United States v. Bruswitz

• Decision Date: 12 January 1955
• Docket Number: No. 120,Docket 23257.,120
• Citation: 219 F.2d 59
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. John C. BRUSWITZ and Edward C. Koenke, Defendants-Appellants.
• Court: U.S. Court of Appeals — Second Circuit

219 F.2d 59 (1955)

UNITED STATES of America, Plaintiff-Appellee, v. John C. BRUSWITZ and Edward C. Koenke, Defendants-Appellants.

No. 120, Docket 23257.

United States Court of Appeals, Second Circuit.

Argued November 10, 12, 1954.

Decided January 12, 1955.

Writ of Certiorari Denied April 18, 1955.

COPYRIGHT MATERIAL OMITTED

George H. Bailey, Asst. U. S. Atty., New York City (J. Edward Lumbard, U. S. Atty., New York City, on the brief), for United States of America, plaintiff-appellee.

Bruno Schachner, New York City, for defendant-appellant Edward C. Koenke.

Frederick H. Block, New York City, for defendant-appellant John C. Bruswitz.

Before CLARK, Chief Judge, and FRANK and MEDINA, Circuit Judges.

Writ of Certiorari Denied April 18, 1955. See 75 S.Ct. 600.

CLARK, Chief Judge.

This is an appeal by John C. Bruswitz and Edward C. Koenke from their conviction of tax fraud under I.R.C. § 145(b). Each was indicted on a separate three-count indictment charging willful attempts to evade federal income taxes by failure to report sums received in 1949, 1950, and 1951 as commercial bribes or kickbacks. A third indictment charged both with conspiracy to commit the same substantive offenses. The indictments were consolidated for trial to a jury which resulted in verdicts and judgments against them on all counts. Each received a sentence of fine and imprisonment on Count I of the substantive indictment against him, involving the 1949 taxes, and a concurrent prison sentence on the conspiracy indictment; while imposition of sentence was suspended on Counts II and III, involving taxes for the years 1950 and 1951. On this appeal they concede, as they did at trial, that in the course of their employment as traffic managers and solicitors of bids for subsidiaries of Bethlehem Steel Company they used their positions to extract personal gains in the form of percentage "commissions" from companies interested in doing business with their employers. They deny, however, that the prosecution has shown or can show a fraudulent, intentional withholding of taxes. Hence they attack the court's charge in its basic holding of law, as well as in certain incidental details, together with various rulings during the trial.

The main argument here of the defendants concerns the taxability of bribes under I.R.C. § 22(a). Relying on C. I. R. v. Wilcox, 327 U.S. 404, 66 S.Ct. 546, 549, 90 L.Ed. 752, they urge that bribes closely resemble the proceeds of embezzlement there found nontaxable. It is difficult to perceive what, if anything, is left of the Wilcox holding after Rutkin v. United States, 343 U.S. 130, 72 S.Ct. 571, 96 L.Ed. 833, which ruled that moneys received by extortion were within § 22(a). Certainly the whole approach of the later case, stressing actual possession and control, is diametrically opposed to the "claim of right" criterion of the earlier case. The reconciliation evolved by other circuits seems to be that even temporary dominion over illicit gains is sufficient to render them taxable in the hands of the holder thereof. Briggs v. United States, 4 Cir., 214 F.2d 699, certiorari denied 348 U.S. 864, 75 S.Ct. 86; Marienfeld v. United States, 8 Cir., 214 F.2d 632, certiorari denied 348 U.S. 865, 75 S.Ct. 87; Kann v. C. I. R., 3 Cir., 210 F.2d 247, certiorari denied 347 U.S. 967, 74 S.Ct. 778, 98 L. Ed. 1109; Rollinger v. United States, 8 Cir., 208 F.2d 109. Although eminently justified by the Rutkin holding, this formulation in effect does what the Supreme Court purported not to do; it overrules the Wilcox case. See Judge Johnsen's concurrence in Marienfeld v. United States, supra, 8 Cir., 214 F.2d 632, 639-640; and Judge Kalodner's dissent in Kann v. C. I. R., supra, 3 Cir., 210 F.2d 247, 253-255.

Nevertheless, the Wilcox case, limited to its facts, is distinguishable here. There a bookkeeper embezzled funds from his employer which he thereafter lost by gambling. The Supreme Court held that these funds were not income within § 22(a) because of the embezzler's continuing obligation to restore these funds to his employer — a liability which would have been subordinated to a government lien had the tax been found appropriate. The situation here is quite different. The N.Y. Penal Law distinguishes between embezzlement and commercial bribes, only the former requiring the actual taking or withholding of money or property from the true owner. Compare N.Y. Penal Law §§ 1290 and 439, McK.Consol.Laws, c. 88. That distinction is particularly relevant to the facts before us, since there is no indication that the kickbacks resulted in any loss to defendants' employers. While a presumption of such loss may be a sufficient basis on which to predicate a liability to the employers under state law, see Donemar, Inc., v. Molloy, 252 N.Y. 360, 169 N.E. 610, it is not sufficient to override the paramount interest of the government in assessing income taxes on the basis of beneficial enjoyment and control. See National City Bank of New York v. Helvering, 2 Cir., 98 F.2d 93.

Defendants next argue that a significant part of the income from the bribes was not received by them individually in such a way as to render them taxable or subject to criminal prosecution therefor. In the year 1951 — the year covered by Count III of the indictment, one of the counts upon which imposition of sentence was suspended — Bruswitz and Koenke, who previously had received their "commissions" personally and in cash, set up a variety of corporations to bill and receive payments for the services rendered. These new arrangements were necessitated by demands on the part of the payor corporations that they be allowed to regularize their accounting on these transactions. They contend that, since the corporations which they set up paid corporate income taxes, they themselves were not liable for personal taxes on the same amounts, except as they were filtered through as dividends. The prosecution characterized these corporations as mere conduits for the receipt of income earned by, and hence taxable to, appellants. C. I. R. v. Sunnen, 333 U.S. 591, 68 S. Ct. 715, 92 L.Ed. 898; Helvering v. Eubank, 311 U.S. 122, 61 S.Ct. 149, 85 L.Ed. 81; Higgins v. Smith, 308 U.S. 473, 60 S.Ct. 355, 84 L.Ed. 406; Paymer v. C. I. R., 2 Cir., 150 F.2d 334; C. I. R. v. Smith, 2 Cir., 136 F.2d 556. There was sufficient evidence to support such a characterization to make the question one for the jury under appropriate instructions.

Defendants do contest the validity of the charge in reference to their criminal intent in setting up the corporations, arguing that the judge did not sufficiently stress that the payment of taxes by the corporations was evidence of lack of willful tax evasion. This argument is clearly an afterthought, since no coherent exception to the charge on this ground was taken at the time of the trial. Defendants now focus on this earlier statement in the charge when the judge was discussing whether or not income of their corporations was attributable to them personally. The judge then said: "If you find beyond a reasonable doubt that the corporations were organized and created solely and only as conduits for the receipt of moneys payable to the defendants * * *, then you may treat the moneys paid to the corporations as income to the individual defendants. This is without regard as to whether or not the corporation paid the taxes on...