Hartzog v. United States

• Decision Date: 21 December 1954
• Docket Number: No. 6847.,6847.
• Citation: 217 F.2d 706
• Parties: Gerard HARTZOG, Appellant, v. UNITED STATES of America, Appellee.
• Court: U.S. Court of Appeals — Fourth Circuit

217 F.2d 706 (1954)

Gerard HARTZOG, Appellant, v. UNITED STATES of America, Appellee.

No. 6847.

United States Court of Appeals Fourth Circuit.

Argued November 9, 1954.

Decided December 21, 1954.

Elden McFarland, Washington, D. C., for appellant.

Irvine F. Belser, Jr., Asst. U. S. Atty., Columbia, S. C., (N. Welch Morrisette, Jr., U. S. Atty., Columbia, S. C., on brief), for appellee.

Before PARKER, Chief Judge, and SOPER and DOBIE, Circuit Judges.

DOBIE, Circuit Judge.

Gerard Hartzog (hereinafter called Hartzog) was convicted of criminal evasion of federal income taxes, in violation of 26 U.S.C. § 145(b), by the United States District Court for the Eastern District of South Carolina. Hartzog was indicted on three counts, one count for each of the years 1946, 1947 and 1948. He was acquitted on the 1946 count but found guilty on each of the other two counts. After the jury had returned its verdict and before judgment, Hartzog made a motion for a new trial; this motion was denied, and Hartzog was sentenced to five years' probation.

Hartzog has appealed to us and presents two questions: (1) whether certain worksheets were properly admitted in evidence against him; and (2) whether certain loans received by Hartzog from the Commodity Credit Corporation on cotton were properly included in the Government's computation of his 1948 income.

We need express no opinion as to the merit of Hartzog's second issue, since we hold that it was prejudicial error for the lower court to admit the worksheets in evidence, and the case must be reversed and remanded for a new trial pursuant to Hartzog's motion.

The worksheets in question were put into evidence as a substantial part of the Government's proof of Hartzog's income for 1947 and 1948. There were two sets of worksheets introduced in evidence, and an objection was made by Hartzog's counsel to the introduction of either set as proof of the contents of Hartzog's records for the years 1947 and 1948, since, it is contended, both sets are hearsay evidence.

One set of worksheets was prepared in 1951 by a Deputy Collector of Internal Revenue named Baynard, who died before this case came to trial. The second set was prepared in 1951 by Berlin, a special agent of the Internal Revenue Service. Baynard's worksheets list and classify checks, check stubs and other records into the various categories of income, the various categories of allowable deductions, the category of personal or other non-deductible expenses, the category of non-taxable receipts, and the categories of capital or ordinary gains and losses, and long and short term capital gains and losses.

Berlin supervised the making of Baynard's worksheets but never examined any of the information and materials upon which Baynard based his figures, except upon one occasion when he saw Hartzog's farm ledgers for about two minutes. Berlin's worksheets are based primarily on information obtained from Baynard's worksheets and were prepared with Baynard's collaboration, although Berlin also used some information obtained from outside sources such as bank statements and Hartzog's clients. Berlin's worksheets were prepared when it became apparent that the information obtained by Baynard would not give a sufficient picture of Hartzog's income.

Both sets of worksheets were made in preparation for this prosecution, after Hartzog had refused the agents permission to see the bulk of his records. Baynard was permitted to see a small portion of Hartzog's records and information obtained from these sources is the basis of his worksheets. We shall first consider the admissibility of the Baynard worksheets.

In a criminal prosecution, the right of the Government to introduce these worksheets as secondary evidence of the contents of Hartzog's record is uncontradicted, provided such evidence is otherwise admissible. See Paschen v. United States, 7 Cir., 70 F.2d 491; Lisansky v. United States, 4 Cir., 31 F.2d 846, 67 A.L.R. 67. As then Circuit Judge Parker stated for this court in the Lisansky case, supra, 31 F.2d at page 850:

"But evidence as to the contents of books and papers is not lost to the government because the defendant has them in his possession and their production cannot be ordered or the usual basis laid for the introduction of secondary evidence. In such cases, the rule is that, when they are traced to his possession, the government, without more ado, may offer secondary evidence of their contents."

This rule does not, however, give the Government carte blanche to introduce any type of evidence merely because it may be relevant and material as secondary evidence of the contents of a defendant's records. Such secondary evidence may not be admitted for the purpose of such proof if it is hearsay. Clearly, the worksheets prepared by Baynard before his death, and introduced without his testimony, are hearsay in so far as they tend to indicate the existence of the records and checks upon which the worksheets are based; they are also hearsay as to the amounts and classifications of these checks and other records.

The Government contends, however, that Baynard's worksheets, even though hearsay, are admissible as proof of the truth of their contents, under the provisions of 28 U.S.C. §§ 1732, 1733. These sections reads as follows:

"1732. Record made in regular course of business. In any court of the United States and in any court established by Act of Congress, any writing or record, whether in the form of an entry in a book or otherwise, made as a memorandum or record of any act, transaction, occurrence, or event, shall be admissible as evidence of such act, transaction, occurrence, or event, if made in regular course of any business, and if it was the regular course of such business to make such memorandum or record at the time of such act, transaction, occurrence, or event or within a reasonable time thereafter.

"All other circumstances of the making of such writing or record, including lack of personal knowledge by the entrant or maker, may be shown to affect its weight, but such circumstances shall not affect its admissibility.

"The term `business,\' as used in this section, includes business, profession, occupation, and calling of every kind."

"1733. Government record and papers; copies. (a) Books or records of account or minutes of proceedings of any department or agency of the United States shall be admissible to prove the act, transaction or occurrence as a memorandum of which the same were made or kept.

"(b) Properly authenticated copies or transcripts of any books, records, papers or documents of any department or agency of the United States shall be admitted in evidence equally with the originals thereof."

Section 1733 obviously has no application here. Baynard's worksheets are not books or records of account of a department or agency of the Government, nor are they minutes of any proceeding.

The wording of Section 1732 raises quite a different problem. Its language is broad and inclusive, and a literal reading of its provisions may suggest that Baynard's worksheets are admissible evidence. This section has not been given such a literal interpretation by the Supreme Court.

Mr. Justice Douglas in the leading case of Palmer v. Hoffman, 318 U.S. 109, 63 S.Ct. 477, 87 L.Ed. 645, pointed out the evils inherent in a strict application of this section, 318 U.S. at pages 113-114, 63 S.Ct. at page 480:

"Any business by installing a regular system for recording and preserving its version of accidents for which it was potentially liable could qualify those reports under the Act. The result would be that the Act would cover any system of recording events or occurrences provided

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