Kirsch v. United States, 13785.

• Decision Date: 13 May 1949
• Docket Number: No. 13785.,13785.
• Citation: 174 F.2d 595
• Parties: KIRSCH v. UNITED STATES.
• Court: U.S. Court of Appeals — Eighth Circuit

174 F.2d 595 (1949)

KIRSCH v. UNITED STATES.

No. 13785.

United States Court of Appeals Eighth Circuit.

May 13, 1949.

Frank J. Comfort, of Des Moines, Iowa (Walter F. Maley, of Des Moines, Iowa, on the brief), for appellant.

William R. Sheridan, Asst. U. S. Atty., of Keokuk, Iowa (Maurice F. Donegan, U. S. Atty. and Cloid I. Level, Asst. U. S. Atty., both of Des Moines, Iowa, on the brief), for appellee.

Before GARDNER, Chief Judge, and WOODROUGH and COLLET, Circuit Judges.

COLLET, Circuit Judge.

This is an appeal from a conviction and sentence under a charge of violating Section 145(b) of the Internal Revenue Code, 26 U.S.C.A. § 145(b).¹

The indictment, in five counts, related to each of the calendar years 1941, 1942, 1943, 1944, and 1945. Count Four is typical of all five. It charged that defendant "did wilfully and knowingly attempt to defeat and evade a large part of the income tax due and owing by him to the United States of America for the calendar year 1944 by filing and causing to be filed * * * a false and fraudulent income tax return wherein he stated that his net income for said calendar year was the sum of $1,269.42 and that the amount of tax due and owing thereon was the sum of $176.96, whereas, as he then and there well knew, his net income for the said calendar year was the sum of $71,028.46, upon which said net income he owed to the United States of America an income tax of $44,663.92." The jury found the defendant not guilty on all but the fourth count.

The sufficiency of the indictment and the evidence is challenged on the ground that the indictment did not charge and the proof did not show that defendant committed any act other than to wilfully file a false and fraudulent return reporting a lesser tax than he actually owed, and that such allegation and proof is insufficient to constitute a felony under Section 145(b). It is argued that the wilful filing of a false or fraudulent return with intent to defeat or evade taxes constitutes a misdemeanor under Section 3616(a) of the Internal Revenue Code, 26 U.S.C.A. § 3616(a), and hence that transgression may not constitute a felonious attempt to evade or defeat the payment of taxes under Section 145(b). Section 3616(a) reads: "Whenever any person * * * delivers or discloses to the collector * * * any false or fraudulent * * * return * * * with intent to defeat or evade the * * * assessment intended to be made * * *, he shall be fined not exceeding $1,000, or be imprisoned not exceeding one year, or both * * *."

As to that part of the charge and proof relating to the report in his return of less tax than was due, defendant says that such a dereliction is defined as a misdemeanor by Section 145(a)² and that the two misdemeanors of filing a false return defined by Section 3616(a) and by Section 145(a) may not be combined to constitute the felony of attempting to evade taxes "in any manner" defined by Section 145(b). An examination of the record reduces that issue to an abstract question. The conviction did not rest alone upon the allegation and proof of a wilful filing of a false return falsely reporting taxes due. The sufficiency of such allegation and proof to sustain a conviction under Section 145(b) is therefore not presented. There was evidence by the Government, the truth of which was admitted by formal stipulation at the trial, that defendant was the owner of the Park Avenue Tavern during all of the years covered by the indictment and that he was the owner of a bank account carried in the name of the Park Avenue Tavern. The proof showed, and defendant admitted in his testimony, that the tavern license was issued in the name of his cousin, Joseph Wagner, who had no interest in the business and gave it no attention. He admitted that although the net income from the tavern belonged to him alone, the income tax returns for the business were made in the name of Joseph Wagner, which Wagner did not even sign. There was proof, corroborated by the testimony of defendant himself, that he was engaged in the illicit sale of liquor during the years 1944 and 1945, from which he made commissions amounting to $1,859 during the two years, no part of which was reported in his return for the year 1944. It is true that the defendant denied that the splitting of his income and reporting part of it in the name of Joseph Wagner was wilfully done for the purpose of evading taxes, and explained that action by stating that he had a misunderstanding with the City authorities in 1941 and could not himself obtain a beer license, leaving the inference that the return of the income tax in Wagner's name was to conceal from the City authorities the fact that he owned and actually operated the tavern. It is also true that he explained that the reason for not reporting the commissions on the illicit liquor sales was because his tax accountant advised him not to report those commissions until he terminated those operations or those illicit operations would be sure to be discovered. He testified that after he was caught and convicted he reported all of the commissions in his return for 1945 and paid the tax on the whole as income for that year. But those explanations went to the question of the wilfullness of an attempt to evade taxes, which was a question for the jury. If there was need for proof of affirmative acts other than those defined as misdemeanors in Sections 3616(a) and 145(a) in furtherance of an attempt to evade taxes, it is contained in the record. His conviction therefore did not rest entirely upon proof of acts defined as misdemeanors by Sections 3616(a) and 145(a). A combination of acts constituting misdemeanors coupled with other affirmative acts designed to evade payment of taxes will support a conviction for felonious attempt to evade the payment of taxes under Section 145(b). As stated in Spies v. United States, 317 U.S., loc. cit. 500, 63 S.Ct. 364, 368, 87 L.Ed. 418: "If on proper submission the jury found these acts other than the failure to file a return or pay the tax due, taken together with willful failure to file a return and willful failure to pay the tax, to constitute a willful attempt to defeat and evade tax, we would consider conviction of a felony sustainable."

