U.S. v. Gay
| Decision Date | 06 January 1978 |
| Docket Number | D,No. 400,400 |
| Parties | 78-1 USTC P 9170 UNITED STATES of America, Plaintiff-Appellee, v. Joseph J. GAY, Defendant-Appellant. ocket 77-1369. |
| Court | U.S. Court of Appeals — Second Circuit |
R. William Stephens, Buffalo, N. Y. (Raichle, Banning, Weiss & Helpern, Buffalo, N. Y., of counsel), for defendant-appellant.
Richard E. Mellenger, Asst. U. S. Atty., Buffalo, N. Y. (Richard J. Arcara, U. S. Atty., W. D. N. Y., Buffalo, N. Y., of counsel), for plaintiff-appellee.
Before FEINBERG, MANSFIELD and TIMBERS, Circuit Judges.
After a jury trial before Judge John T. Curtin in the Western District of New York appellant was on April 13, 1976, found guilty of five counts of an indictment charging him with attempted willful evasion of income tax due during the years 1967 through 1971 in violation of Title 26 U.S.C. § 7201. On July 21, 1977, following a delay attributable to extensive post-trial motions pursued by new counsel for appellant, which were denied, the defendant was sentenced to three years probation on count one and fines on all five counts.
At trial the government used the "expenditures" method to prove the alleged attempted tax evasion of approximately $71,436 for the years in question. See Taglianetti v. United States, 398 F.2d 558 (1st Cir. 1968). Under the expenditures method the government establishes as unreported income the amount of the taxpayer's expenditures during the taxable year that are not attributable to resources on hand at the beginning of the year, non-taxable sources received during the year, or amounts reported by the taxpayer as income during the year. The reliability of the method depends on a reasonably accurate identification of the taxpayer's net worth position in terms of assets held at the beginning and end of the taxable year. Holland v. United States, 348 U.S. 121, 75 S.Ct. 127, 99 L.Ed. 150 (1954); United States v. Penosi, 452 F.2d 217 (5th Cir. 1971), cert. denied, 405 U.S. 1065, 92 S.Ct. 1495, 31 L.Ed.2d 795 (1972). Otherwise the expenditures might be attributable to conversion of the taxpayer's prior accumulated capital rather than to income received during that period. See United States v. Fisher, 518 F.2d 836 (2d Cir. 1975); United States v. Bianco, 534 F.2d 501 (2d Cir. 1976).
In the present case the government offered extensive and detailed proof of appellant's opening net worth as of December 31, 1966 (including securities, mortgage receivables, United States Savings Bonds and cash on hand), his closing net worth, non-taxable sources of income and his expenditures. Appellant's principal defense was that the opening net worth established by the government was incorrect because it did not include a "cash hoard" of more than $100,000, which he revealed for the first time in trial testimony as having been accumulated by him prior to 1967, kept in a tin box in the basement of his home, and used both prior to and after 1967 to make various cash mortgage...
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