Reply Brief — Giacalone v. United States

-*

uo — "ap

No. 77-1787

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1978

ANTHONY J. GLACALONE, Petitioner

Ve

UNITED STATESOF AMERICA, Respondent

ON PETITION FORA WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF

APPEALS FOR THE SIXTH CIRCUIT

REPLY BRIEF

Joseph F. Dillon,

Counsel for the Petitioner

Raymond, Fletcher, Dillon &

Titcomb, P.C.

400 Renaissance Center,

Suite 2370

Detroit, Michizan 48243

ante ails tite, ih, eisai hapa cle *

INDEX

Statement of the Case

Argument .

meres @6¢6% 606866668666"

ame Ee «6 6 6 « >weéesver °

Conclusion .

Page

ii

CITATIONS

Cases

Coerver v. Comm.,

36 T.C. 252, (1961), aff'd.,

297 F. 2d 837 (3rd Cir. 1962)...

Marie A. Dolan, 44 T.C. 420 (1965) .

Fowler v. United States,

352 F. 2d 100 (8th Cir.1965), cert.

denied, 383 U.S. 907(1966) ...

Friedberg v. United States,

348 U.S. 142 (1954) ..... 2.

Holland vy. United States,

348 U. Ss, 121 (1954) 6 . e > . >. o .

Phillip's Estate v. Comm.,

246 F.2d 209 (5th Cir. 1957)...

Taglianetti v. United States,

398 F.2d 558 (ist Cir. 1968),

aff'd. 394 U.S. 316 (1969)

United States v. Altruda,

224 F.2d 935 (2nd Cir. 1955)...

United States v. Bush,

512 F. 2d 771 (5th Cir. 1975) ...

United States v. Callanan,

450 F. 2d 145 (4th Cir. 1971)...

United States v. Carter,

462 F. 2d 1252 (6th Cir. 1972),

cert. denied, 409 U.S. 984 (1972)

Page

11

~i

ul

wl

we +e

mete he

Oe eee ee

iii

Page

United States v. Costello,

221 F. 2d 668 (2nd Cir. 1955),

aff'd. 350 U.S. 359 (1956) .... 13,14

United States v. Goichman.,

407 F.Supp. 980 (E.D. Pa.1976)

aff'd. 547 F.2d 778 (34d Cir. 1976)

—"

oO

United States v. Logan

414 F. 2d 230 (6th Cir. 1969) .... 9

United States v. Mackey,

345 F. 2d 499 (7th Cir. 1965), cert

denied, 382 U.S. 824 (1965) ..... 5

United States v. Morse,

491 F. 2d 149 (Ist Cir. 1974) ..... 7

Vloutis v. United States,

219 F. 2d 782 (Sth Cir. 1955)..... 9

Statute

2S 06h ee oe a ee a a eS

Revenue Ruling

Rev. Rul. 74-611, 1974-2C.B. 399.... 12

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TE RM, 1978

ANTHONY J. GIACALONE, Petitioner

Ve

UNITED STATES OF AMERICA, Respondent

ON PETITION FORA WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF

APPEALS FOR THE SIXTH CIRCUIT

REPLY BRIEF

STATE MENT OF THE CASE

In an attempt to convince this Court that it

was permissible for the government to treat the

expenditures of Mrs. Giacalone as having been

made with her husband's money, the government

attempted to create the impression that Mrs.

Giacalone did not have any income. They did so

when they noted that the government had examined he

Social Security Administration records of Mrs.

Giacalone, and that the records

"... revealed that

petitioner's wife had no income during that period.’

