U.S. v. Ashfield, 83-5344

• Decision Date: 01 October 1984
• Docket Number: No. 83-5380,C,83-5380 and 83-5384,No. 83-5344,Nos. 83-5344,A,No. 83-5384,83-5344,83-5380,83-5384,s. 83-5344
• Citation: 735 F.2d 101
• Parties: 84-2 USTC P 9530, 15 Fed. R. Evid. Serv. 1362 UNITED STATES of America, Appellant inppellee inross-Appellee in, v. Jerome ASHFIELD, Appellee inross-Appellant in , v. Sanford STORM, Appellant in
• Court: U.S. Court of Appeals — Third Circuit

Page 101

735 F.2d 101

84-2 USTC P 9530, 15 Fed. R. Evid. Serv. 1362

UNITED STATES of America, Appellant in No. 83-5344, Appellee in No. 83-5380, Cross-Appellee in No. 83-5384, v. Jerome ASHFIELD, Appellee in No. 83-5344, Cross-Appellant in

No. 83-5384, v. Sanford STORM, Appellant in No. 83-5380.

Nos. 83-5344, 83-5380 and 83-5384.

United States Court of Appeals Third Circuit.

Argued Feb. 27, 1984.

Decided June 1, 1984.

Certiorari Denied Oct. 1, 1984.

See 105 S.Ct. 189.

W. Hunt Dumont, U.S. Atty., Faith Hochberg (argued), Asst. U.S. Atty., Jonathan S. Feld, Asst. U.S. Atty., Newark, N.J., for U.S.A.

Lawrence S. Horn, (argued), Trent S. Dickey, Sills, Beck, Cummis, Zuckerman, Radin & Tischman, Newark, N.J., for Jerome Ashfield.

Kostelanetz & Ritholz, New York City, and Gutkin, Miller, Shapiro & Selesner, P.A., Millburn, N.J., Boris Kostelanetz, Lawrence S. Feld (argued), Edward M. Spiro, James C. Sherwood, Elliot Silverman, New York City, for Sanford Storm; Howard D. Cohen, Newark, N.J., of counsel.

Before ADAMS and SLOVITER, Circuit Judges, and TEITELBAUM, District Judge. ^*

OPINION OF THE COURT

ADAMS, Circuit Judge.

This appeal comes to us from the trial of Sanford Storm and Jerome Ashfield, two business associates who were charged with attempted evasion of personal income taxes. After a jury returned guilty verdicts against each defendant, the trial court sustained Storm's conviction, but ruled that the evidence against Ashfield was insufficient and entered a judgment of acquittal in his favor. On appeal, a careful examination of the record leaves us satisfied that Storm's conviction should be affirmed. We are, however, compelled to differ with the trial court's weighing of the evidence against Ashfield. While the record here, as with most white-collar crimes, consists of a complex web of inferential proof, we are persuaded that the evidence is sufficient to support the jury's verdict against Ashfield. We therefore reverse the judgment of acquittal for Ashfield and affirm the conviction of Storm.

I.

Storm and Ashfield are the sole shareholders and officers of National Talent Associates (NTA), a closely held corporation that placed child models for television, magazine and catalog advertising. NTA essentially acted as a referral service for another, larger talent agency. After locating interested parents by direct mail, NTA would select suitable children, execute a 5-year contract with the parents, photograph the aspiring child model, and send the picture to the Schuller Talent Agency, which would in turn accept about one in twenty referrals and arrange job interviews for them. For this service, NTA charged a one-time fee of $135 to $165 when the contract was signed. Thereafter, NTA received a commission of 10% of a child's earnings up to $1000, and 15% of any additional earnings.

NTA established two corporate bank accounts. The first, the management trust account, was the repository for compensation paid by employers for the work of the child models. From these payments, NTA deducted its commission and sent a check for the remainder to the client. NTA's commission earnings were then transferred to the second corporate account, the operating account.

Within NTA's operating account were various categories such as commission income (the 10% or 15% fees transferred from the management trust account), sales income (the $135 to $165 one-time registration fee), and officers' loans receivable (outlays and repayments for personal expenses of Storm and Ashfield). ¹ All payments to the operating account were credited as sales income, unless specifically designated for deposit to some other category.

During an audit of NTA, the Internal Revenue Service (IRS) discovered that between 1973 and 1975 almost $60,000 from the trust account was deposited in the officers' loans account and credited in equal amounts to Storm and Ashfield as repayment of personal loans. As a result of these loan repayments, each defendant in effect received $30,000 in dividends that twice escaped taxation. Because the deposits were never listed as income to NTA, no corporate tax was paid on them, and because the deposits were never reported as income to Storm and Ashfield, no personal tax was paid on them.

