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United States District Court, Northern District of Illinois, E.D

January 5, 1960


The opinion of the court was delivered by: Campbell, Chief Judge.

This consolidated cause, consisting of Case No. 58 CR 475 and Case No. 59 CR 157, having come on for trial upon the stipulations, testimony and exhibits of the parties, is presently before me for disposition. Cause No. 58 CR 475 is an indictment consisting of two counts, the first of which I dismissed November 20, 1958. The second and remaining count charges that defendant Albert M. Bridell "did willfully and knowingly attempt to evade and defeat a large part of the income tax due and owing by him and his wife to the United States of America for the calendar year 1952 by filing a * * * false and fraudulent income tax return * * * in violation of Section 145(b) of the Internal Revenue Code of 1939; to be found in Title 26 U.S.C. § 145 (b)."

Cause No. 59 CR 157 is an indictment consisting of six counts, the first five of which charge the defendant, Albert M. Bridell, with willfully and knowingly attempting to evade and defeat income tax due and owing the United States for the years 1953, 1954, 1955, 1956, and 1957, respectively, by filing false and fraudulent returns for those years in violation of Section 145(b) as to 1953, and in violation of Section 7201 of the Internal Revenue Code of 1954; Title 26 U.S.C. § 7201, as to the remaining years. The sixth count charges a conspiracy between defendant Bridell, defendant American Carbon Corporation and Robert J. Blauner to attempt to evade and defeat income tax due and owing the United States by Bridell and his wife from April 4, 1949, up to and including June 13, 1958, in violation of Title 18 U.S.C. § 371.

It appears from the evidence that defendant, Albert M. Bridell, after practicing law for a year, entered the continuous form printing business in 1935 and in 1936, joined the newly formed American Lithofold Corporation (hereinafter referred to as "Lithofold") of St. Louis, Missouri, as a salesman.

In 1937 he was sent by that corporation to Chicago, Illinois, where he has since remained. He is presently vice president of Lithofold and is also in charge of its advertising program, promotional efforts and salesman education.

In 1943, defendant, American Carbon Corporation (hereinafter referred to as "Carbon"), an Illinois corporation, was formed for the purpose of manufacturing carbon paper, inked ribbons and items related thereto and more specifically, for the manufacture of "one-time carbon paper" to be sold and supplied to Lithofold.

Since its inception, defendant, Bridell, has been president, a director and shareholder of Carbon. Bridell's father-in-law, R. J. Blauner, was vice-president of Lithofold when Carbon was incorporated, and is presently president and treasurer. R. J. Blauner, since its incorporation, has been treasurer, a director and shareholder of Carbon. Since September 15, 1945, no person unrelated to the Bridell or Blauner families has acquired, owned or held any of the capital stock of Carbon. Nor has any unrelated person to the Bridells or Blauners served as a director. Since 1947, the majority of the capital stock of Lithofold has been held by the Bridells, Blauners and Carbon. From 1944 through 1957, the percentage of sales by Carbon to Lithofold out of total sales ranged between 96 per cent in 1944 to 28 per cent in 1957.

In 1946, R. J. Blauner purchased a home in Highland Park, Illinois, named "Tara" at his wife's suggestion and in which they lived, until October, 1950. Later the word "Tara" was and is currently used as a trade name for Carbon. In 1948, Bridell and his wife sold their Wilmette home and moved to "Tara" where they have since resided with their children. On April 6, 1949, "Tara" was conveyed to the Bridells as joint tenants.

During December of 1946, one, Virlon Furrow, began working at "Tara" as caretaker and maintenance man and was paid personally by Blauner for that month. On December 30, 1946, he made application for employment with Carbon and was subsequently placed, at Bridell's direction, upon the Carbon payroll. Furrow continued working exclusively at "Tara" until his death, February 17, 1958. During this entire period his wages were paid by Carbon.

One, Frank Carretta, was employed as an outside laborer at "Tara" from June 11, 1951, until April 10, 1952. One, Pat Kline, was employed at "Tara" as an outside laborer from May 16, 1951, until November 1, 1951. One, Morris Nygaard, employed by Carbon from November 24, 1950, until April 17, 1952, also did some work at "Tara." One, Ellarea McKinney, was employed as a cook and housekeeper at "Tara" from January 2, 1951, until December 20, 1951. One, Elfreda Peters, was employed as a cook and housekeeper at "Tara" from December 1, 1951, until April 15, 1952. All the above-named persons received wages from Carbon during the respective periods of their employment.

