United States v. Slutsky
| Decision Date | 24 September 1973 |
| Docket Number | 1038,Dockets 73-1549,73-1550.,No. 1037,1037 |
| Citation | 487 F.2d 832 |
| Parties | UNITED STATES of America, Appellee, v. Ben J. SLUTSKY and Julius Slutsky, d/b/a "The Nevele", Appellants. |
| Court | U.S. Court of Appeals — Second Circuit |
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Louis Bender, New York City (Sandor Frankel, New York City, on the brief), for appellant Ben J. Slutsky.
William Esbitt, New York City (Edward Brodsky and Edwin L. Schwartz, New York City, on the brief), for appellant Julius Slutsky.
John J. Tigue, Jr., Asst. U. S. Atty., New York City (Paul J. Curran, U. S. Atty., Robert P. Walton and John W. Nields, Jr., Asst. U. S. Attys., New York City, on the brief), for appellee.
Before LUMBARD, HAYS and TIMBERS, Circuit Judges.
Ben J. Slutsky and Julius Slutsky appeal from judgments of conviction entered upon jury verdicts returned January 9, 1973 after a six day trial before Lloyd F. MacMahon, District Judge, in the Southern District of New York. Each appellant was found guilty on three counts of attempted personal income tax evasion, in violation of 26 U.S.C. § 7201 (1970). In addition, Ben J. Slutsky was found guilty on two counts, and Julius Slutsky on one count, of signing and filing false partnership income tax returns, in violation of 26 U.S.C. § 7206(1) (1970). On March 19, 1973, a sentence of five years imprisonment and a $40,000 fine was imposed on Ben J. Slutsky, and a sentence of five years imprisonment and a $35,000 fine was imposed on Julius Slutsky. The costs of prosecution were imposed on each appellant. Each has been released on his own recognizance pending appeal.
Of the numerous claims of error raised on appeal, we find the principal issues to be those relating to the sufficiency of the evidence adduced by the government under the "bank deposits" method of proof and the propriety of sentencing appellants for violations of both 26 U.S.C. § 7201 and 26 U.S.C. § 7206(1).
We affirm the judgments of conviction as to both appellants on the tax evasion counts (Counts 4, 5, 6, 7, 8 and 9); but we reverse and vacate the judgments of conviction and cumulative sentences imposed upon both appellants on the false filing counts (Counts 1, 2 and 3) as an improper pyramiding of penalties.
Viewing the evidence in the light most favorable to the government, as we must at this stage, United States v. McCarthy, 473 F.2d 300, 302 (2 Cir. 1972), the jury could have found the facts as follows.
Appellants were the equal and only partners in the Nevele, a large, successful resort hotel located at Ellenville, New York, in the Catskill Mountains. During the years in question appellants were engaged full time in the management of the Nevele.
In 1967, the IRS commenced a routine audit of the Nevele's books. At first it was directed at the taxable years 1964 and 1965. Later it was extended to include 1966 and 1967.1 The audit, conducted chiefly by Agent Vera Wood, led to the conclusion by the IRS that the tax returns filed by appellants for the years in question had failed to include substantial income sums attributable to the partnership.
Agent Wood's suspicions initially were aroused when, in checking the books of the Golden Gate Hotel,2 she discovered an "exchange" transaction entry indicating that the Nevele had satisfied a $136,000 mortgage obligation of the Golden Gate. Recalling no record of any such exchange in the Nevele's books, Agent Wood asked Samuel Levis (the Nevele accountant), John Greco (the full-time bookkeeper), and Ben Slutsky to explain both the accounting treatment of the transaction on the Nevele's books and the source of the sum involved. After a series of unsatisfactory responses by Slutsky, Levis presented to Agent Wood a copy of a bank ledger card for a savings account in the name of Ben or Julius Slutsky. This showed a withdrawal in the amount of $136,000. Agent Wood then confirmed that this savings account was reflected nowhere in the Nevele books. She found, on a rough addition of the amounts in that account and those properly recorded, "that the total of these deposits exceeded the cash that was available as reflected in the cash on hand account of the books".
