United States v. Tolbert, 16494.

• Decision Date: 14 January 1969
• Docket Number: No. 16494.,16494.
• Citation: 406 F.2d 81
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. James W. TOLBERT, Sr., Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

406 F.2d 81 (1969)

UNITED STATES of America, Plaintiff-Appellee, v. James W. TOLBERT, Sr., Defendant-Appellant.

No. 16494.

United States Court of Appeals Seventh Circuit.

January 14, 1969.

Harvey M. Silets, Chicago, Ill., for defendant-appellant; Theodore A. Sinars, Harris, Burman & Silets, Chicago, Ill., of counsel.

James B. Brennan, U. S. Atty., Robert J. Lerner, Thomas R. Jones, Asst. U. S. Attys., Milwaukee, Wis., for plaintiff-appellee.

Before DUFFY, Senior Circuit Judge, and KILEY and FAIRCHILD, Circuit Judges.

KILEY, Circuit Judge.

Defendant Tolbert was convicted by a jury of income tax evasion for the years 1955 and 1956, in violation of 26 U.S.C. § 7201. He has appealed. We affirm.

Tolbert is the proprietor of Tolbert Oil Company which sells, at both wholesale and retail, various grades of gasoline and fuel oil together with miscellaneous items such as batteries, tires, and grease.

For the years 1955 and 1956, and some years prior, Tolbert, in reporting income, had computed his gross income by estimating an average profit per gallon for each grade of gasoline and oil, and then multiplying this by the total number of gallons sold for the year. He subtracted his deductible expenses in order to arrive at the adjusted gross income for the years. Using this method, Tolbert reported net profit of $3,043.43 and $5,489.16 from the business, and his adjusted gross income as $3,980.93 and $6,329.16, for the years 1955 and 1956, respectively.

Tolbert was indicted, after an investigation by the Internal Revenue Service. He was charged in one count with filing a fraudulent income tax return for 1955 by reporting adjusted gross income in the amount of $3,980.93 and tax payable in the amount of $567.30, when he knew that his adjusted gross income was $31.836.32 and tax payable was $9,380.37; and in a separate count with filing a fraudulent return for 1956 by reporting taxable income of $3,296.25 and tax payable of $785.25, when he knew that his taxable income was $49,057.20 and his tax payable was $19,869.75.

He argues that some of the standards set by the Supreme Court in Holland v. United States, 348 U.S. 121, 75 S.Ct. 127, 99 L.Ed. 150 (1954), for net worth prosecutions have not been met, and that the district court erred in denying his motion for acquittal because the government's proof does not "exclude every other hypothesis but that of guilt." The Court in Holland, at 124, 75 S.Ct. 127, said that where the net worth method is used there is involved something more than the ordinary use of circumstantial evidence in the usual case, and courts of appeal should "bear constantly in mind" the difficulties that arise when circumstantial evidence is the "chief weapon" in the net worth method. 348 U.S. at 129, 75 S.Ct. 127. The Court rejected, however, at 139-140, 75 S.Ct. 127, a claim that the jury in these cases should be instructed on the rule Tolbert contends for, saying "the better rule" is that where the jury is instructed on reasonable doubt, the rule Tolbert contends for is "confusing and incorrect."

Holland v. United States establishes the rule that the government must prove the defendant's willful evasion of taxes by independent evidence and that this necessary element cannot be inferred from a mere understatement of income. Tolbert contends that there is no independent evidence of willfulness established by the government. We disagree.

We take the evidence most favorable to the government: Tolbert withheld information from his accountant, Lytle, who prepared the tax returns for the years in question. Lytle had several meetings with Tolbert and his wife in preparing their joint 1955 and 1956 returns. At their first meeting he advised Tolbert and his wife that it was usual to compute gross income by beginning with total sales and subtracting from that the cost of sales, computed by taking the opening inventory for the year, adding the purchases made during the year, and subtracting the year-end inventory. Lytle suggested that Tolbert keep a double entry accounting system, and Tolbert responded that he was on a commission basis. Lytle got the "impression" that Tolbert kept no books and records. During the trial, when confronted with six hard-bound books which were single entry records of Tolbert's sales, Lytle testified he had never seen them before.

The six books contain information regarding defendant's wholesale sales, and his retail sales on credit. The agent was able to compute, for both years, defendant's gross sales from these books, and from this figure to compute his gross profit from wholesale operations by subtracting the cost of goods sold. The agent was not able to reconcile defendant's commissions earned figure reported in his tax return with the computations.

The evidence of Lytle and the agent is independent evidence of an understatement of income, from which, we think, the jury could have properly inferred a willfulness to evade taxes on Tolbert's part. The six books containing sales records would have been very useful to Lytle to compute net income, especially after he had advised Tolbert that the usual way to compute income was to start with gross sales. The jury could have found that Tolbert withheld these books from his accountant. The lack of evidence that he withheld information from the agent, once the investigation began, does not exculpate Tolbert. The pertinent proof of the element of willfulness was the withholding of books from Lytle.

We conclude that there is ample evidence in the record to justify the district court's denial of Tolbert's motion for acquittal. And we cannot say the evidence was not enough to justify the jury's inference that he was guilty of willfulness beyond a reasonable doubt.

Tolbert also contends the government failed to prove "obvious liabilities," and failed to check out accounts receivable and other assets.

The substance of the first two contentions is that the government failed to check out leads given it in its investigation of Tolbert's fiscal affairs, as required by Holland v. United States, at 135, 75 S.Ct. 127. There is no merit in these contentions.

We reject the argument with respect to such obvious leads as taxes payable, wages payable, and other accounts payable, since Tolbert stipulated at the trial in great detail with respect to liabilities and cannot be heard to complain here.

Tolbert had furnished the agents a statement of financial condition as of December 31, 1956, listing his accounts receivable as $54,239.20. This same figure was used for the three net worth method starting dates, December 31, 1954, December 31, 1955, and December 31, 1956. Tolbert argues that the starting figure is inaccurate, that it is reversible error to have the same figure as accounts receivable for all three dates, and that the government failed to check out the reasons why the receivables actually increased. There is testimony that the accounts receivable did increase about $27,000 over the years 1955 and 1956. However, if this method of computation was inaccurate the error is in Tolbert's favor, and does not prejudice him. There would be prejudice only if the evidence showed, and it does not show, that the accounts receivable decreased over the two years.

The assets on the starting date, December 31, 1954, were computed largely on the basis of stipulations and the defendant's tax returns. The tax returns contained a straight-line depreciation schedule which necessarily included the original cost of the depreciable assets, and their depreciation. From this, the depreciated value could be calculated. The value of the real estate was stipulated. After a careful review of all the evidence, we think there is substantial evidence to support the net worth calculations for the dates December 31, 1954, 1955 and 1956.

Tolbert gave no leads¹ with respect to the existence of substantial cash on hand, or to any other assets. He submitted two statements of financial condition, as of December 31, 1950, and ...