On or about January 3, 1951, R. J. Blauner leased a furnished residence at 9301 Collins Avenue, Miami Beach, Florida, on behalf of Carbon, for a period extending to May 1, 1951, for a rental of $6,000, which was charged to Carbon as a sales promotion expense at the direction of Blauner.

The Bridells and Blauners, among others, stayed at 9301 Collins Avenue for varying periods during the leasehold. On or about March 7, 1951, R. J. Blauner entered into a contract on behalf of Carbon to buy a house and grounds, later known as "Presque Rio," located at 708 Royal Plaza, Fort Lauderdale, Florida, for $90,000. The sale was completed on April 27, 1951.

In April of 1951, R. J. Blauner bought a yacht, paid for by Carbon, which was later renamed "Tara." Until its sale in July, 1955, many people were entertained at "Presque Rio" and on the yacht.

Carbon furnished the investment capital for the acquisition of these properties and assumed the indebtedness for their unpaid balance. During the years in question, Carbon paid for: maintenance and repairs; interest; legal and audit fees; capital improvements; administrative expenses; telephone expenses; real estate, personal property and franchise taxes; insurance; wages paid to Fort Lauderdale house servants, and the yacht captain; interest and finance charges on the yacht; stationary expenses; and depreciation expenses on both properties.

From 1949 through 1954, Bridell prepared the individual income tax returns on behalf of himself and his wife. Their later individual returns were prepared by Carbon auditors, Ernst & Ernst. No reference was made upon the individual returns of the Bridells as to the employment of Virlon Furrow until their 1957 return was filed in June of 1958 containing a statement to the effect that wages paid Furrow were not considered as income to the Bridells, but as a business expense to Carbon and properly deductible by Carbon, as such. Prior to the 1956 Carbon corporate income tax return which listed Furrow's wages as a "promotional expense" at "Tara," there was no mention in Carbon corporate returns as to Furrow's employment at "Tara." The 1957 Carbon corporate return listed wages paid to Furrow under "cost of goods sold."

After a series of investigations by revenue agents and special agents of the Internal Revenue Service extending over a period of years, the first of the two indictments here involved was returned against Bridell in July, 1958. In regard to the substantive counts of the two indictments, it is clear, in view of Stipulation, Part I, ¶¶ 13, 14, 16 and 18, as well as Government's Exhibit 61, that the alleged additional net income to Mr. Bridell and his wife, as alleged in Count II of Cause No. 58 CR 475, during the year 1952, is made up of the actual wages paid to Virlon Furrow, Morris Nygaard, Frank Carretta and Elfreda Peters by American Carbon Corporation during that year.

Likewise, in view of Stipulation, Part I, ¶ 13, and Government's Exhibit 61, the additional income charged in Cause No. 59 CR 157, as to Count I for the year 1953, Count II for the year 1954, Count III for the year 1955, Count IV for the year 1956, and Count V for the year 1957, is made up of the actual wages paid to Virlon Furrow by American Carbon Corporation during those years. The conspiracy count relates not only to the employment of Furrow and others who worked at "Tara" and who were paid wages by Carbon, but extends to the use of the herein described Florida property as well. It alleges eleven overt acts.

Section 145(b) of the Internal Revenue Code of 1939, Title 26 U.S.C. § 145 (b) provides:

      "Any person required under this chapter to
    collect, account for, and pay over any tax imposed
    by this chapter, who willfully fails to collect or
    truthfully account for and pay over such tax, and
    any person who willfully attempts in any manner to
    evade or defeat any tax imposed by this chapter or
    the payment thereof, shall, in addition to other
    penalties provided by law, be guilty of a felony
    and, upon conviction thereof, be fined * * * or
    imprisoned * * *"

Section 7201 of the Internal Revenue of 1954 provides:

      "Any person who willfully attempts in any manner
    to evade or defeat any tax imposed by this title or
    the payment thereof shall, in addition to other
    penalties provided by law, be guilty of a felony
    and, upon conviction thereof, shall be fined * * *
    or imprisoned * * *."

Title 18 U.S.C. § 371 provides:

      "If two or more persons conspire either to commit
    any offense against the United States, or to defraud
    the United States, or any agency thereof in any
    manner or for any purpose, and one or more of such
    persons do any act to effect the object of the
    conspiracy, each shall be fined * * * or imprisoned
    * * *."

As pointed out by the Supreme Court of the United States in Spies v. United States,
317 U.S. 492, at pages 496, and 497, 63 S.Ct. 364, at pages 366-367, 87 L.Ed. 418, Section 145(b), provided the climax of a variety of sanctions existing at that time to insure payment of tax. Likewise today, Section 7201, a derivative section from Section 145(b), provides the climax of a variety of sanctions to insure payment of tax.