Appellants first maintained that all of the sums deposited in the savings account had been recorded on the Nevele's books as income. Later they asserted that the deposits did not represent income at all but were advance reservation deposits which were held in escrow until the guests arrived at the Nevele and income actually began to accrue.
Agent Wood then intensified her audit. She discovered two additional unrecorded bank accounts under the control of appellants. At this point, the analysis focused on the following six accounts:
Upon appellants' continued failure satisfactorily to explain the excess of deposits over recorded income, Agent Wood filed a report. The case was referred to the Intelligence Division of the IRS.
The referral culminated in a thorough investigation headed by Special Agent David Empie. This investigation utilized the "bank deposits method". This involves an analysis of all deposits made in bank accounts under the control of the taxpayer, the total of which is adjusted to exclude transfers, loans, redeposits, and other identifiable non-income items. Further subtractions are made for allowable exemptions and deductions. The resulting net taxable income figure is compared against the total taxable income reported.3 As summarized by the government at trial, the investigation produced the following data in support of the alleged unreported income for each of the three tax years involved:
Ben J. Slutsky et al
Schedule of Alleged Unreported Income — Nevele
1965, 1966, 1967
Item Particulars 1965 1966 1967
1 Total Bank Deposits ----- $6,548,213.68 $5,287,062.46 $6,310,260.18
2 Less: Nonincome Deposits
and Items ------------ 3,283,810.71 998,361.76 1,707,471.99
------------ ------------- ------------
3 Gross Receipts — Bank
Deposit Method ------- 3,264,302.97 4,288,700.70 4,602,788.19
4 Cash-on-hand
Less: Balance — beginning
of year ------ 78,688.84 193,346.46 206,772.39
------------- ------------- -------------
Sub-Total ------- 3,185,614.13 4,095,354.24 4,396,015.80
Add: Balance — end of year 193,346.46 206,772.39 unknown
_____________ _____________ _____________
5 Gross Receipts — Bank Deposit
Method (adjusted) ---- 3,378,960.59 4,302,126.63 4,396,015.80
6 Less: Direct Costs claimed on
returns 2,146,562.42 2,746,645.27 2,771,463.63
------------- ------------- -------------
7 Gross Profit ------------ 1,232,398.17 1,555,481.36 1,624,552.17
8 Less: Other expenses and depreciation
claimed on returns 976,988.28 966,183.80 1,181,760.18
------------- ------------- -------------
9 Partnership ordinary income
as corrected --------- 255,409.89 589,297.56 442,791.99
------------- ------------- -------------
10 Partnership ordinary income
as reported ---------- ( 143,767.32) 111,387.09 87,816.67
------------- ------------- -------------
11 Unreported Income ------ $ 399,177.21 $ 477,910.47 $ 354,975.32
============= ============= =============
The tax effect of the unreported income set forth in this summary was to increase the partnership share of each appellant by $199,588.60 for 1965; $238,955.23 for 1966; and $177,487.66 for 1967. This resulted in a total alleged personal tax deficiency for the three years involved of $369,136.83 for Julius Slutsky and of $391,945.19 for Ben Slutsky.
A nine count indictment was returned November 2, 1972.4 At trial, the government claimed that the large deficiencies stated above were the result of wilful fraud. In support of that theory, the government adduced evidence describing the Nevele's bookkeeping and accounting procedures. Ideally, all guest charges — the basic form of the Nevele's income — would be recorded as received in a "bill book". At the end of each day, Julius Slutsky would reconcile the bill book with the physical cash received. He personally prepared the deposit slips. An adding machine tape showing the total would then be given to Greco, the bookkeeper, who thereafter would post the receipts in a cash on hand account in the Nevele's books. As the receipts were deposited in one or more of the bank accounts, or otherwise disbursed, the disposition of the funds presumably would be posted accordingly — i. e., by crediting the cash on hand account and debiting the appropriate disbursal account. The government's evidence showed, however, that with respect to bank deposits only those deposits in one of the three accounts in the name of the Nevele were properly recorded.
The government's essential claim was that the unrecorded accounts...
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