Canaday v. United States

Citation354 F.2d 849
Decision Date21 January 1966
Docket NumberNo. 17959.,17959.
PartiesWilliam Merle CANADAY, Appellant, v. UNITED STATES of America, Appellee.
CourtUnited States Courts of Appeals. United States Court of Appeals (8th Circuit)

COPYRIGHT MATERIAL OMITTED

Kenneth K. Simon, Kansas City, Mo., for appellant. Robert G. Duncan, and Kenneth Cohn, Kansas City, Mo., with him on the brief.

F. Russell Millin, U. S. Atty., Kansas City, Mo., for appellee. Calvin K. Hamilton and Bruce C. Houdek, Asst. U. S. Attys., Kansas City, Mo., with him on the brief.

Before VAN OOSTERHOUT, MATTHES and MEHAFFY, Circuit Judges.

MATTHES, Circuit Judge.

William Merle Canaday was indicted, in five counts, for evasion of federal income taxes for the calendar years 1957, 1958, 1959 and 1960, in violation of 26 U.S.C. § 7201, Internal Revenue Code of 1954.1 He was convicted by a jury on Counts III and IV (1959 and 1960) and acquitted on Counts I and II (1957 and 1958). The court, Honorable Floyd R. Gibson, suspended imposition of sentence and placed defendant on probation for a period of three years. From the judgment of conviction, defendant has appealed.

The defendant advances four contentions of alleged procedural errors as grounds for a new trial, and also asserts that the evidence was insufficient to support the jury's finding of wilful intent and that the jury's verdict was inconsistent.

SUFFICIENCY OF THE EVIDENCE

Two principles of importance here are axiomatic. In resolving the question of the sufficiency of the evidence, we must consider it in the light most favorable to sustaining the verdict of the jury. National Dairy Products Corp. v. United States, 350 F.2d 321, 325 (8 Cir. 1965); Coil v. United States, 343 F.2d 573, 575 (8 Cir. 1965), and cases cited. Whether the accused, in a tax evasion prosecution, was motivated by wilful intent ordinarily presents a fact issue to be resolved by the jury. Fowler v. United States, 352 F.2d 100, 110 (8 Cir. 1965); Lessmann v. C. I. R., 327 F.2d 990, 993 (8 Cir. 1964); United States v. Vardine, 305 F.2d 60, 63 (2 Cir. 1962).

Defendant's theory is that the evidence was wholly insufficient to prove that he failed to report a "substantial part of his income and that consequently, due to this failure, the government did not meet and establish the element of willfulness."2 (Emphasis supplied). Defendant characterizes this prosecution as a "small peanut-type case" and, seemingly, would have us overturn the finding of the jury and the judgment of the court solely on the rationale that the unreported taxable income was not, in defendant's opinion, a substantial amount.

The word "substantial", as applicable here, is necessarily a relative term and not susceptible of an exact meaning. This concept is implicit in United States v. Nunan, 236 F.2d 576, at p. 585 (2 Cir. 1956), cert. denied, 353 U.S. 912, 77 S.Ct. 661, 1 L.Ed.2d 665, where the court, in pertinent part, stated:

"* * * The showing by the government must warrant a finding that the amount of the tax evaded is substantial. (Citing cases). But this is not measured in terms of gross or net income nor by any particular percentage of the tax shown to be due and payable. All the attendant circumstances must be taken into consideration. * * * But a few thousand dollars of omissions of taxable income may in a given case warrant criminal prosecution, depending on the circumstances of the particular case. Otherwise the rich and powerful could evade the income tax with impunity."

Defendant, a married man during most of the time relevant to the prosecution,3 was a Lieutenant Colonel in the Police Department of Kansas City, Missouri, at the time the indictment was filed (March 12, 1964). Thereafter, defendant was suspended from the police force.

Defendant's records, consisting principally of cancelled checks, bank deposit slips, bank statements, mortgage documents, and similar papers, did not adequately reflect his purchases and expenditures. Therefore, the Government used the net worth-expenditures method to reconstruct and prove the amount of defendant's unreported income. Everett W. Trost, the special agent assigned the task of checking into the matter, made an intensive and exhaustive investigation of all relevant transactions of the defendant to determine: (1) whether there had been an increase in his net worth from December 31, 1955; (2) the amount of such increase; (3) the amount of expenditures; and, (4) the correct amount of defendant's taxable income for each of the years covered by the indictment.

