Petition — Besase v. United States

Supreme Couit, U.S.

80-615 FILED

ICT 16 1880

gt a eR OE MICHAEL RODAK, JR., CLERK

Supreme Court of the United States

October Term, 1980

SAM BESASE, SAM RAPPAPORT and TED MAISON,

Petitioners,

VS.

UNITED STATES OF AMERICA,

Respondent.

PETITION FOR WRIT OF CERTIORARI

To the United States Court of Appeals

For the Sixth Circuit

JOHN KENNEDY LYNCH

315 Williamson Building

Cleveland, Ohio 44114

(216) 771-2543

Counsel for Petitioners

THE GATES LEGAL PUBLISHING CO., CLEVELAND, OHIO—TEL. (216) 621-5647

QUESTIONS PRESENTED

1. When the Internal Revenue Service fails to prove

in Trial Court that a partnership exists, can the Appellate

Court find an alleged partner liable, as an individual, for

excise taxes assessed against the partnership?

2. May an Appellate Court re-evaluate evidence pre-

sented in Trial Court to find an individual liable for excise

taxes assessed against a partnership which was proved

non-existent in the Trial Court?

LIST OF ALL PARTIES

The petitioners are: Sam Besase, Sam Rappaport, Ted

Maison who, of the six defendant-appellees, were the three

held liable for the excise taxes as individual operators, the

other three defendant-appellees having been found not

liable.

The defendants in the Court below were John Besase,

George Besase, Sam Besase, Angelo Perna, Sam Rappaport

and Ted Maison. The other defendants are alleged trans-

ferees and trial of their case was continued subject to final

determination of the principals. The Sixth Circuit Court

of Appeals sustained the Trial Court in finding that John

Besase, George Besase and Angelo Perna were not liable

for excise taxes which arose from an alleged six-man part-

nership.

Ill

TABLE OF CONTENTS

ELLE ES I

Tei inuniinddnsannsemeceenreecs I

a csubbtnenitesonbpeeseenesce IV

es vcatrecansemcnensesncercenccsacccsnenceacence 1

GLE A Ria Scale isserdiaioien 1

Statutory and Constitutional Provision Involved ........ 2

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rn oe nr one Wrest... 10

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Appendix:

Opinion of the United States Court of Appeals for

the Sixth Circuit (June 17, 1980 )-.......-00000... Al

Findings of Fact and Conclusions of Law of the

United States District Court (August 30, 1977) .... A13

Judgment Entry of the United States District Court

I sade dcitiesnsdnieinseccensussccntnccceseescnees A38

Order of the United States Court of Appeals for

the Sixth Circuit Denying Petition for Rehear-

I I i etiichccsnccvescecsocecconorqicencecenetesence A39

Constitu..on of the United States, Amendment V .... A40

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Sn, A, NR UE Poo os occcccsccccccctecztcs caceceewnsesee A4l

I I cao ceccccncconcgececoceces A42

PRECEDING PAGE WAS BLANK

TABLE OF AUTHORITIES

Cases

Deweese v. Reinhard, 165 U.S. 386 ...........222-222.--s:.-cce0e00:e+ 14

FHaleell v. Renfrow, 202. US. 267 ....--ccccnccenccsncoonscovestosses 11

Helvering v. Taylor, 293 U.S. 507 (1935) ......2....2..2....--- 17

Kaiser Motors Corporation v. Savage, 229 F.2d 525 ..... 11

Kansas City Stockyards of Maine v. Anderson, 38

arte t ee fk ree li

Memorial Hospital Associates v. Pacific Great Pro-

ducts Compony, 45 Cal. 2d 634, 50 A.L.R.2d 442... 11

Milwaukee and M.R. Co. v. Soutter, 13 Wall. (U.S.) 517 14

National Federal Insurance Co. v. Thompson, 281 U.S.

. -prcbianigetenchinatbssinonasssainidatndaccee iehiahiedietaeicaaaiaiaaaaema IS 4

Pizzarello v. United States, 408 F.2d 579 (2d Cir.

NY ~ eckihincttnccpcccckecuttnaameeccantieciasninintmmntitniebenntaaers 12,15

Rock v. Mathews, 35 W. Va. 531, 14 S.E. 137, 14 L.R.A.

SII siccoscendinicecnipenicshaptuneslesniessdeddiaialalies teisaiidiscaale dadieaiegtaCccnctaees 14

Stanley Haimowitz v. Commissioner, Tax Court Memo

1971-241 Dec. 30994, 30 T.C.M. 1034 0.000.022... 11,17

United States, et al. v. Janis, 96 S. Ct. 3021-20000. 18

Weir v. Commissioner, 283 F.2d 675 (6th Cir. 1970) ..... 17

Constitutional Provisions and Statutes

Te, Ge eT in se ee ks 2

Internal Revenue Code of 1954, 26 U.S.C.:

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TIEN |" cnuidiea taancecavetamvinenssamieligianionhs<caeknantnmuets 2

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28 U.S.C

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eR ST a

Supreme Court of the United States

October Term, 1980

SAM BESASE, SAM RAPPAPORT and TED MAISON,

Petitioners,

vs.

UNITED STATES OF AMERICA,

Respondent.

PETITION FOR WRIT OF CERTIORARI

To the United States Court of Appeals

For the Sixth Circuit

OPINIONS BELOW

The findings of fact and conclusions of law of the

United States District Court for the Northern District of

Ohio, Western Division, is reproduced in the Appendix at

page Al3. The order of the District Court is reproduced

in the Appendix at page A38. The opinion of the United

States Court of Appeals for the 6th Circuit is reproduced

in the Appendix at page Al. The order of the United

States Court of Appeals for the 6th Circuit, denying pe-

tition for rehearing, dated July 25, 1980, is reproduced in

the Appendix at page A39.

JURISDICTION

The judgment of the Court of Appeals was entered on

June 17, 1980, and issued as a mandate on August 19, 1980.

Petition for rehearing was denied on July 25, 1980. The

jurisdiction of this Court is invoked pursuant to 28 U.S.C.

1254(1).

STATUTORY AND CONSTITUTIONAL

PROVISION INVOLVED

This case involves the 5th Amendment of the Con-

stitution of the United States and the Internal Revenue

Code of 1954 (26 U.S.C.) Section 4401 (Appendix p. A40).

STATEMENT OF THE CASE

This suit was brought by the United States of America

(hereinafter Government) to reduce to judgment certain

wagering-excise tax assessments and fraud penalties levied

against the defendant taxpayers. Plaintiff commenced

the action pursuant to the provisions of Sections 7401-

7403 of the Internal Revenue Code of 1954, 26 U.S.C. Juris-

diction is alleged under 28 U.S.C. Sections 1340 and 1345,

and 26 U.S.C. Sections 7402 and 7403.

The original assessment against the partnership was in

the amount of $1,067,889.74. The Internal Revenue Ser-

vice made a similar assessment against six of these defen-

dants on the theory that each was a member of a six-way

partnership and therefore each was liable for the full

amount of partnership assessment. Thus, the total assess-

ments against the six was in the amount of $6,407,338.44.

Subsequent to these assessments, the defendants filed

claims in abatement requesting abatement of the full

assessment. These claims were denied by the Internal

Revenue Service, but, on August 6, 1969, the Internal

Revenue Service advised that the assessments against the

alleged members were being abated in the amount of $888,-

908.11 for each of the members. This resulted in an ad-

justed assessment against each alleged member in the

amount of $117,981.63. The statement of the Internal

3

Revenue Service in its letter of August 6, 1969, reads in

part as follows:

“Each of the members of the above partnership filed

abatement claims on July 17, 1968. Each of the six

claims is for $1,067,889.74. The members have been

assessed individually for the total tax attributable to

all of the members. This claim is being allowed to

the extent that we attribute a pro rata portion of the

total tax to each of the members. The abatement is

distributed as follows:

Amt. Adjusted

Assessed Ass’m’t. Abatement

John

Besase $1,067,889.74 $ 177,981.63 $ 889,908.11

George

Besase 1,067,889.74 177,981.63 889,908.11

Sam

Besase 1,067,889.74 177,981.63 889,908.11

Angelo

Perna 1,067,889.74 177,981.63 889,908.11

Sam

Rappaport 1,067,889.74 177,981.63 889,908.11

Ted

Maison 1,067,889.74 177,981.63 889,908.11

Total $6,407,338.44 $1,067,889.74 $5,339,448.70”

(emphasis supplied).

Count I of the plaintiff's Seven Count Amended

Complaint (as amended September 22, 1972) alleges that

defendant taxpayers John Besase, George Besase, Sam

Besase, Joseph Besase, deceased, Angelo Perna, Sam Rap-

paport and Ted Maison operated a partnership for the

conduct of gambling operations during the period January

31, 1961, through June 30, 1963. Count I further states

4

that on April 17, 1964, a delegate of the Secretary of the

Treasury made assessments according to law against the

above-named defendant taxpayers, as individuals and

partners, for federal excise taxes, penalties and interest,

and that despite demand for payment, there is presently

due and owing from the defendants, individually and as

members of a partnership, the sum of $927,411.76.

Count II of plaintiff's Amended Complaint seeks to

reduce to judgment federal excise tax liabilities, penalties

and interest assessed against defendant taxpayers John

Besase, George Besase, Sam Besase, Angelo Perna, Sam

Rappaport and Ted Maison, who are alleged to have op-

erated a partnership for the conduct of gambling opera-

tions during the period July 1, 1963, through October 31,

1963.

Counts III, IV, V, VI and VII of the plaintiff’s Amended

Complaint seek to foreclose federal tax liens against certain

properties allegedly owned by certain of the above-named

defendant taxpayers, and to set aside certain conveyances

of real property owned by certain of the defendant tax-

payers on the grounds of fraud. Party defendants named in

Counts III through VI include Josephine Besase, Lucas

County State Bank, Cissie Rappaport, First Federal Sav-

ings and Loan Association, Anna Perna, Toledo Home

Federal Savings and Loan Association, Thelma Kreitzer,

Sylvania Savings Bank, Rosemarie Besase, Anthony

Besase, Jr., George S. West, Pauline A. West, Thelma

Mabel Besase, Roseanne Besase, and Ann Besase, all of

whom are alleged to claim some interest in the properties

involved.

Defendants John Besase, Sam and Ann Besase, Angelo

and Anne Perna, and George and Josephine Besase have

filed cross complaints against the government for refund

and/or abatement of their income tax liabilities. Said de-

5

fendants prayed that if the Court reduced to judgment

any of the wagering <xcise tax assessments claimed by

the plaintiff, the defendant taxpayers be allowed income

tax deductions of said excise taxes for the relevant years.

This case was previously tried on August 20, 1974, and

judgment entered for the defendants, which was reversed

by this Court on appeal by the plaintiffs and remanded

for new trial. On October 4, 5 and 6, 1976, the case was

retried on Counts I and II only.

The government, by oral stipulation in the August 20,

1974, trial (Tr. 15-21) withdrew its claim for the period

January 1, 1961, to September 30, 1962.

Supporting Facts

In July 1963, Internal Revenue Service agents began

a surveillance in Toledo of numbers operators who in-

cluded the defendants. In the course of this surveillance,

Internal Revenue Agents placed 2031 West Alexis Road,

Toledo, Ohio, under observation. This building is a large

apartment house containing four or five apartments, with

one small apartment in the rear of the building. This

was the apartment placed under surveillance. The Agents,

for four days, on September 12, 16 and 18, and on October

14, 1963, observed this particular location from vantage

points outside the apartment. On Wednesday, October 23,

1963, at 3 p.m., they executed a search warrant by enter-

ing the door of the rear apartment at 2031 West Alexis

Road. It is on the basis of these four days’ surveillance

outside of the apartment that the government determined

the six defendants were operating a single, 6-man partner-

ship for a period of over three years, beginning in 1961.