From a casual reading of Sections 145(b) and 7201, it is obvious that the phrases "willfully attempts" and, "in any manner," do not lend themselves to rigid definition. As to the meaning of the word "willful," much has been written. In United States v. Murdock, 290 U.S. 389, at pages 395, 396, 54 S.Ct. 223, at page 226, 78 L.Ed. 381, the Supreme Court stated:

      "The revenue acts command the citizen, where
    required by law or regulations, to pay the tax, to
    make a return, to keep records, and to supply
    information for computation, assessment, or
    collection of the tax. He whose conduct is defined
    as criminal is one who `willfully' fails to pay the
    tax, to make a return, to keep the required
    records, or to supply the needed information.
    Congress did not intend that a person, by reason of
    a bona fide misunderstanding as to his liability for
    the tax, as to his duty to make a return, or as to
    the adequacy of the records he maintained, should
    become a criminal by his mere failure to measure up
    to the prescribed standard of conduct."

In Spies v. United States, the supreme Court stated at pages 497, and 498 of 317 U.S., at page 367, of 63 S.Ct.:

      "The difference between willful failure to pay a
    tax when due, which is made a misdemeanor, and

    attempt to defeat and evade one, which is made a
    felony, is not easy to detect or define. Both must
    be willful, and willful, as we have said, is a word
    of many meanings, its construction often being
    influenced by its context. * * * It may well mean
    something more as applied to nonpayment of a tax
    than when applied to failure to make a return. Mere
    voluntary and purposeful, as distinguished from
    accidental, omission to make a timely return might
    meet the test of willfulness. But in view of our
    traditional aversion to imprisonment for debt, we
    would not without the clearest manifestation of
    Congressional intent assume that mere knowing and
    intentional default in payment of a tax where there
    had been no willful failure to disclose the
    liability, is intended to constitute a criminal
    offense of any degree. We would expect willfulness
    in such a case to include some element of evil
    motive and want of justification in view of all the
    financial circumstances of the taxpayer."

In Holland v. United States, 348 U.S. 121, at page 139, 75 S.Ct. 127, at page 137, 99 L.Ed. 731, the Supreme Court stated:

      "A final element necessary for conviction is
    willfulness. The petitioners contend that
    willfulness `involves a specific intent which must
    be proven by independent evidence and which cannot
    be inferred from the mere understatement of income.'
    This is a fair statement of the rule. Here,
    however, there was evidence of a consistent pattern
    of under reporting large amounts of income, and of
    the failure on petitioners' part to include all of
    their income in their books and records. Since, on
    proper submission, the jury could have found that
    these acts supported an inference of willfulness,
    their verdict must stand."

In United States v. Glascott, 7 Cir., 216 F.2d 487, at page 490, Judge Schnackenberg of our Court of Appeals stated:

      "The key word in this statute is `wilful.' It is
    an essential ingredient of the crime. Wilful is
    distinguished from accidental. Under this statute
    that which is wilful is an actual, intentional
    wrongdoing with the purpose of evading the tax. It
    is not established by negligence, however gross.
    Wilfulness is a subjective state in most instances.
    This subjective state, of course, may be shown to
    exist by various statements and conduct."

In regard to the word "attempt," the Supreme Court in Spies v. United States, supra, 317 U.S. at pages 498, 499, 63 S.Ct. at page 368, stated:

"It is not necessary to involve this subject with the complexities of the common-law `attempt.' The attempt made criminal by this statute does not consist of conduct that would culminate in a more serious crime but for some impossibility of completion or interruption or frustration. This is an independent crime, complete in its most serious form when the attempt is complete, and nothing is added to its criminality by success or consummation, as would be the& case, say, of attempted murder. Although the attempt succeed in evading tax, there is no criminal offense of that kind, and the prosecution can be only for the attempt. We think that in employing the terminology of attempt to embrace the gravest of offenses against the revenues, Congress intended some willful commission in addition to the willful omissions that make up the list of misdemeanors. 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."

As to the provision "in any manner, the Supreme Court stated in the same case, 317 U.S. at page 499, 63 S.Ct. at page 368:

      "Congress did not define or limit the methods by
    which a willful attempt to defeat and evade might be
    accomplished and perhaps did not define lest its
    effort to do so would result in some unexpected
    limitation. Nor would be by definition constrict the
    scope of the Congressional provision that it may be
    accomplished `in any manner.' By way of
    illustration, and not by way of limitation, we would
    think affirmative willful attempt may be inferred
    from conduct such as keeping a double set of books,
    making false entries or alterations, or false
    invoices or documents, destruction of books or
    records, concealment of assets or covering up
    sources of income, handling of one's affairs to
    avoid making the records usual in transactions of
    the kind, and any conduct, the likely effect of
    which would be to mislead or to conceal. 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 purpose such as concealment of
    other crime."

