Turner v. United States, 6954.

• Decision Date: 23 May 1955
• Docket Number: No. 6954.,6954.
• Citation: 222 F.2d 926
• Parties: I. C. TURNER and E. V. Turner, Appellants, v. UNITED STATES of America, Appellee.
• Court: U.S. Court of Appeals — Fourth Circuit

222 F.2d 926 (1955)

I. C. TURNER and E. V. Turner, Appellants, v. UNITED STATES of America, Appellee.

No. 6954.

United States Court of Appeals Fourth Circuit.

Argued April 12, 1955.

Decided May 23, 1955.

COPYRIGHT MATERIAL OMITTED

Arthur O. Cooke, Greensboro, N. C., and H. F. Seawell, Jr., Carthage, N. C. (C. C. Frazier, Sr., Frazier & Frazier, and Cooke & Cooke, Greensboro, N. C., on the brief), for appellants.

Dickinson Thatcher, Sp. Asst. to the Atty. Gen., H. Brian Holland, Asst. Atty. Gen., Ellis N. Slack, John H. Mitchell, Joseph M. Howard and Kinsey T. James, Sp. Assts. to the Atty. Gen., and Edwin M. Stanley, U. S. Atty., Greensboro, N. C., on the brief, for appellee.

Before PARKER, Chief Judge, and SOPER and DOBIE, Circuit Judges.

SOPER, Circuit Judge.

During the years 1946 to 1950, E. V. Turner and I. C. Turner, who were brothers and equal partners, carried on the business of designing, fabricating and erecting outdoor advertising signs at Greensboro, North Carolina, under the name of Turner Sign Company. Their operations extended to North and South Carolina, Georgia, Virginia and the District of Columbia. In 1953 each of the partners was separately indicted for wilful attempts to evade and defeat a large part of his own and his wife's federal income tax for the years 1946 to 1950 inclusive, by filing returns in which the amount of their income was fraudulently understated, in violation of § 145(b) of the Internal Revenue Code of 1939, 26 U.S.C.A. The cases were consolidated and after an extended trial at which 129 witnesses were examined and numerous exhibits were presented to the jury, a verdict of guilty was returned as to each defendant on each of the five counts in his indictment. E. V. Turner was sentenced to two years in a reformatory and ordered to pay one-half of the court costs, and I. C. Turner, as to whom the jury recommended mercy, was sentenced to one year in a reformatory and ordered to pay one-half of the court costs.

The Government's case was based largely on evidence which showed a failure by the partners to record the gross receipts of the business on the partnership books, a failure on their part to report correctly the amount of the gross sales on their partnership information return, and a failure to disclose the correct amount of their taxable income and the taxes due by them in their individual tax returns. Thus, for the year 1946 the partners failed to report sales in the amount of $4685.84, and claimed as a deduction purchases which were overstated in the sum of $24,285.15; and for the years 1947, 1948, 1949 and 1950 the sales reported in the partnership return fell short by the sums of $44,932.71, $35,075.52, $38,773.47 and $21,896.49 respectively. The additional partnership income and the income tax deficiencies of the partners for these years are shown in the following table:

                Additional Partnership Income Tax Deficiencies
                Year Income E. V. Turner I. C. Turner
                  1946      $ 24,967.87             $ 3,672.43            $ 4,030.09
                  1947        44,016.01               8,255.94              8,519.29
                  1948        32,478.01               4,860.40              4,741.58
                  1949        38,620.41               5,158.50              5,071.14
                  1950        23,287.62               2,800.50              2,381.26
                             __________              _________             _________
                            $163,369.92             $24,747.77            $24,743.36
                

The probative force of the evidence obtained from the taxpayers' records, by which these figures were established, is not challenged. It is conceded in effect that the evidence was sufficient to warrant the submission of the cases to the jury. This appeal is based in large measure on the contention that substantially all of the Government's evidence was inadmissible because it was obtained illegally from the defendants by Government agents under the pretense that only a routine investigation of their tax liability was being made, whereas in fact the agents were seeking evidence on which to base a prosecution for crime.

