Mersel v. United States, 25428.

• Decision Date: 05 January 1970
• Docket Number: No. 25428.,25428.
• Citation: 420 F.2d 517
• Parties: Albert L. MERSEL and Michael Mersel t/a Mike's News & Sundries, Appellants, v. UNITED STATES of America, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

420 F.2d 517 (1970)

Albert L. MERSEL and Michael Mersel t/a Mike's News & Sundries, Appellants, v. UNITED STATES of America, Appellee.

No. 25428.

United States Court of Appeals Fifth Circuit.

October 2, 1969.

Order January 5, 1970.

J. Edward Worton, Miami, Fla., for appellants.

Mitchell Rogovin, Johnnie M. Walters, Asst. Attys. Gen., Tax Div., Lee A. Jackson, Harry Marselli, Joseph M. Howard, John P. Burke, Frank X. Grossi, Jr., Attys., Dept. of Justice, Washington, D. C., William A. Meadows, Jr., U. S. Atty., Miami, Fla., for appellee.

Before WISDOM, GODBOLD and SIMPSON, Circuit Judges.

SIMPSON, Circuit Judge:

The instant appeal is from a judgment entered in favor of the United States as defendant in a suit for recovery of occupational and excise taxes on wagering and of interest and delinquency penalties, which were paid under protest by appellants Albert L. Mersel and Mike Mersel, trading as Mike's News & Sundries (hereinafter "taxpayers"). The trial was to the court, which entered findings of fact and conclusions of law.

Four grounds of error are asserted:

(1) That the record does not support the trial court's findings of fact. Basically, the findings attacked are to the effect that the plaintiffs were engaged during the period from August 1961 through June 1963 in the business of accepting wagers, and that the occupational and excise taxes on wagers, with penalties and interest, amounted to $32,074, as determined by the Commissioner of Internal Revenue.

(2) That the trial court erred in refusing to allow the plaintiffs to call an internal revenue agent as a rebuttal witness for the purpose of examining him as to the computation of the assessments.

(3) That the trial court erred in refusing to allow the plaintiffs to introduce testimony as to their reputation in the community for not accepting wagers.

(4) That the trial court erred in ruling as a matter of law that the plaintiffs' failure to pay the stamp tax and file the excise tax returns was not due to probable cause, and further holding that therefore the delinquency penalty collected was proper. As to the 4th point the government concedes error for the purposes of this appeal. Remand of the case for further proceedings is thus required. See Part IV of this opinion. As to the other questions raised, we dispose of them adversely to the taxpayers-plaintiffs-appellants.

I.

As we review the evidence, it should be borne in mind that the determination of tax and the assessment thereof by the Commissioner were presumptively correct. The taxpayers had the burden of proving that they were overtaxed and the amount by which they were overtaxed.¹

The evidence relied on by the trial court in finding that the plaintiffs were engaged in the business of accepting wagers falls into two categories: (1) the testimony of Special Agent D. J. Bonomi of the Internal Revenue Service that he placed seven wagers over a period of several weeks and observed others placing wagers with Mike Mersel during the same time; and (2) various items alleged to be wagering tools, devices or paraphernalia that were seized during a raid on Mike's News & Sundries on December 13, 1962. These items included columnar pads similar to accounting paper allegedly used to record wagers, football schedule sheets with handwritten markings, racing tip sheets and publications, scraps of paper alleged to be records of wagers and $1,032 in currency taken from the pockets of Mike Mersel at the time of the execution of the search warrant and incident arrest.

The appellants urge that inconsistencies between Agent Bonomi's testimony and his deposition and the fact that he relied on notes condensing prior memoranda in order to refresh his memory indicate that he was not a credible witness. Bonomi's testimony that he placed bets was contradicted by Mike Mersel's assertion that Bonomi was lying, that he never booked bets, and the taxpayers' principal employee's testimony that no bets were ever made in his presence. Bonomi explained the discrepancies between his deposition and his trial testimony by stating that the deposition was taken over four years after the events and that he subsequently had refreshed his recollection from memoranda not available to him at the time he was deposed. The trial judge was faced with and exercised a typical credibility choice. We are not at liberty to upset his findings in this regard as "clearly erroneous". F.R.Civ.P., Rule 52(a).

