Petition for Writ of Certiorari — Coblentz v. United States

- SUPRexx

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IN THE 7 to

| Supreme Court of the United States

October Term, 1971

BERNARD W. COBLENTZ,’

_ Petitioner, .-

—agaiist—

UNITED STATES OF AMERICA, |

aj Respondent.

v

a

PETITION AND APPENDIX FOR A WRIT OF CERTIO-

RARI TO THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

- JAcoB W. HELLER,

ELKAN ABRAMOWITZ,

Attorneys for Petitioner,

295 -Madison Avenue, :

New York, New York 10017.

wake em... : 2S) GNC ee ea

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a ee INDEX

. : PAGE

Rene Pi ee ncesiedonas |

ES ease intacs Coe ics a

Questions ooumaan Peds Cis 2

I sae Ne ee 3

thbeasens of the Case tee i apidle el inital Ceabaga een 3

Reasons for Granting the Writ ........ ae sient aan | 7

1. The decision below raises significant questions of

first impression concerning the extension of the

doctrine of constructive receipt % criminal tax

vacasvefhes se, ag Be RO Oe ASA RCI oS

2. The decision below conflicts with the decisions

of other Courts of Appeals as to the proper test

for sufficiency of evidence warranting Submjssion

of a case to_a jury .............. TONE TIO |

NI enc eins GIN AGT a RO 14

iseiedeaie deine of United ee Court of acest

END: seupisisnitnbontagenaelctae mocnabenedeeckeneserintaneianssasenaseetbeoonines PA

Appendix - B—Memorandum and Order of District

Court: A eee eee eeaseeereeeseesrersssseesescesesese ibreblibicanbiieaia Seeeeerecesecesecees AZ

Appendix o—J udgment of United States. Court of Ap-

- peals vincataheipciaclnsaliet es ahahaha cikdeasonhasnabbenssimiiens A12

Appendix D—Order of United States Court of Appeals

Denying Petition for Rehearing ................. seonliacoes wanes; uae

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7 a

‘ TABLE OF CASES

N ae ee te _ PAGE —

Walter I. Bones, 4 TC 415 (1944) , Sa see ane 9°

. Boyett v. Coimissioner, 204 F.2d 205 (Sth Cir. 1953) 11

Curley v.-United States, 160 F.2d 22 19, 232 (D.C: (ake

cert. dented, B31 U.S. 887 (1947) einen 12

Harper V. United ahora ae 405 F.2d 185, 186 (5th Cir.

1969) sesessesseseeneinnnnesoeneenenarnennenneneenennenneneent ~ -

Hedrick v. Commissioner, 154 F.2d 90 “(2a Cir. ) cert.

denied; 329 U.S. 719 (1946) ......ccsccossovsrsesnreraghcnseereeans 9

_ Holland v. United States, 348 U.S.. 121 (19544 | Siaiaseanod ee

Asa V. Johnston, 23 TCM 2003 (1964) . sasuateubdencoieudatatecien 9.

Charles F. Kahler, 18 Oe i) ec 9

hander v. United States, : 261 F.2d 799, 801 (5th Cir.

a. ee eae er eee eee 2

Linden Vv. United States, 254 F.2d 560, 567 (4th Cir. |

_ Eithedeaes wieerne moses Aes Ne nee le Manet OE atthe 12

Maximilian Morrof, 26 TCM 985. (1967) tcc 10

Neaderland v. Commissioner, 424 F.2d 639 (2d Cir.), ,

cert, denied, 400 U.S. 827 ( LOTO) npeeseeseeeee saiprehanbntatonse 12

O’Connell vy. United States, (£02 F.2d 760, 761 (Sth Cir.

Tee NRO Me enc mn snnn rt Gasset Mine cents 13

C. R. Rich, 6 BTA 822 (1927) Hem Reem ORS ase 1

“Sansone v. United States, 380 U.S. 343 (1965) wn 9

United States v7 Conti, 339 F.2d 10, 13 (6th Cir. 1964 12

United States v. Duke, (423 F.2d 387; 389 (5th Cir.

WM ss eek a.

United States v. Feinberg, 140 F.2d 592 (2d Cir.),

cert. denied, 322 U.S. 726 (1944) 0... A SHE: esseees a

iii

. PAGE

_United States v. Metoinger, 191. F.2d 1014, 1016 (3rd

Bits SNEED i tintiniaccnmuniiapmnehduennacininsaiiceurninmsaninies 12

United States vy. Nelson, 419 F.2d 1237, 424 2 (9th Cir.

en ies aaa sTadaiseeseaie ote 12

Norman P.-Van Valkenburgh, 26 TCM 753 (1967) ....: 11

- Vick v. United States, 216 F.2d-228, 232 (Sth Cir. 1954) 13

“STATUTES CITED

United States Code: :

ee

a ee ee a

Title 28, § 1254(1) . Nate eae Nicene owe

OTHER ‘seein

2 Rabkin & J ice Federal Income, Gift and Estate

Taxation, §§ 14. O14, 14. RET Rea sascscscesessecscesessese =O

3 Rabkin & Johnson, supra, § 34. 07 (1) oh Sf Sean © 8

Internal Revenue Code; Ra UAE: scoteunexctsinnnagens . ake sie 8

. Internal Revenue Code, § ee: ional wacaeine 8

3

a ee THE

Supreme Cut vf the United States

October Term, ne . os

Bernanpy W. COBLENTZ,

te eae cme

Petitioner,

- —against— |

UNITED STATES OF .LMERICA,

3 . see saa

PET TION FOR A WRIT.OF CERTIORARI TO THE

‘ UNITED STATES COURT OF APPEALS FOR —

SECOND CIRCUIT

Petitios er prays that a writ of certiorari issue to review

the judgine mnt of the United States Court. of Appeals for the

Second Ctrcuil, entered January 10, 1972. : ; ise

\ * Opinion Below a aes

. | ee - -.

The opinion of the Court of Appeals, not yet tail

is printed inthe Appe ndix to this petition (A1-6).*” The

final memorandum and order of the District Court for the

astern Distriet ot" ‘New (York, dated May 6, 1971, was not

reported; git | is ne in ual in the Appendix to this

ne see 11) 2;

be

4

# Referencés to ‘the Apel will be rageoded by the letter

tA” references to the Transcript of. Proceedings in the District

Court will .be preceded. by the letter “Tr”.

ra)

~ . 2

- Jurisdiction .

