Opposition — Buckner v. United States

No. 79-1014 3 |

cine nok, J, ELERIT

On the Supreme Court of the Hnited States

‘OCTOBER TERM, [979

ROBERT G. BUCKNER, PETITIONER

V.

UNITED. STATES OF. AMERICA

ON PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS FOR

THE NINTH CIRCUIT

BRIEF FOR THE UNITED STATES

IN OPPOSITION

WapbE H. McCree, Jr.

Solicitor General

M. CARR FERGUSON

Assistant Attorney General

RosperT E. LInDSAY

CARLETON D. POWELL

CHARLES E. BROOKHART

Attorney's

Department of Justice

Washington, D.C. 20530

¥

INDEX

Page

SPRINT aici cece cai cenenccssccnatohonnigadescoascieoseosevcnas I

ie apcvnmacbesies l

QUESTIONS PFESEMIE ociccciscscsccsessccccsdscccesccssessosscnsncccseees I

“20 NUS ot ake i Calpaceneeas 2

RS IRS OG eR th oye ARC ee 5

CCN ih sissh homie cceeebsSviedees 10

e CITATIONS

Cases: ;

Bruton v. United States, 391 U.S. 123 .......... 9, 10

Cohen v. United States, 297 F. 2d 760.

cert. denied, 369 U.S. 865 .........ccl eee eee 7

Dutton v. Evans, 400 U.S. 74 woe cece ccc cc cece eee eeee i)

Gissendanner v. Wainwright, 482 F. 2d

| . REISE ES SEW: 28 Ta ROR I St ya 10

Sansone v. United States, 380 U.S.

a occes 6

Siravo v. United States, 377 F. 2d 469 .............. 7

Smith v. Commissioner, 48 T.C. 872, .

Ts PR oes cbc siecdacneecsveevocesacseee 4

United States v. Campione, 416 F. 2d 486,

cert. denied, 397 U.S. 909 ooo. eee 6

United States v. Cole, 463 F. 2d 163,

) cert. denied, 409 U.S. 942 ooo. 6

United States vy: DiGeronimo, 598 F. 2d

746, cert. denied, No. 79-5003

PS i PN ious iaicisharscodcccdosscoosesesvces i)

}

i

il

iii

Page

Cases—(Continued):

United States v. Eley, 314 F. 2d 127 cccccscsscsssses 6 ag Miscellaneous:

United States v. Grayson, 416 F. 2d 1073. | Rev. Rul. 68-537, 1968-2 Cum. Bull.

cert. denied, 396 U.S. 1059 py ee eee 6 372 ery er rrr rr TTT rTTTTTT iT riit Tre tri

United States v. Grzywacz, 603 F. 2d 682 ......... 9 | :

United States v. Lisowski, 504 F. 2d

BM eos cs ie ica ddusbacasevenccasssatensdectioenses 7

United States v. Miller, 545 F. 2d 1204,

cert. denied, 430 U.S. 930 oo... ee 6, 7

United States v. Parr, 509 F. 2d 1381 ........... 6, 7

United States v. Pomponio, 563 F. 2d 659.

cert. denied, 435 U.S. 942 ooo eats bosce 8

United States v. Rochelle, 384 F. 2d 748.

cert. denied, 390 U.S. 946 000.0000... Bit 8

United States v. Rosenthal, 470 F. 2d 837,

cert. denied, 412 U.S. 909 ooo. cee 8

United States v. Swallow, 511 F. 2d 514,

cert. denied, 423 U.S. 845 20... ceccseeseeeeeeee 8

Statutes:

Internal Revenue Code of 1954 (26 U.S.C.):

ME OF” ea Rael PRR SEO ORE |

Oe i i ee 6

RE i SA ASS RES TE Hi SAL RE RE STEELER 4

TO RPI uscd cha bchasciccbsciccujonbaiadgicscost jacescsecoavans 4

Be as ccpacacansnepiccasccctoeoess etheanes 2. 2

I TERN iiss savas seadincss iisasibecees csi cideccwsieese 2

Be RFE OT has ag on placa cain co staninhisn Sisto entindiies chk a3

ii y m2 4

Iu the Supreme Court of the United States

OCTOBER TERM, 1979

No. 79-1014

ROBERT G. BUCKNER, PETITIONER

. v.

