United States v. Pawlak

• Decision Date: 23 August 1972
• Docket Number: No. 71 Cr. 363.,71 Cr. 363.
• Citation: 352 F. Supp. 794
• Parties: UNITED STATES of America v. Norman PAWLAK, Defendant.
• Court: U.S. District Court — Southern District of New York

352 F. Supp. 794

UNITED STATES of America v. Norman PAWLAK, Defendant.

No. 71 Cr. 363.

United States District Court, S. D. New York.

August 23, 1972.

Whitney North Seymour, Jr., U. S. Atty., Elliot G. Sagor, Asst. U. S. Atty., New York City, for plaintiff.

Louis Bender, New York City, for defendant.

MEMORANDUM

TENNEY, District Judge.

From February 4, 1972 until February 18, 1972 the defendant Norman Pawlak (a/k/a Norman Paris) was tried before this Court without a jury on four counts of violating 26 U.S.C. § 7201 which provides that "any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall . . . be guilty of a felony . . . ." Specifically, indictment 71 Cr. 363 charges that the defendant willfully attempted to evade his income taxes for the years 1964-67. Employing the bank deposits method of proof, the Government, as will be demonstrated infra, has proven the defendant's guilt beyond a reasonable doubt.

The essential elements of the crime are three: (1) an additional substantial tax must have been due and owing; (2) the defendant must have attempted to evade or defeat the tax; and (3) the attempt must have been willful. Sansone v. United States, 380 U.S. 343, 351, 85 S.Ct. 1004, 13 L.Ed.2d 882 (1965); Holland v. United States, 348 U.S. 121, 139, 75 S.Ct. 127, 99 L.Ed. 150 (1954); Spies v. United States, 317 U.S. 492, 63 S.Ct. 364, 87 L.Ed. 418 (1943); United States v. Coppola, 425 F.2d 660, 661 (2d Cir. 1969); United States v. Levy, 326 F.Supp. 1285 (D.Conn.), aff'd, 449 F.2d 769 (2d Cir. 1971).

The defendant has conceded that the Government established the first element, that a substantial additional tax is owing (Memorandum of Law at 1-2) although defendant does question the total amount. The Government, however, need not prove the precise amount by which defendant understated his income. "The prosecution meets its burden when it shows that income was underreported by a substantial amount." United States v. Marcus, 401 F.2d 563, 565 (2d Cir. 1968), cert. denied, 393 U.S. 1023, 89 S.Ct. 633, 21 L. Ed.2d 567 (1969). The Government has shown that a breakdown of defendant's income and tax liability over the four years in question is as follows:

                   Summary of Alleged Taxable Income & Tax Liability
                                  Taxable Income
                Year       Per Return       Corrected         Increase
                1964     $ 42,681.28      $102,268.37      $ 59,587.09
                1965       33,037.29        90,331.55        57,294.26
                1966       17,921.61        66,568.58        48,646.97
                1967       25,297.82        39,261.54        13,963.72
                         ___________      ___________      ___________
                Total    $118,938.00      $298,430.04      $179,492.04
                                    Tax Liability
                Year      Per Return        Corrected       Deficiency
                1964     $ 14,254.05      $ 49,377.12      $ 35,123.07
                1965        9,095.66        39,378.93        30,283.27
                1966        3,798.05        25,832.72        22,034.67
                1967        6,127.22        11,807.69         5,680.47
                         ___________      ___________      ___________
                Total    $ 33,274.98      $126,396.46      $ 93,121.48
                

Thus, the amounts of tax due and owing for each of the years 1964-67 are: $35,123.07; $30,283.27; $22,034.67; and $5,680.47 for a total of $93,121.48. These are without doubt "substantial" amounts. See United States v. Siragusa, 450 F.2d 592 (2d Cir. 1971), cert. denied, 405 U.S. 974, 92 S.Ct. 1195, 31 L. Ed.2d 248 (1972).

The Government has also met its burden with respect to the second element since the filing of a false or fraudulent income tax return constitutes an "attempt" within the meaning of the statute, United States v. Coppola, supra, 425 F.2d at 661, and there is no doubt the returns for 1964-67 were false and fraudulent. See also, Sansone v. United States, supra, 380 U.S. at 352, 85 S.Ct. 1004, 13 L.Ed.2d 882; United States v. Magnus, 365 F.2d 1007 (2d Cir. 1966), cert. denied, 386 U.S. 909, 87 S.Ct. 856, 17 L.Ed.2d 783 (1967); United States v. Raub, 177 F.2d 312, 315 (7th Cir. 1949).

