U.S. v. Wolfson

• Citation: 573 F.2d 216
• Decision Date: 18 May 1978
• Docket Number: No. 76-3089,76-3089
• Parties: , 78-1 USTC P 9456 UNITED STATES of America, Plaintiff-Appellee, v. Norman N. WOLFSON, Defendant-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

Page 216

573 F.2d 216

45 A.L.R.Fed. 625, 78-1 USTC P 9456

UNITED STATES of America, Plaintiff-Appellee, v. Norman N. WOLFSON, Defendant-Appellant.

No. 76-3089.

United States Court of Appeals, Fifth Circuit.

May 18, 1978.

Daniel S. Pearson, Miami, Fla., for defendant-appellant.

Jack V. Eskenazi, U. S. Atty., Marsha L. Lyons, Asst. U. S. Atty., Miami, Fla., for plaintiff-appellee.

Appeal from the United States District Court for the Southern District of Florida.

Before BROWN, Chief Judge, RONEY and FAY, Circuit Judges.

JOHN R. BROWN, Chief Judge:

This is a tax case on the problems involved in valuing yachts for charitable deductions. It is not a run-of-the-mill tax claim challenging a taxpayer's deduction on a return. The Government in this case went after a marine surveyor, Norman N. Wolfson, who allegedly overstated the value of seventeen yachts donated to two Florida universities. According to the Government, "(t) he indictment in this case was the first prosecution of its kind." ¹ As a result of Wolfson's high appraisals furnished the donors, the Government claimed he was criminally liable for aiding in the preparation of fraudulent tax returns. 26 U.S.C.A. § 7206(2). ² A jury found Wolfson guilty, but we reverse and remand for a new trial because of two significant trial court errors.

Yachting For Charity

Norman Wolfson was in charge of yacht donation programs at Florida Institute of Technology from 1968 to 1975, and at Florida Atlantic University from 1970 to 1972. During most of this time, Wolfson also had the responsibility for selling the donated yachts when the universities did not keep the vessels. His compensation was derived from commissions on the proceeds from these sales.

Wolfson would send a standard letter to potential contributors reminding them that the value of their donation would be tax deductible. He also personally discussed with some of the taxpayers the deductibility of their donations. Each person who eventually gave a yacht to a university received an appraisal from Wolfson placing a fair market value on the vessel. His appraisal was generally accompanied by a letter purporting to be from Joe Le Blanc, an independent surveyor, which would confirm Wolfson's valuation. During trial, Le Blanc testified he was a friend of Wolfson and admitted discussing yacht prices with him. Le Blanc denied, however, authorizing anyone to sign his name to letters. ³

Wolfson was indicted on nineteen counts of aiding in the preparation of fraudulent tax returns, and he was eventually convicted on seventeen. ⁴ Each count listed a taxpayer who had donated a boat to Florida Institute of Technology or Florida Atlantic University and had taken a charitable deduction based on the amount of Wolfson's appraisal. However, none of the taxpayers in this case, nor any of their tax lawyers or accountants, nor any official from the two universities, were indicted either separately or along with Wolfson. On four of the counts, moreover, the Internal Revenue Service (IRS) allowed the full amount of Wolfson's appraised value as a charitable deduction to the taxpayer-donors.

To prove that Wolfson's appraisals were deliberately overstated, the Government employed primarily three techniques. First, it introduced evidence of the prices at which universities sold the donated yachts. Wolfson was in charge of selling thirteen of the nineteen boats and participated in making an appraisal on a fourteenth boat in connection with its sale. The sales prices were substantially less than the values Wolfson had attributed to each yacht. Second, the Government introduced evidence of the insurance taken out by the donee on each vessel. After the boats were donated, Wolfson, on behalf of the donees, procured limited marine insurance in amounts less than his appraisals.

Finally, the prosecution called expert witnesses. Horace Schmahl, another marine surveyor, reviewed Wolfson's reports on five yachts. Schmahl explained that he made his valuations using several sources, including surveys filed on similar and identical boats and the "BUC" book, which is a kind of "blue book" for the marine industry that makes adjustments for regional differences. Marine surveyor Elmer Strauss also testified for the Government. He evaluated all except three of the boats, using a method similar to that described by Schmahl. The value estimates of both experts were less than Wolfson's estimates. ⁵

We believe, nevertheless, that the trial court committed serious errors relating to the evidence on sales prices and the amount of insurance on each yacht the first two methods of proving that Wolfson knowingly exaggerated his appraisals.

