United States v. McKenna
| Decision Date | 20 December 1954 |
| Docket Number | Crim. A. No. 7689. |
| Parties | UNITED STATES of America, Plaintiff, v. Leo J. McKENNA, Defendant. |
| Court | U.S. District Court — District of Minnesota |
George E. MacKinnon, U. S. Atty., and Alex Dim, Asst. U. S. Atty. for Minnesota, St. Paul, Minn., for the United States.
A. E. Sheridan, Waukon, Iowa, and Samuel P. Halpern, Minneapolis, Minn., for defendant.
The above named defendant was tried before this Court and a jury on an indictment containing two counts charging him with wilfully attempting to defeat and evade his income taxes for the years 1947 and 1948 in violation of 26 U.S.C.A. § 145(b). A verdict of guilty was returned on Count I and a verdict of not guilty on Count II.
The case now is before the Court on motions of the defendant for an order for judgment of acquittal or for a new trial.
Defendant's motion for judgment of acquittal claims that the government has failed as a matter of law to prove the defendant guilty beyond a reasonable doubt of the charge in Count I for the reason that the evidence is not sufficient to sustain the verdict of guilty; that the verdict is inconsistent with and against the weight of the evidence; that there is no substantial evidence to sustain the government's burden of proof that defendant is guilty beyond a reasonable doubt; that the defendant has been reporting on a cash basis; that defendant's net income for 1947, if computed on a cash basis, would fail to prove an offense; that the government was bound to prove its case on a specific income basis; that the government failed to prove that the defendant wilfully failed to report his net income for the year 1947; and that the government failed to prove beyond a reasonable doubt that defendant wilfully attempted to evade and defeat his income tax for the year 1947.
Defendant further moves the court, in the alternative, in the event the motion for judgment of acquittal is denied, that a new trial be granted for the same grounds alleged above in his motion for judgment of acquittal and upon the further grounds, namely, in the interest of justice; that the verdict is against the clear weight of the evidence, and contrary to the evidence; that the verdict is a miscarriage of justice and the result of passion and prejudice on the part of the jury; that the evidence lacks persuasiveness; that there has been a variance between the indictment, bill of particulars and proof; for denial of a more specific bill of particulars; for errors occurring in the testimony of witness Wegner; for errors in the admission of oral testimony over objection on the part of defendant; that the Court erred in limiting cross-examination of government witness; in the Court's limiting of defendant's examination of his own witnesses; for errors occurring in the reception of oral testimony and exhibits pertaining to defendant's net income on an accrual basis, on a net worth basis, and on a bank deposit basis, either for corporation or otherwise; that the government did not prove its case in accordance with its theory; for errors of law occurring at the trial in the reception of exhibits and in the refusal to strike certain testimony and in the Court's refusal to withdraw certain exhibits; for errors of law in the Court's refusing to grant judgment of acquittal at the close of all the evidence; for errors of law in the Court's refusal to give certain instructions to the jury; for errors of law occurring in the formal verdict submitted to the jury; and for other events, happenings and occurrences at the trial which denied defendant a fair trial.
Obviously, to detail each and every point raised in the motions by defendant would necessitate the writing of a very lengthy memorandum.
On May 5, 1954, the Court ruled on defendant's motion for a bill of particulars and stated in its written order as follows:
Rule 7(f) of the Federal Rules of Criminal Procedure, 18 U.S.C.A., provides in part that "The court for cause may direct the filing of a bill of particulars."
As stated in Mellor v. United States, 8 Cir., 1947, 160 F.2d 757, at page 759, "The motion was addressed to the sound discretion of the trial judge, whose decision was final in absence of clear abuse of such discretion." See also Remmer v. United States, 9 Cir., 1953, 205 F.2d 277, 281-282. The Court here is of the opinion that a bill of particulars which it permitted was adequate to protect the defendant against a second prosecution for the same offense and enable the defendant adequately to prepare his defense and avoid surprise at the trial. Defendant cannot seek a further bill of particulars because he would then be attempting to obtain the Government's evidence; to that he is not entitled.
Defendant has been in the automotive and farm equipment business at Caledonia, Minnesota for many years, including the post war years after World War II. The evidence clearly discloses that he did not keep adequate books and records which would reflect his true income for the years 1947 and 1948. Inventories were a major factor in the defendant's business operations. His income tax returns for each of the years 1947 and 1948 disclosed both an opening and closing inventory.
26 U.S.C.A. § 145(b) provides in part as follows:
"* * * any person who wilfully attempts in any manner to evade or defeat any tax * * * shall * * * be guilty of a felony * * *."
26 U.S.C.A. § 41 provides in part:
"The net income shall be computed upon the basis of the taxpayer's annual accounting period (fiscal year or calendar year, as the case may be) in accordance with the method of accounting regularly employed in keeping the books of such taxpayer; but if no such method of accounting has been so employed, or if the method employed does not clearly reflect the income, the computation shall be made in accordance with such method as in the opinion of the Commissioner does clearly reflect the income."
Regulation 111, Sec. 29.22(c)-1, provides as follows:
"Need of Inventories.—In order to reflect the net income correctly, inventories at the beginning and end of each taxable year are necessary in every case in which the production, purchase, or sale of merchandise is an income-producing factor."
Regulation 111, Sec. 29.41-1, provides as follows:
"* * * If the taxpayer does not regularly employ a method of accounting which clearly reflects his income, the computation shall be made in such manner as in the opinion of the Commissioner clearly reflects it."
Regulation 111, Sec. 29.41-2, provides as follows:
"* * * For instance, in any case in which it is necessary to use an inventory, no method of accounting in regard to purchases and sales will correctly reflect income except an accrual method."
The government, in accordance with its bill of particulars proceeded in its proof by showing that defendant, first on an accrual basis of accounting and then by corroboration on a net worth basis of accounting substantially understated his net income for the calendar year 1947; that a tax was due from defendant to the government for said year; that defendant attempted to evade payment of that tax; and that his attempt so to evade payment was wilful.
The mere fact that defendant believed himself to be on a cash basis, but in truth and in fact, he was reporting on a "hybrid" method, would, in the Court's opinion, be all the more reason, under the facts in this case, for the Government to proceed to prove its case on an accrual method of accounting. See 26 U.S.C.A. § 41, supra, and Reg. 111, Sec. 29.41-1 and 29.41-2, supra.
To limit the government to the cash method of accounting when defendant's books and records are inadequate would be just another way of permitting the defendant to evade his income taxes. The government in this case contemplated and for that reason attempted first to prove a specific income case on an accrual method of accounting. In the Court's opinion it did so prove. Government's Exhibit 189 shows that for the calendar year 1947 defendant reported net income of $8,585.36. On an accrual method of accounting he should have reported $44,653.27. Defendant understated his net income for the year 1947 on an accrual method in the sum of $36,067.91.
Under defendant's Exhibit Z-179, giving credit for duplications and other credits in the amount of $24,813.20, that would still reduce the net income on an accrual basis to $19,840.07. The understatement of net income would still be $11,254.71. This, in the Court's opinion, is a substantial understatement of net income on which a substantial tax was due and owing for the calendar year 1947.
Government's Exhibit 194, the Net Worth Chart, discloses that for the calendar year 1947, defe...
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