The saints of the Court of Appeals forthe Second

Circuit was‘ entered on January 10, 1972 (A12). A timely

_ petition for rehearing was denied on Januar y 24, 1972

(A13),-and this petition was filed within 30 days of that

date.

This Court’s jurisdiction is invoked nnder 28 U.S.C.

§1254(1) and. Rule 22(2) of the Rules of the Supreme.

-

‘.

Court of the United States,

Whether a criminal conviction for tax ‘evasion can. be

sustained by the application of the doctrine of ‘con:

_Structive receipt to a taxpayer who fully reported

the proceeds of checks in the year said checks i

hegotiated by him but not in the year received by

him?

2. Whether a criminal conviction for tax evasion can

sustained where the taxpayer deprived himself of the

use of constructively recétwed monies, any interest or

profits thereon or benefit therefrom, until the year

in which’ said monies were per by him as income

on his tax return? :

Whether this Court should set appropriate iantanls °

and guidelines for the exercise of the government's

discretion in.determining. which taxpayers are to be +

proceeded against civilly only and which proceeded

against criminally? -

Whether the so-called “substantial evidence” test of

the Second Circuit in determining the suMiciency of

the evidence to warrant submission of a criminal case

‘to a jury should be examined in light of conflicting

tests in other cireuits?

3:

Cake Statute Involved | a .

United States Codec, Title 26: eae

§ 7201. Attempt to evade or defeat tax.

Any- person who willfully attempts in any. manner. to-

* evadevor defeat any tax imposed by this title or. the pay-

ment ‘thereof shall, jn addition to other penalties provided

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

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

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

cution..

‘

j Statement of the Casé

Bernard W. Coblentz, a respected member of the Bar

tor close totorty years Is a specialist Th Tepresentiug prop

: erty owners in condemnation proceedings, particularly those

. involving the City of New York. It is a field in which he

has been working almost exclusively for the last thirty

Procedures with respect to attorney’s fees and retainer

agreements in condemnation cases are-governed by the Rules

_ of the Appeiiate Divisions of the Supreme Court of the

State of New York for the First and Second Departments.

~ Under ‘those rules, within thirty days after an attorney is

retained, he must file with the Judicial Confererie of the

State of New York a “Retainer Statement”, containing, °

among other things, the agreed terms of compensation.

Within: fifteen days of the receipt of the awagd on any

claim the attorney must also file a “Closing Statement”, in-

dicating; among: othér things, the amount of the award and °.

the portion retaiied by the attorney as his fee. (Rules of

tlie Supreme Court of the State df New York, Appellate:

Division, First and Second Departments, Part 4, Rule IV).

)

4

; In most cases, the time between the date of the retainer

: and the date of the award—during which the legal proceed-

: =r stone year for

- "= small piece of property and as long as three years for a

. larger ee : :

The core of the dispute in this case involves militate

system of deferred deposits of the checks issuéd to. him

by the City—a system he had employed consistently and

‘undeviatingly for many years. The system had been adopted

earlier and the system was know n and explicitly approved

by the Internal Revenue Service.

As soon as petitioner was retained, he prepared a file

folder for each client and recorded the progress of the liti- = -

~—~gation on the outside of the folder. At the time of the —

award, the client generally received the sums awarded in

-multiple checks, at. least otie of which represented the

amount of petitioner's fee plus advances or disbursements.

' The client would then endorse that check over to petitioner,

and he would attach it to the file. Within fifteen days after

petitioner received the check, he would file the closing state-—

ment with the Judicial Conference. After the statement

was filed, the folder with the check was placed in a separate

cabinet containing only files with undeposited checks ; these

files were maintained chronologically.

Periodically, petitioner would remove several of the files

from the front of this cabinet and deposit the checks into

his bank account. Once the checks were deposited, the files

,Were placed in a tentative closed vategory, segregated for

the remainder of the year. They remained in this category

—all of the files for the particular y held toget her—auntil

petitioner used these files to cate ett fees deposi-

ted in the said year, a figure which he then gave to his-ae- -

countant. These files were then closed permanently.

Nisei SebepeBBePeTes TA ESE NE EB LSS Ss 5S SEEDS LIE MOTE CS mE Se S Nhe ABB

5

Under the system of deferred deposits employed by. peti-

tioner, only a portion of the checks issued by the City in

any one-year were actually deposited in that year; the re-

mainder were deposited from one to: four years after he

had received them: His income tax returns, though, redfiec-

ted his total deposits for the tax year, be they checks issued

-in that year or in earlier years. In other words, .under

petitioner’s system, the checks were reported as income in

‘the year in which they were negotiated, which was not

“necessarily in the year they were issued to him.*

Thus, for 1965—the one year for which petitioner was

convicted—the face valueNof the checks which were issued to

petitioner by the City, fully reported to the Judicial Con-

_ ference, was $47,751.93. Yet, petitioner deposited only

$7,600.33 of this amount, which, together with $14,799.67,——__—

necessarily representing deposits of prior years’ checks, com-

prised his reported gross income for that year of $22,380.

Petitioner had employed this method of reporting income —_ 3

for almost thirty years upon the advice of a certified public

accountant with whom petitioner shared an office when he

first started to practice law.

In the late 1940's, petitioner was audited by the Internal

Revenue Service during the course of which he was asked

by a Revenue Agent about this method of reporting in-

come and in response to which he explained his system of

deferred deposits. The Revenue Agent specilically accepted

petitioner's method of accounting without change by telling.

petitioner to continue to report the checks when they were

deposited. Indeed, petitioner received a refund as a result

of that audit.** | |

* Unlike most checks which become stale .if over a year old,

New York City checks were honored up to approximately five

years after the issue date, .

** The Court of Apfieals concluded that petitioner’s testimony

concerning this audit was “hardly credible” (A 16). To support

6

In 1966, the Internal Revenue Service, for the first time,

- paised a question as to the appropriateness of the deferred

deposit system, claimring that the checks were ‘“construc-

‘tively received” and thus income in the year in which they

were issued rather than in the year in which they were de-

osited. Since the inception of the investigation, petitioner

hax, paid sufficient money to the government to cover his

appryximate tax liability under the government's theory, in-

cluditg penalty and interest, for the years 1963-1970.