This apartment, rented and occupied by Harold Bonta,

not a defendant, consisted of a kitchen, a living room fur-

nished with couch and chairs on the first floor, and bed-

6

room, closet and rear room on the second floor. The

Agents found a rental receipt from January to February

1963 for the apartment on Bonta’s person. (Bonta deposi-

tion, 12,13) (Criminal trial Tr. 1020).

Betting slips seized in the raid appeared to be for

wagers made on October 18, 21, 22 and 23, 1963. These

slips, although somewhat difficult to interpret, were de-

termined by the Internal Revenue Service to represent

average daily receipts of $6,625.41 (Tr. 105). None of the

slips were found on any of the defendants. No one testi-

fied that any of the slips had the name of any of the

defendants on it. Several runners identified slips as theirs,

but not one said any belonged to the defendants. The slips

were found in Harold Bonta’s apartment. He claimed that

they were his property (Crim. Tr. 1081, 1198-1199). For

this reason, Agent Michael arrested Bonta.

All items seized on October 23, 1963, in Bonta’s apart-

ment were the subject of a libel action in the U.S. District

Court for the Northern District of Ohio, Western Division,

C-64-33, filed 2/25/64, in which the United States, Libelant,

alleged, in part, in its complaint that:

“Harold Bonta engaged in and carried on the busi-

ness of accepting wagers . .. and while so engaged, he

did use and intend for use .. . the aforementioned

property .. .” (emphasis supplied). (Appendix A)

The aforesaid property, described in exhibit A attached

to the libel complaint, consisted of fifteen items, of which

items 2, 3, 4, 5, 6, 7, 8, 9, 10, 11 and 15 were seized at

the 2031 West Alexis Road apartment. Item 15, listed

“Miscellaneous Wagering Supplies and Paraphernalia, con-

sisting of “K” books, numbers tickets, adding machine

tapes and numbers records and materials”, some seized at

1317 Washington Street, Toledo, Ohio, and some at the

7

West Alexis Road apartment. Government exhibits 52, 53,

54 and 55 are the wagering numbers slips and tapes seized

on October 23, 1963, at the 2031 West Alexis Road apart-

ment.

In March 1964, in response to the Government request,

Judge Kloub of this Court ordered that all of the seized

property be forfeited to the Internal Revenue Service and

sold, and that the wagering numbers slips be destroyed by

the United States Marshal (Def. Exh. 27, Appendix B).

Yet, the appellant-government has used these self-

same identical slips—which it had requested to be de-

stroyed—to determine defendants’ liability in this action.

On April 17, 1964, defendants were notified that the

Internal Revenue Service had made a jeopardy assessment

against them for alleged unpaid excise taxes-wagering plus

penalties for the period January 1, 1961, to June 30, 1963,

in the amount of $584,474.85 taxes, $292,237.39 penalties,

and $69,428.60 interest. On the same date, another notice

of jeopardy assessment was made to the principal defen-

dants (except Joseph Besase, deceased) for the period

July 1, 1963, through October 1963 in the amount of $79,-

526.28 taxes, $39,763.15 penalties, and interest, $2,459.37

(Plaintiff's Exh. 201 and 203). Both assessments were

predicated on the theory that the principal defendants had

been together in a single partnership operation for the

periods involved.

In June, 1960, 1961, 1962 and 1963, Joseph, George

and John Besase had filed annual wagering registration re-

turns (Treasury Forms 11-C) with the Internal Revenue

Service, reporting that they were doing business accepting

wagers as a partnership under the name of the Star Com-

pany. Joseph Besase’s name did not appear on the Form

11-C filed in June 1963 because of his death earlier that

month (Plaintiff’s Exhs. 13, 213A, 213B and 213C).

8

For each month from January 1961 through October

1963, George and John Besase (and until his death, Joseph

Besase) filed a single wagering excise tax return for the

Star Company. Each monthly return reported gross wagers

accepted by the business in amounts ranging from $2,643.00

to $4,987.00 (except for the months of March through May

1963 in which substantially fewer wagers were accepted).

The Besase brothers reported and paid the ten per cent Fed-

eral excise tax on their reported wagers (Pl. Exhs. 14-23,

216A through 216X, and 221).

In June 1960, 1961, 1962 and 1963, Sam Besase and

Angelo Perna filed annual wagering registration returns

(Treasury Forms 11-C) with the Internal Revenue Service,

reporting that they were doing business accepting wagers

as a two-man partnership (Pl. Exhs. 25, 214A, 214B and

214C).

For each month from January 1961 through October

1963, Sam Besase and Angelo Perna filed a single wagering

excise tax return for their business. Each monthly return

reported gross wagers accepted by the business in amounts

ranging from $1,592 to $2,713 (except for the months of

March through May 1963, in which substantially fewer

Wegers were accepted). Sam Besase and Angelo Perna

reported and paid the ten per cent Federal excise tax

on their reported gross wagers (Pl. Exhs. 26 through 35,

217A chrough 217X, and 221).

Julius Dekany, a certified public accountant in Toledo,

Ohio, served as an accountant to the partnership of George,

John and Joseph Besase (Star Company) and to the part-

nership of Sam Besase and Angelo Perna, from June 1961

through 1963. In that role, he prepared the monthly wag-

ering excise tax returns and the annual wagering registra-

tion returns for his clients, based upon information pro-

vided by them to him (Tr. 457-59, 488-90).

9

In June 1963, Sam Rappaport and Ted Maison filed an

annual wagering registration return (Treas. Form 11-C)

with the Internal Revenue Service, reporting that they were

doing business accepting wagers as a partnership under the

name of M & R Company (PI. Exh. 1).

For each month from January 1961 through October

1963, Sam Rappaport and Ted Maison filed a single wager-

ing excise tax return for their business. Each monthly re-

turn reported gross wagers accepted by them in amounts

ranging from $1,501 to $1,976 (except for the months of

March through May 1963, in which substantially fewer

wagers were accepted). Sam Rappaport and Ted Maison

reported and paid the ten per cent Federal excise tax on

their reported gross wagers (Pl. Exhs. 2 through 11, 218A

through 218X, and 221).

All of the above three partnerships were audited and

examined by Internal Revenue Service prior to 1963, in-

cluding some returns filed for 1959 through 1962 (Tr. 466,

467, 294, and 342) and no question was ever raised about

the existence of any seven-man or six-man partnership.

The income tax returns for 1963 of the defendants did not

include income from a six-man partnership but only from

the respective two-man partnerships; yet, Internal Revenue

Service has never alleged these returns were not correct.

There is no evidence or testimony that the alleged, un-

named, 6- or 7-man partnership ever existed.

10

REASON FOR GRANTING THE WRIT

The Sixth Circuit Court of Appeals made two funda-

mental errors in reaching its decisions and rendering its

opinion in this case. These fundamental errors are of

importance not only to the petitioners but to all taxpayers.

The errors are:

1. The Circuit Court held that when the Internal

Revenue Service assesses a partnership and its members

for excise taxes, even though the Government is not able

to prove the existence of the alleged partnership operation,

some of the individual members may be held liable as

individual operators, even though the Internal Revenue

based its assessment on a partnership operation.

2. The Circuit Court held that even though the Trial

Court heard the witnesses, examined the documentary evi-

dence and concluded that since no partnership was proved,

the alleged partners were not liable, the Circuit Court

may re-evaluate the evidence; and even though mistakenly

reading some of the testimony, may find that some of

the alleged partners are liable for the tax as individual

operators.

The Circuit Court stated in part (III, p. 6):

“At trial, the ultimate factual question was whether

the defendants had operated a common gambling part-

nership that received wagering income from January

1, 1961, through October 23, 1963. The District Court

found the evidence insufficient to establish the ex-

istence of the alleged syndicate, and dismissed the

case on the merits. We believe that portions of this

finding were clearly erroneous. .. As to four of

the defendants, we find no error in the District Court

11

conclusion that the evidence was insufficient to estab-

lish participation in or receipt of income from the

alleged common partnership. . .”

In regard to the evaluation of evidence, the Circuit

Court, in holding that defendant Ted Maison was liable,

misread Mary Bilecki’s testimony and stated in part:

“At an earlier trial, the transcripts u° which were in-

troduced in the present proceeding, Mary Bilecki iden-

tified certain numbers slips seized from the countroom

as slips which she had written for and delivered to

Maison”.

The testimony of Mary Bilecki, referred to by the

Circuit Court, clearly stated that the numbers slips seized

by the Government (Exhibit 52M) were written for some-

one called “Bob” and definitely not written for Maison.

When dealing with questions of fact, the question is

whether there is any evidence to sustain the conclusion

reached by the Court below. A finding of fact by the

trial Court cannot and should not be rejected on appeal

where there was sufficient evidence to sustain it and where

it is not contrary to the preponderance of evidence (3

Am. Jur. 900; Memorial Hospital Associates v. Pacific Great

Products Company, 45 Cal.2d 634, 50 A.L.R.2d 442; Halsell

v. Renfrow, 202 U.S. 287) and all reasonable inferences

must be indulged to uphold it if possible (Kansas City

Stockyards of Maine v. Anderson, 36 A.L.R.2d 1, 199 F.2d

91; Kaiser Motors Corporation v. Savage 229 F.2d 525.

When the Internal Revenue Service alleges the exis-

tence of a gambling partnership, and it is denied by the

taxpayers, the burden is on the Internal Revenue Service

to prove its existence. Stanley Haimowitz v. Commis-

sioner, Tax Court Memo 1971-241 Dec. 30994, 30 T.C.M.

1034.

12

However, in addition to defendants denying the ex-

istence of the so-called 6-way partnerships, there was addi-

tional positive evidence supporting defendants in the form

of prior Internal Revenue Service audits of their individual

returns and separate partnership returns.

No proof was introduced by the government that the

defendants ever belonged to a 6- or 7-way partnership

from January 1961 to October 23, 1963. What the govern-

ment claimed as proof was merely evidence that some

of the defendants had met with several other persons

for a few afternoons in Harold Bonta’s apartment. The

defendants’ stated purpose of these meetings, which was

uncontradicted, was to play cards and otherwise kill time

until the daily numbers were published in the newspaper.

This was consistent with defendants’ businesses as reported

on three separate partnership returns. All the defen-

dants were interested in numbers, but that does not mean—

nor was there any evidence—that they were engaged in

it together. Their afternoon meetings were not inconsis-

tent with their separate businesses, and certainly do not

support any inference that they were engaged in a single

operation.

Furthermore, the appellant-government, in presenting

its case, asked the Court not only to find that the parties

were engaged in this single, 6-way partnership operation

in September and October 1963, but also continuously from

January 1, 1961, to that time. Appellant even suggested

that Joseph Besase, who died in June 1963 was a member

ofthis so-called large partnership, yet there was not one

_i6ta of testimony that he, with his two brothers, ever

engaged in anything other than the reported and audited

Star partnership. It was obvious to the trial Court that

the government’s case was based entirely on assumption

and suspicion, rather than proof and evidence (see Pizza-

rello v. United States, 408 F.2d 579 (2d Cir. 1969) ).

13

In trial, defendants objected to the admissibility of

the numbers slips seized at West Alexis Road on the ground

they were not found in the possession of the defendants

but rather in Harold Bonta’s apartment, and because Bonta

said they were his. Further, in its aforesaid forfeiture

action, the government itself stated the numbers slips were

used and intended for use by Harold Bonta.

Moreover, in the libel action on February 25, 1964,

the government asked for a Court order for destruction

of these numbers slips—and it was so ordered—yet, these

same slips never were destroyed; and now, in this present

action, the government is using them against the defen-

dants.

The government has therefore taken two inconsistent

approaches to ownership and use of these slips. If Harold

Bonta used them, they could scarcely have been used by

the alleged 6-way partnership. When the government re-

quested the Court order for their destruction, it stated

the slips were used by Harold Bonta and others unnamed;

therefore, it is obvious the government did not mean these

six defendants—for, if it had, it would have named them,

since these six defendants had already been arrested in

October 1963 prior to the Court order it requested.

