Petition — Breger v. United States

In THE

Supreme Court of the United Stites

Octosser Term, 1979

SR, ssp - oa

HERBERT BREGER,

Petiticver,

against

UNITED STATES OF AMERICA,

Respondent.

PETITION FOR A WRIT OF CERTIORARi

TO THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

MURRAY APPLEMAN

Attorney for Petitioner

A Member of the Bar of the

United States Supreme Court

225 Broadway

New York, N.Y. 10007

(212) 349-6966

DICK BAILEY PRINTERS, 290 RICHMOND AVE., S.1., N.Y. 10302

TABLE OF CONTENTS

The Opinion of the Court Below............ ae

BARING

pp ee eee eee eee

The Principal Constitution and Statutory Pro-

TREES IE ee

i

Reasons for Granting the Writ..................

A. Government Failed to Sustain its Burden of

Proving a Starting Point with Reasonable

GEES RG ge apT- LRRD i tee oy

B. Charts Should Not Have Been Admitted Into

a se no enese’

C. Failure to Report as Gross Income the Total

Amounts Received from Activities with Regard

to Sales of Tapes and Records, did not Justify

A 7206(1), I.R.S. Conviction, and Spillover from

Incorrect Interpretation of Cash Expenditure

Method of Proof by the Jury from Proper Con-

FE ne

D. Denial of Defendant’s Requested Charge With

Regard to Reasonable Doubt.................

15

18

E. Agent’s Pervasive Testimony Rendered it

Useless and Court Should Have Ordered Tes-

timony Stricken so as to Avoid Confusion and

Prejudice

SEG TRESS pea Ene Ge) Mi ts a 24

Conclusion........ 4‘ Rieliielibis Wie’ wie! Weal e cae Bel outa 25

Appendix A — Opinion of the U.S. Court of

ARIE BESET Fn eR aR a la

CASES CITED

Page

Central Illinois Public Service Co. v. U.S., 98 S. Ct.

PET ete 6 4 18 Ek ORES Pe ae oe LA 21

Critzer v. U.S., (4th Cir., 1974) 498 F.2d 1160...... 20

Demetree v. U.S., (Sth Cir., 1953) 207 F.2d 892.... 9

Dupree v. U.S., (Sth Cir., 1955) 218 F.2d 781....... 9

Flemister v. U.S., (CA-5, 1958) 260 F. 2d 513....... 16

Ford v. U.S., (Sth Cir., 1954) sion 2d 313 cert. den.

PUMP Us be kd ede abbas kv veae ono ciks 21

Friedberg v. U.S., 348 U.S. 142 (1954) ............ 13

Helvering v. Mitchell, 303 U.S. 391 (1938) ......... 11

Holland v. U.S., 348 U.S. 121, 75 S.Ct. 127 (1954)... 6

James v. U.S., 366 U.S. 213 (1961) ..........0005e 20

Kolaski v. U.S., (Sth Cir.) 362 F. 2d 847........... 18

McFee vy. U.S., (9th Cir., 1953) 206 F. 2d 872....... 7

~ Mullaney v. Wilbur, 421 U.S. 624 (1976) ........+.. 11

Patterson v. N.Y., 432 U.S. 197 (1977) ...........- 11

People v. Reese, 258 N.Y. 89 (1932)............. 24

Porter v. Commissioner, 288 U.S. 436 (1933) ....... 20

Schmitt, 30 T.C. 322 (1958) aff?d on other issues

CAB, ZTE PB FA a. oinn eV csvicincccteaccucvtvcess 20

Small v. U.S., (ist Cir.) 255 F.2d 604 .........0e 00. 18

Steele v. U.S., (Sth Cir., 1955) 222 F.2d 628 ........ 17

Taglianetti v. U.S., (ist Cir., 1968) 398 F.2d 558.... 7

U.S. v. Altruda (CA-2, 1955) 224 F. 2d 935 ........ 16

U.S. v. Bianco, (2d Cir., 1976) 534 F.2d 501........ 7

U.S. v. Black, (9th Cir., 1975) 512 F.2d 864........ 13

U.S. v. Calles, (Sth Cir., 1973) 482 F.2d 1159....... 6

U.S. v. Cellentano, (SDNY, 1975) 391 F.Supp. 1252. 24

U.S. v. Fatico (EDNY, 1978) 458 F. Supp. 388...... 22

U.S. v. Fenwick, 177 F.2d 488 ........cceceeeeees 8

U.S. v. Fisher, (2d Cir., 1975) 515 F.2d 836........ 7

U.S. v. Jalbert, (1st Cir., 1974) 504 F.2d 892....... 16

iv:

U.S. 5. Matshall; (5th Cit iy 1977) 557°F.12d $2929... ao

U.S. v. Schipani, (EDNY,'1968) 28° F.'Supp: 43 aff'd’ |

(2d’Cir., 1969)'414 F.2d 1262 .............0eeeeees 22)

U.S. ‘v. \Sltitskys (22 Cir., 1973) 487° F.2d’ 832) derts.

GO OI 6 0S SE iis dein cd Keccccceudeccee: - 13815

U.S. v. Vardini;(CA-2, 1962) 305 F.2@60........... 1616

Inire' Winship; 897 'S. 358 (1970):.). ...........005.. 11

| Other Authorities.

Tifle 2653 S.€.Settion 61{a)::. ................000.. 2°

Tifle 2699 S.€.Sestion 7201... .............2.2008-. 8

Title 26° JS.€.Seetion 7206. ..............00000-. 22

Fedesal Riles of -Evidence—Rule 1006)))........... 1616

Révenue Rilirig 76-479; 76-2 C.B.'20\...........45. 19:4

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IN THE

SUPREME COURT OF THE UNITED STATES

No.

OCTOBER TERM 1979

HERBERT BREGER,

Petitioner,

-against-

UNITED STATES OF AMERICA,

Respondent.