The Indictment, in three counts, was filed in the United

‘States District Court for the Eastern District of New-York

on February 26, 1970 and charged petitioner with wilfully

evading his income taxes for the years 1963, 1964 and 1965

in violation of “Title 26, United States Code, Section 7201.

=. ‘ +] anah—_i12 10°),

» SLIT UTE fae Let.

Trial before the Honorable John F. Dooling, Jr., United

States District Judge, and a jury, began on March 29, 1971

and ended on April 8, 1971 when the jury rendered a ver- -

dict of not guilty on Counts one and two (involving the

- years 1963 and 1964 respectively) and guiJty on Count three

(as to the year 1965). On April 21, 1971, petitioner moved :

(1) to-set aside the verdict on Count three; and (2) for a

judgment of acquittal or, alternatively, for a new trial. In

a memorandum and order dated May 6, 1971, Judge Dooling

denied the motion, despite the. fact that an several occasions

throughout the trial, he candidly expressed serious doubts

as to the efficacy of the government’s case (T 427, 446,

1072).

this conclusion, the Court relied upon testimony of the petitioner

concerning a later meeting with the Internal Revenue Service in

the 1950’s (A 6). It is clear that the testimony concerning the

latter .meeting had no bearing on the testimony of the audit in

the 1940’s about which there was no contradictory evidence. pro-

duced by the government. .

7

On July 30, 1971, the court, pursuant to 18 U.S.C.

§ 3651, sentenced petitioner to a term of ‘imprisonment of

-. one year, eleven months of which was suspended and im-

posed an uncommitted fine in the amount of $5,000, which

has been paid. Petitioner was released on his own recogni- ~

zance pending appeal.

_The United States Court of Seiad for the Second Cir-.

cuit aftirnied the conviction in an opinion dated January 10,

1972 (Al-6). On January .24, 1972, that Court denied

petitioner’ s petition for rehearing, but or dered its mandate

stayed and the continuance of petitioner’s release on his’

own recognizance pending the determination of this peti-—

tion for a writ of certiorari (AIl-13).

—_

“Reasons for Granting the Writ

1. The decision below raises significant questions of ‘first

“impression concerning the extension of the doctrine of

¢ constructive receipt. to criminal tax fraud cases.

The remarkable aspect of this prosecution is that it.

marks the first time, to our knowledge, that the govern-

ment’ has sought a criminal conviction for tax evasion

based upon the peculiarly civil doctrine of “constructive

receipts”, Neither the government nor the courts below

were willing squarely eto face the question of the appro-

priateness of this extension.

The doctrine of “constructive receipt”—by definition a

legal fiction—is, we submit, incapable of application in a

ériminal context. The doctrine in the tax area is almost

always applied in situations where income is reported fully

in a later year and the government claims it should have

been reported in an earlier year. As a result, unlike the

usual tax evasion case, there is no element of withholding _

* the full reporting to the government of income received by

the taxpayer.

. 2

f

° : $ 8

Even in a situation where, as heye, a taxpayer applies

a consistently erroneotis method in determining when his

Se ee meee:

ing the reporting of income. Thus, in any one. of the years.

fer which petitioner was .indicted—1963, 1964 or 1965—

the income reported consisted in. large. part. of checks re-

ceived in earlier years and cashed in the tax year, and in,

small part of checks. received in the tax year and cashed

that year. But- in no event during said years did he fail

to report as income the proceeds of any check which he’

negotiated.* The question involved in this case purely

and simply is whether the income was ‘reported in the

proper year—an issue which, we submit has absolutely no-

overtones of criminality ‘attached to it.** This is parti-

Fhe Court below relied on the famitiar principle of Hottand ——

v. United States, 348 U.S. 121 (1954) that a consistent pattern of

under-reporting is sufficient evidence ef wilfulness. That case is

inapposite with the one at bar, for rather than a consistent pattern

________of under-reporting, the facts here reveal a consistent pattern of

full reporting in what has now been determined to be the wrong

‘ years. Thus, Holland, supra, relied upon by the Court of Appeals,

does not supply the authority that the evidence of wilfulness was

sufficient to sustain the conviction.

. ** Theré is nothing intrinsically venal in a good faith effort .

to defer actual use of income to a, later year in order to minimize

tax liability. Such income-deferral, tax avoidance schemes abound

in the Internal Revenue Code.

For example, there are permissible deferred compensation plans,

whereby salaries and bonuses earned in one year but made available

in later years are taxable under some circumstances in the later

* years. Revenue Rulings 60-31; 69-650. See 2 Rabkin &- Johnson,

‘Federal Income, Gift and Estate Taxation, §14.01A. Also,.a cor-

porate employer in some circumstances may deduct expenses in

one year which it pays to.a shareholder-employee in the next year,

who pays tax in the later year. 2 Rabkin & Johnson, supra, § 14.08;

Internal Revenue Code, § 267(a). Lastly, a stockholder who sells °

short in one year, but does not deliver the stock until a later year,

pays tax only in the year of délivery. 3 Rabkin & Johnson, supra,

§ 34.07(1) and (2); Internal Revenue Code, § 1233. ‘

Even though petitioner’s deferred deposit system was deter- \

' mined to be erroneous because of the application of the construc-

9

—cularly ‘so where. petitioner deprived. himself of the use of

the money—or any benefit whatsoever therefrom, including

simple interest—until the year in which the proceéds of

the constructively received checks were cashed.

Nothing in Sansone v. United States,-380 U.S. 348

(1965) is inconsistent’ with this argument. In Sansone,

the taxpayer undérstated his income in 1957, intending, he

claimed, to report it’ in 1958 when he expected certain’ off-

_ setting expenses to arise. “The Court held that this intent,

even if believed, was no defense to Section 7201, 380 U.S. —

at 354. In the case at bar, however, the checks received

were in fact reported as income in the year in which thiey

were negotiated. Such does not appear to be the case in San-

sone, . This Court’s opinion does not indicate that the in-

‘come was reported in the subsequent year as allegedly

intended. As far as petitioner herein was concerned, he

did not have the use of the proceeds until the checks were

negotiated, and, once they were negdtiated, he reported the

checks as income. ‘She taxpayer in Sansone .intended -to

and did deprive the government of its tax revenues while

he had actual use of che proceeds from the sale of real

estate, here, petitioner, in his mind and in actuality, never

had the use of the money represented by the checks until

the year he negotie’>1, reported and paid the tax on them.

