Weir v. CIR, 13882

• Decision Date: 02 November 1960
• Docket Number: No. 13882,13883.,13882
• Citation: 283 F.2d 675
• Parties: Paul V. WEIR and Margaret G. Weir, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. Paul V. WEIR, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
• Court: U.S. Court of Appeals — Sixth Circuit

283 F.2d 675 (1960)

Paul V. WEIR and Margaret G. Weir, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.

Paul V. WEIR, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.

Nos. 13882, 13883.

United States Court of Appeals Sixth Circuit.

November 2, 1960.

COPYRIGHT MATERIAL OMITTED

Edmund D. Doyle, Columbus, Ohio (James H. Larva, and Porter, Stanley, Treffinger & Platt, Columbus, Ohio, on the brief), for petitioners.

Carolyn R. Just, Atty., Dept. of Justice, Washington, D. C. (Charles K. Rice, Asst. Atty. Gen., Lee A. Jackson, Harry Baum, Attys., Dept. of Justice, Washington, D. C., on the brief), for respondent.

Before McALLISTER, Chief Judge, CECIL, Circuit Judge, and BOYD, District Judge.

McALLISTER, Chief Judge.

This is an appeal from the decision of the Tax Court, in which the principal issue is as to the admissibility of evidence and the burden of proof. Appellants also raise the question of their right to certain deductions, as well as the defense of the statute of limitations. Appellants, husband and wife, will hereafter, for convenience, be referred to as petitioners, or as petitioner.

Petitioner Paul Weir was president and principal stockholder of a number of corporations during the years 1945 through 1949. During these years, numerous checks on the corporations were issued to various persons. The Commissioner found that these checks were issued for the personal benefit of the petitioner. The petitioner contended that they were issued for the benefit of the corporations, and testified that he had received no personal benefit whatever as a result of their issuance.

In preparation for the trial of the case and in order to refresh his memory, prior to the hearing, petitioner examined various records and prepared a memorandum to aid him in testifying. The memorandum showed the dates of the checks, the payees, the amounts, and the purposes for which they were issued.

It appeared that many checks were issued to third persons, and endorsed by persons other than petitioner, and his testimony that he received no personal benefit from the checks was unqualified and uncontradicted. The determination of the Commissioner set forth that the checks were "deemed" to have been for petitioner's benefit. The Tax Court ignored, or excluded, testimony by the petitioner to show the purposes for which the checks had been issued; and it, finally, found that the checks in question which had been issued by the corporations constituted taxable income to the petitioner.

Before testifying, petitioner, as above mentioned, examined various records and checks that were issued. These records which he examined to refresh his memory were either his own records, or those of other parties. After reporting the result of this examination to his attorneys, they made a list of the checks in question, with the date, number, amount of check and payee, and opposite each check was listed the nature of the articles purchased, or service rendered to the corporation, as had been determined by petitioner in his own independent examination. When, on the hearing, petitioner had this list in his hand and attempted to use it to refresh his recollection as to the purposes for which the checks had been issued, counsel for the government entered strong and emphatic objections on the ground that the list was not the best evidence. However, petitioner was not offering the list in evidence, but only using it to refresh his recollection; and this was emphasized to the court by his counsel. In such a case, the best evidence rule, of course, is not involved. The examination and investigation which petitioner had made as to the purposes for which the checks had been issued, consisted, among other matters, in calling upon payees of the checks and looking at their invoices, and in making inquiries, which served to recall for him the circumstances under which the checks had been given. As an instance, in one case, petitioner examined a duplicate invoice of a jewelry store which had received a check from one of the corporations. From the invoice, petitioner ascertained that the check had been issued in payment of two silver service sets which had been sent, as a gift, to a man in Chicago, who had been instrumental in securing for petitioner's corporations the placement of a two and one-half million dollar loan, upon which petitioner's corporations had received a commission of twenty thousand dollars. Another check, petitioner found, had been issued to pay for a watch for a retired director and officer who had died many years before the hearing. Several other large checks had been issued in payment of furniture and fixtures for an apartment house, constructed by a subsidiary of one of the corporations in which petitioner was interested as a stockholder. All of the foregoing, and much more, was ascertained by petitioner through examining the invoices or records of the payees of the checks. By refreshing his memory in this way, petitioner was enabled to testify, of his own knowledge, that, not only had he received no benefit from the issuance of the checks in question, but that they had been issued for a valid business purpose on behalf of the corporations. It is highly credible that the president of a corporation would recollect transactions, such as the foregoing, when his memory had been refreshed by looking at such records and discussing the matters with the interested parties.

