Holt v. United States

• Decision Date: 05 November 1959
• Docket Number: No. 16506.,16506.
• Citation: 272 F.2d 272
• Parties: Herman D. HOLT, Appellant, v. UNITED STATES of America, Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

272 F.2d 272 (1959)

Herman D. HOLT, Appellant, v. UNITED STATES of America, Appellee.

No. 16506.

United States Court of Appeals Ninth Circuit.

November 5, 1959.

Seaman, Dick & Roberts, John Cooley, Stockton, Cal., for appellant.

Lynn J. Gillard, U. S. Atty., Bernard Petrie, Asst. U. S. Atty., San Francisco, Cal., for appellee.

Before POPE, CHAMBERS and HAMLIN, Circuit Judges.

POPE, Circuit Judge.

The appellant Holt was found guilty upon each of three counts of an indictment charging him with willfully and knowingly attempting to evade and defeat income tax owing by him to the United States by filing and causing to be filed false and fraudulent income tax returns in which he knowingly understated his income for each of the three years covered by the separate counts of the indictment, namely, 1952, 1953 and 1954.¹ After the verdict of guilty, appellant was sentenced to three months imprisonment on each of the three counts, the sentences to run concurrently, and he was ordered to pay the costs of the prosecution. This appeal followed.

The evidence showed that about the year 1950, Holt, who operated a small automobile repair shop or garage at Ceres, California, began experimenting with a mast designed to hold a television antenna. As a result of that he developed what he called the "Jiffy Mast", ultimately patented by him, and which he proceeded to manufacture and sell for use in connection with television aerials. The device proved to be successful and very popular and his sales became numerous and substantial and his profits multiplied rapidly. He carried on this increasingly profitable business throughout the years here in controversy. Substantially all of the work of producing the masts was done by Holt, his wife and his son. The son was attending school during that period but assisted in the hours after school. Mrs. Holt kept such books of account as they had and made substantially all of the entries therein. It was from these books that Holt took the figures in making up his income tax returns.

While the report of the gross income made in Holt's returns for the years in question was taken from the books of account kept by Mrs. Holt and substantially conformed to figures there shown, yet the evidence disclosed, without contradiction, that the books themselves failed to reflect all of the income. The income actually received in the business was substantially greater than the income reflected in the books or shown on the returns.

The Government's proof disclosed that in the year 1952, Holt received payments for purchases of his product amounting to $25,936.32 represented by some 90 payments from customers, none of which was entered in the books or reflected in the tax returns for that year. In the year 1953, the sum of $17,568.29 was received from sales through some 75 payments, none of which was entered in the books or reflected in the tax return for that year. For the year 1954 there were some 46 purchases which were not recorded in the books. These aggregated approximately $9000, none of which was reflected in the tax return for that year.²

In addition to the type of evidence just referred to, the Government undertook to reconstruct the net income for the years in question by the net worth plus personal expenditures method. It is sufficient to say that the proof of the opening net worth for each of these periods was definite and sufficient. The proof was adequate to eliminate from the calculations all sums attributable to nontaxable receipts. The personal expenditures in the years in question were added to the yearly net worth increase to establish the reconstructed gross income. Depreciation allowable was calculated and deducted; and the standard deduction was applied and the reconstructed net worth determined.

All this proof adequately satisfied the standards set forth in Holland v. United States, 348 U.S. 121, 75 S.Ct. 127, 99 L. Ed. 150. It showed an understatement of net income for the year 1952 of $18,431.04, in 1953 of $13,583.24, and in 1954 of $11,212.11.

The Government's proof of understatement of income was not controverted. Appellant's brief concedes that the testimony showed that there were 211 items of unrecorded sales receipts. When compared with the total items of such receipts, the record shows that one out of every six sales was not recorded in the books; hence, one-sixth of the total number of sales was not reflected in the returns.