‘tive receipt’ doctrine, tere was at-least a split in authority as to

whether the doctrine could be universally applied to uncashed

checks. Compare Asa V. Johnston, 23 TCM 2003 (1964) ; Walter I.

Bones, 4 TC 415 (1944) (uncashed checks not income in year of

receipt), with Charles F. Kahler, 18 TC 31 (1952); Hedrick v.

. Commisisoner, 154 F.2d 90 (2d Cir.), cert. denied, 329 U.S. 719

(1946) (uncashed checks income in year of receipt).. Whether the .

facts in this case are closer to those in the Johnston line of cases,

supra, or to those in the Kahler line, supra, is truly beside| the

point; the defendant, in good faith, upon the advice of experts,

chose to rely upon the Johnston line. Such a choice, if erroneous,

should result only in civil liability—and petitioner has paid suffi-.

cient back taxes to cover that liability.

~ eae 10.

Moreover, there was absolutely no element of criminality

-in petitioner’s conduct with respect to the checks. The

total face amount of the checks he aeceived in any one

year was on file with the Judicial “Yenterence and avail-

able. to. the Internal: Revenue Service; the checks were

openly negotiated and ‘deposited at sobdbieiiena bank; in

the relevant ‘tax years, there’ were no altered documents,

hidden transactions, false statements, unaccounted for eur-

rency—in short t, none of the traditional indi¢ia of crimina

conduct w ais present in this case. Petitioner's conduct we

. in all respects that of a taxpayer w ho honestly and ie

reported his income under an erroneous definition of what

constituted income. ‘a : / :

We sincerely believe that the evidence is insufficient

even fo constitite civil tax frase, ever though we fully

concede civil liability for the consequence: of ‘reporting in--

come in the wrong years under ‘an erroneous’ concept of

income. But, even if the evidence were ‘siticient to con-

stitute civil fraud, we submit, the government severely

abused its discretion in this case in choosing to proc eed

criminally rather than civilly. /

We rea}ize and appreciate that ‘t he line between conduct

which should be prosecuted criminally and’ that which

should be proceeded against only civilly is not clear. We

realize also that it is no defense to” a criminal charge that

othegs similarly situated have not heen charged with crime.

However, there are reportéd decisions where taxpayers

were apparently held only civilly liable for conduct, which,

we submit, objectively revealed the kind of wilfulness—

and, Crna Seeny Yacking in this case.*

* For example, in Maximilian Morrof, 26 TCM 985 (1967),

the taxpayer, an.attorney, filed no federal income tax returns for

‘five years. and file@his returns for a subsequent period four years.

late. He bought ‘savings bonds in: his wife’s name, purchased

securities for cash (and tried to have the dealer keep it a secret),

and kept no records of his income from his practice. In Norman

‘is a pena

1t

The criminal fraud penalty of Section 7201 is. a severe

and serious one—especially as —_ to an’ ey It -

unless the facts clearly warrant it, especially bilciiaai the

government is not without recourse to collect the proper

revenue through etvil means,

We believe this Court, by granting certiorari, can at

least put some brake on the unfettered discretion vested

in the government under the present posture of the law to.

elect between civil and criminal ° proseeution—a’* dis-

cretion that has not as yet been examined by this Court —

and a discretion whith should be subject .to some guide-

"lines and. perimeters.

2. The dociaton'-teloy-conitiets-with-the- decisions of other

Courts of Appeals as to the proper test for sufficiency of

. evidence warranting submission of a case to a jury.

‘The District Court, in deciding. whether. petitioner was —

entitled to a directed judgment of acquittal or if the case

should go to the jury, applied the so-called “substantial

evidence” test in determining the suftiviency, of the evidence,

the prevailing rule in the Second Circuit. We urge this

Court to examine this rule, because tliere can be no ques-

tion wantever that under the ‘other tests employed by other

'P. Van Valkenburgh, 26 TCM 753 (1967), the taxpay er, a iii:

man, failed to record various amounts of income for rental and ~

installation of equipment and from sales pursuant to his own

specific instructions. The taxpayer lied to the Internal Revenue

Service by stating that he seldom, if ever, rented equipment. Addi-

tionally, a major part of the business expensés deducted were, in

actuality, taxpayer’s personal expenses, charged to the business ©

under his instructions. In C.‘R. Rich, 6 BTA 822 (1927), the

taxpayer altered his books to reduce his tax liability, did not

record a large sale in his books and failed to report the profit

from that sale. Lastly, in Boyett v. Commissioner, 204 F.2d 205

(5th Cir. 1953), the taxpayer, a dentist, personally maintained

sizeable amounts in savings accounts in other names and cashed,

rather‘than deposited, many of the checks given to him by patients.

12

federal circuits, the trial judge bone would have been re-

quired: to enter a | judgment of acquittal.

Throughout. the = kour of the trial, the District Court

‘repeatédly commented as to how difficult a case this was

(T 1072), as to how thankful he was not to be a juror (T

427), and how the case was only “in by a hair” (T 446).

During the colloquy at the close of the government's case,

he implied he might have eranted petitioner’s motion had he —

‘applied the “rational hypethesis test” (T 426- ca

- There are in the various Courts of hein. different

tests as to when the trial judge. must grant .a motion for

a directed verdict of acquittal. The rule in the Second

Circuit,. for~over twenty-five years, has been the one set

forth in United States v. Feinberg, 140 F.2d 592 _(2d°Cir.),

cert. denied, 322 U.S.-726 (1944), which prescribes the

same standard in both civil and criminal ¢ases, and man-

dates that the case go to the jury if there is “ ‘substantial

evidence’ to support a guilty verdict.” Neaderland v. Com-

missioner, 424 F.2d 639 (2d. Cir. / cert. denied, 400 U.S

827. (1970).

