United States v. Burdick

• Decision Date: 01 July 1954
• Docket Number: No. 11135.,11135.
• Citation: 214 F.2d 768
• Parties: UNITED STATES v. BURDICK.
• Court: U.S. Court of Appeals — Third Circuit

214 F.2d 768 (1954)

UNITED STATES v. BURDICK.

No. 11135.

United States Court of Appeals Third Circuit.

Argued April 5, 1954.

Decided July 1, 1954.

John Henry Reiners, Jr., Camden, N. J. (Robert M. Taylor, Philadelphia, Pa., on the brief), for appellant.

Frederick B. Lacey, Newark, N. J. (William F. Tompkins, U. S. Atty. Dist. of New Jersey, Newark, N. J., on the brief), for appellee.

Before GOODRICH, KALODNER and HASTIE, Circuit Judges.

KALODNER, Circuit Judge.

This is an appeal from a conviction for income tax evasion under Section 145(b) of the Internal Revenue Code, 26 U.S.C. § 145(b).¹

The appeal is premised on (1) alleged insufficiency of the government's evidence; (2) denial by the trial judge of defendant's motion to suppress as evidence his statements, oral and written, and certain records given by him to government agents in the course of their investigation of his tax returns; and (3) alleged prejudicial conduct of government counsel.

A brief statement of the factual background is in order.

The defendant, Lester H. Burdick was tried on a five-count indictment charging him with filing false and fraudulent income tax returns for the years 1946 to 1950, inclusive.² He was found guilty on all five counts and sentenced to jail for a year and a day on each of them, the sentences to run concurrently.

The evidence at the trial established that during the period involved the defendant was employed as an executive clerk of the New Jersey State Senate when it was in session and also did public relations work and sold radio advertising time. The latter activities were conducted from his home.

Defendant kept no books or records; he had only his cancelled checks and bank statements. During the course of an investigation by revenue agents prior to his indictment, defendant gave them a statement of his assets and liabilities as of January 1, 1946, and December 31, 1950, the opening and close of the taxable years here involved.

In computing defendant's alleged tax deficiency the government used what has come to be known as the net worth-expenditures method.³ It based its case on the data obtained from the defendant and independent evidence of his personal expenditures; his receipt of substantial sums of money which he had not reported as income in his returns, because he treated them as non-taxable gifts; his various securities and real estate transactions.

The government presented a detailed analysis of defendant's bank records, brokerage accounts, real estate transactions, expenditures, unreported receipts and his own net worth statement previously referred to.

Revenue Agent Blackman, a government witness, submitted a calculation of defendant's net worth at the beginning of 1946 and for each of the taxable years involved. He testified that the defendant's expenditures for the five years under review were almost three times his reported net income for the period — $44,056.83 expenditures to $15,503.17 net income.⁴

At the trial the crux of the defense was that the government had placed an excessive valuation on listed assets, and moreover had erroneously included in such assets property which belonged to his wife; that it had not given effect to cash which he and his wife had kept on hand at home;⁵ that his personal expenditures were less than those asserted by the government;⁶ and that he had properly and in good faith treated unreported income as gifts. On the latter score it must be noted that defendant did not deny his receipt of the unreported sums which he treated as "gifts".

The trial judge in his charge correctly instructed the jury with respect to the issues presented by the testimony. He specifically charged the jury that there should be included in its determination of the defendant's net worth only such assets as belonged to him and that it was its function to determine the ownership of the various items of securities and real estate involved in the controversy. He further charged the jury it was its duty to fix a valuation of such assets as belonged to the defendant in the light of the testimony on that score and that it was for it to determine whether there had been any increase in defendant's net worth during the taxable years under review. He explicitly charged the jury on the issue of the defendant's expenditures. On the score of the unreported sums received by the defendant, the jury was charged it had to make a finding as to whether they were "gifts" or "taxable income", under stated applicable legal principles;⁷ that in the event it found them to be taxable income, they must be eliminated from consideration in determining the guilt of the defendant "if his failure to report these items was due to an honest, even though mistaken opinion that these items were not subject to tax."

