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United States v. Bardin

June 3, 1955

UNITED STATES OF AMERICA, PLAINTIFF-APPELLEE,
v.
LAWRENCE P. BARDIN, DEFENDANT-APPELLANT.



Author: Schnackenberg

Before FINNEGAN, SWAIM and SCHNACKENBERG, Circuit Judges.

SCHNACKENBERG, Circuit Judge.

We have awaited the decisions of the United States Supreme Court in Holland v. United States*fn1 and other "net worth" tax cases. Our consideration of the principles of law there formulated which we deem applicable to this case, followed by a divergence of views among the members of this court, has delayed the decision. The writing of an opinion was assigned to the author on April 14, 1955.

This is an appeal from a judgment of the district court, entered on the verdict of a jury finding defendant guilty, as charged in a two-count indictment, of willfully and knowingly attempting to defeat and evade a large part of the income tax due and owing by him to the United States of America for the calendar year 1946.

Count I charged that on or about May 26, 1947, defendant did willfully and knowingly attempt to defeat and evade said tax by filing a false and fraudulent income tax return for the calendar year 1946, wherein he stated his net income for said year was $528,824.56 and the tax due and owing thereon was $426,382.89, whereas, as he then and there well knew, his net income for said year was $759,827.94, more or less, and the tax due thereon was $639,841.28, more or less. Count II charged that "on or about September 15, 1946, through and including May 27, 1947", the defendant did willfully and knowingly attempt to defeat the payment of said tax due and owing by him "by concealing and attempting to conceal from the Collector of Internal Revenue the nature and extent of his assets and the location thereof, said tax being $639,841.28, more or less, by refusing to pay said tax due and owing, and at said times he having funds with which to pay said tax." Both counts are based on 26 U.S.C.A. § 145(b). Defendant urges as grounds for reversal: (1) the trial court's refusal to grant defendant's motion for acquittal, (2) the alleged misconduct of the United States attorney during the course of the trial, and the trial court's alleged failure to take proper and necessary steps to prevent the said misconduct from influencing the jury in its deliberations, and (3) count II actually charged defendant with a misdemeanor, rather than a felony, and was therefore barred by the statute of limitations.

1. Whether the trial court erred in refusing to grant defendant's motion for acquittal, requires us to determine whether the substantial evidence, taken in a light most favorable to the prosecution, tends to show the defendant is guilty beyond a reasonable doubt. United States v. Yeoman-Henderson, Inc., 7 Cir., 193 F.2d 867, at page 869. The facts thus proved by such evidence, much of it undisputed, are as follows:

This case involves defendant's income for the calendar year 1946.

On December 6, 1945 defendant closed a deal for the purchase of a brewery, and embarked upon the business of selling beer at prices above the ceiling prices fixed by federal price control regulations. Specific payments to him for this purpose during the taxable year 1946 totaled $242,492.00. He failed to keep adequate financial records. He also carried on extensive tradings in grains through brokerage houses.

Defendant put $250,000 in a safe in his brother's home in California. According to defendant, $175,000 was secreted there in 1946, and the balance of $75,000 in early January, 1947. The jury could reasonably infer that this $75,000 was a part of defendant's income for 1946, rather than that it constituted income for the period from January 1, 1947 to January 15, 1947, when it was deposited in the safe in California.

On January 1, 1946 defendant's net worth was $51,297.85, and on December 31, 1946, it was $799,610.67. Thus, the difference between the amounts on the first and last days of 1946, or the net worth increase for 1946, was $748,312.82. The addition of non-deductible expenditures for 1946 increased the latter figure to $758,713.94. This was defendant's net income for 1946 computed according to the net worth theory formula. Holland v. United States, 348 U.S. 121, at page 125, 75 S. Ct. 127. The net income reported by defendant on his return for that year is $528,824.56. He filed no returns prior to 1942. According to income tax returns filed with the Internal Revenue Collector, the defendant and his wife had a total income of $3,861.15 and net income of $2,311.15 for the year 1942. For 1943 they had a total income of $12,067.25 and net income of $1,602.25. For the next two years, defendant alone reported as follows:

Year Gross Income Net income

1944 $8,314.85 None

1945 8,196.15 $3,873.30

These figures tend to show that defendant's income during prior years was insufficient to have enabled him to save any appreciable amount of money, and thus tend to corroborate the relatively low figure set by the government as defendant's beginning net worth. Holland v. United States, supra, 348 U.S. at page 133, 75 S. Ct. 127.*fn2 Defendant failed to file an estimated return for 1946 and delayed filing an actual return until May 27, 1947.