(Br. 3)

2

The statement is misleading since only “wages”

as defined in 42 U.S.C. §409, are reported to the

Administration. Accordingly, their records would

not reflect passive forms of income such as rent,

interest, dividends, capital gains, gifts and inher-

itances. In fact, rental income was reported by

Mrs. Giacalone on the separate returns which she

filed for the years 1953 through 1960. Exhibits 6; 9;

13317; 21;25;29, and 34. Moreover, during the trial,

the government's summary witness, as well as

government counsel admitted and proclaimed

repeatedly that Mrs. Giacalone did have her own

net worth and expenditures and that they were being

included in the joint net worth computation of her

and her husband. (Pet. 6-7)

The government also argued that its cash

analysis showed that the petitioner could not have

accumulated any hidden cash reserve from known

sources of income prior to the prosecution years.

The cash analysis did no such thing. In fact, the

cash analysis should never have been received into

evidence in the first instance, since it was flawed.

(Pet. li n.3) Moreover, the only thing the cash

analysis did was demonstrate that there had to be an

explanation for the ‘excess expenditures’. (Pet. ll-13)

ARGUMENT

ISSUE I

In this case, the government's summary wit-

ness defined the ‘dash’ which he used for "cash on

hand" in each of the four critical net worth compu-

tations as an "unknown". (R. 9987). l) Nevertheless,

(1) "R” refers to the record of the case. “A”

refers to the joint appendix filed with the circuit court.

3

the govermment argues (Br. 4) that it is proper to

do so. The issue is quite frustrating since the.

government is actually arguing that it can assume,

as opposed to prove, the most difficult point in a

net worth case, that is, cash on hand. It is an

incredible “boot-strap'’ argument.

The government also argued that the petitioner's

cash position remained relatively uniform during

the prosecution years. Its basis for that argument

is a statement volunteered by its summary witness.

He testified, "... a dash doesn't mean zero. A

dash means that the cash position has been deter-

mined to be uniform.” (R. 9666, or A. 1060 of the

joint appendix cited by the government. ) Next

followed statements to the effect that he had con-

cluded that the petitioner had cash on hand. The

same testimony is repeated three pages later. &R.

9669, A. 1063) Such statements can hardly support the

assertion that the amount of cash on hand remained

constant.

Moreover, no evidence was introduced by the

government that the amount of cash remained uni-

form throughout the prosecution period. Since the

government had the burden of establishing the open-

ing net worth for each of the prosecution years, and

since there was no evidence introduced by the covern-

ment with respect to cash on hand after the first

prosecution year, there had to have been a failure of

burden of proof for the last three prosecution years.

Therefore, since there was no evidence pertain-

ing to cash on hand for the last three years and since

the employed "dash" is an unknown, as a matter of law

the government failed, on that dual basis, to sustain

its burden of proof with respect to the last three

prosecution years. In connection with the first year,

law Vou

4

the government relied upon its flawed cash

analysis to ''prove'' that there could not have been

a significant amount of cash on hand. Since the

cash analysis was incompetent for that purpose,

and since an unknown (the '‘dash'') was used in the

first year's computation the government failed to

sustain its burden with respect to that year as well.

Not only would the adoption of the government's

position in this case negate the necessity of proving

the actual amount of cash on hand for the opening

net worth, but it also places a defendant in an

impossible situation. How does he attack the

prosecution's case on the most vital asset when

it is represented by a ‘dash’. Upon a defendant

offering evidence of cash on hand, the government

could defend its case by simply saying - we have

given credit for that by using a dash.

On the other hand, if for example the prosecu-

tion in this case had taken the position that, in

connection with the opening net worth, there was

five thousand dollars ($5, 000.00) in cash on hand on

January 1, 1968, it would have been faced with the

task of explaining how that could be the case when

oniy sixteen (16) days later the defendant purchased

two certified checks totaling twenty thousand dollars

($20, 000.00), “Exhibit D-2l, R.3105-08, and

lORT was established by the defense that the

original certified checks were given to the covern-

ment. R.3108 and R. 3115-3116. If the government had

offered them into evidence, they could have been

picked up as additional nomdeductible living expenses

thereby resulting in an increase in the computed

understatement of income for 1968 by $20,000. By

not using them, the government avoided the necessity

of explaining the suggested inconsistency.