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT:

The petitioner Herbert Breger prays that a writ of cer-

tiorari issue to review a final judgment and order of the

United States Court of Appeals for the Second Circuit,

entered February 28, 1980 (Appendix A, infra), which af-

firmed the judgment of the United States District Court,

Eastern District of New York, entered on August 21, 1979,

convicting him of income tax evasion, after a jury trial, on

each of three counts pursuant to Internal Revenue Code

Section 7201, tax evasion, and 7206 (1), false statements,

for the years 1972, 1973 and 1974. As a consequence peti-

tioner was sentenced to concurrent terms of three months

incarceration and 21 months probation on each count.

THE OPINION OF THE COURT BELOW

The opinion of the Court below namely the United

States Court of appeals for the Second Circuit, affirming

the judgment of conviction is set forth in Appendix A, in-

fra, as aforesaid.

JURISDICTION

The Order of the juagment of the United States Court

of Appeals for the Second Circuit, the Court below, is

dated February 28, 1980. The jurisdiction of this Court is

invoked, made and conferred under 28 U.S.C. 1254 (1).

QUESTIONS INVOLVED

A. Government failed to sustain its burden of proving

a starting point with reasonable certainty.

B. Charts should not have been admitted into

evidence.

C. Failure to report as gross income the total amounts

received from activities with regard to sales of tapes and

records, did not justify a 7206(1) conviction and spillover

from incorrect interpretation of cash expenditure method

of proof barred the jury from proper consideration of

same.

D. Denial of defendant’s requested charge with

regard to reasonable doubt.

E. Agent’s pervasive testimony rendered it useless and

Court should have ordered testimony stricken so as to

avoid confusion and prejudice.

THE PRINCIPAL CONSTITUTION AND

STATUTORY PROVISIONS INVOLVED:

Fifth Amendment to the Federal Constitution, in

part: :

‘*No person shall be held to answer for a capital, or other-

wise infamous crime, unless on a presentment or indict-

ment of a Grand Jury...;... nor be deprived of life,

liberty or property without due process of law; ...”’

Sims v. Rives, 1936, 84 F2d 871 cert. den. 298 U.S. 682:

**Constitutional guaranty that no person shall be deprived

of life, liberty or property, without due process of law im-

plies equal protection of laws.’’

Title 26 U.S.C. §7201. Attempt to evade or defeat

tax:

**Any person who willfully attempts in any manner to

evade or defeat any tax imposed by this title or the pay-

ment thereof shall, in addition to other penalties provided

by law, be guilty of a felony, and upon conviction thereof,

shall be fined not more than $10,000, or imprisoned not

more than 5 years, or both, together with the costs of pro-

secution.”’

Title 26 U.S.C. §7206. Fraud and false statements:

**(1) Any person who willfully makes and subscribes any

return, statement, or other document, which contains or is

verified by a written declaration that it is made under the

penalties of perjury, and which he does not believe to be

true and correct as to every material matter shall be fined

not more than $5,000, or imprisoned not more than 3

years, or both, together with the costs of prosecution.”’

STATEMENT OF THE CASE

During the years 1972, 1973 and 1974, petitioner was

employed as a General Manager in his father-in-law’s

retail camera business (N.Y. Camera Exchange) and in-

volved with regard to sales of records and tapes as a side

enterprise. Income from each was reported on the peti-

tioner’s income tax returns.

Utilizing the expenditure method of proof, the

government attempted to show that Breger spent monies

in excess of reported earnings and availability from known

bank accounts exceeding $14,000 in 1972, $17,000 in 1973

and $7,000 in 1974. However, when considering loan

repayments (cash and check), a portion of which was

deposited to petitioner’s bank accounts, which were at-

tested to at trial by government witnesses and related

(specifically a Mr. Ashe, one of the borrowers) to the

government agents, the latter apparently consciously

avoiding any information advantageous to the petitioner,

these expenditures possibly exceeded reported income by

only $8,000 in 1972, $8,000 in 1973 and $2,000 in 1974.

The foundation or the predicate of any expenditure

case, circumstantial evidence based on approximations, is

the starting point or monies available or accumulated

prior to the years involved herein. Expenditures in excess

of earnings on non-deductible items during a given period

indicate that a taxpayer 1) lived in part off capital or 2)

borrowed more money than he paid back during the

period or 3) had non-taxable accessions to wealth or 4)

underreported income. The first three possibilities consis-

tent with a correct return, probably occur in the aggregate

more than the fourth. It should also be noted that in the

extant situation, during circumstances of an inflationary

period, the disputed amount is not excessive.

Government efforts to meet its threshold requirement

with regard to a circumstantial evidence case of this type

was 1) to employ an admitted inaccurate, incomplete,

financial statement submitted with regard to a 1969 Breger

mortgage application, which did not require a listing of

cash on hand, solely utilized as an investigative tool; 2)

tracing kown inheritance property and monies received

from his mother’s estate in 1968; 3) tracing known bond

and stock purchases, without any evidence of Breger ever

having to borrow funds or pay interest on articles purchas-

ed via credit cards or otherwise during the period prior to

or during this investigation. The Second Circuit Court of

Appeals stated that based on these facts a defendant must

adduce specific evidence such as cash horde, to suggest

that the starting point was inaccurate or misleading.

Thus during the immediate periods involved herein,

there was no evidence or indicia that Breger was forced to

live frugally, ever needed or lacked cash availability nor

was it shown by the government that Breger’s mother, in

view of the size of the estate, did not or could not have

given him funds prior to her demise, which were not bank-

ed. Further the government failed to examine income tax

returns for the periods prior to 1969 and expenditures to

possibly indicate insufficient income to accumulate a small

cash horde as herein involved.

Due to their failure to accomplish this normal ap-

proach to ascertain availability or unavailability of cash

on hand, it can be assumed that this evidence would be

favorable to the petitioner.