Thus, it is clear that the burden of proof is upon the Government to prove, within the framework that I have discussed, every element of the offenses charged beyond a reasonable doubt, though not to a mathematical certainty. The Government in attempting to maintain this burden in this case has introduced certain evidence into the record to show "pattern of conduct," or "intention" on the part of defendant Bridell to which objections have been made of irrelevancy and prejudice. These portions of the record merit some legal discussion before attempting any analysis of the evidence before me. Since, as pointed out in the cases I have just cited, a willful attempt to defeat and evade taxes is often concerned with the intention or subjective state of the defendant, the question may arise as to what conduct or statements on the part of the defendant would be admissible to show the required intention. Since there is talk of "pattern of conduct," in the record, I think a distinction should be drawn.

It is a basic principle of evidence that when the guilt of a party depends upon the intent with which an act was done, it is relevant to show other similar acts by the same person and of the same effect at about the same time or connected with the same subject matter. The legal relevancy of such evidence is based upon logical principles which go to negate innocent intent and is to be distinguished from evidence introduced to establish design or system which is usually invoked when the very doing of the fact charged is still to be proved. Wigmore, Evidence, 3rd Ed. Vol. 2, pp. 196-205; Holland v. United States, supra; Malone v. United States, 7 Cir., 94 F.2d 281.

Since this cause concerns itself primarily with the subjective state or intention of Bridell, it follows that evidence of collateral, similar or connected conduct with reference to his income tax is admissible to show his intention in regard to the specific counts of the indictments. Defendants have objected to the evidence introduced in support of the conspiracy count as being irrelevant, beyond the substantive counts and prejudicial. Krulewitch v. United States, 336 U.S. 440, 69 S.Ct. 716, 93 L.Ed. 790; United States v. Rosenblum, 7 Cir., 176 F.2d 321. Their objections must fall, since, first, this is not a jury case, and second, much of the evidence presented as to the conspiracy count is likewise relevant to prove intention as to the substantive counts. Defendants also contend that there can be no conspiracy between a corporation and its officers. United States v. Carroll, D.C., 144 F. Supp. 939. I am of the opinion that the conspiracy count does not overextend the fiction of corporate personality in the instant case. See United States v. Remmel, D.C., 160 F. Supp. 718, and the various cases cited therein.

The theory of the Government may be summarily stated as follows: Carbon is basically a family structure revolving around the defendant Bridell wherein benefits to Carbon flow to the individual members of the family by corporate payment of the salaries and wages of personal employees at defendant Bridell's Highland Park home and by the personal use and enjoyment of the Florida property at Carbon's expense. This personal benefit is taxable income to Bridell upon which, by subtle deception, he has willfully attempted to evade and defeat taxes due and owing the United States.

The theory of defendants may be summarized as follows:

Defendant Bridell hired Furrow as a corporate employee because he believed that his salary was a proper corporate expense, since he provided services of a nature over and above that required for personal needs, first of Mr. Blauner and then those of the Bridell family at their "showplace" estate "Tara." The additional employees who appear on the payroll were, in defendant Bridell's judgment, in the same category. He expended substantial personal funds for the support and maintenance of his family and acted in good faith without any willful intent to evade his tax obligation.

As to the Florida properties, it is defendants' contention that such properties were acquired for business entertainment and used primarily for business entertainment. The personal use the Bridells received from the use of the Florida properties was incidental to the business use and did not result in taxable income.

I now consider whether or not the Government has proven an additional tax to be due and owing the United States from defendant Bridell for the substantive counts of the two indictments covering the calendar years 1952 through 1957.

I have carefully analyzed the stipulations, exhibits, testimony of the Government agents and defendant Bridell, as well as the individual tax returns of Bridell and his wife. I find that the services rendered by the corporate employees to Bridell and his family at "Tara" resulted in additional income to Bridell upon which there is a tax due and owing the United States for each of the years in question. The service of Furrow directly served the maintenance and preservation of the Bridell home, a direct benefit to Bridell and his wife. The services of Nygaard went to the capital improvement of the Bridell home, a direct benefit to Bridell and his wife. The services of Elfreda Peters included care of the household and the Bridell children while the Bridells were in Florida, again a direct benefit to Bridell and his wife. Carretta's services in assisting Furrow was also a direct benefit to Bridell and his wife. These services constitute an economic benefit and income to Bridell and his wife. The theory of the defendant that the wages paid to these corporate employees represents a proper corporate expense and does not represent income to Bridell is in my opinion, not supported by the evidence.

