U.S. v. Giacalone
| Decision Date | 19 May 1978 |
| Docket Number | No. 77-5074,77-5074 |
| Citation | 574 F.2d 328 |
| Parties | 78-1 USTC P 9350 UNITED STATES of America, Plaintiff-Appellee, v. Anthony J. GIACALONE, Defendant-Appellant. |
| Court | U.S. Court of Appeals — Sixth Circuit |
Joseph F. Dillon, Raymond, Fletcher, Dillon & Titcomb, Detroit, Mich., for defendant-appellant.
James K. Robinson, U. S. Atty., Geoffrey A. Anderson and Richard E. Zuckerman, U. S. Dept. of Justice, Detroit, Mich., for plaintiff-appellee.
Before LIVELY, ENGEL and MERRITT, Circuit Judges.
The defendant appeals his jury conviction for income tax evasion. The indictment charged violation of 26 U.S.C. § 7201 1 with respect to taxes due for the years 1968, 1969, 1970 and 1971. The jury returned guilty verdicts for the first three years but found the defendant not guilty with respect to 1971.
The defendant filed joint income tax returns with his wife and paid the taxes which the returns indicated were due. The government charged that the defendant understated his taxable income by substantial amounts in each of the indictment years. The government's evidence consisted primarily of a recomputation of the defendant's taxable income by "the net worth plus nondeductible expenditures method." (Government summary witness Robert Campbell, Tr. 9635). Under this method the government seeks to compute taxable income by determining a taxpayer's net worth (excess of assets at cost over liabilities) at the end of each year plus his nondeductible expenditures during the year. The difference between this figure and the net worth at the beginning of the year is treated as the taxable income received during the year. The government must show that it has ruled out the existence of nontaxable funds as the source of expenditures or increases in net worth. See United States v. Taglianetti, 398 F.2d 558, 562 (1st Cir. 1968), aff'd, 394 U.S. 316, 89 S.Ct. 1099, 22 L.Ed.2d 303 (1969); United States v. Goichman, 407 F.Supp. 980, 986 (E.D.Pa.), aff'd The defendant raises numerous issues on appeal. We will discuss separately those which appear to be the most substantial.
547 F.2d 778 (3d Cir. 1976). The net worth method was approved by the Supreme Court for use in income tax prosecutions in Holland v. United States, 348 U.S. 121, 75 S.Ct. 127, 99 L.Ed. 150 (1954), and in three other cases decided the same day: Friedberg v. United States, 348 U.S. 142, 75 S.Ct. 138, 99 L.Ed. 188; Smith v. United States, 348 U.S. 147, 75 S.Ct. 194, 99 L.Ed. 192; United States v. Calderon, 348 U.S. 160, 75 S.Ct. 186, 99 L.Ed. 202.
The defendant has contended throughout that the government's evidence was not sufficient to sustain the verdict because it failed to establish the "opening net worth" with sufficient certainty. In Holland the Supreme Court wrote that "an essential condition in cases of this type is the establishment, with reasonable certainty, of an opening net worth, to serve as a starting point from which to calculate future increases in the taxpayer's assets." 348 U.S. at 132, 75 S.Ct. at 134. A net worth statement prepared by government agents was received in evidence as exhibit # 3517. The itemization of the defendant's opening net worth i. e., net worth on December 31, 1967, the last day before commencement of the indictment years on the government's statement contained no dollar amount for cash. "Cash" was shown as an item, but was represented by a dash, and this representation was repeated for each year through 1971. Page 1 of exhibit # 3517, reproduced below, shows the use of dashes:
ANTHONY GIACALONE
COMPUTATION OF INCOME BY THE NET WORTH
PLUS NON-DEDUCTIBLE EXPENDITURES METHOD
12/31/67 12/31/68 12/31/69 12/31/70 12/31/71 SCHEDULE
---------- ---------- ---------- ---------- ----------- --------
ASSETS
--------------
Cash On Hand ---- ---- ---- ---- ----
Checks on hand 3,503.00 2,600.00 3,330.00 3,330.00 1,747.13 A
Bank accounts 13,116.43 53,638.02 9,006.08 8,149.78 275,134.58 B
Receivables 31,918.81 25,234.85 24,072.12 20,412.75 85,295.04 C
Securities 297,874.38 449,585.98 538,355.61 637,663.35 482,945.50 D
Property 81,658.65 81,658.65 81,658.65 81,658.65 100,658.65 E
Automobiles 11,869.53 14,370.00 20,720.33 20,720.33 33,078.83 F
Household
furnishings 26,595.37 26,865.87 26,865.87 26,865.87 26,964.15 G
Furs 1,990.00 3,180.00 3,180.00 3,180.00 3,180.00 G
Horses 5,000.00 3,500.00 4,000.00 4,000.00 4,000.00 H
Other
assets 1,706.00 17,506.00 15,800.00 15,800.00 98,125.53 J
---------- ---------- ---------- ---------- -----------
Total
Assets 475,232.17 678,139.37 726,988.66 821,780.73 1,111,129.-
41
---------- ---------- ---------- ---------- -----------
LIABILITIES
-----------