On review of the record we are of the opinion that the evidence amply sustained the jury's factual determination with respect to the issues of ownership of the controverted assets, their valuation, the increase in the defendant's net worth and the scope of his expenditures. The same is true with respect to the jury's finding that the unreported receipts were not "gifts" but income; that the defendant's failure to report them as income was not due "to an honest though mistaken opinion" as to their nature; and its ultimate finding that the defendant was guilty of willful evasion of the revenue statute.

There is no need to consider at length the defendant's contentions that the evidence failed to justify the jury's finding that the unreported receipts of approximately $14,500 from ten individuals were income and not gifts.

As we held in Smith v. Manning, 1951, 189 F.2d 345, 348 whether the receipts are gifts is primarily a question of fact to be resolved upon the peculiar circumstances of the case;⁸ the mere fact that the payments were voluntary does not establish them as gifts;⁹ if the payments were made without a donative intent and as compensation for services they constitute taxable income.¹⁰ The term "gift" as used in the revenue statute "denotes * * * the receipt of financial advantages gratuitously."¹¹

The testimony fully established that defendant's unreported receipts, which he treated as "gifts" were compensation for services rendered or to be rendered, even though the payments were voluntarily made. They could, at the least, be broadly identified as "gratuities" or "tips" and it is well-settled that such receipts are not gifts, but taxable income.¹²

Two examples will suffice. Captain David T. Hart, a commercial fisherman and "public relations man" for the Fishermen and Food Workers, testified that he gave the defendant his personal checks for $2,000 in 1947 and $1,000 in 1948. Hart said he was reimbursed by the group he represented. In 1949 and 1950 the defendant was paid $2,000 annually directly by the group.¹³

The nature of Hart's payments to the defendant is illuminatingly illustrated by the following:

"Q. What did you pay out your money for, Captain? A. I gave Mr. Burdick this money for educating me to the ways of the Legislature because of the knowledge he had of the Legislature. Being a fisherman, I had none. I had never been to the State House until 1946. We felt that during that period, Mr. Burdick did us the service we wanted. He certainly educated me in the ways of the Legislature, and he knew the routine to be followed."

George M. Harvey, Jr., an officer of the Outdoor Advertising Association, testified that the Association "paid" the defendant $500 in each of the years 1946, 1947 and 1948, and $1,000 in both 1949 and 1950. These payments were treated by the defendant as "gifts" and not reported in his returns.

Harvey was asked:

"Q. What did Mr. Burdick do for your association? A. Well, he kept us in touch with any bills that were introduced in the Legislature that he thought might affect our business, and at times he sent us copies of the bills and kept us advised with the progress of those bills in the Legislature.

"Q. And those payments and that type of service represents the usual type of service rendered by Mr. Burdick over all the years in question, is that right? A. Yes."

Defendant vigorously urges that the evidence did not justify the jury's finding that he willfully attempted to defeat and evade the payment of taxes due.

This question, of course, is one of fact. United States v. Smith, 3 Cir., 1953, 206 F.2d 905. But the government need not adduce direct proof of intent. Norwitt v. United States, 9 Cir., 1952, 195 F.2d 127, certiorari denied 1952, 344 U.S. 817, 73 S.Ct. 11, 97 L.Ed. 635. It may be inferred from the surrounding circumstances, "* * * and the inference may be drawn from a combination of acts and circumstances, although each separate act and circumstance standing alone is inconclusive." Gaunt v. United States, 1 Cir., 1950, 184 F.2d 284, 290, certiorari denied 1951, 340 U.S. 917, 71 S.Ct. 350, 95 L.Ed. 662.

By way of illustration, the Supreme Court, in Spies v. United States, 1943, 317 U.S. 492, at page 499, 63 S.Ct. 364, 368, 87 L.Ed. 418, stated:

"* * * we would think affirmative willful attempt may be inferred from conduct such as * * * destruction of books or records, concealment of assets or covering up sources of income, handling of one\'s affairs to avoid making the records usual in transactions of the kind, and any conduct, the likely effect of which would be to mislead or to conceal."

Here several items of evidence support an inference of willful attempt to defeat or evade the tax.

Special Agent Gerson testified that defendant told him that he kept certain memoranda and notes, but that they were always destroyed when his returns were filed or soon thereafter. Willits, who prepared all of defendant's returns for the years under prosecution, stated that the defendant never produced any books or other financial records for his examination, nor ever informed him of the various money payments, heretofore adverted to, which are now contended to...