:

f

5

R. 3115-3116. An inability to render such an

explanation could well have led to the conclusion

that the opening net worth had not been established

with reasonable certainty. Accordingly a dismissal

would have followed.

In light of the total lack of an evidentiary basis

for its ‘uniformity’ statement, the cases cited by

the government are not relevant. As noted, in the

case of United States v. Carter, 462 F. 2d 1252

(6thCir. 1972), cert. denied, 409 U.S. 984 (1972)

the government used a figure, and therefore the

case is not applicable. In fact, the only thing the

Carter case does is highlight the lack of a basis

for the government's case in this matter. The

second case cited by the government, United States

v. Bush, 512 F. 2d 771 (Sth Cir. 1975), also under-

mines the government's argument. There, cash

on hand was treated as a zero constant because, as

the appellate court pointed out, there was evidence

to support the government's use of zero for cash

on hand.

The government next argues (Br. 5) that cash

on hand can be a jury question. However, as

de veloped in the petition (Pet. 13-14), this is not

a ‘sufficiency case", per se. Here, due to the use

of an unknown, the jury was precluded from making

any determination as to whether there were any

understatements of tax. For that reason, the cited

cases of United States v. Mackey, 345 F.2d 499

(7th Cir. 1965), cert. denied, 382 U.S. 824 (1965)

and Fowler v. United States, 352 F.2d 100 (8thCir.

1965), cert. denied, 383 U.S. 907 (1966) are not on

point.

On the other hand, the Mackey case points to

another error that occurred in this case. There,

6

the government did not include any amount for

cash on hand because the investigation had not

revealed any cash on hand at any time, and ifa

figure of cash had been included at the starting

point, such figure would have been truly arbitrary.

In contrast, in this case, the summary witness

testified that Mr. Giacalone did have cash on hand.

Nevertheless, the summary agent did not use a

figure for it. This latitude taken by the summary

witness is impermissible and in fact constitutes

reversible error. (Pet. 9 n. 1)

The government next argued (Br. 5) that the

court of appeals accepted the testimony of the

government's expert summary witness that "[a]

dash means that the cash position has been deter-

mined to be uniform". We agree that the circuit

court accepted that testimony. (Pet. App. 24)

However, as previously demonstrated, the testi-

mony was totally unsupported by any evidence of

record. In fact, there is no evidence to the effect

that the cash position remained constant throughout

the prosecution period. The government's failure

to cite any such evidence proves the point, Accord-

ingly, the circuit court's error is clear.

In making its argument that the summary wit-

ness was only explaining his analysis of evidence

(Br. 6 n. 4) the government quoted the case of

United States v. Callanan, 450 F. 2d 145, 149 (4thCir.

(3) The government also erroneously declared

(Br. 5 .n.3) that the petitioner equates the dash to

zero. In fact, the petitioner notes that the govern-

ment summary witness defined the dash as an

"unknown" and for purposes of demmstrating that

the government did not sustain its burden of proof,

the petitioner accepts that definition.

© a Cathal

7

1971). However, the only thing that case actually

does is to point out that it is not permissible to

base conclusions on assumptions. However, this

is precisely what happened in this case. The govern-

ment also cited the case of Friedberg v. United

States, 348 U.S. 142 (1954). However, in the

Friedberg case, the summary witness had not

included any amount of cash on hand because he had

found no evidence of such cash. In comparison, in

this case the summary witness declared that there

was evidence that Mr. Giacalone had cash on hand,

but nevertheless no amount was used. Since accord-

ing to the summary witness himself there was evi-

dence of record of cash on hand, and since no amount

for such was reflected by the summary witness on

his chart, reversible error occurred. See: United

States v. Morse, 491 F. 2d 149 (Ist Cir. 1974), and

United States v. Altruda, 224 F.2d 935 (2nd Cir.

1955).

