U.S. v. Lisowski, 74-1042

• Decision Date: 21 November 1974
• Docket Number: No. 74-1042,74-1042
• Citation: 504 F.2d 1268
• Parties: 74-2 USTC P 9784 UNITED STATES of America, Plaintiff-Appellee, v. Walter A. LISOWSKI, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1268

504 F.2d 1268

74-2 USTC P 9784

UNITED STATES of America, Plaintiff-Appellee, v. Walter A. LISOWSKI, Defendant-Appellant.

No. 74-1042.

United States Court of Appeals, Seventh Circuit.

Argued June 3, 1974.

Decided Oct. 29, 1974, Rehearing Denied Nov. 21, 1974.

William A. Barnett, Charles R. Purcell, Chicago, Ill., for defendant-appellant.

James R. Thompson, U.S. Atty., Gary L. Starkman and Theodore T. Scudder, Asst. U.S. Attys., Chicago, Ill., for plaintiff-appellee.

Before CLARK, Associate Justice (Retired), ^* and PELL and SPRECHER, Circuit Judges.

PELL, Circuit Judge.

Defendant Walter A. Lisowski was convicted by a jury on all counts of an indictment charging him with five felony-grade offenses under the Internal Revenue Code. ¹

The defendant raises three issues on appeal: (1) whether the evidence was sufficient to show that the defendant's failure to report all his income was willful; (2) whether the district judge correctly charged the jury; and (3) whether the district court erred in excluding certain testimony.

I

The defendant's first contention is that the evidence was insufficient to prove that he acted willfully in understating income on the tax returns involved in this case. 'Willfulness,' in criminal tax offenses, requires a showing of 'bad faith' or 'evil intent.' United States v. Bishop, 412 U.S. 346, 361, 93 S.Ct. 2008, 36 L.Ed.2d 941 (1973); United States v. Murdock, 290 U.S. 389, 398, 54 S.Ct. 223, 78 L.Ed. 381 (1933).

Considering, as we must, the evidence in the light most favorable to the Government, Glasser v. United States, 315 U.S. 60, 80, 62 S.Ct. 457, 86 L.Ed. 680 (1942), the following facts were established at the trial.

During the period in issue, the defendant operated Mid-West Screw Products (Mid-West), a company engaged in manufacturing metal products. Until September 1, 1967, the business was operated as a partnership with Lisowski and his wife as the only partners. On that date, a corporation was formed which took over the partnership assets and continued the business. The defendant, owning 51 percent of the stock, became the president of the corporation.

In the course of manufacturing finished metal parts, Mid-West generated large quantities of scrap metal. During the years in question, Mid-West sold virtually all of this scrap to D. Pollack & Sons, Inc. (Pollack), a scrap broker. When Pollack picked up the scrap, shipping tickets were prepared, recording the type of metal and the weight but not the price. Payment for the scrap was usually made a month or two after the scrap had been picked up, with the pricing done by William Pollack, president of the Pollack company, based on the market price of scrap at the time of the pick up.

According to William Pollack, the defendant, during the three-year period in question, often telephoned him and requested that payment for the scrap be made partly by check and partly in cash. The Pollack records indicated that, during the pertinent time, 48 checks were written by Pollack's bookkeeper for scrap payments to Mid-West, with 29 of these checks payable to 'Mid-West' and 19 checks payable to 'cash.' ² Of the 19 checks payable to 'cash,' 15 were prepared and dated on the same date as another check payable to 'Mid-West.' Only one check payable to 'cash' was not prepared within three days of an accompanying check to 'Mid-West.' The 19 'cash' checks ranged in amount from $848.11 to $2,070.08 and totaled over $26,000.

William Pollack testified that he himself would cash the 'cash' checks at a bank, after which he would go to the Mid-West offices. According to Mr. Pollack, he sometimes gave the 'Mid-West' check to the defendant's bookkeeper, but he always delivered the cash personally to Lisowski when the defendant was alone. Often Mr. Pollack handed the defendant simultaneously the cash and a 'Mid-West' check. A copy of the Pollack company receiving ticket always accompanied the payment to Mid-West.

Lisowski stated on some occasions, according to William Pollack, that he, Lisowski, needed the cash to entertain customers and buy tools.

The payments of cash by Pollack to Lisowski continued until 1969. At that time Mr. Pollack told the defendant that 'the I.R.S. is checking my books, and I don't want to give any more cash.' Thereafter, the Pollack company made payments to Mid-West only by checks payable to 'Mid-West.'

