Battjes v. United States

• Decision Date: 03 February 1949
• Docket Number: No. 10658.,10658.
• Parties: BATTJES v. UNITED STATES.
• Court: U.S. Court of Appeals — Sixth Circuit

172 F.2d 1 (1949)

BATTJES v. UNITED STATES.

No. 10658.

United States Court of Appeals Sixth Circuit.

February 3, 1949.

Wm. Henry Gallagher, of Detroit, Mich., for appellant.

Meyer Rothwacks, of Washington, D.C., and Francis X. Norris, of Detroit, Mich. (Theron Lamar Caudle, Ellis N. Slack, Turner L. Smith and Meyer Rothwacks, all of Washington, D.C., and Thomas P. Thornton and Francis X. Norris, both of Detroit, Mich., on the brief), for appellee.

Before ALLEN, MARTIN, and MILLER, Circuit Judges.

MILLER, Circuit Judge.

The appellant was indicted for willfully attempting to evade income taxes due and owing for the calendar year 1941. Section 145(b), Internal Revenue Code, 26 U.S.C.A. § 145(b). A jury was waived and the case was tried to the court. The District Judge found the appellant guilty and imposed a sentence of a $10,000 fine, from which judgment the appellant has appealed.

At the time in question, the appellant Battjes was in the gravel business under the trade name of Battle Creek Gravel Company. Its principal business was the producing and selling of processed (i.e., washed and graded) gravel. In July 1941, Harry Pickitt obtained a subcontract from the Detroit Asphalt Paving Company to produce the materials necessary to build runways for an air field near the property of the Battle Creek Gravel Company. He entered into an agreement with Battjes under which Battjes was to furnish the raw gravel needed for this job. They agreed upon the place on the Company's property from which this gravel in its natural shape would be taken. This was on the Company's land but "down the road" from the gravel plant itself. Pickitt took out the gravel in his own trucks with no record being kept by the Company of the amounts so taken. No invoices were rendered by the Company and Pickitt made payments based on his own records as he was paid by the contractor. Pickitt began withdrawing the gravel in 1941 and continued to do so into 1942. He made payments totaling $10,704.50 in 1941 which did not pay in full for the gravel taken during that year. In the spring of 1942 he paid something over $5,000 additional for gravel taken in 1941. While this arrangement was in effect, Pickitt found that he needed processed gravel to mix with the raw gravel to meet the specifications. In purchasing this processed gravel from the Battle Creek Gravel Company he received regular invoices from the Company which kept the usual records on such company transactions.

The sale of the raw gravel to Pickitt was handled differently from the sales of processed gravel. Battjes told his general manager that Pickitt was coming in after some raw gravel and showed him the place on the property from which it would be taken. He directed him to forward checks received in payment for this gravel to his home in Grand Rapids. The sales of raw gravel were not recorded in the records of the Company for the reason given by the general manager that it "was a deal outside of the washed gravel plant." Some small sales of raw gravel were handled in the same way as sales of processed gravel and were reflected on the Company's books. But following Battjes' instructions large orders for raw gravel were not put through the books.

The total payments of $10,704.50 made by Pickitt during 1941 were through the following checks issued to the Battle Creek Gravel Company: October 1, 1941 for $2,550.50, November 8, 1941 for $5,000, November 22, 1941 for $2,500 and December 8, 1941 for $654. The checks for $2,550.50 and for $5,000 were endorsed by Battjes and deposited to his account with a brokerage house, with which he had maintained a substantial account for several years. The checks for $2,500 and $654 were endorsed by Battjes and deposited to a personal account in the name of Battjes and his wife at the Old Kent Bank in Grand Rapids, Michigan. In making such deposits at the bank the teller, in accordance with an existing arrangement previously made by Battjes with the bank, wrote in the deposit book the name of the maker of the checks so deposited. These transactions with Pickitt and the payments from him were not reflected in appellant's 1941 return.

In the spring of 1941, the Michigan State Highway Department brought a condemnation proceeding to acquire a strip of land from the Company's gravel pit, after being unable to agree on the sale price. The case was settled before trial under an agreement by which the State was to pay $15,500 for the land, the expense of moving a house located on the land, and $100 additional to the tenant for moving promptly from the house. In September 1941, Battjes and his wife received a State warrant for the $15,500, which Battjes deposited with the stock brokerage firm. No reference was made to this transaction or the receipt of this money in the 1941 return. An additional payment of $100 was made to Battjes by the State of Michigan in September 1943 for "damages and expense incurred in the removal of tenants" from the house located on the property so taken. The Government did not learn about the transaction until after March 15, 1943. It contends it was a capital gain transaction which should have been reported in the 1941 return.

In August 1942, the Government began investigating the 1940 and 1941 returns of the Battle Creek Gravel Company with reference to certain items of depletion and depreciation. It examined the records of the Company at the office of Mr. Neumann, who was the accountant who kept the books on the basis of information sent him by the general manager. Additional information, including information as to salaries, dividends and other deductions, was requested and furnished by Battjes. The agent talked with Battjes in the accountant's office in October with respect to such items and submitted his report on the 1940 and 1941 returns in November of 1942.

In February 1943, a revenue agent again interviewed Battjes following an investigation of the Grand Rapids Gravel Corporation's return, of which Battjes was a vice president. The matters discussed were income listed as oil royalties by Battjes in his personal return for 1941 which the Government contended were dividends from the Grand Rapids Gravel Corporation, and a bad debt deduction taken by that corporation in 1936, which the Government claimed was wholly fictitious.

On March 30, 1943, a Government agent, after receiving information about the payment from the State of Michigan, wrote Battjes requesting information about the real estate transaction. On April 2, 1943, Battjes telephoned the agent that his accountants Seidman and Seidman would give him the information requested. This was not the accountant who kept the Company's books, but was an accounting firm first contacted by Battjes on March 12, 1943 to assist in preparing the 1942 return of himself and his family. On April 12, 1943, he gave the accountants the information about the transaction with the State of Michigan and about the payments received from Pickitt stating that the payments received from Pickitt were inadvertently overlooked and not reported in his 1941 return. He asked the accountants to convey the information to the revenue agent which they promptly did. Battjes himself did not confer with the agent until May 1943. On June 16, 1943, following conferences, Battjes signed a statement concerning these transactions. In this statement he stated that he and his wife felt that the land taken by the State of Michigan belonged to them and not to the Gravel Company, and that it was not reported in his 1941 or 1942 income tax returns because he considered the deal unfinished until he received the final check for $100 from the State. This statement gave no specific reason for not reporting the Pickitt payments in the 1941 return, except the general statement that it was his intention to report all income from whatever sources received, "and the items were left unreported either through negligence on my part, or because I thought that the transactions involved had not been completed, and I intended to report the income when all of it had been received by me."

Prior to furnishing the information requested, Battjes had two meetings with revenue agent Hayes in connection with the return of the Grand Rapids Gravel Corporation, but on neither occasion did he mention the items excluded from his 1941 personal return. Between August 1942 and April 1943, revenue agent Banach wrote Battjes at least six letters concerning the examination of his 1940 and 1941 returns, but until he received the information from the accountants in April 1943 he had no information about unreported income from gravel sales. However, during the May 1943 conference Battjes produced the work sheets he had used in preparing his 1941 return which showed references to the Pickitt transaction. Revenue agent Banach testified that on the occasion of each inquiry and request for information by the Government...