UNITED STATES OF AMERICA

ON PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS FOR

THE NINTH CIRCUIT

BRIEF FOR THE UNITED STATES

IN OPPOSITION

OPINIONS BELOW

The district court did not issue a written opinion. The

opinion of the court of appeals (Pet. App. A) is reported

at 610 F. 2d 570.

JURISDICTION

The judgment of the court of appeals was entered on

October 3, 1979. A petition for rehearing was denied on

November 30, 1979. The petition for a writ of certiorari

was filed on December 28, 1979. The jurisdiction of this

Court is invoked under 28 U.S.C. 1254(1).

QUESTIONS PRESENTED

1. Whether the indictment was sufficient to charge the

crime of attempted income tax evasion.

(1)

-

2

2. Whether petitioner was prejudiced either by the

government’s theory of prosecution that petitioner's

corporation was a “Subchapter S” corporation or by the

trial court’s denial of his motion for a bill of particulars.

3. Whether the trial court correctly admitted into

evidence portions of statements made by petitioner's two

co-defendants.

STATEMENT

After a jury trial in the United States District Court for

the Southern District of California, petitioner was

convicted on one count of conspiracy to defraud the

United States, in violation of 18 U.S.C. 371; two counts

of attempting to evade income tax, in violation of 26

U.S.C. 7201; and two counts of knowingly subscribing to

materially false tax returns, in violation of 26 U.S.C.

7206(1) (Pet. App. A-I). The trial court sentenced

petitioner to one year’s imprisonment and imposed fines

totalling $15,000 (Tr. 3255-3256).!

The government’s case focused on petitioner's 1970 and

1971 tax returns with respect to transactions involving

petitioner and International Hotel Construction and

Management Company (IHCM). Petitioner and Dennis

L. Lang? formed IHCM in early 1969 for the purpose of

constructing hotels and motels and thereafter managing

them. Petitioner and Lang each owned 50% of the stock.

Petitioner and Lang served respectively as President and

as Chairman of the Board and Secretary of the corpora-

tion.

“Tr.” refers to the trial transcript. “R.” refers to the two-volume

Clerk’s record on appeal.

*Lang was convicted of conspiracy and the filing of a false loan

application. He did not appeal his conviction (Pet. App. A-2).

IHCM commenced operations in the Southern Califor-

nia area. One prospective hotel site was located in

Mission Valley and a second in El Cajon. Groundwork at

both the Mission Valley and the El Cajon sites began in

1970. Actual construction commenced in early 1971 when

interim financing was obtained. The construction was

financed by loans from Transamerica Company; the loan

accounts were established so as to permit IHCM to draw

on a monthly basis an amount based on the previous

month’s expenses (Tr. 841-842, 901; Govt. Exs. 273, 274).

In early 1970 petitioner began making extensive

improvements to his La Mesa residence. A basement was

dug out for this hillside house, and a master bedroom,

den, family room, wet bar, laundry room, and sauna

complex were built. Extensive tile and masonry work was

also performed. In addition, cement driveways were

poured, a new three-car garage, with guest house on top,

was built, two major retaining walls were constructed, and

a new kitchen was installed. As a result of these additions,

the house was substantially increased in size and living

area. Petitioner made extensive arrangements to insure

that vendors, suppliers, and company personnel would

bill approximately 80% or more of the expenses and labor

charges arising out of the improvements made to his

residence as expenses of IHCM. The vast majority of

_ these expenses appeared on the corporate books as costs

of construction on the two hotels (R. 2493-2570). These

personal expenses, which totalled more than $35,000 for

1970 (Tr. 2522-2523) and $72,000 for 1971 (Tr. 2570),

were concealed in the cost of the two hotel projects.

Petitioner’s tax returns for 1970 and 1971 did not reflect

the income attributable to the payments by IHCM for his

benefit (Govt. Exs. 188-191).

