U.S. v. Swallow, 73--1822

• Decision Date: 02 April 1975
• Docket Number: No. 73--1822,73--1822
• Parties: 75-1 USTC P 9267 UNITED STATES of America, Plaintiff-Appellee, v. C. George SWALLOW, Defendant-Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 514

511 F.2d 514

75-1 USTC P 9267

UNITED STATES of America, Plaintiff-Appellee, v. C. George SWALLOW, Defendant-Appellant.

No. 73--1822.

United States Court of Appeals Tenth Circuit.

Argued July 9, 1974.

Decided Feb. 24, 1975.

Rehearing Denied April 2, 1975.

Richard D. Lynton, Boulder, Colo., for defendant-appellant.

W. Allen Spurgeon, Asst. U.S. Atty., Denver, Colo. (James L. Treece, U.S. Atty., Paul D. Cooper, Asst. U.S. Atty., Denver, Colo., on the brief), for plaintiff-appellee.

Before SETH and HOLLOWAY, Circuit Judges, and TALBOT SMITH, ^* District Judge.

HOLLOWAY, Circuit Judge.

Appellant Swallow challenges his convictions under a four count federal income tax indictment. Count I alleged a willful attempt, from late 1966 until 1969, to evade and defeat payment of income taxes for the years 1953, 1954 and 1955. Counts II, III and IV accused him of a willful attempt to evade and defeat his federal income taxes for the years 1966, 1967 and 1968. The charges and convictions were all of violation of 26 U.S.C.A. § 7201. Defendant received a five year sentence, subject to release under 18 U.S.C.A. § 4208(b).

On this appeal Swallow urges four principal contentions, arguing that: (1) the trial court erred in not sustaining a motion to acquit due to insufficiency of the evidence, particularly stressing the lack of evidence as to counts II, III and IV; (2) the defendant was substantially prejudiced by improper closing argument by government counsel who stated certain facts as proven that were unsupported by proof; (3) the trial court erred in refusing to give two instructions requested by defendant, thereby denying a charge on his theory of defense; and (4) the ineffectiveness of defendant's representation by his trial counsel denied him a fair trial and his constitutional right to counsel. It is convenient to discuss the facts in the treatment of these issues, to which we now turn.

1. The Sufficiency of the Evidence

Defendant challenges the sufficiency of the evidence on all counts, while stressing particularly the lack of proof to support the convictions under counts II, III and IV. We must examine the proof tending to support the convictions since, after a verdict of guilty, the evidence must be viewed in the light most favorable to the government to determine whether there is sufficient substantial proof, direct and circumstantial, together with inferences reasonably drawn therefrom, on which the defendant might be found guilty beyond a reasonable doubt. United States v. Twilligear, 460 F.2d 79 (10th Cir.)

A. Count I

As stated, count I charged Swallow with a willful attempt from late November, 1966, continuing through March 14, 1969, to evade and defeat payment of income taxes for 1953, 1954 and 1955. Generally the government proof was that there was a total assessment for 1953, 1954 and 1955 taxes against Swallow for $7,111. Swallow maintained on November 25, 1966, that he possessed only $37 in cash, owned no real estate or personal property, except one term insurance policy he could not find, and was heavily in debt. ¹ These representations were made in a statement of financial condition submitted to the IRS in November, 1966, and similar statements were made to IRS agents in December, 1968, and March, 1969.

There was government proof tending to show the following facts as to Swallow's assets. He and his wife had conveyed a residence in Aurora, Colorado, in 1961 to one Markey. Markey testified that Swallow told him he was in need of funds, and that he asked Markey to refinance the debt on the house with the understanding that the house would revert to Swallow when Swallow could assume the payments. Markey obtained a loan of $12,000, paid off an old mortgage and closing costs, and paid a balance of over $3,000 to Swallow. The conveyance to Markey had been recorded, but in November, 1961, a transfer back to Mrs. Swallow was not recorded, although shown in a notary's notebook. The Swallows never gave up possession of the property and as late as 1966 through 1968, they were making payments on Markey's loan. Markey made some tax payments, but was reimbursed for them by the Swallows. ² In November, 1966, the balance due on the loan was $10,001.29. The appraised value of the house at that time was about $16,000, leaving an equity of about $6,000.

Between 1961 and 1964 Swallow executed five chattel mortgages on personal property located at the residence. The mortgages recited a total consideration of $4,300, but Markey testified that he had never paid any consideration to Swallow and that he neither received nor used any of the property. Swallow mortgaged the same furnishings and appliances in 1963 to Mineralag Corporation, a corporation run by Swallow and discussed later, for $8,000 and in 1964 he mortgaged them to one Linkon for $12,000. In 1964 Swallow executed an instrument purporting to sell the furnishings and appliances to Markey for $10, but Markey testified he never received any of the property.

