United States v. Penosi
| Citation | 452 F.2d 217 |
| Decision Date | 17 April 1972 |
| Docket Number | No. 31151.,31151. |
| Parties | UNITED STATES of America, Plaintiff-Appellee, v. Guido Anthony PENOSI, Defendant-Appellant. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Daniel H. Greenberg, New York City, for defendant-appellant.
Robert W. Rust, U. S. Atty., Marsha L. Lyons, Asst. U. S. Atty., Miami, Fla., Johnnie M. Walters, Asst. Atty. Gen., Meyer Rothwacks, Joseph H. Reiter, Crombie J. D. Garrett, Attys., Tax Div. Dept. of Justice, Washington, D. C., for plaintiff-appellee.
Before THORNBERRY, MORGAN and CLARK, Circuit Judges.
Certiorari Denied April 17, 1972. See 92 S.Ct. 1495.
Guido Anthony Penosi appeals his conviction for failure to file personal income tax returns and for wilful tax evasion. After considering all the assignments of error, we affirm the conviction.
Penosi was charged in an eight-count indictment with tax violations in the years 1964, 1965, 1966 and 1967. Four counts of the indictment alleged failure to file tax returns for each of these years in violation of 26 U.S.C. § 7203,1 and the other four counts charged wilful evasion of income tax for the same years in violation of 26 U.S.C. § 7201.2 At the trial before a jury the government introduced undisputed evidence that Penosi enjoyed income which, if derived from taxable sources, would be subject to taxation as follows:
Taxable Income Tax Due
1964 $ 7,853.70 $1,450.74
1965 11,313.81 2,109.04
1966 17,096.70 3,567.08
1967 18,382.63 2,562.95
Using the expenditure method of proof the government established these figures by presenting real and testimonial evidence of Penosi's cash disbursements during the years in question and then subtracting any expenditures made out of accumulated funds or nontaxable sources.
In support of its assertion that Penosi's income derived from taxable rather than non-taxable sources, the government called Agent Dennis J. Jaster to the witness stand. Jaster testified that in his capacity as special agent for the Internal Revenue Service he conducted an intensive investigation in an effort to determine the source of Penosi's expenditures. The investigation covered all banks, brokerage houses, and relevant court records in the immediate area of Penosi's present home in Miami Beach, Florida, and in New York City where Penosi had resided previously. Agent Jaster also contacted credit bureaus and various friends and relatives of Penosi. However, in every instance the investigation failed to reveal any sizable assets held by Penosi prior to the 1964 tax year or any other non-taxable sources of income such as loans, gifts, bequests, etc. In fact, no one contacted by Jaster, including Penosi's relatives, was able to state exactly what Penosi did for a living.
At the close of the government's case Penosi presented no evidence but argued to the jury that the government failed to meet its burden of proving that the expenditures came from taxable income. The jury disagreed and returned a verdict of guilty on all eight counts. The district judge then imposed a sentence totalling three years and nine months.
On appeal Penosi contends that under this court's decision in Marcus v. United States, 5 Cir. 1970, 422 F.2d 752, the government is required to pinpoint a taxable source of income in order to sustain a conviction for tax evasion. Appellant's interpretation of Marcus is misplaced. In that case we held that the government did not prove its case by showing only that the defendant had yearly expenditures in excess of $600.00. In addition, we held the government must establish, either directly or inferentially, that the expenditures were made from a taxable source of income.
Proof of a taxable source may take several different forms according to the nature of the defendant's financial activities. The most obvious method of proving a taxable source would be to present evidence of the precise origin of the income, for example, a cancelled check by which a certain employer paid a defendant for services rendered.
However, when such evidence is not available, the government must resort to other methods of proof. In this type of case the government has to establish at the outset what was not shown in Marcus v. United States, supra, that is, the defendant's net worth at the beginning of the time period in which he allegedly failed to file a tax return. Requiring the government to show an opening net worth is simply a requirement that the government prove to a reasonable certainty that the income expended did not spring from prior accumulations or earnings for which the defendant would not be liable in taxes.
Next, the government has the burden of proving that the expenditures did not come from other non-taxable sources such as gifts, loans, bequests, or favorable law suit verdicts. Since this is actually a burden to negate certain possible facts, the government may meet the burden by producing evidence of an investigation which uncovered no sources of non-taxable income. Again, in Marcus v. United States, supra, there was no investigation showing that the expenditures were not made from tax exempt funds.
Thus, in cases where direct evidence of taxable sources is lacking, the government must negate the sources of non-taxable income by establishing an opening net worth and then showing, by investigation or otherwise, an absence of additional non-taxable sources. In this manner the government carries its burden of presenting evidence from which the trier of fact might reasonably conclude to the exclusion of all other reasonable hypotheses that the expenditures came from taxable sources.3 The decision in Marcus v. United States, supra, applied this test and properly reversed the conviction for the reason that the government failed to negate non-taxable sources:
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