U.S. v. Caswell, 86-2201

• Decision Date: 24 August 1987
• Docket Number: No. 86-2201,86-2201
• Citation: 825 F.2d 1228
• Parties: -5418, 87-2 USTC P 9452, 23 Fed. R. Evid. Serv. 763 UNITED STATES of America, Appellee, v. John Joseph CASWELL, a/k/a Don Dawson, John J. Dawson, Jack Quinn, Richard Quinn, Bill Burns, "Sam," Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1228

825 F.2d 1228

60 A.F.T.R.2d 87-5418, 87-2 USTC P 9452,

23 Fed. R. Evid. Serv. 763

UNITED STATES of America, Appellee, v. John Joseph CASWELL, a/k/a Don Dawson, John J. Dawson, Jack Quinn, Richard Quinn, Bill Burns, "Sam," Appellant.

No. 86-2201.

United States Court of Appeals Eighth Circuit.

Submitted April 16, 1987.

Decided July 31, 1987.

Rehearing Denied Aug. 24, 1987.

Charles M. Shaw, St. Louis, Mo., for appellant.

Frederick Dana, Asst. U.S. Atty., St. Louis, for appellee.

Before FAGG, Circuit Judge; BRIGHT, Senior Circuit Judge, and MAGILL, Circuit Judge.

MAGILL, Circuit Judge.

John Joseph Caswell appeals from a district court ¹ judgment entered upon a jury conviction of four counts of income tax evasion. Caswell was found guilty of willfully evading income taxes during the years 1979, 1980, 1981 and 1982, in violation of 26 U.S.C. Sec. 7201. For reversal, Caswell contends that the government failed to meet its burden of proof under three essential elements of the "cash expenditures" method of proving tax evasion, that the district court erred in admitting into evidence summary charts prepared by a government witness, and that the court erred in other trial and post-trial rulings. We affirm.

I. BACKGROUND.

During November and December of 1982, IRS agents used pen registers (recording devices) to track telephone calls from an apartment rented by Caswell located in Creve Coeur, Missouri to the Caswell farm in O'Fallon, Missouri. The registers showed that numerous calls were forwarded to the farm, and that during a period of flooding near the farm in early December, calls were switched to Caswell's residence in Chesterfield, Missouri. The registers also showed an increase in calls in late November of 1982, when the NFL football strike ended and play resumed.

After receiving search warrants, the IRS, on December 12, 1982, conducted simultaneous raids on the farm and the Creve Coeur apartment. As a result of an analysis of the pen registers and the evidence seized from the raids, IRS agents concluded that a sports bookmaking operation was and had been in operation on the Caswell farm, and that Caswell was behind the operation. Further investigation revealed that Caswell had been making sports-related bets with various persons for several years.

This information prompted the IRS to investigate Caswell's finances to determine whether he had evaded income taxes by underreporting his income. After an extensive investigation of those finances, the IRS set out to prove through use of the "cash expenditures" method ² that Caswell had underreported income for the years 1979, 1980, 1981, and 1982.

At trial the government introduced into evidence Caswell's filed tax returns for the years 1975 through 1982. In 1975 and 1976, Caswell filed joint returns with his first wife, Joan. They were divorced in 1977, and Caswell filed individual returns for 1977 and 1978. From 1975 through 1978, Caswell's reported taxable income never exceeded $13,000.

In 1979, Caswell filed a joint return with his second wife, Jean, reporting taxable income of $12,801. In 1980, 1981, and 1982, Caswell filed individual tax returns, reporting taxable income of $17,018, $18,745, and $18,179, respectively. These figures largely represented Caswell's W-2 income from his job as a truck driver; he did not report any gambling income. Later at trial, the government introduced evidence showing that Caswell's cash expenditures far exceeded his reported income in the years 1979, 1980, 1981, and 1982.

As part of its investigation, the government also examined the financial records and dealings of several of Caswell's close relatives. At trial the government introduced into evidence the tax returns of these relatives, which showed that none of them reported significant amounts of income during the investigative period. ³ As with Caswell, the government later introduced evidence of the relatives' cash expenditures during this period, which showed that like Caswell, they made large cash expenditures far exceeding their reported incomes.

In computing Caswell's tax deficiency under the expenditures method, government witnesses explained that they attributed to Caswell not only his expenditures but also the large cash expenditures of his close relatives. The government did so based on its theory that the only likely source of Caswell's expenditures and those of his relatives was Caswell's income from his gambling activity and bookmaking operation. ⁴

After the presentation of the above evidence, a government summary witness testified that for the years 1979 through 1982, Caswell's expenditures were $84,118, $143,188, $191,655, and $82,228; that under the "cash expenditures" method, his corrected taxable income was $80,803, $130,926, $170,963, and $80,973; and that Caswell therefore had taxes due and owing of $17,039, $47,737, $75,100, and $24,096.

