U.S. v. Marshall, 75-3751

• Decision Date: 12 August 1977
• Docket Number: No. 75-3751,75-3751
• Parties: 77-2 USTC P 9581 UNITED STATES of America, Plaintiff-Appellee, v. Lydell MARSHALL, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 527

557 F.2d 527

77-2 USTC P 9581

UNITED STATES of America, Plaintiff-Appellee, v. Lydell MARSHALL, Defendant-Appellant.

No. 75-3751.

United States Court of Appeals Fifth Circuit.

Aug. 12, 1977.

Corinne M. Hopkins (Court Appointed), New Orleans, La., for defendant-appellant.

Lydell Marshall, pro se.

Gerald J. Gallinghouse, U. S. Atty., Mary W. Cazalas, Asst. U. S. Atty., New Orleans, La., for plaintiff-appellee.

Appeal from the United States District Court, Eastern District of Louisiana.

Before MORGAN and HILL, Circuit Judges, and NOEL, Senior District Judge. ^*

NOEL, Senior District Judge:

In this appeal, Lydell Marshall seeks the reversal of his conviction on the third count of an indictment that charged him with willfully understating his income for the year 1971 in violation of 26 U.S.C. § 7201. ¹ The first and second counts charged that Marshall also understated his income for the years 1969 and 1970. The jury returned a verdict of "not guilty" as to those two years. To establish its case, the Government employed the cash expenditures method of proof. That method consists of showing that the sum of a defendant's expenses and disbursements for a particular taxable year exceed the total of his reported income, nontaxable receipts, and available cash at the beginning of the year in question. For the year 1969, the Government projected Marshall's adjusted gross income as $9,930.11, whereas Marshall reported an income of $4,670.00. In 1970, Marshall reported his adjusted gross income as $6,950.00, whereas the Government projected a total of $17,414.21. In 1971, the year for which Marshall was convicted, the Government projected an adjusted gross income of $12,248.11 as against a reported income of $5,399.00. The Government projected that Marshall owed an additional $1,927.61 in income taxes for 1971. Marshall admitted during cross-examination that he won substantial sums at gambling that he did not report on his income tax returns.

Marshall argues two points of error. First, he alleges that the Government failed to establish the amount of his opening available funds for each of the taxable years in question, including the year 1971 for which he was convicted. Second, Marshall argues that the Government's summary witness placed before the jury summary figures that contained mathematical errors, as well as figures that were not justified by direct testimony, so as to create a false impression of consistent understatement and intention to defraud. We have tested these arguments against the requirement that we view the evidence in its most favorable light to the Government, ² and have concluded that the evidence presented was clearly sufficient to sustain the jury's verdict. Accordingly, we affirm the conviction.

As authority for his contention that the Government must prove the opening available funds for each year of the taxable years in question, Marshall relies on Dupree v. United States, 218 F.2d 781 (5th Cir. 1955). In that case, as here, the Government employed the expenditures method of proof to show that the defendant willfully understated his income. This Court reversed the conviction because the Government failed to establish the opening available funds for the pertinent time period. This Court explained:

The trial court below properly charged that each prosecution year must stand alone, and that the Government must prove opening available funds for each year; for, obviously in a prosecution for the year 1946, there would be a complete failure of proof unless the excess expenditures shown were shown to have come from income received during 1946 instead of being expenditures in 1946 of accumulations from prior years, or even of unreported income for 1945 or prior years.

218 F.2d at 785. Thus, where the Government employs the expenditures method of proof, it must prove that yearly expenditures exceeded reported income and it must establish, either directly or inferentially, that the expenditures were made from taxable income. Where both requirements are not met, a conviction cannot stand. E. g., Marcus v. United States, 422 F.2d 752 (5th Cir. 1970).

Appellant reads Dupree as requiring the Government to affirmatively prove the amount of Appellant's opening available funds for each of the taxable years in question. This reading of Dupree is correct, for it is altogether clear that in cases where the expenditures method of proof is employed the Government must present evidence that sufficiently excludes the possibility that the defendant relied on previously accumulated assets rather than on unreported taxable income. ³ However, subsequent decisions of this Court have made clear that the Government may establish the opening available funds for a beginning year and proceed to show the total of taxable and nontaxable receipts for the following consecutive years to prove its case. E. g., 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); United States v. Cook,505 F.2d 659 (5th Cir. 1974), cert. denied 421 U.S. 1000, 95 S.Ct. 2397, 44 L.Ed.2d 667 (1975). Where that is done, the opening available funds for the beginning year (gifts, inheritance, and the like) and income received less disbursements paid during the beginning year establish the opening available funds for the following year. In addition to establishing a defendant's opening available funds, the Government also has the burden of proving that the expenditures in question were not made from other nontaxable sources, such as gifts, loans, or bequests.

In this case, an Internal Revenue Service agent testified in the form of a stipulation between counsel that he and other agents investigated Marshall's assets as of December 31, 1968, as well as nontaxable sources of income to Marshall during the following three years, including sales of assets, inheritances, insurance proceeds, bank accounts, and gifts. The investigation included a survey of some 60 banking and financial institutions in the New Orleans Metropolitan area, as well as interviews of Marshall's family and friends. Marshall does not question the investigation's thoroughness, and on the basis of the record we are of the view that the investigating agents did all they could be reasonably expected to do...