U.S. v. Marabelles

• Citation: 724 F.2d 1374
• Decision Date: 31 January 1984
• Docket Number: No. 83-1101,83-1101
• Parties: 84-1 USTC P 9189, 14 Fed. R. Evid. Serv. 1551 UNITED STATES of America, Plaintiff-Appellee, v. Alexander E. MARABELLES, Defendant-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 1374

724 F.2d 1374

84-1 USTC P 9189, 14 Fed. R. Evid. Serv. 1551

UNITED STATES of America, Plaintiff-Appellee, v. Alexander E. MARABELLES, Defendant-Appellant.

No. 83-1101.

United States Court of Appeals,

Ninth Circuit.

Argued and Submitted Nov. 29, 1983.

Decided Jan. 31, 1984.

Carol K. Muranaka, Asst. U.S. Atty., Honolulu, Hawaii, for plaintiff-appellee.

Clayton C. Ikei, Honolulu, Hawaii, for defendant-appellant.

Appeal from the United States District Court for the District of Hawaii.

Before ELY, WALLACE and REINHARDT, Circuit Judges.

ELY, Circuit Judge:

Marabelles appeals from his judgments of conviction under 26 U.S.C. Sec. 7201 (1976) (two counts of attempted tax evasion for the years 1977 and 1978) and 26 U.S.C. Sec. 7206(1) (1976) (one count of willfully filing a false tax return for the year 1977).

The appeal was timely, and we have jurisdiction under 28 U.S.C. Sec. 1291 (1976). We affirm.

FACTUAL BACKGROUND

During the years in question, Marabelles was a self-employed painter. On his federal income tax return for 1977, Marabelles reported gross receipts from his painting business in the amount of $10,083.00 and expenses in the amount of $4,394.00. On his tax return for 1978, he reported $11,653.00 as gross receipts from his business and $6,396.00 as expenses. The tax returns were prepared by trained tax preparers, based on information provided by Marabelles.

On October 29, 1982, a four-count indictment was returned against Marabelles, charging him with two counts of attempted tax evasion (1977 and 1978) and two counts of willfully filing false tax returns (1977 and 1978). Marabelles was tried before a jury, beginning February 23, 1983.

At trial, the Government employed the specific items method of proof, ¹ to show that the gross receipts from Marabelles' painting business totalled at least $20,000.00 for 1977 and at least $30,000.00 for 1978. Marabelles' defense was based on his assertion that the Government failed to allow him reasonable credit for deductible business expenses.

On March 3, 1983, the jury found Marabelles guilty of two counts of attempted tax evasion and one count of willfully filing a false tax return. The remaining count of the indictment had been dismissed with prejudice by the district judge before the jury began deliberation because a typographical error pertaining to the count had been discovered in the indictment.

On April 18, 1983, Marabelles was sentenced to a term of imprisonment of eighteen months on each count; the sentences as to Counts II and III were ordered to run concurrently with the sentence imposed on Count I. Marabelles has, until now, remained free on bond.

ANALYSIS

In this appeal, Marabelles urges the following errors. We treat these contentions in the order presented.

I. SUFFICIENCY OF THE EVIDENCE

A. STANDARD OF REVIEW

Marabelles strongly urges that the evidence was insufficient to support the jury's verdict. In evaluating such a contention, the trial court must determine whether there was relevant evidence from which the jury could reasonably find the defendant guilty beyond a reasonable doubt, viewing the evidence in the light most favorable to the prosecution. United States v. Hazeem, 679 F.2d 770, 772 (9th Cir.), cert. denied, --- U.S. ----, 103 S.Ct. 106, 74 L.Ed.2d 95 (1982). On appeal, our Court applies the same test to review the trial court's decision. Id. See also Jackson v. Virginia, 443 U.S. 307, 319, 99 S.Ct. 2781, 2789, 61 L.Ed.2d 560 (1979) ("the relevant question is whether, after viewing the evidence in the light most favorable to the prosecution, any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt" (emphasis in original)).

B. ATTEMPTED TAX EVASION

The elements of attempted income tax evasion (26 U.S.C. Sec. 7201 (1976)) are: (1) the existence of a tax deficiency, (2) willfulness in attempted evasion of taxes, and (3) an affirmative act constituting an evasion or attempted evasion. Sansone v. United States, 380 U.S. 343, 351, 85 S.Ct 1004, 1010, 13 L.Ed.2d 882 (1965); United States v. Conforte, 624 F.2d 869, 873 (9th Cir.), cert. denied, 449 U.S. 1012, 101 S.Ct. 568, 66 L.Ed.2d 470 (1980). Viewing the evidence in the light most favorable to the Government, we conclude that a rational trier of fact could have reasonably found that Marabelles was guilty, beyond a reasonable doubt, of attempted income tax evasion.

