U.S. v. Whyte, 82-1761
| Decision Date | 31 January 1983 |
| Docket Number | No. 82-1761,82-1761 |
| Citation | 699 F.2d 375 |
| Parties | 83-1 USTC P 9185 UNITED STATES of America, Plaintiff-Appellee, v. Herbert G. WHYTE, Defendant-Appellant. |
| Court | U.S. Court of Appeals — Seventh Circuit |
John Kappos, Merrillville, Ind., for defendant-appellant.
Andrew B. Baker, Asst. U.S. Atty., Hammond, Ind., for plaintiff-appellee.
Before PELL, Circuit Judge, SWYGERT, Senior Circuit Judge, and MAROVITZ, Senior District Judge. *
Appellant, Herbert G. Whyte ("Whyte") appeals from his four count conviction by a jury in the United States District Court for the Northern District of Indiana, Hammond Division, of willfully and knowingly making, subscribing and filing false federal income tax returns for the years 1975 through 1978 in violation of 26 U.S.C. Sec. 7206(1). 1 The indictment charged Whyte with understating his adjusted gross income in the years 1975, 1976, 1977 and 1978. Each count of the indictment pertained to a separate year.
Whyte allegedly incurred personal income beyond that reported on his personal tax return by diverting checks representing income of his corporation to his personal use, and by using checks drawn on his corporation's bank account, falsely denoted as various business expenses, to pay his personal expenses.
On May 6, 1982, Whyte was sentenced to consecutive one year prison terms on each of the first three counts, three years suspended sentence on the fourth count and a one year probation period to begin after his release. He was fined $9,000.
On appeal, Whyte contends: (1) that since he was indicted for understating his adjusted gross income, the Government should not have been allowed to introduce evidence that his gross income was understated; (2) that the trial court erred in instructing the jury that a statement of adjusted gross income is material as a matter of law; (3) that the trial court improperly instructed the jury regarding a reliance defense; and (4) that the trial court erred in not granting Whyte's Motion for Acquittal for insufficiency of proof beyond a reasonable doubt. After a thorough review of the record, we conclude that Whyte's arguments are without merit and therefore affirm the conviction.
The defendant, Herbert G. Whyte, a citizen of Jamaica, came to the United States in 1956 for instruction in the field of engineering. He received a Bachelor of Science degree in Civil Engineering from Howard University in 1962. He then obtained a Masters in Transportation Engineering from Catholic University and later a post-graduate diploma in Traffic and Highway Engineering from Britton College of Technology in England.
In 1971, Whyte returned to the United States and began working in the engineering field. He worked in various engineering jobs until 1974 when he formed Herbert G. Whyte and Associates, Inc., (the "Corporation") an engineering consulting firm.
In 1975, Whyte hired Sylvester Goodson, an experienced public accountant, to create and keep the financial books and records for the Corporation. Goodson set up a "cash basis" accounting system for the Corporation. Under a cash basis method of accounting, income is recorded only when cash or checks are actually received. To keep track of income and expenses, Goodson prepared a cash disbursements journal, a general journal, a general ledger and a payroll ledger. Goodson did not prepare an accounts receivable journal because under the cash basis method of accounting the amount of money owed to the Corporation would not enter into the determination of how much income it had actually received. Goodson did suggest to Whyte and his secretary that an accounts receivable journal be maintained and instructed them as to how to prepare one.
Goodson was careful to inform Whyte that under the cash basis method of accounting it was important that all income to the Corporation be deposited in the corporate bank accounts. This was because income could only be documented through bank statements from the corporate checking and savings accounts. Goodson used a general journal to keep a record of all corporate transactions. He used the entry "cash on hand" to denote income that had been received by the Corporation but not yet deposited. He relied on Whyte to inform him as to when income had been received but not deposited. Corporate expenses were documented by check-stubs, cancelled checks and invoices. Expenses were classified and described by Whyte's notations on the check-stubs.