I now consider whether or not there was a willful attempt on the part of Bridell to defeat and evade these taxes.

From the Government's viewpoint, the major factors of evidence which go to prove its theory, are:

      (1) Bridell is a man possessed of a legal
    education who up until 1955 prepared his own income
    tax returns, wherein he deducted unreimbursed
    business expense items and practiced "percentage
    deductions" in a meticulous, consistent pattern
    (Transcript, pp. 408-413, and 422-424.) In his 1950
    income tax return, Bridell claimed a reimbursed
    business expense item as an unreimbursed business
    expense item (Government's Ex. 53, 54.) In his 1953
    income tax return, Bridell deducted the expenses of
    a party at "Tara" on June 10, 1953, as a business
    expense item. In a conference with Charles A.
    Yerkes, Internal Revenue Agent, on February 20,
    1956, Bridell told him this deduction should be
    allowed. In reality, this business expense item was
    a graduation party for his son (Stipulation, Part
    I, Paragraph 34; Transcript, pp. 356-358, and 418.)

      (2) Bridell denied that his standard of living was
    increased when

    he moved to "Tara" (Transcript, pp. 542 to 544.)
    Yet, he had three growing children who received
    certain benefits of the estate, such as the
    animals, including a horse and the use of "Tara" for
    the entertainment of their friends. Mr. Raymond
    testified that this is one of the reasons Bridell
    moved to "Tara" (Stipulation, Part I, ¶ 35.)

      (3) Bridell had an established pattern of heavy
    business entertainment before he moved to "Tara"
    (Transcript, pp. 462-465, 493, 494, and Government's
    Ex. 65.)

      (4) The use of the name "Tara" as a trademark or
    the publicity advantages to be derived therefrom
    came about after the acquisition of "Tara" and was
    not the original reason for its purchase
    (Transcript, pp. 359, 459.)

      (5) It was Bridell's idea that Carbon should pay
    Furrow's wages when Blauner owned "Tara" and
    subsequently when he and his wife acquired title to
    the property (Transcript, pp. 333-336.)

      (6) Bridell never mentioned the fact that Furrow
    worked at "Tara" during the many conferences he had
    with his auditors or the Internal Revenue Service
    until after the conference of January 31, 1957, when
    Halliday told Internal Revenue agents of Furrow's
    employment at "Tara."

      (7) The wages charged to Furrow on Carbon's books
    were classified as maintenance and expediter.
    Nygaard was classified maintenance and leasehold.
    McKinney and Peters were classified as
    administrative (Stipulation, Part I, ¶ 24.)
    Bridell denied knowing how they were classified, yet
    understood the meaning of the term, "cost of goods
    sold." Bridell also knew these services were not
    charged to his personal account. Bridell's daughter
    was in charge of the Carbon payroll subsequent to
    1950 (Transcript, pp. 352, 353, 439-44.)

      (8) The apportionment of Nygaard's wages between
    Bridell's personal account and Carbon came about
    because of the suggestion of his auditor. Bridell
    gave no specific percentage to so apportion
    (Transcript, pp. 429-435.)

      (9) Bridell had a time clock installed at "Tara"
    which was almost identical to the time clock at
    Carbon. (Stipulation, Part I, Paragraph 25, 33.)
    Bridell testified he did this to keep track of his
    employee's time and then stated he often had to tell
    Furrow to go home because he stayed too late.
    (Transcript, pp. 355, 356).

      (10) Bridell stated he never reviewed his personal
    account at Carbon with Halliday (Transcript, p.
    446.) Halliday testified to the same effect, but
    before the Grand Jury testified that he did review
    Bridell's personal account with him once a year
    (Transcript, pp. 594-599.)

      (11) Bridell entertained many personal friends at
    "Tara" as business customers or prospects. These
    same people, in many cases, were entertained in
    Florida, on vacations, at lunches and clubs
    (Transscript, pp. 474-489, 516-537.)

      (12) Bridell entertained an insignificant number
    of Carbon customers at "Tara" (Transcript, pp.
    465-472.) Lithofold customer or sales entertainment
    had nothing to do with the original purpose in
    acquiring "Tara" which was to enhance the name of
    Carbon (Transcript, pp. 481, 482.)

      (13) Though Bridell kept personal records of
    business expense deductions subsequent to 1951, he
    did not produce them to substantiate his business
    deductions for those subsequent years (Transcript,
    pp. 38-382, 413-416.)

      (14) The letter Bridell received from Lithofold
    instructing him to bear business expenses personally
    was in reality Bridell's idea (Transcript, pp.
    536-541; Government's Ex. 6, and 66.)

