United States v. Kelley

Citation105 F.2d 912
Decision Date17 July 1939
Docket NumberNo. 268,269.,268
PartiesUNITED STATES v. KELLEY et al.
CourtUnited States Courts of Appeals. United States Court of Appeals (2nd Circuit)

Nathan Probst, Jr., of New York City (Carl E. Alper and Ruth R. Kessler, both of New York City, of counsel), for Kelley.

Irving M. Radin, of New York City, for Rabner.

Jules J. Lubasch, of New York City, for Greer.

John T. Cahill, U. S. Atty., of New York City, Earl C. Crouter and Joseph W. Burns, Sp. Assts. to Atty. Gen. (J. Randall Creel, Asst. U. S. Atty., of New York City, of counsel), for the United States.

Before L. HAND, SWAN, and CLARK, Circuit Judges.

L. HAND, Circuit Judge.

The chief appeals are from a judgment of conviction of the three accused under two indictments, consolidated for trial, for assisting in the preparation and presentation of fraudulent income tax returns for the years 1929 to 1932, inclusive. One indictment concerned the partnership returns of Ringling Bros.-Barnum & Bailey Combined Shows; the other those of the estate of Charles E. Ringling, who died December 3, 1926. During the years in question the partners and the executors of some who were dead were the owners of this well-known circus, and Kelley was, and for many years had been, their legal adviser; to him was entrusted the preparation of the firm income tax returns from at least 1917 forward. In or about 1923 he employed as an assistant one, Rabner, at one time a Treasury agent; and in 1929 Greer, another Treasury agent. The frauds consisted of deductions taken from the gross income. They were of several kinds; one was for the depreciation or abandonment of the circus property; another was the write-off as a bad debt of a claim against one, Rickard; there were others which we shall not discuss. With the two indictments upon which the accused were convicted, the government consolidated two conspiracy indictments, charging, not only the three accused now before us, but five others in all, against whom the prosecution was severed at the beginning of the trial. The jury acquitted the accused upon the conspiracy indictments. The issues raised upon the appeals from the conviction are (1) that it was an error to consolidate the four indictments; (2) that the taxpayers (the representative of the partners, and the "estate" of Charles Ringling) were not proved to have been guilty of any fraud, without which the accused could not have been themselves found guilty; (3) that incompetent documents were admitted and the incompetent opinion of revenue agents received; (4) that the admission of the partners' books against Kelley was erroneous; and (5) that the evidence did not support the verdict.

The minor appeal is by Kelley alone from an order denying a motion for the return of papers seized before trial. During the preparation of the case two Treasury agents obtained possession of papers in the cellar of a building leased by a corporation which had succeeded to the partners' circus business. Kelley asserted that some of these were his personal property and that he had never lost possession of them, and he moved before trial to compel their redelivery. This motion was denied, but when the documents were offered in evidence at the trial, he again objected, and the issues were once more heard, this time by the trial judge, who also ruled against him. The first order was not independently appealable, being an interlocutory step in the prosecution. The motion was made after all the indictments had been found but one, and that one superseded another which was itself earlier than the motion. Thus "the main purpose" was the "suppression of evidence at the forthcoming trial" and "in essence, the motion" resembled "others made before or during a trial * * * to suppress evidence." Cogen v. United States, 278 U.S. 221, 223, 49 S.Ct. 118, 119, 73 L.Ed. 275. However, though not independently appealable, Kelley may bring up the ruling as an incident to this appeal, just as he may bring up the same ruling made upon the trial itself. We must therefore consider the merits. The cellar where the papers in question were stored, contained a number of boxes filled with papers to which the two Treasury agents were given access by one, Wadsworth, then in charge of the corporation's books. According to the testimony of Ducker, the survivor of the two agents, no box was marked so as to distinguish it from another; and all were indiscriminately filled with papers, of which they took possession, and from which they sorted out those they thought material. Kelley's story was that with the consent of the corporation he had left in the cellar a box of private papers, marked on the cover, "John M. Kelley," that this remained in his possession and the agents invaded it without his consent. He was corroborated as to the box by one, Griffin, an employee of the corporation whom Wadsworth had sent down into the cellar along with the Treasury agents. Wadsworth had never heard of such a box, although he had had occasion from time to time to go to the cellar and examine the records kept there. Upon this testimony both the judge at the preliminary hearing and the judge at the trial, who had each heard the witnesses, found that there was no such box; and that finding is conclusive, quite aside from the exceedingly dubious question whether Kelley would have remained in possession of a box so stored, even if it had been marked as he says.