REASONS FOR GRANTING THE WRIT

A. Government Failed to Sustain its Burden of Prov-

ing a Starting Point with Reasonable Certainty.

In the Holland case, 348 U.S. 121, 75 S. Ct. 127, the

Supreme Court stated that an essential condition in a net

worth determination of income is the establishment with

“reasonable certainty’’ of an opening net worth to serve as

a starting point from which to calculate future increases in

the taxpayer’s net worth. The wisdom of this statement is

apparent since an inaccurate beginning net worth will af-

fect the accuracy of the determination of income subse-

quent to the base point. For instance, if a taxpayer’s

beginning net worth is understated, taxable income for the

period under consideration will be overstated. Thus an ac-

curate and definite showing of an opening net worth is the

keystone of the calculation process. U.S. v. Calles, (Sth

a ot et F. 2d 1159. The correctness of the result

epends entirely upon the inclusion in the i

of all assets on hand. ene

The expenditures method is, on theory, closely related

to, if not identical with, the net worth method of proving

income. The method is based on the theory that if the tax-

payer’s expenditures during a given year exceed his

reported income, and the source of such expenditures is

unexplained, it may be inferred that such expenditures

represent unreported income.

The cash expenditure method is devised to reach a

taxpayer who construes his self-determined tax-free dollars

during the year and winds up no wealthier than before.

This is accomplished by establishing the amount of goods

and services which are not attributable to the resources at

hand at the beginning of the year or to non-taxable

receipts during the year.

One Court noted the similarity of the net worth and

expenditures method by the following statement:

‘< . The two computations are merely accounting varia-

tions of the same basic method, the expenditure theory be-

ing an outgrowth of the net worth method.”

Mc Fee v. U.S., (9th Cir. 1953), 206 F. 2d 872. It was also

stated therein that employing either the expenditures

method or the net worth method the Government must

determine with reasonable certainty the taxpayer’s begin-

ning net worth in order to have a starting point. The ap-

proach to this matter is the same irrespective of which

method is used.

In Taglianetti v. U.S., (1st Cir., 1968), 398 F. 2d 558,

the First Circuit was confronted with the question of what

evidence would satisfy the requirement of Holland v.

U.S., supra. It was therein stated that in a typical net

worth case, as Holland, precise figures would have to be

attached to opening and closing net worth positions for

each of the taxable years to provide a basis for the critical

subtraction. In a cash expenditures case reasonable cer-

tainty may be established without such a presentation, as

long as the proof makes clear the extent of any contribu-

tion which beginning resources or a diminution of

resources over time could have made two expenditures.

The above passage from Taglianetti was quoted with ap-

proval in U.S. v. Bianco, (2nd Cir., 1976), 534 F. 2d 501,

and U.S. v. Fisher, (2nd Cir., 1975), 518 F. 2d 836. The

Court of Appeals for the 7th Circuit stated:

‘‘Remembering that the Government has the burden of

proof in a criminal case, that the burden never shifts to

defendant, that circumstantial evidence must be of such

character as to exclude every reasonable hypothesis except

that of guilt, it necessarily follows that, when the Govern-

ment relies upon circumstances of increased net worth and

expenditures in excess of reported income to establish in-

come tax evasion, the basic net worth must be established.

The dsefendant is not compelled to make proof that he is

innocent but he must be proved guilty by the evidence

beyond all reasonable doubt, and where there is uncertain-

ty as to whether all the assets of defendant are included in

the Government’s computation of net worth, it follows

that it’s computations cannot be relied on. The essential

proof of no other assets is the cornerstone of the evidence

of the Government; that cornerstone being faulty, the

whole edifice is so weakened as to be undependable as pro-

of of guilt beyond all reasonable doubts.’’

“This kind of latitudinous allowance of the admission

and use of conclusions as evidence and the submission of

the case to the jury without a scrupulous adherence to the

theory, has resulted in a tendency to accept, if not in the

complete acceptance of, the idea that in a case tried by this

method, ordinary rules of proof may be relaxed if not

disregarded. Further and more prejudicial to a defendant

there has grown up a kind of ancillary theory that the

Government, by introducing proof of deposits, expen-

ditures, etc. having put up what is called a prima facie

case, the defendant finds himself jockeyed out of the posi-

tion the law affords him of insisting that the Government

establish bis guilt by legal and credible evidence beyond a

See U.S. v. Fenwick, 177 F. 2d 488. reasonabic doubt. This is accomplished by requiring him

A similar warning was given by the Court of Appeals to prove himself innocent by assuming the burden of over-

for the 5th Circuit: coming the prejudicial effect of the mass of exhibits,

“‘This is another of the growing list of criminal cases in

which the Government, having no or little direct evidence

of defendant’s guilt to offer and endeavoring to prove it by

circumstantial evidence, attempts to do so by what may be

called the net worth and expenditures method of proof. In

this attempt unless the greatest care is taken by the District

Judge to prevent it, there is danger of the case being tried

on a theory which, keeping to the ear the promise that a

defendant is presumed innocent until his guilt is establish-

ed beyond a reasonable doubt, breaks it to the hope by

allowing a series of theoretical estimates and computation

as to defendant’s income to take the place of proof of it.

‘Sometimes conclusions from these computations and

estimates are allowed to invade the province of the jury

and furnish the basis for a conviction not upon evidence of

facts but upon speculation and theorizing by the Govern-

ment witnesses as to what the facts really are.

estimates, projections, and conclusions which the Govern-

ment has been allowed to get into the record, upon the ap-

parent theory that it is up to the defendant to explain all of

it away as part of the burden to prove his innocence.

‘“‘This Court and other Courts have in many cases,

pointed out the dangers attending trials conducted in this

way. Some of them have at times seemed to be more con-

cened in easing the difficulties attendant to proof of guilt

by this method than with preserving unimpaired the con-

stitutional rights of a defendant, the fundamental

safeguards and guarantees of his liberty. Most of the

Courts however confronted with the situation which this

kind of case presents, have withstood all attacks upon and

held fast to, constitutional principles, including the fun-

damental premise upon which criminal trials proceed, that

the defendant is presumed innocent until his guilt is

established by legal and admissible evidence beyond a

reasonable doubt.”’