Since the government stated that Bonta and others

used the slips, Bonta is placed in position of a principal—

but Bonta has never been alleged a partner in the so-

called 6-way partnership.

The slips do not prove any tax liability of the defen-

dants. They prove at most that Bonta had in his posses-

sion a collection of numbers slips for four days of October

1963. There is no proof they belonged to the alleged

6-man partnership.

14

The Government, by securing a Court order for de-

struction of these numbers slips, should be estopped by

the judgment and destruction order from using them and

relying on them to determine a tax against the defendants.

“Equity considers done which should have been done”.

If this rule were applied, Exhibits 52, 53, 54 and 55, the

numbers slips, would have no legal existence.

The maxim that “he who comes into equity must

come with clean hands” is an ancient and favored precept

of the chancery Courts. Under modern practice, equity

Courts no longer exist separately, but Courts sit both in

equity and law. It is significant that a litigant may be

denied relief on the ground that his conduct has been

inequitable. This principle is expressed as “he that hath

committed inequity shall not have equity”, National Fed-

eral Insurance Co. v. Thompson, 281 U.S. 331; Milwaukee

and M. R. Co. v. Soutter, 13 Wall. (U.S.) 517.

Relief will be denied where the right upon which

complainant allegedly relies has grown out of a wrong,

a breach of duty, or a violation of law, Deweese v. Rein-

hard, 165 U.S. 386.

Lord Chief Justice Wilmot observed, “No polluted

hand shall touch the pure fountain of Justice; and those

so entering the Temple shall be expelled with the anath-

ema, ‘Procule, O procule, este profani’”, Rock v. Mathews,

35 W. Va. 531, 14S.E. 137, 14 L.R.A. 508.

A complainant will not be permitted to take advantage

of his own wrong.

The daily receipts represented by the slips seized Oc-

tober 23, 1963, do not prove that the defendants engaged

in a 6- or 7-way partnership and received wagers as pro-

jected by the government for the period January 1, 1961,

until October 23, 1963. No one ever testified that such

15

receipts came to the alleged partnership; no one ever testi-

fied that such a partnership, if it existed, did not pay

the taxes (Pizzarello v. United States, 408 F.2d 579 (2d

Cir. 1969) ).

The findings of the Internal Revenue Service are ac-

tually arbitrary and capricious. No agent of the govern-

ment has ever testified that the findings and computations

are correct. No government witness has ever even stated

that he made the determination nor assumes the responsi-

bility for the determination.

The government places heavy reliance on the state-

ment of Special Agent Michaels that he had heard Harold

Bonta during the raid ask Sam Besase whether he should

take the blame, This testimony, while it is useful to

the government’s attempt to impeach Bonta, is offset by

other evidence, such as:

1. The arrest of Bonta in the raid of October 23,

1963, for operating a wagering business without a tax

stamp;

2. The government’s serving the inventory of seized

articles with Harold Bonta;

3. The government’s libel action filed on February

25, 1964, against Harold Bonta’s automobile and all other

articles seized in the raid of October 23, 1963, from 2031

West Alexis Road, alleging that Harold Bonta used such

articles while engaging in the business of accepting wagers

(Appendix A);

4. Rental receipts found on Bonta’s person at the

time of raid on October 23, 1963, acknowledging payment

of rent for apartment at 2031 West Alexis Road for January

and February, 1963 (Crim. Trial Tr. 1020).

The government argued that the trial Court erred in

holding that the burden is on the government to establish

16

its contention, once the taxpayer produces competent and

relevant evidence to show the Internal Revenue Service

assessment is in error. It cites several cases to support

the proposition that taxpayer bears the burden of proving

by a preponderance of the evidence that an alleged de-

ficiency is erroneous.

The Court below correctly held for Appellees on the

basis that they had carried their burden by a preponder-

ance of the evidence. In its opinion the trial Court stated

this clearly, as follows:

“. . . The Court finds that the defendant taxpayers

have carried their burden of refuting by a preponder-

ance of the credible evidence the presumption of cor-

rectness attached to plaintiff’s tax assessments .. .”

(p. 22)

Although the government’s case is founded on the

fallacious assumption that a 6- or 7-man partnership was

the operation of an unreported numbers operation, the

government, for the first time on appeal, raised the issue

that if defendants were not a part of a 6-way partnership,

then they must have had unreported wagers in their in-

dividual capacity (Appellant’s Brief, 40, 41, C.A.6). The

government stated:

“Taxpayers, however, are not simply required to dis-

prove, and certainly the government is not required

to prove, the existence of a common partnership.”

This is an extraordinary statement from the appellant

whose case is predicated on an assessment of approximately

$1,000,000 against an alleged 6-way partnership. Clearly, if

no such partnership existed, no liability existed.

It was a little late for the government to change

horses, but if it does, it should make a new assessment

against the individuals as such, rather than as partners,

17

since the present assessments admittedly ste1a from the

so-called 6-man partnership.

The appellant attempted to distinguish the law of Hai-

mowitz (supra) and Weir* (Appellant’s Brief 38, C.A.6) by

stating that in Weir there was no evidence contradictory to

the taxpayers’ testimony. Appellee submits the same situa-

tion exists here—taxpayers denied the existence of a 6-way

partnership numbers operation, corroborated by prior In-

ternal Revenue Service audits. No evidence to con-

tradict this was offered by government. The meetings

of the defendants, with others, on the afternoons of three

days in September 1963 and one day in October 1963 is

scarcely proof of a 6-man partnership operation. Their

meetings were more consistent with their explanations

than with the unfounded assumption that the defendants

were in a single 6-way operation. Thus, the law of Haimo-

witz and Weir* is applicable and should control.

The Supreme Court in its opinion in Helvering v.

Taylor, 293 U.S. 507 (1935), states in part:

“. . . He also cites rule 30 adopted by the board: ‘The

burden of proof shall be upon the petitioner except

as otherwise provided by statute and except that in

respect of any new matter pleaded in his answer,

it shall be upon the respondent’. But, there is nothing

in it to suggest intention to require the taxpayer to

prove not only that a deficiency assessment laid upon

him was arbitrary and wrong, but also to show the

correct amount, Moreover, the board held the evi-

dence not sufficient to show the apportionment er-

roneous, and on that ground alone sustained the as-

sessment. Necessarily, the board did not come to the

question that is here presented as the burden of proof.

*Weir v. Commissioner, 283 F.2d 675 (6th Cir. 1970).

18

The fact that the commissioner’s determination of de-

ficiency was arbitrarily made may reasonably be

deemed sufficient to require the board to set it

aside...

“We find nothing in the statutes, the rules of the board,

or our decisions that gives any support to the idea

the commissioner’s determination, shown to be without

rational foundation and excessive, will be enforced

unless the taxpayer proves he owes nothing or, if

liable at all, shows the correct amount. While de-

cisions of the lower court may not be harmonious,

our attention has not been called to any that persua-

sively supports the rule for which the commissioner

here contends...

“But, where, as in this case, the taxpayers’ evidence

shows the commissioner’s determination to be arbi-

trary and excessive it may not reasonably be held

that he is bound to pay a tax that confessedly he

does not owe, unless his evidence was sufficient also

to establish the correct amount that lawfully might

be charged against him. On the facts shown by the

taxpayer in this case, the board should have held

the apportionment arbitrary, and the commissioner’s

determination invalid .. .”

In United States et al. v. Janis, 96 S. Ct. 3021, the

Supreme Court in its opinion stated in part:

“What we have found is a ‘naked’ assessment without

any foundation whatsoever if what was seized by the

Los Angeles police cannot be used in the formulation

of the assessment. The determination of tax due then

is ‘without rational foundation and excessive’ and not

properly subject * the usual role with respect to

the burden of proof in tax cases.” ,

19

CONCLUSION

The Trial Court, in finding that the Government failed

to prove the existence of a six-way partnership wagering

operation, was correct in holding that no one of the part-

ners was liable since the assessment by the Internal Rev-

enue Service was against them only as members of the

alleged six-way partnership and the Government rested

its case solely upon this basis. Thus, the Circuit Court

was in error in holding that three of the alleged partners

were liable as individual operators of a wagering opera-

tion: The Circuit Court was also in error in holding that

the Trial Court was clearly erroneous in its finding when

the Circuit Court based its reversal in part on an erroneous

reading of the testimony of a Government witness. Ac-

cordingly, Petitioners request that a Writ of Certiorari

be allowed and this Court review the Judgment of the

Court of Appeals and reverse that part of the Judgment

which reverses the finding of the Trial Court.

Respectfully submitted,

JOHN KENNEDY LYNCH

315 Williamson Building

Cleveland, Ohio 44114

(216) 771-2543

Counsel for Petitioners

Al

APPENDIX

OPINION OF THE UNITED STATES COURT

OF APPEALS FOR THE SIXTH CIRCUIT

(Filed June 17, 1980)

No. 78-3047

UNITED STATES COURT OF APPEALS

For THE SIXTH CIRCUIT

UNITED STATES OF AMERICA,

Plaintiff-Appellant,

Vv.

JOHN BESASE, GEORGE BESASE, SAM BESASE,

ANGELO PERNA, SAM RAPPAPORT,

TED MAISON,

Defendants-Appellees,

ESTATE OF JOSEPH BESASE, JOSEPHINE BESASE,

LUCAS COUNTY STATE BANK, CISSIE RAPPAPORT,

FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION,

ANNA PERNA, TOLEDO HOME FEDERAL SAVINGS

AND LOAN ASSOCIATION, THELMA KREITZER,

SYLVANIA SAVINGS BANK, ROSEMARIE

BESASE, ANTHONY BESASE, JR., GEORGE

S WEST, and PAULINE A WEST,

Defendants.

On APPEAL From the United States District Court

For the Northern District of Ohio

Before: CELEBREZZE, Merritt and JOnEs, Circuit

Judges.

Merritt, Circuit Judge. The government appeals the

dismissal of its civil action to collect wagering excise

A2

taxes, fraud penalties, and interest from the defendants.

The government contends the defendants failed to report

and pay tax on all of their gross income from a numbers

operation. Two issues are presented: (1) did the District

Court correctly allocate the burden of proof between the

parties; and (2) did the District Court correctly conclude

that the government had failed to carry its burden with

respect to any of the defendants. We affirm with respect

to all of the defendants except three. In those three cases

we reverse.

I.

During the tax years involved in this case, the In-

ternal Revenue Code imposed an excise of ten per cent

on the gross amount of wagers. 26 U.S.C. § 4401(a). For

fraudulent deficiencies, the Code additionally affixed a

civil penalty amounting to fifty per cent of the excise. 26

U.S.C. § 6653(b). All persons engaged in the business

of accepting wagers were subject to the tax. 26 U.S.C.

§ 4401(c). Such persons were required to identify them-

selves yearly by registering with the Internal Revenue

Service. 26 U.S.C. § 4412(a).

The defendants, each of whom was a self-avowed

numbers operator, registered annually in the form of three

separate partnerships. George Besase and John Besase

filed their registration form as partners. Joseph Besase

joined them until his mid-1963 death. Sam Besase and

Angelo Perna likewise registered together as partners.

Sam Rappaport and Ted Maison filed as a third partner-

ship. Each partnership claimed to operate a separate

numbers game.

At stake for players of the numbers games was a

jackpot that could be won by correctly guessing a three-

digit number. The winning number would be derived

A3

from afternoon stock market reports. After the number

and winners were determined, and payoffs made, the

partners would split the remaining proceeds.

The three partnerships each filed separate monthly

wagering tax returns. Between January 1, 1961, and

October 23, 1963, the combined monthly gross income

reported by the three partnerships ranged from approxi-

mately $5,000 to $10,000.

The government claims that the defendants actually

operated a single partnership which earned a monthly gross

income of approximately $145,000. According to the gov-

ernment, the alleged partnership was in business from

January 1, 1961, through October 23, 1963, but did not

report or pay any wagering tax liability. The govern-

ment assessed over one million dollars in wagering excise

taxes, fraud penalties and interest’ on the income allegedly

derived from the unregistered single partnership, and

sought to reduce this amount to judgment in the District

Court.”

