United States v. Wainwright

Decision Date14 August 1969
Docket NumberNo. 88-68.,88-68.
Citation413 F.2d 796
PartiesUNITED STATES of America, Plaintiff-Appellee, v. Archie L. WAINWRIGHT, Defendant-Appellant.
CourtU.S. Court of Appeals — Tenth Circuit


Joseph M. Howard, Dept. of Justice (Lawrence M. Henry, U. S. Atty., Richard M. Roberts, Acting Asst. Atty. Gen., and Richard B. Buhrman, Dept. of Justice, with him on the brief) for plaintiff-appellee.

Robert D. Inman and Melvin A. Coffee, Inman, Flynn & Coffee, Denver, Colo., for defendant-appellant.

Before MURRAH, Chief Judge, PHILLIPS, Senior Circuit Judge, and SETH, Circuit Judge.

MURRAH, Chief Judge.

The appellant, Archie R. Wainwright, was indicted on four counts for willfully attempting to evade federal income taxes for the years 1960, 1961, 1962, and 1963 in violation of Section 7201 of Title 26 United States Code.1 On motion for acquittal on all counts, the trial judge struck the count relating to 1960. He was convicted by a jury on the remaining counts and appeals from the sentencing judgment, alleging numerous errors which we shall consider as developed by the facts.

During the period involved, Wainwright and his wife operated the Park Oil Company as individual proprietors. This company owned and operated several gasoline service stations. Each station was run by a manager who received a commission on gasoline sales. Wainwright had several large gasoline suppliers. He paid the full purchase price of the gasoline monthly and received back from the supplier a discount or rebate check. The amount of this purchase discount depended on the individual supplier and the volume of gasoline purchases.

When the Internal Revenue Service agent checked the taxpayer's books he found that the gross income per the return exceeded the gross income per the accounting records. Wainwright explained this discrepancy to the agent by producing a "black book" he had not earlier shown the agent. This record contained lists of purchase discount checks for the years in question, and for each year corresponded to the difference noted in gross income. Except for minor adjustments, all other items on the returns corresponded with the accounting records. But when the agent checked the purchase discounts with Wainwright's suppliers discrepancies developed. The crux of the government's case, therefore, was that Wainwright willfully understated his purchase discounts with consequent understatement of taxable income for each of the prosecution years.

This method of proof is attacked for failure to prove the "corpus delecti" of the crime, i.e. overstatement of the amount of gasoline purchased with consequent understatement in taxable income. The specific error urged in this regard is that since purchase discounts are properly deductions from merchandise expense rather than additions to gross income, the burden was on the government to prove the correct amount of the gasoline purchases. Admittedly, the government made no attempt to verify purchases from suppliers other than on a spot check basis since this item agreed with Wainwright's books and the I.R.S. apparently had no reason to question its correctness. The government refers us to that line of cases holding that the I.R.S. has no burden to show that an accused tax evader had no offsetting expenses. See United States v. Bender, 218 F.2d 869 (7th Cir. 1955) cert. den. 349 U.S. 920, 75 S.Ct. 660, 99 L.Ed. 1253 (1955); United States v. Stayback, 212 F.2d 313 (3rd Cir. 1954) cert. den. 348 U.S. 911, 75 S.Ct. 289, 99 L.Ed. 714 (1955); and Dillon v. United States, 218 F.2d 97 (8th Cir. 1955) cert. dismissed 350 U.S. 906, 76 S.Ct. 191, 100 L.Ed. 796 (1955). The taxpayer's response is that since I.R.S. regulations, 26 C.F.R. § 1.471-3(b), and proper accounting practices consider rebates a reduction in an expense item it was thereby incumbent on the government to show the correct expense figure.

We think appellant's argument puts too great an emphasis on accounting factors. By comparing Wainwright's books with his suppliers' records, the I.R.S. agent was able to show that the rebate account, as included in gross income, was substantially less than the figures reflected in the suppliers' records. The government's case was built around proving the true rebate receipts. Having proved this, the factum of a substantially understated return was established. It was not incumbent on the government to defense its own case by negating the existence of additional unreported gasoline purchases. We think the government may safely rely on the statements in the taxpayer's return and determine its correctness by reference to the books and records upon which the return was made and any other data which may affect the integrity of the reported taxable income. The taxpayer's thesis would require the government to prove not only that some figure was incorrect but that all the others were correct — clearly an intolerable burden.