“‘Sometimes without adhering to the essentials of the

See Demetree v. U.S., (5th Cir., 1953), 207:.F. 2d 892.

method, that the net worth at the beginning as well as the

The Court in Dupree v. U.S., (Sth Cir., 1955), 218 F.

end of the period be shown, the proof comes in and the

case is submitted with a complete gap in the proof as to the

beginning of the period.

2d 781 made it altogether clear that in cases where the ex-

penditures method of proof is employed, the Government

10

must present evidence that sufficiently excludes the

possibility that the defendant relied on previously ac-

cumulated assets rather than on unreported taxable in-

come. Subsequent decisions have made clear that the

Government may establish the opening available funds for

a beginning year and proceed to show the total of taxable

and non-taxable receipts for the following consecutive

years to prove its case. Where that is done the opening

available funds for the beginning year (gifts, inheritance,

and the like) and income received less disbursements paid

during the beginning year establish the opening availiable

funds for the following year. In addition to establishing a

defendant’s opening available funds, the Government also

has the burden of proving that the expenditures in ques-

tion were not made from other non-taxable sources, such

as gifts, loans, or bequests. See U.S. v. Lydell Marshall

(Sth Cir., 1977), 557 F. 2d 529 affirming unreported D.C.

decision:

It is part of the government’s burden of proof to

establish beyond a reasonable doubt that the expenditures

came from taxable income for the very years in question

since our income tax system is on an annual basis, and

failure to report income must be charged for a specific

year.

There is always the possibility that the taxpayer utiliz-

ed cash that he received from an untaxable source (i.e.,

mother’s gifts prior to death) or from income taxed in a

prior year but kept on hand as cash or even from

unreported income from a prior year kept on hand in cash.

Such events are common human occurrences and this

possibility may of itself create reasonable doubt.

Therefore the government must establish the amount of

cash the taxpayer had on hand at the start of the period.

See U.S. v. Bianco, (2nd Cir., 1976), 534 F. 2d 507, cert.

den. 1976, 429 U.S. 822, suggesting that in a cash expen-

diture case, proof of a likely taxable source does not suf-

11

fice to relieve the prosecution of its duty to negate pro-

bable sources of untaxable income.

The function of legal process is to minimize risk of er-

roneous decisions. The function of standard of proof, as

that concept:is embodied in the due process clause and in

the realm of fact-finding, is to instruct the fact-finder con-

cerning degree of confidence society thinks he should have

in correctness of factual conclusions for a particular type

of adjudication. The beyond a reasonable doubt standard

historically has been reserved for criminal cases. This uni-

que standard of proof, has been given constitutional status

and it is regarded as a critical part of the ‘‘moral force of

the criminal law.’’ In Re Winship, 397 U.S. 358 at 364

(1970). The heavy standard applied in criminal cases

manifests concern that the risk of error to the individual

must be minimized even at the risk that some who are guil-

ty might go free. Patterson v. New York, 432 U.S. 197,

208 (1977). The due process clause protects the accused

against conviction except upon proof beyond a reasonable

doubt of every fact necessary to constitute the crime with

which he is charged.

The threshold or foundation (not a gratuitious

defense) with regard to a circumstantial evidence case bas-

ed on expenditures is the opening amount available from

previous resources. Government failure to provide a basis

for this threshold requirement, operated to remove this

issue from the jury and a directed verdict of acquittal,

which is not a finding of innocence but only a refusal to

find guilt, is required. See Helvring v. Mitchell, 303 U.S.

391, 397 (1938).

Mullaney v. Wilbur, 421 U.S. 624 (1976) on a

straightforward reading, seems to hold that if a fact is im-

portant enough for serious criminal consequences to turn

on it, then it is important enough to require proof by the

government beyond a reasonable doubt. The reasonable

doubt rule applies to proof of facts that are constitutional-

ly necessary for liability of guilt.

12

The Courts in accepting the circumstantial évidence

of expenditures require that the government establish a

starting point as the keystone of the calculation process.

This is not a gratuitous defense. Thus the consequence of

an erroneous determination of the issue of a starting point

would result in an erroneous criminal conviction subject-

ing the defendant to potential incarceration, an error too

serious to be permitted to be exempt from the rigors of the

Winship rule. 421 U.S. at 699, 700.

Here the government admits to having no statement

from the defendant relative to the amount of cash on hand

available for any period. In its attempt to meet its burden

of proof to essentially establish an accurate cash on hand

figure as of December 31, 1971, an admitted inaccurate,

incomplete financial statement, submitted with regard to a

mortgage application, was utilized. The latter not requir-

ing a listing of cash on hand was solely employed as an in-

vestigative tool. By tracing known bond and stock transac-

tions and known assets inherited from Breger’s mother,

devoid of any proof as to Breger’s lack of available funds

in any year or payment of interest on articles purchased

via credit cards, a conclusion was made that Breger had no

funds on hand. The Second Circuit decision would in-

dicate that appellant must adduce specific evidence such as

cash on hand in order to suggest that a starting point was

inaccurate or misleading, i.e., a shifting of the burden of

proof.