Different. standards apply in other circuits: one is, °

whether “taking the view most favorable to the Government,

a_reasonably-minded juror might accept the relevant evi-

dence as adequate to support a conclusion of the defendant's

guilt beyond a reasonable doubt.” Lambert v. United States,

261 F.2d 799, 801. (5th Cir. 1958). See also. United States

v.-Matsinger, 191 F.2d 1014, 1016. (3rd Cir. 1951) ; Linden

v. United States, 254, F.2d 560, 567 (4th Cir. 1958) ; United

States v. Conti, 339 F.2d 10, 13 (6th Cir. 1964); United

States v. Nelson, 419 F.2d 1237, 1242 (9th Cir. 1969);

Curley v. United States, 160 F.2d 229, 232 (D.C. Cir.), cert.

denied, 331 U.S. 887 (1947).

Perse SUBIR IM MeL oat BRAS eb © a Hine MIM An Nhs Ba 8 PRN ARETE SON RENTERS INO Ete lk MBE SELIG RS SMEAR DNA AD gS RST Sia it thn

<13°

Additionally, the Fifth Circuit has a special rule in

cases, such as the one at bar, where the Government relies

Rice Fe on_circumstautial ey idence to establish an- essential element

of vie evime: . By, FE

“T6 sustain conviction, fhe tafdreneda. reasonably

to be drawn from the evidence must’ not. only be:

consistent with enilt of the accused hut inconsistent

with every reasonable hypothesis of his innocence,

- In such cases, the test to. be applied on motion

for judgment: of acquittal and’ on review of. the de-

“nial of such motion is not simply whether in the

opinion of the trial judge-or of rag. ane court -

the evidence fails to exclude ‘every reasonable hypo-

thesis, but that of guilt, “but rather aaa the jury

might reasonably so conclude... °, (citations omit-

ted).” Vitk v. United States, 216°F.2d 228, 232

(Sth Cir. 1954). gh ;

See atlso United Ntutes v. Duke, 423 F.2d 887, 389 (5th Cir.

1970); Harper y. United States, 405 Ftd 185, 186 (5th

Cir. 1969); O'Connell vy. Piited Biater, 402 F.2d 760, 761%

(Sth. Cir, 1968).

It is obyious from the remarks of the District Court that

he felt constrained to apply the ‘substantial evidence” test.

We feel that had either the “reasonable doubt” or the

“circumstantial evidence” tests been applied, it is clear

that petitioner s motion for a directed verdict of acquittal

Should have been granted: The Court's own statements as

to the difficulty of the case clearly showed his doubts as

to whether the jury could accept the evidence as adequate _.

to support a conclusion of guilt bexond a reisonable doubt.

Indeed, Judge Dooling strongly implied that if the appli-

cable rule were the “circumstantial evidence” test (which

we believe he intended when referring to the “Third Cir- —

cuit rule”), he would have directed a verdict of acquittal,

because the ev idence clearly sustains: reasonable hy potheses

of petitioner's innocence. i

a em ee a eA ly a GE Is. alr « @ Q&ss

-

14

As the Second Circuit has repeatedly evidenced its sup-

_port of the Feinberg rule, see, e.g., Neaderland vy. Commis-

sioner, supra, we respectfully submit that the time has

cote for this Court to sybject that rule to close analysis

and to weneive this conflict. in the circuits.

CONCLUSION

/ . a.

Respectfully submitted,

: Jacos W. HELLER,

*. ELKAN ABRAMOWITZ,

Attorneys for Petitioner.

ai

aa ee ee ey

Al

Appendix A

Opinion of United States Court of Appeals

UNITED STATES COURT OF APPEALS

For THE SECOND CiRcUIT es

¢

N. 349—September Term, 1971.

(Argued December 15, 1971- _ Decided January 10, 1972.) |

| Docket No. 71-1943 :

UNITED STATES OF AMERICA, .

Appellee,

—against—

BERNARD W. COBLENTZ,

Defendant-A ppellant.

Before: ;

SMITH, KAUFMAN and MULLIGAN,

Circuit Judges.

Appeal from a conviction for tax evasion (2 U.S.C.

§ 7201) after a jury trial before Judge John F. Dooling, Jr.

in the United States District Court for the Eastern District

of New York. i

Affirmed.

—_—_—_—_——e oe

Cono R. NAMoratTo, Department of J ustice,

Washington, D.C. (Scott P. Crampton,

Asst. Attorney General, Meyer Rothwacks,

_ Crombie J. D. Garrett, John -P.. Burke,

Murray S. Horwitz, Attorneys, Department

of Justice, Washington, D.C., Robert A.

Morse, United States Attorney, Brooklyn,

New York, of counsel), for Appellee.

Jacozs W. Heiter, New York, N. Y. (Weiss, _

Bronston, Rosenthal, Heller & Schwartz- —

man, Herman Schwartzman; Elkan Abram-

owitz, of counsel), for Defendant-A ppellant.

—_——e ee

A2 .

Appendix A—Opinion of United States Court of Appeals

MULLIGAN, Circuit J udge:

The appellant was indicted in the Eastern District of

New York on February 26, 1970 on three counts of will- —

fully attempting to evade his federal income tax for the

years 1963, 1964 and 1965 in violation of Section 7201 of

the liternal Revenue Code of 1954. He was tried from

March 29, 1971 through April 7, 1971 before the Hon, John

F. Dooling, Jr., United States District Judge. The jury

returned a verdict of not guilty on the first two counts

(1963 and 1964) and guilty on count three (1965). There-

after appellant moved to set aside the guilty verdict -and

for a aa of acquittal, or in the alternative, for a new

trial; Judge Dooling denied the motions in a Memorandum

and Order on May 6, 1971.. The appellant was subsequently

sentenced to a one year term of imprisonment, eleven

months of which were suspended, plus an uncommitted

fine in the amount of $5,000. He was released on his own

recognizance pending this appeal from the judgment of

conviction. We affirm the conyiction.

