U.S. v. Allen, 76-1806

• Decision Date: 15 March 1977
• Docket Number: No. 76-1806,76-1806
• Citation: 551 F.2d 208
• Parties: 77-1 USTC P 9285 UNITED STATES of America, Appellee, v. Earl ALLEN, Jr., Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 208

551 F.2d 208

77-1 USTC P 9285

UNITED STATES of America, Appellee, v. Earl ALLEN, Jr., Appellant.

No. 76-1806.

United States Court of Appeals,

Eighth Circuit.

Submitted Jan. 10, 1977.

Decided March 15, 1977.

Garry A. Pearson, Grand Forks, N. D., for appellant.

Lynn E. Crooks, Asst. U. S. Atty., Fargo, N. D., for appellee; Harold Bullis, U. S. Atty., Fargo, N. D., on brief.

Before HEANEY and STEPHENSON, Circuit Judges, and STUART, ^* District Judge.

STUART, District Judge.

Defendant-appellant Earl Allen Jr. appeals his judgment of conviction on two counts of willfully making and subscribing false income tax returns for calendar years 1969 (count I) and 1970 (count II) in violation of section 7206(1) of the Internal Revenue Code of 1954, 26 U.S.C. § 7206(1). ¹ Count I of the indictment alleged that for 1969, Allen's income tax return stated taxable income in the amount of $6,792 whereas he "well knew and believed, his true taxable income * * * was $24,394.45." Count II charged that Allen's 1970 return reported taxable income of $1,554 whereas he "well knew and believed, his true and taxable income * * * was $11,416.76." The district court upon conviction fined Allen $2,000 on each count and taxed the costs of prosecution, $2,541.50, against him. The court further placed Allen on probation for a period of two years.

The government presented its case on a specific item basis. The proof at trial established many items of omitted income for the taxable years in question. Knowing and willful falsification may be inferred from repetitious omissions of items of income. United States v. Tager, 479 F.2d 120, 122 (10th Cir. 1973), cert. denied, 414 U.S. 1162, 94 S.Ct. 924, 39 L.Ed.2d 115 (1974). On appeal, Allen argues that three of those items were not reportable income for the years alleged; and thus had any of them not been so considered, the jury may have reached a contrary verdict. Specifically, appellant urges that the trial court erroneously denied his requested jury instructions relating to these three items and refused to strike portions of the government's evidence. No direct challenge to the sufficiency of the evidence supporting the jury's determination of willfullness is being made. We find appellant's contentions without merit and affirm the conviction.

I.

In 1969, the Minot Amusement Corporation purchased a building in Minot, North Dakota, jointly owned by Allen and his wife, from whom he was later divorced, which had been leased by them to Dakota Theaters, Inc. for use as a movie theater. In closing the transaction, it was agreed by the parties concerned that Minot Amusement, in partial payment for certain personal property being purchased from Dakota Theaters, would remit to the Allens the sum of $10,000 in satisfaction of past due rentals owed by Dakota Theaters. On December 17, 1969, Minot Amusement issued a check in that amount payable to Earl Allen and Ethel Mae Allen and bearing the notation "Paid pursuant to assignment of Dakota Theaters, Inc. dated Nov. 3, 1969." The check was subsequently cashed and, because of a marital dispute between Allen and his wife, the proceeds were converted to a cashier's check, dated December 19, 1969, payable to the order of both Earl and Ethel Mae Allen. This latter check was ultimately given to Mrs. Allen in settlement of a divorce decree and cashed by her in April of 1970.

It is undisputed that the $10,000 item was omitted from the Allens' joint return filed for the year 1969. At trial, Allen testified that his first knowledge of the omission was during the audit giving rise to his indictment and prosecution. It is now urged on appeal that the $10,000 rental payment item was not income in 1969 because it was received subject to substantial restrictions, that is, the existence of a dispute between Allen and his wife concerning the disposition of the money, combined with the necessity of endorsement by both parties thereby limited Allen's access to the funds. Such an argument, however, fails to properly account for the vital fact that Allen and his wife filed a joint return for the 1969 taxable year. It is clear that rental payments constitute income. 26 U.S.C. § 61(a)(5). A joint return under 26 U.S.C. § 6013 is treated as the return of a single taxable unit and a husband and wife electing to so file shall report their aggregate income upon which tax is computed. See Taft v. Helvering, 311 U.S. 195, 61 S.Ct. 244, 85 L.Ed. 122 (1940). The evidence showed that Allen was a cash basis taxpayer. The rental payment, received in 1969, was clearly includible as gross income on the Allens' joint return for that year. See 26 U.S.C. § 451.

The existence of a dispute between Allen and his wife, or the fact that the checks were made out to them as copayees does not, as appellant argues, render the rental item excludible for income tax purposes in 1969. By virtue of their joint return, the Allens together constituted the taxable unit for that year. While under some circumstances restricted access to, or use of, funds may prevent its taxation as income on the theory it has not yet been received, we think it clear that such restrictions must come from sources external to the particular taxpaying unit itself. See Kamm's Estate v. C.I.R., 349 F.2d 953, 955 (3d Cir. 1965). It is for this reason that Estate of Margaret McAllen Fairbanks v. Commissioner, 3 TC 260 (1944), cited by the appellant, is inapposite. In that case, the tax court found certain delayed rental payments received after the decedent's death were not gross income to her estate since the funds had been placed in an account which could only be drawn upon with the joint signatures of the executors and the decedent's husband. The husband had maintained throughout the taxable year involved that the executors were entitled to no part of the funds and refused to consent to the release thereof save for certain tax payments. Therefore, so long as the estate did not enjoy untrammeled use of the money, it was not gross income taxable to it. 3 TC at 268. Here, in contrast, any limitations upon the use of the rental proceeds were self-imposed by the Allens. It is clear neither Minot Amusement Corp. nor Dakota Theaters, Inc. imposed any such restrictions. The Allens could, and did, dispose of the proceeds as they saw fit. Thus, the money was reportable as gross income on their 1969 joint return and the trial court committed no error in refusing appellant's requested instruction. ²

II.

The government's evidence at trial further established that Allen omitted from his returns certain real estate commissions earned by him in 1969 and 1970. Among these was a $1,125 commission received in 1970 from the sale of a building owned by Swift and Company, on whose behalf Allen had acted as agent, to Mr. Albert C. Vix. Pursuant to a prearrangement with Vix, Allen repurchased the building from him shortly after the initial sale, applying the commission proceeds as part of the downpayment. Allen testified that he had attempted to buy directly from Swift, but was unable to secure the necessary financing. It is urged that under these circumstances, the appellant essentially sold the building to himself and his commission on the sale from Swift to Vix was therefore not income, but merely a reduction in the price.

Also, in 1969 Allen received a realty commission in the amount of $2004 from the sale of a house to his parents which amount did not appear as gross income on his return for that year. The house had belonged to the Eli Lilly Company for whom Allen acted as agent. Allen testified that he had agreed in advance to sell the house to his parents free of the amount of his commission. Upon receipt of the commission check and pursuant to the agreement, he turned the proceeds over to his parents. Therefore, it is urged, the commission income was waived and not taxable to Allen.

Under 26 U.S.C. § 61(a)(1) gross income is defined to include "(c)ompensation for services, including fees, commission, and similar items." Where an individual by virtue of his trade or profession has earned the right to income or has otherwise exercised dominion and control over its...