United States v. Lange, 9075

• Decision Date: 11 June 1947
• Docket Number: No. 9075,9076,No. 9077.,9075,9077.
• Citation: 161 F.2d 699
• Parties: UNITED STATES v. LANGE (two cases). SAME v. RANDALL.
• Court: U.S. Court of Appeals — Seventh Circuit

161 F.2d 699 (1947)

UNITED STATES v. LANGE (two cases). SAME v. RANDALL.

Nos. 9075, 9076, No. 9077.

Circuit Court of Appeals, Seventh Circuit.

May 14, 1947.

Petition for Rehearing Denied June 11, 1947.

Geo. A. Burns and Walter D. Corrigan, Sr., both of Milwaukee, Wis., James J. Waters, of Kansas City, Mo., and James A. Waechter, of St. Louis, Mo., for appellants.

Timothy T. Cronin, U. S. Atty., and E. J. Koelzer, Asst. U. S. Atty., both of Milwaukee, Wis., for appellee.

Before SPARKS, MAJOR and MINTON, Circuit Judges.

SPARKS, Circuit Judge.

We are asked to reverse three judgments convicting appellants of willfully attempting to defeat and evade a large part of certain corporate income, declared value excess-profits, and excess profits taxes due for the years 1941, 1942, and 1943, in violation of section 145(b) of the Internal Revenue Code, 26 U.S.C.A. Int.Rev.Code, § 145 (b).¹ Four defendants were indicted for the violations charged. Three of them, Walter W., Fred A. Jr., and A. C. Lange, to whom we shall refer as W. W., F. A., and A. C., were brothers, and the officers of the Crucible Steel Casting Company. The fourth, George Randall, was the chief bookkeeper, and a brother-in-law of W. W. The case was tried to the court without jury, and at the close of the hearing, the court orally delivered his general findings, pursuant to Rule 23(c) of the Rules of Federal Criminal Procedure, 18 U.S.C.A. following section 687, and pronounced judgments accordingly. All were found guilty;² all but A. C. are parties to these appeals.

In rendering his oral decision, the court quoted the language of the Supreme Court in the case, Spies v. United States, 317 U.S. 492, 63 S.Ct. 364, 368, 87 L.Ed. 418, involving a prosecution under the same statute: "* * * affirmative willful attempt may be inferred from conduct such as keeping a double set of books, making false entries or alterations, or false invoices or documents, 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. If the tax-evasion motive plays any part in such conduct the offense may be made out even though the conduct may also serve other purposes such as concealment of other crime." Using this as his guide, he said there was no doubt as to the facts of the false entries, alteration of records, false invoices, concealment of assets and covering up of sources of income, and in conduct the likely effect of which would be to mislead and conceal, but that the only question was as to the motive for such conduct. This must likewise be the basis for our review of the case.

Crucible was a small plant, founded by the father of the Langes to engage in the manufacture of steel castings. Its output was greatly expanded as a result of the war. During the period involved, W. W. was secretary, F. A., treasurer, and A. C., president; 95% of its stock was owned by the Gulf Securities Holding Company, and the Gulf Stock was, in turn, owned by F. A. and Mr. and Mrs. W. W.

The Government charged a three-fold method of concealing income and increasing claimed operating expenses, thereby reducing corporate income on which taxes were to be assessed. As a result of these methods, it was charged, instead of the following income and total taxes as returned by the taxpayer for the respective years shown:

                  1941 ......... $ 22,743          $  4,572
                  1942 .........  234,860           166,196
                  1943 .........  178,432           102,237
                

the corporation in fact had the following net income on which the total taxes for the respective years should have been:

                  1941 ....... $  378,985          $221,669
                  1942 .......  1,226,809           994,109
                  1943 .......    814,171           649,213
                

The first method followed in concealing income consisted of the use of the accounts of the Gulf Securities Holding Company to clear checks for Crucible on the sale of the latter's products instead of reporting those sales in the accounts of Crucible. Where this method was used, invoices for sales of Crucible products were withheld from its records, and, when payment was made, the checks were deposited in the account of Gulf, and the amounts were simultaneously checked out to W. W. without ever recording them on the accounts of Crucible. This method was also used for diverting many small, miscellaneous amounts from Crucible to W. W.'s account. In 1943, the system was changed somewhat, and thereafter, checks were banked through the account of Crucible, with corresponding checks to W. W., again without recording them as income to Crucible. There was evidence that sales thus suppressed for the year 1942 alone aggregated $360,643, and for 1943, over $189,000.

Appellants W. W. and Randall admitted the omission of the items charged from the records of Crucible but testified as to the reasons for such omissions and denied any intention of deliberately concealing income for the purpose of evading taxes. Their explanation was that, because of a long standing feud between W. W. and his brother, A. C., arising from the latter's disappointment over his father's will, W. W. determined to reduce his allegedly large credit balance in Crucible without letting A. C. know of his withdrawals from the corporations, to which A. C. was in debt. W. W. and Randall stated that this credit balance amounted to $134,000 in 1942, part of which, W. W. said, arose from a loan of about $100,000 from his son who received that amount as a gift from his grandfather in 1929 and thereafter kept it in a safety vault at home. A. C. was not a stockholder in Gulf and had no access to its books and records, and Randall, therefore, devised this scheme for using its accounts without A. C.'s knowledge. Randall testified that he fully intended to reflect the total of the transactions on the Crucible books at the close of the year, but because of the heavy increase of its business and consequent overwork, he completely forgot about it until it was brought to his attention by an accountant named Kissner some time in October, 1943. Kissner had been employed early in 1943 to prepare the company's 1942 tax return, and he did this without a complete audit of the Crucible books, using only the balance sheet and profit and loss statement. However, at that time he suggested the advisability of an audit, and later he was employed for that.

During the course of Kissner's audit, he discovered and inquired about an unexplained $35,000 check to W. W. that was outstanding at the close of the year 1942. Randall testified that it was this inquiry that reminded him of his failure to enter the transactions on the Crucible books at the close of the year, and he then told W. W. of that omission. W. W. instructed him to correct the error at once, and he tried to figure out a method of spreading the numerous transactions on the records himself but found himself unable to do so. W. W. then called Kissner in again and asked his advice as to what to do about the unrecorded sales Randall had told him of. Kissner testified that he had insisted on a request for a tax examination to accompany an amended return for 1942, as a result of his earlier examination of the books, which he then thought disclosed an overpayment of 1942 tax, and such an examination had been requested by letter dated October 25, 1943, prepared by himself. He therefore advised W. W. and Randall that all they could do was to assemble data covering the unrecorded sales and have it ready for the Internal Revenue agents when they came in. He did reflect the newly disclosed income as to 1943 in the return for the year 1943, hence that was not included in the indictment.

The second method of reducing income consisted of the padding of pay rolls of a number of so-called "key men," most of whom were foremen in Crucible, and the expense accounts of those men and the company officers, thus greatly increasing the deductible operating costs of the business. Several of these key men testified, and all denied the receipt of the amounts shown by the books to have been collected by them as salaries or expenses. They described the system whereby checks, payable to them, were endorsed by them and turned back to Randall, or were cashed by them in his presence and all but $40 or $50 turned over to him. One man who stated that he received $3600 as salary for the year 1942, $2400 face value of...