The next allegation of error refers to the exclusion of certain testimony of Wainwright's expert witness, Mr. Marvin Stone. Mr. Stone was called and qualified as an expert witness in the field of accounting but was prevented from answering several questions directed by Wainwright's counsel, the first of which occurred in this way: Mr. Glenn Smith, a special revenue agent for the I.R.S., was called and qualified as an expert witness for the government. He testified that he compared the taxpayer's records against his books for the years in question and found the discrepancies here involved. In relation to the rebate figure, Smith testified that while it should be treated as a reduction in expenses, it made no difference in the taxable income whether reported properly or as an item of gross income. The taxpayer's expert agreed with this conclusion.

On direct examination, Wainwright's counsel asked Mr. Stone: "If an accountant were to indicate that purchase discounts could be reported either as part of gross income or as part of expenses would you have any opinion regarding the qualifications of that particular accountant". On the government's objection, the trial court rightly prevented counsel from finishing the question and the witness from answering. While it is perfectly proper to impeach an adverse expert witness by contrary testimony of another expert, it is improper to seek an opinion on the very matter which the jury alone must judge, i.e. which expert they wish to believe. Moreover, in reviewing these alleged errors we are guided by the principle that the admission of evidence lies largely in the trial court's discretion and will not be set aside on appeal except for a clear prejudicial abuse of this discretion. Leavitt v. Scott, 338 F.2d 749 (10th Cir. 1964).

The taxpayer also attempted to prove that he had unreported expenses which would offset the alleged understatement of income. He testified generally that he had not reported all expenses and specified that dependent deductions relating to his children by a former marriage, entertainment expenses, and parking expenses had not been reported. Outside a few minor examples, however, he was unable to testify as to exact amounts or occasions. He then attempted to have Mr. Stone testify as to what effect the omission of these deductions would have had on his taxable income. The trial judge refused to permit this, saying, "This expert cannot testify to matters of which he does not have knowledge, either that he obtained through some documents or that has been established." We agree with the trial judge that the taxpayer failed to lay a proper foundation for this type of questioning.

The last and most serious challenge to the limitation placed on the examination of the taxpayer's expert concerns the character and sufficiency of Wainwright's accounting records. He offered to prove, by his expert witness, that "The kinds of records which would have been necessary to accurately reflect income for one reason or another were not kept, * * * what types of ledgers, what types of cost control, would have been necessary to accurately reflect and present summary and cost analyses for him so that accurate income figures could have been kept," and "That it was an accounting impossibility for him to accurately keep the records which would enable him * * * to accurately and completely reflect all of his income." On objection by the government, the trial judge excluded this testimony, stating, "I don't think that's a defense."

On appeal, Wainwright argues that the lack of accounting records sufficient to properly and accurately reflect his income was evidence for the jury on the issue of willfulness and actually negated any intent on his part to evade the income taxes. The government's answer, without the benefit of any citation of authority, is that the "black book" method of recording rebate checks was sufficiently accurate for tax purposes and, if properly maintained, would have reflected the true amounts of purchase discounts. Thus, they argue, the failure to accurately maintain this record was evidence for the jury of willfulness and evidence as to what he should have done in a general way is irrelevant.

In Haigler v. United States, 172 F.2d 986, 987 (10th Cir. 1949) we noted that whenever willfulness or bad intent is an essential element of the crime, as it is here, "the accused may not only directly testify that he had no such motive or purpose but he may, within rational rights, `buttress such statement with testimony of relevant circumstances.' Miller v. United States, 120 F.2d 968, 970 (10th Cir. 1941)." See also McDonald v. United States, 246 F.2d 727 (10th Cir. 1957) cert. den. 355 U.S. 863, 78 S.Ct. 95, 2 L.Ed.2d 68 (1957) and Peterson v. United States, 268 F.2d 87 (10th Cir. 1959). And cf. McCarty v. United States, 409 F.2d 793 (10th Cir. 1969). But none of these cases dealt with the issue of whether an accountant may comment on the deficiencies of a taxpayer's books to...

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