When it is realized that approximately 400 corporate checks were involved, which had been issued over a period of ten years, and that the petitioner had never been in charge of the books or accounts of the corporations, the case presented a classic example for the use of a memorandum to refresh the memory of the person testifying, who, by virtue of so refreshing his memory, actually recollected the transactions. It is not the memorandum which is the evidence, but the testimony as to the personal recollection of the witness; and a witness may refresh his recollection by looking at any document, whether made by himself or by others, and, in the same way, his memory may be refreshed by conversations with others. None of the foregoing instances would be subject to objection as being in violation of the best evidence rule, or the hearsay rule. If any objection could be envisaged, it would go to the weight, rather than to the competency of the testimony. It was error for the Tax Court to exclude the testimony given or proffered by petitioner based upon his memorandum when such memorandum was used only to refresh or revive his recollection.

Moreover, as mentioned, petitioner testified without reservation or qualification that he had received no personal benefit as a result of the issuance and cashing of the checks which the Commissioner had charged against him as the receipt of personal income. This testimony was admitted by the Tax Court. When counsel for the Commissioner objected on the ground that whether petitioner received any personal benefit was a conclusion of law, the court ruled: "You will have to take that up on your cross-examination."

As counsel for petitioner was examining him as to various checks, and asking, with respect to each one, whether or not he had received any personal benefit from any of them, the court inquired whether it would not be possible to shorten the examination by asking petitioner from what checks he had received a personal benefit as there were fewer of such checks. Counsel acceded to the court's request, and petitioner then identified several checks issued for his benefit. Respondent introduced no evidence or testimony whatever; and the testimony of the petitioner that he had received no personal benefit from the checks in issue is uncontradicted.

The Tax Court found that all checks in question, issued to third persons, or to "cash" and endorsed by third persons, were income to petitioner. The court stated that "although the fact that the checks were not payable to or endorsed by petitioner, in some instances might be entitled to a certain amount of weight in determining whether such checks were issued for the benefit of petitioner, that is not so in the instant case, since by petitioner's admission, several of such checks were in fact issued for petitioner's personal benefit;" and that "petitioner's testimony with regard to such checks did not purport to disclose any of the underlying facts necessary to be known to determine the purpose of the issuance of such checks. Petitioner merely denied that such checks were issued for his benefit. As such, his testimony was simply an assertion of the ultimate fact in issue for which it is offered as proof, and is not sufficient to support petitioner's burden" of overcoming the presumption arising out of Commissioner's determination.

Petitioner's testimony was that, as to the checks here in question — made out to others and endorsed by others — he received no benefit or money therefrom. This testimony is evidence that the checks, or money represented by them, did not constitute receipt of income to him. The law imposes much less of a burden upon a taxpayer who is called upon to prove a negative — that he did not receive the income which the Commissioner claims — than it imposes upon a taxpayer who is attempting to sustain a deduction on his income tax return. One reason for this is that, as petitioner points out in his brief, deductions are matters of legislative grace, and the burden of proving them and their correct amount rests upon the taxpayers, entirely aside from the consideration of any presumption of correctness that attaches to the Commissioner's determination, and that the application of the same rule to the testimony that a taxpayer did not receive income, as to a taxpayer's claim for deduction on his income tax return, would invert the ordinary rules of procedure, as Judge Learned Hand pointed out in Taylor v. Commissioner, 2 Cir., 70 F.2d 619, 621, affirmed 293 U.S....