U.S. v. Boulet

• Decision Date: 08 August 1978
• Docket Number: No. 76-4442,76-4442
• Citation: 577 F.2d 1165
• Parties: 78-2 USTC P 9628 UNITED STATES of America, Plaintiff-Appellee, v. Robert Meyer BOULET, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1165

577 F.2d 1165

78-2 USTC P 9628

UNITED STATES of America, Plaintiff-Appellee, v. Robert Meyer BOULET, Defendant-Appellant.

No. 76-4442.

United States Court of Appeals, Fifth Circuit.

Aug. 8, 1978.

Michael S. Fawer, Matthew H. Greenbaum, New Orleans, La., for defendant-appellant.

John P. Volz, U. S. Atty., Mary Williams Cazalas, Duro J. Duplechin, Jr., John H. Musser, IV, Asst. U. S. Attys., New Orleans, La., for plaintiff-appellee.

Appeal from the United States District Court for the Eastern District of Louisiana.

Before WISDOM, GOLDBERG and RUBIN, Circuit Judges.

ALVIN B. RUBIN, Circuit Judge:

The conviction in this criminal prosecution for willful evasion of income taxes ¹ was based entirely on the government's evidence that it had reconstructed the medical doctor-taxpayer's income during the years in question by means of the bank deposits or cash expenditures method. Because the prosecution established the amount of cash on hand at the start of the period with reasonable certainty and performed the duties incumbent on it in attempting to separate taxable income from other sources in the doctor's gross bank deposits and cash expenditures, the question of guilt or innocence was correctly submitted to the jury by the trial court. Therefore, the judgment of conviction is affirmed. ²

I.

The defendant, a general practitioner of medicine, whose office was in LaRose, Louisiana, was charged with willful evasion of income taxes for the years 1969, 1970, 1971 and 1972. Dr. Boulet was on a calendar year basis. To prove its charges, the government relied upon one of the two traditional indirect methods of proof, analysis of the taxpayer's bank deposits and cash expenditures. Under this method, all deposits to the taxpayer's bank and similar accounts in a single year are added together to determine the gross deposits. An effort is made to identify amounts deposited that are non-taxable, such as gifts, transfers of money between accounts, repayment of loans and cash that the taxpayer had in his possession prior to that year that was deposited in a bank during that year. This process is called "purification." It results in a figure called net taxable bank deposits.

The government agent then adds the amount of expenditures made in cash, for example, in this case, cash the doctor received from fees, did not deposit, but gave to his wife to buy groceries. The total of this amount and net taxable bank deposits is deemed to equal gross income. This is in turn reduced by the applicable deductions and exemptions. The figure arrived at is considered to be "corrected taxable income." It is then compared with the taxable income reported by the taxpayer on his return. ³

In asking the jury to rely on this analysis, as a basis for deciding that the taxpayer willfully underestimated his true income, the government necessarily relies on circumstantial evidence. United States v. Marshall, 5 Cir. 1977, 557 F.2d 527, 530, note 3; United States v. Slutsky, 2 Cir. 1973, 487 F.2d 832, 839, cert. denied, 1974, 416 U.S. 937, 94 S.Ct. 1937, 40 L.Ed.2d 287; United States v. Penosi, 5 Cir. 1971, 452 F.2d 217, 219-220, cert. denied, 1972, 405 U.S. 1065, 92 S.Ct. 1495, 31 L.Ed.2d 795; United States v. Doyle, 7 Cir. 1956, 234 F.2d 788, 793, cert. denied, 1956, 352 U.S. 893, 77 S.Ct. 132, 1 L.Ed.2d 87.

It is part of the government's burden of proof to establish beyond a reasonable doubt that the expenditures and deposits come from taxable income for the very year in question. Because our income tax system is on an annual basis, failure to report income must be charged for a specific year. The statute of limitations applicable to prosecutions penalizes only failure to report income for specific years. Moreover, the indictment charges an offense for a specific year, and the proof must conform to the indictment.

There is always the possibility that the taxpayer deposited cash that he received from a non-taxable source or from income taxed in a prior year but kept on hand as cash or even from unreported income from a prior year kept on hand in cash. Such events are common human occurrences, and this possibility may of itself create reasonable doubt. Therefore, the government must establish in some fashion the amount of cash the taxpayer had on hand at the start of the period. This is part of the government's duty to negate the possibility that bank deposits or cash expenditures in the year under investigation originated from non-taxable sources. United States v. Penosi, supra, 452 F.2d at 219-220. See United States v. Bianco, 2 Cir. 1976, 534 F.2d 501, 507, cert. denied, 1976, 429 U.S. 822, 97 S.Ct. 73, 50 L.Ed.2d 84, suggesting that, in a cash expenditure case, proof of a likely taxable source does not suffice to relieve the prosecution of its duty to negate probable sources of non-taxable income. Compare United States v. Massei, 1958, 355 U.S. 595, 78 S.Ct. 495, 2 L.Ed.2d 517 (net-worth method).

