Brown v. United States, 11980.

• Decision Date: 12 August 1955
• Docket Number: No. 11980.,11980.
• Citation: 224 F.2d 845
• Parties: C. Maxwell BROWN, Appellant, v. UNITED STATES of America, Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

224 F.2d 845 (1955)

C. Maxwell BROWN, Appellant, v. UNITED STATES of America, Appellee.

No. 11980.

United States Court of Appeals Sixth Circuit.

August 12, 1955.

Lee S. Jones and J. Walter Clements, Louisville, Ky. (Helen R. Graft, Louisville, Ky., on the brief), for appellant.

Charles M. Allen, Asst. U. S. Atty., Louisville, Ky. (J. Leonard Walker, U. S. Atty., Louisville, Ky., on the brief), for appellee.

Before SIMONS, Chief Judge, and ALLEN and McALLISTER, Circuit Judges.

SIMONS, Chief Judge.

From our decision, 209 F.2d 260, affirming his conviction for wilfully attemping to defeat and evade income taxes for 1946 and 1947, the appellant sought certiorari from the Supreme Court of the United States and the writ issued. In a series of cases wherein the "net worth" method of proof was followed by conviction, the Supreme Court undertook a general consideration of this technique, noted its widespread use, and, while upholding its admissibility as circumstantial evidence, cautioned a close scrutiny of its use because fraught with danger to the innocent.

The cases considered were Holland v. United States, 348 U.S. 121, 75 S.Ct. 127; Friedberg v. United States, 348 U.S. 142, 75 S.Ct. 138; Smith v. United States, 348 U.S. 147, 75 S.Ct. 194, and United States v. Calderon, 348 U.S. 160, 75 S.Ct. 186. In each, conviction was upheld. The most detailed discussion of the dangers residing in the "net worth" method is to be found in the Holland case. Within a few days after these decisions were announced, the Court, per curiam, without consideration of their merits, granted certiorari in nine additional net worth cases. It set aside the affirmances therein and remanded the cases to their respective circuits for consideration, in the light of Holland and associated cases. 348 U.S. 905, 75 S.Ct. 311. This appeal is one of those remanded. It has now been reargued and reconsidered by us in the light of the specific cautions developed in the principal cases. We have also given study to those cases that have been reconsidered in the Courts of Appeals since their remand. They are Strauch v. United States, 6 Cir., 223 F.2d 377, decided June 13, 1955; Watts v. United States, 10 Cir., 220 F.2d 483; Beaty v. United States, 4 Cir., 220 F.2d 681, and United States v. Burdick 3 Cir., 221 F.2d 932. None has produced a result differing from the original decision.

The government, in the present case, produced direct proof of specific items of income omitted from the appellant's return and reinforced it by a "net worth" computation. The appellant is a lawyer. His clients gave evidence that they had paid him fees in 1946 of over $4,000.00 more than was reported in his return for that year and of over $5,000.00 more in 1947 not reported. The appellant, testifying at the trial, conceded that he had received $7,300.00 in 1946 and $5,700.00 in 1947 which he had not returned as income and upon which he had paid no tax. He explained his failure upon the ground that the fees were contingent, that he had an oral contract with each of his clients that in the event of inability to complete the work undertaken, because of other commitments, he would refund all or part of the fees received, that he had followed this practice from 1941 on through the prosecution years, that, not being a tax lawyer, he had consulted counsel and was advised that he was not obliged to report such income until his services were completed, that when he later did complete the cases he included such fees in his income tax returns for the years 1948 and 1949 and paid the tax thereon.

The appellant reported his income on the cash receipts and disbursements methods. In Healy v. Commissioner, 345 U.S. 278, 281, 73 S.Ct. 671, 97 L.Ed. 1007, it was pointed out that one of the basic aspects for Federal Income Tax is that there be an annual accounting of income and each item must be reported in the year in which it is properly reportable and in no other. It relied upon North American Oil Consolidated v. Burnet, 286 U.S. 417, 52 S.Ct. 613, 615, 76 L.Ed. 1197, wherein the Court, speaking through Mr. Justice Brandeis, said: "If a taxpayer receives earnings under a claim of right and without restriction as to its 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." There is a claim of right when funds are received and treated by a taxpayer as belonging to him.

Had the explanation of the appellant been believed by the jury, it might have stood him in good stead on the question of wilfulness in failure to report the fees as income during the prosecution years. The government, however, introduced thirty-nine witnesses, most of them...