1. Upon entry of the judgment by the District Court, the

unpaid balance on the assessment against all of the defendants

for the period January 1, 1961, through June 30, 1963, was

$925,804.98, which amount included a tax of $549,474.85, a

penalty of $292,237.49, and an interest charge totalling $69,428.60.

The unpaid balance on the additional assessment against all of

the defendants except Joseph Besase, who died in mid-1963, was

$121,748.80, which amount included $79,525.28 in taxes, $39,763.15

in penalties, and $2,459.37 in interest.

2. The District Court previously dismissed this case after

ruling that the search warrant pursuant to which the govern-

ment had seized evidence was invalid. This Court reversed and

remanded for trial. See United States v. Besase, 521 F.2d 1306

(6th Cir. 1975). Prior to the present civil action, the govern-

ment had sought to convict these same defendants—except Joseph

Besase, who had died—of wagering excise tax evasion. Although

the government won a conviction based on the same set of cir-

cumstances as the current case presents, this Court reversed. See

United States v. Besase, 373 F.2d 120 (6th Cir. 1967). The re-

versal was based on the failure of the government to introduce

evidence establishing that the alleged partnership had failed to

file excise tax returns.

A4

II.

The District Court, at a bench trial, placed the ultimate

burden of persuasion on the government. An initial pre-

sumption of correctness applies to assessments. Sharwell

v. Commissioner of Internal Revenue, 419 F.2d 1057, 1060

(6th Cir. 1969). At the outset, therefore, taxpayers usually

have the burden of producing evidence to refute the validity

of an assessment. See Foster v. Commissioner of Internal

Revenue, 391 F.2d 727, 735 (4th Cir. 1968).

The District Court allowed the defendants to shift the

burden of proof back to the government simply by pro-

ducing evidence from which it could be found that the

assessment was incorrect. Thereafter the government had

to substantiate the validity of its claims, and bore the risk

of non-persuasion. The impracticality and inequity of re-

quiring a taxpayer to prove a negative allegation such as

the non-existence of a common partnership, said the Dis-

trict Court, warranted the lighter burden of defendants’

proof.

The government challenges two aspects of the burden

of proof formula. First the government argues that, re-

gardless of the nature of a taxpayer’s proof, taxpayers al-

ways must disprove the validity of an assessment by a

preponderance of the evidence. Only with respect to fraud

penalties does the government concede that it bears the

ultimate burden of persuasion by a preponderance of the

evidence. Secondly, the government insists that it was

not the existence of a common partnership that the defen-

dants had to disprove, but rather the non-receipt of in-

come. The proof tied each defendant to the underlying

gambling operation, says the government, and thus made

each defendant individually and personally liable for the

taxes due. According to the government, then, both the

A5

formulation and the stated object of the burdens of proof

were wrong.

The District Court correctly allocated the relative bur-

dens of proof. This is an action to collect a tax assess-

ment. In such cases, this Court consistently has given

the assessment an initial presumption of validity. See

Sharwell v. Commissioner of Internal Revenue, 419 F.2d

at 1060. It devolves at once upon the taxpayer to chal-

lenge the assessment. Id. Where it is a negative assertion

that a successful taxpayer would have to prove, though,

the “law imposes much less of a burden upon a taxpayer.”

Weir v. Commissioner of Internal Revenue, 283 F.2d 675,

679 (6th Cir. 1960). Reasonable denials of the assess-

ment’s validity have sufficed in such cases to shift the

burden back to the government. Id. The government then

bears the task of substantiating its assessment in cases of

this type.

As in Weir, the defendants ultimately had to prove their

non-receipt of income in order to prevail. They denied the

existence of, and the receipt of income from a common part-

nership. They characterized the nature of their relationship

as social, and offered testimony to support the explanation.

The nature of their proof justified use of the lighter bur-

den and allocation of the ultimate risk of non-persuasion

to the government. See generally C. McCormick, Hanp-

BOOK OF THE LAW OF EVIDENCE § 378; J. WIGMORE, EVIDENCE

§ 2485 (discussing apportionment considerations).

Indeed, the burden of proof could not otherwise have

been allocated without risking a violation of defendants’

privilege against self-incrimination. In Grosso v. United

States, 390 U.S. 62, 65-69 (1968), the Supreme Court ruled

that the Fifth Amendment privilege against self-incrimina-

tion precluded federal criminal prosecution for failure to

file the required wagering tax forms. At the basis of the

A6

Court’s decision was the Hobson’s choice that federal

wagering tax laws pose to gamblers. Before the Grosso

decision, a gambler had no choice but to file returms and

pay the tax and possibly incriminate himself under state

law, or not comply and possibly incur a federal penalty.

To preserve the efficacy of the self-incrimination privilege,

the Court prohibited the imposition of certain criminal

sanctions for failure to comply with the wagering tax laws.

The choice between self-incrimination «nd undue for-

feiture looms no less ominously in the context of a civil

action to collect the wagering excise. A gambler who

wants to challenge the correctness of an assessment runs

a high risk of incriminating himself under state law. The

government, for example, erroneously may impose a wager-

ing tax assessment of $20,000 when, in fact, the taxpayer

owes only $10,000. To show error in the assessment, the

taxpayer may have no choice but to divulge the inculpating

details of his wagering operation and thus expose himself

to state prosecution.’ If a prudent gambler decides not to

challenge the assessment lest he invite a state criminal

prosecution, he often averts self-incrimination only at the

cost of unwarranted tax liability. To allow a gambler to

disprove the validity of a wagering tax assessment only

by a preponderance of the evidence could penalize the ex-

ercise of the privilege against self-incrimination in a

manner that the Supreme Court outlawed in Grosso.

The burden of proof used by the District Court accom-

modates both the privilege against self-incrimination and

the presumption of accuracy normally accorded to gov-

ernment tax assessments. It neither forces the protesting

taxpayer to expose himself to state criminal liability nor

3. Cf. OHTIo Rev. Code § 2915.02(A)(5) (Baldwin’s 1974)

(“No person shall... [wJith purpose to violate . . . this section,

acquire, possess, control, or operate any gambling device’’).

A7

robs the government of the advantage gained by the in-

itial presumption. It merely spares the taxpayer from

the threat of self-incrimination by requiring the govern-

ment to justify its claim. Accordingly, we find no error

in the apportionment of the burden of proof by the Dis-

trict Court.

ITI.

At trial, the ultimate factual question was whether

the defendants had operated a common gambling partner-

ship that received wagering income from January 1, 1961,

through October 23, 1963. The District Court found the

evidence insufficient to establish the existence of the al-

leged syndicate, and dismissed the case on the merits. We

believe that portions of this finding were clearly erroneous.

The government based its income estimate and com-

mon partnership theory on evidence seized in a surprise

raid by investigative agents of the Internal Revenue Ser-

vice. The object of the raid was the apartment building

at 2031 West Alexis Road in Toledo, Ohio. Several of

the defendants and their relatives had built and lived in

the building since the late 1940s.

The raid occurred at 3:00 P.M. on Wednesday, October

23, 1963, following several days of surveillance. Investiga-

tors saw each of the defendants (except Joseph Besase,

who was dead) and several other persons entering and

leaving the building, usually at mid-afternoon, during the

surveillance period. All but one of the living defendants,

plus several other persons, were in the building at the

time of the raid.

Agents found four of the defendants inside a concealed

countroom. The countroom, hiiden behind a removable

panel in a bedroom closet, was on the top floor of the

A8

two-story building. George and Sam Besase, Angelo Perna

and Sam Rappaport were there. John Besase was in the

adjacent bedroom. Only Ted Maison, who on earlier occa-

sions had been observed entering and leaving the premises,

was not present in the building.

On tables and in closets around the room, agents found

several stacks of numbers slips, several thousands of dollars

in cash, several adding machines and adding machine tapes.

During the raid, the telephone in the countroom rang.

The caller unwittingly, and belatedly, advised the IRS

agent who answered the phone that a raid was about

to occur. A notebook containing a mixture of utility bills

addressed to various of the defendants and their alleged

employees also was discovered. The telephone number

of the accountant for two of the defendants’ duly registered

partnerships was spotted on a piece of insulation tape.

In addition to the defendants, several other persons also

were present in the countroom or contiguous bedroom.

Harold Bonta, a non-defendant who was in the count-

room, told the agents that he alone was responsible for

the countroom. Pursuant to the raid, the agents arrested

Bonta and the present defendants.

At trial, the defendants who testified denied any prior

knowledge of the use of the concealed room, and disclaimed

the existence of a common partnership. According to the

defendants, they knew each other socially, and met occa-

sionally in a first-floor recreation room at 2031 West Alexis

Road. There they would play cards or discuss sports events

while awaiting news reports of stock market closing statis-

tics. The defendants who testified insisted that, when

the raid began, they fled upstairs in fright and came upon

the hidden room. They further maintained that they had

reported and paid all wagering tax liability on their part-

nership returns.

AQ

As to four of the defendants, we find no error in

the District Court conclusion that the evidence was insuf-

ficient to establish participation in or receipt of income

from the alleged common partnership. The only evidence

of John Besase’s alleged involvement in the countroom

operation is his presence just outside the hidden room.

There was no credible pertinent evidence against the late

Joseph Besase except his association with George and John

Besase in the registered partnership, for which returns

properly were filed. The relevant evidence against George

Besase, who was: found in the countroom, consists of a

blank tax form addressed to G & J Besase (his wife’s

name was Josephine and his living partner’s name was

John) and three utility bills for his personal residence

that were found in the countroom. The evidence against

Angelo Perna consists mainly of his presence in the count-

room at the time of the raid. The registration form filed

by each of these defendants lists 2031 West Alexis Road

as the home address. The proof against these defendants,

however, does not convincingly tie them to any common

partnership or establish their receipt of income beyond

that which they duly reported in the tax returns of this

registered partnership.

As to defendants Sam Besase, Ted Maison and Sam

Rappaport, we believe that the evidence clearly ties them

to the countroom operation. Sam Besase was found in

the countroom at the time of the raid. The countroom

telephone was registered in his name. A numbers runner

named John Spencer testified that he occasionally would

deliver numbers slips to Sam Besase. Spencer also testified

that when he anticipated a late delivery of his numbers

slips, he would call the countroom and ask for “Sam.”

A person whose voice he identified as that of Sam Besase

would answer. In addition, Spencer identified numbers

Al0

slips found in the countroom as ones he had written for

and delivered to Sam Besase.

The proof against Ted Maison ties him also to the

countroom operation. Maison was not present at 2031

West Alexis Road at the time of the raid. Yet IRS agents

saw him entering and leaving the building during their

pre-raid surveillance. At an earlier trial, the transcripts

of which were introduced in the present proceeding, Mary

Bilecki identified certain numbers slips seized from the

countroom as slips she had written for and delivered to

Maison.

The evidence against Sam Rappaport is likewise com-

pelling, Rappaport was in the countroom at the time

of the raid. On his person were pieces of paper contain-

ing the countroom telephone number and codes identical

to those on various numbers slips stacked around the count-

room. Spencer, the runner, testified that he occasionally

delivered numbers slips to Rappaport, whose registration

form claimed’ no employees., As with Sam Besase and

Ted Maison, the evidence against Sam Rappaport estab-

lishes his connection with the countroom operation.

In summary, the finding of the District Court regard-

ing George Besase, John Besase, Joseph Besase and Angelo

Perna is not clearly erroneous. The government, however,

carried its burden of proof with regard to Sam Besase,

Ted Maison and Sam Rappaport. Insofar as the District

Court judgment relieves Sam Besase, Ted Maison and Sam

Rappaport of liability for the wagering tax on income

earned by the countroom operation, we therefore reverse.

All

IV.

