Nicola v. United States

• Decision Date: 09 August 1934
• Docket Number: No. 5248.,5248.
• Citation: 72 F.2d 780
• Parties: NICOLA v. UNITED STATES.
• Court: U.S. Court of Appeals — Third Circuit

72 F.2d 780 (1934)

NICOLA v. UNITED STATES.

No. 5248.

Circuit Court of Appeals, Third Circuit.

August 9, 1934.

Maynard Teall, Joseph A. Richardson, and Smith, Shaw, McClay & Seifert, all of Pittsburgh, Pa., for appellant.

Horatio S. Dumbauld, U. S. Atty., John A. McCann, Sp. Asst. to the U. S. Atty., and James I. Marsh, Asst. U. S. Atty., all of Pittsburgh, Pa. (E. Barrett Prettyman, Gen. Counsel, Bureau of Internal Revenue, and I. W. Carpenter, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., of counsel), for appellee.

Before WOOLLEY, DAVIS, and THOMPSON, Circuit Judges.

DAVIS, Circuit Judge.

This is an appeal from a judgment of conviction entered upon the verdict of a jury.

F. F. Nicola, hereinafter called defendant, was indicted, tried, and convicted for attempting to defeat and evade a part, $26,394.20, of his income tax for the year 1928, in violation of section 146 (b) of the Revenue Act of that year (26 USCA § 2146 (b) which provides that:

"(b) Any person required under this title to collect, account for, and pay over any tax imposed by this title, who willfully fails to collect or truthfully account for and pay over such tax, and any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof, shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, be fined not more than $10,000, or imprisoned for not more than five years, or both, together with the costs of prosecution."

While the evidence was complicated and technical and consisted almost entirely of voluminous books of account interpreted by expert opinions, the issue itself was comparatively simple.

The Miller Printing Machinery Company, hereinafter called the Miller Company, a corporation mostly owned and controlled by the defendant, sold certain patents and other personal property in 1928 to Brandtjen & Kluge, Inc., for $675,000 in cash on which there was a sales commission of 15 per cent. or $101,250. This commission was credited by the Miller Company on the day the sale was completed to the Point Improvement Company, hereinafter called the Point Company, a corporation of which the defendant was president, as income to it and was so returned by the Point Company. The contention of the government is that this commission was really the income of the defendant which he did not return and on which he did not pay the tax as personal income to himself, though it was paid by the Point Company, at the rate applicable to it, to the government and is still retained by it.

The inducement, according to the government, to have the return made by the corporation rather than the defendant was to secure a lower tax rate. If this contention is true, the defendant would thus save the difference between the higher and lower rate.

There was no real contradiction between the evidence of the government and defendant. The government relied mainly upon entries in the books of account interpreted in the light of a certain typewritten letter, Government Exhibit No. 15. The defendant contends that these entries, when properly interpreted, show that this commission was income of the Point Company and not of himself.

The defendant contends that the judgment should be reversed and a new trial granted for several reasons:

I. Because prejudicial error was committed in the admission of evidence.

1. The first specification relates to the admission of the following typewritten letter:

"Mr. Girts: Herewith find a number of salesmen's items that I have taken over from the Miller P. M. Co. on which the collections are expected to be made and credited to me.

"Report to me on this the 15th of every month. I have not entered these on my books although I may do so in connection with taxes if we can declare a loss without bringing suit.

"It is very important that I have directly and I know this will take a great deal of time and overtime a study of what shift is necessary for me to put on the various books in connection with profits and losses for 1928. As we understand it, there is a heavier tax on the individual than on the corporation and therefore I want to pass as many of these profits through land companies like the Point Improvement Company, Nicola Bros. Co., or Nicola Land Co. as I can. Make a careful survey of all of this year's transactions. I anticipate in view of having sold 240 shares of Chase National Bank that I will have a very large amount to account for there.

"Let me know what each one of the companies seem to have in overhead burden that would be an offset to possible profits that might be swung to them.

"F. F. Nicola."

