United States v. Callanan, 71-1377

• Decision Date: 10 December 1971
• Docket Number: No. 71-1377,71-1582.,71-1377
• Citation: 450 F.2d 145
• Parties: UNITED STATES, Appellee, v. Robert J. CALLANAN, Appellant.
• Court: U.S. Court of Appeals — Fourth Circuit

450 F.2d 145 (1971)

UNITED STATES, Appellee, v. Robert J. CALLANAN, Appellant.

Nos. 71-1377, 71-1582.

United States Court of Appeals, Fourth Circuit.

Argued October 8, 1971.

Decided December 10, 1971.

Norman P. Ramsey, Baltimore, Md. (Randy H. Lee, Baltimore, Md., on brief), for appellant.

Richard B. Buhrman, Atty., Tax Div., Dept. of Justice (Fred B. Ugast, Acting Asst. Atty. Gen., Meyer Rothwacks, Crombie J. D. Garrett, and John P. Burke, Attys., Tax Div., Dept. of Justice, and George Beall, U. S. Atty., on brief), for appellee.

Before BUTZNER, RUSSELL and FIELD, Circuit Judges.

BUTZNER, Circuit Judge:

Robert J. Callanan was convicted of attempting to evade income taxes in 1962 and 1963 in violation of 26 U.S.C. § 7201.¹ His assignments of error challenge the sufficiency of the evidence, the admission of certain testimony, and the denial of motions for a mistrial and for a new trial on the ground of prejudice. During the course of the trial the district judge painstakingly considered these points. His rulings were proper, and we affirm the convictions for both tax years.

I

To establish that a taxpayer has violated § 7201 of the Internal Revenue Code the government must show a substantial tax deficiency, an affirmative act by the taxpayer to attempt evasion of the tax, and that the taxpayer acted willfully. Sansone v. United States, 380 U.S. 343, 85 S.Ct. 1004, 13 L.Ed.2d 882 (1965). These requirements have been met, the government contends, because the evidence showed that Callanan attempted to evade additional taxes amounting to $21,642.41 in 1962 and $9,274.05 in 1963 by filing false returns from which he knowingly omitted specific items of income aggregating $34,878.93 in 1962 and $15,011.15 in 1963.

Callanan, a lawyer, maintained two bank accounts for his office in Baltimore, Maryland and one bank account for his office in nearby Glen Burnie. Receipts deposited in one of the Baltimore accounts and the Glen Burnie account were recorded in cash books which identified the source and nature of the funds. Income noted in these cash books was properly reported.

The second Baltimore account, for which no corresponding cash book was kept, was called the "escrow" account. Initially, it was designed to receive and disburse real estate settlements and loans. Soon, however, large sums of money unrelated to sales and mortgages of real estate were deposited in the escrow account. Other sums of money were deposited in savings accounts or received as cash. Through documentary evidence and the testimony of clients and other lawyers, the government introduced proof that these sums of money were legal fees. An internal revenue agent testified (over objection of Callanan discussed in Part II) that these specific fees were not included in the gross income Callanan reported in 1962 and 1963.

Filing a false return is an affirmative act constituting an attempted evasion of taxes within the meaning of § 7201. Sansone v. United States, 380 U. S. 343, 352, 85 S.Ct. 1004, 13 L.Ed.2d 882 (1965). The statute's requirement that the attempt be willful is not ordinarily met, however, by showing the understatement of income in the return. Holland v. United States, 348 U.S. 121, 139, 75 S.Ct. 127, 99 L.Ed. 150 (1954); United States v. Bagdasian, 398 F.2d 971, 973 (4th Cir. 1968). The government must also supply proof that the taxpayer knew of the understatement. Sansone v. United States, 380 U.S. 343, 352, 85 S.Ct. 1004, 13 L.Ed.2d 882 (1965). Callanan insists that the government has failed to prove that he knew that any fees had been omitted from the income reported on his returns. He did not testify, but during the investigation preceding the indictment he gave several exculpatory statements to the effect that only fees from the settlement of real estate transactions were deposited in his escrow account, that he did not know his secretary had deposited other fees in this account, and that he thought the accountant who set up his books and prepared his tax returns had properly included all of his fees in the amount reported as gross income.

The government, however, introduced testimony and documentary evidence contradicting Callanan's exculpatory statements. Witnesses testified that he directed his employees to deposit certain fees not related to real estate settlements in the escrow account. The fees deposited in this account were not clearly identified as income in any book or journal or in the records kept in connection with the escrow account. The government also showed that Callanan, contrary to his explanations, was familiar with his books and bank accounts.

