O'ROURKE v. United States
| Decision Date | 28 July 1965 |
| Docket Number | No. 19614.,19614. |
| Citation | 347 F.2d 124 |
| Parties | William R. O'ROURKE, Appellant, v. UNITED STATES of America, Appellee. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Dale M. Green, Sherwood, Tugman & Green, Walla Walla, Wash., John Gavin, Gavin, Robinson, Kendrick, Redman & Mays, Yakima, Wash., for appellant.
Frank R. Freeman, U. S. Atty., C. D. Fransen, Asst. U. S. Atty., Yakima, Wash., for appellee.
Before HAMLEY and JERTBERG, Circuit Judges, and MATHES, District Judge.
William R. O'Rourke, Jr., appeals from a judgment, entered upon a jury verdict, convicting him of evasion of individual income taxes for the year 1958, in violation of 26 U.S.C. § 7201 (1958). He urges three reasons why the judgment should be reversed: (1) the evidence is insufficient to establish any willful intention on his part to evade the payment of individual income taxes in 1958; (2) the verdict was coerced or compromised; and (3) the verdict of guilty is inconsistent with the verdicts of not guilty returned on the five other counts of the indictment.
In three counts of the indictment O'Rourke and his wife were jointly charged with evasion of individual income taxes for the years 1956, 1957 and 1958. In three additional counts covering the same years they were jointly charged, as president and vice-president, respectively, of their wholly-owned corporation, W. R. O'Rourke Company, Inc., with evasion of corporate income taxes. The jury acquitted Mrs. O'Rourke on all six counts and acquitted appellant on five counts, finding O'Rourke guilty of count III relating to the joint personal income tax reported for the year 1958 by appellant and his wife.
Appellant was the sole owner of W. R. O'Rourke Company and incorporated the business in April, 1956. The unincorporated business was gradually liquidated and was entirely closed out by the end of 1957. The evidence leading to the conviction showed that some of the accounts owned by the corporation were paid but never recorded in the corporate books. Substantially all of the payments not so recorded were placed in the personal bank account of O'Rourke.
O'Rourke drew checks on this personal bank account for the purchase of corporate securities which were taken in his name, for the repayment of personal loans, for the payment of personal living expenses, and for the purchase of real estate. During 1958, O'Rourke used funds in this personal account to purchase corporate securities having a total price of $45,462.24. This figure is to be compared to the $71,909.00 received by him in that year from payments which should have gone to the corporation, according to testimony presented by the Government. O'Rourke used these corporate securities as well as other personal assets and assets of the corporation as security for bid bonds needed for corporation business.
The head bookkeeper for O'Rourke from 1955 until about January 15, 1959, was Mrs. Olive Leidy. She prepared the trial balance for the calendar year 1958 and gave it to William H. Holland, O'Rourke's certified public accountant. Holland used the trial balance in the preparation of the corporate income tax returns for the O'Rourkes. The trial balance did not reflect the money which was collected on corporation accounts but which was placed in the personal account of O'Rourke.
Based on information supplied to them by Mrs. Leidy, the Internal Revenue Service began an audit and investigation of O'Rourke's books and records. Thereafter he requested Holland to audit his personal and corporate records. As a result of that audit O'Rourke filed amended returns in 1960 and attempted to transfer the stock to the corporation.
We first consider the question of whether, as O'Rourke asserts, the evidence is insufficient to support the verdict.
For a violation of section 7201 under count III of the indictment, appellant must have had a greater personal income tax due and owing for the year 1958 than he reported, and he must have willfully attempted to evade such tax. Elwert v. United States, 9 Cir., 231 F.2d 928, 932-933. In determining whether the jury was warranted in finding these two elements to exist, we must view the evidence in a light most favorable to the Government, including all the reasonable inferences to be drawn therefrom. Noto v. United States, 367 U.S. 290, 296, 81 S.Ct. 1517, 6 L.Ed.2d 836; Beyda v. United States, 9 Cir., 324 F.2d 526, 527; Carr v. United States, 9 Cir., 317 F.2d 409, 411.
The theory on which the Government prosecuted the case and on which the court instructed the jury, over appellant's objection, was that O'Rourke personally received money which properly should have been credited to the corporation. Under that theory O'Rourke should have reported the income in the corporate return and then also in his personal income tax return as a dividend. The diversion to himself of income which should have first been recorded in the books of the corporation, the Government contended, resulted in a constructive dividend to him.
O'Rourke's position, on the other hand, is that the money which the Government says was a constructive dividend was used by him as trustee for the corporation and for corporation purposes, and was therefore not a constructive dividend. In addition, O'Rourke points out that he testified that he did not know what a constructive dividend is, and that there was other testimony indicating that experts disagree as to what constitutes a constructive dividend and whether there was one in this case. Under these circumstances, O'Rourke argues, he could not be guilty of the offense since he did not have the necessary criminal intent.
First, was the jury warranted in finding that more income should have been reported in O'Rourke's individual income tax return for 1958 than was reported? The answer to that question lies in the determination of whether, on this record, the corporate money which was placed in appellant's personal account could be found to be a constructive dividend.
O'Rourke's analysis is that: (1) the money placed in the personal account was used by O'Rourke to buy securities which in turn were pledged by him to obtain loans and bid bonds for the corporate business and which constituted a corporate use; (2) he intended the money to be so used, and the only reasons why he placed the securities in his own name rather than the corporate name was to avoid the inconvenience of obtaining a corporate resolution every time a share of stock was sold and to meet the failure of brokers to take a corporate check; (3) he did subsequently transfer the securities to the corporate name; (4) the...
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