United States v. Tunnell, 72-3787.
| Decision Date | 31 October 1973 |
| Docket Number | No. 72-3787.,72-3787. |
| Citation | 481 F.2d 149 |
| Parties | UNITED STATES of America, Plaintiff-Appellee, v. Perry Russell TUNNELL, Defendant-Appellant. |
| Court | U.S. Court of Appeals — Fifth Circuit |
J. W. Tyner, Jerry Bain, Tyler, Tex., for defendant-appellant.
Roby Hadden, U. S. Atty., Tyler, Tex., Richard P. Slivka, Scott P. Crampton, Asst. Atty. Gen., Meyer Rothwacks, Atty., Dept. of Justice, Tax Div., Washington, D. C., for plaintiff-appellee.
Before AINSWORTH, GODBOLD and INGRAHAM, Circuit Judges.
Rehearing and Rehearing En Banc Denied October 31, 1973.
Perry Russell Tunnell was convicted on each of three counts for willfully attempting to evade federal income tax during the years 1965, 1966, and 1967, in violation of 26 U.S.C. § 7201 (1970).1 The central issue on appeal concerns the sufficiency of the Government's evidence based on the net worth method. We affirm.
One of the essential elements which the Government had to prove was that taxpayer owed tax on at least some unreported income for each of the three years named in the indictment. Because taxpayer's records were inadequate, the Government utilized the so-called "net worth method" described and approved in the leading Supreme Court case of Holland v. United States, 348 U.S. 121, 125, 75 S.Ct. 127, 130, 99 L.Ed. 150 (1954):
In a typical net worth prosecution, the Government, having concluded that the taxpayer\'s records are inadequate as a basis for determining income tax liability, attempts to establish an "opening net worth" or total net value of the taxpayer\'s assets at the beginning of a given year. It then proves increases in the taxpayer\'s net worth for each succeeding year during the period under examination and calculates the difference between the adjusted net values of the taxpayer\'s assets at the beginning and end of each of the years involved. The taxpayer\'s nondeductible expenditures, including living expenses, are added to these increases, and if the resulting figure for any year is substantially greater than the taxable income reported by the taxpayer for that year, the Government claims the excess represents unreported taxable income. In addition, it asks the jury to infer willfulness from this understatement, when taken in connection with direct evidence of "conduct, the likely effect of which would be to mislead or to conceal." Spies v. United States, 317 U.S. 492, 499 63 S.Ct. 364, 368, 87 L.Ed. 418.
See also United States v. Newman, 5 Cir., 1972, 468 F.2d 791, cert. denied, 411 U.S. 905, 93 S.Ct. 1527, 36 L.Ed.2d 194 (1973); Lee v. United States, 5 Cir., 1972, 466 F.2d 11. In the present case the Government determined the correct taxable income and tax to be the amounts set out below, compared to the taxable income and tax actually reported by Tunnell on his returns, as follows:
Government Determination Tunnell Reported
Year Income Tax Income Tax
1965 $ 9,236.73 $ 971.55 $ 181.52 $ 142.08
1966 35,579.77 5,942.14 2,241.98 113.33
1967 34,783.42 7,738.31 (20,864.63) -0-
To rely on determinations of income by the net worth method, it was necessary that the Government establish Tunnell's opening net worth at the start of 1965 with reasonable certainty, introduce evidence supporting the inference that his net worth increased due to currently taxable income, and negate all reasonable explanations and leads furnished by Tunnell which were inconsistent with guilt. See Holland, 348 U.S. at 132, 135, 137, 75 S.Ct. at 134-136. In examining the record we find that the Government sustained its burden.
Based on a detailed financial analysis, the Government determined Tunnell's assets on December 31, 1964 to be $57,686.89, including cash on hand, cash in banks, the Pines Motel and Trailer Park, some farm land he inherited, mobile homes, automobiles, trucks, and deferred expenses. But he had offsetting liabilities of $64,447.55, so the Government set his opening net worth at a deficit of $6,760.66, which we find to be fully supported by the record. Counsel for taxpayer objected to the Government's introduction into evidence of tax returns for 1962, 1963, and 1964, and when the jury during its deliberations requested the 1963 and 1964 returns, counsel also objected to the district judge's allowing the jury to see the returns again. These returns were admissible and could be viewed by the jury at its request, because the small amounts of income reflected in these returns were relevant to corroborate the asserted deficit net worth as of December 31, 1964. The returns consistently showed the taxpayer had little income during the prior three years. Furthermore, the district judge gave the jury a proper limiting instruction that the documents could only be considered for the limited purpose of determining Tunnell's opening net worth.
The Government showed that the likely source of Tunnell's net worth increases was from taxable income, as opposed to exempt income, by showing that he could have had income from the Pines Motel other than that reported. Appellant objected to testimony that this motel, in...
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