Although appellant contends and undertakes to argue that the court should have granted appellant's motion for acquittal, and that the verdict is not supported by substantial evidence because of lack of proof of an intent to defraud the Government, we think such contention is without merit, and that the evidence was clearly sufficient to warrant the jury's determination of a specific intent to defraud; — that there was willfulness on the part of the defendant in understating his income.

It is true that prior to the time when appellant made his invention and the business began to prosper he had little business experience which called for accounting or the keeping of records. However, the records here were very simple ones; a journal was kept in which the Holts purported to enter all receipts from sales, but the great number of omissions which occurred, the very substantial amounts of sales which did not appear in the books were so great, that it is plain the jury could properly infer from the very size of these omissions and the large number of the items that the understatement was a willful one.

Thus for the year 1952, the reconstructed net income shown by the net worth calculations was $25,160.56; the net income returned was $6,729.52. The understatement for that year was $18,431.04. There were 208 entries of sales in the books while 90 other items of sales were omitted; thus 30% of all sales for that year were omitted. It was for the jury to say whether the omissions were due to mistake, carelessness, inadvertence or willfulness.

The situation presented here is not substantially different from that presented in Holland v. United States, supra, where the court discussed this aspect of the case as follows: (348 U.S. at page 139, 75 S.Ct. at page 137) "A final element necessary for conviction is willfulness. The petitioners contend that willfulness `involves a specific intent which must be proven by independent evidence and which cannot be inferred from the mere understatement of income.' This is a fair statement of the rule. Here, however, there was evidence of a consistent pattern of underreporting large amounts of income, and of the failure on petitioners' part to include all of their income in their books and records. Since, on proper submission, the jury could have found that these acts supported an inference of willfulness, their verdict must stand."

There was other evidence indicating purposeful concealment. In a substantial number of instances when checks were received and sales made, the entries made in the books were for only portions of the checks. Thus in one such instance where a check for $315 was received, the entry in the books was for just one-half that amount or $157.50. Things like that can hardly be explained as inadvertence or as negligent failure to make an entry.³

Again, for some several months in 1954, Holt carried on a side venture in which he, his wife, and his wife's sister and husband, L. B. Dohoney, were interested. Although Holt took credit in his return for the expenses incurred in connection with the Dohoney joint venture, the proceeds of the sales made through that venture were not included. Holt claims that this was due to the fact that Dohoney handled these deals, but it is difficult to explain how Holt managed to include over $3000 in expenses incident to the Dohoney deal and wholly omit the receipts therefrom.

Holt himself took the stand. His counsel described a portion of his testimony as follows: "Appellant failed miserably in explaining, when requested, why the sales were not included in his records or how the failure to record such sales occurred." If anything, that is an understatement. Holt in his testimony undertook to explain how it happened that many checks received were not entered in the books by saying: "I usually grabbed at the checks and ran to the bank to cover a purchase that we were making. * * * When we had to buy a big load of pipe and the man was coming with the pipe, he had to have the money right then, he wanted to take a check with him showing he delivered the pipe, well, sometimes I would dash over there with all these extra checks in my hand so that we could cover it." "I know that when there were checks in there and I was low on money and I had to get this material bought, then is when I would grab the money and run over and get it in the bank." "I usually just trotted over there and put them in the bank because I was always afraid of being overdrawn."

On cross-examination Holt was asked how he knew that he needed to get funds in the bank to meet outstanding checks and he replied: "We was never sure." But as the cross-examination proceeded it developed that on these occasions when, according to Holt's explanation, he was afraid of an overdraft, his balance in the bank ranged all the way from $10,000 to $28,000. In short, the jury would be justified in concluding that Holt was concocting that story and fabricating an account of how it happened that the entries were omitted. If it was apparent that defendant was making false statements in the case, then the jury could take such statements into consideration in weighing the question of Holt's guilt and his guilty knowledge.

The settled rule in such cases is stated in Wilson v. United States, 162 U.S. 613, 620, 16 S.Ct. 895, 898, 40 L.Ed. 1090: "Nor can there be any question that, if the jury were satisfied from the evidence that false statements in the case were made by defendant, or on his behalf, at his instigation, they...