      (15) Bridell stated that "Tara" was of great value
    to Carbon and that his suppliers favored it. Mr.
    Birely, a supplier, did in fact suggest that "Tara"
    be sold (Transcript, pp. 461, 462, 588, 589.)

      (16) Blauner testified in a conference with Edward
    J. O'Leary that his original reason for going to
    Florida in 1951 was for a vacation, but that while
    he was down there he got the idea to promote Carbon
    and Lithofold's sales program, which led to the
    acquisition of the Florida properties (Stipulation,
    Part II, pp. 149-156.) Bridell testified that he and
    Blauner discussed the Florida promotion program, and
    that Blauner went to Florida for that purpose
    (Transcript, pp. 384 and 385.)

      (17) Blauner began the purchase of the yacht
    "Tara" as a personal enterprise, but later withdrew
    his earnest money and allowed Carbon to purchase the
    yacht (Stipulation, Part II, p. 91.)

      (18) Though Carbon paid $5,900 for the Miami
    Beach, Florida, leasehold, there was a very slight
    degree of sales promotion connected with that
    property as to Carbon (Stipulation, Part II, pp.
    84-89; Transcript, pp. 548-550.) In 1951, there was
    a minimal use of the Fort Lauderdale properties for
    business entertainment of Carbon (Stipulation, Part
    II, pp. 548-550.) In 1952, the Florida property was
    used to entertain the Bridells personally, as well
    as their friends and children's friends on several
    occasions (Stipulation, Part II, pp. 93-99.) In
    1953, the Florida property was also used for
    personal entertainment, as for example, friends of
    their children (Stipulation, Part II, pp. 100-106.)
    In 1954, there is also evidence of personal use of
    the Florida property as, for example, the
    entertainment of friends of the Bridell children
    (Stipulation, Part II, pp. 107-114.) In 1955, the
    Florida property was used for the personal
    entertainment of the Bridells, as for example,
    friends of their children and for their son's
    honeymoon (Stipulation, Part II, pp. 114-120.)

      (19) Bridell stated that his standard of living
    may have been raised by the acquisition of the
    Florida properties (Transcript, p. 561.)

      (20) The acquisition and use of the Florida
    properties was not profitable to Carbon
    (Transcript, pp. 555-557; Government's Ex. 68.)

      (21) Bridell testified that the Florida properties
    were always available for corporate use
    (Transcript, pp. 396 and 397.) Government's Exhibit
    67 indicates that this may not be true (Transcript,
    p. 578.)

      (22) Letters of invitation in regard to the
    Florida property were addressed formally to
    Bridell's daughter and husband and informally to
    Bridell's niece (Transcript, pp. 578-580.)

      (23) The accounting procedure of Carbon during
    1951 was "not proper" in that it had the effect of
    understating promotion expense. This was the year of
    the Florida acquisitions (Transcript, pp. 187-190,
    270, 271.)

      (24) Nigel Campbell, tax consultant to Carbon from
    1950 to 1952, told Bridell that he could deduct as
    corporate expense that portion of total expense
    attributable to the entertainment of customers
    (Stipulation, Part II, pp. 140-142.)

      (25) On November 15, 1954, Bridell executed an
    affidavit which stated that the Florida properties
    had not been used except for business purposes of
    Carbon and "matters incidental thereto"
    (Transcript, pp. 403-406; Government's Ex. 41.)

    (26) On May 1, 1955, Bridell submitted a brief to
    the Internal Revenue Service pointing out business
    associates listed in the logs of the yacht "Tara"
    from 1951 through 1954. There were various

    in this brief, as for example, the reference to
    persons as business associates who were, in fact,
    not business associates (Stipulation, Part II, pp.
    144, 145; Transcript, pp. 402, 403, 572;
    Government's Exhibit 42.)

      (27) The Government followed all possible leads in
    attempting to discover the full extent of business
    entertainment at "Tara" and in Florida (Transcript,
    pp. 186, 258-260, 268-270.)

      (28) Finally, the Government relies on Wolfe v.
    United States, 6 Cir., 261 F.2d 158.

The factors which defense urges sustain Bridell's theory are:

      (1) Bridell testified that Blauner originally
    bought "Tara" in a cooperative effort with Bridell
    to secure a "prestige property" or "showplace" for
    the purpose of entertaining business guests of
    Carbon and Lithofold and in order to stimulate the
    sales promotion picture of both corporations
    (Transcript, pp. 328-331, 460 and 461.)

