Butzman v. United States, 11704

• Decision Date: 12 October 1953
• Docket Number: 11705.,No. 11704,11704
• Citation: 205 F.2d 343
• Parties: BUTZMAN v. UNITED STATES. CRAIG v. UNITED STATES.
• Court: U.S. Court of Appeals — Sixth Circuit

205 F.2d 343 (1953)

BUTZMAN v. UNITED STATES.

CRAIG v. UNITED STATES.

Nos. 11704, 11705.

United States Court of Appeals, Sixth Circuit.

June 22, 1953.

Writ of Certiorari Denied October 12, 1953.

COPYRIGHT MATERIAL OMITTED

Daniel H. Wasserman, Cleveland, Ohio (Michael Leo Looney, Washington, D. C., on the brief), for Lester E. Butzman, Sr.

Paul P. Cohen, Niagara Falls, N. Y. (Cohen, Fleischmann, Augspurger, Henderson & Campbell, Niagara Falls, N. Y., of counsel), for Gilbert M. Craig.

Frank E. Steel, Cleveland, Ohio (John J Kane, Jr., Cleveland, Ohio, on the brief), for appellee.

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

Writ of Certiorari Denied October 12, 1953. See 74 S.Ct. 50.

MILLER, Circuit Judge.

The appellant, Lester E. Butzman, Sr., was found guilty in the District Court and received a sentence of three years for falsely and fraudulently executing a document required by the provisions of the Internal Revenue laws, § 3793(a) (1), Title 26 U.S.Code. Appellant, Gilbert M. Craig, was also found guilty in the same trial and received a sentence of one and one-half years for wilfully aiding and advising the preparation and presentation to the Collector of Internal Revenue of a false and fraudulent document executed by the appellant Butzman, § 3793(b) (1), Title 26 U.S.Code. Although separate indictments were returned, the appellants were represented by the same attorney, and, upon motion by the Government, the cases were consolidated for trial. They were heard by the Court without a jury. The appeals come to us on a single record. The appeals will be disposed of separately.

In case No. 11704, the indictment charged that on January 14, 1946, Butzman "did wilfully and knowingly, falsely and fraudulently, with intent to defraud, execute a document required by the provisions of the Internal Revenue Laws and Regulations, to-wit: Application for Tentative Adjustment with Respect to Amortization Deduction, which document was filed with the Collector of Internal Revenue * * *, in which document it is represented that the said Lester E. Butzman, Sr., was entitled under the provisions of the Internal Revenue laws to claim a credit for the years 1941, 1942 and 1944 of refunds totaling $56,078.61, whereas as the said defendant then and there well knew the information contained in the application aforesaid was false and untrue, in that the Necessity Certificates which formed the basis of the claim for the refund in said Application had not been granted and the said defendant was not entitled to the refund as claimed; * * *"

There was evidence showing the following facts: The appellant started his employment with the Ohio Tool Company in 1922 at which time the Company was a partnership operating a small specialty machine shop. During the 1930s he became the sole owner of the business. The business underwent a tremendous expansion in its operations after the start of the War in 1939. About the end of 1937, William J. Franz was employed to do the accounting work for the company. In 1941, at the suggestion of Franz, the business was made a family partnership consisting of the appellant, his son Lester E. Butzman, Jr., and his daughter Betty Jane Downs.

On October 8, 1940, § 124, Internal Revenue Code, 26 U.S.C. § 124, was enacted as part of the defense mobilization program. It provided for an accelerated amortization deduction of emergency facilities installed by the taxpayer, based on a period of sixty months, upon an election by the taxpayer to do so, made by filing a statement of such election with the Commissioner. § 124(d) (4), Internal Revenue Code. The procedure was for the taxpayer to file an application with the War Department, upon which, after being processed, a certificate would be issued certifying the facility as necessary in the interest of national defense during the emergency period. Such a certificate would entitle the applicant to write off the cost of the facility over a five-year period. This was in lieu of the deduction with respect to such facility provided by § 23(l), Internal Revenue Code, 26 U.S.C.A. § 23(l), relating to exhaustion, wear and tear, and obsolescence. Sometime in 1942, Franz discussed with appellant about making application to take advantage of this amortization deduction, and appellant gave Franz a power of attorney for the purpose of making such applications. On April 23, 1943, an informal application was filed with the War Department, Tax Amortization Branch, followed by a formal application dated May 21, 1943, in the amount of $853,840.78, which was given the number WD-N-22024. Another application for the amount of $67,994.02 was also filed on June 26, 1943, which was given the number WD-N-23426.