1. Tax Deficiencies

As we above stated, the Government used the specific items method of proof to show the existence of tax deficiencies for 1977 and 1978. It introduced into evidence cancelled checks received for services rendered and cashed by Marabelles during these years to establish total gross receipts figures. The Government argues that these figures, when compared with Marabelles' tax returns, reveal substantial unreported income ² and additional tax liabilities in the amounts of $2,169.26 for 1977 and $4,936.65 for 1978.

In challenging the Government's proof of tax deficiencies, Marabelles does not argue that he reported all his income; instead, he argues that the majority of the unreported income went to unclaimed business expenses. He further asserts that the failure of the Government fully to investigate and incorporate into its case these alleged expenses renders the Government's case fatally defective.

To support his arguments, Marabelles cites evidence purporting to show the existence of labor expenses:

(1) the testimony of one Frank Watanabe that he had observed some 10 to 12 persons, total, work for Marabelles during 1977 and 1978, that it was his opinion that Marabelles had a steady employee, that a painting contractor's gross receipts generally consist of expenses of 1/3 for paint and materials and 2/3 for labor, and that it was his opinion that it was not possible for a single painter to gross $31,000.00 per year working by himself;

(2) the testimony of the Internal Revenue Service ("IRS") special agent responsible for the Government's investigation of Marabelles that he had not inquired as to Marabelles' business procedures (personal hourly rate, number of hours and days per week worked), and that he had not investigated a deduction on Marabelles' 1978 tax return for workmen's compensation insurance (a deduction usually indicating the existence of employees);

(3) the testimony of another investigating IRS agent that he had noted the deduction taken by Marabelles on his 1978 tax return for liability and unemployment insurance and that he could not recall any instance in which a self-employed person took out unemployment insurance for himself;

(4) the testimony of the Government's summarizing witness, who reconstructed Marabelles' tax returns to substantiate the Government's tax deficiency claim, that he gave Marabelles no credit for labor expenses, even though based on the records he had reviewed (checks to Marabelles' son and third parties, unemployment insurance deduction), it would have been his practice, when performing a civil audit on Marabelles' business, to inquire about labor, and that no additional tax liability would have accrued if the expenses were as Marabelles asserted they were;

(5) the testimony of one Diane DeGuzman that her father was Marabelles' steady employee during 1977 and 1978; and

(6) the testimony of Marabelles that he had no intent to evade taxes, that he had incurred labor expenses in 1977 and 1978 for himself and for other painters, and that he had paid his employees mainly in cash but sometimes by check.

Thus, Marabelles argues that because he had significant additional labor expenses for 1977 and 1978, he owed no additional taxes for those years.

The Government persuasively rebutted Marabelles' claim for significant additional expenses by showing that:

(1) Marabelles had made prior admissions to IRS agents and to State Farm Insurance Company that he had no employees during 1977 and 1978;

(2) Frank Watanabe was not qualified as an expert in the field of construction bidding;

(3) the checks to Marabelles' son and to third parties did not indicate that they were for labor expenses;

(4) Marabelles did not call as defense witnesses any of the persons he allegedly paid;

(5) Marabelles had told State Farm Insurance Company that he never had employees and that his workers' compensation coverage was solely to allow him to bid on government jobs;

(6) Marabelles did not file any employment tax returns (for employees) during 1977 and 1978. ³

On this record, a rational trier of fact could have found the existence of a tax deficiency beyond a reasonable doubt.

2. Willfulness

Willfulness requires a showing of specific wrongful intent to avoid a known legal duty. United States v. Pomponio, 429 U.S. 10, 12, 97 S.Ct. 22, 23, 50 L.Ed.2d 12 (1976). Although direct proof of a taxpayer's intent to evade taxes is rarely available, willfulness may be inferred by the trier of fact from all the facts and circumstances of the attempted understatement of tax. United States v. Conforte, 624 F.2d 869, 875 (9th Cir.), cert. denied, 449 U.S. 1012, 101 S.Ct. 568, 66 L.Ed.2d 470 (1980).

The Government argues that Marabelles' willfulness can be inferred from:

(1) his failure to keep records, see United States v. Hom Ming Dong, 436 F.2d 1237, 1240 (9th Cir.1971);

(2) the large amount of his unreported income (51% omitted gross receipts in 1977 and 62% in 1978);

(3) his consistent pattern of not reporting all gross receipts, see Holland v. United States, 348 U.S. 121, 139, 75 S.Ct. 127, 137, 99 L.Ed. 150 (1954);

(4) his submitting insufficient information regarding his income to the tax return preparers, see Spies v. United States, 317 U.S. 492, 499, 63 S.Ct. 364, 368, 87 L.Ed. 418 (1943);

(5) his practice of dealing in cash, see Smith v. United States, 348 U.S. 147, 159, 75 S.Ct. 194, 200, 99 L.Ed. 192 (1954); United States v. Conforte, 624 F.2d 869, 875-76 (9th Cir.), cert. denied, 449 U.S. 1012, 101 S.Ct. 568...