The crucial issue at trial was the question whether the defendant acted willfully in filing or causing to be filed the false returns for 1964-67. Did the defendant despite knowing that he had a legal duty to pay the tax due nevertheless voluntarily, intentionally and with the specific and fraudulent intent to conceal his true income file these false returns? United States v. Dowell, 446 F.2d 145, 147 (10th Cir.), cert. denied, 404 U.S. 984, 92 S.Ct. 448, 30 L.Ed.2d 368 (1971); Hayes v. United States, 407 F.2d 189, 195 (5th Cir.), cert. dismissed, 395 U.S. 972, 89 S.Ct. 2133, 23 L.Ed.2d 777 (1969); United States v. Siragusa, supra, 450 F.2d at 594. In this regard, it is no defense that the defendant may not have realized the extent by which he understated his income, Katz v. United States, 321 F.2d 7, 10 (1st Cir.), cert. denied, 375 U.S. 903, 84 S.Ct. 193, 11 L. Ed.2d 144 (1963). The fact question for this Court is simply whether defendant knew "that he should have reported more income than he did for the years involved." Sansone v. United States, supra, 380 U.S. at 353, 85 S.Ct. at 1011.

The Government can prove defendant acted willfully either through the use of direct evidence such as admissions by the defendant or through the use of circumstantial evidence which gives rise to inferences that the defendant acted willfully. United States v. Spinelli, 443 F.2d 2 (9th Cir. 1971). Both types of evidence were employed in this case.

The most damaging evidence offered by the Government of willfulness were the admissions of the defendant to Revenue Agent Lem in the presence of the defendant's preparer Thomas Axt at a meeting that occurred on August 2, 1968 in Mr. Axt's office. Specifically, Lem testified that when asked how he could account for the large excess of deposits into just one of his bank accounts, the Chemical Bank checking account, over the amount reported as income on his 1966 return, Mr. Pawlak replied that when he prepared the return he only included those employers and clients who actually sent him forms 1099 and W-2 and that although he knew some employers did not send these forms, he did not include them. (Tr. 109). The defendant indicated that he did not know how much he failed to report and was apparently surprised to find that the amount was so great. The defendant also told Agent Lem that he had been following this practice for years. (Tr. 110).

The defendant's attorney characterized Lem's testimony as extremely harmful (Tr. 191) and so has, of course, attacked the credibility of Lem by pointing out alleged inconsistencies in his testimony and by suggesting that Lem, a man of Chinese ancestry, may have had difficulty understanding English which would account for his alleged misunderstanding of what defendant claims he actually said at the August 2, 1968 meeting. The Court, however, during the course of the trial had the opportunity to note that Mr. Lem had been in this country since 1941 and there was no evidence during his testimony of any language difficulty. (Tr. 191). With regard to the alleged inconsistencies in Lem's testimony, they have been adequately explained by the Government and need not be discussed in detail. (Government's Reply Memorandum at 17-25). Suffice it to say that the Court directly observed Mr. Lem at trial both on direct and cross-examination and found him to be a credible witness. Defendant's contention that Lem was less than candid with the Court is without merit.

Defendant claims, however, assuming that Lem is believed, there is no independent evidence corroborating the defendant's admissions, as required by Smith v. United States, 348 U.S. 147, 155, 75 S.Ct. 194, 99 L.Ed. 192 (1954). The independent evidence, however, need only establish either that the admissions were reliable or that the crime charged was in fact committed. United States v. Marcus, supra, 401 F.2d at 565. The Government's evidence amply meets this requirement especially the evidence of consistently large understatements, the supplemental lists of income not backed by W-2's or 1099's which were prepared by defendant (Gov.Exs. 1756, 1726B), and the fraud referral report of Agent Lem dated October 10, 1968 which also makes reference to these admissions. (Gov.Ex. 8C). Smith v. United States, supra, 348 U.S. at 157, 75 S.Ct. 194, 99 L.Ed. 192; United States v. Parenti, 326 F.Supp. 717, 725 (E.D.Pa.1971). Certain statements of Thomas Axt were also testified to by both Lem and Agent Alleva under the theory that Axt was acting within the scope of his employment and authority when they were made and thus the statements were admissible against defendant.¹ Hayes v. United States, supra, 407 F.2d at 192; United States v. Parenti, supra, 326 F. Supp. at 727, 729. While the reasons behind the corroboration rule would not appear to apply to the statements of Axt since their reliability should not be suspect, see Smith v. United States, supra, 348 U.S. at 153, 155 n. 3, 75 S.Ct. 194, 99 L.Ed. 192, the evidence of the Government amply bolsters the statements of Axt as well and indicates that the crime was in fact committed.

As well as relying on these admissions of the defendant and the statements of his agent, Axt, the Court has drawn an inference adverse to the defendant by reason of his failure to call Axt as a witness. While defendant has argued that where a witness is equally available to both sides no inference should be drawn against either side, the rule in this circuit is to the contrary, especially where the witness would naturally side with one party. United States v. Dibrizzi, 393 F.2d 642, 646 (2d Cir. 1968); United States v. D'Angiolillo, 340 F.2d 453, 457 n. 5 (2d Cir.), cert. denied, 380 U.S. 955, 85 S.Ct. 1090, 13 L.Ed.2d 972 (1965); United States v. Cotter, 60 F.2d 689, 692 (2d Cir. 1932) (L. Hand, C. J.); United States v. Krechevsky, 291 F.Supp. 290, 293 n. 3 (D.Conn.1967). Since Mr. Axt had been...