For its taxable years 1970 and 1971, IHCM filed

. Income tax returns as a Subchapter S corporation. Upon

compliance with the provisions of Subchapter S (Sections

1371 et seq. of the Internal Revenue Code of 1954 (26

U.S.C.)), a corporation is treated much as if it were a

partnership, so that the corporate profits are taxed

directly to the shareholders whether or not they are in fact

_ distributed. 26 U.S.C. 1373. Similarly, the shareholders

can deduct net operating losses of the corporation to the

extent of their adjusted bases in their stock and any

indebtedness of the corporation owed to them. 26 U.S.C.

1374. However, if a shareholder's bases in the stock and

indebtedness are zefo at the end of the ~.orporation’s

taxable year, the shareholder is charged with income to

the extent that he has withdrawn funds from the

corporation during the year. See Smith v. Commissioner,

48 T.C. 872 (1967), aff'd, 424 F. 2d 219 (9th Cir. 1970);

Rev. Rul. 68-537, 1968-2 Cum. Bull. 372.

In December 1971 petitioner’s accountants advised him

that he should deposit approximately $300,000 in his loan

account to IHCM by December 31, 1971, because his

withdrawals during the year from the corporation would

exceed his basis in loans to the corporation at the end of

the year (Tr. 1621-1623). As a result, Lang negotiated a

_ $300,000 loan with the then-existing U.S. National Bank,

apparently to restore a basis in petitioner’s loan account.

~ Records at the bank, however, showed the loan was made

to IHCM, and not petitioner, and was disbursed on

January 6, 1972, and not on December 31, 1971 (Tr. 1329-

1334, 1416-1423). Despite these facts, petitioner’s 1971 tax

return did not reflect any income attributable to the

withdrawals of cash from IHCM.

5

Petitioner contended at trial that the expenditures

incurred by IHCM for improving his residence should

have been treated as loans by the corporation to him.

With respect to the income resulting from his

withdra als, petitioner maintained that the amounts of

certain loans (not the January 6, 1972, loan from U.S.

National) for the benefit of the corporation for which

petitioner was obligated should have been credited to his

corporate capital account, thereby restoring a credit

balance position in the account (Pet. App. A-3).

Petitioner was tried together with co-defendants Lang

and Teerlink, his original accountant, who also had been

indicted for conspiracy to defraud the government in

violation of 18 U.S.C. 371. Neither Lang nor Teerlink

testified. The government offered prior statements by

both concerning the recordation of petitioner's personal

expenses on IHCM records, the corporation's accounting

methods, and the need to lend the corporation the

$300,000. The tria! court allowed only portions of the

statements to go to the jury and instructed the jury that

the statements were being admitted only against the

declarant and not as evidence against the declarant’s co-

conspirators (Pet. App. A-8 to A-9; Tr. 2025-2063, 2126-

2127, 2161, 2180, 2323). :

ARGUMENT

1. Petitioner contends (Pet. 5-9) that counts two and

five of the indictment, charging attempted tax evasion in

violation of 26 U.S.C. 7201, were defective because they

did not allege the specific amount of tax due. But both

challenged counts stated the amount of tax reported and

then alleged that petitioner “well knew, and believed, he

was obligated to the United States for additional taxes

due on thousands of dollars of concealed and unreported

income” (R. 6, 9). The counts thereby clearly charged that

there was a substantial tax deficiency. No more is

required. See Sansone v. United States, 380 U.S. 343, 351

(1965); United States v. Grayson, 416 F. 2d 1073, 1076

(Sth Cir. 1969), cert. denied, 396 U.S. 1059 (1970).3

2. Petitioner further argues (Pet. 10-15) that the

- government was guilty of “prosecutional misconduct”

because it relied on a defective Subchapter S election to

prove its case.* If, as the government contended, IHCM

was a Subchapter S corporation, its false claim of

expenses for construction of petitioner’s personal

residence resulted in petitioner's understatement of

income. But as the court of appeals pointed out (Pet.

App. A-12), petitioner did not raise the Subchapter S

issue in the trial court either before or during trial.