The government computed the defendants’ countroom

income by the “projection of daily earnings” method. From

the countroom, IRS agents seized numbers slips written

on the day of the raid and the three previous betting

days. Adding machine tapes that recorded the receipts

for the four days also were found. Totals on the tapes

indicated that the average daily receipts for the countroom

numbers operation were $6,625.42. The government pro-

jected the income and tax liability of the defendants from

this four-day average. The defendants, who steadfastly

denied any connection to the countroom and thus intro-

duced no business records or other evidence to contradict

the income extrapolation, did not object to the projection

of income method.

In the absence of business records or other pertinent

evidence, the government has the right to rely on the

best available evidence to determine a taxpayer’s income.

See United States v. Firtel, 446 F.2d 1005, 1006-07 (5th

Cir. 1971). In several wagering tax assessment cases,

we have countenanced the use of the projection method.

See, e.g., Hallabrin v. Commissioner of Internal Revenue,

325 F.2d 398, 301 (6th Cir. 1963). There being no evidence

to cast doubt on the projected amount of income, the

government thus has met its burden of proof in establish-

ing the amount of unreported income.

The proof also establishes that the wagering tax under-

payments on this income were due to fraud. Because

the District Court found no tax liability, it did not reach

this question. The government, however, met its burden

of proving fraud. The three defendants consistently failed

to report substantial amounts of wagers for several years.

They sought to conceal the countroom and the receipts

from the operation. They kept no adequate records of

-

Al2

the countroom’s receipts. In view of these considerations,

we believe that the government clearly established, by

a preponderance of the evidence, that the underpayments

were fraudulent. See Adler v. Commissioner of Internal

Revenue, 422 F.2d 63, 67 (6th Cir. 1970); Friedman v.

Commissioner of Internal Revenue, 421 F.2d 658, 659 (6th

Cir. 1970). To the defendants’ tax liability, therefore,

a fifty per cent fraud penalty properly was added. See

26 U.S.C. §§ 6653 (b).

The judgment of the District Court therefore is af-

firmed in part and reversed in part.

Al3

FINDINGS OF FACT AND CONCLUSIONS OF LAW

OF THE UNITED STATES DISTRICT COURT

(Dated August 30, 1977)

No. C 71-58

IN THE UNITED STATES DISTRICT COURT

For THE NORTHERN DISTRICT OF OHIO

WESTERN DIVISION

UNITED STATES OF AMERICA,

Plaintiff,

vs

JOHN BESASE, et al.,

Defendants,

FINDINGS OF FACT and CONCLUSIONS OF LAW

WALINSKI, J:

Preliminary Statement

This suit is brought by the United States of America

[hereinafter government] to reduce to judgment certain

wagering excise tax assessments and fraud penalties levied

against the defendant taxpayers. Plaintiff commenced the

action pursuant to the provisions of §§ 7401-7403 of

the Internal Revenue Code of 1954, 26 U.S.C. §§ 7401-

7403. Jurisdiction is alleged under 28 U.S.C. §§ 1340

and 1345, and 26 U.S.C. §§ 7402 and 7403.

Count I of the plaintiff's Seven Count Amended Com-

plaint (as Amended September 22, 1972) alleys that defen-

Al4

dant taxpayers John Besase, George Besase, Sam Besase,

Joseph Besase, deceased,! Angelo Perna, Sam Rappaport

and Ted Maison operated a partnership for the conduct

of gambling operations during the period January 31, 1961,

through June 30, 1963. Count I further states that on

April 17, 1964, a delegate of the Secretary of the Treasury

made assessments according to law against the above-

named defendant taxpayers, as individuals and partners,

for federal excise taxes, penalties and interest, and that

despite demand for payment, there is presently due and

owing from the defendants, individually and as members

of a partnership, the sum of $927,411.76.

Count II of plaintiff's Amended Complaint seeks to

reduce to judgment federal excise tax liabilities, penalties

and interest assessed against defendant taxpayers John

Besase, George Besase, Sam Besase, Angelo Perna, Sam

Rappaport and Ted Maison, who are alleged to have oper-

ated a partnership for the conduct of gambling operations

during the period July 1, 1963, through October 31, 1963.

Counts III, IV, V, VI and VII of the plaintiff's

Amended Complaint seek to foreclose federal tax liens

against certain properties allegedly owned by certain of

the above-named defendant taxpayers, and to set aside

certain conveyances of real property owned by certain

of the defendant taxpayers on the grounds of fraud. Party

1. Plaintiff’s original Complaint named Joseph Besase, then

deceased, as a defendant. Plaintiff's Amended Complaint, filed

April 27, 1970, substituted the estate of Joseph Besase as a party

defendant. On June 5, 1974, the Court entered a Judgment Order

dismissing the action against the estate of Joseph Besase, de-

ceased. Notwithstanding that Judgment Order, plaintiff requests

that the Court make a finding that until his death Joseph Besase

was an equal partner in a common numbers operation with de-

fendants Sam Besase, George Besase, John Besase, Angelo Perna,

Ted Maison and Sam Rappaport, and that Joseph Besase was

jointly liable for wagering excise taxes that accrued prior to his

death in June, 1963.

Al5

defendants named in Counts III through VII include

Josephine Besase, Lucas County State Bank, Cissie Rappa-

port, First Federal Savings and Loan Association, Anna

Perna, Toledo Home Federal Savings and Loan Associa-

tion,? Thelma Kreitzer, Sylvania Savings Bank, Rosemarie

Besase, Anthony Besase, Jr., George S. West, Pauline A.

West, Thelma Mabel Besase, Roseanna Besase, and Ann

Besase, all of whom are alleged to claim some interest

in the properties involved.

Defendants John Besase, Sam and Ann Besase, Angelo

and Anna Perna, and George and Joseph Besase have

filed cross complaints against the government for refund

and/or abatement of their income tax liabilities. Said

defendants pray that if the Court reduces to judgment

any of the wagering excise tax assessments claimed by

the plaintiff, the defendant taxpayers be allowed income

tax deductions of said excise taxes for the relevant years.

Counts I and II only were tried to the Court on October

4,5, and 6, 1976. The Court having considered the evidence

presented at trial and the legal memorandum of counsel

hereby makes the following Findings of Fact.

Findings of Fact

(1) On April 17, 1964, a delegate of the Secretary

of the Treasury of the United States made an assessment

against John Besase, George Besase, Joseph Besase, de-

ceased, Sam Besase, Angelo Perna, Sam Rappaport and

Ted Maison, as individuals and partners, for federal wager-

ing excise taxes, penalties and interest for the period Jan-

uary 1, 1961, to June 30, 1963, in the following amounts:

2. With the consent of the parties, defendant Toledo Home

Federal Savings and Loan Association was ordered dismissed

from the action on August 2, 1971.

Al6

Tax Penalty Interest

$548,474.85 $292,237.49 $69,428.60

Notice of the assessment and demand for payment were

duly given to George Besase, John Besase, Sam Besase,

Angelo Perna, Sam Rappaport and Ted Maison. Admis-

sions filed August 16, 1971; Tr. at 184. The present unpaid

balance upon said assessment is $925,804.98, plus statutory

additions as provided by law. Plaintiff's Exhibits 201 and

203.

(2) On April 17, 1964, a delegate of the Secretary

of the Treasury of the United States made an assessment

against John Besase, George Besase, Sam Besase, Angelo

Perna, Sam Rappaport and Ted Maison, individually and

as partners, for federal wagering excise taxes, penalties

and interest for the period July 1, 1963, to October 31,

1963, in the following amounts:

Tax Penalty Interest

$79,526.28 $39,763.15 $2,459.37

Notice of the assessment and demand for payment were

duly given to George Besase, John Besase, Sam Besase,

Angelo Perna, Sam Rappaport and Ted Maison. Admissions

filed August 16, 1971; Tr. at 184. The present unpaid bal-

ance upon said assessments is $121,748.80, plus statutory

additions as provided by law. Plaintiff's Exhibits 205 and

207.

(3) A “Special Tax Return and Application for Regis-

tery - Wagering” (Treasury Form 11-C) was filed with

the Internal Revenue Service by Joseph, George and John

Besase on each of the following dates: June 29, 1960

(for the period July 1, 1960, to June 30, 1961); June 21, 1961

(for the period July 1, 1961, to June 30, 1962) ; June 25, 1962

(for the period July 1, 1962, to June 30, 1963). Each re-

Al7

turn indicates that Joseph, George and John Besase were

then engaged in the business of accepting wagers on their

own account, as a partnership under the name of the Star

Company. All returns stated the home address of each

partner as 2031W. Alexis Road, Toledo, Ohio. The returns

indicated that their business address was at 5519 W.

Rowland Street, Toledo, Ohio, from July 1, 1960, to June 30,

1962, and thereafter at 2703 Lyceum Street, Toledo, Ohio.

All returns stated that the partnership had no employees

or agents engaged in receiving wagers on its behalf. Plain-

tiff’s Exhibits 213A, 213B and 213C.

(4) On June 29, 1963, John Besase and George Besase

filed a “Special Tax Return and Application for Regis-

tery - Wagering” for the period July 1, 1963, to June 30,

1964. Said return indicated that John Besase and George

Besase were then engaged in the business of accepting

wagers on their own account, as a partnership under the

name of the Star Company, Joseph Besase having with-

drawn from the partnership by reason of his death on

June 2, 1963. Said return gave the home addresses of John

and George Besase as 2031 W. Alexis Road, Toledo, Ohio,

and the business address of the Star Company as 2703

Lyceum Street, Toledo, Ohio. The return further stated

that the partnership had no employees or agents engaged in

receiving wagers on its behalf. Plaintiff's Exhibit 13.

(5) For each month from January, 1961, through

October, 1963, George and John Besase (and until his death,

Joseph Besase) filed a wagering excise tax return (Trea-

sury Form 730) with the Internal Revenue Service for the

Star Company. Each monthly return reported gross wagers

accepted by the business in amounts ranging from $2,240.00

to $4,987.00 (except for the months of March, 1963, when

gross wagers of only $1,733.00 were reported, and April,

1963, when no wagers were reported). John, George and

Joseph Besase paid the ten percent federal excise tax on

Al8

their reported wagers. Plaintiff's Exhibits 14 through 23,

and 216A through 216X.

(6) A “Special Tax Return and Application for Regis-

tery - Wagering” was filed with the Internal Revenue Ser-

vice by Sam Besase and Angelo Perna on each of the fol-

lowing dates: June 28, 1960 (for the period July 1, 1960,

to June 30, 1961); June 21, 1961 (for the period July 1,

1961, to June 30, 1962); June 25, 1962 (for the period July

1, 1962, to June 30, 1963); and June 29, 1963 (for the period

July 1, 1963, to June 30, 1964). Each return indicated that

Sam Besase and Angelo Perna were then engaged in the

business of accepting wagers on their own account, as a

partnership. The returns gave 2031 W. Alexis Road,

Toledo, Ohio, as the home address of both partners, and

gave 5519 W. Rowland Street, Toledo, Ohio, as the business

address of the partnership. The returns further stated that

the partnership had no employees or agents engaged in re-

ceiving wagers on its behalf. Plaintiff's Exhibits 214A,

214B, 214C and 25.

(7) For each month from January, 1961, through

October, 1963, Sam Besase and Angelo Perna filed a wager-

ing excise tax return (Treasury Form 730) with the Inter-

nal Revenue Service for their partnership. Each monthly

return reported gross wagers accepted by the partnership

in amounts ranging from $2,713.76 to $1,592.00 (except for

the months of March, April and May, 1963, when wagers

accepted were $1,127.00, -0-, and $1,084.00, respectively).

Sam Besase and Angelo Perna paid the ten percent federal

excise tax on their reported wagers. Plaintiff’s Exhibits

26 through 35, and 217A through 217X.

