U.S. v. Allen, 74-1959

• Decision Date: 02 September 1975
• Docket Number: No. 74-1959,74-1959
• Citation: 522 F.2d 1229
• Parties: 75-2 USTC P 9685 UNITED STATES of America, Plaintiff-Appellee, v. James L. ALLEN, Defendant-Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 1229

522 F.2d 1229

75-2 USTC P 9685

UNITED STATES of America, Plaintiff-Appellee, v. James L. ALLEN, Defendant-Appellant.

No. 74-1959.

United States Court of Appeals Sixth Circuit.

Sept. 2, 1975.

James L. Allen, pro se.

Frederick M. Coleman, U. S. Atty., Cleveland, Ohio, Robert E. Lindsay, Charles E. Brookhart, Scott P. Crampton, Asst. Atty. Gen., Tax Div., Dept. of Justice, Washington, D. C., for plaintiff-appellee.

Before WEICK, McCREE and MILLER, Circuit Judges.

WEICK, Circuit Judge.

Allen has appealed from his judgment of conviction entered upon a jury verdict of guilty on two counts of an indictment charging him with willfully attempting to evade income taxes for the years 1967 and 1968 in violation of 26 U.S.C. § 7201. He was sentenced to two, five year concurrent terms of imprisonment, the first six months of which were to be served in a jail-type institution and he was placed on probation for the balance of the sentence. He was fined $2,500 on each count or a total of $5,000. Count I of his indictment was dismissed.

Although he was represented in the District Court by two retained trial lawyers, his brief in this court, as well as his oral argument, were Pro se.

At the trial, the government used the net worth and expenditures' method of proof. Its evidence tended to prove that although Allen and his wife, in joint income tax returns, reported a taxable income of $11,225.56 for 1967 and $16,580.79 for 1968, their net worth increased $18,402.37 during 1967 and an additional $35,436.96 during 1968. The Allens' actual taxable income was computed to be $26,415.68 for 1967 and $44,036.54 for 1968. A technical adjustment, adjusting the 1968 income $10,000 downward to $34,036.54, was made to allow for an error discovered in one of the adding machine tapes used in preparation of the 1968 return. This adjustment allowed in full the deduction claimed by Allen in his original return.

Allen had been employed, prior to 1967, by various magazine circulating companies supervising the activities of magazine salesmen.

Late in 1966 Allen started his own business, calling it National Organization Sales. He was a subfranchisee under a regional franchisee in the magazine subscription sales business. He acted as a clearinghouse for salesmen and others, who were independent contractors, and processed subscriptions to various publishers.

Revenue Agent Tracy described Mr. Allen's business:

Mr. Allen explained to me that most of his sales were through a sponsor, and these sponsors usually consisted of VFW posts or volunteer fire departments or organizations similar to these.

The sales campaign would be in a given locale, where they would advertise a sales campaign and explain that they were benefiting the sponsor, and the sponsor would take the proceeds they made, the profits, and use this money either for their organization or to buy hospital equipment. And he explained to me that the hospital equipment was free for public use and this was part of the campaign, to build up good will and so forth. This was publicized and the people that were sold subscriptions hopefully were aware of this fact, which would induce their sales.

The sponsoring organization would receive 8 percent of the gross sales for the campaign.

Allen admits that the volume of his business in 1967 totalled $596,087.30 and $711,988.14 for the year 1968.

National Organization Sales was operated primarily out of an office in the basement of the Allen home. During the years in question, the business records were kept in a single entry system, which Revenue Agent Tracy, who was assigned to perform a field audit of the taxpayers described as "unique." Tracy testified:

To summarize my opinion, in areas where I felt he should have records he didn't have records; in other areas I felt he had too many records.

It was not possible to make an accurate accounting of all of Allen's income.

The Allens' tax returns for 1967 and 1968, and for many years prior to that time, were prepared by Hubert Howes, an attorney, and his wife, Shirley Howes, a certified public accountant. The returns were prepared primarily on the basis of information furnished by Allen. Mrs. Howes testified that in January, 1968 Allen discussed with her the advisability of setting up a bookkeeping system. Mrs. Howes finally set up such a system in 1970 for Allen. One of the theories of the case presented to the jury by the defense in argument was that Allen simply was inadequate to the task of starting and running his own business and keeping the records for that business. In other words, the defense argued that if some income was not reported it was the result of the inadequate records, and not the result of a willful attempt to evade income taxes. The defense also attacked the accuracy of the government's opening and closing net worth figures.