Indeed, only after the guilty verdict did petitioner

challenge the validity of the election in a motion for a

3Petitioner's assertion (Pet. 9) that the amount of the tax deficiency

must be alleged is contrary to the well-settled line of authorities

holding that even where the amount is charged, the government need

not prove that amount—rather, it must prove only that the defendant

attempted to evade a substantial amount of tax. United States v.

Miller, 545 F. 2d 1204, 1210 n.7 (9th Cir. 1976), cert. denied, 430 U.S.

930 (1977); United States v. Parr, 509 F. 2d 1381, 1386 (Sth Cir.

1975). See also United States v. Cole, 463 F. 2d 163, 166-167 (2d

Cir.), cert. denied, 409 U.S. 942 (1972) (proof of a lesser amount than

the amount charged will sustain conviction); United States v.

Campione, 416 F. 2d 486, 490 (7th Cir. 1969), cert. denied, 397 U.S.

909 (1970) (government need only prove substantial amount—not the

exact amount charged in the indictment); United States v. Eley, 314

F. 2d 127, 130 (7th Cir. 1963) (government must prove an attempt to

evade or defeat a substantial amount).

‘Petitioner contends (Pet. 10) that IHCM’s Subchapter S election

(see 26 U.S.C. 1372) was invalid because neither petitioner's nor

Lang’s wife had signed the election.

new trial. In filing the corporate tax returns, however,

petitioner treated LIHCM as a Subchapter S corporation.

He therefore can hardly complain that the government

similarly treated the corporation as a Subchapter S

corporation in proving that his personal returns were

fraudulent because he failed to report substantial amounts

of income derived from the: corporation. See United

States v. Lisowski, 504 F. 2d 1268, 1275 (7th Cir. 1974).

Moreover, petitioner’s defense rested on the theory that

IHCM_~ was a valid Subchapter S corporation, since

petitioner’s expert witness, Forest Calkins, based his

computations on that assumption (Tr. 2836-2854, 2871-

2878}. Compare Siravo v. United States, 377 F. 2d 469,

473-474 (Ist Cir. 1967). See also United States v. Miller,

supra, 545 F. 2d at 1213-1214 n.Ft.

At all events, even on the assumptions that IHCM’s

Subchapter S election was invalid and that it should have

been treated as an ordinary corporation for the purposes

of taxation, petitioner was not prejudiced by the

Subchapter S theory on which the trial was conducted.

Petitioner contended that the corporation’s payments of

the home improvement expenses in each of the two years

were loans. The resolution of this question of intent rests

solely within the province of the jury. If the jury

concluded that there was no intent to repay, then the

specific items, which were substantial and alone sufficient

to sustain the convictions,5 were income under Section 61,

5See United States v. Miller, supra, 545 F. 2d at 1210 n.7: United

States v. Parr, supra, 509 F. 2d at 1386; and cases cited at page 6 n.3,

supra. See also Cohen v. United States, 297 F. 24 760, 774-775 (9th

Cir.), cert. denied, 369 U S. 865 (1962). There. the court ruled that the

invalidity of assessment of some of the taxes which the defendant was

convicted of attempting to evade would not require setting aside the

conviction.

8

whatever the status of the corporation. United States v.

Rochelle, 384 F. 2d 748, 751 (Sth Cir. 1967), cert. denied,

390 U.S. 946 (1968); United States v. Rosenthal, 470 F. 2d

837, 841-842 (2d Cir. 1972), cert. denied, 412 U.S. 909

(1973). Cf. United States v. Pomponio, 563 F. 2d 659 (4th

Cir. 1977), cert. denied, 435 U.S. 942 (1978): United

States v. Swallow, 511 F. 2d 514, 520 (10th Cir.), cert.

denied, 423 U.S. 845 (1975). Similarly, with respect to

_ funds withdrawn in 1971, since petitioner had no basis in

either his stock or loan accounts, he received income in

1971 whether or not IHCM was a- Subchapter S

corporation.