The government next (Br. 6) returned to its

argument that the matter of ‘cash on hand" was a

jury question. On doing so, they made a series

of misstatements. For example, the government

argued that the petitioner had received his cash

hoard of $300, 000.00 from his father. The govern-

ment asserts that the petitioner's sister and son

testified to that effect. The statement is an over-

statement. At the time the father transferred some

cash to his son, the petitioner's sister was witness

to the transfer, but was unable to testify as to the

amount. (R. li, 963-1, 964)

No one ever testified that the petitioner's cash

hoard was solely attributable to the cash received

from his father. The government would have this

Court believe such was the case since they were

able to introduce evidence that the petitioner's father

had experienced some financial difficulties. How-

ever, that statement is again misleading since the

transfer occurred in 1960, whereas the petitioner's

father's financial difficulties occurred in 1938, and

earlier vears. It is unknown how much of the

father's cash was accumulated after 1938 to 1960,

and particularly during the years 1943 to 1948 when

the petitioner's father owned a bar and bowling alleys.

(R. ll, 942) Accordingly, the financial difficulties that

the petitioner's father experienced were well behind

him before the 1960 transfer.

The government next erroneously asserted that

there was testimony to the effect that the alleged

hiding place of the petitioner's cash hoard did not

exist at the time claimed. The testimony alluded to

was that of Mr. Archie Damman,Jr. However, dur-

ing cross examination, his ignorance of the home

construction was established to have been so complete

that when the secret room was publicized during the

trial, he went to his father, who was the contractor

for the construction of the Giacalone home, and

asked him if he had built the secret room. (4) (R.

13,805) He asked his father because the father was

the "boss" and “he could have put it in without his

knowing about it." (R. 13, 805)

(4) As Mrs, Eastman testified, in the closet of

one bedroom there was a removable board which

was held in place by magnetic catches. A. 2201, 2107-

2109. By removing the board, two chains and a slide

bolt were exposed. A. 1119-1120, A. 2107-2109. By

pulling the chains, the bolts on the staircase were

removed enabling one to lift a portion of the staircase

leading to the third floor of the house. A. Li2!-1122,

A. 2109. The closet and the staircase were in sepa-

rate rooms. A. 2106. Once the portion of the stair-

case was lifted, the safe was visible. A. 2109, A.

1122-1126.

ee ee

oe i ek

9

The government also erroneously alleged that

the Michigan Intangible Tax returns were of some

value in establishing that there was no cash on hand.

In fact, the accountant testified that it was the

policy of his office not to ask clients whether they

had cash on hand. Accordingly, on all of the returns

which the accounting company prepared, the space

provided for an answer with respect to cash on hand

was left blank. (R. 481) The point is that the infor-

mation for the Michigan Intangible Tax returns came

from the federal tax returns prepared by the account-

ing firm.(R. 481 ) Since there is no question on the

federal tax return pertaining to cash on hand, the

reason for the failure to make a notation or the

Michigan Intangible Tax return with respect to cash

on hand is obvious.

The government next argued (Pet. 7n.5) that

it may reconstruct a taxpayer's income for prior

years in net worth cases, and then erroneously

argued that such reconstruction can cover computa-

tions of understatements of taxable income for pre-

indictment years. If such a proposition were true,

such an individual would be on trial for the pre-

indictment years as well. The two cases cited by

the government do not support their position. (3)

It is also interesting to note that the government

failed to address itself to the case, United States v.

Logan, 414 F.2d 230 (6thCir. 1969), (Pet. 12) which

stands for the proposition that the general receipt

into evidence of a revenue agent's computation ofan

unde rstatement for a period incluu.-7 non-indictment

years is reversible errcer.

{S) In fact, in the case of Vloutis v. United

States, 219 F.2d 782 (5th Cir. 1955), the taxpayer's

conviction was reversed.

Ane

Ae Wet &

10

In departing from its main theme, in the same

footnote, the government switches and says a

"zero" and a dash" are one and the same. It did

so when it argued that there was no error when

government counsel asked, over objection, the

defense summary witness to use a zero for cash on

hand. It is difficult to appreciate the government's

Position since they are the ones who have argued

so vigorously that the dash does not mean zero.