The salient facts in respect to the investigation are not disputed. It began on July 9, 1951 when Daniel S. Forbes, a special agent of the Intelligence Division of the Internal Revenue Department, went to the main office of the business and identified himself to the two partners and told them that their partnership and individual tax returns had been assigned to him for examination. Investigation by a special agent may or may not lead to a criminal prosecution, and in this case it was Forbes' duty and doubtless his intention to report any delinquencies which he might find to his superiors. He did not give any information on this point to the partners and on cross examination was unable to say whether or not he had told them that he was making a routine "check-up."

After obtaining general information as to the background of the men, Forbes questioned them as to their books and records and was told that they were kept by H. B. Elliott, their bookkeeper; and Elliott was called in and introduced. He was told the nature of the agent's visits and was directed to produce all books and records of the business for the agent to examine. Elliott produced and showed to the agent the books of the business and the sales invoices for the years 1948, 1949 and 1950, which were kept in his office. The sales invoices for the two previous years were kept in a room upstairs. He then took the agent on a tour of the plant and the agent noticed in the plant office in another building a filing cabinet and was told by Elliott upon inquiry that it contained work orders, that is, rough sketches of signs usually showing in each instance the date, the purchaser and the cost. They were filed in alphabetical order and covered the five tax years involved.

Facilities were provided to enable the agent to work in Elliott's office and Elliott departed leaving the agent alone. The agent studied the books and records for some time and then returned to the plant office where the work orders were kept and secured 35 to 40 of them for the year 1950. He listed and checked them against the accounts receivable on the books and discovered that many orders were not shown on the books. He then listed all of the orders for 1950, checked them against the books and found numerous additional unrecorded jobs or work orders. He also discovered numerous sales invoices which were not shown on the books and records. In some instances the unrecorded sales invoices corresponded with the unrecorded work orders, but there were some unrecorded sales invoices for which there were no work orders and some work orders for which there were no sales invoices.

Two weeks later Elliott produced another set of sales invoices for the years 1948, 1949 and 1950, grouped by months, and explained to the agent that these were the invoices he should be using and that the others were the wrong invoices. The agent found that the new lot of invoices corresponded with the books, but they did not account for any of the unrecorded work orders.

Subsequently Forbes was joined in the investigation by Acting Special Agent Ray V. Williams. He was introduced as such to the partners and they were told that he was there to assist in the investigation. Together the agents listed all the work orders for the entire period and checked them against the books and discovered both unrecorded work orders and unrecorded sales invoices for each year. On one occasion Williams discovered Elliott putting old correspondence in the wastepaper basket and upon examination found that it referred to sales for which no work orders or sales invoices had been found.

During the month of October, 1951, after compiling the information obtained in this way, one or the other of the agents spent three or four weeks in visiting persons who had bought signs from the company so as to ascertain whether the unreported sales had actually been made. At the end of the month the two agents conferred with both partners and presented some of the evidence which they had discovered and told them that a substantial number of unreported sales had been found and asked for an explanation. The partners were told that they need not answer the questions but they were not told that their answers might be used against them in a criminal prosecution. Some items were discussed but the partners did not explain the deficiencies in the records above described. They expressed a desire to cooperate with the agents and permitted them to search their private offices, but no additional information was secured.

After the conference Williams traveled over 8,000 miles between October 1, 1951 and February 1, 1952, in visiting 50 towns in North and South Carolina, and in Virginia and Georgia, and making contact with 160 persons in following up leads from correspondence sales invoices and the work orders in order to ascertain whether the sales had been made. In this way additional sales were found as to which no data had been discovered amongst the papers of the partnership.

Significant evidence of faulty accounting was introduced with respect to specific years. For 1947 the record showed 168 entries of transactions in a certain book of which a large number were omitted from the partnership return. For 1948 the partnership return listed as a deductible expense two items for a heating plant installed in the home of the father of the partners. In 1949 the partners accepted certain electrical household appliances in exchange for signs and, except for small sums of cash used in the transactions, made no record of them on the books of the business; and in the same year a check for $4985.50 was received in payment for a sign but at no time was the amount recorded or reported as a sale. During 1950 the partnership traded signs for automobile passenger cars but the entries were not completely recorded. In 1950 a check for $3400 was received for the installation of a...