3. Petitioner also asserts (Pet. 10-12) that he did not

receive pretrial disclosure of the government's theory and

computations. But the record convincingly refutes this ,

claim. In denying petitioner's motion for a bill of

particulars, the district court concluded (Tr. 58), in a

finding upheld by the court of appeals (Pet. App. A-8),

that the government had provided the defense with

complete discovery in this case. Petitioner was told what

specific items were involved in this case, had access to all

the statements from all the government witnesses, and was

provided with the computations (R. 61; Tr. 40).

Moreover, petitioner fully understood the government's

case.6 The two expert witnesses (Mr. Breese for the

government (Tr. 2469-2704) and Mr. Calkins for the

*On October 26, 1977, two months after the trial court's denial of

the motions, but a week prior to trial, the government filed its Trial

Memorandum, in which it stated (page 8) that, in addition to the

personal expenses being charged as ordinary income, petitioner's

“{aiture to deposit the needed $300,000 in personal funds with the

corporation in 1971 resulted in an additional sum, approximately

$289,000, being charged as income to BUCKNER in 1971,” This

memorandum, which was served on all counsel, and which petitioner

now claims he did not receive, provided petitioner with the

government's trial theory.

defense (Tr. 2832-2947)) differed only in their approach to

the facts and not with respect to their theory of taxation.

For example, the only difference in the treatment of the

personal expense items was that Breese concluded they

represented income to petitioner while Calkins put the

items into petitioner's loan account (although they

admittedly had not been carried‘ on the books as such (Tr.

2893, 2906-2907)) and concluded they were loans and not

income (Tr. 2858, 2879). Indeed, Calkins. conceded that

even under his theory, if petitioner did not intend to repay

the “loans,” then those amounts would be taxable to him

(Tr. 2897-2907). Thus, the only material point of

difference between. the two expert witnesses. was whether

petitioner intended to repay. IHCM for the expenditures

of its funds for his persona! benefit, not whether the

proceeds. were: taxable: to petitioner if there was no: intent

to repay.

4. Finally, petitioner maintains (Pet. 15-19) that the

trial court’s admissiom into evidence of the statements of

his co-defendants Lang: and Teerlink violates the rule of

Bruton v. United States, 391 U.S. 123 (1968). But Bruton

does not require the exclusion of all statements by co-

defendants, See United States v. DiGeronimo, 598 F. 2d.

746. (2d Cir. 1979), cert. denied, No. 79-5003 (Oct. |,

1979); United States v. Grzywaez, 603 F. 2d 682 (7th. Cir.

1979). Compare Duttom v. Evans, 400. U.S, 74 (1970),

Here, as the court of appeals properly recognized (Pet.

App. A-9), the statements, as they could affect petitioner,

concerned matters that were essentially conceded by

petitioner—e.g., that the house: improvement expenses

were reflected in the corporate records, Im these

circumstances, the statements could hardly be described

as “powerfully incriminating extrajudicial statements of a

10

codefendant” against petitioner (Bruton v. United States,

supra, 391 U.S. at 135). Accordingly, the trial court

correctly admitted the statements. Given .the lack of

prejudice to petitioner, it is not surprising that the court

of appeals noted (Pet. App. A-9) that “no objection [was

made] to the portions of the statement which the

government desired, and the court permitted, to be

offered.”

CONCLUSION

The petition for a writ of certiorari should be denied.

Respectfully submitted.

WapeE H. McCree, Jr.

Solicitor General

M. CARR FERGUSON

Assistant Attorney General

Ropert E. LINDSAY

CARLETON D, POWELL

CHARLES E. BROOKHART

Attorneys

Marcu 1980

Petitioner also contends (Pet, 18-19) that because the agents had

not advised Lang and Teerlink that they could have counsel present,

the statements were inadmissible against petitioner, But as the court

of appeals noted (Pet. App. A-10), neither Lang nor Teerlink was a

subject of investigation at the time the statement was given, and no

such advice was required. At all events, it is difficult to understand

how petitioner could claim an invasion of his rights from the

introduction of statements obtained from third parties. See

Gissev.danner v. Wainwright, 482 F, 2d 1293 (Sth Cir. 1973).

DOJ- 1980-05