On June 13, 1947, defendant talked to the assistant collector of internal revenue. He claimed inability to pay the tax in the amount shown by his return. He failed to mention $25,000 which was later found in cash in a safe deposit box and turned over to the government on a court order and about $20,000 due him on an account with his stock broker. A day or two prior to June 19, 1947 defendant withdrew the latter amount from the stock broker. He also failed to mention $46,939.94 which was in one of his bank accounts known as "L. P. Bardin for account of Alvin Bardin." All this was in addition to the sum of $250,000 withdrawn from Indianapolis banks during 1946 and taken by defendant personally to California and hidden in the safe hereinabove referred to. Although defendant, when pressed by the government to file a 1946 income tax return, reported, on May 26, 1947, that this money was stolen from the safe during a burglary the day before, and the physical circumstances surrounding the safe at least simulated a burglary, none of the money was ever recovered, and no one connected with the commission of the alleged crime was ever apprehended.

From the foregoing facts the jury was justified in finding that defendant was proved guilty as to count I beyond a reasonable doubt, though not to a mathematical certainty. No more was required. Holland v. United States, supra, 348 U.S. at page 138, 75 S. Ct. 127.

The conduct of the defendant in connection with his belated filing of his 1946 tax return, and his misrepresentations as to his inability to pay any part of his tax, support the verdict of the jury as to count II.

The trial court did not err in denying defendant's motion for acquittal.

2. Alvin Bardin, brother of defendant, was called as a government witness. He declined to answer certain questions on the ground that to do so might incriminate him. The court sustained the position of the witness and he was excused. Upon his departure from the stand no admonition was given by the court to the jury that they should draw no inferences unfavorable to the defendant from the witness' refusal to testify.

In his closing statement, the district attorney referred to the fact that Alvin Bardin had exercised his privilege of refusing to testify, and asked the jury why he did that. At this point defense counsel objected, and that objection was sustained by the court. Thereupon the district attorney asked the jury to disregard any reference he had made to the failure of the witness to testify. Defense counsel made no motion in reference to the incident and did not ask the court to admonish the jury in reference to the matter. Defendant cannot now in this court be permitted to capitalize on his counsel's failure to press for further action by the trial court. Moreover, the court's sustaining of the objection clearly indicated to the jury that the remark of government counsel was improper.

We do not believe that these incidents deprived defendant of a fair trial, or that the action of the court in connection with them was erroneous.

A dissenting opinion by our colleague speaks of the failure of the district court to give to the jury such an instruction on the net worth theory as is referred to in Holland v. United States, supra.

On the trial there was no instruction tendered by defendant which was refused by the court. In this court his counsel has not assigned error on the subject of instructions. He was represented in the trial court by a member of the bar of this court, whose competency has not been questioned herein. In this court, his present counsel has filed a brief and made an oral argument which attests not only to his competency, but also to the diligent effort which he made to properly present all questions deemed to be available on this appeal. Present counsel has not argued or briefed any point on the instructions.*fn3

3. Defendant contends that his prosecution under count II was barred by the three-year statute of limitations,*fn4 because that count charged a misdemeanor under section 145(a),*fn5 not a felony under section 145(b).*fn6 He relies on Spies v. United States, 317 U.S. 492, 63 S. Ct. 364, 87 L. Ed. 418.

The material allegations of count II are:

"That on or about September 15, 1946, through and including May 26, 1947, in the Indianapolis Division of the Southern District of Indiana, Lawrence P. Bardin did willfully and knowingly attempt to defeat the payment of the income tax due and owing by him to the United States of America for the calendar year 1946 by concealing and attempting to conceal from the Collector of Internal Revenue the nature and extent of his assets and the location thereof, said tax being $639,841.28, more or less, by refusing to pay said tax due and owing, and at said times he having funds with which to pay said tax, all in violation of Title 26, U.S.C., Section 145(b)."

Defendant says that the crux of the matter was defendant's refusal to pay his tax obligation, i. e ., his willful failure to pay said tax. The pertinent parts of § 145(a) provide:

"Any person required under this chapter to pay any estimated tax or tax * * * who willfully fails to pay such estimated tax or tax * * * shall * * * be guilty of a misdemeanor and, upon conviction thereof, be fined not more than $10,000, or imprisoned for not more than one year, or both, * * *."

and of § 145(b) provide:

"* * * any person who willfully attempts in any manner to evade or defeat any tax imposed by this chapter or the payment thereof, shall * * * be guilty of a felony and, upon conviction thereof, be fined not more than $10,000, or imprisoned for not more than five years, or both * * *."

