Appendix — Newman v. United States

APPENDIX A

IN THE

UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 72 - 1938

Summary Calendar*

UNITED STATES OF AMERICA,

Plaintiff-Appellee,

versus

ARTHUR MICHAEL NEWMAN,

Defendant-Appellant.

Appeal from the United States District Court for the

Southern District of Florida

(October 26, 1972)

Before BROWN, Chief Judge, GOLDBERG and

MORGAN, Circuit Judges.

GOLDBERG, Circuit Judge: This is a tax fraud case

where the government, unable to prove directly that de-

fendant, Arthur Michael Newman, had unreported income,

relied on the pluses of expenditures over the minuses of

* Rule 18, 5 Cir.; see Isbell Enterprises, Inc. v. Citizens Casualty

Co. of New York, 5 Cir. 1970, 431 F.2d 409, Part I.

UNE PARTE TUN AOE NTC boxe . " . eer rane 5 aici

App. 2

reported income to prove successfully a willfully conceived

and executed tax evasion scheme. These are not facile

eases for decision, but the schematics of our income taxa-

tion require that criminal sanctions be imposed even if

rational inferences and not Geiger counter exactitudes

justify a conviction.

Defendant, appealing from his conviction, alleges several

grounds of error at trial and the imposition of an excessive

sentence by the trial judge. With the exception of the

sentence, which even the government concedes was im-

proper, we find the conviction error free.

Defendant was indicted for violating 26 U.S.C.A. § 7201

(a felony — willful attempt to evade income tax liability)

and 26 U.S.C.A. § 7203 (a misdemeanor — willful failure

to file a tax return) and charged with eight separate counts,

one for each section for each of the years from 1967 through

1970. After a jury trial, he was found guilty on all counts

for 1968-1970 and was acquitted on the two 1967 counts.

The district court imposed a sentence of thirty months for

each of the three counts of evasion and six months for each

of the three counts of failure to file. The sentences for

each count of the evasion charges were to be served con-

currently, as were the sentences on the failure to file

counts, but the six-month sentence on the failure to file

counts was to be served consecutively to the thirty-month

sentence on the evasion counts.

The government made out its case at trial by utilizing

the expenditures method of proving income, there being no

direct evidence of defendant’s actual source of income for

the years in question. The ‘‘expenditures method,” a

simple variant of the ‘‘net worth method,’’ focuses on a

taxpayer’s expenditures during a certain period as proof

of income received. See United States v. Penosi, 5 Cir.

App. 3

1971, 452 F.2d 217, cert. denied, 1972, 31 L.Ed.2d 795. The

net worth method, from which the expenditures method is

properly derived, focuses on unexplained increases in net

worth during a given period as proof of income during that

period. The legality, to say nothing of the necessity, of

these modes or proof is well established. See Holland v.

United States, 1950, 348 U.S. 121, 99 L.Ed. 150; United

States v. Massei, 1958, 355 U.S. 595, 2 L.Ed.2d 517.

The government, in convincing the jury that defendant

must have had taxable income during the years in question,

presented evidence of the following at trial. The defen-

dant, while filing no tax returns for the years 1967-1970,

had expenditures of over $67,000 during that period. When

defendant entered prison in 1965 on a former conviction,

a prison admission summary indicated that defendant

claimed he had no personal assets at that time. He was

released from prison in October, 1966. In 1967 and 1968

defendant purchased automobiles on the installment plan.

In 1968 defendant had a conversation in a bar where he

bragged to several policemen that he was making $100,000

a year, taxfree. During the years in question defendant

purchased many assets in his wife’s name and had several

large dealings in currency. Despite an exhaustive search,

Treasury agents were unable to find any assets held by

defendant prior to January 1, 1967, except for an auto-

mobile. In sum, the government’s evidence, if believed,

paints a picture of a man with no assets at the beginning

of 1967 who somehow between 1967 and 1970 accumulated

enough money (i.e., income) to cover his considerable ex-

penaitures. In addition, neither the government’s search

nor defendant’s explanations produced evidence that the

money spent was derived from non-taxable sources.

App. 4

In response, defendant’s factual explanation revolves

around his claim that all of the money spent between 1967

and 1970 was taken from a cash ‘‘hoard’’ he had amassed

during a rather fruitful career as a ‘‘professional thief”

prior to 1960. The jury, refusing to believe defendant’s

‘thoard’’ theory, found that the money had in fact been

obtained during the years 1968-1970.

Defendant’s first contention of error is that the trial

court should have granted his motion to dismiss the indict-

ment because it was not signed by a duly authorized attor-

ney for the government. Without deciding whether this

would constitute error if proven, we reject this claim on

the facts. Although belatedly received, the government has

submitted satisfactory proof that the attorney in question

was duly authorized at the time the indictment bearing his

name was signed.