It has authoritatively been pronounced that, "when the Government rests its case solely on the approximations and circumstantial inferences of a net worth computation, the cogency of its proof depends upon its effective negation of reasonable explanations by the taxpayer inconsistent with guilt. Such refutation might fail when the Government does not track down relevant leads furnished by the taxpayer — leads reasonably susceptible of being checked, which, if true, would establish the taxpayer's innocence." Holland v. United States, 348 U.S. 121, 135-136, 75 S.Ct. 127, 135, 99 L.Ed. 150 (1954). See also, United States v. Vardine, supra, 305 F.2d at p. 63. The evidence shows that, in the course of this investigation, Agent Trost did track down all relevant leads furnished by the defendant which might have explained his net worth bulge and established his innocence.

A substantial part of the key evidence was submitted to the jury in the form of detailed stipulations. Thus, it was stipulated that defendant's net pay, or "take home pay", (gross salary, less all payroll deductions), as a member of the police force, was $1,686.09 in 1946, and that his salary increased until, in 1956, his net pay was $3,465.61. For the indictment years, 1957 through 1960, inclusive, defendant's net pay was $3,457.40, $4,525.30, $5,471.40, and $5,756.15, respectively; a total of $19,210.25. Included in the stipulation is a detailed summary of defendant's expenditures for the years 1956 through 1960, which shows that during those years defendant expended a total of $37,616.97 by currency, $12,638.52 by checks, $12,311.59 by other means; a total of $62,567.08.4

The results of the investigation by Agent Trost were summarized by Government exhibits introduced into evidence. These exhibits show that the net worth of defendant on December 31, 1955 (the starting point), 1956, 1957, 1958, 1959 and 1960, was: $7,995.98, $11,362.76, $14,251.81, $20,624.79, $23,900.18, $28,457.16, respectively. An increase in the net worth of defendant for each of the same years is also reflected by these exhibits. The amounts of taxable income shown by the net worth-expenditure statement as compared to the amounts of income reported by the defendant in his income tax returns, are:

                                     Per Net Worth-Expenditure
                  Year               Computation                Per Return        Difference
                  1956 ............... $ 7,476.19               $ 2,863.77        $ 4,612.42
                  1957 ...............   8,716.35                 2,602.31          6,114.04
                  1958 ...............   9,774.33                 4,477.49          5,296.84
                  1959 ...............  10,499.47                 4,815.83          5,683.64
                  1960 ...............  10,302.92                 5,290.05          5,012.87
                                       __________                __________        __________
                    Total ..........   $46,769.26                $20,049.45        $26,719.81
                

Thus, according to the Government's computation, the defendant reported approximately 39% of his taxable income in 1956, approximately 30% in 1957, approximately 46% in 1958, approximately 46% in 1959, and approximately 51% in 1960.

In corroboration of the net worth-expenditures statement and other Government exhibits, the Government also submitted a flow of funds schedule, reflecting all of the money received by defendant from listed sources and all of defendant's expenditures covered by the investigation. This schedule reveals the following:

                                                                    Excess
                                                                   of Funds
                                                                   Expended
                                  Funds           Funds           Over Funds
                  Year           Received        Expended          Received
                  1956 ......... $10,475.33       $15,210.67        $ 4,735.34
                  1957 .........   9,342.27        15,113.17          5,770.90
                  1958 .........   5,626.71        10,908.77          5,282.06
                  1959 .........  10,517.50        16,011.70          5,494.20
                  1960 .........   9,608.33        14,685.46          5,077.13
                                 __________       __________        __________
                    Total ...... $45,570.14       $71,929.77        $26,359.63
                

Attesting to the accuracy of the net worth-expenditures statement is the difference of only $360.18 between the unreported income, as shown by that statement ($26,719.81), and the amount of expenditures in excess of funds received ($26,359.63), as shown by the flow of funds schedule.

The income omitted from defendant's income tax returns for the indictment years is reflected by a difference in his tax liability as follows:

                                   Amount               Amount
                  Year             Reported           Recomputed        Difference
                  1957 ......... $   520.46          $ 1,866.25         $  1,345.79
                  1958 .........     905.05            2,141.33            1,236.28
                  1959 .........     979.48            2,329.86            1,350.38
                  1960 .........   1,083.82            2,278.76            1,194.94
                                 __________          __________          __________
                    Total .....  $ 3,488.81          $ 8,616.20          $ 5,127.395
                

Defendant does not challenge the accuracy of the figures upon which the various computations are based or the validity of the results of the computations. Indeed, as previously mentioned, defendant stipulated to many of the pertinent items. Aside from proving his good reputation, defendant's principal...

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