Doggett v. CIR

• Decision Date: 08 March 1960
• Docket Number: No. 7915.,7915.
• Parties: I. E. DOGGETT, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
• Court: U.S. Court of Appeals — Fourth Circuit

275 F.2d 823 (1960)

I. E. DOGGETT, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.

No. 7915.

United States Court of Appeals Fourth Circuit.

Argued October 21, 1959.

Decided March 8, 1960.

Daniel R. Dixon, Raleigh, N. C., for petitioner.

Carolyn R. Just, Attorney, Department of Justice, Washington, D. C. (Charles K. Rice, Asst. Atty. Gen., Lee A. Jackson and I. Henry Kutz, Attorneys, Department of Justice, Washington, D. C., on brief), for respondent.

Before SOBELOFF, Chief Judge, and SOPER and HAYNSWORTH, Circuit Judges.

HAYNSWORTH, Circuit Judge.

The principal question arises out of the imposition of fraud penalties on income tax deficiencies for the years 1942-1946. Though the taxpayer admits the presence of false entries in his books during the years 1942-1945 and unrecorded and unreported receipts during 1946, he earnestly attributes all fault to his bookkeeper whom he charges with embezzlement and perjury. The bookkeeper, as earnestly, protests his innocence of those crimes, but admits he falsified the records, under taxpayer's instructions, for the purpose of concealing income.

The Tax Court accepted the bookkeeper's version of the matter and found corroboration of it in a number of collateral circumstances. The taxpayer finds in those and other collateral circumstances such support of his own version of the matter that he asks this Court to hold that findings based upon the bookkeeper's testimony were clearly erroneous.

The question is one of fact. We cannot say the Tax Court was clearly wrong in its resolution. We must, therefore, accept its findings.

The taxpayer, a man of minimal education, achieved remarkable success as the proprietor of a taxicab business in Raleigh, North Carolina. During the years in question, the Tax Court found that he had net income, respectively, of $33,334.70, $64,944.80, $81,383.23, $58,015.55 and $31,949.49¹ The Tax Court approved deficiencies for those years of $4,776.49, $13,201.92, $29,079.99, $9,662.26 and $7,526.82, the total of the deficiencies before interest and penalties being $64,247.48.

To some extent, the deficiencies were attributable to adjustments which, in themselves, carry no implication of fraud. Other portions of the deficiencies, however, were the direct result of falsified records. Fraud, there clearly was; the only question is whose.

The bookkeeper testified that he was employed by the taxpayer in 1941. Within a year thereafter, he says, the taxpayer told him he did not feel he should pay taxes upon all of his income and instructed him to find ways to reduce the tax obligation. There followed systematic overstatement of expense items and understatement of receipts, which continued, in varying forms, through the years in question.

In 1942 and 1943 one of the principal methods of falsification was to overfoot expense accounts in the journal and post the inflated total to the ledger. Other items, correctly recorded in the journal, would be overposted by $100.00, or some other even amount, in the ledger.

During 1944 and 1945, one of the principal means of understatement of income was the withdrawal of a portion of the cash receipts from cab operations before the balance was deposited in the bank and recorded in the journal. There was testimony that the taxpayer, or his wife, carefully checked the cash receipts from cab operations each day and correctly recorded the total in a cash book, which the taxpayer kept apart from the other books and records. Such cash receipts, correctly recorded in the cash book, were understated in the journal. A number of adding machine tapes were introduced in evidence which showed a subtotal labeled "Bank" which was in agreement with the receipts as recorded in the journal, an additional item labeled "Red," the taxpayer's nickname, and a final total which was in agreement with the receipts as recorded in the cash book. The bookkeeper testified that he prepared such tapes and gave them to the taxpayer as a means by which the taxpayer could reconcile the cash book with the bank account and the journal.

In 1946, as well as other years, some receipts, other than cash receipts from cab operations, were either unrecorded or were credited directly to taxpayer's drawing account without having been recorded in any income or receipts account.

The taxpayer brushes aside the testimony of the bookkeeper as perjured, and seeks to avoid the finding that he was the profiteer and that his income tax returns were fraudulent, by concentration upon a permissible inference that the bookkeeper was an embezzler.²

First, the taxpayer points to the fact that his drawing account debits were overfooted by an aggregate of $172.35 in 1942 and by an aggregate of $1200.00 in 1943, these entries being offset by underfooting cash debits. While these amounts are relatively small, the taxpayer finds them very significant, for they are inconsistent with a purpose to conceal taxable income to him, but they are consistent with his premise of embezzlement by the bookkeeper. Because of the number and frequency of the entries which aggregate these small totals, he finds no room for an inference that they were made inadvertently, and he dismisses the bookkeeper's explanation that they were made during moments of pique.

Had the Tax Court rejected the bookkeeper's explanation of these entries and accepted the taxpayer's premise as to these, it need not necessarily have exculpated the taxpayer. A bookkeeper who is willing to falsify records for the employer's dishonest purposes may have less resistance than others to the temptation to secure similar unlawful advantage for himself. Proof that he embezzled some small items may warrant an inference that he was the sole wrongdoer, but it does not make incredible all of the direct and circumstantial evidence of the taxpayer's wrongdoing.

The taxpayer next refers to his testimony, supported by that of his wife and one of his employees, that he voluntarily produced the cash book and gave it to the revenue agent, from which he argues that the Tax Court was required to draw the inference that the taxpayer was not informed of the discrepancies between the cash book and the journal.

The testimony, if believed, would support the inference. Neither the accountant who, without audit, prepared the tax returns nor the revenue agent had seen the cash book until the revenue agent's examination approached...