II. DISCUSSION.

A. Essential Elements Under the "Cash Expenditures" Method.

Caswell contends that the government failed to establish (1) a likely source of income for the years 1979, 1980, and 1981; (2) his "cash on hand" or "net worth" at the beginning of each year; and (3) the "net worth" of each Caswell relative whose expenditures were attributed to him.

1. Likely Source of Income.

Under the "cash expenditures" method of proof, the government is required to show either a "likely source" of the allegedly unreported income or that it has negated all reasonably possible nontaxable sources of income. United States v. Mastropieri, 685 F.2d 776, 784-85 (2d Cir.), cert. denied, 459 U.S. 945, 103 S.Ct. 260, 74 L.Ed.2d 203 (1982); see United States v. Bianco, 534 F.2d 501, 506-07 (2d Cir.), cert. denied, 429 U.S. 822, 97 S.Ct. 73, 50 L.Ed.2d 84 (1976). Caswell admits that the December 1982 gambling raids produced evidence of a "likely source" of income for 1982, and thus, he does not challenge (under this argument) his conviction for that year. ⁵ Rather, he contends that this evidence could not be used by the jury to make a "quantum leap" and infer that the bookmaking operation was also his "likely source" of income in 1979, 1980, and 1981. Caswell therefore maintains that the three counts corresponding to those years must fail as a matter of law.

The government's response is two-fold. First, relying on United States v. Heyward, 729 F.2d 297 (4th Cir.1984), cert. denied, 469 U.S. 1105, 105 S.Ct. 776, 83 L.Ed.2d 772 (1985), and Beard v. United States, 222 F.2d 84 (4th Cir.), cert. denied, 350 U.S. 846, 76 S.Ct. 48, 100 L.Ed. 753 (1955), the government asserts that the evidence from the 1982 gambling raids was admissible to allow the jury to infer that Caswell had a gambling income in the previous three years. In both cases, the Fourth Circuit held that discovery of certain evidence of unreported income in one year did not render the evidence inadmissible to substantiate the government's claims of tax evasion in previous years. Heyward, 729 F.2d at 301 (drug laden plane discovered in 1980 admissible to prove defendant's "net worth" in 1978 and 1979); Beard, 222 F.2d at 92 (bookmaking evidence found in 1945 relevant to 1944 tax evasion charge). Instead, the time difference was "simply a matter to be considered by the jury." Heyward, 729 F.2d at 301 (citing United States v. Wright, 667 F.2d 793, 800 (9th Cir.1982)). Second, the government maintains that there was other evidence of Caswell's betting activities in 1979, 1980, and 1981 which allowed the jury to infer that appellant's likely source of income for those years was from gambling.

Although we are inclined to agree with the Fourth Circuit's analysis of the issue, we do not have to reach this question as the record clearly indicates that the government introduced sufficient other evidence of Caswell's gambling activity in 1979, 1980, and 1981 to show that the likely source of his unreported income was from gambling. For example, there was evidence from which the jury could infer that Caswell acted through the alias "Don Dawson" in purchasing sports information from two different services in 1981. Additionally, Stephen Geist, a convicted gambler, testified that he had made bets with Caswell since 1976. Further, Ivan Mullenix testified that from 1980 through 1982, he rented Caswell, under the alias "Frank or Richard Quinn", the apartment from which bets were transferred to the Caswell farm. Mullenix also testified that he made weekly bets with Caswell on NFL games during 1979 and 1980.

In summary, the evidence of Caswell's bookmaking and gambling was not limited to the year 1982. Accordingly, we hold that the evidence of Caswell's betting activities was sufficient to allow the jury to conclude that this was a "likely source" of Caswell's unreported income for the years 1979, 1980 and 1981.

2. Beginning "Net Worth" or "Cash on Hand."

In a "cash expenditures" case, the government must also prove to a reasonable certainty "(i) expenditures during the period in question and (ii) the opening net worth of the taxpayer, including cash on hand." Citron, 783 F.2d at 315 (citing Bianco, 534 F.2d at 504). In contrast to a tax evasion case prosecuted under the "net worth" method, however, the government need not prepare a formal net worth statement. Id. at 315, 316. "Rather, accurate inclusion of diminution of resources serves the function of enabling the jurors to determine if expenditures were financed by liquidation of assets, depletion of a cash hoard, or unreported income." Id. at 315 (citation omitted); see Taglianetti v. United States, 398 F.2d 558, 565 (1st Cir.1968), aff'd, 394 U.S. 316, 89 S.Ct. 1099, 22 L.Ed.2d 302 (1969). ⁶

The government has this burden whether it is prosecuting an individual for tax evasion for one year or successive years. In the latter case, however, the government has the duty only to establish the opening cash on hand balance for the beginning year; the income received less disbursements paid during that year will...