A failure to pay a tax, under § 145(a), and an attempt to defeat and evade one, under § 145(b), must both be willful. However, the difference between the two offenses is found in the affirmative action implied from the term "attempt" as used in § 145(b), the felony sub-section. As the court said in Spies v. United States, supra, 317 U.S. at page 499, 63 S. Ct. at page 368:

"Willful but passive neglect of the statutory duty may constitute the lesser offense, but to combine with it a willful and positive attempt to evade tax in any manner or to defeat it by any means lifts the offense to the degree of felony."

Accordingly, in count II, a willful and knowing attempt is charged in the affirmative action taken by the defendant to accomplish his purpose, i. e ., "by concealing and attempting to conceal from the collector of internal revenue, the nature and extent of his assets and the location thereof." Indeed, the court in Spies v. United States, supra, 317 U.S. at page 499, 63 S. Ct. at page 368, in illustrating what conduct would justify a basis for "affirmative willful attempt", listed, among others, "concealment of assets or covering up sources of income". In view of the fact that defendant was engaged in transactions which exposed him to prosecution under the federal price regulations, the following statement of the court in Spies v. United States, supra, also 317 U.S. at page 499, 63 S. Ct. at page 368, is pertinent here:

"If the tax-evasion motive plays any part in such conduct the offense may be made out even though the conduct may also serve other purposes such as concealment of other crime."

We hold that count II charges a felony under § 145(b). Mr. Prentice H. Marshall, a member of the bar of this court, served in this court as appointed counsel for the defendant. We express our appreciation of his diligent performance of his duties.

For the reasons herein set forth, we affirm the judgment of the district court.

FINNEGAN, Circuit Judge (dissenting).

Judicial bouquets handed appellate-defense counsel for earned competency, are small simple solace to this defendant, now confronted with prison. Indeed, I cannot, as easily as the majority does, approve deprivation of liberty, nor countenance such facile stigmatizing with a criminal conviction. I also entertain grave doubts that the Government's fiscal affairs are in so delicate balance that a new trial would jeopardize that financial equilibrium. My concern, here, is whether there are present "plain errors or defects affecting substantial rights" which "may be noticed although they were not brought to the attention of the court." Rule 52(b), Fed.R.Crim.Proc. 18 U.S.C.A. I think Rule 52(b) supersedes Rule 30, Fed.R.Crim.Proc., 18 U.S.C.A. in appropriate cases. This appeal brings into sharp relief some of the ideas captured by Mr. Justice Frankfurter in a passage from Bollenbach v. United States, 1946, 326 U.S. 607, 615, 66 S. Ct. 402, 406, 90 L. Ed. 350, where, speaking for the majority he said:

"From presuming too often all errors to be 'prejudicial,' the judicial pendulum need not swing to presuming all errors to be 'harmless' if only the appellate court is left without doubt that one who claims its corrective process is, after all, guilty . In view of the place of importance that trial by jury has in our Bill of Rights, it is not to be supposed that Congress intended to substitute the belief of appellate judges in the guilt of an accused, however justifiably engendered by the dead record, for ascertainment of guilt by a jury under appropriate judicial guidance, however cumbersome that process may be." (Italics added.)

Previously our court paid homage to those principles [United States v. Levi, 7 Cir., 1949, 177 F.2d 833, 835, United States v. Raub, 7 Cir., 1949, 177 F.2d 312, 315, United States v. Haupt, 7 Cir., 1943, 136 F.2d 661] and now I perceive no justifiable reason for being deflected from them. "Strictly speaking," said Mr. Justice Harlan, when delivering the majority opinion reported as Davis v. United States, 1895, 160 U.S. 469, 487-488, 16 S. Ct. 353, 358, 40 L. Ed. 499, "the burden of proof, as those words are understood in criminal law, is never upon the accused to establish his innocence, or to disprove the facts necessary to establish the crime for which he is indicted. It is on the prosecution from the beginning to the end of the trial, and applies to every element necessary to constitute the crime." Having awaited, as my brothers particularly note, that quartet of decisions lead by Holland v. United States, 1954, 348 U.S. 121, 138, 75 S. Ct. 127, 137, it is well to recall this apt statement from that opinion:

"* * * The Government must still prove every element of the offense beyond a reasonable doubt though not to a mathematical certainty. The settled standards of the criminal law are applicable to net worth cases just as to prosecutions for other crimes. * * *"

A judicial poultice applied at our reviewing level may palliate the sting of error committed below, but such treatment falls far short of an actual cure attainable only by ordering a new trial. Bihn v. United States, 1946, 328 U.S. 633, 66 S. Ct. 1172, 90 L. Ed. 1485.