In April 1982, Storm and Ashfield were indicted on eight counts of evading corporate and personal income tax in 1974 and 1975. Six of the eight counts were, however, dismissed as barred by the statute of limitations, leaving only two counts in place: one count each for Storm and Ashfield for attempted evasion of personal income tax in 1975. ²

At trial, the defendants did not contest that the loan repayments had been incorrectly credited to them. Rather, the defense asserted lack of "willfulness" on the part of Storm and Ashfield. In particular, Storm attempted to show through cross-examination of the government's witnesses that the repayments were erroneously recorded because of a mistake by NTA's accounting firm. Ashfield's defense was that he had no control over NTA's accounting practices and that he was unaware of the errors. Neither Storm nor Ashfield took the stand, and no other witness testified on behalf of the defense.

On February 9, 1983, the jury returned a guilty verdict against each defendant. But on April 11, 1983, the district court granted a motion for acquittal of Ashfield, ruling that "reasonable minds could not have concluded that all of the elements of the crime charged were established beyond a reasonable doubt...." App. at 44a. The district court, however, left in place the jury's guilty verdict against Storm, and on May 19, 1983, sentenced him to 90 days imprisonment, three years probation, and a $5000 fine. Timely appeals were filed by Storm, by the government (appealing Ashfield's acquittal) and by Ashfield (defensively cross-appealing the trial court's denial of his motion for a new trial).

II.

Although both defendants assert that the district court committed errors requiring us to order a new trial, the central issue before us is the sufficiency of the evidence against Storm and, particularly, against Ashfield. Because a ruling that the proof adduced at trial was inadequate would be dispositive of both of the defendants' appeals, we consider that issue first.

A.

To establish guilt of tax evasion under 26 U.S.C.A. Sec. 7201 (West Supp.1983), the government must show: (1) the existence of a tax deficiency, (2) an affirmative act constituting an attempted evasion of payment of taxes, and (3) willfulness. Sansone v. United States, 380 U.S. 343, 351, 85 S.Ct. 1004, 1010, 13 L.Ed.2d 882 (1965). Neither Storm nor Ashfield challenge the proof of the first two elements of the crime; they contest only the proof of the last element--willfulness.

For purposes of Sec. 7201, willfulness is defined as the voluntary, intentional violation of a known legal duty. See U.S. v. Pomponio, 429 U.S. 10, 11-13, 97 S.Ct. 22, 23-24, 50 L.Ed.2d 12 (1976) (per curiam); U.S. v. Bishop, 412 U.S. 346, 359-60, 93 S.Ct. 2008, 2016-17, 36 L.Ed.2d 941 (1973). Willfulness, may however, be inferred from circumstantial evidence. The Supreme Court has made clear that willful tax evasion may be proven by a consistent pattern of underreporting large amounts of income and by the taxpayer's failure to include all his income on his books and records. Holland v. U.S., 348 U.S. 121, 139, 75 S.Ct. 127, 137, 99 L.Ed. 150 (1954). See Spies v. U.S., 317 U.S. 492, 499, 63 S.Ct. 364, 368, 87 L.Ed. 418 (1942). Likewise in this circuit, we have often held that repetitious conduct resulting in underpayment of taxes may be sufficient to show willfulness. U.S. v. Alker, 260 F.2d 135, 148 (3d Cir.1958) ("consistent understatement [of tax liability] is evidence of willfulness"); U.S. v. Frank, 245 F.2d 284, 287-88 (3d Cir.1957) (proof of a consistent pattern of underreporting "is itself enough" to sustain a jury finding of willful tax evasion). See also U.S. v. Greenlee, 517 F.2d 899, 903 (3d Cir.1975) ("a two year pattern of derelictions ... [is] itself indicative of the willfulness"). Recently, our Court reversed a decision to acquit an accused tax evader, holding that the evidence was sufficient given the proof of a long-run pattern of reporting at variance with the taxpayer's defense, the substantiality of the sums the taxpayer failed to report, and the number of times taxpayer received income checks he claimed to have forgotten. U.S. v. Doan, 710 F.2d 124, 126 (3d Cir.1983). Obviously, these decisions pertaining to the permissible scope of a jury's inferences from circumstantial evidence are necessarily fact-intensive and therefore not subject to easy generalization. Nonetheless, it is clear that a jury may find a defendant's tax evasion was willful wholly on the basis of inferential proof.

In the case at hand, the jury was carefully instructed on the meaning of willfulness. The court explained that

in this case the attempt to evade or defeat the tax must be a willful attempt, that is to say it must be an attempt made voluntarily and intentionally and with specific intent to keep from the government a tax imposed by the income tax laws which it was the legal duty of the defendants to pay to the government and which the defendants knew it was their legal duty to pay.

App. at 895a. Having heard this definition as well as seven days of testimony, the jury found that both Ashfield and Storm were guilty of the crime charged in their indictment--that is, that they "did knowingly and willfully attempt to evade and defeat a large part of the income tax due and owing ... to the United States." App. at 891a; see App. at 892a, 910a-911a.

Given those verdicts, the trial court's ruling on the sufficiency of the evidence is governed by strict principles of deference to a jury's findings. In deciding whether to grant the motions for acquittal, the trial court was required to view the evidence in the light most favorable to the prosecution and to draw all...