In order to understand the points of law on which the main appeal turns, it is necessary to state the facts at a little length. The returns took deductions for depreciation yearly from 1929 to 1932, based upon an inventory — Ex. 89 — made by Kelley, either during or before the year 1923, but calculated as of 1918. He admitted to one of the Treasury officials in charge of the inquiry that this inventory had been made up from three others, found in a loft at Sarasota, Florida; two of which were made in 1913, and one, in 1911. Most of the items upon these three were contained in Ex. 89. The prosecution proved in a number of ways that this inventory (Ex. 89) was fabricated; one, by comparing it with the three inventories just mentioned; another, by comparing it with inventories of the estates of four dead partners, which had been filed in the probate proceedings, one in March 1911, another in January 1916, a third in October 1918, and the fourth in October 1919. The padding was both in the number of items contained — e. g. cars, wagons and animals — and in their value. Several witnesses, including some who had formerly been employed by the circus, testified to the number of animals and wagons which it had had while they were with it, and to their cost. The accused answer that this did not take into account the money used to repair the wagons and to train the animals, which should be added. But these were, or at least it was fair to argue that they were, expenses of the business, and were taken out of the gross in the year in which they were incurred. Certainly it was improper, having once been so taken, that they should be taken again as depreciation. Again, there had originally been an item of "Autos and trucks" of about $51,000, which by the end of 1928 had been substantially all written off through depreciation. Rabner wrote to Kelley in June and July of that year that it would be necessary that additional purchases should be shown in the inventory for 1927, in order to get proper depreciation charges. This was done. Again, Wadsworth, who became auditor at the beginning of 1930, prepared the depreciation schedule for that year (Ex. 380) based upon a similar schedule in 1929 which had been given him by either Kelley or Greer. This showed a total depreciation of about $49,000. Greer, raised this by exactly $100,000 and upon the witness stand, could not explain why this was done. In the same year Kelley instructed Greer to raise the gross of this inventory by $200,000 or $300,000, and Greer fabricated plausible items to fetch it up by about that much.

In 1929 one, Rickard, who owed the partners a debt of $50,000, died, and his estate was known to be insolvent. Kelley and Greer deducted the whole debt twice by elaborate concealment. One, DeWolfe, had prepared a statement of the net income for the year, charging the partners with a total gross of about $4,000,000, and taking deductions which included accounts receivable of about $103,000. The accounts were obviously not proper deductions for income tax purposes and had to be deleted, but only $21,000 was subtracted instead of the full figure, $103,000. This resulted in taking as deductions the Rickard debt and an item of about $32,000, known as "J. M. K. Expense Account". From the income so computed the Rickard debt was a second time expressly deducted as a bad debt. In the year 1931, the Rickard estate paid half the debt, and, in the return for that year also, the difference, $25,000, was deducted as a bad debt. It is true that the deduction on the 1929 return of $50,000 as a bad debt was disallowed on July 15, 1930, because the debt had not been written off the books, but the attempted fraud was as great as though it had been successful. Moreover, the full amount of the debt having been deducted in that year in making up the net income, it was a second fraud to deduct one half of it again in 1931. By this chicanery a fraudulent credit was thus secured of $50,000.

There was other evidence that the returns were fraudulent, but it is not necessary to set it forth, because it is apparent from the foregoing recital that there was ample to justify a jury in so finding. There was also ample to connect the accused with their preparation and presentation. Greer was in charge of the books during the years in question and his complicity is too plain to justify any discussion; indeed his own testimony fastened his guilt upon him. It would be absurd to suppose that he should have originated the fraud himself; Kelley was in charge of all such matters for the partners and...

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