U.S. v. Ballard

Decision Date02 June 1976
Docket NumberNo. 75-1682,75-1682
Citation535 F.2d 400
Parties76-1 USTC P 9378 UNITED STATES of America, Appellee, v. Jack BALLARD, Appellant.
CourtU.S. Court of Appeals — Eighth Circuit

Irl Baris, St. Louis, Mo., for appellant; Kenneth H. Graeber, St. Louis, Mo., on brief.

Daniel F. Ross, Atty., Tax Div., Dept. of Justice, Washington, D. C., for appellee; Scott P. Crampton, Asst. Atty. Gen., Gilbert E. Andrews and Robert E. Lindsay, Attys., Washington, D. C. and Donald J. Stohr, U. S. Atty., St. Louis, Mo., on brief.

Before BRIGHT, STEPHENSON and HENLEY, Circuit Judges.

BRIGHT, Circuit Judge.

A two-count indictment charged appellant Jack Ballard with willfully making and subscribing false income tax returns for calendar years 1969 (count I) and 1970 (count II), in violation of § 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, Ballard reported gross income from wages in the amount of $10,407, even though he " * * * knew and believed, he (had) received substantial income in addition to that heretofore stated." Count II alleged that Ballard's return for 1970 reported a gross income from wages in the amount of $20,730, whereas Ballard "knew and believed, he (had) received substantial income in addition to that (amount)." (Emphasis added).

The jury convicted Ballard on both counts and the district court thereafter sentenced Ballard to three years' imprisonment on each count with the sentences to be served concurrently, plus a fine of $2,000 on each count.

Ballard appeals contending (1) that the grand jury proceedings were invalid; (2) that the Government failed to make a submissible case for the jury and that a fatal variance existed between the allegations of the indictment which asserted that Ballard had received "substantial income" in addition to his reported wages each year and the Government's proof which disclosed that Ballard had failed to report certain gross receipts from his businesses; (3) that the trial court erred in its application of the Jencks Act (18 U.S.C. § 3500), by denying appellant's counsel access to certain records in the case until late in the trial; (4) that the trial court erred in receiving numerous checks into evidence as exhibits without proof of appellant's endorsement thereon; and (5) that the trial court erred in declining to answer a question submitted by the jury during its deliberations.

We have carefully reviewed the record and conclude that the conviction on count I should be affirmed, but that count II should be reversed for a new trial. Although the trial lasted for five full days, the crucial evidence bearing on this appeal can be summarized with relative brevity.

During the tax years in question, Ballard engaged in two distinct business ventures. In 1969, and, to a lesser extent in 1970, the taxpayer operated a scrap metal and motor vehicle parts business known as Ballard Auto Parts and Ballard Iron & Metal Company. He had engaged in this business for a number of years but phased it out in 1970.

In Ballard's second venture, City Leasing & Drayage Company, he operated a tractor-trailer rental business, leasing tractors and trailers and furnishing drivers to various truck lines that operated generally on a long-haul basis. This business became incorporated on July 18, 1969, and its operations after that date did not enter into the computation of Ballard's alleged understatement of income.

In each of the years in question, Ballard filed an individual income tax return on Form 1040 without attaching any Schedule C Profit or (Loss) From Business or Profession. In his 1969 return, Ballard disclosed as income only wages received from City Leasing & Drayage Co., Inc. in the sum of $10,407. In 1970, he disclosed wages totaling $20,730, from City Leasing & Drayage Co., Inc. and from a second employer, Metropolitan Towing Co. He supported these amounts by employers' wage and tax (withholding) statements.

For the year 1969, the Government introduced evidence that Ballard Auto Parts and Ballard Iron & Metal Co. had received checks from customers for motor vehicle parts, salvage, and the like in the sum of $15,300, commission income of $330, and rental income of $850. The Government proved these amounts by calling as witnesses customers of Ballard who had issued checks to Ballard Auto Parts and Ballard Iron & Metal in amounts which totaled the figures noted above and which the Government tabulated into a summary of alleged gross income of Jack Ballard doing business as Ballard Auto Parts and Ballard Iron & Metal for calendar year 1969.