Goodson prepared the corporate income tax returns for the years 1975 through 1977, and Whyte's personal income tax returns for the years 1975 through 1978. In preparing Whyte's personal returns, Goodson stated that he would post wage payments to Whyte from the Corporation into the cash disbursements journal. From the cash disbursements journal, he would post an entry into the general ledger and also to Whyte's individual earnings sheet. From the earnings sheet Goodson produced Whyte's wage earnings slip or "W-2 form".
The Government contended that Whyte incurred personal income by cashing checks representing income of the Corporation, rather than depositing them into the corporate accounts, and by writing corporate checks, falsely denoted as various business expenses, to pay his own personal expenses.
The Government introduced evidence to show that in the taxable year 1975 the Corporation received three checks that were not deposited or only partially deposited into the corporate accounts. The total amount of money received but not deposited was $19,492. Of course, because the money was never deposited, it was never picked up as income to the Corporation. Since the money was never listed in the Corporation's books, it was never posted into Whyte's wage earning account even though it amounted to personal income to him.
In 1976, five checks were not deposited into the corporate accounts. Some of the money was used to make a mortgage payment on Whyte's personal residence. In addition, Whyte wrote a corporate check to Fordham University for $1,300. The check-stub described the payment as a "consulting expense", but the check was actually a tuition payment for Whyte's niece who had never done any work for the Corporation. Whyte's secretary testified that all of the income checks were endorsed by Whyte, and that Whyte had made out the check-stub. The total amount of money diverted from the Corporation or used for Whyte's personal expenses in 1976 was $16,844.
This trend continued into 1977 and 1978 when numerous checks made out to the Corporation as payee were cashed but never deposited. Whyte also continued to write checks on the corporate account to pay personal expenses. Three more tuition checks were written, and one check designated as "building repairs to the roof" was used to purchase stereo equipment for Whyte's home.
Whyte admitted cashing checks made out to the Corporation and using the proceeds for his personal use. He knew that nothing in the Corporation's books would indicate the amount of funds taken for his personal use. He also admitted that he wrote corporate checks to pay personal expenses.
Throughout the trial, Whyte maintained that he was repaying himself for loans he made to the Corporation. He testified that due to the political climate in Jamaica at the time he left, he was forced to leave his assets behind with his Jamaican attorney. He claims that he used his Jamaican funds to pay for work done for the Corporation in Jamaica. Specifically, Whyte claims that work was done for the Corporation in Jamaica by Colin Husband, Roosevelt Thompson, Conrad Pyne and Patrick Penso. He claims that he paid Husband about $30,000, Thompson about $80,000 and Pyne about $40,000. Whyte produced no contracts for the work done by these people, and claims that he lost all his records of the Jamaican deals in an office fire.
Whyte's Jamaican lawyer testified as to his managing Whyte's Jamaican funds. The lawyer stated that he had paid about $80,000 to Thompson, but had no record of the payment. Thompson testified that he had performed design and architectural work for Whyte and in return had received about $80,000 from the attorney. Thompson also had no contract or record of the payment.
Whyte's first argument is that the trial court erred in admitting evidence that his gross income was understated when the indictment charged an understatement of adjusted gross income.
Federal taxation of an individual's income is based upon the concept of gross income as defined in 26 U.S.C. Sec. 61. Certain business related losses are then allowed to be deducted from gross income to reach an adjusted gross income figure. Certain personal deductions are then subtracted from adjusted gross income to reach taxable income, the amount which determines any tax due.
Whyte argues that since the indictment charged him with understating his adjusted gross income, it is reasonable to assume that the Grand Jury found no understatement of his gross income as listed, but found that certain unwarranted business deductions were claimed that reduced the gross income to a figure representing adjusted gross income which was incorrect. Therefore, Whyte argues that the Government should have been restricted in its proof to items that would reduce the stated gross income that were false or unwarranted and therefore would cause an understatement of adjusted gross income. Whyte has offered no real support for this argument and we have been unable to find any. It seems obvious that there are two ways for adjusted gross income to be understated. Either the original gross income figure was understated, or the deductions from gross income were overstated. Whyte tries to get around the former by assuming that the Grand Jury was satisfied with his gross income figure as reported on his tax return.
Whyte's argument apparently stems from an...
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