(8) A “Special Tax Return and Application for Reg-

istery - Wagering” was filed with the Internal Revenue

Service by Sam Rappaport and Ted Maison on June 25,

1963 (for the period covering July 1, 1963, to June 30,

Alg

1964). Said return indicated that Sam Rappaport and

Ted Maison were then engaged in the business of accepting

wagers on their own account, as a partnership under the

name of the M & R Company. The return gave 2306

Berdan, Toledo, Ohio, as the home address of Sam Rappa-

port, and 2837 Drummond Road, Toledo, Ohio, as the home

address of Ted Maison. 4555-1/2 Monroe Street, Toledo,

Ohio, was listed as the business address of the partnership.

The return further stated that two employees, Mary Bilecki

and Anthony Stopera were employed by the partnership to

receive wagers. Plaintiff's Exhibit 1.

(9) For each month from January 1, 1961, through

October, 1963, Sam Rappaport and Ted Maison filed a

wagering excise tax return (Treasury Form 730) with the

Internal Revenue Service for their partnership. Each

month’s return reported gross wagers accepted by the part-

nership in amounts ranging from $1,501.00 to $1,976.00 (ex-

cept for the months of March, April and May, 1963, when

wagers accepted were $958.00, -0-, and $1,022.00, respec-

tively). Sam Rappaport and Ted Maison paid the ten per-

cent federal excise tax on their reported wagers. Plaintiff’s

Exhibits 2 through 11, and 218A through 218X.

(10) Julius Dekany, a certified public accountant in

Toledo, Ohio, served as an accountant to the partnership of

George, John and Joseph Besase (Star Company) and to

the partnership of Sam Besase and Angelo Perna from

June, 1961, through 1963. In that role, he prepared the

monthly wagering excise tax returns and the annual wager-

ing registration returns for his clients, based upon informa-

tion provided by them to him. Tr. at 457-59 and 488-90.

(11) All the principal defendants surviving at trial,

George Besase, John Besase, Sam Besase, Angelo Perna,

Sam Rappaport and Ted Maison, admit that they were

engaged in the business of accepting numbers wagers in

A20

and around Toledo, Ohio, during the period between Jan-

uary, 1961, and October 23, 1963.

(12) Defendant taxpayers Angelo Perna, Sam Rap-

paport, Sam Besase, George Besase and Ted Maison denied

at trial that they were members of a common partnership

one with the other.

(13) A numbers operation is a form of gambling in

which each player or bettor attempts to guess a daily three-

digit number, which number will be arbitrarily determined,

usually from stock market closings. The player gives his

number to a writer (an individual who accepts wagers), to-

gether with the amount of the wager. The writer writes

the player’s bet on a three by five inch white sheet of paper,

and accumulates these over the day and turns them over to

a pickup man, or runner. The pickup man will deliver the

slips to a numbers bank or headquarters, where all of

the wagers are examined, the winning tickets are identified,

and arrangements are made to pay off the winners. A per-

son may function both as a writer and a runner, and as a

controller or operator. Criminal Tr. at 56-83 [hereinafter

all references to the Criminal Transcript, admitted into evi-

dence at trial as Plaintiff’s Exhibits 106, 107, 108, 109 and

110, will be cited as Cr.].

(14) In the numbers bank or counthouse, after the

winning number has been determined and the winning

slips identified, the day’s number slips are then kept sepa-

arate and are maintained for a period of several days

in case the bank has overlooked a winning slip. Cr. at

79-80.

(15) In July, 1963, Internal Revenue Service agents

began surveillance in Toledo of numbers operators, who

included the defendant taxpayers, The Internal Revenue

surveillance, though not continuous, covered the period

July, 1963, to October 23, 1963.

A21

(16) On September 12, 16 and 18, 1963, and on Octo-

ber 14, 1963, Internal Revenue agents placed 2031 W. Alexis

Road, Toledo, Ohio, under surveillance. On all of those

days defendant taxpayers George Besase, John Besase,

Sam Besase, Angelo Perna, Sam Rappaport and Ted Maison

were seen entering the rear door of the building at that

location. On most of those days in question Paul McDon-

ald (alias Little Paul), Harold Bonta, George Stoianoff,

John Mercurio, George Mercurio, Richard Kaydis and

Anthony Besase, Jr. were also observed approaching and/

or entering the rear door. The persons observed would

typically enter between 1:30 and 3:00 P.M. Cr. at 791-

800, 1177-81. Plaintiff's Exhibits 241-244.

(17) On Wednesday, October 23, 1963, at 3:00 P.M.,

Treasury agents executed a search warrant at 2031 W.

Alexis Road, by entering the rear door and searching the

rear area of the apartment building. Tr. at 36, and 149-50.

(18) Immediately upon entering the rear door, Trea-

sury agents ran up a flight of stairs into an upstairs bed-

room. In the bedroom were the defendant John Besase,

Paul McDonald, John Mercurio and George Stoianoff. Cr.

at 970-77; Tr. at 39 and 151.

(19) In the bedroom was a closet, the rear panel

of which contained a hidden door that led into a concealed

room. Tr. at 39 and 40; Plaintiff’s Exhibits 67 and 68.

(20) In that concealed room the Treasury agents

found George Besase, Sam Besase, Angelo Perna, Sam

Rappaport, Harold Bonta, Richard Kaydis, Thelma Kreitzer

and Alice Shively. Cr. at 977; Tr. at 40, and 151.

(21) Harold Bonta made statements to the agents that

the apartment belonged to him, and that the numbers

slips in the hidden room were also his. Cr. at 1194-95;

Tr. at 97-98.

A22

(22) The agents conducted a search of the concealed

room behind the hidden panel. In that room, lying about

on several tables, were piles of numbers slips and amounts

of cash, together with numerous papers, adding machines,

adding machine tapes and other paraphernalia commonly

associated with a numbers game. Cr. at 599-610; Tr. at

41-44; Plaintiff’s Exhibits 71-74.

(23) Seized in the hidden countroom was a small

brown notebook, Plaintiff’s Exhibit 93. This notebook was

lying closed on the table beside an adding machine, and

is pictured in Plaintiff's Exhibit 74, a photograph. Enclosed

within this notebook at the time of its seizure were several

dozen intermingled receipts for various bills, including

among others the following:

a. A telephone bill for the residence of Sam

Besase at 5519 W. Rowland, Toledo (No. 474-0263).

This telephone bill was addressed to Thelma M. Besase,

the sister of Sam Besase.

b. A_ telephone bill for the _ residence of

George Besase, 3916 Greenview, Toledo (No. 474-4833).

c. Telephone bills for the countroom itself, No.

475-7342 (GReenwood 5-7343, previously KLon-

dike 7343). These bills were addressed to Sam Besase,

2031 W. Alexis Road, Toledo.

d. A telephone bill for 1107 Jefferson Street (No.

244-5410), addressed to Paul Little, an alias of Paul

McDonald.

e. Telephone bills for 1317 Washington Street

(No. 244-3902), addressed to John Mercer, an alias

of John Mercurio (Tr. at 89).

f. An electric bill for the residence of Sam

Besase, 5519 W. Rowland Avenue, also addressed to

Thelma M. Besase, Sam Besase’s sister.

A23

g. An electric bill for the residence of George

Besase, 3916 Greenview, Toledo.

h. Electric bills addressed to Joseph Besase, 2031

W. Alexis Road, Toledo.

i. Electric bills for 1317 Washington Street, ad-

dressed to John Mercer.

j. Electric bills for 143 Eleventh Street, addressed

to George Mercurio.

k. A gas bill for the residence of George Besase,

3916 Greenview, Toledo.

l. Gas bills for 1317 Washington Street, addressed

to John Mercer.

m. Rent receipts for 1317 Washington Street,

made out to “Bessisie & Mercer.”

n. Receipts for service to adding machines at

143 Eleventh Street.

These receipts are commonly dated for June, July, August

or September, 1963. Tr. at 63-67; Plaintiff’s Exhibit 93.

(24) The cash in the concealed room was subsequently

seized and counted by the agents, and found to amount

to approximately $2,600. Tr. at 44.

(25) Ina wall liquor cabinet in the secret countroom,

the Treasury agents found three brown paper bags contain-

ing numbers slips, which the agents seized and removed.

These slips were bound in separate packets within each

bag, and many of the numbers slips were dated. The

slips in one bag carried the date October 18. The slips

in another bag carried the date October 21, and the slips

in the third bag carried the date October 22. Those dates

would have been the Friday, Monday and Tuesday preced-

ing the Treasury raid. There were several dozen separate

A24

packets of numbers within each bag, and each packet was

bound with an adding machine tape, which reflected the

total value of the wagers in that packet, Each adding

machine tape carried a handwritten code or initial, and

each such code or initial was different and distinctive

from every other code or initial within the same bag.

Frequently there was a single packet in each of the three

bags bearing the identical distinctive code or initial. Tr.

at 44-55; Plaintiff's Exhibits 70, 52, 53 and 54 (and sub-

parts thereof).

(26) Treasury agents also seized and removed the

stacks of slips and adding machine tapes lying about on

the tables in the countroom. These slips carried dates

indicating that they were written on the day of the raid,

Wednesday, October 23, 1963. The tapes carried codes

matchirig those found on the tapes in the brown paper

bags. Tr. at 55-58; Plaintiff’s Exhibit 55 (and subparts

thereof).

(27) Agent Gregory Michael removed a piece of in-

sulation tape from the hidden countroom during the raid.

This piece of tape carries the name of Julius Dekany

and his 1963 telephone number, 244-8355. Dekany served

as accountant to the partnership of George, John and

Joseph Besase (Star Company), and to the partnership

of Sam Besase and Angelo Perna, Tr. at 161, 162 and

485; Plaintiff’s Exhibit 87; Finding of Fact No. 10, supra.

(28) One of the tables in the hidden countroom had

a telephone in it, pictured in Plaintiff’s Exhibit 73, a

photograph. The disk on the face of the telephone carried

the number KL 7343. Telephone records indicated that

the number was actually changed in 1956 to GR 5-7343

(475-7343), and that the number was registered in the

name of Sam Besase. Plaintiff's Exhibit 95; Cr. at 1299-

1302; Tr. at 61 and 62.

A25

(29) The Treasury agents also found and seized in

the liquor cabinet in the hidden countroom a blank federal

tax form, Plaintiff’s Exhibit 246, addressed to G. & J.

Besase; George Besase’s wife is Josephine Besase. Tr. at

46, 444; Plaintiff’s Exhibit 70.

(30) At the time of the raid, Treasury agents ex-

ecuted warrants for the arrest of defendants Sam Besase,

George Besase, John Besase, Angelo Perna and Sam Rap-

paport. Based on Harold Bonta’s assertions that everything

found on the premises were his (see Finding of Fact No.

21, supra), he was also arrested.

(31) Pursuant to his arrest, defendant Angelo Perna

was searched and was found to have a slip of paper bear-

ing the telephone number of defendant Ted Maison. Plain-

tiff’s Exhibit 81g. Cr. 921-27; Plaintiff’s Exhibit 102.

(32) Pursuant to his arrest, defendant Sam Rap-

paport was searched and was found to have on his person

the following:

a. The sum of $1,695 in cash.

b. A slip of paper, Plaintiff’s Exhibit 78, bear-

ing several telephone numbers, including the phone

number for the hidden countroom, GR 5-7343.

c. Another slip of paper, Plaintiff's Exhibit 75,

bearing several telephone numbers, including the

home phone of George Besase (“GR 4-4853 Red’) and

the home phone of Sam Besase (“GR 4-0263 SB”).

d. Another slip of paper, Plaintiff's Exhibit 76,

bearing a series of codes, with apparent telephone

instructions as to each (i.e., “call” “will call”). These

codes, such as “Hank”, “W.G.’’, “RA”, in each instance

matched those found on packets of numbers slips

seized from the hidden countroom. Tr. at 533.

A26

e. A slip of paper, Plaintiff's Exhibit 77, bearing

several telephone numbers, including that of Harold

Bonta (CH 4-4057). Plaintiff's Exhibit 100.

f. Another slip of paper, Plaintiff's Exhibit 79,

bearing several telephone numbers, including the tele-

phone number of one of the drop points for numbers

slips, 1107 Jefferson, CH 4-5410. Cr. 800-05, 903-04.