The appellant, Coblentz, is a New York attorney special-

izing in representing property owners in condemnation

proceedings, particularly those involving the City of New

York. The basis for Coblentz’s indictment and subsequent

conviction was his unerthedox method of reporting. the

fees he received in his condemnation practice on his income

tax returns. When an award was made, his client would

receive multiple checks from the City of New York, one-

of which would represent Coblentz’s fee plus any advances

_ or disbdrsements. The client would endorse that check

over to Coblentz who would then place the check in a

cabinet in his office which contained other undeposited

checks which were filed chronologically. Coblentz would

deposit only a portion of the checks in the year they were

received. The remainder were deposited from one to four

years after the year of receipt. Since the checks were

drawn by the City of New York, they would be honored

re eee eS eS Pe ee =

A3

“Appendix A—Opinion of United States Court of Appeals

up to five years after the date of issue. Coblentz did not

report these fees as income in the year they were received

by him but usually in the year in which he deposited or

negotiated the check. Pursuant to the rules of the Appel-

late Division, First and Second Departments, Coblentz did,

however, file with the Judicial Conference of the State of .

New York, Closing Statements which reported the fees he

- received within fifteen days after they. were awarded. A

comparison of these Closing Statements and his income

- tax returns, revealed that Coblentz had received fees from

1962 through 1965 which exceeded the income he had re-

ported for those years by about $75,000.

The government’s evidence established that in 1965 Cob-

lentz’ reported to the Judicial Conference that he had

received fees of $47,751.93. He deposited only $7,600.33

of this amount, and reported a gross income of $22,380

which included checks received in prior years but not re-

ported until 1965. In 1963 the Closing Statements indicated ©

fees of $25,188.08 while the tax return reported gross re-

ceipts of $22,600. In 1964 the Closing Statements indicated

fees of $58,388.39 and the tax return reported gross receipts

. Of $21,300. There is no question“but that there were sub-

stantial discrepancies during the period covered by the

‘ counts of the indictment between income received and in- ~

come reported. It is also beyond any question that the

receipt of these checks constituted the constructive receipt

of income in the year they were received whether Coblentz

elected to then take down the cagh or not. Corliss v. Boers,

281 U.S. 376, 378 (1930); Weil v. Commissioner, 173 F.2d

805, 806 (2d Cir.), cert. denied, 338 U.S. 821 (1949) : Ross v.

- Commissioner, 169 F.2d 483, 490 (1st Cir. 1948).: Hedrick

v. Commissioner, 154 F.2d 90, 91 (2d Cir. 1946), cert denied,

329 U.S. 346 (1946). Treas. Reg. §1.451-2. See generally

2 J. Mertens, Law of Federal Income Taxation § 10.01

LU.

A4

Appendix A—Opinion of United States Court of Appeals

(1967). ‘ey =

: AppeHants> Ine } 7 HELE On appealids—net—thattax | aS

was not due and owing in 1965 but that the evidence was

insufficient as a matter of law to warrant the jury's finding

that he “willfully” evaded his tax. It is essential that the

government establish beyond a reasonable doubt that Cob-

lentz acted willfully and knowingly with the specific intent

to evade the tax. Further, this specific intent must be estab-

lished by evidence other than the mere understatement of -

income. Holland y. United States, 348 U.S. 121, 139 (1954).

We find that the record amply supports the jury’s finding

of willful tax evasion by Coblentz. From 1963 to 1965

Coblentz reported a total taxable income of $30,351.09 when

in fact it should have béen $109,017.42. This would have

resulted in an additional tax of $5,243.98 in 1963, $21,581.44

in 1964 and $13,686.61 in 1965. This represents a consistent

pattern of not reporting large amounts of income which is

itself evidence of willfulness. United States y. Holland,

supra, 348 U.S. at 139; United States vy. Moran, 236 F.2d

361;-362 (1956), cert. denied, 352 U.S. 909 (1956). -Since

. Coblentz admittedly prepared and signed the Closing State-

ments for the Judicial Conferenc? there can be no question

but that he was aware of this source of income. Moreover,

he supplied the information which was used by his accoun-_

tants to prepare the returns. See United States vy. Lery,

449 F.2d 769, 770 (2d Cir. 1971). Further evidence of will-

fulness was established by his filing in 1961, 1962, 1963 and

1964 as the “nnmarried head of household” which resulted

‘in a lower tax than had he filed properly as “married, filing

separately” (his wife was filing separately -these years).

The jury apparently found it incredible that he could be

mistaken about his marital status and further incredible

that on his 1961 tax return he could “mistakenly” give the

address of his sister, instead of the residence where he was

living with his wife. -Tt is well established that the jury

could properly have considered this evidence (relating to

A5

ay

\

Appendix ‘A—Opinion of United States Court of seand

_. the years 1961 through 1964). on the issue of intent to ie

——fraud-in- 1565, even though they found appellant not guilty

of tax evasion _ the years 1963 and 1964. Dunn v. United |

States, 284 U.S. 390, 393 (1932); Schafer vy. United States,

260 F.2d 150, 754-55 (Sth Cir.), cert. denied, 361 U.S. 844

(1959); Bryson vy. Unite States, 238 F.2d 657, 663 (9th°

Cir. 1956), cert. denied, 355 U.S. 817 (1957); see Steckler

v. United’ States, 7 F:2d 59, 60 (2d Cir. 1925) (Hand, J.),

There is additional evidence of willfulness in the record.

Coblentz, an attorney, kept no books or records except the

Closing S.atements required by the Judicial Conference;

he did nut even maintain check stubs for the years 1963 to

1965; he estimated in round figures on his tax return both

his income and his expenses and even his sayings bank

interest.

Appellant's major defense to the one of willfulness.

was his claimed unawareness of the “constructive receipt”

doctrine; that in good faith, he relied upon the advice of

experts upon the theory that income was realized only

when .the check was deposited. . Judge Dooling’s s charge to

the jury very carefully protected the defendant’s mistake

of law position. He charged that the defendant could not

be convicted unless the jury find that Coblentz “believed

that he owed substantially more tax than was shown by

the tax return as filed” and that he filed a return “knowing

that it was fraudulent or false as to a material matter for

the specific purpose of evading or defeating the collection

of the additional tax that he believed was due over and

above the tax disclosed by the return as filed.” This charge

was repeated in detail including the admonition that “If

you ‘find that the defendant did not have the specific in-

tention of evading or defeating a tax that he believed to

be due over and above the tax shown on the return, then

you must acquit the defendant of the charge of willfully

attempting to evade or defeat the tax.”

A6

Appendix A—Opinion of United States Court of Appeals

— —————Phe-jury-obviously—did not accept the contention that —

*- Coblentz was making a good faith error. In addition to

the evidence of willfulness already discussed, we. find

ample support for the skepticism, of the jury in the record.