In its investigation of City Leasing & Drayage Co. to July 18, 1969, the Government discovered deposits of nearly $46,000 in checks to a bank account at the Northwestern Bank & Trust Company. In checking these deposits, the Government attributed about $7,000 to non-income items and attributed the balance of almost $39,000 as gross receipts of the business of City Leasing & Drayage Co. Ballard reported none of these receipts on his 1969 income tax return. The Government further verified the receipt of about $12,000 of this latter amount by calling customers of Ballard as witnesses. They testified to issuing checks to Ballard doing business as City Leasing & Drayage. See n. 2 infra.

For the year 1970, the Government's summarization disclosed that Ballard Auto Parts and Ballard Iron & Metal had received $3,222.52 for sales of salvage and motor vehicle parts to customers and $2,550 in rental income from third parties for a total "Alleged Gross Income Not Reported" of $5,772.52.

Ballard testified on his own behalf and stated that fires had destroyed his business records and that he had in fact sustained a loss in his businesses during each of the two years in question. He stated he had told Mrs. Dorothy Benigno, a bookkeeper who had prepared his tax returns, that his records had been burned and that he had sustained losses in his businesses for those two years. Ballard quoted Mrs. Benigno as stating that if he could not produce records showing a loss, there was no point in claiming a loss on his tax returns.

With regard to the operation of his salvage and parts business, Ballard, in essence, admitted cashing approximately $11,000 of the checks produced by the Government and stated that he needed the cash in the operation of his business. He said that he paid cash for used cars and converted these cars to scrap after salvaging useable parts and testified that he spent all cash receipts in operating this business. With respect to the leasing company, Ballard testified generally that his expenses exceeded his gross receipts. 2

The principal issue on this appeal focuses upon appellant's contentions that he sustained a business loss for the years in question and that the Government could not establish its case by mere proof of gross receipts but was required to demonstrate Ballard's receipt of income, measured by gross receipts less expenses. To prove the violation, the prosecution contends that it need only show a willful failure to report gross receipts from a trade or business.

In Siravo v. United States, 377 F.2d 469 (1st Cir. 1967), the indictment charged taxpayer with violations of § 7206(1), and with failure to file a tax return under § 7203. The indictment was phrased in terms of willfully failing to disclose "substantial gross receipts from a business activity * * *." (Emphasis added). The proof established that the taxpayer operated as a subcontractor assembling jewelry components for various manufacturers and that he failed to disclose any gross receipts from that business in his tax returns for several years. No evidence surfaced as to the amount of any costs or expenses sustained by the taxpayer. In affirming the conviction, the court said that a tax return that "omits material items necessary to the computation of income is not 'true and correct' within the meaning of section 7206." Id. at 472.

This circuit has addressed analogous issues in United States v. Lodwick, 410 F.2d 1202 (8th Cir.), cert. denied, 396 U.S. 841, 90 S.Ct. 105, 24 L.Ed.2d 92 (1969), and United States v. Engle, 458 F.2d 1017 (8th Cir. 1972). Taxpayers were both charged with § 7206(1) violations and in both cases we made clear that under § 7206(1), the Government did not need to establish an actual tax deficiency in a § 7206(1) prosecution. The burden rests upon the taxpayer to disclose his receipts and claim his proper deductions. In both Engle and Lodwick, taxpayers received moneys that clearly were income. See also United States v. Romanow, 509 F.2d 26 (1st Cir. 1975); United States v. DiVarco, 484 F.2d 670 (7th Cir. 1973); United States v. Jernigan, 411 F.2d 471 (5th Cir. 1969).

In this indictment, the Government alleged that Ballard received "substantial income" in addition to the amounts which he disclosed on his tax returns. The Government here contends that all gross receipts represent income which must be reported.

But gross receipts may or may not represent income, depending on the circumstances. As the late Circuit Judge Johnsen observed in Clark v. United States, 211 F.2d 100 (8th Cir. 1954):

Of course, gross income and not gross receipts is the foundation of income-tax liability, for it is only earnings, profits and gains which the statute subjects to tax. And manifestly, gross receipts can not be called gross income, insofar as they consist of borrowings of capital, returns of capital, or any of the other items which * * * the Internal Revenue Code * * * has excluded from gross income. But when all of these things have duly been taken into account, no matter by what process it has been done, the amounts remaining of Gross Receipts necessarily may, in its character as a result, properly reflect taxpayer's Gross Income, which it is his duty to report. (Id. at 102.)

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