The defendant earnestly insists and forcefully argues that the Government did not prove that he received income upon which the tax was not paid, and that the assumption of that fact in a hypothetical question was error. As heretofore noted, defendant owned a tavern. A checking account was maintained in the name of the tavern. The tavern was operated in 1944 by a manager named Thomas Hanlon. It was located in an industrial district in Waterloo. Many of its customers were employees of industries located in the near-by vicinity. On pay days at the industries a large amount of checks were cashed by the tavern for the employees of the industries. In order to have sufficient cash on hand at the tavern with which to cash these checks, before pay days Hanlon generally got it from defendant who got it from his deposit box where he kept a considerable amount of cash. Sometimes Hanlon would get it from the bank from the tavern's checking account. When the checks were cashed ordinarily they would be endorsed by the tavern and taken to the bank with the receipts from the tavern business and cashed. If it was convenient to do so, defendant was repaid then in cash or with checks for his advances. If it was not convenient to do that, all of the proceeds of the checks were deposited in the tavern's checking account or a portion taken "in change" for use at the tavern. If more cash was obtained in advance of a pay day for the purpose of cashing checks than was needed therefor, the excess was handled in the same manner. The deposit of the proceeds of these checks to the tavern account was frequent and in comparatively large amounts. Hanlon estimated the amount of the checks cashed at from $2,000 to $3,500 each week. The expenses of operating the tavern and expenditures for supplies were paid in cash. Each such expenditure was noted on a slip of paper and put in the cash register. At the end of each week a tax accountant regularly employed for that purpose came by the tavern and picked up these records of expenditures and the tape from the cash register showing income receipts from sales. The accountant kept the books of the tavern and made up the income tax for the tavern business (in Joseph Wagner's name) from these records. For the year 1944 the cash receipts reported were $35,431.26; the expenses, $30,090.76; and the net profit, $5,340.50, upon which a tax of $1,333.75 was paid in Wagner's name. For the year 1944 defendant filed a tax return showing gross income of $3,186.70, expenses of $1,916.42, and a net income of $1,269.42, upon which a tax of $176.96 was paid. The return which the defendant made in his own name for the year 1944 showed five items of rent from buildings owned by him in Des Moines and Waterloo, a "corn and hog A.A.A. check" for $100 and $600 in profits from real estate sales. The Government's proof showed purchases of liquor from defendant in 1944 totaling more than $16,900. Its evidence also showed that defendant purchased drafts and cashier's checks from the bank in 1945 on the following dates and in the following amounts: May 3, 1945, $6,680; October 11, 1945, $9,000; October 11, 1945, $5,000; October 11, 1945, $13,000; October 16, 1945, $6,500; October 18, 1945, $7,000; November 21, 1945, $3,375; November 21, 1945, $3,125. The Government offered in evidence the bank's record of the tavern's checking account and deposit slips showing all deposits made to that account. Mr. LeCocq was the zone Deputy Collector in Waterloo for the Internal Revenue Service who investigated defendant's returns. He testified that from the bank records the amount of "unidentified" deposits made in the tavern account were for 1944, $54,880.57, and for 1945, $40,029.06. From the bank's...