The testimony of Coblentz that he had been advised by an

accountant that he need not report checks as income until

deposited was considerably weakened by his inability to

recall the name of the accountant although he claimed that

he had shared office space with him. His testimony that

_ the Internal Revenue Service was aware of his system and

had approved it, was hardly credible when he stated on-

cross-examinafion that he had ‘previously been assessed for

a deficiency in 1954 or 1955 because of a “theory of ac-

counting.” The testimony of appellant’s accountant was

also.damaging when he admitted that fee checks totalling

$8,318.10 received in 1963 and cashed in 1967, were not _

included in the gross .receipts reported by appellant in

1967. This.was hardly consistent with the claimed theory

that fee checks became income only when cashed.

'Appellant’s motion for a directed verdict of acquittal was

denied at the close of the government’s case. He now asks

this court to reconsider. the long: standing rule of the

Second Circuit that such a motion be denied if there is

“substantial evidence” to support a finding of defendant’s

guilt. United States v. Feinberg, 140 F.2d 952 (2d Cir). ©

cert. denied, 322 U.S. 726 (1944). This rule has been re-

-peatedly enunciated in this Circuit (see Neaderland v.

Commissioner, 424 F.2d 639, 642 (2d Cir.), cert. denied,

400 U.S. 827 (1970)) and we see no reason to adopt any

other version. In any event, if, after the denial of a mo-

tion for acquittal at the end of the government’s case,

the defendant offers evidence, he waives any claim as to

the sufficiency of that case considered alone. (nited- States

v. Rosengarten, 357 F.2d 263, 266 (2d Cir. 1966).

After considering all of the other points raised on .ap-

peal and finding them to be without merit, we affirm.

A7

Appendix BS

Memorandum and Order of District Court

UNITED STATES -DISTRICT COURT

EASTERN Districr or New York

70 CR 118

a

UNITED STATES OF AMERICA,

—against—

Brernarp. W. CoBLentz, |

‘ Defendant.

ee

Defendant moves under Rules 29(c) and 33 for a judg-

ment of acquittal and, alternatively, for a new trial.- The

motion raises, in the main, matters that were presented and

rejected during trial. It is argued additionally that convic- °

tion on Count 3 was inconsistent with acquittal on Counts

1 and 2 and with findings that acquittal as to the earlier

years implied. a

_ ‘There is here on fair basis for arguing inconsistency, —

The evidence about the third year showed abandonment of

‘( the incorrect assertion, made in earlier years, that defendant -

was “single,” but it introduced at least one significantly

new factor, a change in accountant coupled with evidence

of misstatement to the new accountant and persistence in

the non-reporting of income for a year as to which.the jury.

was able to find tlat inquiry had been made by the new ac-

countant. Moreover, the jury could, reasonably, have ar-

gued to itself that reasonable doubt might arise upon the

'. proofs about the first year, might still be wrung from them

for a second year, but could hardly arise upon the proofs

for a third year against the background of persistence.

A$

Appendix B—Memorandum and Order of District: Court

‘Nor does tnited States vo Maybury, 2t- Cir. ttt, 2+

F.2d 899 reach the present case. There a divided Court

reviewing a non-jury conviction, saw in the acquittal on one

Count a necessarily implied tinding that directly precluded

the finding of an essential clement of the Count on which

the trial judge convicted.

Defendant. renews, too, his central contentions (1)

that\the jury issue on the question, When were the checks

income? was wholly factual and that it was erfor to in-

struct that the checks were income as a matter of law when

received iKaraw n by a solvent drawer, received in payment

_for services rendered, unconditionally delivered,. and col-

lectable at any time the recipient chose, and (2) that it was

error to instruct that as a matter of law defendant's alleged

practice of sv foveal checks as he cashed them did not

constitute a “method of accounting” under Internal Reve-

nue Code §451(a). Both points appear plain—and_ they

do not settle the central question in the case. Did defend-

ant: in good faith believe that fee checks became income only

when he elected to cash them? Whether his tax return filing

_ practice reflected adherence to such a theory presented an

evidentiary aspect of the question. ;

That the checks were income when received if they met

the standards set out in the charge is plain. See Code

rnggneiy ; Lavery v. Commissioner, 7th Cir, 1946, 158 F.2d

859, 860; Rosenberg v. United States, E.D. Mo. 1969, 295

F. eno. 820, aff'd. 8th Cir. 1970, 429 F.2d 341; Obland v.

United States, E.D. Mo. 1967, 278 F. Supp. 989. Note

Kahler v. Commissioner, 1952, 18 T.C. 31. Contrast Fischer.

vy. Commissioner, 1950, 14 T.C. 792, 801-802.

That no “method of accounting” within Sections 446,

451° was in use is plain. The evidence of defendant was

that he had no accounting records or method of account-- =

ing. He did not write up his check stubs; he did not main-

tain any record of his .receipts and disbursements in even

the most rudimentary single-entry form. He retained his

bank statements and cancelled checks s, and kept his case-

folders on the outside of which were jottings that only de-

ad

AQ

Appendix B—Memorandum and Order of District Court

fendant could interpret. The jottings on the case-folders

were not, however, records of transactions, and they were

not organized as, nor amenable to organization and exam-

-ination as, a coherent record of transactions. Defendant

retained his case-folders for an indeterminate period, In

each case-folder was defendant's final report to the Judicial -

Conference of the State of New York which disclosed the

amount of his fee-earnings inthe New 'York City condemna-

tion case to which that case-folder referred (and such eon-

demnation cases were defendant’s only regular’ source of

professional income); the report gavé the date when the

check covering the fee was’ received ‘= the City. The

Judicial Conference reports: did not! disclose when the

checks were deposited for collection. | INo ordered office or

personal record of any kind disclosed) the dates when the

city’s checks were deposited and related the checks, their ©

deposit dates, and the portions thereof that constituted

fee- earnings. to the case-folders and to the client. involved.