This structure reduced this case to a simplified assess-

ment of what might be called ‘‘the chances of guilt”? which

is fundamentally at odds with the concept of reasonable

doubt. A distinction must be made between the burden of

persuasion, which regulates the decision of close cases by

the fact finders, and the burden of producing evidence

which specifies the result where the evidence on the issue is

non-existent or inadequate to satisfy some threshold re-

quirement. Authorizing jurys to find facts despite uncer-

13

tainty and/or lack of predicate, encourages arbitratiness

thereby subverting the jury’s role as a finder of fact

demanding the most stringent level of proof. fs

An irrational, permissive inference on culpability

drawn from the predicate here, i.e. no cash on hand, has

no place in the criminal law in any form and ought to be

invalidated. See e.g. U.S. v. Black, 512 F. 2d 864 (9th Cir.,

1975). ing

No analyzation was made as to the availabilty of

funds in or from prior years. Evidence must carefully trace

the financial history of a defendant and disclose expen-

ditures in excess of reported resources in a period im-

mediatel, preceding the indictment years to sufficiently

support a finding that there was no cash horde. Friedberg

v. U.S., 348 U.S. 142, 144, 75 S. Ct. 138, 99 L. Ed. 2d 188

(1954).

In asking the jury to rely on these analyses as a basis

for deciding that the taxpayer willfully understated his

true income, the government necessarily relies on cir-

cumstantial evidence. U.S. v. Slutsky (2nd Cir., 1973), 487

F. 2d 832, 839 cert. den. 416 U.S. 937 (1974). There is

always the possibility that the taxpayer’s deposits consists

of snonies received from an untaxable source or from in-

come tax in a prior year but kept on hand as cash or even

from unreported income from a prior year kept on hand in

cash.

By failing to analyze income and expenditures for the

prior periods the government has absolutely no competent

evidence which in any way suffices to clearly and accurate-

ly establish with reasonable certainty the extent of defen-

dant’s prior assets at the inception of any of the indict-

ment years. Further the government failed to follow leads

developed during its investigation with regard to the

repayment of the Cooperstone loans and consciously

avoided any evidence that would exculpate the defendant.

14

It is evident that the application of the expenditure

method of proof herein has neither a head nor a tail and

will not do since the required starting point has not been

established.

The labarynth of slender threads woven by the agents

to determine a zero net worth cannot be sustained as com-

plying with the requirement of an accurate and definite

opening net worth or making clear the extent of any con-

tributions which beginning resources could have made to

expenditures. The government’s evidence fails to provide

substantial and sufficient support for the jury to conclude

defendant’s zero cash on hand at the close of 1971 has

been established with the requisite reasonable certainty.

Great care should be observed in the exercise of

judicial discretion to the end that no shifting of the burden

placed upon the prosecution to prove guilt results in re-

quiring to any degree or extent that a defendant prove his

innocence. The burden of proof must remain on the pro-

secution to establish guilt. The administration of justice is

not a game of chess or of hide and seek. It is a search for

truth and the application of the law to the true facts in

order that substantial iustice be done under the law. The

prosecution must not be permitted to introduce evidence

which is not so indicative of guilt as to freely point to guilt

and cast a burden on the defendant to disprove an unfair

implication or inference. The use of evidence which in

fairness should not under the circumstances be deemed to

have satisfied the government’s burden of proving a star-

ting point improperly cast the burden upon the defendant

to explain the source of these expenditures.

athe, pores ig ica ape Me — tre tet aa CMe ate EI Pc No a ~--

15

B

Charts should not have been admitted into

evidence.

Re

~

Government’s proof was based on the non-deductible

expenditure method of proof. Government’s chart as sub-

mitted into evidence over counsel’s objection incorrectly:

1. Added a $900.00 expenditure in 1973, concededly im-

proper. 2. Added itemized deductions as additional expen-

ditures in the amount of $1,456.15 for 1972, $1,834.13 for

1973 and $2,341.05 for 1974, which amounts were

reflected in other expenditures listed and properly should

have reduced the amount of gross expenditures to arrive at

the amount of expenditures to be compared with income.

3. Improperly reduced availability of funds in the amount

of $1,000.00 capital loss deductions claimed on income tax

returns filed for the periods involved herein, which were

reflected in the availability of funds via the amount used

for purchases and the amounts received from sales of

stock. 4. Due to the lack of a comprehensive investigation

plus a conscious avoidance by the investigating agents to

obtain any evidence beneficial to petitioner, $21,600.00 of

loan repayments attested to by government witnesses was

omitted from the chart. This in spite of the fact that the

uncontroverted evidence proved that a Mr. Asche, inter-

viewed by the agents, informed them of the repayment

plus the fact that $5,000.00 of the repayment was

deposited to petitioner’s bank account. 5. Additional

deductions entitled to by the taxpayer in each of the years,

i.e., interest deductions regarding loans not claimed as

deductions, was not reflected on the chart. 6. Incorrectly

listing health insurance premiums at $300.00 rather than

$150.00.

A summary exhibit particularly a government sum-

mary or chart, should present an accurate representation

16

of the evidence that has been presented and should not ex-

press conclusionary, argumentative or prejudicial

statements, tending to state as fact, the mere opinion of

the person preparing it.

In U.S. v. Altruda, (C.A. 2, 1955), 224 F, 2d 935, it

was held that since the schedule did not conform to the

government evidence or fully state the facts of the case, it

was error for the Court to admit them into evidence. In

U.S. v. Vardini, (C.A. 2, 1962), 305 F. 2d 60, the failure to

reflect in the summary the proper deduction to which the

taxpayer was entitled constituted reversible error. Even

though the error was considered small, the Court held it

was material enough to necessitate reversal. In Flemister v.

U.S., (C.A.—5, 1958), 260 F. 2d 513, it was held that if a

summary purports to be a mathematically correct state-

ment of the evidence, then the inclusion of clearly im-

proper items cannot be dismissed as non-prejudicial. Fur-

ther that the government summaries in order to be ad-

missible, must be accurate reflections of what they purport

to be, that is, either a summation of the evidence given by

one set of witnesses or a summary of all the evidence.

The summary allowed into evidence was not a fair

representation of the government’s evidence, inaccurate

and the information contained in the exhibit, based on

cross-examination, went beyond the capacity of the experi

who prepared it.