      (2) The evidence discloses that in the years
    subsequent to the acquisition of "Tara" up through
    and including 1957, business guests, prospects and
    employees of both corporations have been entertained
    extensively at "Tara." Sales training for both
    corporations has also taken place at "Tara"
    (Defendants' Ex. 1A, 1B, 2A, 2B, 3, 4, 5, 17;
    Stipulation, Part I, ¶¶ 36-101; Transcript, pp.
    481, and 482.)

      (3) Bridell testified that though "Tara" worked
    out as intended, the financial burden proved too
    heavy for Blauner. Bridell felt that Carbon should
    pay those expenses over and above the personal needs
    of Blauner, since Carbon was the beneficiary of
    those expenses. Since Blauner, living in an ordinary
    home, would not require a full-time maintenance
    man, and since "Tara" required such a man, Bridell
    testified that this is why he had Furrow placed on
    the Carbon payroll. Carretta, Kline, Nygaard and
    Peters fell into this same classification, according
    to Bridell, though their services ended in the early
    months of 1952 (Transcript, pp. 333, 334, 341-347,
    445, and 446.)

      (4) Having once classified Furrow's employment as
    a business expense of Carbon, Bridell never
    reevaluated this classification until 1957
    (Transcript, pp. 353, 354.)

      (5) "Tara" came to be known as a trademark for
    Carbon and was used extensively in the corporation's
    promotional and advertising programs, both by way of
    name and picture (Transcript, pp. 284, 359-361;
    Defendants' Group Ex. 15.)

      (6) During each of the years in question, Bridell
    expended a substantial amount of his personal funds
    for the needs of his family at "Tara" (Stipulation,
    Part I, ¶ 101; Defendants' Exhibit 6, and 7.)

      (7) Lithofold was a substantial customer of Carbon
    (Stipulation, Part I, ¶ 7.) Entertainment of
    Lithofold customers is a proper business expense to
    Carbon. Citing Dinardo v. Commissioner of Internal
    Revenue, 22 Tax Court 430.

      (8) Reference was made in the personal account of
    Bridell at Carbon to Nygaard (Stipulation, Part I,
    ¶ 24; Transcript, pp. 87-90; Stipulation Ex. 6)
    and to Furrow, (Stipulation Ex. 5.) Bridell was
    never questioned about Furrow's employment. No
    fictitious names were used. Halliday freely admitted
    Furrow was employed at "Tara" when questioned
    (Stipulation, Part I, ¶ 26.)

      (9) The employment of Furrow was referred to in
    the 1956 Carbon corporation income tax return
    (Stipulation, Part I, ¶ 109), in the 1957 Carbon
    corporate income tax return (Stipulation, Part I,
    ¶ 110), and in the 1957 individual

    income tax return of Bridell and his wife
    (Stipulation, Part I, ¶ 106.) This was done upon
    the advice of his attorney, Mr. Taylor
    (Transscript, pp. 373-376.)

      (10) Bridell used the proceeds of the sale of his
    Wilmette home to rescue Carbon from its then
    financial difficulties (Stipulation, Part I, ¶
    10; Transcript, pp. 336-338.)

      (11) Mortgages were placed upon "Tara" in 1953 and
    1955, by the Bridells, to secure loans from Walter
    E. Heller & Co. and Butler Paper Co., respectively,
    to Carbon and Lithofold. The Bridells were legally
    obligated to keep the premises in good repair under
    threat of foreclosure. Furrow was necessary to the
    maintenance of "Tara," in accordance with the
    requirements of these mortgages. (Stipulation, Part
    I, ¶¶ 102-104; Transcript, pp. 376-379.)

      (12) Bridell testified that the acquisition of the
    Florida properties was pursuant to a plan for a
    sales promotion program on the part of Carbon and
    Lithofold (Transcript, pp. 384, and 385, 390-395.)

      (13) The Florida properties were used extensively
    for business entertainment (Stipulation, Part II,
    pp. 92-135.)

      (14) The books of Carbon revealed the existence of
    property in Florida and listed employees who worked
    in Florida on its payroll (Transcript, pp. 120, and

      (15) In its 1955 corporate return, Carbon reported
    a gain of $4,621.78 on the sale of the Florida
    properties (Stipulation, Part II, p. 139(a)).

      (16) Bridell kept logs in Florida for signatures
    of his visitors. No one was told not to sign these
    logs (Stipulation, Ex. 43-47; Transcript, p. 398.)
    So much for the defendants' contentions.

In my opinion, certain of the factors raised by the Government are subject to specific rebuttal:

      (1) The weight to be accorded that evidence going
    to show meticulous personal preparation of income
    tax returns on the part of Bridell wherein instances
    of reimbursed business expense item deductions and
    personal deductions occurred should be qualified as

      (a) Meticulous preparation of income tax returns
    is not of itself evidence of a willful attempt to
    defeat and evade tax.

