U.S. v. Bianco, 385

• Citation: 534 F.2d 501
• Decision Date: 08 April 1976
• Docket Number: No. 385,D,385
• Parties: 76-1 USTC P 9351 UNITED STATES of America, Appellee, v. Nicholas L. BIANCO, Appellant. ocket 75-1244.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

Page 501

534 F.2d 501

76-1 USTC P 9351

UNITED STATES of America, Appellee, v. Nicholas L. BIANCO, Appellant.

No. 385, Docket 75-1244.

United States Court of Appeals,

Second Circuit.

Argued Nov. 3, 1975.

Decided April 8, 1976.

Gerald L. Shargel, New York City (James M. LaRossa, LaRossa, Shargel & Fischetti, New York City, of counsel), for appellant.

Charles E. Brookhart, Atty., Tax Div., Dept. of Justice, Washington, D. C. (David G. Trager, U. S. Atty., Brooklyn, N. Y., Scott P. Crampton, Asst. Atty. Gen., Gilbert E. Andrews, Robert E. Lindsay, Attys., Tax Div., Dept. of Justice, Washington, D. C., of counsel), for appellee.

Before HAYS, MULLIGAN and MESKILL, Circuit Judges.

MESKILL, Circuit Judge:

Nicholas L. Bianco appeals from a judgment of conviction entered in the United States District Court for the Eastern District of New York after a jury trial before Thomas C. Platt, District Judge, of five counts of willfully failing to file income tax returns for the years 1967 through 1971 in violation of § 7203 of the Internal Revenue Code of 1954, 26 U.S.C. § 7203.

I.

Bianco claims on this appeal that the government failed to prove that he had sufficient income in the disputed years to require his filing of returns. Specifically, he asserts that the government failed to prove with "reasonable certainty" that his cash expenditures during the years in question had not been made either from assets on hand prior to those years or from non-taxable sources of income.

The government prosecuted the case by the "cash expenditure" method of proof, a variant of the "net worth" method, which permits circumstantial proof of a defendant's taxable income in cases where the prosecution is unable directly to show specific items of such income. These two indirect methods of proof have been explained and distinguished by the First Circuit in Taglianetti v. United States, 398 F.2d 558, 562 (1st Cir. 1968), aff'd, 394 U.S. 316, 89 S.Ct. 1099, 22 L.Ed.2d 302 (1969) as follows:

"The net worth method involves the ascertaining of a taxpayer's net worth positions at the beginning and end of a tax period, and deriving that part of any increase not attributable to reported income. This method, while effective against taxpayers who channel their income into investment or durable property, is unavailable against the taxpayer who consumes his self-determined tax free dollars during the year and winds up no wealthier than before. The cash expenditure method is devised to reach such a taxpayer by establishing the amount of his purchases of goods and services which are not attributable to the resources at hand at the beginning of the year or to non-taxable receipts during the year." (footnotes omitted). ¹

In the case at bar, the government proved, and Bianco does not contest, that he made expenditures in each prosecution year far in excess of the amount which, if the figure had been derived entirely from taxable income in that year, would have required him to file returns. ² Nor does Bianco contest the prosecution's proof that no returns were filed by him in any of the prosecution years. His sole challenge to the sufficiency of the government's case rests upon his contention that it failed to prove that the expenditures were "not attributable to the resources at hand at the beginning of the year or to non-taxable receipts during the year." More specifically, Bianco contends that the government failed to satisfy the requirement of "the establishment, with reasonable certainty, of an opening net worth." Taglianetti v. United States, supra, 398 F.2d at 564.

The "reasonable certainty" requirement is derived from the Supreme Court's opinion in Holland v. United States, 348 U.S. 121, 132, 75 S.Ct. 127, 133-34, 99 L.Ed. 150, 162 (1954), a case which was prosecuted on the net worth rather than the cash expenditure theory and which involved a prosecution which attempted to show a specific deficiency rather than only income over the threshold amount necessitating the filing of tax returns. Nevertheless, the government properly concedes in the present case that the "reasonable certainty" standard applies in cash expenditure cases, albeit in a slightly different manner from that discussed in Holland.

