United States v. Levy, Cr. No. 8410-8412.

• Decision Date: 15 June 1951
• Docket Number: Cr. No. 8410-8412.
• Citation: 99 F. Supp. 529
• Court: U.S. District Court — District of Connecticut
• Parties: UNITED STATES v. LEVY. UNITED STATES v. LICHTER et al. (two cases).

99 F. Supp. 529

UNITED STATES v. LEVY.

UNITED STATES v. LICHTER et al. (two cases).

Cr. Nos. 8410-8412.

United States District Court D. Connecticut.

June 15, 1951.

Theron Lamar Caudle, Asst. Atty. Gen., Meyer Rothwacks and John Lockley, Sp. Assts. to Atty. Gen., Adrian W. Maher, U. S. Atty. for Dist. of Connecticut, New Haven, Conn., for plaintiff.

Gerald L. Wallace and Gordon L. Bazelon, Old Greenwich, Conn., for defendants.

HINCKS, Chief Judge.

On September 19, 1950, a grand jury returned indictments charging defendants with evasion of taxes of the Harlic Bag Company, Inc., for the years 1944, 1945, and 1946; defendants Joseph A. Lichter and Oscar Druks with evasion of individual taxes of Lichter for the years 1944 to 1947; and defendant Arthur A. Levy with evasion of his individual income taxes for the years 1944 to 1947, all in violation of Section 145(b), Internal Revenue Code, 26 U.S.C.A. § 145(b). On October 16, 1950, the defendants pleaded not guilty to the charges. Separate petitions to suppress evidence and dismiss indictments were filed in each case on December 8, 1950, and separate answers were made on April 17, 1951. These petitions sought to suppress evidence given by the voluntary disclosures of the defendants, it being their contention that the disclosures had been made in reliance upon the declared policy of the government to forego criminal prosecutions for violation of the revenue laws in cases in which income had been intentionally understated provided timely disclosures of the delinquencies were voluntarily made in behalf of the taxpayers. And so their basic claim rested upon the proposition that their disclosures, thus induced by promises of immunity, did not operate as waivers of their constitutional protection against self-incrimination under the Fifth Amendment with the result that the information derived from the disclosures was inadmissible.

In the course of the hearing held on the petitions on April 17 and 18, 1951, the court, "as a matter of trial convenience and a possible economy of time," with the consent of the parties, rule as follows: "that the issue as to the efficacy of a disclosure made on June 9, 1947, assuming such a disclosure was made, shall be separated from any other issues raised by the pending petitions and shall be developed for final submission in advance of other issues, hearing on which will be deferred until after the ruling on the issue just defined." The submission of the specified issue was completed accordingly and upon that issue I find the following facts:

Facts.

The Harlic Bag Company, Inc., was engaged during the relevant taxable years and for some time previously in the manufacture and sale of a line of ladies' handbags retailing at low prices. Its factory was located in South Norwalk, Conn., and a sales office was maintained in New York City.

During the period covered by the questioned returns the defendant Arthur Levy, residing in Stamford, Conn., was the Treasurer of the corporation and owned fifty per cent of its stock. The defendant Joseph A. Lichter, residing in Norwalk, was and still is the President of the Corporation, and during the taxable years and previously owned the other fifty per cent of its stock. The defendant Oscar Druks, residing in Norwalk, was employed by the corporation as its general manager.

Beginning in 1943 and continuing into 1946, the defendants Levy and Lichter sold a special line of leather handbags to Ben D. Levine (Mirro Handbag Company) of Chicago, Ill. These were manufactured exclusively for Levine with materials purchased in the black market by the defendant Levy. Levine paid for the finished bags in currency, a substantial part of which was used to buy the leather and other materials used in their manufacture. The balance was divided between Levy and Lichter.

The transactions described in the preceding paragraph were not entered on the corporate books, and were not contained in any records kept by the individual taxpayers. The profits derived from these transactions with Levine were not reported in the original returns filed by the corporation or in the individual returns filed by Levy and Lichter for the taxable years 1944-46.

In December of 1946, Levy retired from the business of the corporation and thereafter had no personal connection with it. On May 2, 1947, he sold all of his stock to the corporation. Since that date, Lichter has owned substantially all of the stock.

On May 16, 1947, the defendant Lichter received a telephone call at the New York office of Harlic from a revenue agent named Richard Duffy, who had a "Form 917" assigned to him by his superior in the office of the Internal Revenue Agent in Charge in the Upper District of New York. This form required an inquiry about an insurance policy which Lichter had purchased in December of 1943 for a single cash premium of some $11,000. At the time of this inquiry, Duffy had information only that the purchase was a cash transaction: he did not know whether the payment had been made in currency or by check. In fact, Lichter had paid the sum stated in currency to the agent who wrote the insurance, who in turn paid it over to the insurer by the check of his agency. Upon learning that Lichter's return had been filed in Connecticut, Duffy so reported to his superior officer in New York, who, without obtaining any further information relating to the case, forwarded the Form 917 to Doyle, Internal Revenue Agent in charge in New Haven (not to the Intelligence Unit having jurisdiction of Connecticut returns), who received the same on July 17, 1947. The subsequent course of the Form is not material to the issue submitted as to the efficacy of a claimed disclosure on June 9, 1947.

On March 18, 1947, the Harlic returns (Forms 1120 and 1121) for the taxable year 1944, in the usual routine, were assigned out of the Bridgeport office to Revenue Agent Whelan for a routine examination. Whelan was not a member of the "fraud section," to which under departmental practice cases of suspected fraud were assigned for intensive investigation. On March 31, 1947, Whelan had in his possession the returns of more than forty taxpayers, including Harlic, the examination of which in the usual course would require an aggregate of about four months' work.

Whelan merely scanned the 1944 Harlic returns and did not at any time commence his examination. Nothing out of the ordinary was suggested by his study of the returns themselves, and he had no other information indicating that the returns required anything beyond the usual routine type of examination, which would have involved only a verification of the returns by checking them against the books and records kept by the corporation. Under the usual practice, in the absence of suspicious circumstances, any cash transactions not reflected on the books would not have been covered by the audit. And, as was implicit in the record now before me, there was nothing in the defendants' books and records that even pointed toward the delinquency which was the subject matter of the disclosure in question. None of the returns involved were assigned to the fraud section for investigation prior to June 9, 1947.

There was testimony that Whalen, on May 23, 1947, by telephone informed Harlic's office that he had its 1944 return for examination. This call was disputed by the defendants. In the view which I take of the case there is no need to solve this conflict: for present purposes I assume that on June 9, 1947, the defendants had no knowledge that any of the tax returns involved had been assigned for examination.

On June 3, 1947, a lawyer, to whom the defendants had disclosed, at least in general outline, their tax delinquency, and whom they had retained to assist in making voluntary disclosures, informed the Norwalk collector in charge, without mentioning any names, that clients desired to make a disclosure of understated income in a very substantial sum. As a result, a conference was held on June 9, 1947 with Agent Johnson of the fraud section of the Bureau at which defendants' lawyer disclosed their names and the fact of a substantial delinquency growing out of their transactions with Levine. At that conference, the statement of J. P. Wenchel, Chief Counsel of the Bureau, defining the Bureau's policy in ...