Since both sides were most adament that there was

some cash on hand, it was, in fact, reversible

error for theprosecuting attorney to have the de-

fendant's summary witness assume a fact not in

evidence, that is, the defendant had no cash on

hand. (Pet. 14)

The government next argued (Br. 7 n.6) the.

it is for the jury to decide whether there was

enough cash to account for the increases in the

taxpayer's net worth. The petitioner agrees. How-

ever, in this case the jury was told by the govern-

ment that there was an indefinite amount of cash

on hand. Rejecting the defense completely, how

could thejury have concluded that the petitioner

understated his income, when computations were

impossible with respect to the government's net

worth computation, since it contained an unknown

in each year. (R. 13, 462-13, 463 or A. 1386-i387)

With a zero balance for cash on hand, a jury

can make a computation; with an unknown it cannot.

This is the difference. In this case, the govern-

ment refused to take a definitive position regarding

the amount of cash on hand. It is for that reason

that the case of United States v. Goichman, 407

F.Supp. 980 (E.D. Pa. 1976), aff'd. 547 F.2d 778

(3rd Cir. 1976), where a zero was used, is of no

assistance to the gove mment.

11

In attempting to explain away the case of

Taglianetti vy, United States, 398 F.2d 558, 565

(Ist Cir. 1968), aff'd. 394 U.S. 316 (1969), the

government apparently was in confusion as to

what the court was addressing itself to, when it

said an exact dollar value did not have to be deter-

mined for each of the assets comprising the tax-

payer's opening net worth. The court was address-

ing itself to a cash expenditures case as opposed to

a net worth case. In fact, the court said a net worth

case dictates precise figures for the opening and

closing net worth positions for each of the taxable

years so as to have the basis for the critical

subtraction.

The government next attempted (Br. 8 n. 7)

to distinguish this case from the case of Phillip's

Estate v. Comm., 246 F. 2d 209 (5th Cir. 1957).

The government proclaims that there was much

evidence on the cash on hand question. However,

it fails to cite any such evidence which established

that the amount of cash remained constant during

the prosecution period. Failure to cite was predicated

on the fact that there is no such evidence. In short,

we have a ''Phillip's Estate’’ situation.

The government concludes this argument with

the statement that by its verdict the jury rejected

the petitioner's claim of a cash hoard. However, it

overlooks the fact that the petitioner was acquitted

on the fourth count.

ISSUE II

In this section of their brief, the government

starts out apparently arguing that a husband can be

prosecuted for income tax evasion by his wife if a

joint return is filed. The basis for the argument

12

is the contention that by filing a joint return, a

husband and wife become a single entity for the

purposes of federal income taxation. The case of

Coerver v. Comm., 36 T.C. 252 (1961), aff'd.

297 F.2d 837 (3rd Cir. 1962), was cited as authority.

In fact, the Coerver case stands for the proposition

that when a husband and wife file a joint return,

there are still two distinct and separate taxpayers.

The individuality of the taxpayers is not, in fact,

lost by the filing of a joint return. Marie A. Dolan,

44 T.C. 420, 427-428 (1965).

The nature of the involved returns is in reality

of no consequence. The decisions above demonstrate

the point. Moreover, it is the position of the Internal

RevenueService that the filing of a joint return does

not have the effect of converting the income of one

spouse into the other. Rev. Rul. 74-611, 1974-2 C.B

399, and the cases cited therein.

The government completes this argument by

stating that the court of appeals was correct in

concluding that the evidence was sufficient to permit

the government to treat the expenditures by Mrs.

Giacalone as having been made with her husband's

money The point is, of course, that the govern-

ment a.u not treat Mrs. Giacalone's expenditures

as having been made with her husband's money.