Wiborg v. United States, 1896, 163 U.S. 632, 658, 16 S. Ct. 1127, 1137, 41 L. Ed. 289, a precursor to current Rule 52, contains Chief Justice Fuller's trenchant observation concerning a certain question not properly raised and about which he wrote: "* * * yet if a plain error was committed in a matter so absolutely vital to defendants, we feel ourselves at liberty to correct it." That Rule 52(b) Fed.R.Crim.Proc., 18 U.S.C.A. is a restatement of existing law, see 6 Institute Proceedings, N.Y.Univ.Sch. of Law, 88 (Fed.R.Crim.Proc. with Notes, 1946). See also: Barron, Federal Practice and Procedure, Rules Edit., § 2587 (1951).

I refuse to affirm Bardin's conviction because, upon mature consideration of this record, I think it embodies several plain errors and defects affecting substantial rights belonging to defendant. Therefore, I cannot placidly cite United States v. Yeoman-Henderson, Inc., 7 Cir., 1952, 193 F.2d 867 and simply state the trial court acted correctly in denying defendant's motion for judgment of acquittal. Because even if the defendant appears to be a bad man in light of the prosecution's portrayal, he is still entitled to a fair and impartial trial free from plain errors and defects mentioned in Rule 52(b). See my recent dissenting opinion in United States v. Vasen, 7 Cir., 222 F.2d 3. The converse of this proposition is virtually the inarticulated major premise underlying affirmance of Bardin's conviction. Turning now to the two major areas of error for which I would reverse, they can be grouped as follows: (1) insufficient jury instructions and, (2) prejudicial conduct of the prosecuting attorney.

Merely recording recognition, without more, of the familiar and well settled postulate pervading all criminal prosecutions, i.e., the persuasion must be beyond a reasonable doubt, is insufficient in this appeal. Yet, I am also aware: "the truth is that no one has yet invented or discovered a mode of measurement for the intensity of human belief. Hence there can be yet no successful method of communicating intelligibly to a jury a sound method of self-analysis for one's belief." 9 Wigmore, Evidence, § 2497 (3rd ed. 1940). Despite Dean Wigmore's report of judicial struggles to articulate the definitive characteristics of "beyond a reasonable doubt" that phase remains the bench-mark in criminal cases. In Bardin's case the character of evidence spun on looms of computations powered by the net worth theory would have considerable impact on the minds of his jurors.

Since there is a grave possibility that jurors' reaction to reasonable doubt will vary with instructions given them on various aspects of the case there is an acute need for careful judicial guidance in cases of this sort. When instructions are insufficient in this, or any, net-worth-expenditure case undue strength is lent the prosecution's theory. I think this defendant has the right to have a jury weigh the nature of proof offered against him. The difference between theorizing and suspicioning, in these cases, is that in the former formidable working papers and a maze of figures casts an aurora of reliability around the government's accountants. Indeed, the Holland majority's admonition, 348 U.S. 121, 129, 75 S. Ct. 127, 132, should be pointed up, because at the trial level, in Bardin's case, the Government erected its case against him by coupling the expenditures theory with the net worth theory :

"Appellate courts should review the cases bearing constantly in mind the difficulties that arise when circumstantial evidence as to guilt is the chief weapon of a method that is itself only an approximation."

In this case for the tax year 1946 the government has reconstructed what it contends was income flowing into Bardin's hands during that period. It has attempted to form a bridge between the opening and closing of that taxable year by detailing intermediate changes through a summation of transactions. This merely means that a hypothesis is sponsored concerning Bardin's taxable income for 1946, and various changes are analyzed.But these computations involve drawing of inferences by the government's witnesses which are, in turn, passed on to the jury for further extraction of inferences. I am well aware of the difficulties implicit in prosecuting persons accused of violating § 145, but I do think when such estimates are submitted to a jury the fact-finders ought to be told about the method. My cautionary mood, here, is fairly well described by that which Mr. Justice Clark reports as the stimulus for taking and reviewing Holland v. United States, 1954, 348 U.S. 121, 124-125, 75 S. Ct. 127, 130:

"In recent years * * * tax evasion convictions obtained under the net worth theory have come here with increasing frequency and left impressions beyond those of the previously unrelated petitions. We concluded that the method involved something more than the ordinary use of circumstantial evidence in the usual criminal case. Its bearing, therefore, on the safeguards traditionally provided in the administration of criminal justice called for a consideration of the entire theory. * * *" (Italics supplied.)