"In a typical net worth case, as Holland, precise figures would have to be attached to opening and closing net worth positions for each of the taxable years to provide a basis for the critical subtraction. In a cash expenditures case reasonable certainty may be established without such a presentation, as long as the proof . . . makes clear the extent of any contribution which beginning resources or a diminution of resources over time could have made to expenditures." Taglianetti v. United States, supra, 398 F.2d at 565; see also United States v. Fisher, supra, 518 F.2d at 842 n. 7.

In the instant case, the government attempted to show that Bianco's beginning resources were non-existent and thus could not have contributed at all to his expenditures during the tax years. To that effect, Special Agent Louis Nahmias testified about his investigation into Bianco's financial background. He testified that he had examined the records of the Kings County Clerk's Office, the county in which Bianco had lived from 1962 through 1972, but could find no record of any real estate in Bianco's name. He testified further that he had circulated letters to approximately 100 banks in Brooklyn, all of which responded that they had no assets or accounts in Bianco's name. Nahmias further testified that he checked with a brokerage house in order to determine whether or not Bianco had had any securities holdings or dealings, which inquiry also produced negative results. He also testified that he made inquiries of insurance brokers, doctors, schools, hospitals, the telephone company, the electric company, and an attorney who had performed legal services for Bianco during the prosecution years. Finally, there was testimony that investigation had been made of the probate records in Providence, Rhode Island, where Bianco's family lived. Those records revealed no inheritance from either Bianco's mother or father, both of whom had passed away earlier. An interview with Bianco's sister was also conducted in Providence. These investigations failed to reveal any assets held by Bianco at any time, prior to or during the prosecution years.

The Government's case, however, did not rely entirely upon Agent Nahmias' testimony about his fruitless search for assets. It introduced Bianco's 1962 income tax return which reported only a modest wage or salary income for that year. There was also evidence introduced that Bianco had not filed tax returns for the years 1963, 1964 and 1965, the government thereby attempting to create the inference that the failure to file in those years negated the probability that Bianco had had sufficient income then to have accumulated assets on which to have lived during the later prosecution years. ³ Further, Samuel S. Sezzen, Esq., an attorney who has specialized in collection matters since 1936, testified that in the early part of 1966 he used his normal "general procedure" but was unable to locate any assets from which to satisfy a $436.40 judgment entered earlier against Bianco. ⁴

The totality of this evidence clearly was sufficient for the jury to have concluded that Bianco had insufficient assets at the beginning of the prosecution period to have supported his expenditures in any of those years. Bianco presented no defense and offered no evidence in this case. His major contention on appeal appears to be that the prosecution failed to negate the possibility of a so-called "cash hoard," although there is not one speck of evidence to indicate that Bianco had such a cache or where it might have come from. He points to the evidence elicited on the cross-examination of several prosecution witnesses that he had been making lavish expenditures during the latter part of 1966, just before the beginning of the prosecution period. Those expenditures, in the form of a down payment on an automobile and the "wining and dining" of a female acquaintance, according to Bianco, show that the government's case was fatally defective. Such evidence, however, does not tend to establish the existence of assets of any kind, since the jury could well have believed that Bianco was simply living from hand to mouth, spending whatever income he had at that point.

Of course, as in any criminal prosecution, the defendant is under no obligation to prove any particular set of facts, including the existence of a non-taxable source, such as a "cash hoard" from which his expenditures were made. But once the government has introduced sufficient evidence from which the jury could conclude with reasonable certainty that no such assets existed, the defendant remains silent at his own peril. Holland v. United States, supra, 348 U.S. at 138-39, 75 S.Ct. at 136-37, 99 L.Ed. at 165-66; United States v. Penosi, 452 F.2d 217, 220-21 (5th Cir. 1971), cert. denied, 405 U.S. 1065, 92 S.Ct. 1495, 31 L.Ed.2d 795 (1972); United States v. Schipani, supra, 362 F.2d at 830.

Much of what we have said with respect to the government's duty to establish a lack of adequate funds from which the expenditures could have been made applies with equal or greater force to Bianco's contention that the government failed sufficiently to negate all other possible sources of non-taxable income during the prosecution years. As mentioned above, the government conducted a thorough investigation, including a search of the Providence, Rhode Island probate records and an interview with Bianco's sister in Rhode Island, in an attempt to discover whether or not he had been the recipient of any gifts, loans or inheritances. The investigation revealed no such non-taxable income nor any "leads" which the government neglected to investigate. ⁵ "Once expenditures are established, the government cannot be expected to conduct an...