(33) Agent Gregory Michael searched the automobile

of John Mercurio parked at 2031 W. Alexis Road at the

time of the raid, and found therein a gas bill addressed to

John Mercer for 1317 Washington Street, Plaintiff's Ex-

hibit 88, and a telephone bill addressed to Thelma M.

Besase at 5519 W. Rowland, Plaintiff’s Exhibit 89, which

address was in fact the residence of the defendant Sam

Besase. Cr. 993-1000; Tr. at 162 and 163.

(34) Subsequent to the surveillance and search and

seizures described above, criminal charges were brought

against defendant taxpayers John Besase, Sam Besase,

George Besase, Sam Rappaport, Angelo Perna, Ted Maison

and others. At the criminal trial in United States v. Sam

Besase, et al., CR No. 64-18, begun September 15, 1965,

and concluded September 29, 1965, Baxter Long, Norman

Blackman, Emanuel Licata, John Spencer, George Frazer,

Horace Newton, Bernie Price, Robert L. Smith, Finous

Allen, Eddie K. Smith, Charles Miles, Silas A. Means, Elmer

Evans and Mary Bilecki testified that he or she accepted

numbers wagers (“wrote numbers”) in Toledo during 1963.

Most also testified that other unnamed persons turned

numbers into them. None of these individuals testified

that he/she actually booked the wagers themselves, but

rather each turned over his/her numbers to other per-

sons. Each testified that he/she received a commission

ranging from ten percent (10%) to thirty-five percent

A27

(35%) of the gross wagers they “wrote.” Cr. at 257-87,

348-481, 491-591.

(35) Baxter Long, Robert L. Smith, Eddie K. Smith

and Horace Newton testified that they turned in their

numbers at 143 Eleventh Street to Paul McDonald (alias

Little Paul, Tr. at 144) and occasionally to others. Cr.

at 259-62, 466-67, 550-53, 501-13. The rear entrance to

143 Eleventh Street is 1107 Jefferson Street, a separate

address, but the same building. Plaintiff's Exhibits 61

and 61A; Tr. at 157.

(36) Bernie Price, Charles Miles and Finous Allen

testified that they turned in their numbers at an entrance

_ on Pinewood Street to Harold Bonta. Cr. at 491-94; 538-

40, 562-64. The Pinewood Street entrance is the rear

portion of 1317 Washington Street. Plaintiff's Exhibits

62 and 62A; Tr. at 157.

(37) Elmer Evans and Silas Means testified that they

turned in their numbers at a building at the intersection

of Eleventh and Washington Streets, i.e., Bauer’s Market,

to George Stoianoff. Cr. at 568-69, 575-77, 581; Tr. at 157;

Plaintiff's Exhibit 63. George Frazer also testified that

he turned in his numbers at the corner of Eleventh and

Washington Streets, but he could not identify George Stoin-

off. Cr. at 453-54.

(38) Emanuel Licata testified that his numbers would

be picked up at 444 Woodland Street by either George

Stoianoff, Jerry Mercurio or Anthony Besase, Jr., who

would come by in a car. Cr. at 360-62.

(39) John Spencer testified that he usually turned

his numbers in to John Mercurio, who would meet him

in his automobile at the Kroger Store parking lot at De-

troit and Monroe Streets. Cr. at 384-85. Spencer further

testified that if he was running late with his delivery,

A28

he would telephone GR 5-7343, the number of the phone

found in the concealed room at 2031 W. Alexis, see Find-

ing of Fact No. 28, that usually a woman would answer,

and he would ask for Sam, and the defendant Sam Besase

would come on the line and arrangements would be made

for the late delivery of Spencer’s numbers. John Spencer

could recognize Sam Besase’s voice. Cr. 387-89, 445-46;

Plaintiff's Exhibits 64 and 64A.

(40) Spencer further testified that when he was late

with his numbers slips, he would arrange to take them

to the Miracle Mile, a location in Toledo partway between

the intersection of Detroit Avenue and Monroe Street and

W. Alexis Road. There he would be met by, and would

deliver his slips to, John Mercurio or Sam Besase or Sam

Rappaport. Rappaport had criticized Spencer for being

late in turning in his tickets on such occasions. Cr. 386-

87, 394-96.

(41) At the criminal trial, each person listed in Find-

ing of Fact No. 34, supra, examined and identified packets

of numbers slips seized at 2031 W. Alexis Road during

the raid on October 23, 1963, and in each instance identi-

fied one or more packets of numbers as those either writ-

ten by him, or written by others but turned into him,

which numbers he himself then turned in with his own

to other persons. Baxter Long, Norman Blackman,

Emanuel Licata, George Frazer, Horace Newton, Bernie

Price, Robert L. Smith, Finous Allen, Charles Miles and

Silas Means were able to identify a packet in each of

the four separate bundles of slips (Plaintiff’s Exhibits 52,

53, 54 and 55) as being his own packet, turned in by

him. Long, Blackman, Licata, Frazer, Newton and Price

were also able to identify their packets written on each

of the four dates, October 18, October 21, October 22 and

October 23, 1963. Cr. at 265-67, 354-57, 365-68, 457-59, 468-

72, 497-501, 514-17, 541-45, 565-66, 571-73.

A29

(42) The building at 2031 W. Alexis is a five-unit

apartment, and prior to 1963, the title to the building

was held by Joseph Besase, a brother of George, John

and Sam Besase, who died in June, 1963. In January,

1963, Joseph Besase conveyed title to the building to

Thelma Kreitzer, the niece of Joseph, George, John and

Sam Besase. In 1963, the premises at 2031 W. Alexis

were occupied by Alice Shively, a niece of the Besase

brothers, Mary Monica, a sister of the Besases, Anthony

Besase, Jr., and David Smith, both nephews of the Besase

brothers. Tr. at 142, 181-83, 457-58. Sam Besase resided

at 2031 W. Alexis until 1957, and had a phone there in

his name (No. KL 5-7343). Sam Besase testified that

he did not have that number changed when he moved.

Tr. at 373-78.

(43) Defendants Sam Besase, Angelo Perna and Sam

Rappaport each testified that the apartment at the rear

of the premises at 2031 W. Alexis Road, which was raided

on October 23, 1963, belonged to Harold Bonta. Tr. at

242, 312, 362. Harold Bonta also claimed ownership of

that apartment in his deposition. Bonta Deposition at 12-

13.

(44) Defendants Sam Besase, George Besase, Angelo

Perna, Sam Rappaport and Ted Maison all testified that

they occasionally went by 2031 W. Alexis in the afternoon

to play cards, listen to music, or discuss their golf games,

and for no other reason.

(45) Defendants Sam Besase, George Besase and Sam

Rappaport testified that they were gathered downstairs

at the rear of 2031 W. Alexis Road on the afternoon of

October 23, 1963, and heard a loud commotion at the door.

They further testified that they became frightened, and

since there was no other exit, they all ran upstairs and

just followed one another into the concealed room, where

they were found by the Treasury agents.

A30

(46) Angelo Perna testified that he also was in the

recreation room at 2031 W. Alexis on October 23, 1963,

at the time of the raid, and upon hearing a loud commo-

tion in the upstairs area, ran upstairs with the other men

present to see what was happening. Perna testified that

the Treasury agents were already present in the upstairs

area when he got up the stairs, Tr. at 250-55, and that

he then followed the others into the concealed room. Tr.

at 261.

(47) All of the items seized on October 23, 1963,

from the concealed room were the subject of a libel action

in this Court, United States of America v. One 1969 Olds-

mobile, etc., C 64-33, filed February 25, 1964. Defendants’

Exhibit 16. Therein the United States, libelant, stated,

inter alia, that:

Harold Bonta, 22-15th Street, Toledo, Ohio, allegedly

claims an interest in all of the said property [subject

to the libel action].

Libel {| 3. The United States further alleged tha

Harold Bonta engaged in and carried on the business

of accepting wagers and he did willfully attempt to

evade and defeat the excise taxes imposed upon such

wagers by section 4401, Internal Revenue Code, and

he did aid and abet other persons engaged and carry-

ing on such business in the willful attempt to evade

and defeat such excise taxes imposed by law, all in

violation of section 7201, Internal Revenue Code, and

while so engaged, he did use and intend for use in

the said violations the aforesaid property.

Libel {] 8.

Among the items subject to the libel action were ‘“Mis-

cellaneous Wagering Supplies and Paraphernalia, consist-

ing of ‘K’ books, numbers tickets, adding machine tapes

A31

and numbers records and materials” seized from the con-

cealed room at 2031 W. Alexis Road.

(48) On March 18, 1964, in response to the request

of the United States, this Court, per Judge Frank Kloeb,

found that the allegations of the libel were true, and or-

dered that all of the seized property be forfeited to the

Internal Revenue Service and sold, and further ordered

that the “Miscellaneous Wagering Paraphernalia shall be

destroyed by the United States Marshal.” Defendants’

Exhibits 27 {| 5.

(49) The numbers slips and other gambling parapher-

nalia were not destroyed by the United States Marshal.

Plaintiff's Exhibits 52, 53, 54 and 55 are the numbers

slips seized from the concealed room on October 23, 1963.

It is on the basis of these slips that the plaintiff has

determined the defendants’ liability in this action. Tr. at

58-61, 105.

(50) The Treasury agents prepared tabulations of the

seized slips, and also totaled up the amounts reflected

on the seized adding machine tapes binding each packet.

These tabulations were made by Special Agent Robert

Hill and by Revenue Agent Walter Roberts, and their

totals for each of the four separate dates are as follows:

Totals Totals

Plaintiff's Per Per

Exhibit Seized Seized

Date No. Tapes Slips

October 18 52 $7,176.74 $6,879.28

October 21 53 $7,212.26 $6,288.28

October 22 54 $5,966.02 $5,612.69

October 23 55 $6,146.64 $6,121.96

Tr. at 58-61; Plaintiff’s Exhibits 222 through 225.

A32

(51) Based upon the seized adding machine tapes,

the Internal Revenue Service determined that the average

daily receipts for the numbers operation were $6,625.41.

Tr. at 105.

Discussion

A. Evidentiary Questions

Several significant evidentiary questions arose at trial

which require the Court’s attention before the merits of

the case may be addressed.

The first question involves the admissibility of the

Plaintiff’s Exhibits 201 and 205, which are the Certificates

of Assessment issued against the defendant taxpayers. See

Findings of Fact Nos. 1 and 2. Defendants object to the

admissibility of said exhibits on the grounds that the gov-

ernment failed to prove that the assessment was personally

approved by Director Melvin Burton, District Director,

Cleveland, Ohio, on April 17, 1964. The Court finds this

argument to be without merit.

Plaintiff has offered into evidence the Recommenda-

tion for Jeopardy Assessment which formed the basis for

the assessments against the defendant taxpayers. See

Plaintiff's Exhibits 203 and 207. Both documents bear

the signature of Melvin J. Burton, District Director of

the Cleveland Office of the Internal Revenue Service. De-

fendants have come forward with no evidence whatsoever

to put the authenticity of Burton’s signature into question.

Contrast Thorton v. United States, 73-1 USTC 9232, rev’d

on other grounds, 493 F.2d 164 (3d Cir. 1974). Accordingly,

the Court must presume from Burton’s signature that Bur-

ton did in fact satisfy his legal duty of personally approving

all jeopardy assessments, and will admit Plaintiff’s Exhibits

203 and 207 into evidence over the defendants’ objections.

A33

See generally 9 Wigmore on Evidence 6 2534 (3d ed. 1940);

McCormick, Law of Evidence § 309 (1954).

Defendant taxpayers have also objected to the admis-

sion into evidence of Plaintiff’s Exhibits 52, 53, 54 and

55, which are the numbers slips seized by Treasury agents

from the concealed room at 2031 W. Alexis during the

raid of October 23, 1963. See Findings of Fact Nos. 25

and 26. Defendants base their objection on two theories.