The books for Mid-West were kept by a bookkeeper at the Mid-West office. The evidence indicated that every 'Mid-West' check from Pollack had been recorded by the bookkeeper in the Mid-West books. The bookkeeper testified that she was unaware, however, that cash payments were received from Pollack. Such cash was not recorded in Mid-West's books.

The tax returns for Mid-West were prepared by an accounting firm. The accountants who prepared the Mid-West returns found entries in the records indicating the Pollack check payments but they found no corresponding entries for cash payments. The accountant who prepared four of the defendant's five returns asked Lisowski 'for all his outside income interests, dividends and any other income.' In response, Lisowski produced certain documents and told the accountant about certain business expenses and charitable deductions but did not mention the cash payments from Pollack. All of the tax returns in issue were signed by the defendant after they had been completed.

The defendant concedes that the evidence was sufficient to permit the finding that the returns understated the gross income and gross sales, respectively, of himself and of Mid-West, but contends that the evidence fails to show that the understatements were willful.

We find that there was more than enough evidence presented to support a finding that the defendant acted willfully. Over a two and one half year period, Lisowski expressly requested, on 19 occasions, that William Pollack make payment for scrap partially in cash. Sizable amounts of currency, ranging from $848 to $2,070, were given to the defendant on these occasions. See Sherwin v. United States, 320 F.2d 137, 141 (9th Cir. 1963), cert. denied, 375 U.S. 964, 84 S.Ct. 481, 11 L.Ed.2d 420 (1964). The transfers always took place privately between Lisowski and William Pollack. Moreover, with one exception, the cash payments were always accompanied, on the same day or soon thereafter, by a check payable to 'Mid-West.' No cash payment was ever recorded in Mid-West's books and yet every check payment was recorded, even though Lisowski often received both simultaneously. '(A) consistent pattern of not reporting large amounts of income (is) sufficient to support an inference of willfulness.' Sherwin v. United States, supra at 141. See also Spies v. United States, 317 U.S. 492, 499, 63 S.Ct. 364, 87 L.Ed. 418 (1943). Further, the reason allegedly given by the defendant ³ for needing the cash (i.e., to entertain customers and to purchase tools) strains credulity in light of the amount of currency involved. See United States v. Scher, 476 F.2d 319 324 (7th Cir. 1973). Also, the fact cannot be ignored that unreported income comes out of the highest bracket at which the taxpayer is being taxed. Unfortunately, the incentive to the dishonest person to forget reporting income increases as his income increases. Finally, we note that the practice of receiving part payment in cash came to an abrupt end when the I.R.S. began investigating Pollack.

The present case is clearly distinguishable from United States v. Pechenik, 236 F.2d 844 (3d Cir. 1956), upon which the defendant relies. In Pechenik, a corporate president was convicted of willful tax evasion on the ground that certain expenditures of the company were improperly treated, thereby decreasing the company's net income. The evidence indicated that Pechenik had supplied his bookkeeper with complete information regarding the company's income and expenditures and had left it to the bookkeeper to determine how the various expenditures should be entered on the books. The Third Circuit held that, in this situation, the evidence was insufficient to prove willfulness and reversed the conviction. In the present case, Lisowski, unlike Pechenik, did not supply his bookkeeper or his accountant with any facts concerning this particular income of the company and himself, but instead handled the transactions relating to this income in what can only be termed a clandestine manner. '(A) taxpayer cannot shift the responsibility for admitted deficiencies to the accountants who prepared his returns if the taxpayer withholds vital information from his accountants, or takes positive action designed to mislead them.' United States v. Scher, supra, 476 F.2d at 321; Bender v. Commissioner, 256 F.2d 771, 774 (7th Cir. 1958). See also Windisch v. United States, 295 F.2d 531, 532 (5th Cir. 1961).

The question of willfulness was a matter for the jury to decide. Considering the record as a whole, the evidence was amply sufficient to support the jury's verdict.

II

The defendant next argues that the district court erred in instructing the jury. The defense, however, failed to state in court specific objections to the jury charges, as required by Rule 30, Fed.R.Crim.P. Normally, such a failure constitutes a waiver of a defendant's objection. United States v. Howard, 139 U.S.App.D.C. 347, 433 F.2d 505, 509 (1970). Lisowski contends, however, that specific objections were made during the conference on instructions and that these specific objections were not repeated in court because the district judge instructed counsel to make objections merely in a summary manner for the record. The defense explains that neither its specific objections made at the instruction conference nor the judge's statement that objections for the record should be summary in nature are in the record since the district judge who tried this case does not permit, according to the defense, the court reporter to record the conference on instructions. The Government,...