Bernstein v. United States, 15463.

• Decision Date: 31 May 1956
• Docket Number: No. 15463.,15463.
• Parties: George BERNSTEIN et al., Appellants, v. UNITED STATES of America, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

234 F.2d 475 (1956)

George BERNSTEIN et al., Appellants, v. UNITED STATES of America, Appellee.

No. 15463.

United States Court of Appeals Fifth Circuit.

May 31, 1956.

COPYRIGHT MATERIAL OMITTED

Claude Pepper, Lawrence G. Ropes, Jr., Arthur B. Cunningham, Philip T. Weinstein, Miami, Fla., for appellants.

James L. Guilmartin, U. S. Atty., Miami, Fla., for appellee.

Before RIVES, TUTTLE and JONES, Circuit Judges.

TUTTLE, Circuit Judge.

This is an appeal by five individual defendants from convictions for income tax law violations on all counts of seven different indictments. In one indictment the four defendants, Bernstein, Scherer, Hodesblatt (sometimes referred to as Hodes), and Hammerman, who were the sole officers, directors and equal stockholders of the Selray Corporation, were charged with a conspiracy together and with defendant Gersch, an employee, to violate § 145(b) of the Internal Revenue Code of 1939,¹ by causing to be filed false and fraudulent returns for the Selray Corporation for the years ending October 31, 1947 and 1948. One indictment charged Gersch in two counts with aiding and abetting the other four in a willful and knowing attempt to defeat and evade a large part of the taxes of the Selray Corporation for 1947 and 1948. One count charged the four defendants, other than Gersch, in three counts with willfully and knowingly attempting to defeat and evade a large part of the taxes of the Selray Corporation for the years 1947, 1948 and 1949. One indictment charged defendant Bernstein in three counts with willfully and knowingly attempting to defeat and evade a large part of the income tax due and owing by him for the years 1947, 1948 and 1949. In three other indictments each of the other three individuals Scherer, Hodesblatt and Hammerman was charged in three counts each with similarly willfully and knowingly attempting to defeat and evade a large part of his personal income taxes for the same three tax years.

By the indictments and bills of particular filed in response to orders of the court, the government charged that the four officers of the Selray Corporation planned to and did cause the true income derived from the operation of the Selray Corporation's Surfside Hotel, in Miami Beach, to be understated by having the defendant Gersch rewrite the daily records of the hotel during certain seasons of the years 1946-47 and 1947-48, and by another employee doing the same during the early part of 1949 by eliminating a substantial volume of room rentals from the records from which entries were made to the company's books, which were subsequently used as the basis for preparation of the company's income tax returns for the fiscal years in question. It was also charged that an amount of cash equalling the receipts thus omitted from the books of the company was accumulated by an employee of the hotel who delivered it to one of the defendants, and that substantially the same amount was paid over to the four stockholders as "dividends."

The government set out to prove its case by the aid of a Mrs. Jensen, formerly the "auditor" of the company who confessed to having played a part in the alleged fraudulent scheme although, according to her testimony, she refused for the first two years to do the job of "rewriting" the daily transcript.

The case was built up from certain books and records of the company which had been delivered by three of the defendants to the witness, Internal Revenue Special Agent Karo, when he commenced his investigation in 1951. He identified the journal, general ledger, duplicate guest bills and certain daily transcripts of room receipts.

The witness Jensen testified that in November, 1946, she was called into the office by defendant Hodesblatt who told her he was interested in doing something to see "if they could hold out some income to keep the tax down"; that he told her: "Think about it, and we will discuss it later"; that he later told her: "They were going ahead with the plan. They were going to import a man to rewrite the transcript." She further testified that at about the same time she had a conversation with defendant Scherer, who said "that he had a very good friend that they were going to bring in to do this work who was fully qualified, and was a crackerjack at figures." She testified that later Scherer introduced her to Gersch and that Gersch had transcript sheets and arrival and departure records "and all the things that would be necessary for this particular work which is the same as is used at the front desk"; that "Mr. Gersch was the man to do the rewrite job, and that he would explain it to me and tell me how it was going to work." Finally Mrs. Jensen testified: "Mr. Gersch and I both spoke to Mr. Scherer and told him it was wrong to do this, and be sure he knew what he was doing, and Mr. Scherer this was sic what his partners wanted to do, and they would do it whether it was done here or whether they sent the records to New York to have the rewrite job done."