Defendant’s second contention is that the government

failed to establish a prima facie case on the felony counts

($ 7201) which requires proof of affirmative conduct by

the defendant. See Spies v. United States, 1948, 317 US.

492, 87 L.Ed. 418; see also Sansone v. United States, 1968,

380 U.S. 348, 13 L.Fd.2d 882. He claims that even if there

was unreported income during the period in question, the

mere failure to file a return does not constitute a sufficient

‘‘affirmative act’’ to satisfy the statute.’ Again we must

'The Supreme Court has articulated the scope and rationale of

the affirmative act requirement as follows:

“We think that in employing the terminology of attempt to

embrace the gravest of offenses against the revenues, Congress

intended some willful commission in addition to the willful

ommissions that make up the list of misdemeanors. Willful but

passive neglect of the statutory duty may constitute the lesser

offense, but to combine with it a willful and positive attempt to

App. 5

reject defendant’s contention on the facts. Although de-

fendant did not file any false returns, there is ample proof

of statements made by defendant to Treasury agents de-

nying any income during the years in question. The gov-

ernment’s evidence, accepted by the jury, established that

these statements were false. It is clear that making false

statements to Treasury agents for the purpose of conceal-

ing income constitutes a sufficient affirmative act to satisfy

§ 7201. See United States v. Beacon Brass Co., 1952, 344

U.S. 48, 45-46, 97 L.Ed. 61, 64-65. Falsity in the scheme

need not be pinpointed in a particular time sequence so

long as it is flagitiously scheme-connected. Clandestinity

in affirmation to the government constitutes the necessary

(Footnote continued)

evade tax in any manner or to defeat it by any means lifts the

offense to the degree of felony.

Congress did not define or limit the methods by which a

willful attempt to defeat and evade might be accomplished and

perhaps did not define lest its effort to do so result in some

unexpected limitation. Nor would we by definition constrict the

scope of the congressional provision that it may be accomplished

“in any manner.” By way of illustration, and not by way of

limitation, we would think affirmative willful attempt may be

inferred from conduct such as keeping a double set of books,

making false entries or alterations, or false invoices or docu-

ments, destruction of books or records, concealment of assets or

covering up sources of income, handling of one’s affairs to avoid

making the records usyal in transactions of the kind, and any

conduct, the likely effect of which would be to mislead or to

conceal. If the tax-evasion motive plays any part in such con-

duct the offense may be made out even though the conduct may

also serve other purposes such as concealment of other crime.”

Spies v. United States, 1942, 317 U.S. 492, 499, 87 L.Ed. 418,

423.

App. 6

affirmative acts to come within the felonious scope of the

statute. Newman did more than fail to report, pay, or

account. Lying was also an integral part of his evasionary

modus operandi. Spies does not require more and does not

put the government to the duty of spying the minutiae of

the defendant’s willfulness and evasion. The plus factor

needed to establish willful evasion was prevarication in its

ultimate consummation.

Defendant’s next contention is that the government failed

to negate possible non-taxable sources of income and failed

sufficiently to prove a likely source of taxable income. The

evidence at trial, including defendant’s barroom brag of

$100,000 yearly income, the extensive but fruitless investi-

gation made by Treasury agents to uncover any possible

sources of non-taxable income, and defendant’s own denial

of receiving any gifts, inheritance or loans during the

years in question, is sufficient to meet the government’s

burden. In addition, defendant’s ‘‘hoard’’ theory is suf-

ficiently refuted by the evidence that tended to show that

defendant had no assets as of January 1, 1967. Admitted-

ly, as defendant points out, the government’s evidence js

hardly overwhelming. We cannot, however, say that the

evidence was insufficient as a matter of law to support the

jury’s verdict, and we think it is clear that a prima facie

case was made out by the government. The government

does not have to establish every cipher of receipts and dis-

bursements. It must show a surplus over reported income

and some sleuthing to explain and find it. Uncle Sam need

not, however, be as explicit as Sherlock Holmes was to

Watson in recounting the components of the crime.

We find no merit in defendant’s related claim that allow-

ing both the government’s failure to uncover non-taxable

ae,

App. 7

sources of income and the defendant’s failure to explain

adequately the details of his cash ‘‘hoard’’ to operate

against him creates an unconstitutional presumption under

the doctrine of Leary v. United States, 1969, 395 U.S. 6,

93 L.Ed.2d 57. The entire net worth method of proving

taxable income is based on such presumptions and the

legality of this method can no longer be seriously chal-

lenged. See Holland v. United States, supra; cf. United

States v. Penosi, supra.

In addition, we reject the contention that holding defen-

dant’s failure to explain the cash ‘‘hoard’’ against him

violates his privilege against self-incrimination by ‘‘fore-

ing’’ defendant to reveal the details of his thefts in order

to verify his story. There was ample affirmative evidence

supporting the government’s claim that defendant had no

assets as of January 1, 1967. If defendant seeks to refute

this evidence with a story, the details of which might in-

criminate him, that is his right. The Fifth Amendment has

not, however, despite appropriately benevolent interpre-

tation, reached the point of requiring belief in a defendant’s

allegation of prior criminal activity simply because it might

be incriminating to defendant to have to explain the details.