      (b) The specific instances wherein Bridell claimed
    deductions of reimbursed business expense items or
    personal expense items are negligible when evaluated
    in relation to the great volume of business
    deduction items, made necessary by his business,
    which occur in his returns over the several years in

      (c) In Bridell's 1953 income tax return, Bridell
    overstated his tax which error was corrected by
    Government (Transcript, pp. 303-305.)

      (2) As to Bridell's lack of knowledge pertaining
    to the classification of wages on Carbon's books and
    his general lack of knowledge as to how these books
    were kept, Bridell testified that he never had an
    accounting course, that he never examined the
    books, and that he spent very little time at the
    factory (Transcript, pp. 349-352.)

      (3) As to the time clock which was installed at
    "Tara" and the time cards of the respective Carbon
    employees who worked at "Tara," there is abundant
    evidence of distinguishing features from those cards
    used by employees working at Carbon (Stipulation
    Group Exhibits 7, 8, 9, 10; Stipulation, Part I,
    ¶ 25; Transcript, pp. 121, 748, 749.)

      (4) As to the production of personal records
    subsequent to 1951, it appears that Bridell did
    originally agree to deliver up those records to the
    Internal Revenue Service. It was Mr. Taylor, his
    attorney, who later said that the personal records.

    of Bridell would not be turned over to the Internal
    Revenue Service. It further appears that this action
    was Mr. Taylor's responsibility (Transcript, pp.
    151, 179, 181-154, 242, 249, 252.)

      (5) In regard to the personal use of the yacht
    "Tara," Bridell testified that the boat needed
    "exercise" and that this function was primarily
    connected with personal usage of the yacht
    (Transcript, pp. 395, 396, 400; and the case of Hal
    E. Roach v. Commissioner of Internal Revenue, 20
    B.T.A. 1919.)

      (6) As to the affidavit executed by Bridell on
    November 15, 1954, Bridell contends that the words
    "matters incidental thereto" contemplated family use
    as he had previously discussed it with Mr. Yore, an
    Internal Revenue Agent (Transcript, p. 406.) Bridell
    contends this was not taxable income, citing Paulina
    DuPont Dean v. Commissioner of Internal Revenue, 9
    Tax Court 256. Bridell further testified that he
    referred to no records in the preparation of the May
    1, 1955 brief (Transcript, pp. 402, 403.)

      (7) The facts in Wolfe v. United States, supra,
    relied upon by the Government, are readily
    distinguishable from the facts presented by this
    consolidated cause.

The rest of the evidence presented by the Government is inferential as to the question of whether or not there was a willful attempt on the part of Bridell to defeat and evade income tax and, as such, it is subject to the argument of contrary or innocent interpretation urged by defendant.

In resolving this question, I have taken into consideration the fact that the law is more clearly delineated today, as to the offense charged, than it was during the years in question and also the fact that the receipt of income to Bridell in the instant cause is unusual in that it does not fall within the specifically enumerated sources of income, as contained in Section 22(a) of the 1939 Internal Revenue Code, 26 U.S.C. § 22 (a), and Section 61 of the 1954 Internal Revenue Code, 26 U.S.C. § 61. I have also taken judicial notice of the general practice on the part of corporations, particularly during the years in question here, pertaining to business deductions for business entertainment. That practice is now, as counsel are aware, being corrected by the Internal Revenue Service.

The summary I have given of the evidence I do not feel is complete. There are many lesser points of evidence that might be raised and discussed, for one side or the other. I have, however, carefully considered all of the evidence in arriving at my verdict. The Government has prosecuted this case in a most competent and sincere effort to achieve justice.

It is my considered judgment, however, upon my evaluation and analysis of all of the evidence before me, that the Government has failed to prove, beyond a reasonable doubt, that Bridell has willfully attempted to defeat or evade his tax. Accordingly, I find the defendant, Bridell, not guilty as to Count II of Cause No. 58 CR 475 and Counts I, II, III, IV and V of Cause No. 59 CR 157.

As to Count VI, of Cause No. 59 CR 157, I find that the Government has likewise failed to prove, beyond a reasonable doubt, that a conspiracy existed between Bridell, Carbon, and R. J. Blauner, willfully to attempt to evade and defeat income tax due and owing the United States by Bridell and his wife for the years in question.

Accordingly, I find defendants Bridell and Carbon not guilty as to Count VI of Cause No. 59 CR 157.

Let judgment enter accordingly, and the defendants may go hence without day.


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