Expert testimony and illustrative charts are permissi-

ble as long as the assumptions upon which they are based

are supported by evidence in the case. However, if the par-

ticular charts were misleading or prejudicial, their in-

troduction signals error. The burden of setting forth the

deficiencies in specific terms that can be followed iz on the

defendant. U.S. v. Jalbert, (1st Cir., 1974), 504 F. 2d 892,

894. Under the rule authorizing summarization of

evidence, summary or chart must be accurate, authentic

and properly introduced before it may be admitted into

evidence. Federa! Rules of Evidence, Rule 1006.

/

.

}

é

i

sodienbieinieete eect sex

17

The technical errors conceded reflected on the charts

submitted into evidence involved: (1) adding to expen-

ditures amounts spent for tax deductible items, reflected in

cash expenditures; (2) deducting from cash availability,

$1,000 in each of the years for capital losses claimed on the .

returns, reflected in purchase and sales of stock; (3) not

allowing additional deductions revealed by the investiga-

tion.

In view of the small amount involved herein as alleged

excess expenditures over income reported, the charts must

be deemed not to have met the prerequisites of being ac-

curate, authentic or proper. The admitted errors and

misinterpretation of the effect of items must be deemed so

prejudicial as to require reversal of the convictions. Due to

the omissions, misinterpretations and discrepancies be-

tween the record and exhibits on the Government’s charts,

an attempt was not merely made to summarize the

testimony. On the contrary, the government undertook to

evaluate the evidence, endeavoring to pass upon the

reliability and credibility of certain witnesses and to deter-

mine what weight should be given their testimony, so that,

with regard to the exhibits being sent to the jury, the

government through its witness invaded, indeed took over

the province of the jury. Steele v. U.S., (Sth Cir., 1955),

222 F. 2d 628. :

As was stated by the Supreme Court in Holland v.

U.S., supra, with regard to the use of summaries:

‘*Here figures have a way of acquiring an existence of their

own independent of the evidence which gave rise to them.”’

Thus careful examination of these charts was required and

due to their inaccuracy, prejudicial impact and misleading

conclusions should not have been permitted to be accepted

as evidence. |

The chart was a structure which reduced this criminal

case to a simplified assessment of what may be called

18

“‘chances of guilt’’, which is fundamentally at odds with

the concept of reasonable doubt. It should not be used as a

var of determining ultimate questions of innocence or

ilt.

Cc

Failure to report as gross income the total

amounts received from activities with regard to sales

of tapes and records, did not justify a 7206(1), I.R.S.

conviction, and spillover from incorrect interpreta-

tion of cash expenditure method of proof by the jury

JSrom proper consideration of same.

Breger’s side enterprise with regard to the sales of

records and tapes involved the following amounts:

1972 $35,980.00

1973 50,000.00

1974 8,250.00

In each of these years, Breger reported commissions

from these sales approximating $1,200.00. Although

payments for these sales went directly to Breger, all of the

witnesses Stated that sales from Breger were on a COD

basis, unusual in an industry where terms for payments are

usually granted. They further stated that his prices were —

cheaper than average and that no inventory was seen. It

would appear that Breger was acting as a commission mer-

chant or agent.

The gist of the offense pursuant to an indictment

under Code Section 7206(1) is a false statement, willfully

made of a material matter. Kolaski v. U.S., (Sth Cir.) 362

F, 2d 847. The Government has the burden of proving

every essential element of a crime beyond a reasonable

doubt. Smail v. U.S., (1st Cir.) 255 F. 2d 604. The

19 .

Government’s burden herein is to show that the taxpayer

had rio other choice but to include the. entire amount

received as gross income on Schedule C and the materiality

of this alleged omission. A finding of scienter is also re-

quired. The mere failure to make a complete and accurate

report of income for taxation is less than enough to sup-

port a verdict. The failure must have been willful in a sense

that it was with intent to attempt thereby to evade pay-

ment of income tax which would have been shown by a

correct return to have been lawfully payable.

The accountant who prepared these returns stated

that he believed that Breger was not in business and was

acting as agent in selling these items and that one acting as

an agent does not have to file a Schedule C. The Govern-

ment’s expert witness, Burbank corroborated the former

and stated ‘‘if the amounts were received on behalf of a

principal, Breger would not have to report these amounts

received as gross income.’’ No evidence was elicited that

Breger maintained an inventory or that he could sell more

of an item than was offered or operated a regular and

systematic business which is consistent with the claim that

Breger, per se, was not in the business of buying and sell-

ing records and tapes but merely acting as a middle man or

conduit or agent. Burbank on direct testimony, not in the .-_

heat of cross-examination, voluntarily stated that his inac- -

curate, incorrect, additional income as reflected by his

schedules could have been derived from the sale of these

records and tapes. This would appear to have been a plan-

ned statement in Burbank’s continued efforts to justify his

incorrect conclusions. This was objected to and sustained,

but it was already implanted in the jurors’ minds.

The Internal Revenue Service has recognized: that.

amounts received by an agent on behalf of a principal, and

turned over to the principal; are not taxable to the agent

under Code Section 61(a). Revenue Ruling 76-479, 76-2

C.B. 20. Defendant has not been shown to have a regular

to

20

and systematic business with regard to tapes and records

had no office or warehouse, no inventory and it becomes

apparent that he was acting as an agent for other dealers in

records and tapes. If business transactions between parties

require cross-payments, the gross income of either party

from the transaction is the excess of amounts received over

payments made. See c.f. Schmitt, 30 T.C. 322 (1958) af-

firmed on other issues (Ca.-9) 271 F. 2d 301.