We, therefore, review the record "bearing constantly in mind the difficulties that arise when circumstantial evidence as to guilt is the chief weapon of a method that is itself only an approximation." Holland v. United States, 1954, 348 U.S. 121, 129, 75 S.Ct. 127, 132, 99 L.Ed. 150. The government must prove a full and adequate investigation in a bank-deposits case just as it must in a net-worth case. Holland v. United States, supra. "Such investigation must establish a guarantee of essential accuracy in the circumstantial proof at trial as an element of the government's burden of proving guilt beyond a reasonable doubt. . . . " United States v. Slutsky, supra, 487 F.2d at 840.

II.

It is contended that, in investigating Dr. Boulet, the government failed in two particulars: (a) it did not establish with reasonable certainty the amount of cash that he had in his personal possession, as currency, at the start of each year; these funds were substantial and, when later deposited in a bank account, were erroneously considered income; (b) among his deposits were other items that were not income, such as checks he cashed for patients; failure to delete and exclude these distorted his apparent income. The case does not present the typical problem of an unknown source of income: Dr. Boulet collected his fees in cash. The source of unreported income is contended to be fees paid Dr. Boulet in cash and not reported as income that were detected because they eventually found their way into his bank account.

Because the government did not, and, perhaps, could not, analyze each deposit separately to prove that it was from a taxable source, it is the government's dual burden to establish with reasonable certainty the cash on hand at the beginning of each of the years in question and to negate all other sources of non-taxable income during each of those years. United States v. Marshall, supra. The latter requirement may be satisfied by proof of an adequate investigation that did not disclose non-taxable sources. United States v. Penosi, supra, 452 F.2d at 219; See also United States v. Mackey, 7 Cir. 1965, 345 F.2d 499, 506, cert. denied, 1965, 382 U.S. 824, 86 S.Ct. 54, 15 L.Ed.2d 69.

With respect to both non-taxable sources and cash on hand, the government must prove its case beyond reasonable doubt. However, "once the Government has established its case (in this fashion), the defendant remains quiet at his peril." United States v. Holland, supra, 348 U.S. at 138-139, 75 S.Ct. at 137.

Having established that it conducted a thorough investigation, "the government is not required to negate all possible non-income sources of the deposits, particularly where the source of the income is uniquely within the knowledge of the taxpayer. At the same time, however, the government may not 'disregard explanations of the defendant reasonably susceptible of being checked.' " United States v. Slutsky, supra, 487 F.2d at 841, quoting from United States v. Holland, supra, 348 U.S. at 138, 75 S.Ct. at 137. Hence, the government also has a duty to investigate leads furnished by the taxpayer with respect to cash on hand that are susceptible of being checked. United States v. Slutsky, supra, 487 F.2d at 843-844. But proof of the amount of cash on hand, if any exists, depends upon an analysis of accumulated assets and liabilities and not merely upon satisfactory pursuance of those leads, if any, offered by the defendant. See United States v. Marshall, supra, 557 F.2d at 529; United States v. Slutsky, supra, 487 F.2d at 842-843. We consider separately whether the government has satisfied its burden with respect to cash on hand and separation of funds that came from non-taxable sources.

A. Opening Cash on Hand

As in a net-worth case, Holland v. United States, supra, 348 U.S. at 132-135, 75 S.Ct. at 134-135, it is essential for the government to establish an accurate cash on hand figure for the beginning of each taxable year. See United States v. Marshall, supra, 557 F.2d at 530. If the taxpayer's deposits or expenditures during any taxable year came from a safety deposit box or a secret cache, "they are not 'income' when taken from their storage place and deposited in a checking account" or when spent. United States v. Frank, 3 Cir. 1957, 245 F.2d 284, 287, cert. denied, 1957, 355 U.S. 819, 78 S.Ct. 25, 2 L.Ed.2d 35.

Here, the government initially had no cash on hand figure for the start of 1969. Dr. Boulet had informed the agents, and they confirmed with the bank, that he periodically converted currency of small denominations into $100 bills, which he did not immediately deposit. Dr. Boulet himself said he had kept currency in a safe in his mother's home, across the street from his office, until he accumulated $3000 to $4000. He would then convert the money into $100 bills, and keep them in a safety deposit box in the bank, a block from his office. He had no record of the amount of cash he had on hand on January 1, 1969. The government attempted to establish how...