To appreciate the impact upon the jury of the net-worth theory - and it is simply a theory, it becomes necessary to examine that technique under one phase of the statutory setting for violation of which this defendant was prosecuted. Section 145(b) of the Revenue Act of 1939, 26 U.S.C.§ 145(b) (1953), 53 Stat. 62-63 (1939) does not contain the words "fraud" or "criminal fraud." Bardin is prosecuted under that section for non-disclosure of alleged income, and the conduct with which he is charged must be willful. United States v. Murdock, 1933, 290 U.S. 389, 394-396, 54 S. Ct. 223, 78 L. Ed. 381. Spies v. United States, 1942, 317 U.S. 492, 499, 63 S. Ct. 364, contains some faint adumbration of criteria indicative of conduct proscribed by the words, "* * * any person who willfully attempts in any A to evade or defeat any tax * * *," appearing in § 145(b). From Spies v. United States, 1942, 317 U.S. 492, 63 S. Ct. 364, 367, comes this explanation of the dichotomy embraced by § 145: (i) "Willful failure to pay the tax when due is punishable as a misdemeanor" § 145(a) and, (ii) the serious and inclusive felony defined to consist of willful attempt in any manner to evade or defeat the tax. § 145(b)." Of course the language of § 145(b) outlawing attempts to evade taxes "in any manner" is sweeping enough to make it a felony to willfully omit income from a tax return which has been filed. United States v. Beacon Brass Co., 1952, 344 U.S. 43. The problem lies in proof of such an act by application of the indirect methods of computing income, i.e ., networth expenditure theory.

When reversing a conviction, under § 145(b), bottomed on the "expenditure" method, reported as United States v. Caserta, 3 Cir., 1952, 199 F.2d 905, 906, Judge Goodrich summarized the so-called net-worth theory as follows:

"This theory is in effect that if a taxpayer's net worth has increased during a given period in an amount greater than his reported income for that period, there must be a discrepancy in his income tax return and payment.

"An outgrowth of this net worth method is the 'expenditure' test * * *."

A letter, dated May 26, 1947, written by Bardin and transmitted to the Collector of Internal Revenue with his income tax return for 1946, supplies the first and dominant strand in the texture of this case. After apologizing for tardily filing his return after the expiration of an extension of time previously granted, defendant stated:

"However, I will be unable to pay this tax or any part of it for an indefinite time to come. I had $250,000.00 in cash in a safe in my brother's home in Los Angeles, California, until yesterday when the safe was burglarized and the money was stolen. This is a very heavy loss as you will realize and unless the money can be recovered, it is going to be very difficult for me to pay anything. The theft has been reported to the F.B.I. and to the police at Los Angeles."

After Government witness, W. Plummer, assistant director of the Bureau of Internal Revenue, identified the foregoing letter, it was received in evidence without objection. As the result of Plummer's conferences with Bardin during June, 1947, defendant submitted the following "Verified Statement of Assets and Liabilities" to the government, and it was subsequently introduced into the record below:

Assets.

Cash on hand $110.00

Amount stolen from safe in

home of Archie Bardin in

Los Angeles, California

250,000.00

Airplanes

None

Automobiles

None

Real Estate

None

Personal effects, clothing,

wrist watch

250.00

Loaned to W. G. Brower of

Indianapolis, Indiana the

sum of $55,000 evidenced by the

promissory note of the said Brower

in the principal sum of $55,000 and

which note is secured by 800 shares

of the pre- ferred stock and by 24,000

shares of the common stock of Cold Springs

Brewing Co., Lawrence, Massachusetts; also

secured by 3000 shares of common stock in

The Wal- nut Corporation, Boston, Mass.,

contingent value

55,000.00

Creditors claims against Cold Springs

Brewing Co. purchased by Lawrence P.

Bardin for which he paid the sum of

$8,500, the claims amounting to $16,124,

present estimated value

4,000.00

Account with Thomson & McKinnon of Indianapolis, Indiana 450.00

Total Assets $309,810.00

Liabilities.

Income Tax, Collector of

Internal Revenue, as shown

by return of Lawrence P. Bardin $481,000.00

(This does not include interest

or penalty. Furthermore, ...


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