Instructing On Sales

Wolfson insists that evidence of the prices at which the universities sold the vessels should have been excluded entirely. He argues that sales by the universities had no relation to fair market value. At best, their probative value was outweighed by the danger of unfair prejudice. The donee-universities, it is contended, had to sell boats as quickly as possible for economic reasons. All were sold within six months after donation and most within two to three months. In fact, an IRS Appellate Division audit report on one of the taxpayers who donated a yacht through Wolfson stated:

The arguments for recognizing a fair market value in excess of the actual sales price are

1. Universities generally have no need for the donated yacht and are anxious to sell at an early date in order to eliminate or minimize dockage, insurance, and maintenance charges.

2. The prompt disposition of donated yachts by the universities in effect is securing purchasers at forced sales prices.

Dx 27 at 4. Consequently, the IRS in that case refused to use the sale price for the amount of the charitable deduction.

As indicated in the IRS report, the universities did not have extensive marina facilities that would have allowed them to keep a large fleet of yachts. And maintenance costs on these vessels were extremely high. Upkeep on one of these boats, for example, ran as high as $25,000 a year. ⁶ In a similar case, the Tax Court held that the sale of donated personal property by a charitable organization was not indicative of value when the organization was under pressure to vacate its premises. Estate of Alexia DuPont Ortiz DeBie, 1971, 56 T.C 876, 894-95. See Daniel S. McGuire, 1965, 44 T.C. 801. More than that, in this highly organized campaign to get large donations for the universities, it was never contemplated that the universities would ever use all the vessels. The whole idea was to sell the yachts the universities did not want as quickly as possible, the expectation being that sales could be made because of the unusually attractive prices acceptable to the donees who did not need or really want the yachts for their use. To cap it off, most sales figures were well below the values estimated by the Government's own experts.

We do not go so far, however, as to say that the sales figures should have been completely excluded. Although the defendant's argument has considerable merit, we believe the figures had some, albeit attenuated, relevance to market value ⁷ and to Wolfson's intent. But the limited usefulness of these sales prices highlights an overriding trial court error. For this evidence to go before the jury, the judge should have been scrupulous in his instructions on the relationship between the sales and fair market value. Indeed, "the closeness of the issue . . . imposed an obligation on the trial court judge to instruct the jury with extreme precision . . . ." Cooper v. United States, 1966, 123 U.S.App.D.C. 83, 85, 357 F.2d 274, 276 (Bazelon, C. J., separate opinion), quoting, United States v. Garguilo, 2 Cir., 1962,310 F.2d 249, 254.

The Judge's instructions in this case on how the jury should consider evidence of sales were as follows:

In determining the weight to be given the actual cost or sales price, as a measure of fair market value, the jury should consider the closeness of the sale or purchase to the date of donation, the type of sale, and whether the transaction was at arm's length. A forced or distress sale should be accorded less weight in your consideration. Similarly a sealed bid auction, where there is no room to negotiate may be accorded different weight than a negotiated sale. The terms of sale and market conditions may also be weighed.

A bona fide offer to purchase the donated property, made in close proximity to the date of donation, may also be considered in your determination of fair market value, provided the prospective purchaser was willing to complete the transaction and was financially or otherwise able to carry it out.

A sale of comparable property occurring near the donation date may be considered by the jury as evidence of the fair market value, giving consideration to the proximity of sale, similarity between the properties, type of transaction, and circumstances of the markets involved.

R., vol. 6, at 1397-98 (emphasis added).

Although it is not entirely clear, apparently, the only direct reference to Wolfson's theory that the university sales were not good indicators of market value was the sentence: "A forced or distress sale should be accorded less weight in your consideration." In light of the extensive evidence that these sales had little bearing on market value, we do not believe that this single sentence, using the legal jargon of "forced or distress," ⁸ set in the midst of largely irrelevant instructions, was sufficient. No one argued, for instance, over the merits of a "sealed bid auction," yet instructions on that topic were as prominent as those on "forced or distress" sales. The Judge failed to meet his obligation for providing precise instructions on the factual issues in controversy. As we have stated again and again The primary purpose of jury instructions is to define with substantial particularity the factual issues, and clearly to instruct the...