There was also proof tending to show that Swallow held a Metropolitan Life Insurance policy with a net cash value of $500 on November 28, 1966. Swallow also had a Connecticut General Life Insurance policy with a net cash value of $1,299 on that date. The total asset value of these and another policy was over $1,900 on November 28, 1966--the date that the financial statement of Swallow was given to the IRS.

There was also, as detailed below, a considerable flow of cash received by Swallow in 1966, 1967 and 1968 from persons advancing or investing funds in the 'Mineralag' venture. While the funds were not intended by those sending them to become assets of Swallow's, the record proof as to their handling permits the inference that they were treated by Swallow as subject to his disposition, without an intent to repay, for his business and personal expenditures. Thus the inference of the existence of substantial funds treated by Swallow as his assets is permissible, supporting also the inference of misrepresentation.

We must conclude that there was substantial evidence of misrepresentations by Swallow as to assets made in his statements to the Internal Revenue Service, which proof supports the conviction on count I.

B. Counts II, III and IV

Counts II, III and IV charged a willful attempt to evade and defeat Swallow's income taxes for 1966, 1967 and 1968 in violation of 26 U.S.C.A. § 7201. To sustain convictions of such offenses the prosecution must establish beyond a reasonable doubt that there was a substantial tax deficiency, willfulness and some affirmative act constituting an attempt to evade or defeat the tax. Sansone v. United States, 380 U.S. 343, 85 S.Ct. 1004, 13 L.Ed.2d 882; Spies v. United States, 317 U.S. 492, 63 S.Ct. 364, 87 L.Ed. 418.

The principal government theory of a substantial tax deficiency argued to the jury was that the loans were not good faith loans to Swallow, and that there was no effort, nor any evidence to indicate any intent by Swallow, to repay the loans (R.X., 36--37). The trial court instructed on this theory (R.X., 70--71). When earnings are acquired, lawfully or unlawfully, without consensual recognition of an obligation to repay or restriction on their disposition, there is income. James v. United States, 366 U.S. 213, 219--220, 81 S.Ct. 1052, 6 L.Ed.2d 246. And this principle applies to loans obtained in bad faith and without an intent to repay them, as well as to money illegally obtained by embezzlement as in the James case. United States v. Rosenthal, 470 F.2d 837, 842 (2d Cir.), cert. denied, 412 U.S. 909, 93 S.Ct. 2298, 36 L.Ed.2d 975; United States v. Rochelle, 384 F.2d 748 (5th Cir.), cert. denied, 390 U.S. 946, 88 S.Ct. 1032, 19 L.Ed.2d 1135.

The proof of the government in support of the bad faith loan proposition tended to show the following facts in establishing the element of a substantial tax deficiency. Swallow was involved in a corporate enterprise in 1966, 1967 and 1968. He represented that he was engaged in agricultural research to produce a mineral fertilizer known as 'Mineralag' for sugar beets and other crops. Acting mainly through a St. Louis stockbroker, Stocker, and a friend, Riley, individuals were induced during the years 1966 through 1968 to send money to promote Swallow's research. In all, more than fifty persons sent over $229,000 to finance the venture. Most of them had no personal contact with Swallow before sending in their money, although Swallow later met and corresponded with a number of them.

The payments were made in various ways. The checks were made out in many instances to a Mineral Aggregates Corporation or to Geyser Minerals Corporation, companies run by Swallow. In numerous instances the checks were made to Swallow individually. After the funds were received, notes were executed to the persons forwarding the funds. The notes were signed by Swallow 'individually and as principal borrower & as president of Mineral Aggregates Corp.--cosignor.' ³ Stock certificates were also issued to the persons forwarding the funds, which Swallow described in correspondence as a bonus or gratuity. Several exhibits admitted in evidence referred to the transactions as loans to Swallow, with the funds being reloaned by Swallow to the corporation for research work. See Plaintiff's Exhibit 72--G; Defendant's Exhibits I, K and M. In September and October of 1967 Swallow requested that all stock issued by Mineral Aggregates be exchanged for stock in a newly organized Nevada corporation, Geyser Minerals Corporation.

As stated, over $229,000 was received through various transactions of this sort in 1966, 1967 and 1968. Several of the persons forwarding the funds requested repayment, but no repayment was made to any of over 40 such witnesses who testified. ⁴ It was a permissible inference on this record to find that Swallow obtained loans in bad faith without an intent to repay them, and thus had income.

Appellant Swallow relies on In re...