The government evidence disclosed that Callanan personally received other fees which he did not record in any account book or deposit in any of his office checking accounts. The jury could justifiably conclude that Callanan's failure to record fees he personally received or to deposit them in his office bank accounts made it virtually impossible for his accountant to include them in the tax returns.

In view of this evidence, neither the trial court nor the jury were required to find that Callanan was the innocent victim of mistakes made by his secretary and his accountant. Guilty knowledge and willfulness may be inferred from the "handling of one's affairs to avoid making the record usual in transactions of the kind . . .," Ingram v. United States, 360 U S. 672, 677, 79 S.Ct. 1314, 3 L.Ed.2d 1503 (1959), from false explanations, United States v. Wilkins, 385 F.2d 465, 472 (4th Cir. 1967), cert. denied, 390 U.S. 951, 88 S.Ct. 1043, 19 L.Ed.2d 1144 (1968), and from a pattern of concealment of true income from one's accountant. United States v. Madden, 300 F.2d 757, 758 (4th Cir. 1962).

In summary, we find no merit in Callanan's contention that the evidence is insufficient to sustain his conviction. Substantial evidence taken in the light most favorable to the United States tended to show that he was guilty beyond a reasonable doubt of willfully attempting to evade taxes by knowingly omitting a substantial portion of his income from his return. The district judge, therefore, committed no error by overruling the motion for a judgment of acquittal and submitting the case to the jury. Bell v. United States, 185 F.2d 302, 310 (4th Cir. 1950).

II

Protesting that testimony of a revenue agent was conclusory and unsupported by the evidence, Callanan claims the district court erred in permitting the agent to testify that specific items of income mentioned in the bill of particulars were omitted from the 1962 and 1963 tax returns.

The government exhibited all of Callanan's pertinent records, consisting primarily of the Baltimore and Glen Burnie office books of account, the records of his checking accounts, records of certain savings accounts, correspondence concerning certain fees, the worksheets used by his accountant, and his tax returns. Having examined these exhibits, the witness testified that the total gross income shown on each year's worksheets prepared by Callanan's accountant corresponded with the total gross income reported on each year's tax return. He also testified that the accountant properly included all of the income reported in the Baltimore and Glen Burnie cash books. This income had been deposited in the business checking accounts for these offices. The accountant also included some of the fees arising out of real estate settlements that had been deposited in the escrow account. The omitted items of income, the revenue agent testified, fell into two classifications: (a) fees that were not recorded in any cash book and not deposited in any office checking account; (b) fees that were deposited in the escrow account and not recorded in any cash book. The bulk of these omitted fees were not connected with real estate settlements.

Thus, with the exception of a relatively small amount of omitted real estate settlement fees, the omitted income could not be readily identified by examination of any account book or checking account. The government showed their nature and amount through correspondence relating to them, the testimony of clients and other lawyers, and the admissions Callanan made during the course of the investigation.

But Callanan complains that the government's witness did not sufficiently analyze the Baltimore business account to disprove that omitted items of income were not included by the accountant in his computation of gross income. We find no merit in this argument. Deposits in the Baltimore business account tallied with the entries in the Baltimore cash book where income was adequately identified. The government makes no claim that the income in the office business account was not reported. Moreover, the cash book contains no entries showing that the items, claimed by the government to have been omitted, were in fact included on the accountant's worksheets or the returns. All of the books and records were introduced into evidence, and if the revenue agent had been mistaken, the defendant could have shown on cross examination the inclusion of any items claimed to have been omitted.

Kirsch v. United States, 174 F.2d 595 (8th Cir. 1949), on which the defendant primarily relies, dealt with an entirely different situation. There, a revenue agent contending that all of a money changer's bank deposits were income, testified: "If Kirsch went to his safety deposit box and took out $2,000.00 . . . to cash checks and then deposited $2,400.00, we would include the entire $2,400.00 as income. We included everything that went into those deposits." 174 F.2d at 599. Since the witness's testimony was so patently illogical, the court of appeals, reversing Kirsch's conviction, refused to allow an expert to base his conclusions on it.

Here, in contrast to Kirsch, the government did not designate as income hundreds of thousands of dollars that flowed through Callanan's checking accounts during each of the tax years. The specific sums that the...