U.S. v. Vannelli, 78-1607

• Citation: 595 F.2d 402
• Decision Date: 16 April 1979
• Docket Number: No. 78-1607,78-1607
• Parties: 79-1 USTC P 9257, 4 Fed. R. Evid. Serv. 509 UNITED STATES of America, Appellee, v. Leonard J. VANNELLI, Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 402

595 F.2d 402

79-1 USTC P 9257, 4 Fed. R. Evid. Serv. 509

UNITED STATES of America, Appellee, v. Leonard J. VANNELLI, Appellant.

No. 78-1607.

United States Court of Appeals Eighth Circuit.

Submitted Jan. 8, 1979.

Decided March 12, 1979.

Rehearing and Rehearing En Banc April 16, 1979.

Jay B. Kelly, St. Paul, Minn., for appellant.

Donald F. Paar, Asst. U. S. Atty., Minneapolis, Minn., for appellee; Andrew W. Danielson, U. S. Atty., Minneapolis, Minn., and Paul C. Engh and Robert L. Gjorvad, Legal Interns, on the brief.

Before STEPHENSON and McMILLIAN, Circuit Judges, and FILIPPINE, District Judge. ^*

STEPHENSON, Circuit Judge.

Appellant Leonard J. Vannelli appeals from his jury conviction on three counts of willfully attempting to evade federal income taxes by the filing of false income tax returns for the years 1971, 1972 and 1973 in violation of 26 U.S.C. § 7201. ¹ The government reconstructed appellant's income through the use of the bank deposits-cash expenditures method. Appellant in this appeal charges insufficiency of the evidence to establish willfulness and other trial errors. We affirm.

The government's investigation leading to the indictment in this case began when Special Agent Tschida interviewed appellant Vannelli at his home on May 1, 1974, with respect to why Vannelli had not filed federal income tax returns for the years 1971 and 1972. Prior to asking any questions of Vannelli, the special agent advised him of his rights. ² Vannelli answered the agent's questions and later turned over relevant documents. Among other things, Vannelli told the agent that his 1971 and 1972 returns, along with his 1973 returns, had been recently filed and furnished the agent copies of the returns.

After verifying that Vannelli had filed his 1971 and 1972 returns, Agent Tschida checked the accuracy of his figures at the Cosmopolitan State Bank in Stillwater, where Vannelli maintained two checking accounts. Thereafter, a full scale investigation was conducted using the bank deposit-currency expenditure method of reconstructing income. The bank records revealed a large amount of loans being paid off with currency. In substance, there were more deposits and currency expenditures than money shown on the tax returns. As previously indicated, indictment, trial and conviction by the jury followed.

Initially Vannelli contends that it was incumbent upon the government to establish intent by evidence independent of the understatement of income. The thrust of Vannelli's contention is that any understatement of income was not willful on his part, but was due to Vannelli's reliance on his income tax return preparer, Michael Fritz, ³ who made mistakes in preparing the tax returns. In this connection Vannelli points out that Fritz was also the head cashier at the Cosmopolitan Bank under whose supervision the relevant deposit slips were prepared. Fritz was thoroughly familiar with the deposit procedure whereby portions of Vannelli's deposits were used to pay current loans, and thus it was a mistake to just look at the bank statement, which reflected only the net deposit, and to use such deposit figures in determining gross receipts from Vannelli's vending machine business for income tax purposes.

Vannelli also sought to introduce a portion of a summary exhibit labeled "less items not subject to willful intent to evade income tax." The court ordered this portion of the exhibit deleted. Vannelli claims the court erred in doing so. The court correctly ruled that these conclusions concerning the effect of Fritz's mistakes could be argued to the jury as a reasonable inference to be drawn from the evidence. The court's ruling did not eliminate Vannelli's position but only restricted the form of presentation from one of testimony to one of argument. It was the jury's province to analyze and weigh this conclusion against other conclusions which could be inferred from the evidence.

The issue of Vannelli's reliance on Fritz's preparation of the tax returns was properly submitted to the jury. United States v. Venditti, 533 F.2d 217, 219 (5th Cir. 1976). The court instructed thereon as follows:

If the defendant provided Michael Fritz with full information with regard to his taxable income and his expenses, and the defendant then adopted, signed, and filed the tax return as prepared by Michael Fritz, without having reason to believe that it was not correct, then you must find the defendant not guilty.

