U.S. v. Berzinski, 75--1480

• Decision Date: 06 February 1976
• Docket Number: No. 75--1480,75--1480
• Citation: 529 F.2d 590
• Parties: 76-1 USTC P 9211 UNITED STATES of America, Appellee, v. Richard Edward BERZINSKI, Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 590

529 F.2d 590

76-1 USTC P 9211

UNITED STATES of America, Appellee, v. Richard Edward BERZINSKI, Appellant.

No. 75--1480.

United States Court of Appeals Eighth Circuit.

Submitted Nov. 13, 1975.

Decided Feb. 6, 1976.

John K. von Lackum, Cedar Rapids, Iowa, for appellant.

Evan L. Hultman, U.S. Atty., Sioux City, Iowa, for appellee.

Before GIBSON, Chief Judge, and LAY and STEPHENSON, Circuit Judges.

LAY, Circuit Judge.

Richard E. Berzinski was convicted of willful income tax evasion for the years 1968 through 1971, under 26 U.S.C. § 7201. The defendant admits a substantial underreporting of income on the returns, but argues (1) that the evidence was insufficient to support a finding of the requisite intent to violate the law, (2) that the district court erred in instructing on intent and (3) that the trial court erred in restricting the scope of cross-examination. We affirm.

I

The fundamental issue is the sufficiency of evidence to sustain the conviction. The evidence adduced at trial showed that Berzinski during the years in question was the owner of a restaurant in Cedar Rapids, Iowa. At the end of each business day his cashier would take the sales figures from the cash register and attempt to reconcile those figures with the cash and charges in the cash drawer. From these daily reports, the defendant made monthly sales summaries which he submitted to his accountant. Included in these monthly sales summaries were the defendant's check stubs, from which the accountant determined the business expenses. Although some expenses were paid in cash, the testimony was that the defendant would write one check at the end of the month to the business to cover the cash pay-outs. This provided a convenient memorandum of the cash pay-outs for the accountant's computation of the month's expenses.

The accountant assumed, erroneously, that the total sales figure provided him included the three per cent state sales tax. His mistake was due in part to the fact that he had previously handled similar work when the defendant had operated another restaurant. At that time, the cash register reported gross sales and sales tax as one figure. When the defendant opened the new restaurant, he obtained a new cash register which automatically separated the sales tax figure from the gross sales. Since the accountant was not aware of this change in reporting income, he continued to deduct from the gross sales the three per cent sales tax.

From these erroneous computations, the accountant prepared monthly profit and loss statements which he periodically provided to Berzinski. The accountant testified that the sole purpose of these 'P & L's' was to benefit the defendant's understanding of the profit situation. These monthly P & L's also provided the basis for the accountant's preparation of Berzinski's yearly income tax return.

The original data such as guest checks and cash register tapes were not available at trial. The only sales and income information available was the defendant's own monthly summaries which he had provided to his accountant, so the government reconstructed the defendant's actual income by analyzing the defendant's bank deposits over the period covered by the indictment. Taxable income was determined by adding the defendant's deposits to the defendant's cash expenditures, and then deducting non-income items such as loan proceeds and transfers between accounts. The government also deducted business expenses and non-business items. The taxable income figure resulting from this analysis was substantially higher than the income reported by the defendant in each of the relevant years.

To prove intent to evade the income tax, the government relied on evidence that (1) the defendant continually received the accountant's work product (monthly summaries) reflecting the sales tax error and consequent underreporting of income and (2) the defendant allowed the accountant to use check stubs of checks which had never been issued or had not cleared the bank, in the accountant's computation of the business expenses.

Defendant's Knowledge of the Accountant's Mistake

Both the accountant and the defendant admitted on cross-examination that the sales tax mistake clearly appeared on the accountant's profit and loss summaries, which were provided solely for Mr. Berzinski's information. The defendant contended that he was not aware of the accountant's mistake at the time the returns were filed. The government argues that the evidence was sufficient to support a jury finding that the defendant knew of the mistake and intended to underreport income.

The government presented evidence that the defendant himself had prepared profit and loss statements as well as balance sheets, in applying for loans from Morris Plan. These P & L's reported income substantially higher than did the defendant's tax returns. The defendant contended that he had prepared these figures without the aid of the accountant's summaries, but he admitted that the expense side of his financial statements was 'very similar' to the expense side of the accountant's incorrect summaries in terms of the figures and the order of presentation. The government urges that this is further evidence that the defendant had actual knowledge of the contents of the accountant's incorrect summaries.

The government made a detailed comparison of the figures used in the accountant's monthly summaries, the income tax returns, the Morris Plan statements and the Internal Revenue Service's computation of defendant's income through the bank deposits method for the years 1968, 1969 and 1970. From the testimony of the government expert, George Wood, the figures for the year 1968 can be reconstructed as follows:

                                                         P&L Given
                                                         to Morris
                              Accountant's               Plan by the  IRS
                              P&L Summary   Tax Return   Defendant    Computation
                              -----------   ----------   -----------  -----------
                Gross
                Receipts       $352,424.80  $352,424.80  $368,484.00  $368,917.86
                COGS &amp
                Operating
                Expenses        333,632.87   337,373.08   337,765.00   336,525.50
                Depreciation     10,303.20     8,996.15      -0-         8,996.15
                               -----------  -----------  -----------  -----------
                Net Profit     $  8,488.73  $  6,055.57  $ 30,719.00  $ 23,396.12
                

There is little difference between the gross receipt figures in the accountant's P & L summaries and the tax return because the accountant computed both. The difference between the accountant's gross receipts figure and the IRS figure is greater than $16,000.00. Likewise, the difference between the accountant's gross receipts figure and the figure submitted to Morris Plan exceeds $16,000.00. However, the difference between the gross receipts figure Berzinski submitted to Morris Plan and the figure the IRS computed is less than $500.00. From this the government argues that the jury could find that Berzinski knew of the difference between the accountant's figures and the actual sales receipts, and that he intentionally took advantage of the mistake. The government urges that even if the three per cent sales tax is deducted from the IRS computation of gross receipts or from the defendant's own Morris Plan computations, there is...