It is evident that due to the aforementioned uncertain-

ties of if or how the amounts received should be reported,

that asa matter of law, the defendant cannot be guilty of a

criminal violation. As a matter of law the requisite intent

to evade and defeat income tax is missing. The obligation

to report the entire amount as income is so problematical

that defendant’s actual intent is irrelevant. Even if it could

be shown that he had consulted the law and sought to

pie — ri yp gt he would have had no certainty

Ow e law required. See Amy T. Cri

Cir., 1974), 498 F. 2d 1160. ae

It should be further noted that when there is sufficient

doubt as to the meaning of the provisions of the Internal

Revenue Code as applied to the facts of this case, all doubt

must be resolved in favor of the taxpayer. Porter v. Com-

missioner, 288 U.S. 436, 442, 53 S. Ct. 451, 77 L. Ed. 880

(1933). It is settled that when the law is vague or highly

debatable, a defendant, actually or imputedly, lacks the

requisite intent to violate it. In James v. U.S., 366 U.S.

213, 81 S. Ct. 1052, 6 L. Ed. 2d 246 (1961) when the

Supreme Court ame that embezzled funds were taxable

income, it nonetheless reversed James’ conviction un

Code Section 7201. Former Chief Justice Warren a y

three Justice plurality opinion stated:

**‘We believe that the element of willfulness could not be

proven in a criminal prosecution for failing to include

embezzled funds in gross income in the year of misap-

~

21

propriation so long as the statute, contained a gloss placed

upon it by Wilcox at the time the alleged crime was com-

mitted.”

Justices Black and Douglas agreed with the decision fur-

ther stating:

‘‘ _ . Acriminal statute that is so ambiguous in scope that

an interpretation of it brings totally unexpected results,

thereby subjecting people to penalties and punishments for

conduct for which they could not know was criminal under

existing law raises serious questions of unconstitutional

vagueness. 366 U.S. at 224.”

The Supreme Court in its recent decision with regard

to withholding tax on employee meal reimbursements,

Central Illinois Public Service Co. v. U.S., 98 S. Ct. 917

(1978) stated that prior to an employer being liable for the

civil liability for withholding tax the obligation to

withhold must be ‘‘precise and not speculative.”

It may be that corrective instructions and/or sustain-

ed objections are no more than an empty ritual without

any effect on the jurors. Verdicts in criminal cases often

find their real spring in the atmosphere generated in and

by the trial with things felt but unseen sometimes real,

sometimes illusory, arising out of, but more than, the rele-

vant and admissible evidence in the end more influence the

verdict than does the relevant testimony. See Ford v. U.S.,

(Sth Cir., 1954), 210 F. 2d 313, 317, 318 cert. den. 352

U.S. 833 (1956).

Under the circumstances herein extreme prejudice

was caused by this remark and when considered in con-

junction with the erroneous charts placed before the jury,

i.e., spillover of the effect of both items, probably caused

the jury’s verdict of conviction.

22

D

Denial of Defendant’s Requested Charge With Re

gard to Reasonable Doubt.

Defendant in his request to charge requested that

reasonable doubt be defined as follows:

**In order for you to find the defendant guilty of the of-

fenses charged in the indictment, there must be such proof

as satisfies your reason as intelligent people beyond any

reasonable doubt that the defendant is guilty as charged.

**The choice of an appropriate burden of proof depends

in large measure on society’s assessment of the stakes in-

volved in a judicial proceeding. The standard of ‘proof

beyond a reasonable doubt’ is constitutionally mandated

for elements of a criminal offense. Due process commands

that no man shall lose his liberty unless the Government

has borne the burden of . . . convincing the fact-finder of

his guilt. It is critical that the moral force of a criminal law

not be diluted by a standard of proof that leaves people in

doubt whether innocent men are being condemned. If

quantified, the beyond a reasonable doubt standard might

be in the range of more than ninety-five percent probable.

U.S. v. Schipani, 289 F. Supp. 43, 57 E.D.N.Y., 1968,

aff'd. 414 F. 2d 1262, (2nd Cir., 1969). U.S. v. Daniel

Fatico, E.D.N.Y., 1978, 458 F. Supp. 388.”’

“*In other words proof beyond a reasonable doubt is on-

ly established if the evidence is such as you would be will-

ing to rely and act upon it in the very most important of

your own affairs. The defendant is not to be convicted on

mere suspicion, conjecture or possibility. A reasonable

doubt exists when after careful and impartial consideration

of all the evidence, the jurors individually and collectively,

do not feel convinced to a moral certainty, i.e., ninety-five

percent quantum ratio that the defendant is guilty of the

crime charged.”’

23

The Court refused this request and instead used the

following:

‘*What is a reasonable doubt?

‘“‘The words almost define themselves, that there is a

doubt founded in reason and arising out of the evidence in

the case, or the lack of evidence. It is a doubt which a

reasonable person has after carefully weighing all of the

evidence.

**Reasonable doubt is a doubt which appeals to your

reason; to your judgment; to your common sense and your

experience. It is not caprice, whim, speculation, conjecture

or suspicion; it is not an excuse to avoid the performance

of an unpleasant duty, it is not sympathy for a defendant.

“*If, after a fair and impartial consideration of all the

evidence, you can, candidly and honestly, say you are not

satisfied Of the guilt of a defendant, that you do not have

an abiding conviction of his guilt, in sum, if you have such

a doubt as would cause you, as prudent persons, to hesitate

before acting in matters of importance to yourselves, then

you have a reasonable doubt and in that circumstances it is

your duty to acquit.

‘*If, on the other hand, after such an impartial and fair

consideration of all the evidence, you can, candidly and

honestly, say you do have an abiding conviction of a

defendant’s guilt, such a conviction as you would be will-

ing to act upon in important and weighty matters in the

personal affairs of your own life, then you have no

reasonable doubt, and under such circumstances, it is your

duty to convict.

‘*Reasonable doubt does not mean a positive certainty

or beyond all possible doubt.”’

The moral force of the criminal law should not be

diluted by a standard of proof that leaves men in doubt

whether innocent men are being condemned. Jn Re Win-

ship, 397 U.S. 358, 364, 90 S. Ct. 1068, 1072, 25 L Ed 2d

368 (1970). As Chief Judge Cardozo so aptly put this mat-

ter:

24

**The genius of our criminal law is violated when punish-

ment is enhanced in the face of a reasonable doubt as to

the facts leading to enhancement. People v. Reese, 258

N.Y. 89, 179 N.E. 305, 308 (1932).”’