If on the other hand you find beyond a reasonable doubt that the defendant did not provide full and complete information to Mr. Fritz, or that he knew that the return as prepared by Michael Fritz was not correct, and substantially understated the tax liability of the defendant and his wife, then you may find the defendant guilty even though he did not prepare the return himself but rather had it prepared for him by another person.

In addition, the court properly submitted the issue of willfulness to the jury. See United States v. Pomponio, 429 U.S. 10, 97 S.Ct. 22, 50 L.Ed.2d 12 (1976); United States v. Olson, 576 F.2d 1267, 1272 (8th Cir. 1978); United States v. Pohlman, 522 F.2d 974 (8th Cir. 1975), Cert. denied, 423 U.S. 1049, 96 S.Ct. 776, 46 L.Ed.2d 638 (1976). No error is urged with respect to the willfulness instruction.

After reviewing the record, we are satisfied that the evidence amply supports the jury finding beyond a reasonable doubt that Vannelli willfully attempted to evade and defeat income tax due the government in a substantial amount as charged in the indictment.

The evidence taken most favorably to the jury verdict discloses that for each of the years 1971, 1972 and 1973, the amounts of deposits far exceeded the income reported. In 1971 Mr. Vannelli reported $14,746.69 in income, yet his deposits minus legitimate non-income receipts and expenditures totaled $27,640.12. The tax due on the latter amount was at least $6,173.00, and Mr. Vannelli paid only $2,946.67. In 1972 Mr. Vannelli reported income of $3,742.59 and paid a total tax of $576.24. His true income according to the bank deposits method was about $25,765.97. His total tax due was $5,994.50. In 1973 Mr. Vannelli reported $25,904.83 and paid a tax thereon of $5,736.21. His true income was $57,160.62 and the tax, $17,728.04. ⁴

Willfulness in a criminal tax case may be established by a consistent pattern of not reporting large amounts of income. See Holland v. United States, 348 U.S. 121, 131, 75 S.Ct. 127, 99 L.Ed. 150 (1954); United States v. DiBenedetto, 542 F.2d 490, 493 (8th Cir. 1976); United States v. Coblentz, 453 F.2d 503, 505 (2d Cir. 1972).

Vannelli next urges that the trial court committed reversible error in admitting evidence of Vannelli's prior misdemeanor convictions ⁵ of misappropriation of funds in excess of one dollar derived from the bingo games which he ostensibly operated for St. Andrew's Special Fund (September 29, 1972, to August 31, 1973); Fraternal Order of Eagles Athletic Fund (July 31, 1972, to November 1, 1973); Como Orchard Boosters (February 3, 1973, to November 17, 1973). Vannelli contends the prejudice created far outweighed any probative value of this evidence. The government contends the evidence was properly admitted and used only to show an intent, opportunity, plan or scheme as it related to the federal prosecution for tax evasion. In a tax evasion prosecution it is necessary to show that an individual received more income than he reported. In order to do this, the government must establish potential sources from which this unreported income was derived. In this case the only purpose for introducing the previous conviction of appellant was to show an intent, opportunity, scheme or plan from which unreported income could be derived. ⁶ See Fed.R.Evid. 404(b). The trial court is in better position to determine whether the probative value of the evidence in question is substantially outweighed by the danger of unfair prejudice. See Fed.R.Evid. 403. Here it was essential for the government to show a potential source of unreported income and Vannelli's handling of the receipts in connection therewith. Embezzled or other unlawfully obtained funds are, of course, taxable income. James v. United States, 366 U.S. 213, 81 S.Ct. 1052, 6 L.Ed.2d 246 (1961). We cannot say the trial court abused its discretion in admitting this evidence under the particular circumstances of this case.

Appellant next urges that the trial court erred in refusing to dismiss the indictment because of an abuse in prosecutorial discretion under the Petite policy. See Petite v. United States, 361 U.S. 529, 80 S.Ct. 450, 4 L.Ed.2d 490 (1960). Under the Petite policy the Department of Justice declines to bring a federal prosecution after a state prosecution unless the reasons for the successive federal prosecution are compelling. In the state prosecution Vannelli was convicted of unlawfully appropriating money and unlawfully hiring persons to assist him in the operation of bingo games. Prosecution in this case involves the willful and knowing attempt to evade federal income taxes. The charges are completely dissimilar. In any event, the tax prosecution was approved by the Department of Justice for...