On September 11, 1943, a preliminary notice of rejection was mailed to the Ohio Tool Company which stated that application No. WD-N-22024 was untimely and that there were adequate facilities in existence. This was followed by an official letter of rejection mailed on October 9, 1943. Application No. WD-N-23426 was officially rejected by letter of October 8, 1943 on the ground that there was insufficient evidence of shortage of capacity in the industry. These letters, after being received by the Company, were turned over to Franz.

Differences arose between Butzman and Franz, and about November 1, 1943, appellant Craig was employed by the Company as Comptroller on a full-time basis, for the purpose of taking over Franz's work and to generally supervise the office. The Company's own accounting staff did not take over the entire accounting work until the Spring of 1944. At approximately that time Franz turned over to Craig the greater part, but not all, of his files with respect to the Ohio Tool Company. One of the files retained by Franz contained the letter of October 9, 1943 from the War Department denying the Company's application WD-N-22024. The other letter of rejection was not located, either in Franz's files or the Company's files.

On July 31, 1945, Congress enacted the "Tax Adjustment Act of 1945" which permitted war production facilities which became substantially worthless at the close of the War to be amortized retroactively over the period from 1940 to 1945. § 7 of the Act, § 124(j) and (k), Internal Revenue Code, provided for the filing of an application by a taxpayer who had elected to take the amortization deduction under § 124(d) (4) for tentative adjustment with respect to the taxes for taxable years prior to the taxable year in which the application was filed. In September, 1945, the President proclaimed the ending of the emergency period as defined in § 124 (e) (2) of the Internal Revenue Code. Smith, an employee in the Company's accounting department, having become advised of the Tax Adjustment Act, recommended that applications be filed for adjustment of the tax liabilities for 1941-1944 and for refunds payable pursuant to such adjustments. He discussed the matter with Craig and with Internal Revenue agent Coleman, who was working at the Ohio Tool Company plant. On December 20, 1945, Craig wrote the Commissioner of Internal Revenue that the Ohio Tool Company elected to amortize the Emergency Facilities covered by Certificates of Necessity within the period covered by the President's proclamation to September 30, 1945. This letter stated: "The following Certificates of Necessity are affected: WD-N-22024, WD-N-23426." By letter of December 29, 1945, the Commissioner acknowledged receipt of this election, advising that the election did not constitute a claim for credit or refund, and that if a tentative adjustment with respect to amortization deduction under section 7 of the Tax Adjustment Act of 1945 was desired, application should be filed with the Collector for its district on Form 1046, which could be obtained from the Collector. Smith obtained the forms from the local Internal Revenue office, and prepared and filed an application for each of the three partners. Butzman's application, signed by him, was filed with the Internal Revenue office by Smith on January 14, 1946. It is this application which is the basis of the present proceedings.

The application specifically referred to Necessity Certificates Nos. WD-N-22024 and WD-N-23426, the election by the Company on December 20, 1945 to terminate the amortization period under the authority of the President's Proclamation, and the termination of the amortization period by reason thereof on September 30, 1945. It was supported by detailed amortization schedules and copies of original income tax returns for 1941-1944 of both the partnership and Butzman individually, together with recomputed tax returns for the partnership and Butzman individually for the same years on the basis of the accelerated amortization.

Internal Revenue Agent Coleman was working at the plant of the Company in connection with an audit of the returns of the partnership and its members. Shortly prior to May 3, 1946, he asked Craig to show him Certificates of Necessity WD-N-22024 and WD-N-23426. They were not located in the Company's files, and at a conference on May 3, 1947, in Franz's office, Franz found in his files one of the two letters, but not both, which denied the applications for the two Certificates of Necessity. The Company's attorney, thinking that possibly a reapplication had been made and approved, promptly thereafter wrote to the Commissioner requesting certified copies of the two Certificates and was advised by the Tax Amortization Branch, Civilian Production Administration by letter of July 1, 1946, that the files indicated that the two applications were never approved but were denied by letters of October 8th and 9th, 1943.

In the meantime, the three partners received checks from the Treasurer of the United States for refunds totaling approximately $109,000, dated June 11th and 13th, 1946. Smith checked the amounts, which totaled $1,000 more than they were entitled to, and upon instructions...