Loans payable 226,227.83 424,864.00 457,500.79 501,422.23 351,288.48 K
---------- ---------- ---------- ---------- -----------
Total
Liabilites 226,277.83 424,864.00 457,500.79 501,422.23 351,288.48
---------- ---------- ---------- ---------- -----------
The defendant argues that since the dashes added nothing to the totals they must be treated as zeroes. He points out that the government's evidence showed numerous cash purchases by the defendant and his wife, thus proving the existence of cash. Since no cash was shown on the statement, it cannot reflect accurately or with "reasonable certainty" the opening net worth figure for each year, he contends. This argument is fallacious. The entire thrust of the case was that the cash expenditures in each of the prosecution years were made from current taxable income The defendant presented evidence that he had $300,000 in cash on December 31, 1967 and that this fund was consumed at the rate of $50,000 per year thereafter. According to defendant's computations these funds approximately accounted for his increased net worth year by year. In anticipation of this defense the government presented a detailed analysis of the financial transactions of the defendant and his wife from October 17, 1951 through December 31, 1967. The analysis purported to show that during this 16-year period the Giacalones had spent approximately $81,000 more than was available to them according to their income tax returns. October 17, 1951 was chosen as the starting point for the cash analysis because the defendant gave a statement to an agent of the Internal Revenue Service on that date in which he detailed all his assets and liabilities. The government argues that this evidence of a negative cash position on December 31, 1967 was sufficient to justify the jury in finding that no cash hoard of $300,000 existed, as claimed by the defendant, and was sufficient to support the omission of any cash other than the unknown quantity representing the gambler's bankroll, shown by dashes, from the net worth statement.
received in that year, not from cash on hand at the beginning of the year. The government witness Campbell conceded that the defendant possessed some cash, but testified that the dashes represented an unknown, presumably constant amount and were similar to "X" in an algebraic equation. The defendant is a "professional gambler" (appellant's reply brief, pp. 4 & 42). Campbell testified that the net worth statement assumed the existence of a "bankroll" of cash which remained approximately the same throughout the period covered. However, he asserted that as a constant it did not affect the accuracy of the net worth statement.
Because of the danger of miscarriage of justice inherent in net worth prosecutions, we review each such case with great care. See Holland v. United States, supra, 348 U.S. at 129, 75 S.Ct. 127. The burden of proof is no different than in any other criminal case the government must prove all material elements of the offense beyond a reasonable doubt. However, in these cases the evidence of guilt is largely circumstantial, and the net worth method is, at best, only an approximation. As an added measure of protection the government is required to demonstrate that it has investigated the existence of sources of net worth other than unreported taxable income. As the Supreme Court said in Holland, ". . . the cogency of its proof depends upon its effective negation of reasonable explanations by the taxpayer inconsistent with guilt." 348 U.S. at 135, 75 S.Ct. at 135. Evidence which carefully traces the financial history of a defendant and discloses expenditures in excess of reported resources in the period immediately preceding the indictment years is sufficient to support a finding that there was no cash hoard. Friedberg v. United States, supra, 348 U.S. at 144, 75 S.Ct. 138.
The defendant did not claim that he had nontaxable sources of income during the indictment years. Instead, he relied upon witnesses who testified that the $300,000 cash hoard came from the defendant's father prior to that time. The government presented proof that the father had serious financial problems during the period it was claimed the gift money was being accumulated and that he left no probate estate. The evidence was clearly sufficient to support an inference that the defendant's father was not the source of funds which explain the increased net worth and expenditures of the defendant and his wife. See McGarry v. United States, 388 F.2d 862 (1st Cir. 1967), cert. denied, 394 U.S. 921, 89 S.Ct. 1178, 22 L.Ed.2d 455 (1969).
Though we have found no case precisely on point we conclude that the use of dashes...
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