This letter was found and secretly copied by Henry A. Wolf, a government agent who examined the books. It was pinned to a voucher relating to the account of a number of salesmen, which had been taken over from the corporation by the defendant. It was not only typewritten, but the name "F. F. Nicola" which it bore was also in typewriting. There was no evidence establishing who wrote it, who pinned it to the voucher, or who left it in the book. It was entirely unidentified and unproved. Was it admissible against the defendant?

"The generally accepted rule is to the effect that the mere fact that a letter (other than a reply letter) purports to have been written and signed by the person in question is insufficient to establish its authenticity and genuineness. * * * This rule is especially applicable where the letter is typewritten or printed and the signature is attached by a rubber stamp or stencil, or is typewritten or printed." 9 A. L. R. 987, 988, note.

A letter does not prove itself. In order to make it evidence, it must be shown either to have been written by the person against whom it is produced, or by some one authorized to act in his behalf. Neither the authenticity nor genuineness of this letter was established by any evidence. Its admission was clearly erroneous, and unless it appears "beyond a doubt that the improper evidence admitted did not and could not have prejudiced the rights of the party duly objecting," a new trial should be awarded. Sprinkle v. United States (C. C. A.) 150 F. 56, 59; McGowan v. Armour (C. C. A.) 248 F. 676; Sweeney v. Oil & Gas Co., 130 Pa. 193, 203, 18 A. 612; Boston & Albany R. Co. v. O'Reilly, 158 U. S. 334, 337, 15 S. Ct. 830, 39 L. Ed. 1006. Counsel for the government frankly admitted at the argument that without this letter they would not have a case.

Being entirely unproved, its admission violates the fundamental rules for the admission of writings and documents, unless it can be admitted on the theory, for which the government contends, that it was pinned to the voucher and, therefore, became part of the books of account or part of the voucher and so was admissible as an original entry or part of the voucher. But the nature of the letter and the meager facts about it make it inadmissible on this theory. A book of original entries and also an account book of secondary entries is one in which a detailed history of business transactions is entered. Books of account consist of entries made in the regular course of business showing the transactions which have actually occurred in the business and not of orders, executory contracts, things to be done subsequent to the entries, or of methods and principles according to which the business must be conducted and entries made. Laird v. Campbell, 100 Pa. 159, 165; Fulton's Estate, 178 Pa. 78, 87, 89, 35 A. 880, 35 L. R. A. 133. In book entries relating to sales, if the goods are charged before the contracts of sale are complete, the books are not competent evidence. They should be guardedly received in evidence and then only if made in the regular course of business. In order to make a book entry admissible as evidence, it must be the registry of a sale and delivery or a transaction actually made of the things therein contained, at the time of their being so entered. Fairchild v. Dennison, 4 Watts (Pa.) 258.

But assuming that the letter was genuine and its execution proved, it purported to give the bookkeeper certain instructions to be observed by him in the allocation of profits in tax returns and was then by him or some one left attached to a voucher by a pin. The pin has no significance and no more makes it an entry in the books or a part of the book of accounts or a part of the voucher to which it bears no logical relation than if it had been left with the voucher unattached. It was a mere separate piece of paper and could not be treated as a part of the voucher or book of original entry. Rudy v. Myton, 19 Pa. Super. 312, 318. If this letter was properly admitted, then any unproved and unsigned letter may be admitted against a defendant in any civil or criminal case, if some person, friend, or foe, without authority, writes it on a typewriter and pins it to a voucher or some piece of paper and leaves it in an account book. The letter shows upon its face that it was not intended to be a part of the voucher or an entry in the books. It relates to no transaction made in the regular course of business and its character and purpose cannot be changed into a proper entry in a book of accounts or made a part of the voucher by the magic of a pin or the place where it was found. Its admission on this or any other theory is untenable. Its admission in evidence was prejudicial and erroneous.

The learned trial judge admitted the letter on the authority of Lisansky v. United States (C. C. A.) 31 F.(2d) 846, 851, 67 A. L. R. 67. In that case the question was whether or not government agents could testify to the contents of records of defendants used by the government agent while examining their tax returns about whose authenticity and genuineness there was no question. The court held that although the government could not compel the production of the records which had been voluntarily turned over to the agents, the agents...