Beck v. United States

• Citation: 298 F.2d 622
• Decision Date: 14 February 1962
• Docket Number: No. 16424.,16424.
• Parties: David D. BECK, a/k/a Dave Beck, Appellant, v. UNITED STATES of America, Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

298 F.2d 622 (1962)

David D. BECK, a/k/a Dave Beck, Appellant, v. UNITED STATES of America, Appellee.

No. 16424.

United States Court of Appeals Ninth Circuit.

January 20, 1962.

As Modified February 14, 1962.

COPYRIGHT MATERIAL OMITTED

Charles S. Burdell, William L. Dwyer, Seattle, Wash., for appellant.

Charles K. Rice, Asst. Atty. Gen., Meyer Rothwacks, Kinsey T. James, John J. McGarvey and Joseph M. Howard, Attys., Dept. of Justice, Washington, D. C., Charles P. Moriarty, U. S. Atty., Seattle, Wash., John S. Obenour, Asst., Tacoma, Wash., for appellee.

Before BARNES, MERRILL and KOELSCH, Circuit Judges.

BARNES, Circuit Judge.

The taxability of embezzled funds has been the subject of legal dispute for several years. This court in 1945, under certain limited facts,¹ held that when an embezzler takes money from an employer with no conceivable claim or colorable claim of right to it, it at no time becomes a taxable "gain" or "profit" or "income" to the embezzler, within the definition of "gross income" as defined in Section 22 of the Internal Revenue Code of 1939 (26 U.S.C. § 22). Wilcox v. Commissioner, 9 Cir. 1945, 148 F.2d 933. This court agreed with the fifth circuit opinion of McKnight v. Commissioner, 1942, 127 F.2d 572, which in turn relied on language used in North American Oil Consolidated v. Burnet, 1932, 286 U.S. 417, 424, 52 S.Ct. 613, 76 L.Ed. 1197. Our opinion distinguished the holding in Helvering v. Clifford, 1940, 309 U.S. 331, 60 S.Ct. 554, 84 L.Ed. 788.

This court's decision was upheld in Commissioner of Internal Revenue v. Wilcox, 1946, 327 U.S. 404, 66 S.Ct. 546, 90 L.Ed. 752, wherein the Supreme Court ruled:

"A taxable gain is conditioned upon (1) the presence of a claim of right to the alleged gain and (2) the absence of a definite, unconditional obligation to repay or return that which would otherwise constitute a gain. * * *";

that "* * * the bare receipt of property or money wholly belonging to another lacks the essential characteristics of a gain or profit * * *" (327 U.S. at 408, 66 S.Ct. at 549) unless there exists a use of the embezzled moneys, or a cancellation of the indebtedness (created by law) for an amount equal to the embezzled funds.

The Supreme Court again had the matter before it in the recently decided case of James v. United States, 1961, 366 U.S. 213, at 215, 81 S.Ct. 1052, at 1053, 6 L. Ed.2d 246:

"Six years later, this Court held, in Rutkin v. United States 1945 343 U.S. 130 72 S.Ct. 571, 96 L.Ed. 833, that extorted money in 1943 does constitute taxable income to the extortionist in the year that the money is received under § 22(a) of the Internal Revenue Code of 1939. In Rutkin, the Court did not overrule Wilcox, but stated:

"`We do not reach in this case the factual situation involved in Commissioner of Internal Revenue v. Wilcox, 327 U.S. 404 66 S.Ct. 546, 90 L.Ed. 752. We limit that case to its facts. There embezzled funds were held not to constitute taxable income to the embezzler under § 22(a).\' Id. 343 U.S. at page 138 72 S.Ct. at 576.

"However, examination of the reasoning used in Rutkin leads us inescapably to the conclusion that Wilcox was thoroughly devitalized."

The Supreme Court in James then pointed out that Rutkin's claim was no greater than that of Wilcox; that both had obtained money by means of a criminal act; that neither had a bona fide claim of right to the funds; that both could be required to make restitution, i. e., "the right to recoupment exists in both situations." Thus, "the Wilcox rationale was effectively vitiated by this Court's decision in Rutkin," as several circuit courts have previously stated.² "Wilcox was wrongly decided."

The court then stated:

"When a taxpayer acquires earnings, lawfully or unlawfully, without the consensual recognition, expressed or implied, of an obligation to repay and without restriction as to their disposition, `he has received income which he is required to return, even though it may still be claimed that he is not entitled to retain the money, and even though he may still be adjudged liable to restore its equivalent.\' North American Oil Consolidated v. Burnet, supra 286 U.S., at p. 424 52 S.Ct. at p. 615. In such case, the taxpayer has `actual command over the property taxed — the actual benefit for which the tax is paid,\' Corliss v. Bowers, supra 281 U.S. 376, 50 S. Ct. 336, 74 L.Ed. 916. This standard brings wrongful appropriations within the broad sweep of `gross income\'; it excludes loans. When a law-abiding taxpayer mistakenly receives income in one year, which receipt is assailed and found to be invalid in a subsequent year, the taxpayer must nonetheless report the amount as `gross income\' in the year received. United States v. Lewis, supra 340 U.S. 590, 71 S.Ct. 522, 95 L.Ed. 560; Healy v. Commissioner, supra 345 U.S. 278, 73 S.Ct. 671, 97 L.Ed. 1007. We do not believe that Congress intended to treat a lawbreaking taxpayer differently." Id., 366 U.S. at 219-220, 81 S.Ct. at 1055.

