Sasser v. United States, 14448.

• Decision Date: 09 December 1953
• Docket Number: No. 14448.,14448.
• Parties: SASSER v. UNITED STATES.
• Court: U.S. Court of Appeals — Fifth Circuit

208 F.2d 535 (1953)

SASSER v. UNITED STATES.

No. 14448.

United States Court of Appeals, Fifth Circuit.

December 9, 1953.

L. Eugene McNatt, Atlanta, Ga. (Cuba, Cuba & McNatt, Atlanta, Ga., of counsel), for appellant.

J. Ellis Mundy, U. S. Atty., Herbert A. Ringel, Asst. U. S. Atty., James W. Dorsey, U. S. Atty., Atlanta, Ga., for appellee.

Before HUTCHESON, Chief Judge, and RUSSELL and RIVES, Circuit Judges.

RUSSELL, Circuit Judge.

John W. Sasser was convicted on four counts of an indictment which charged him with wilfully attempting to evade a large part of his federal income taxes for each of the years 1945, 1946, 1947 and 1948 by filing false and fraudulent income tax returns for those years in violation of § 145(b) of the Internal Revenue Code, 26 U.S.C.A. § 145(b). The Court imposed a fine of $2,000, suspended the imposition of a sentence of imprisonment and placed the defendant on probation for a period of two years.

The burden was upon the government to prove beyond a reasonable doubt that the returns filed by Sasser for each of the years contained in the indictment were false and fraudulent and that by the filing of such returns Sasser wilfully attempted to evade the payment of taxes lawfully due. The primary contention urged by Sasser upon this appeal is that the government did not meet this burden and that its evidence fails to prove either that there were understatements of income or a wilful attempt to evade payment of taxes.

The evidence on behalf of the government as to the claimed understatements of income is furnished largely by the testimony of two agents of the Bureau of Internal Revenue who participated in the investigation of Sasser's income tax returns. By their testimony, it was established that Sasser and his wife had no visible source of income during the taxable years other than the income derived from a grocery store and two liquor stores owned and operated by Sasser during portions of those years. There was evidence that Sasser received a small inheritance in 1947, and that his wife was the recipient of a few small gifts of cash during the taxable years which were not taken into account in determining the alleged understatements of income. These items, however, were insubstantial.

The taxpayer maintained no records for the years under review, except that he had in his possession bank statements showing deposits and withdrawals for the years 1947 and 1948. From these statements and the cancelled checks in Sasser's possession the agents attempted to reconstruct the taxpayer's income for those two years. This was done by adding the total deposits and subtracting from that sum redeposits and expenses paid by check. In making these computations all expenses claimed on the income tax returns were allowed, but those expenses which were not paid by check were concluded to have been paid by cash which represented undeposited receipts. Based upon this conclusion, which is certainly a reasonable one under the circumstances, the gross sales represented by the adjusted bank deposits were increased by the amount which the total expenses claimed and allowed exceeded the amount of such expenses paid by check. The final result thus obtained indicated that the taxpayer had understated his income by approximately $10,000 in 1947, and by approximately $4,500 in 1948.

Inasmuch as there were no records available covering the years 1945 and 1946, the agents resorted to what is commonly referred to as the "net worth" or "increase in net worth" method to establish Sasser's income for those years. This method was also used to corroborate the understatements for the years 1947 and 1948 indicated by the computations based upon the bank statements and checks. The net worth method of reconstructing taxable income in cases where the taxpayer has no records from which his actual income may be computed is a hybrid method of determining income based upon the cost of assets owned by the taxpayer at the beginning and at the end of each taxable period. In cases where this method is used it is essential that the cost of all assets owned by the taxpayer at the beginning and at the end of the taxable year be established within a reasonable degree of certitude. By subtracting the cost of the assets owned at the beginning of the year from those owned at the close of the year and reducing the difference by the sum of the taxpayer's liabilities at the close of the year, his increase in net worth during the years may be established. Of course, in order to comput the taxable income for the year it is necessary to adjust this figure by adding to it personal expenditures and reducing this sum by any non-taxable, or only partially taxable, income.

In computing Sasser's increase in net worth the agents checked all available public and private records and, to use the language of one of the agents, "everything that we could get our hands on that related to the case." They determined and so testified that his net worth as of January 1, 1945, was $42,262.42, which amount included, among other things, cash, bank deposits, Postal Savings, Government Bonds, accounts receivable, inventory, real estate and fixtures and equipment. With that figure and those assets as a starting point they testified as to the cost basis of all assets owned by Sasser as of December 31st of each succeeding year through December 31, 1948. The value of these assets, reduced by the amount of outstanding liabilities, showed that Sasser's net worth for...