They first claim that the government’s libel action

of February 25, 1964, stated Harold Bonta to be the owner

of the numbers slips, and argue that the government is

therefore estopped from now asserting that the slips be-

longed to the defendant taxpayers. Defendants further

contend that since this Court ordered the slips destroyed

in its Judgment of March 18, 1964, said slips should now

be excluded for the reason that “equity considers done

which should have been done.”

Although the Court is likewise troubled by the seem-

ingly inconsistent positions taken by the government re-

garding the ownership of the numbers slips seized from

2031 W. Alexis, it does not find the defendants’ arguments

persuasive. First of all, the government’s libel petition

does not allege that the government believed Harold Bonta

to be the exclusive owner of the slips, but rather states

that Bonta “allegedly claims an interest” in the property.

See Finding of Fact No. 47. Moreover, in order to assert

the doctrine of equitable preclusion against the admission

of the slips the defendant taxpayers are required to show

that they have altered their positions in reliance upon

the allegations of the government in the libel petition,

and no such reliance has been demonstrated in the instant

case. See generally 1B Moore’s Federal Practice § 0.405

(2d ed. 1976). The Court has also concluded that none

of the principals underlying the exclusionary rule applied

A34

in the federal courts require exclusion of the disputed

exhibits. See generally United States v. Janis, 428 U.S.

433 (1976). Therefore, Plaintiff's Exhibits 52, 53, 54 and

55 will also be admitted into evidence over defendants’

objection.

B. Burden of Proof

It is now well established that an assessment for un-

paid taxes made by the Internal Revenue Service is pre-

sumed to be correct. Accordingly, the plaintiff argues

that by the admission. into evidence of the Certificates

of Assessment issued against the defendant taxpayers on

April 17, 1964, they have established a prima facie case.

Plaintiff further contends that both the burden of going

forward and the burden of ultimate persuasion by a pre-

ponderance of the evidence are therefore on the defendant

taxpayers in this case. The Court does not agree with

the latter contention.

Although the Court recognizes that there is authority

to the contrary,’ it is of the opinion that where the tax-

payer is required to prove a negative, i.e., the absence

of income, or as in this case, the non-existence of a partner-

ship, it would be inequitable to place the burden of ultimate

persuasion by a preponderance of the evidence upon the

taxpayer. See Weir v. Comm’r of Internal Revenue, 283

F.2d 675 (6th Cir. 1960); Haitmowitz v. Comm’r of Internal

Revenue, 30 TCM 1034 (1971). To hold otherwise would

make it virtually impossible for a taxpayer to obtain a

favorable decision. See generally United States v. Janis,

428 U.S. 433, 440-443 (1976).

3. Compare United States v. Rexach, 482 F.2d 10 (lst Cir.

1973), cert. denied, 414 U.S. 1039 (1973); United States v. Lease,

346 F.2d 696 (2d Cir. 1965). Cf. United States v. Dean, 519 F.2d

624 (6th Cir. 1975).

A35

Accordingly, this Court will adopt the statement of

law set forth by the United States Court of Appeals in

Foster v. Comm’r of Internal Revenue, 391 F.2d 727 (4th

Cir. 1968):

The burden of proof is on the Commissioner to show

that the taxpayer received income. This burden is

initially satisfied, however, by the fact that the Com-

missioner’s deficiency determination is presumed cor-

rect. The burden is thus on the taxpayer to prove

the incorrectness of the deficiency determination. This

burden is procedural and is met if the taxpayer pro-

duces competent and relevant evidence from which

it could be found that he did not receive the income

alleged in the deficiency notice. In other words, the

taxpayer at this point has the burden of producing

evidence or going forward with the evidence. If this

burden is met, the burden shifts back to the Commis-

sioner to prove the existence and amount of the de-

ficiency (footnotes omitted).

391 F.2d at 735. See also Baird v. Comm’r of Internal

Revenue, 438 F.2d 490 (3d Cir. 1970); Herbert v. Comm’r

of Internal Revenue, 377 F.2d 65 (9th Cir. 1966); Weir

v. Comm’r of Internal Revenue, 283 F.2d 675 (6th Cir.

1960). See generally Bar L. Ranch, Inc. v. Phinney, 426

F.2d 995 (5th Cir. 1970).

C. Analysis

In the instant case, six of the seven defendant tax-

payers took the stand and unequivocally denied participa-

tion in a common numbers operation. Each admitted op-

erating in the numbers business during the relevant time

period, but testified that they conducted their own busi-

ness in two- or three-man partnerships separate and apart

from the numbers business in operation at 2031 W. Alexis.

A36

The tax returns of each of the respective, separate partner-

ships are in evidence in this case. The defendant taxpay-

ers further testified that they gathered periodically at 2031

W. Alexis to socialize and play cards while waiting for

the daily numbers to come out, and not for the purpose

of carrying on a common enterprise.

Based upon the defendant taxpayers’ common denial

of any participation in a seven-man partnership as alleged

by the plaintiff, and based upon the defendants’ credible

explanation of their periodic visits to 2031 W. Alexis, and

of their presence there on the date of the raid conducted

October 23, 1963, the Court finds that the defendant tax-

payers have carried their burden of refuting by a prepon-

derance of the credible evidence the presumption of cor-

rectness attached to plaintiff’s tax assessments. The Court

further finds that the plaintiff has failed to refute the

credible testimony of the defendants. Accordingly, the

Court will enter judgment in favor of the defendant tax-

payers, and need not consider further the additional claims

or counterclaims raised in this action.

For the reasons set forth above, the Court hereby

makes the following Conclusions of Law:

Conclusions of Law

(1) This Court has jurisdiction over this action pur-

suant to the provisions of 28 U.S.C. §§ 1340 and 1345,

and 26 U.S.C. §§ 7402 and 7403.

(2) The defendant taxpayers have met their burden

of refuting, by a preponderance of the credible evidence,

the presumption of correctness attached to plaintiff’s tax

assessment.

(3) The plaintiff has failed to produce sufficient evi-

dence to rebut the credible testimony of the defendant

A37

taxpayers or to otherwise establish the existence of the

alleged seven-man or six-man partnership.

It is therefore

ORDERED that the plaintiff United States of Amer-

ica take nothing, that the action be dismissed on the merits,

and that the defendant taxpayers John Besase, George

Besase, Sam Besase, Angelo Perna, Sam Rappaport and

Ted Maison recover of the plaintiff United States of Amer-

ica their costs of action.

/s/ NicHoLas J. WALINSKI

United States District Judge

A38

JUDGMENT ENTRY OF THE UNITED STATES

DISTRICT COURT

(Filed August 30, 1977)

Civil Action File No. 71-58

UNITED STATES DISTRICT COURT

FOR THE

NORTHERN DISTRICT OF OHIO, WESTERN DIVISION

UNITED STATES OF AMERICA,

vs.

JOHN BESASE, et al.

JUDGMENT

This action came on for trial before the Court, Hon-

orable Nicholas J. Walinski, United States District Judge,

presiding and the issues having been duly tried and a

decision having been duly rendered,

It is Ordered and Adjudged that the plaintiff United

States of America take nothing, that the action be dismissed

on the merits, and that the defendant taxpayers, John

Besase, George Besase, Sam Besase, Angelo Perna, Sam

Rappaport and Ted Maison recover of the plaintiff United

States of America their costs of action.

/s/ NICHOLAS J. WALINSKI

United States District Judge

A39

ORDER OF THE UNITED STATES COURT OF

APPEALS FOR THE SIXTH CIRCUIT DENYING

PETITION FOR REHEARING

(Filed July 25, 1980)

No. 78-3047

UNITED STATES COURT OF APPEALS

For THE SIXTH CIRCUIT

UNITED STATES OF AMERICA,

Plaintiff-Appellant,

Vv.

JOHN BESASE, GEORGE BESASE, SAM BESASE,

ANGELO PERNA, SAM RAPPAPORT,

TED MAISON,

Defendants-Appellees.

ORDER DENYING PETITION FOR REHEARING

Before: CLELBREZZE, MERRITT and JONES, Circuit Judges.

Upon consideration of the petition for rehearing filed

by the defendants-appellees, the Court concludes that all

of the questions addressed in the petition for rehearing

were fully considered upon the original submission and

decision of this case.

Based on our review of the record including the motion

to add an addendum, it is ORDERED that the petition

for rehearing be and it hereby is denied.

Entered by Order of the Court

/s/ JoHN P. HEHMAN

Clerk

A40

THE CONSTITUTION OF THE UNITED STATES

Amendment 5

No person shall be held to answer for a capital, or

otherwise infamous crime, unless on a presentment or in-

dictment of a Grand Jury, except in cases arising in the

land or naval forces, or in the militia, when in actual ser-

vice in time of war or public danger; nor shall any person

be subject for the same offence to be twice put in jeopardy

of life or limb; nor shall be compelled in any criminal case

to be a witness against himself, nor be deprived of life,

liberty, or property, without due process of law; nor shall

private property be taken for public use, without just

compensation.

UNITED STATES CODE

26 U.S.C. Section 4401

IMPOSITION OF TAX

Sec. 4401 [1954 Code]. (a) Wacers.—There shall be

imposed on wagers, as defined in section 4421, an excise

tax equal to 10 percent of the amount thereof.

(b) AMounT or WAGER.—In determining the amount of

any wager for the purposes of this subchapter, all charges

incident to the placing of such wager shall be included; ex-

cept that if the taxpayer establishes, in accordance with

regulations prescribed by the Secretary or his delegate,

that an amount equal to the tax imposed by this subchapter

has been collected as a separate charge from the person

placing such wager, the amount so collected shall be ex-

cluded.

A4l

(c) Persons LiaBLe ror TAx.—Each person who is en-

gaged in the business of accepting wagers shall be liable

for and shall pay the tax under this subchapter on ali

wagers placed with him. Each person who conducts any

wagering pool or lottery shall be liable for and shall pay

the tax under this subchapter on all wagers placed in

such pool or lottery. Any person required to register

under section 4412 who receives wagers for or on behalf

of another person without having registered under sec-

tion 4412 the name and place of residence of such other

person shall be liable for and shall pay the tax under this

subchapter on all such wagers received by him.

26 U.S.C. Section 7401

SEC. 7401. AUTHORIZATION.

No civil action for the collection or recovery of taxes,

or of any fine, penalty, or forfeiture, shall be commenced

unless the Secretary or his delegate authorizes or sanc-

tions the proceedings and the Attorney General or his

delegate directs that the action be commenced.

Source: Sec. 3740 (in part), 1939 Code, substantially un-

changed.

26 U.S.C. Section 7402(a)

SEC. 7402. JURISDICTION OF DISTRICT COURTS.

(a) To IssuE ORDERS, PROCESSES, AND JUDGMENTS.—

The district courts of the United States at the instance of

the United States shall have such jurisdiction to make and

issue in civil actions, writs and orders of injunction, and

of ne exeat republica, orders appointing receivers, and such

other orders and processes, and to render such judgments

and decrees as may be necessary or appropriate for the

A42

enforcement of the internal revenue laws. The remedies

hereby provided are in addition to and not exclusive of

any and all other remedies of the United States in such

courts or otherwise to enforce such laws.

26 U.S.C. Section 7403(a)

SEC. 7403. ACTION TO ENFORCE LIEN OR TO SUB-

JECT PROPERTY TO PAYMENT OF TAX.

(a) Frtrnc.—In any case where there has been a re-

fusal or neglect to pay any tax, or to discharge any li-

ability in respect thereof, whether or not levy has been

made, the Attorney General or his delegate, at the request

of the Secretary or his delegate, may direct a civil action

to be filed in a district court of the United States to en-

force the lien of the United States under this title with

respect to such tax or liability or to subject any property,

of whatever nature, of the delinquent, or in which he has

any right, title, or interest, to the payment of such tax or

liability.