Much of the prosecution's evidence concerning willfulness was presented through the testimony of Internal Revenue Agent, James Tracy.

Agent Tracy testified concerning his audit of the returns and investigation of the Allens' income. Tracy was assigned to conduct a field audit of the Allens' 1967 return on November 14, 1969. He visited the office in the basement of the Allen home many times from December 11, 1969 through April 15, 1970. He decided to audit both 1967 and 1968 income tax returns.

Tracy's testimony was important in establishing the accuracy of the net worth computations. He also testified that Allen at first denied and, later in the investigation, admitted receiving reimbursement for expenses from the Veterans of Foreign Wars for which expenses he had taken deductions in his returns.

During 1967 and 1968, Allen served as junior vice commander, senior vice commander and commander of the Ohio Veterans of Foreign Wars. Such payments by the Veterans of Foreign Wars could have been a source of unreported income and the initial denial of such payments was strong evidence of willfulness. Tracy also testified that Allen denied making a profit on hospital equipment which sponsoring organizations order in lieu of receiving cash for sponsoring a sales campaign. Other evidence in the case tended to show that Allen did make a profit on the sale of such equipment. Again, the profit could be a source of unreported income and the denial would be evidence of willfulness in the evasion of income tax.

I

Allen contends that the District Judge committed prejudicial error in denying his motion for continuance which was sought because of the illness of one of his attorneys, Edward Lebit. The motion asserted that Mr. Lebit, a former employee of the Internal Revenue Service, was primarily responsible for the accounting and tax aspects of the case and was to testify as an expert for the defense and to serve as co-counsel. The motion further recited that it would be a month before Mr. Lebit would be well enough to even have business visitors. Trial counsel wished to discuss the case with Mr. Lebit before deciding whether to employ substitute counsel. The motion did not indicate how much of a continuance would be necessary.

The government opposed the motion on the grounds that trial counsel, Robert J. Rotatori, had been connected with the case since March 20, 1973, which was over ten months prior to the filing of the motion for continuance; that the defense possessed the government's tentative net worth schedule and almost all documents which would be introduced at trial; that the case had previously been continued several times at Allen's request, and that there was no showing why attorneys associated with Mr. Lebit, who also were former employees of the Internal Revenue Service, would be unavailable to replace him in the fifteen days remaining before trial.

Mr. Rotatori was present for the status call of the case on March 20, 1973 and signed the motion and order for discovery. He represented Allen at the hearing on the motion to suppress. He had sought and obtained several continuances. The case had been assigned for trial on a standby basis on May 1, 1973 but the trial did not commence until February 25, 1974. The record discloses that Allen's defense was ably conducted by Mr. Rotatori.

In addition, Allen was represented at the trial by Edward Kleinman who served as associate counsel. Mr. Kleinman was a former employee of the Internal Revenue Service and had assisted Mr. Lebit during various pretrial matters. He was familiar with the case and was available to assist Mr. Rotatori on any technical matters.

The grant or denial of a continuance is within the sound discretion of the trial judge and will be disturbed on appeal only where there has been a clear abuse of discretion. United States v. Ploeger, 428 F.2d 1204 (6th Cir. 1970). In our opinion, there was no abuse of discretion in the denial of the motion under the circumstances as presented to the trial judge. Giacalone v. Lucas, 445 F.2d 1238 (6th Cir. 1971), Cert. denied 405 U.S. 922, 92 S.Ct. 960, 30 L.Ed.2d 793 (1972).

II

Allen further contends that the District Court erred in denying his motion to suppress statements made by him to representatives of the Internal Revenue Service, and for return of all documents obtained from him or his accountant. He claims that he was entitled to the Miranda warnings. Miranda v. Arizona, 384 U.S. 436, 86 S.Ct. 1602, 16 L.Ed.2d 694 (1966). The Allens were not in custody and the Miranda warnings, in our opinion, were not required. United States v. Carter, 462 F.2d 1252 (6th Cir. 1972), Cert. denied 409 U.S. 984, 93 S.Ct. 324, 34 L.Ed.2d...