It is more appropriate and descriptive to define a term

positively than to state what it is not. It would appear that

a more descriptive definition of reasonable cause is

presented when the jury is given its quantitative worth.

When anything more than a simple caution and a

brief definition is given, the matter tends to become one of

mere words, and the actual effect upon the jury, instead of

being enlightenment is likely to rather be confusion or at

the least a continued incomprehension.

E.

Agent’s Pervasive Testimony Rendered it Useless and

Court Should Have Ordered Testimony Stricken so as

to Avoid Confusion and Prejudice.

Agent’s testimony as described previously was inac-

curate, misleading and pervasive throughout.

Thus the confusion and prejudice caused by this

testimony rendered it useless. See U.S. v. Celentano, 391

F. Supp. 1252 (S.D.N.Y. 1975), and his testimony should

have been stricken in accordance with the motion made by

defense counsel (324-325).

25

CONCLUSION

It is respectfully submitted that this petition for cer-

tiorari be granted.

Respectfully submitted,

MURRAY APPLEMAN

Attorney for Petitioner

A Member of the Bar of the

United States Supreme Court

la

Appendix A—Opinion of the U.S. Court of Appeals

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

—

No. 662—September Term, 1979

(Argued January 22, 1980

Decided February 28, 1980)

Docket No. 79-1395

—

UNITED STATES OF AMERICA,

> Appellee,

_V—

HERBERT BREGER,

Appellant.

$<»

Before:

OAKES, VAN GRAAFEILAND, and NEWMAN,

Circuit Judges.

—_

Appeal from convictions of tax evasions and false

statements, I.R.C. §§7201, 7206(1), in three taxable

years, before the United States District Court for the

Eastern District of New York, George C. Pratt, Judge.

1497

2a

Affirmed over principal contentions of insufficiency of

evidence and reliability of opening net worth evalua-

tion.

—

MURRAY APPLEMAN, New York, N.Y

Appellant. —

RHONDA C. FIELDS, Assistant United States

Attorney (Edward R. Korman, United

States Attorney for the Eastern District

of New York, Vivian Shevitz, Assistant

United States Attorney, of counsel), for

Appellee. nae

<> --

PER CURIAM:

This appeal is from convictions after a j ial i

the United States District Court for the ag ig te

trict of New York, George C. Pratt, Judge, for three

counts of tax evasion, in violation of I.R.C. § 7201, for

the years 1972, 1973, and 1974, and three counts of

false statements in tax returns, for the same years, in

violation of ILR.C. § 7206(1). We affirm.

Appellant makes two principal arguments on appeal.

He first contends that a motion for directed verdict

should have been granted, because the excess funds

revealed by the expenditure method of proof resulted

not from record and tape sales but from repayment of

loans. His supporting evidence at trial consisted pri-

marily of testimony from his brother-in-law, father-in-

law, and a close family friend, to the effect that they

1498

3a

repaid Breger certain cash during the tax years in

question. Appellant also claims that he was not a prin-

cipal but merely an agent for other dealers in the sale

of records and tapes. But the Government’s proof con-

sisted of invoices in appellant’s name and cancelled

checks made out to appellant from three record compa-

nies for over $90,000. And the testimony as to the

cash “repayments” was totally unsubstantiated by any

documentation such as books, records, notes, receipts,

or the like. We think that these are precisely the sort

of factual issues designed for submission to a jury, see

Glasser v. United States, 315 U.S. 60, 80 (1942);

United States v. Marrapese, 486 F.2d 918, 921 (2d Cir.

1973), cert. denied, 415 U.S. 994 (1974), which in this

case apparently did not accept appellant’s version of

the story. In any event, even assuming appellant were

correct as to each of the alleged repayments, he still

substantially understated his taxable income—by more

than $17,000."

Appellant’s other principal argument attacks the re-

liability of the Government’s opening net worth evalua-

tion. The net worth/expenditure method for proving

tax evasion necessitates the establishment with reason-

able certainty of a starting point. Holland v. United

States, 348 U.S. 121, 132 (1954); McFee v. United

States, 206 F.2d 872, 874 (9th Cir. 1953), vaeated and

remanded, 348 U.S. 905, aff'd upon reconsideration per

] The argument that the Government did not investigate the repay-

ments under the “leads” doctrine, see Holland v. United States, 348

U.S. 121, 135-36 (1954), is without substance. Even if the doctrine

were applicable the evidence was sufficient to convict. But appellant

had not advised the Government of the supposed cash receipts, his

close friend had not done so when interviewed, and their joint

attorney never produced the supposed documentation—stock pur-

chase orders—underlying the “loan” and “repayment.” In other

words there were not “leads” to follow, only afterthoughts.

1499

4a

curiam, 221 F.2d 807 (5th Cir.), cert. denied, 350 U.S.

825 (1955) (expenditure and net worth methods of

proof in tax evasion cases are essentially same

method). The Government must affirmatively prove an

initial amount available to the taxpayer, with evidence

that excludes the possibility that the defendant relied ©

on previously accumulated assets rather than unre-

ported taxable income, United States v. Marshall, 557

F.2d 527, 530 (5th Cir. 1977), without refuting all

possible speculation as to sources of funds, however.

McFee v. United States, supra, 206 F.2d at 874. We

think the Government met its burden here. It used

information gleaned from a 1969 mortgage application,

traced a real estate and cash inheritance from

appellant’s mother in 1968, and investigated bond

statements and checking accounts in order to ascertain

appellant’s access to funds as of January 1, 1972. We

note that appellant adduced no specific evidence, such

as a cash hoard, to suggest that the starting point was

inaccurate or misleading.

Appellant’s other contentions are without merit and

require no comment.

1500