The witness then testified that beginning with December 9, 1946 and continuing until some time in April, the transcript sheets that were prepared by the room clerks were taken by Gersch and rewritten in a manner so as to drop off the receipts from a selected number of rooms, and that she then used the rewritten transcript sheets from which to make the postings to the journal and ledger, from which in turn the company's income tax was computed by outside accountants. Mrs. Jensen testified that the practice was again indulged in the winter season 1947-48 with Gersch as the active participant; further, that she herself, at the statement of Bernstein and Scherer in February, 1949, "that they would like to hold out approximately $25,000 of 1949 income," dropped out items of room income at the bottom of the transcript. She did this, she said, until she accumulated $24,683.78. It is not contended by the government that Gersch had anything to do with the 1949 records.

This witness said that she removed from the actual receipts each day cash equal to the items omitted and accumulated this in envelopes that she kept until they were asked for by one of the defendants. The government introduced in evidence receipts signed by three of the defendants, Hodesblatt, Bernstein and Scherer on different occasions, which Mrs. Jensen said she took from them when she surrendered envelopes filled with cash to them. On the occasion of the first delivery, she said she was called into a room in which all four stockholders were seated at a table and there was a pile of cash in front of each of them.²

The government's witness Karo then testified that from the documents turned over to him by some of the defendants in 1951 he had taken the duplicate guest bills covering the period during which Mrs. Jensen had testified the daily receipts had been tampered with, and compared these daily duplicate guests bills with the rewritten daily transcripts, as prepared by defendant Gersch, and, after allowing some credits that were properly applicable in the case of some of the omitted receipts, he testified that during the months of December through April, 1946-47, $68,135.75 had been dropped out of guest receipts. In the same manner he testified that during the FY ended October 31, 1948, the sum of $35,542.56 had been dropped out, and during the following fiscal year $24,683.78 had been omitted.

Agent Karo testified to a computation in which, having figured the additional taxes that would be due from the corporation based on the inclusion of this omitted income, the corporation had available earnings for the respective years in question the following amounts: 1947 — $60,346.70; 1948 — $33,761.80; 1949 — $17,384.83. He then testified to a computation showing the receipt by each of the four stockholder-defendants of one-fourth of each of these annual amounts. These computations showed additional unreported income of a total of $27,873.33 for each of the four defendants for the three years in question.

The defendants' attack on the judgment below is fourfold. These four grounds may be subdivided into two.

The first relates to sufficiency of the evidence and questions as to the correctness of the court's rulings on the admissibility of certain evidence. The second relates to charges by the court and counsel's opportunity to except thereto, and the court's general conduct of the trial.

Referring first to the sufficiency of the evidence, we think it quite clear from the foregoing statement of facts that there was ample evidence upon which the jury could find a willful intent on the part of the five defendants to set up a system by which the corporation's income would be greatly distorted as it appeared on the books of account, and that this was done with the intent to defraud the government of a substantial part of the taxes owed by the Selray Corporation. We think it equally clear that the evidence warranted a finding by the jury that the amounts allegedly withheld from the corporation as a result of the rewriting of the transcripts and segregation of receipts was equally divided among the stockholder-defendants.

What has just been said assumes the competence of the evidence admitted by the court and the correctness of the trial court's decision to the effect that the actual receipt by each of the four stockholders of a proportionate amount of the withheld funds amounted to a receipt by them of "dividends." This ruling, which resulted from several different actions by the trial court as to the admission of testimony by Karo and the rejection of exhibits tendered by the defendants and restriction on the cross-examination of Karo, was vigorously attacked during the trial and is made one of the principal complaints here.

The sufficiency of Karo's evidence is attacked first on the ground that he reconstructed the actual room rent from duplicate bills without adequate evidence that the bills had in every instance actually been paid....