The appellants explain the physical evidence as follows: They contend that the alleged bookmaking account sheets were business records of the news stand, relying on a detailed explanation by Mike Mersel of the various entries. They maintain that records of point spreads for football and basketball games, along with what the government expert identified as coded summaries of wagers, were actually charts kept by Albert Mersel in connection with his personal hobby of following professional and collegiate athletic contests. With these records he said he could test the success of various betting systems against the actual outcome of football and basketball games. The tabulated results, he testified, were thus simply those of hypothetical or "mythical" bets under varying betting systems. Taxpayers state that the columnar pads and racing periodicals were openly on display and were sold on the premises. The money found on Mike Mersel was in hundred dollar bills except for a little over $100 in 20's. He said that the money was $1000 ready to go to the bank to be exchanged for 2 packages of ten dollar bills, 50 to the package, to be used in cashing customers' checks, plus $32.00 of personal funds. Finally, taxpayers rely on the testimony of the treasury agents participating in the raid that the scratch sheets and betting slips found on Mike Mersel could have been used by either a bookmaker or a bettor, and that no betting slips or recap sheets were found on the premises (except for the allegedly innocent items on the person of Mike Mersel) in early afternoon, a time normally busy for gamblers, as showing that the premises were not a bookmaking establishment. In this connection, they brought out from the raiding agents that no bets came in over the telephone during the several hours the search and inventory was being made the afternoon of the raid. This is urged as strongly indicative that the place was not a bookmaking establishment.

The physical evidence seized coupled with the expert testimony of Special Agent Edward Hilker supported the trial court's findings. This witness explained in detail how the items found could be used as gambling paraphernalia, that he had frequently seen similar items so used, and that his opinion was that the items introduced as evidence by the government were tools of a bookmaker.

The explanations offered by the plaintiffs presented a credibility choice, of course. The duty of making that choice is by law cast upon the trier of facts, the trial judge. His findings of fact are binding upon us unless "clearly erroneous". Rule 52(a), Federal Rules of Civil Procedure. The conflicts in the testimony and the opposing explanations of the physical evidence were typical of such cases and the trial court's findings represented legitimate credibility choices. In these circumstances, his findings must be sustained by us. See Chaney v. City of Galveston, 5 Cir. 1966, 368 F.2d 774, and the authorities there collected, as well as our earlier case of Galena Oaks Corporation v. Scofield, 218 F.2d 217, for a full explication of the "clearly erroneous" standard.

In assessing the excise tax on wagers, the government estimated the amount of tax due at $22,036.68, based on monthly reporting periods from August 1961 to December 1962. The estimate was apparently based on the claimed betting records seized during the raid and on bets placed by Agent Bonomi, projected back to August 1961 under the procedure approved by this Court in Pinder v. United States, 5 Cir. 1964, 330 F.2d 119. However the government introduced no evidence to support the correctness of its dates of assessment other than testimony brought out on cross-examination of Michael Mersel that he purchased 40,000 20-line columnar pads on August 9, 1961.

The appellants contend that the trial judge improperly found that the assessment was correct, since, unlike the Pinder case, there was no evidence in the record justifying the projection back. However the burden was on the plaintiffs to demonstrate that the assessment was erroneous.² The taxpayers' proof consisted of their testimony and that of an employee that they accepted no wagers whatever. Also, they proffered the testimony on rebuttal of the Internal Revenue Agent who made the computations to show the method of computation employed. Since the only issue raised by the taxpayers in their case in chief was whether they accepted wagers, and since the method of computing the assessment was not challenged, the government was not obligated to introduce evidence as part of its defense regarding the method of computation employed. The taxpayers' evidence that no gambling operation was conducted was not believed by the trier of fact. In Part II of this opinion, infra, we conclude that the offer of the Agent's testimony was properly excluded on rebuttal. It follows then, since the plaintiffs failed to meet their burden of showing that the assessment was improper, the trial judge was not in error in sustaining the assessment.

II.

Inasmuch as the tax assessment computed by the government was prima facie correct, the taxpayers had the burden of showing it was erroneous. See footnote 1, supra. We have already indicated that the taxpayers' case in chief was devoted exclusively to proving that the plaintiffs had not engaged in gambling, and the government's evidence was responsive to that contention. Rebuttal evidence is of course generally admissible only to meet evidence introduced by the defendant, and since the government...