Throughout the trial, it was the government's

position that a joint net worth and expenditures

computation was permissible. Therefore,no attempt

whatsoever was made to trace Mrs. Giacalone's

expenditures to her husband's funds.

The failure to do so was fatal to the govern-

ment's case since not only the defense, but the

government as well, established that Mrs. Giacalone

had her own assets and income. The proof was so

13

sufficient as to prompt the trial court to declare

that there was no question that the net worth compu-

tation of the government was a joint net worth

computation. (Pet. 7, and 15-16) Also, the circuit

court was in error when it substituted its judgment

for the judgment of the trial court with respect to

the matter of whether Mrs. Giacalone had an

independent net worth. Moreover, the circuit

court's judgment was in contradiction to the evi-

dence of record produced by both sides on the

matter.

The government erroneously cited the case of

United States v. Costello, 221 F.2d 668, 674 (2nd

Cir. 1955), aff'd. 350 U.S. 359 (1956), as support

for its argument. In fact, it defeats it. In that case,

Judge Learned Hand declared that it was permissible

for the government to investigate the wife's financial

sources so as to refute the defendant's claim that

some of the expenditures were attributable to his

wife's funds. The court continued by saying this may

be done by analyzing her finances in the pre-

indictment period. The court commented that the

investigation may then be used to inferentially

establish that during the indictment years, she

had no wealth. In light of those circumstances,

which were present in the Costello case, but which

are not present here, her expenditures were properly

attributable to her husband's income.

By applying the court's reasoning in the Costello

case to the present case, the expenditures of Mrs.

Anthony J. Giacalone cannot automatically and

mechanically be attributed to the petitioner, her

husband. The burden was on the government to

segregate the assets of Mr. and Mrs. Giacalone,

and to trace the expenditures from each respective

source so that only those expenditures out of

ton Oth OR Ware

14

Mr. Giacalone's funds would be "charged" against

him. The circuit court is also of the opinion that

this is the government's burden. (Pet. App. 26-

27) Having refused to do so, and on the basis of

the Costello case, as a matter of law, the gove m-

ment failed to sustain its burden of proof. |

CONCLUSION

After reviewing the petition and briefs, it

becomes apparent that the review of this case by

the Supreme Court will serve a multiple of pur-

poses. First, it will eliminate this dangerous

precedent which is in conflict with the case of

Holland v. United States, 348 U.S. 121 (1954), as

to the government's burden in a criminal net worth

fraud case.

Second, it will eliminate the conflict which

now exists between the Sixth and the First and

Fifth Circuits with respect to what is required in

establishing the opening net worth of a criminal

tax fraud case. Third, a review will also eliminate

the conflict which now exists between the Sixth and

the Ninth Circuits, with respect to the propriety of

the substitution of the circuit court's judgment for

that of the trial court. In this case, it occurred in

connection with the matter pertaining to the petitiom

er's wife having an independent net worth of her own

‘8)rt is not contested that a "joint'’net worth

analysis can be used in the prosecution of a hus-

band alone where the evidence shows that the wife

did not have an independent net worth and a source

of funds for her expenditures. In fact, in such a

case it is not a joint net worth analysis” in the

first instance. Rather, it is simply an analysis of

the husband's net worth and expenditures.

~

Perera

ee ne ee

On

15

Fourth, it will give this Court an opportunity

to delineate and prescribe the scope of a summary

witness's testimony. Fifth, it will re-establish

the net worth method of proving tax fraud as a

viable tool for the prosecution and at the same time

enable an accused to defend himself by condemning

the use of ''dashes’', whether there be one or more

used in a givencase. Finally, a review will pre-

vent the net worth method from becoming an

elaborate accounting ‘sham’ which was once the

fear of this Court, and which it is in this case.

For those reasons, the petition for writ of

certiorari should be granted.

JOSEPH F. DILLON

Counsel for the Petitioner

Raymond, Fletcher, Dillon &

Titcomb, P.C.

400 Renaissance Center,

Suite 2370

Detroit, Michigan 40243