However, in James, because a felony conviction must rest upon a willful failure to account, or a willful attempt to evade taxes (Spies v. United States, 1943, 317 U.S. 492, 63 S.Ct. 364, 87 L.Ed. 418), and specific intent must be proved by independent evidence and cannot be inferred from the mere understatement of income (Holland v. United States, 1954, 348 U.S. 121, 139, 75 S.Ct. 127, 99 L.Ed. 150), a divided Supreme Court ruled that the "gloss put upon the statute by Wilcox" prevented a conviction for "failing to include embezzled funds in gross income in the year of misappropriation," while Wilcox was the law of the land.

With this clarification of the law on the taxability of embezzled funds before us (which did not exist at the time of trial below), we turn to the facts of the instant case.

Appellant Dave Beck was indicted in May 1957 on two counts, one under 26 U.S.C. § 145(b),³ the other under 26 U.S.C. § 3793(b) (1).⁴ In August he was indicted by the same grand jury on three additional counts under § 145(b), on two additional counts under § 3793(b) (1), and with codefendants under 18 U.S.C. § 371 on two counts charging a conspiracy to evade payment of his taxes. The seven counts which named Beck alone were segregated for trial. The trial began on November 10, 1958. At that time the government dismissed one of the counts against appellant. In February 1959 a jury returned verdicts of guilty as to the remaining six counts. Appellant was sentenced to five years imprisonment, and required to pay costs amounting to about $11,000 and various fines totaling $60,000. This court has jurisdiction on appeal. 28 U.S.C. § 1291. Appellant was sentenced to five years imprisonment on each of the six counts on which he was convicted, the sentences to run concurrently. He was also sentenced to pay fines of $10,000 on each count, or a total of $60,000, and to pay costs amounting to about $11,000.00.

If the sentences were wholly concurrent, one count free from error would sustain the conviction; that is, we would look no further. See, for example: Sinclair v. United States, 279 U.S. 263, 299, 49 S.Ct. 268, 73 L.Ed. 692; Abrams v. United States, 250 U.S. 616, 619, 40 S.Ct. 17, 63 L.Ed. 1173; Russell v. United States, 9 Cir. 1961, 288 F.2d 520, at 522 (and cases there cited); Hattem v. United States, 9 Cir. 1960, 283 F.2d 339, 341; Green v. United States, 9 Cir. 1960, 282 F.2d 388, 392; King v. United States, 9 Cir. 1960, 279 F.2d 342, 344.

Hereinafter, we uphold the convictions on two counts, but examination of all counts here became necessary because of the separate fine assessed on each count. As will appear, we find reversal on four counts necessary. The judgment for costs will stand.

FACTS

During the period from 1950 to 1953 appellant misappropriated to his own personal use some $365,000 of the funds of the various union entities with which he was associated. This amazing series of embezzlements is detailed in the appellee's brief (pages 31-86). It would serve no useful purpose to repeat the details here. Beck and certain of his close associates had the power to sign checks on the accounts of certain union entities. Checks on these various accounts were used to pay Beck's personal bills, to purchase property in his name, or to pay sums to third persons who used the money to Beck's advantage.

There was further proof (the materiality of which hereinafter becomes evident) of instances in which Beck received expenses for various travels from two sources, either being reimbursed by two labor organizations for the same trip, or being reimbursed once and charging the trip on credit cards payable at a later time by the union. Travel expenses totaling $35,000 were claimed and paid to Beck but were not used by him to pay the costs of travel on the union's behalf.

During the period that the grand jury met to indict Beck on this charge, there was considerable adverse publicity in the communications media concerning his refusal to testify before a congressional committee as to certain matters. Beck has been convicted of embezzlement in the state court of Washington on a charge of dealing with a very small portion of the funds which form the basis of this case.

On this appeal Beck asserts some twenty-five specified errors which may be summarized as follows:⁵

1. That appellant was deprived of an unbiased grand jury.

2. That appellant was deprived of an unbiased petit jury.

3. Error was committed in the restriction of the cross-examination of government witness Hupf.

4. That the funds taken were either embezzled or borrowed, and neither source would constitute taxable income.

5. If embezzled funds did constitute taxable income, the state of the law was such that no one could knowingly willfully evade taxes thereon.

6. Failure of proof on the counts concerning the Joint Council Building Association returns. These are the so-called "900" counts — charging the aiding, assisting and filing of false union returns.

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