Government Exhibit 423 was in fact a combined statement of the alleged net worth of the defendant and his wife, and it included assets of each of their four children, assets belonging to a co-partnership of which the defendant was a member, and at least one asset of a corporation not owned by the defendant.

One of the basic elements of the Government's case rested upon the claim that the funds and assets of the defendant's wife, Bertha O'Connor, and the defendant's four children were in reality assets belonging to the defendant. This contention was not made clear in the court's charge to the jury. When the United States Attorney originally offered evidence as to bank accounts of the defendant's wife, he did not state the Government's theory that these were in reality assets of the defendant. Instead, he said: 'I am offering this in evidence to show the general plan of having these assets moved around, and if I do not connect it up, of course, it will be stricken eventually.' Similarly, when bank accounts of the defendant's children were offered, the court made no explanation of the rules either as to admissibility or relevancy. The failure to illuminate the jury as to the theory upon which evidence was admitted persisted throughout the trial, and on occasion the court contributed to the confusion. At one point the Government offered in evidence checks of the Chisholm Ryder Co., Inc., payable to the defendant's partnership, R. A. O'Connor & Co. Upon defense counsel's objection that this was improper under the net worth theory without some claim that the partnership return was erroneous, the court overruled the objection, stating: 'I don't see any difficulty about it. Part of the income of the company. It may be assets and liabilities on the net income theory.' (Emphasis added.) This comment did not clarify the issues and could only have confused the jury.

Considerable testimony was introduced as to loans by the defendant, some as far back as 1929 and extending up to 1941, and others paid off in January, 1942. There is no statement by the court as to why these were admissible or how they bore on the issues. Evidence was also permitted concerning loans of others which were endorsed by the defendant, again without any explanation.

The defendant testified in his own behalf and listed what he claimed were 104 errors in the Government's computations. His testimony covers several days of the record and lists item after item of either income or expense which he contends was not properly set up in the Government's exhibits. The defendant detailed many items and gave his explanation as to how they should be treated. Nowhere in the succeeding pages of the record is the jury given any explanation as to the significance of the defendant's contentions and what effect these items would have on the Government's computations.

When the defendant sought to examine one of the government witnesses, Julian O'Connor, the defendant's brother, to explain what the net worth theory encompassed, the trial judge refused to permit the examination, stating: 'The Court will instruct the jury very fully on what the net worth theory is.' This, however, the court neglected to do.

In addition to the confusion of defendant's income with that of others not on trial, there were issues as to which items were to be included in defendant's assets as of the opening dates of the tax periods in question.

Since the ascertainment of the defendant's opening net worth is crucial to an effective net worth prosecution, it was incumbent upon counsel and court to instruct the jury as to what evidence was being offered to establish that net worth,

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its purported size and whether exact or closely approximated, and its significance in the inferential process by which defendant was sought to be convicted. But the trial judge never so instructed the jury nor did he supply the missing clarification at the time of the admission of the evidence. On at least one occasion, for example, the judge overruled an objection with the statement, 'Whatever ground you base it on, I overrule it.'

The trial court failed to analyze for the jury the important significance of the items that the defendant claimed were omitted from his opening net worth. For example, the defendant claimed that he had $59, 054.59 in undeposited cash and checks on December 31, 1945. He further testified that in 1941 he had paid $60, 500 for the stock of the Burt Cold Storage Company. The Government gave him no credit for either of these items in its opening statement. Obviously, if the Government had omitted almost $120, 000 from its opening statement, the computation for each of the four succeeding years would have to be drastically revised. Similarly, when the defendant received $60, 000 during the prosecution years from the Burt Cold Storage Company, the Government charged it all up to current income as a capital gain. The defendant argued that this was merely a repayment of his original investment. Whether or not it was income had a very substantial effect on determining whether there was any tax evasion in the year the $60, 000 was received. This is the type of explanation that the jury needed, because, as the United States Attorney admitted several times during the trial, a very complicated financial picture was involved.

In the unusually complex circumstances of this case, the clarity, accuracy, and detail of the trial judge's charge to the jury became essential for the fair and orderly conduct of the trial. To be sure, the Government introduced a great deal of non-accounting evidence from which the jury could reasonably infer a wilful evasion of taxes by the defendant. There was testimony to the effect that the defendant had unsuccessfully attempted to induce one accountant to testify to his version of his net worth, but the accountant had refused to so testify because he had no faith in that version. Other...

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