Jelaza v. United States, 5973.

• Decision Date: 04 January 1950
• Docket Number: No. 5973.,5973.
• Citation: 179 F.2d 202
• Parties: JELAZA v. UNITED STATES
• Court: U.S. Court of Appeals — Fourth Circuit

179 F.2d 202 (1950)

JELAZA v. UNITED STATES

No. 5973.

United States Court of Appeals Fourth Circuit.

Argued October 20, 1949.

Decided January 4, 1950.

Russell T. Bradford and Tazewell Taylor, Norfolk, Va., for appellant.

John P. Harper, Asst. U. S. Atty., Norfolk, Va. (George R. Humrickhouse, U. S. Atty., Richmond, Va., on brief), for appellee.

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

DOBIE, Circuit Judge.

Jacob Jelaza was indicted for violations of the Internal Revenue Laws of the United States, 26 U.S.C.A. § 145(b). The first count of the indictment charged that for the year 1943 Jelaza reported a net income of $13,383.15 and paid a tax thereon of $4,385.93, whereas his actual net income for that year was $35,766.85, on which there was a tax due the Government of $16,149.92. The second count of the indictment charged that the appellant reported a net income for the year of 1944 of $15,024.45, and paid a tax thereon of $4,046.24, whereas for that year his actual net income was $51,460.90, on which amount he owed the Government an income tax of $27,585.68. Jelaza entered a plea of not guilty and waived a trial by jury. The District Court of the United States for the Eastern District of Virginia found the appellant guilty on both counts and suspended the imposition of sentence for a period of five years upon condition that the appellant be of uniform good behavior, nor violate any of the laws of the United States or the State of Virginia, and that he pay a fine of $10,000 on the first count of the indictment and a fine of $10,000 on the second count of the indictment within one year as directed by the Probation Officer. Jelaza has appealed. The only question before us is whether there was sufficient evidence to sustain the District Court's finding of guilt.

The Government introduced testimony which, it claimed, showed that, by using three methods commonly employed in computing income in cases of this kind, Jelaza's income for the two years in question was:

                  "Method of Computation              Net Income
                                                  1943         1944
                   Expenditures Method         $35,766.85   $51,460.90
                   Bank Deposits Plus Cash
                    Expenditures                36,221.83    59,704.12
                   Increases in Net Worth
                    Method                      39,401.22    55,617.13"
                

These methods have, in many cases, been approved by the courts, and the Government is not required, in order to support a conviction here, to prove with mathematical certainty the precise amount of unreported, taxable income. Halle v. Commissioner, 2 Cir., 175 F.2d 500; Stinnett v. United States, 4 Cir., 173 F.2d 129; Gleckman v. United States, 8 Cir., 80 F.2d 394.

In these (and other similar) cases, the courts have been careful to point out that findings of fraud have been sustained if, but only if, the taxpayer has offered no explanation, or no adequate explanation, of the discrepancies between (on the one hand) expenditures and/or bank deposits and/or increases in net worth and (on the other hand) the amount of income reported by the taxpayer.

Thus, in the Stinnett case, supra, our Court, 173 F.2d at pages 129, 130, mentioned: "A gross discrepancy between bank deposits and gross receipts, without any adequate explanation by the taxpayer * * Stinnett could offer no adequate explanation of these gross discrepancies." (Italics added.)

In Halle v. Commissioner, supra, Circuit Judge Dobie, speaking for the Second Circuit, said, 175 F.2d at page 503:

"Against this background, taxpayer and his wife introduced little or no genuine evidence to explain the large sums of money deposited in the bank and brokerage accounts."

In the case before us, the taxpayer did offer an explanation of the alleged unreported income (which we shall discuss later) as being gifts from Mrs. Tish, the mother of taxpayer's wife, and the taxpayer testified that his father had repaid to taxpayer a loan of $6,000.

Unquestionably a very important figure in this case is Mrs. Tish. She lived with the Jelaza's, after she sold her store. Mrs. Jelaza was her only child, the apple of her eye, in whom she reposed the utmost confidence. The Government contends that Mrs. Tish's financial resources could not have been large enough for her to have made the gifts in question to Mrs. Jelaza, that these gifts were not in fact made and that taxpayer, under the guise of these gifts, is concealing, and failing to report, what was actually income taxable to him. Mrs. Tish was illiterate, without the ability to read and write. She kept practically no records and was addicted to such strange practices as keeping substantial sums of money hidden in various places in her little store. Yet she displayed no little business acumen in the conduct of her secondhand clothing business.

Voluminous testimony was introduced on both sides as to the extent of the resources of Mrs. Tish. According to the Government, the resources available to Mrs. Tish up through the taxable years before us, based on her own testimony, did not exceed $79,000; the taxpayer introduced evidence to show that these...