The defendant argues in effect : ‘‘I didn’t receive the money

in those years; I stole it years before.’’ Then, when the

government demands proof of that statement, he hastens

to add, ‘‘The Fifth Amendment prevents any further in-

quiry into the matter. Ipse dixit.’’ We do not believe the

Fifth Amendment has such an evidence-furnishing function.

Although the Fifth Amendment operates to shield a defen-

dant from anything but absolutely voluntary admissions of

his own crimes, once the defendant seeks to use his past

crimes as a sword, as was done here, he cannot later re-

treat behind the shield of his privilege when faced with the

wr

need to substantiate his allegations. We have carefully

examined defendant’s other contentions regarding the suf.

ficiency of the evidence and we find them without merit.

App. 8

Defendant next challenges the use of the prison admis.

sion summary to prove his lack of assets when admitted

to prison in 1965. He argues that the item should have )

been excluded as hearsay because the witness who identified

and offered the document into evidence had not personally

recorded all of the information. This contention must be

rejected. The prison admission summary, compiled by

prison officials in the regular course of business, fits within)

the well recognized official records exception to the hearsay

rule. See Tomlin v. Beto, 5 Cir. 1967, 377 F.2d 276. It is

not essential that the offering witness himself be the re. |

corder or even that the witness be certain of who it was

that recorded the item. It is sufficient that the offering )

witness be able to identify the record as authentie and as

made in the ordinary course of business. See United States

v. Martin, 5 Cir. 1970, 434 F.2d 275, 279. We have held in

the past that the trial court has wide discretion when

determining the admissibility of business records and we

cannot say that the triel judge abused that discretion here. )

Cf. United States v. Middlebrooks, 5 Cir. 1970, 481 F.2d

299, 302, cert. denied, 400 U.S. 1009, 27 L.Ed.2d 622. Defen-

dant further points out that prison admission summaries

are occasionally recorded by other inmates rather than by

prison officials and should therefore be excluded as too un- )

reliable to be considered as taken in the regular course of

business. This contention, while possibly affecting the

credibility of the evidence, does not diminish its status as

a regularly kept official record. Defendant’s complaint can

go only to the weight of the evidence and not to its ad- )

missibilitv. See United States v. Ellenbogen, 2 Cir. 1966, |

App. 9

36) F.2d 982, cert. denied, 386 U.S. 923, 17 L.Ed.2d 795.

We find no error in the admission of these records.

Defendant’s final contention, that imposition of con-

secutive sentences for the two charges was improper, is

conceded by the government in its brief, and we agree

that the trial court erred in this respect. Where a de-

fendant’s conduct violates two separate statutes, it is im-

proper to impose sentences under both statutes where one

offense (here, § 7203, the misdemeanor) is in effect, a lesser

included offense of the other (here § 7201, the felony).

See United States v. Rosenthal, 2 Cir. 1972, 454 F.2d 1252,

1255. It is clear that ‘‘Congress did not intend two punish-

ments for the same ecrime’’ id. We therefore vacate the

three six-month sentences and the convictions for violation

of $7203, the misdemeanor counts. Since it would be im-

proper for the trial court to now undertake modification of

the felony counts, see Kennedy v. United States, 9 Cir.

1964, 330 1°.2d 26; United States v. Adams, 6 Cir. 1966,

362 F.2d 210; see also Chandler vy. United States, 5 Cir. No.

72-1702, October 26, 1972, it is unnecessary for us to re-

mand the ease to the trial court. The judgment is there-

fore modified by vacating the convictions and sentences

on the three § 7203 counts and, as so modified, is affirmed.

AFFIRMED IN PART

MODIFIED IN PART

So eal en |

App. 10

APPENDIX B

IN THE

UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 72 - 1938

UNITED STATES OF AMERICA,

Plaintiff-Appellee,

versus

ARTHUR MICHAEL NEWMAN,

Defendant-A ppellant.

Appeal from the United States District Court for the

Southern District of Florida

ON PETITION FOR REHEARING AND PETITION

FOR REHEARING EN BANC

(Opinion Oct. 26, 1972, 5 Cir., 1972 ............ ra ).

(December 20, 1972)

Before BROWN, Chief Judge, GOLDBERG and

MORGAN, Circuit Judges.

PER CURIAM: The Petition for Rehearing is DE-

NIED and no member of this panel nor Judge in regular

active service on the Court having requested that the

Court be polled on rehearing en bane, (Rule 35 Federal

Riles of Appellate Procedure; Local Fifth Cireuit Rule 12)

the Petition for Rehearing En Bane is DENIED.

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