Some bank statement would disclose every deposit of a

check and its date, but that entry would not identify the

check by its date and case-folder source, and would not

show what portion of the check constituted fee and what

‘portion an award-amount that defendant had advanced or

paid to a client. The sequence of event surrounding the

deposit. of a City check comprised removal of the case-

folder from the live file, removing the City check or checks

from it, depositing the check or checks in bank, and placing

the folder atop a file cabinet’ with other case-folders of

that period from which the checks had been removed for

deposit.’ No list of the) checks or breakdown of checks be-

tween fee and other elements was then made, although, of

course, the reports to the Judicial Conference remained in

each case-folder. No jotting on the outside of the case- |

folder was pointed to as disclosing the date of deposit.

‘There was, finally, no annual summary or list of any sort

(currently or) periodically pulling tok

derivable from the case-folders (and the Judicial Conference

ether the raw data’

se

- A10

Appendiz B—Memorandune and Order of District Court

reports) when they were stripped of the City checks or

when the checks were put into them. No table of expense

was kept and the expenses reported in the return did not

correspond to checks drawn by defendant. The bridge

from the taxable events to the tax returns was not any ©

mediating set of entries, or verifiable list but defendant’s ~

oral, round-amount and inscrutable reading to his account-

ant from a notation of a global figure for the year’s gross

income from fees, a figure which itself was an estimate de- -

rived from going over the files atop the file cabinet for

that year.

Defendant's denvigtion of his practice was complete,

but it did not disclose thaf (in the sense of Sections 446(a)

and 451(a)) he a hooks or had any method of

accounting by which’ he reghlarly computed his income

from such books, or that he ever or regularly computed his

income from or in any books, The statute vieualizes that

taxpayers who keep books and compute income on and by

them may use their book-income as the base for their tax-

able income (with statutory adjustments that give effect to

specific Code requirements without departing from the

taxpayer's basic bookanethod of co‘aputation) provided

their method of book-keeping cleariy rlects income on a

consisten: basis. The statute does not signify that a prarc-

tice of including gross income in tax returns by a sup- .

posed rule the existence and regular operation of which is

not reflected in any examinable at of books, and a prac-

tice of reporting gross income items in tax returns at times

not determinable from any examinable set of books (how-

ever rudimentary) can qualify as a method of accounting

under Sections 446 and 451. See Code § 6001; 25: C.F.R.

$$ 1.446-lia) (2), (4) 0b) 02); 168@41-Lia), fe); Webs v.

Commissioner, Sth Cir, 1968, 394° F. 366, 371; Plisco v.

United States, D.C. Cir. 1962, 306 F.2d 784, 786; Armstrong

v. United States, Ct. Cis. 1965, 354-F.2d 274, 287-288.

Defendant, of coirse, did not have to prove that he had

and adhered to a regular method of accounting. But he

tem Me LO

mee | . o¢

au ti‘(‘(CS

Appendix B—Memorandum and Order of District Court’

met the Government's case—charging him in each year -

with the amount of the fees that he had himself reported

to the Judicial Conference that he had in that year received

. City checks to cover, and crediting him with the dedue-

= that he had claimed 6n his filed returns—with the

ment that his regular method of accounting explained

his reporting practice. The evidence that defendant him-

self presented and elicited as a matter of law eliminated

any contention that the jury could find that the Govern-

ment had failed to negate beyond a reasonable doubt the

possibility that defendant had consistently pursued in the

years in question a method of accounting that, if con-

sistently pursued, had statutory support and_ therefore

could negate the tax liability and/or an intention to evade

or defeat tax. Defendant's. own’ evidence eliminated that

possible issue for his evidence affirmatively established that,

in the sense of Sections 446(a), 451(a), he had no “method

of accounting,” kept no books, and did not “regularly com-

pute(s) his income in keeping his books” under any “me-

thod of accounting.” Consistency of tax return filing prac-

tice does not negate the intention to evade or defeat tax

for it can reflect consixtent adherence to a tax evasion plan;

the central issue remained, Did the Government exclade

reasonable doubt by negating a good faith belief on de

fendant’s part that City checks were income only when

collected. The jury evidently concluded that it had done

so at least as to the year 1965. The “accounting” issue,

simply was not in the case.

It is

Oxprxep that the motions for a judgment of acquittal

and for a new trial are denied. :

Brooklyn, New York *

May 6, 1971.

Joun F. Doone, Jn,

USD.

“9?

Al2

Appendix C

Judgment of United States Court of Appeals

UNITED STATES COURT OF APPEALS

For THE gece CiRcvUIT

Ata State Term of the United States Court of Appeals,

in and for- the Second Circuit, held at the United States

Courthouse in the City of New York, on the tenth day of

January, one thousand nine hundred and ‘seventy-two.

Present:

Hon. J . JOSEPH SMITH,

Hon. Irnvinc R. KAUFMAN,

Hos. WiLuiAM H. MULLIGAN,

Circuit Judges.

OOo —te

UNItT2e6 STATES OF AMERICA,

Plaintiff-Appellee,

v.

Beaxagp W. CosLentz,

; Defendant-A ppellant.

———e———

Appeal from the United States District Court for Ge

Eastern District of New York.

This cause came on to be heard on the transcript of re:

cord from the United States District Court for the Eastern

District of New York, and was argued by counsel.

ON CONSIDERATION wieERnor, it is now hereby ordered,

adjudged, and decreed that the judgment of said District

Court be and it hereby is affirmed with costs to be taxed

against the appellant. |

. A. Dante. Fousaso,

Clerk.

Order of United States Cont of Appeals Denying

: Petition for Rehearing

UNITED STATES COURT OF APPEALS»

SECOND CIRCUIT

71-1943

—_—_—ee ae

UNITED STATES OF AMERICA,

‘Plaintiff-A ppellee,

v.

BERNARD w. COBLENTZ,

Defendant-A ppellant.

} a

A petition for a rehearing together with a motion in the

alternative to stay the issuance of the mandate with the

continuance of appellant's release on his own recognizance

pending application for a writ of certiorari to the Supreme

Court of the United States having been filed herein ad

counsel for the appellant,

Upon consideration thereof, it is

Ordered that said pggtion be and it-hereby is denied.

The petition to stay the issuance of the mandate and con-

tinuance of appellant’s release on his own recognizance

pending application for a writ of certiorari to the Supreme

Court having been filed, is granted.

Dated: January 24, 1972

: J. JOsePH SMITH

| Irvine R. KAUFMAN,

. | WILLIAM H. MULLIGAN